Illicit Trade in Tobacco
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Transcript of Illicit Trade in Tobacco
2007 Johns Hopkins Bloomberg School of Public Health
Illicit Trade in TobaccoIllicit Trade in Tobacco
Ayda A. Yurekli, PhDResearch for International Tobacco ControlInternational Development Research Center
2007 Johns Hopkins Bloomberg School of Public Health
Section ASection A
Introduction to Illicit Trade
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Background
Smuggling is not a new phenomenon; almost all countries experience some degree of smuggling around the world through: Bootlegging
Individuals try to avoid taxes in their jurisdiction
Often involves individual activities for personal consumption
Small-scale smuggling Often involves unorganized small-scale
activities between one or two countries or states
Cigarettes are purchased in low-price countries and sold for profit in high-price countries
4 2007 Johns Hopkins Bloomberg School of Public Health
Background
Smuggling is not a new phenomenon; almost all countries experience some degree of smuggling around the world through: Large-scale smuggling (organized activities
targeting multi-countries) Occurs through international trade Targets exported cigarettes Often orchestrated by organized crime
groups
5 2007 Johns Hopkins Bloomberg School of Public Health
Illicit Trade
A complex issue
Evolves over the years
Involves many players
Smuggled cigarettes have no boundaries
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Large Scale Organized Smuggling
This type of smuggling targets not only international markets, but also countries where cigarettes are exported
Example: Brazil In the 1990s, Brazil experienced huge
smuggling activities Brazil‘s export of cigarettes to neighboring
countries ended up back in Brazil illegally Grey market smuggling (re-exporting)
7 2007 Johns Hopkins Bloomberg School of Public Health
Measuring the Level of Smuggling
Smuggling levels have been studied in the U.S. and western countries, but not in developing countries due to lack of technical skills and funding
Smuggling information often comes from the tobacco industry Industry hires companies to do market surveys
to assess smuggling levels and carry information to policy makers
Industry associates smuggling activities with the level of taxes in the country As a result, smuggling levels are often
exaggerated to manipulate tax policy
8 2007 Johns Hopkins Bloomberg School of Public Health
Assessing Illicit Market: Uzbek Evidence
Lack of country-level research to assess level of illicit trade Governments often receive this information by
the industry (e.g., Kyrgyzstan, Uzbekistan, Moldova, Georgia)
Consequently, the level of smuggling can be exaggerated to manipulate tax policy
In 2004, the tobacco industry in Uzbekistan estimated that 30% of the legitimate market was illicit cigarettes
In 2006, independent research in Uzbekistan estimated that around 22% of the legitimate market consists of illicit cigarettes
9 2007 Johns Hopkins Bloomberg School of Public Health
Assessing Illicit Market: Uzbek Evidence
Source: adapted by CTLT from Estimated 2006 Uzbek Household Data.
Age Group Prevalence Rate Number of SmokersCigarettes Smoked a
Year/Pack
Male Female Male Female Total
15-19 2% 0.00% 38 0 3,299,213
20-24 8% 0.00% 102 0 11,589,233
25-29 16% 2.91% 178 32 29,103,571
30-34 27% 0.00% 272 0 41,694,827
35-39 33% 2.27% 281 20 40,326,506
40-44 43% 1.78% 350 15 58,350,284
45-49 42% 2.01% 290 14 69,816,038
50-54 33% 1.00% 159 5 34,789,727
55-59 20% 0.00% 58 0 13,624,477
60+ 10% 1.80% 72 18 22,538,717
Total 1799 104 325,132,592
Assuming 10% underreporting [1] 357,645,851
Tax-paid consumption in 2005 [2] 293,496,000
Illicit consumption as percentage of legal consumption [3] = (1-2)/2
22%
10 2007 Johns Hopkins Bloomberg School of Public Health
Measuring Size and Impact of Worldwide Smuggling
Most estimates are based on expert opinion due to complex smuggling activities and limited data
Expert opinions Joosens and Row (1998) Mackay and Ericson (2002) United States Department of Agriculture (USDA)
(152 countries, 1999)
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Source: adapted by CTLT from ECOSOC Trade Database: calculated by the author.
Assessing Global Illicit Trade Level
Licit trade difference: 400 billion pieces in the mid-1990s
12 2007 Johns Hopkins Bloomberg School of Public Health
Source: adapted by CTLT from Yurekli and Sayginsoy. (2006).
Assessing Global Illicit Trade
Econometric analysis in 1999 by 110 countries
Actual tax-paid cigarette sales in 109 countries(billion pieces)
5,229
Estimated worldwide consumption (billion pieces) 4,572
Estimated smuggled cigarettes (billion pieces) 156
As percentage of global consumption 3.4%
As percentage of total exports 22%
Estimated global tax revenue generated from cigarettes (excise+VAT)-billion PPP (purchasing power parity) U.S. dollars
211
Global revenue lost due to smuggling 7.3%
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Vast Interest Groups and Potential Winners and Losers
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Costs of Smuggling to Major Players in the Economy
For government Evasion of tax revenues—excise, import duties, income
taxes Increasing costs of fighting organized crime Higher allocation of tax payers’ money to finance
public health expenditures for tobacco-associated diseases
Stagnant development due to premature tobacco-associated deaths and diseases
For public health Available, accessible, and affordable cigarettes,
especially for the youth Undermining the impact of tobacco control measures
to prevent children from taking up the behavior Increasing premature tobacco-associated deaths and
diseases
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Costs of Smuggling to Major Players in the Economy
For families/society Increasing organized crime, which reduces
economic welfare Penalizing poor and old street sellers for
smuggled cigarettes Creating high opportunity cost of tobacco
expenditures to families Contributing to a vicious cycle of poverty
For economy Loss of investment opportunities—loss of revenue
for legitimate producers Unemployment in legitimate production Lower economic growth due to lower productivity
of sick tobacco workers
16 2007 Johns Hopkins Bloomberg School of Public Health
Routes for Organized Smuggling
Evidence shows that worldwide smuggling routes are many and complex
Various documents were used in 1999 to identify major smuggling routes, including USDA attaché reports, the WHO Tobacco Atlas, the Market File Database, and other research
17 2007 Johns Hopkins Bloomberg School of Public Health
Source: adapted by CTLT from Yurekli and Sayginsoy. (2006).
Organized Illicit Cigarette Trade Routes
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Major Route for Counterfeit Cigarettes to EU
From the Asian region
Source: adapted by CTLT from WCO Customs and Tobacco Report. (2004).
To the European region