International Smoking Deterrence Programs Cause Spike in Illicit Cigarette Trade

In the realm of unintended consequences comes this beauty: International efforts by the World Health Organization to try to develop a global smoking deterrence program has resulted in a rise in the illicit trade of a legal though infamous product: cigarettes.

The World Health Organization’s (WHO) Framework Convention on Tobacco Control (FCTC) became policy in 2005 with the intention to reduce smoking, believed to be the largest cause of preventable premature deaths globally.

FCTC has adopted a policy of encouraging developing nations to follow the demand reduction strategy of mature markets in raising taxes and introducing and then expanding regulation on tobacco products. In many cases such policies result in the rise of illicit tobacco (either counterfeits or legally produced smuggled cigarettes), especially where policy changes are implemented rapidly and enforcement capacity is limited.

According to a report by global auditing firm KPMG, illicit tobacco is now about 10 percent of the global cigarette market, and rising.

So why the massive increase in “illicit whites” — smuggled products that are legally produced? One, they’re cheaper. Two, they’re easy to get.

But HOW is the real question? How did this happen? According to international health expert Roger Bate, too much bureaucracy trying to alter human behavior and global markets.

Reacting to the spread of illicit tobacco, WHO established the Protocol to Eliminate Illicit Trade in Tobacco Products (ITP) under the FCTC in 2012. While sound in principle, the ITP faces numerous challenges in implementation. The ITP’s primary objective is to control the supply chain of tobacco products, which necessitates a very high level of international and commercial cooperation. The spillover effects of production and trade in tobacco require most if not all jurisdictions to share aims and ambitions; without that, coordination is likely to fail. Yet WHO has no expertise in trade policy or overcoming economic objections to health priorities. WHO also has zero experience in combatting organized crime, whose representatives will undermine coordination. ITP has some excellent guidelines, but it is incumbent on individual governments to control demand and police free trade zones (FTZs), where illicit activity of all kinds proliferates.

Voluntary support for the protocol is patchy. For example, the UK, Russia, India, and China are parties to the Framework Convention, but have not ratified the protocol; the US is not even party to the convention (United Nations 2003). …

Studies of illicit activity demonstrate that illegal operations are highly dynamic and respond swiftly to deterrent measures. It is likely that only with the cooperation of the entire supply chain (including the major cigarette companies and governments that currently allow smuggling) will illicit tobacco be controlled.

As if this report wasn’t enough of a headshaker, here comes the kicker: WHO doesn’t want the cigarette industry involved in implementing the protocol, in other words, taking more control of its product distribution, nor is it collaborating with the World Customs Organization or the United Nations Office on Drugs and Crime, which both have extensive experience with some of the challenges WHO is facing. Essentially, the agency won’t accept help combating a problem that it created.

Meanwhile, the illicit tobacco market is flourishing. The trade in illegal cigarettes, particularly through free trade zones and sometimes with the collusion of governments, is huge, lucrative, and sophisticated. Without assistance from international security experts and producers, and without funds to offer signatories in technical assistance, the WHO’s Illicit Trade Protocol has only a slim chance of being implemented in emerging markets, even if nations ratify it.

Read the report on the illicit cigarette trade.