1.  2007 Johns Hopkins Bloomberg School of Public Health Illicit Trade in Tobacco Ayda A. Yurekli, PhD Research for International Tobacco Control International Development Research Center

2.  2007 Johns Hopkins Bloomberg School of Public Health Section A Introduction to Illicit Trade

3.  2007 Johns Hopkins Bloomberg School of Public Health 3 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 4 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 5 Illicit Trade A complex issue Evolves over the years Involves many players Smuggled cigarettes have no boundaries

6.  2007 Johns Hopkins Bloomberg School of Public Health 6 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 7 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 8 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 9 Assessing Illicit Market: Uzbek Evidence Source: adapted by CTLT from Estimated 2006 Uzbek Household Data. Age GroupPrevalence RateNumber of Smokers Cigarettes Smoked a Year/Pack MaleFemaleMaleFemaleTotal 15-192%0.00%3803,299,213 20-248%0.00%102011,589,233 25-2916%2.91%1783229,103,571 30-3427%0.00%272041,694,827 35-3933%2.27%2812040,326,506 40-4443%1.78%3501558,350,284 45-4942%2.01%2901469,816,038 50-5433%1.00%159534,789,727 55-5920%0.00%58013,624,477 60+10%1.80%721822,538,717 Total1799104325,132,592 Assuming 10% underreporting [1]357,645,851 Tax-paid consumption in 2005 [2]93,496,000 Illicit consumption as percentage of legal consumption [3] = (1-2)/222%

10.  2007 Johns Hopkins Bloomberg School of Public Health 10 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)

11.  2007 Johns Hopkins Bloomberg School of Public Health 11 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 12 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 consumption3.4% 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 smuggling7.3%

13.  2007 Johns Hopkins Bloomberg School of Public Health 13 Vast Interest Groups and Potential Winners and Losers

14.  2007 Johns Hopkins Bloomberg School of Public Health 14 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

15.  2007 Johns Hopkins Bloomberg School of Public Health 15 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 16 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 17 Source: adapted by CTLT from Yurekli and Sayginsoy. (2006). Organized Illicit Cigarette Trade Routes

18.  2007 Johns Hopkins Bloomberg School of Public Health 18 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