Prohibitive prices of cigarettes and alcohol encourage smuggling, according to participants at a recent conference in Warsaw on smuggling across the EU's eastern border. EurActiv Poland reports.

The conference, organised by EurAcitv Poland with the support of the Philip Morris tobacco company, took a look at the draft update of the EU Tobacco Products Directive but expanded the debate to look at wider smuggling issues.

The European Commission proposed larger health warnings on cigarette packets and a total ban on flavourings such as menthol, as part of proposal to update the directive, presented in December. Industry representatives have balked at the draft rules, saying they were illegal.

>> Read: Draft EU rules open door to plain cigarette packs

Cigarette sales in the 27-nation EU have fallen sharply in recent years but – at about 33% – Europe still has a higher proportion of smokers than any other region of the globe, according to data from the World Health Organization.

Speaking at the Warsaw conference, Tadeusz Zwiefka, a Polish MEP from the centre-right European People's Party (EPP), said the updated directive should be carefully prepared to avoid a further increase in smuggling.

“Instead of contributing to better health of Europeans, the possible rise in smuggling or production of illegal cigarettes from tobacco of unknown origin means that they will be more harmful to health,” he told the participants at the conference.

Moving cigarettes across the eastern border

The EU's eastern border is the place of choice for cigarette smugglers, who can make easy profits from the price differences with Ukraine, Russia and other Eastern countries. A pack of premium cigarettes costs €5.26 in Belgium, €3.41 in Poland, €1.33 in Ukraine and less than €1.74 in in Russia, and less than €1 in Belarus.

According to data presented by Waldemar Micewicz, head of the Customs Office in Biała Podlaska, in 2010 Polish authorities seized over 700 million illegal cigarettes, the biggest number in the EU.

In the next year Poland was also ranked high in the EU statistics, being surpassed only by UK and Greece.

Micewicz identified many reasons why smuggling is such a common activity. One of the most important is its profitability.

A telling example is also a wholesale price of 500,000 packs, that is, the number that an international road transport, or TIR, vehicle can haul. "In Belarus it stands at €150,000, in eastern Poland - €500,000, in Germany – €1.25 million and in Scandinavia even at €2.5 million,” Micewicz said.

But cigarettes are not smuggled only in trucks. Tomas Kucirek, of the Directorate General for Taxation and Customs Union, said that 50% of smuggling took place via ports and maritime transport.

He added that smuggling of cigarettes brings huge losses to member states. In 2011 they were estimated at €10 billion. ”Smuggling causes losses of revenue and is harmful for producers, retailers and customers,” he said, adding that profits coming from smuggling can be used to finance terrorism.

Antonio Saccone from Department of Risk Analysis at the European border agency Frontex stressed that the scale of the problem is on the rise, giving Latvia as an example. In March-April 2011, 600,000 cigarettes were seized, while in November-December the same year this number rose to 9 million.

Higher prices boost smuggling

According to Marcin Kraszewski of the Polish Chamber of Commerce, the reason behind the increasing smuggling is the prohibitive pricing policy of European states which may lead to the expansion of the black market. That is why this problem should not be considered from the supply side only, but also from the demand side.

This view was supported by Professor Wiesław Czyżowicz from the Warsaw School of Economics. He made reference to the Laffer curve which explains why the prices cannot grow endlessly – at some point the customers will switch to cheaper, smuggled or counterfeited goods.

He also pointed out at another important aspect of the problem, namely the social acceptance of the phenomenon.

New trends in illicit trade

Panellists pointed out that smuggling is not a static activity – it evolves and develops.

Micewicz drew attention to the growing fragmentation of the smuggled quantities. While earlier the average seizure was of 200 packs of cigarettes, now it has dropped to 50 packs.

This was explained by the increasing profitability.

Saccone added also that smugglers are better organised. He described the discovery of a 700-metre tunnel on a Slovak-Ukrainian border. He estimated its ‘cost’ at €1 million.

Not only cigarettes are smuggled

According to speakers, cigarettes are not the only products that are smuggled across the eastern border. Gasoline, alcoholic beverages and stolen cars are all being smuggled into the EU.

Smuggling is not limited to the eastern border. Other European states are also challenged by their leaky borders, speakers said.

Spain and France were named as the countries that are most vulnerable to drug trafficking. Illegal weapons are detected most frequently in Italy, Netherlands, France and Finland.

Bulgaria and Greece were named as the top two countries in terms of smuggling of counterfeited products. Reportedly, the Bulgarian-Turkish border is also the place where the biggest number of attempts of luxury car smuggling was detected.

Panelists pointed out at the need of cooperation and dialogue with third countries – mostly EU’s eastern neighbours – to exchange information about the entities and regulations.