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Smoking Out the Smugglers

Can a new global agreement stem the growing trade in contraband tobacco?
It is an illicit global trade in the hundreds of billions of dollars that affects the health of millions.

It's not heroin or cocaine, but tobacco smuggling. Countries have tried to combat it for years. Now negotiators for 150 countries are working to forge a global agreement that should give some muscle to those efforts. And it will mean having tobacco companies shoulder more of the burden.

Under proposals for an international agreement being considered, cigarette makers would be required to disclose the identities of the providers of the raw materials like tobacco and paper. The companies would also have to identify which wholesalers are buying their products. Companies that refuse to reveal the information could be barred from making or selling cigarettes.

These measures, advocates say, will allow government investigators to penetrate the delivery chain, which is said to be dominated by organized crime in some countries.

"When the government seizes smuggled Marlboro cigarettes, in many countries, customs officials send the cigarettes to Philip Morris International to verify that the cigarettes are counterfeit," said Kathryn Mulvey, international policy director of antitobacco campaigner, Corporate Accountability International.

"This is like a police officer calling a known drug dealer to ask if the shipment of cocaine waiting in the dock belongs to him. If the cigarettes are authentic, the tobacco giant could be in big trouble, so there are strong incentives for the corporation to determine they are counterfeit," she said from Geneva, where she was monitoring the negotiations.

Among the steps being weighed in Geneva is requiring cigarette makers to track their cigarettes—from creation to consumption—with packs and cartons carrying bar codes or holographic stamps. Another proposal is to step up the prosecution of smuggling and to increase the penalties.

If negotiators can hammer out an agreement, a new global pact would follow on the 2005 World Health Organization treaty against tobacco use that bans sales to minors as well as tobacco advertising and sponsorships. Countries that signed the treaty are participating in rounds of negotiations, the most recent of which concluded last weekend, to work out what is called a protocol to the 2005 treaty.

Much is at stake. Some 11 percent of worldwide cigarette sales, or about 600 billion cigarettes a year, are contraband. An estimated $50 billion in tax revenues is lost every year as packs and cartons pass under governments' tax radar. That money goes to fund criminal enterprises and, in some cases, terrorism.

Big tobacco can't participate in the talks, but it has put a congenial face on the stringent measures. While industry revenues are up because of higher prices and lower operating costs, fewer cigarettes are being shipped.

Tobacco companies worry that consumers' crimped buying power will mean cutting back on extras like cigarettes, and that states could raise taxes to regain revenues being lost during tough economic times.

British American Tobacco, which is the second largest global company, said it would not oppose proposals to trace the manufacturing and delivery chain. One reason the company offered is that it had learned this month that one of its subsidiaries in Brazil had used an intermediary to supply dried tobacco to a Russian factory in Kaliningrad.

A B.A.T. spokeswoman, Catherine Armstrong, said the company had taken measures to prevent further sales to any illegitimate customers. But companies are not the only offenders.

According to the U.S. Center for Public Integrity, a foundation-funded investigative group, Russia shipped more than $1 billion worth of cigarettes to Europe last year, and only a fraction were seized by customs officials.

Most every country worldwide is affected, and some recognizable names have popped up. Last year, for example, Slobodan Milosevic's widow was charged with smuggling tobacco products. Earlier this month, Switzerland charged 10 people with laundering some $1 billion in cigarette-smuggling profits. Even some monks in Italy were once accused of taking part in the profitable underground trade.

Despite its status as one the globe's top smuggling destinations, the United States won't have a definitive say in the international antismuggling efforts because it has not signed onto the 2005 global treaty.

Some members of Congress are trying to tackle the lucrative smuggling trade, arguing that illicit sales help fund suspect groups, including the militant Shiite group Hezbollah, and deprive the government of revenues.

Between $2 billion and $4 billion in lost taxes could be recouped by requiring cigarettes to carry high-tech tags to identify where the tobacco was grown and equipment-registration requirements, argued Lloyd Doggett, Democrat of Texas, who introduced one of the bills. Last month, the House of Representatives overwhelmingly passed a bill to crack down on such contraband, making it a felony to sell tobacco in violation of any state tax law.

Still, antitobacco campaigners charge that U.S. customs fail to stop much of the illicit tobacco trade, and that a globally coordinated effort would bolster American efforts. But Deborah Arnott, director for the nonprofit group in Britain, Action on Smoking and Health, who attended the negotiations, warned that "a lot more work needs to be done," as countries continue to hash out some often-technical details of setting up a new tracking structure and parry tobacco giants' efforts to fend off changes in their industry.
 


 



 

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