NOTE: This article first appeared in the Tax Stamp News, published by the International Tax Stamp Association
Background
The 2019 Global Tobacco Industry Interference Index[i]was just released. Tthe concept is not a new one, and borrows from the methodology originally developed by South East Asia Tobacco Control Alliance[ii]to assess the extent to which the tobacco industry was unduly influencing governments in Asia.)
The report confirms what we already know: how the tobacco industry works strategically to delay and defeat tobacco control measures using various tactics. Governments have identified tobacco industry interference as the most serious barrier to
passing strong tobacco control measures[iii]– and yet better controlling this lies almost entirely in government’s own hands.
In support of the World Health Organisation’s Framework Convention on Tobacco Control a set of recommendations were adopted to protect governments from industry interference. The Interference Index measures the extent to which governments have adopted those recommendations, across a number of dimensions: tobacco industry involvement in policy development; the use of CSR campaigns to influence government relationships; the securing of preferential treatment for the industry; the extent of unnecessary interaction between government departments and the tobacco industry; the transparency of government engagements with the industry; and the extent to which there may be a conflict of interest on the part of government officials vis-à-vis the tobacco industry.
Customs agencies at particular risk
The first Global Tobacco Industry Interference Index shows that major improvement is needed, with a lack of transparency in many countries when dealing with the tobacco industry, and with particularly non-health government departments (like tax and customs authorities) remaining vulnerable to industry interference. This is particularly true because tax and customs agencies have historically developed close relationships with the tobacco industry, in part because of the ongoing operational interaction between them, but also because these companies invariably end up being significant revenue contributors, and frequently enter into MOU’s with government. The close nature of the relationship – and the very significant capacity constraints that tend to face most government agencies – means that governments often resort to policy positions advanced by the industry itself.
Country performance on the index
The 10 countries most at risk from tobacco industry interference are rated as Japan, Jordan, Bangladesh, Lebanon, Indonesia, Egypt, China, USA, South Africa and Tanzania.
In respect of these countries in particular, the report highlights a number of examples:
In Japan, government owns 33 percent of JTI, allowing JTI significant clout of interfering in policy development. When senior government officials retire, they move to key leadership positions in JTI. (The current Chairman of JTI started his career in the Ministry of Finance, including a stint as Special Advisor to the Cabinet before being appointed as Chair of JTI.)
In Pakistan, the previous previous Finance Secretary and Secretary General, Finance and Economic Affairs, became the Chairman of the Board of Pakistan Tobacco. In Bangladesh the former Senior Secretary of the Ministry of Agriculture and the former Secretary of the Ministry of Industries are both Independent Directors of BAT. In Cambodia, the owner of a cigarette business was appointed a Senator.
In Egypt closed meetings held with government allowed for pricing agreements to be reached; in several countries, non-health ministers were involved in endorsing tobacco-related CSR activities; in Indonesia, VAT for all consumer products is charged at 10 percent - cigarettes are taxed at 8.7 percent.
In South Africa, promises to introduce a secure marking solution have (to date) come to nought, with government now indicating its intention to rely on production counters in factories – a solution that was apparently proposed by the tobacco industry.
The tobacco industry is known to have had closed door meetings with the Finance Ministry on taxation issues, without disclosure of the agenda, in at least Bangladesh, Indonesia, Malaysia and South Africa. And Bangladesh, Brazil, India, South Africa, Jordan, Lao PDR, India, Lebanon and Ukraine all receive some form of technical assistance from the tobacco industry in the fight against illicit trade.
Two thirds of the countries reviewed in the Interference Index allow political contributions from the tobacco industry.
The challenges are equally pressing in countries where governments enter into state-owned enterprises (SOEs) or joint ventures, as happens in e.g. China, Egypt, Japan, Lao PDR, Lebanon, Thailand and Vietnam, where government officials may find themselves inadvertently conflicted in adopting tobacco control measures – and with many of countries performing poorly on the Interference Index because of pressure to give preference to business interests over tobacco control and creating situations with senior officials moving from government to the industry.
The bottom line is that countries where the tobacco industry has a stronger influence, are less likely to adopt policy positions that may antagonise these behemoths, because they are often viewed more as partners than as subjects to be regulated. Influence too easily becomes administrative capture, leaving governments adopting rhetoric that favours the industry, without applying its own mind objectively.
How does industry interference influence the implementation of secure marking traceability solutions?
I did a quick analysis, comparing the ranking of countries in respect of the Interference Index and the WHO Country Reports on the status of FCTC implementation to assess at a very rudimentary level whether there is any correlation between the extent of interference, and the policy positions governments adopt.
A key issue immediately become apparent: at least some of the data in the WHO Country Reports is either simply wrong, or outdated. So, for instance, the Country Reports note the USA, Tanzania, Iran and France as not using tobacco tax stamps, when we in fact know that they do. And on the “best performing” list – where the WHO Country Reports suggest that Iran, France and the UK don’t use tax stamps - it would in fact only be Uruguay that doesn’t use tobacco stamps.
Bottom line: 90 percent of the best performing countries on the Interference Index use a combination of tax stamps and secure marks, against only 50 percent of the worst performing countries that do.
More work is required to fully understand the statistical relationship between industry interference and the statistical likelihood of secure marking and traceability solutions being implemented. But even a very cursory provisional assessment suggests that traceability solutions are more likely to find application in countries where there influence of the tobacco industry is more restricted. In the ten worst performing countries on the Interference Index, only 50 percent have introduced some kind of tax stamp or secure marking – compared to 90 percent in the best-performing countries on the interference index, suggesting that industry interference may have a role to play in how governments choose to respond to illicit trade.
There is also a second observation worth mentioning: countries with a poorer score on the Interference Index are also less likely to adopt sound policy measures relating to the countering of illicit trade in general. Comparing the scores of countries that are rated on both the Interference Index and the Economist’s Illicit Trade Index highlights how countries with higher levels of interference have a lower chance of adopting good policy practices (which would, obviously, include the use of tax stamps and secure marks.) The average score in respect of the adoption of good policy practices on the Illicit Trade Index for countries that perform poorly from an interference perspective is 61 – for countries with lower levels of interference, the average score for adoption of good policy practices is 75 percent.
However, these observations are made simply as a place holder, and more work is required to unpack other indicators around the statistical impact that industry influence may be having on the types of solutions governments choose in curbing illicit trade.
Importance of findings for secure marking and traceability
Experts agree that the single biggest way in which to curb the illicit trade in cigarettes is to better secure the supply chain, and a critical component of that lies in securely marking cigarettes, and being able to trace them through the supply chain. Despite the value of the solution being indisputable, it often fails to gain traction – in large part because of the disproportionate power the tobacco industry has, and its influence over government agencies.
For solution providers to increase their conversion rates, an understanding of the extent and impact of industry inference is critical – as is the development of a strategy that allows them to counter some of that influence, by making it easier for governments to understand the dynamics at play, simplifying how solutions are pitched, and increasing the visibility of the importance of better securing the tobacco supply chain and the best ways in which to do so.
[i]http://exposetobacco.org/wp-content/uploads/2019/10/GlobalTIIIndex_Report_2019.pdf
[ii]https://seatca.org/dmdocuments/SEATCA%20TI%20Interference%20Index%202018.pdf
[iii]World Health Organization. 2018 Global progress report on implementation of the WHO Framework Convention on Tobacco Control. Geneva: World Health Organization; 2018. Licence: CC BY-NC-SA 3.0 IGO.