Tobacco industry's focus on contraband is a smokescreen

The article by Michel Gadbois of the Canadian Convenience Stores Association ("Higher cigarette taxes won't help," Opinion, July 22) is part of a tobacco-industry strategy to divert government efforts so that they focus solely on the illegal tobacco market instead of addressing the total tobacco epidemic.

The effectiveness of tobacco taxes in lowering tobacco consumption has long been recognized by all the leading public-health authorities. The tobacco industry itself wrote in 1987 that "rising taxes are the main contributor to volume declines." In fact, the policy is so effective in curbing sales that the tobacco industry, to counter high prices, engaged in contraband in the 1990s, a crime for which it has recently pleaded guilty.

Now the source of the contraband problem has shifted to a few First Nations reserves, and the tobacco industry, which is not benefiting this time from the illegal sales, and its allies, such as the Canadian Convenience Stores Association, are professing that there is a "growing illegal black market" and that governments are failing to appropriately address the issue.

It is important to point out that the tobacco industry has only itself to blame for the current contraband crisis, because it planted the seed of greed and the knowhow among traffickers by supplying them in the past with tobacco products. In addition, it is always a valuable exercise to take a look at what the industry is saying internally to have another perspective on the situation.

Philip Morris International, the parent company of Rothmans, Benson & Hedges in Canada, wrote in its latest annual shareholders report (2010) that:

"In Canada, the total tax-paid cigarette market was up by 9.5 per cent, mainly reflecting stronger government enforcement measures to reduce contraband sales since mid-2009."

In a half-year report published in 2010, British American Tobacco, the parent company of Imperial Tobacco Canada, had this to say on the subject:

"Volume growth was achieved on the back of a significant reduction in illicit product as a result of the authorities' enforcement activities."

BAT also stated in a recent shareholders' presentation that the size of the illicit market in Canada had decreased from 32.7 per cent in 2008 to 18.7 per cent in 2010.

As for retailers, the 2010 November/December issue of Your Convenience Manager magazine reported that:

"Increased awareness, tightened border security and stiffer penalties are making it more difficult for smugglers to distribute tobacco in Canada. As a result, cigarette sales are up 10 per cent . The largest dollar volume growth came from Quebec and Ontario - two of the hardest-hit regions for contraband - where dollar volume sales improved 18 per cent and 13 per cent respectively."

Not surprisingly, these statements reflect what governments are currently reporting on the contraband market. For example, the latest Quebec government budget indicated that:

"The efforts to curb the illicit tobacco trade are producing excellent results. After five consecutive years of declining revenue from the specific tax on tobacco products, revenue has risen for the second year in a row . The Ministère des Finances estimates the tax losses associated with tobacco smuggling at $225 million for 2010, i.e. roughly 20 per cent of the market. The estimated losses for 2008 were $300 million, representing about 30 per cent of the market at that time."

The previously mentioned presentation from BAT provides the motive why the industry continues to cry wolf regarding the contraband problem, despite evidence to the contrary:

"Increased illicit trade awareness leads to less tax increases."

It is a common business practice for the tobacco industry to mislead governments. In this case, it is important to understand that the industry's focus on contraband is intended not only to influence tobacco-tax policy but also to forestall any new tobacco-control policies. We saw this last fall with the tobacco industry's failed attempt to derail the federal government's renewal of graphic warnings on tobacco packages on the pretence that the contraband problem had to be resolved first.

The record-breaking $1.7 billion in fines and settlements paid by the tobacco industry for its role in the 1990s smuggling crisis clearly had no deterrent effect on its misleading behaviour. Whatever the industry's public view on the matter, the facts show that governments are on the right track to curb the illicit market. There is no doubt for the health community that contraband tobacco still remains a significant public-health threat that needs to be resolved. However, the tobacco industry's continuing disregard for the truth is a further justification for governments to press on with controlling the legal market as well.