Pubdate: Sat, 5 June 1999 Source: Scotsman (UK) Copyright: The Scotsman Publications Ltd 1999 Contact: http://www.scotsman.com/ Forum: http://www.scotsman.com/ Author: John Ivison BOOTLEG WHEEZE THAT'S COSTING THE EXCHEQUER A PACKET There could be lessons to be learned from Canada's experience of combating the cigarette smugglers, reports John Ivison in North America A NUMBER of years ago, I interviewed for a job at a newspaper in Cornwall, Ontario, a sleepy town mid-way between Montreal and Toronto. Nothing much ever happens there, but the town was woken from its somnolence just before I arrived. Someone had taken a pot-shot at the mayor after - in an unguarded moment - he made public his opposition to the local cigarette smuggling trade. This was particularly ill-judged because smuggling provided the staple income of the restless, and heavily-armed, native Indian reservation. My reason for bringing this up is to give some indication of how serious a business cigarette smuggling was in Canada in the early nineties. The reason it was particularly acute was because Canada had pioneered a policy of punitive taxation on smokers which saw the cost of a packet of 25 wheezers double to around $$6.50 (Canadian) in Ontario (prices varied in different provinces). Despite the subsequent failure of this policy, it has surfaced again in official circles as the panacea to cut global tobacco consumption. Late last month the World Bank released a report arguing that increasing cigarette taxes was a good way to cut smoking. Defying its customary line of opposition to government intervention in the marketplace, it said that there was a solid case for tobacco taxes as an instrument of health policy and that price increases were highly effective in reducing demand. It estimated that a 10 per cent price increase worldwide would cause 40 million smokers to quit and prevent at least 10 million tobacco-related deaths. Loath as I am to align myself with the angels of death in the tobacco industry - it is a bit like saying Peter Sutcliffe was nice to his mum - the Canadian experience with cigarette smuggling does not support the World Bank's case. The increasingly violent smuggling trade, centred on Cornwall, saw millions of dollars of cigarettes shipped over the border from the United States without any duty being paid. The success of the smuggling operation was in no small part due to the connivance and, in many cases, actual participation of the tobacco industry. Cases now making their way through courts in Canada and the US reveal that the major tobacco companies sponsored the business and knowingly supplied the smugglers. RJR Macdonald, a subsidiary of RJR Nabisco, admitted in December that it smuggled more than US $$600 million worth of cigarettes into Canada. The company paid a $$10 million forfeiture and a $$5.2 million fine. Don Brown, chairman of Imperial Tobacco, part of the Imasco conglomerate, told a court that after years of fighting against high taxes the company decided that if you can't beat the smugglers you might as well join them. The government, faced with lax tax evasion laws and a police force often unwilling to act against heavily-armed smugglers, was forced to repeal much of its tax legislation and the price of a packet fell back to around the $$3 (Canadian) level. Overnight, the smuggling issue was resolved and smugglers are now more involved with liquor. Anti-smoking policy in Canada is currently centred on restricting tobacco advertising and more modest tax increases. However, the US has decided to ignore the Canadian model and increase federal cigarette taxes by about $$2 (US) a pack, arguing that it has stronger penalties for smuggling and the resources to enforce laws. Larry Summers, the soon-to-be new Treasury secretary, defended the law by saying that the fact 80 per cent of the Canadian population lives within a two-hour drive of the US border made smuggling easier. "The dispersal of the US population means that a US resident is less likely than a Canadian to be able to cross the border routinely for casual cigarette smuggling," he said. The US may be able to hermetically seal itself from the rest of the world, but the explosion of cross-Channel traffic suggests that the UK cannot. Tobacco companies sifting through the litter on football terraces have discoveredthat one in five discarded packs was a bootleg import - a figure which, if extrapolated, would cost the exchequer UKP1.5 billion a year in lost excise. Small wonder when the average cost for a pack is UKP3.90 in Britain, but only UKP1.70 on the Continent. The smugglers in this case may be toting nothingmore deadly than a Yorkie barbut the effect on thenational coffers is the same. - --- MAP posted-by: Don Beck