JTI Agreement with the EU – UK left out in the cold.

Friday 14 December 2007

Today Japan Tobacco International signed up to an anti-smuggling Agreement with 26 of the 27 EU Member States. [1] The UK is the only Member State left out of the Agreement, which leaves it completely isolated from the rest of Europe. This means that the UK will not benefit from measures hammered out between the European Commission and JTI, which ensure that the company is required to control the illicit trade in its products and will pay heavily if its cigarettes continue to be smuggled.

The agreement between JTI and the European Commission is equivalent to the agreement struck between Philip Morris International and the EC in 2004. [2] This means that two of the top three tobacco companies in the world by market share have now signed up to Agreements with the EU. The UK refused to sign the PMI agreement, arguing that as PMI only had a small market share in the UK, the Agreement was not relevant. This argument will not wash with Japan Tobacco, which recently acquired UK-based Gallaher, the UK’s second-largest tobacco company by market share with an almost 40% market share and therefore has a significant stake in, and control over the UK tobacco trade. [3] Gallaher will fully join up to the Agreement in two years, but the general compliance obligations apply immediately.

Despite some decline in recent years, tobacco smuggling remains a significant problem in the UK and the Government is losing around £2bn a year in lost revenue. In 2005-06 of the 2 billion smuggled cigarettes seized by Customs, about 200 million were Gallaher brands, making them the UK brand with the biggest share of the smuggled cigarette market. If the JTI agreement had been fully in force at that time, the UK would have received over £100 million in seizure payments from Gallaher.[4]

Given the potential benefits to the UK Exchequer from the Agreement, ASH is calling on the Government to urgently reappraise its strategy on smuggling and sign the JTI-EU accord as soon as possible. The Government’s most recent excuse is that the Finance Act legislation prevents it from doing so, but the PMI and JTI Agreements specifically state that any provision that is incompatible with domestic law is not applicable. Furthermore, only civil litigation relating to actions taken prior to the signing of the Agreement is discharged by the Agreement, not action taken under tax, administrative, health care or criminal law, such as the Finance Act.

Deborah Arnott, Director of the health campaigning charity ASH, said:

“The UK has made great strides in tobacco control in recent years, but its refusal to sign the EUs legally binding Agreements on tobacco smuggling risks undermining the progress made so far. We are the victims of some of the highest levels of smuggling in Europe with tax unpaid on more than one in five cigarettes smoked in this country. Given that JTI is the second biggest player in the UK cigarette market it is imperative that the UK signs the Agreement which will ensure that JTI reduces smuggling and excise evasion of its product and that it pays the price if it fails to do so.”


Notes and links:
[1] Details of the agreement http://ec.europa.eu/anti_fraud/budget/cig_smug/2007_en.html
[2] Marlboro Man does billion dollar deal on smuggling with Europe – ASH demands to know why UK is not included?, ASH press release 9 July 2004.
[3] ASH Briefing on Gallaher and Japan Tobacco International (pdf)
[4] This is based on HMRC estimates that in 2005-06 2bn cigarettes were seized. Of these, 18% were genuine UK brands. Gallaher brands accounted for 49% of these brands (ie around 9% of the total) . 100% of tax and duties owed on the first 90 million and 500% thereafter at £3.91 per pack in 2005-6 see Tobacco Factsheet table 3.3 http://www.uktradeinfo.com/index.cfm?task=facttobac