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Plain Packaging and Illicit Trade in the Uk

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Plain Packaging and Illicit Trade in the Uk PLAIN PACKAGING AND ILLICIT TRADE IN THE UK STUDY ON THE RISKS OF ILLICIT TRADE IN TOBACCO PRODUCTS AS UNINTENDED CONSEQUENCES OF THE INTRODUCTION OF PLAIN PACKAGING IN THE UK PLAIN PACKAGING AND ILLICIT TRADE IN THE UK Study on the risks of illicit trade in tobacco products as unintended consequences of the introduction of plain packaging in the UK Transcrime - Joint Research Centre on Transnational Crime Università Cattolica del Sacro Cuore di Milano Università degli Studi di Trento May 2012 © 2012 Transcrime - Joint Research Centre on Transnational Crime Plain packaging and illicit trade in the UK Table of contents EXECUTIVE SUMMARY ..................................................................................................................................................................................1 1. INTRODUCTION .........................................................................................................................................................................................3 1.1. Plain packaging of tobacco products ...............................................................................................................................5 1.2. Plain packaging in the UK .....................................................................................................................................................5 2. THE ILLICIT TRADE IN TOBACCO PRODUCTS IN THE UK .....................................................................................................................9 2.1. The Illicit Trade in Tobacco Products and its size .....................................................................................................9 2.2. The evolution of the ITTP in the UK .............................................................................................................................. 12 3. THE IMPACTS OF PLAIN PACKAGING ON THE ITTP .......................................................................................................................... 17 3.1. Risk of increased counterfeiting of tobacco products ........................................................................................... 19 3.2. Risk of decreased differentiation between legitimate and illicit products .................................................. 21 3.3. Risk of increased ITTP as a result of increased potential profits ..................................................................... 22 4. CONCLUSIONS ......................................................................................................................................................................................... 25 REFERENCES ............................................................................................................................................................................................... 27 CONTACTS .................................................................................................................................................................................................... 30 Plain packaging and illicit trade in the UK Executive Summary This study analyses the risks of the illicit approximately 1000 extra customs staff and trade in tobacco products (ITTP) which may the purchase of x-ray scanners) and the arise as the unintended consequences of the allocation of a further 200 operational staff in introduction of plain packaging of tobacco 2006 specifically to tackle HRT smuggling. products in the UK. Although the Government’s action has been quite successful in reducing the market share The tobacco market is a dual market. It of illicit products, the UK illegal market still consists of a legitimate and an illegal part, remains above the average of EU Member which implies that changes to the legal States. market may affect the illicit market as well. The ITTP is a threat to the effectiveness The structure and functioning of the UK of tobacco control policies aimed at curbing illicit market have significantly changed smoking and its dangerous effects on human in reaction to intensified enforcement health. efforts. Other forms of ITTP have gradually emerged, with large-scale smuggling being The plain (also known as generic or replaced by a significant growth of standardised) packaging of tobacco products counterfeit cigarettes. Furthermore, illicit is a tobacco control policy which forbids any whites have gradually gained an important form of branding or any other distinguishing share of the illicit market. This evolution feature on the packaging of tobacco products. shows that ITTP is a highly flexible The main assumption behind the phenomenon: it is sensitive to the requirement of plain packaging is that logos, regulation of the legal market and also to colours and other features of tobacco law enforcement efforts. The introduction packaging are important means of of new tobacco control measures should promotion. At present, plain packaging has consider their impacts on the illicit trade. not yet been implemented in any country in the world. Australia is the only country to have approved plain packaging legislation, Limited assessment of the impacts which will be implemented in December of plain packaging on the ITTP 2012. The past few years have seen lively debate on plain packaging in the UK. Despite the importance of the ITTP in the Recently, the Department of Health launched a UK, the policy documents prepared for the public Consultation on standardised packaging public consultation have not considered of tobacco products on 16 April 2012. the impacts on the ITTP. In particular, the systematic review of evidence commissioned by the Department of Health has overlooked The ITTP in the UK the impacts on the illicit trade (Moodie, Stead, et al., 2012, pp. 5–6). Furthermore, the The ITTP became an important concern in Impact Assessment on plain packaging the UK during the 1990s. In 1999-2000, HM prepared by the Department of Health Treasury estimated that the market share of remarked that “any risk that standardised illicit tobacco amounted to nearly 18% for packaging could increase illicit trade of cigarettes and 80% for hand-rolling tobacco tobacco will be explored through (HRT). In 2000, the UK Government launched consultation as there is insufficient evidence a strategy to tackle the trade in illicit tobacco, on which to include analysis in this IA” with an investment of £209m over three (Department of Health, 2012a, p. 3). The years from 2000 (deployment of report explicitly recognized the importance 1 Plain packaging and illicit trade in the UK of the ITTP, arguing that “the main genuine products, and it will uncertainties associated with the policy significantly reduce the production explored herein […] relate to impacts upon costs of counterfeits. The price and the illicit tobacco trade” (2012a, p. counterarguments advanced in 13), that “the illicit and cross-border trade relation to the risk of counterfeiting are declining but there is the risk that are weak. Firstly, the presence of standardised tobacco packaging may lead to pictorial health warnings has not to some reversal of this trend” (2012a, p. 19) date discouraged counterfeiting, and and that “any adverse impact of standardised health warnings are easier to tobacco packaging (increase) in the non duty counterfeit than specific brands and paid segment of the market could involve features. Secondly, the presence of significant costs” (2012a, p. 23). covert marking and other identification devices does not help Notwithstanding the acknowledged consumers to spot counterfeits. importance of the risks relative to the ITTP, the documents cited have not 2. A risk of decreased differentiation conducted a detailed analysis of the likely between legitimate and illicit impacts of the introduction of plain tobacco products. The packaging. This is remarkable because plain implementation of plain packaging packaging may produce a variety of effects may gradually decrease consumers’ which ultimately undermine its main perception of the differences purpose, i.e. to reduce smoking initiation and between legitimate and illicit prevalence. This lack of knowledge is tobacco products. Market data important, and more specific studies suggest that a downtrading trend is should be conducted on this issue by the already in progress, with consumers UK authorities. switching to cheaper products. Given this scenario, there is the risk that unbranded genuine products may The risks of ITTP as unintended lose most of their appeal compared consequences of plain packaging with cheaper illicit cigarettes. This study identifies three main risks 3. A risk of increased ITTP as a associated with the introduction of plain result of increased potential packaging profits. Many studies suggest that plain packaging may induce price- 1. An increased risk of competition among brands. This may counterfeiting of tobacco lead to price reduction, with possible products. Plain packaging will risks of increased consumption. The facilitate the business of increasing of taxes to counterbalance counterfeiters in two ways: it will price reductions will increase the make it easier for them to reproduce potential profits for the ITTP. 2 Plain packaging and illicit trade in the UK 1. Introduction This study analyses the risks of illicit trade in risks may contribute to better regulation, tobacco products (ITTP) which may be enabling the more effective and efficient created as unintended consequences of the achievement of policy goals. introduction
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