Posted on Nov 15, 2019
European authorities had something to crow about in the fight against the illegal tobacco trade going into this month, after a coordinated operation led to the seizure of 670 tonnes of contraband tobacco and the arrest of 18 members of an organised smuggling gang. The bust is a testament to the value of successful collaboration between different organisations across the European bloc.
Unfortunately, despite the headline-grabbing nature of this latest raid, some of the EU’s other initiatives designed to address the rampant smuggling crisis have proven more controversial. In particular, the system that the EU is implementing to track and trace tobacco products throughout the supply chain is in danger of falling foul of standards set by the WHO in its Framework Convention on Tobacco Control (FCTC) and the associated Protocol to eliminate illicit trade in tobacco products (Protocol).
The importance of track and trace
Given that the illicit tobacco trade is estimated to cost the EU and its member states a staggering €10 to 20 billion every year, it’s unsurprising that clamping down on it has been earmarked as a major priority by the bloc. The FCTC has identified tracking and tracing tobacco goods as a key instrument in combating undercover tobacco sales; under its Protocol, parties are required to mark products individually and record their movements in national databases so as to monitor these goods at every stage of the supply chain. This enables authorities to identify legitimate products and provide courts with evidence to convict those found guilty of participating in illicit trade.
However, the FCTC has also stressed the importance of keeping that system wholly independent from the tobacco industry itself. While the major tobacco industry players insist they are as much victims of illicit trade as anyone else, the stats show that around 60% to 70% of smuggled cigarettes are genuine products coming from legitimate tobacco manufacturers’ factories, with counterfeit tobacco making up a mere 5% to 8%. Other studies have gone so far as to indicate that 98% of illicitly traded tobacco comes directly from tobacco manufacturers’ production centres.
Indeed, a recent study found significant evidence that the industry is still implicated in smuggling, since the practice does not affect their cut of the sale but drastically impacts the number of units sold, thereby boosting profits by a substantial margin. Public health NGOs believe that this practice is a crucial way for the tobacco majors to bypass public health policies anchored around tax hikes.
Keen to distance themselves from this image, Philip Morris International (PMI) developed its own track and trace system in the mid-2000s, named Codentify. They then licensed it to their major rivals for free and donated exorbitant sums to organisations such as Interpol in tacit exchange for their support. However, the FCTC and its Protocol specifically state that governments should not allow any influence from the industry to compromise their control systems; cognisant of that stipulation, Codentify was sold off to an ostensibly independent third party and repackaged as the Inexto Suite.
EU’s system fit for purpose?
Despite the new name, nobody should be fooled that either Codentify or the tobacco industry have changed their spots. The European Commission (EC), however, appears to have fallen into Big Tobacco’s trap. Indeed, the EU’s track and trace system has come under heavy criticism over the amount of influence tobacco producers have in the process. The EC has defended its position, stating that system providers retain autonomy by receiving a maximum of 20% of funding from tobacco interests, but given the FCTC’s unequivocal stance on the issue, it’s unclear why any tobacco industry involvement is allowed.
Moreover, the providers themselves are of dubious provenance. Dentsu Aegis has been tasked with management of the system’s data storage, but they have long-standing ties to Japan Tobacco International (JTI) and recently acquired Blue Infinity, a company whose track and trace model is based entirely off the Codentify blueprint. Six of the seven other firms approved by the EC to store data for the tobacco manufacturers have similar ties to them, raising eyebrows over their integrity as guardians of the very information that is supposed to be controlling the industry.
The EC announced another troubling exemption in May of this year, allowing “economic operators” (meaning companies in the tobacco supply chain) to select the company responsible for issuing the unique codes that are integral to the security of the whole track and trace system. Such oversights seem almost akin to permitting convicted felons to not only choose the manner of their incarceration, but even decide who gets to keep the keys to their jail cell.
Setting a bad example
Due to these inconsistencies within the EU’s deployment of track and trace, experts in the field have recommended that other countries looking to introduce their own systems should not replicate the European blueprint. Unfortunately, a bleed-over seems like it may have already begun. Pakistan came under fire for failing to meet its original target of implementing track and trace, allegedly at the behest of Big Tobacco, and potentially endangering a €5.4 billion loan from the IMF.
Bafflingly, Islamabad then took the unprecedented step of amending the technical and financial criteria of the tender while bidding was underway, finally awarding the contract under suspicious circumstances. The eventual winners at the National Radio and Telecom Corporation (NRTC) do not have experience in marking and tracing excise goods, which is a compulsory requirement in such tenders. The NRTC also initially submitted a quote that—thanks to an extremely inconvenient typo— was 1,000 times cheaper than its intended bid.
According to the advice provided by the Federal Board of Revenue (FBR)’s own Licensing Committee, that should have disqualified the NRTC from the process, but in a controversial move, the FBR awarded them the contract regardless. Who does the NRTC have prominent procurement ties to? Inexto.
Clearly, slack standards adopted by the EU are having concerning effects not only within the bloc itself, but also further afield. As an entity which prides itself on leading the way on ethical and judicial matters, the EU really must take a more robust approach to its FCTC obligations. Otherwise, it risks tainting international tobacco control groups, like the FCTC Secretariat working group on track and trace which is set to finally have its first meeting at the end of November over a year after the group was established.
Flashy raids like the one reported last month merely paper over the cracks, whereas the EC’s haphazard efforts to get tough on illicit tobacco where it really counts means immoral industry interests will be able to keep playing a double game.
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