Fighting Illicit Trade and Industry Influence

The EU and its Member States lose more than €10 billion each year in customs, VAT, and excise duties due to illicit tobacco trade. This is a big deal as it means that tobacco products become cheaper and more accessible. Young people and those with lower incomes suffer the most from these health impacts.

The European Union launched the world’s largest tobacco traceability system on May 20, 2019. This complete track and trace (T&T) system took 6 years to develop. But the system raised some red flags about industry influence. Research showed that 66.4% of people who responded to stakeholder consultations had money ties to tobacco companies. Even worse, 22.1% didn’t disclose these connections. The EU’s tobacco policy has grown through deals with major tobacco giants. It started with Philip Morris International in 2004, then Japan Tobacco International joined in 2007. British American Tobacco and Imperial Tobacco came on board in 2010. The current governance models don’t deal very well with illicit tobacco trade while staying free from industry influence.

EU Tobacco Products Directive and the Need for Track and Trace

Regulators face ongoing challenges due to illicit tobacco trade that crosses European borders. Large quantities of illegal products disrupt the free flow of compliant tobacco items and weaken EU Tobacco Control laws. Both the EU and international authorities have taken coordinated steps to address this growing threat.

Illicit Tobacco Trade and Cross-Border Enforcement Challenges

Illegal cigarette production within EU territory has increased, putting additional strain on cross-border enforcement. Criminal networks now operate with business-like efficiency across multiple countries. These specialized groups manage production, wholesale, transport, and retail operations. Traditional smuggling continues through Eastern European countries (Belarus, Ukraine, Moldova, Russia) and sea container routes remain major threats. Tax revenues suffer significant losses while public health strategies become less effective as tobacco products become more affordable and accessible.

WHO FCTC Protocol Article 8 Requirements

The Protocol to eliminate Illicit Trade in Tobacco Products came into effect on September 25, 2018. This protocol created an international framework to curb these challenges. Article 8 requires countries to establish a global tracking and tracing system for tobacco products.

The protocol sets clear deadlines – cigarette tracking systems must be implemented by September 2023, while other tobacco products have a 10-year timeline. The tobacco industry’s involvement faces strict limitations, as authorities can interact with industry representatives only when necessary.

EU Tobacco Products Directive (TPD) Articles 15 and 16

Articles 15 and 16 of the EU Tobacco Products Directive (2014/40/EU) created the world’s first regional tobacco tracking and tracing system to meet these requirements. The system started operating on May 20, 2019, and requires unique identifiers on all tobacco product packets. Supply chain movements must be recorded by economic operators and sent to independent data storage providers. Cigarettes and roll-your-own tobacco fell under these rules first, with all tobacco products following by May 20, 2024.  TDP Regulators will have better tools to detect potential fraud across the full range of tobacco products once this expansion takes effect.

Governance Models and Industry Influence in EU T&T System

The success of track and trace (T&T) systems to curb illicit tobacco trade depends on their governance structure. The EU system development team thought over “Mixed Governance” approaches: industry-operated, third party-operated, and mixed solutions.

Industry-Operated vs Third Party-Operated Models

The European Commission conducted an extensive implementation analysis of these contrasting governance approaches. Tobacco manufacturers would hold primary control in an industry-operated solution.

A third-party system would give independent operators the authority, though tobacco companies would still choose and pay data repository providers and auditors. The Commission ended up selecting a “Mixed Governance” approach, even though stakeholder consultations showed minimal support for this option.

Mixed Governance and Its Legal Implications

The EU’s mixed governance approach divides main responsibilities between independent third parties and the tobacco industry. Tobacco manufacturers maintain direct relationships with service providers instead of governments establishing these connections.

Legal experts have raised serious compliance concerns about this arrangement. It seems to conflict with Article 8.2 of the Protocol that requires T&T systems to be “controlled by the Party” and Article 8.12 stating that obligations “shall not be performed by or delegated to the tobacco industry”. The International Tax Stamp Association filed a case against the European Commission about this governance structure breach, but the EU Court of Justice dismissed it in May 2019.

Tobacco Industry Lobbying Through Trade Associations

Trade associations have become powerful channels for industry influence. The EU’s consultation received responses from 87 associations. All but one of these associations had financial links to tobacco companies, and 19 (22%) weren’t transparent about these connections. Among those with financial ties, 33 (44.5%) included transnational tobacco company members. Business Action to Stop Counterfeiting and Piracy, along with many organizations, didn’t disclose their tobacco company membership despite including British American Tobacco and Philip Morris International.

