A mandate for change: The importance of addressing the problem of illicit trade in the EU

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Most adults in Europe acknowledge there is a problem with illicit tobacco products in the EU. Further, they are cognizant of the negative consequences that stem from illicit trade, of which there are many. 

William Stewart is President at Povaddo

We know, for example, that easy access to cheap illicit cigarettes prevents smokers from quitting smoking, or to switch to better alternatives that exist today. Moreover, the issue disproportionally impacts consumers in lower-income households, who traditionally have limited resources and opportunities to access the latest innovative products and solutions. With ongoing inflation and economic instability, there is now more urgency to address the problem of illicit trade through coordinated action between regulators, law enforcement, the private sector, and other interested parties.

A persistent threat to public health and public finance

The research firm I lead, Povaddo, recently conducted a survey commissioned by PMI of more than 13,000 adults in 13 EU member states. In that poll, 67% of respondents believe that the illicit market is dissuading many smokers from quitting or—failing that—from switching to better alternatives. A majority (60%) also agree that government endorsement of smoke-free products can promote equality and reduce health disparities by giving adult smokers from lower socio-economic backgrounds access to better alternatives to cigarettes.

A PMI-commissioned report by KPMG from summer 2022 revealed that in the EU, illicit trade increased by about 3.9% in 2021—that equals an additional 1.3 billion cigarettes. In total, according to this report, 35.5 billion illicit cigarettes were consumed across the region in one year. In France, which represented the largest illicit EU market, illicit cigarettes comprise 29% of total cigarette consumption in this country, a significant growth from 13% in 2017. Aside from the public health implications, there are also significant public finance implications. The KPMG report suggests that had these cigarettes been legally purchased, it is estimated that an additional EUR 10.4 billion in taxes would have been raised by governments in the EU.

A booming black market of cigarettes means that many of these smokers will continue to smoke—often counterfeit cigarettes that don’t comply with even basic safety and quality standards. Generally speaking, the public viewpoint is that smokers should be given equal chances to use the latest technological advances to improve their health and adopt a better lifestyle. Instead, the rise of Illicit trade has the opposite effect, curtailing opportunities to improve public health.

Ensuring innovation works for all

Several factors impact access to innovation, including awareness, affordability, and acceptability. To reap the benefits of any innovation, you must know it exists, be able to afford it, and understand how it might affect your life.

Illicit trade adds another obstacle to positive change, particularly for those more vulnerable in society. Adult smokers of lower socioeconomic groups, who have the least resources and access to social services and security, often have the greatest exposure to illicit cigarettes. This is an issue of social justice.

To address it, there needs to be on the one hand, a fair and science-based regulatory framework in place, and on the other hand, there needs to be an increased focus on awareness and education. Smokers need to understand the consequences of buying unlawful, smuggled, or counterfeit products. It is only by giving them accurate and appropriate information that we can encourage them to make better choices. This is not merely my viewpoint, but rather the viewpoint of most of the EU adults we surveyed.

What can be done?

Illicit trade is not a petty or victimless crime. It undermines public health. For governments, the revenue loss amounts to billions that could be spent on public health and safety. Illicit tobacco also encourages organized crime and corruption. