The tobacco industry in Canada (as in other countries) has been arguing that plain packaging would increase counterfeit/contraband cigarettes. These arguments are baseless. Below are some notes in response.
Response to Tobacco Industry Claims that Plain Packaging Would Increase Counterfeit/Contraband Cigarettes
The tobacco industry and organizations funded by the tobacco industry claim that plain packaging would make it easier to counterfeit cigarettes and would increase contraband. This argument is nonsense. Here are some notes:
- Plain packaging will not cause counterfeiting or contraband. The tobacco industry is engaging in misinformation, which is typical of the industry’s approach over decades.
- JTI-Macdonald cites a KPMG report “Illicit Tobacco in Australia: 2015 Full Year Report”, April 2016 as the source to support the counterfeit claim. However, the KPMG report, funded by the tobacco industry, states that the study conducted found no counterfeit Australian plain packages. (The study did find that a tiny 0.2% of the Australian market was counterfeit, but these were of branded products not intended for Australia.)
- KPMG itself has objected to its study being “misrepresented” by those suggesting that plain packaging could lead to an increase in contraband
- The industry’s KPMG study found that the overall level of all contraband (not just counterfeit) in 2015 of 2.4 million kg was the same as in 2010, prior to plain packaging
- In Canada, the tobacco industry claims that many measures will cause contraband. For example, the industry made this claim for increasing the size of package health warnings from 50% to 75% in 2012, but this measure did not cause contraband.
- Canada’s sophisticated tax-stamps with covert and overt features will remain on packages to deter counterfeiting. Companies will still be able to have a unique alphanumeric indicator for each brand on the cigarette filter to distinguish each brand.
- The tobacco industry cannot be believed – the industry has had previous campaigns saying that smoking did not cause lung cancer, and that second hand smoke is not harmful.
- The tobacco industry has no credibility on the contraband issue, given that all three major companies in Canada have been convicted of contraband (in 2008, 2010), resulting in the largest fines in Canadian history, with fines and civil payments totaling $1.7 billion.
Additional detailed background
The industry’s claim that contraband in Australia increased by 21% following implementation of plain packaging is based on flawed KPMG studies funded by the tobacco industry. The industry-funded KPMG study says that contraband was 12.2% in 2011 (prior to plain packaging), 11.5% in 2012 (plain packaging implemented late in year), to 14.5% in 2014 and 14.0% in 2015. Comments on the KPMG studies are below.
While the tobacco industry cites a report by KPMG paid for by the tobacco industry to support claims that contraband has increased, KPMG itself denies that the report indicates that plain packaging is responsible for an increase in contraband. A May 2, 2014 letter from KPMG Partner Robin Cartwright to UK Public Health Minister Jane Ellison, released under the UK’s Freedom of Information Act, stated that:
“The report we released recently, Illicit Tobacco in Australia – 2013 Half Year Report, has been somewhat misrepresented by others, without our consent, to suggest it supports the contention that plain paper packaging could lead of itself to an increase in tobacco smuggling and duty avoidance.”
In its report, KPMG declares that the method of work on its study was determined by terms of reference provided by tobacco companies, and that no one should rely on the report. Similar disclaimers, with some differences in wording, are also found in the other KPMG reports.
“KPMG LLP has agreed that the Report may be disclosed to any party on the basis set out herein. KPMG LLP wishes all parties to be aware that KPMG LLP’s work for the Addressees was performed to meet specific terms of reference agreed between the Addressees and KPMG LLP and that there were particular features determined for the purposes of the engagement. The report should not therefore be regarded as suitable to be used or relied on by any other person or for any other purpose. The Report is issued to all parties on the basis that it is for information only. Should any party choose to rely on the Report they do so at their own risk. KPMG LLP will accordingly accept no responsibility or liability in respect of the Report to any party other than the Addressees.” (Source: KPMG LLP, “Illicit tobacco in Australia: 2013 half year report”.
The KPMG report for 2014 stated that a category of contraband, counterfeit cigarettes, has actually declined in Australia subsequent to the implementation of plain packaging:
“Through to the end of 2014, there has been no evidence of counterfeit plain packaging cigarettes. This represents a change from 2012 where approximately 45% of counterfeit cigarettes consumed appeared to have been designed for the local market.” (Source: KPMG LLP, “Illicit tobacco in Australia” full year report (for 2014), p.42.)
The KPMG report for 2015 found no examples of counterfeit plain packaging and stated “Despite some media reports uncovering instances of counterfeit plain packaged cigarettes none of the counterfeit packs collected as part of the EPS were in plain packaging.” (p.44)
KPMG says that the absolute level of contraband (2.4 million kg) is the same as it was in 2010. The percentage is slightly higher in 2015 than it was in 2010 because overall tobacco use has gone down. And even the estimated percentage declined from 2014 to 2015 despite several major tobacco tax increases. (Source: KPMG “Illicit Tobacco in Australia: 2015 Full Year Report”, April 2016, p.6).
For a detailed response to the industry contraband claims in Australia, and for a detailed outline of the flawed nature of the KPMG report in terms of the overall estimate of illicit trade, see:
Cancer Council Victoria, “Questions and answers on plain packaging in Australia. Facts sheet no. 3: What has happened to use of illicit tobacco since the introduction of legislation to standardise the packaging of tobacco products in Australia?” Updated May 2016.
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