Codentify and Inexto: Industry-Backed T&T Solutions

Philip Morris International (PMI) developed Codentify and gave free licenses to competitors in 2010. PMI sold this technology to Inexto in 2016 for what reports suggest was just one Swiss franc. PMI claimed “Inexto is fully independent from the tobacco industry”, but evidence points to ongoing financial and operational connections. Meeting records from October 2017 show monthly meetings between tobacco companies and Inexto, which suggests relationship formalization continued 17 months after the sale.

Statistical Analysis of Consultation Responses

Statistical analysis shows clear patterns in how stakeholders responded to EU tobacco track and trace consultations. Researchers used statistical methods to get into the connection between policy positions and industry ties.

 χ2 and Cramér’s V Tests on Policy Alignment

Tests using χ2 and Cramér’s V coefficients revealed strong links between financial connections and policy priorities. Five questions showed particularly strong connections (p<0.05, Cramér’s V>0.6) between funding sources and how respondents answered. Two of these questions focused on reporting delays, while three dealt with the proposed governance model. The statistical analysis also found strong correlations (p<0.05, Cramér’s V>0.4) in three more questions, which confirmed that financial interests shaped responses systematically.

Duplicate Policy Positions with JTI

The analysis of submission patterns found identical answer sets across several respondents. Japan Tobacco International’s (JTI) multiple-choice answers matched perfectly with 38 other participants. JTI’s industry connections showed clearly – 29 of these matching respondents had financial ties to tobacco companies. The submissions from Imperial Tobacco and Philip Morris International stood apart, as they matched no other stakeholder responses.

Transparency Gaps in Financial Disclosures

The review of financial disclosures revealed major transparency issues throughout the consultation. Many of the respondents with industry ties failed to disclose them – 20% (29/131) hid their tobacco industry connections. The problem extended to associations, too. Among 87 participating groups, 74 (85%) had tobacco company funding, but 19 (22%) kept these ties hidden. At least one major transnational tobacco company held membership in 33 trade associations that submitted responses. This highlights a deficit in corporate accountability.

Policy Implications for Future Tobacco Control Frameworks

The EU’s tobacco traceability framework offers vital lessons that will shape future tobacco control policies worldwide.

Compliance Concerns with WHO FCTC Protocol

The EU tracking system faces major compliance challenges with the WHO FCTC – Framework Convention on Tobacco Control. The system lets manufacturers select their data storage providers and auditors. This directly conflicts with Article 8.12 of the Protocol, which stops the tobacco industry from taking on these obligations. Several data storage providers have past links to tobacco companies, which raises questions about their independence.

The WHO FCTC Protocol demands that tracking systems “be controlled by the Party” and authorities should work with industry representatives “only to the extent strictly necessary”.

Recommendations for Transparency in Stakeholder Consultations

Transparency remains the biggest problem during stakeholder consultations. About 20% of financially connected respondents didn’t reveal their tobacco industry ties. The European Commission needs stronger transparency to register rules that make organizations disclose all their memberships. Governments should set clear consultation guidelines and make sure they document and publish all industry interactions, strengthening corporate accountability

Lessons for Global Implementation of Digital T&T Systems

Protocol parties must have working tracking systems with a fully operational Global Information-Sharing Focal Point by September 2023. The EU’s experience shows that successful implementation needs enough testing time. Other countries would benefit from simpler systems that need basic data in unique identifiers, unlike the EU’s complex approach.

Ensuring True Independence in Tobacco Traceability Systems

The EU’s digital tracking system marks an innovative effort to curb illict tobacco trade across borders. A close look at this groundbreaking initiative reveals several vital insights. The current governance structure raises valid compliance concerns about independence from industry influence. Data shows that financially connected stakeholders arranged their policy positions during consultations, which compromised the system’s integrity.

The development process lacked transparency in key areas. Twenty percent of participants did not reveal their connections to the tobacco industry. Trade associations acted as powerful lobbying channels. These patterns highlight the need for stricter rules about disclosure before any new regulatory discussions.

The EU’s mixed governance strategy falls short when compared to WHO Protocol standards. Tobacco companies still maintain direct relationships with service providers instead of governments working with these providers directly. This setup might go against Article 8’s requirement for systems “controlled by the Party.”

Other nations can benefit from studying the EU’s experience. A simpler technical approach with basic data requirements would make implementation more efficient. The system also needs thorough testing before full deployment to prevent operational issues.

Policymakers must now choose between independent oversight or systems that industry players could manipulate as the global deadline approaches. A tobacco tracking system’s success depends on both its technical capabilities and governance structures free from industry influence. Tobacco digital tracking can only work as an effective tool against illegal tobacco trade when oversight remains truly independent, protecting public health priorities.

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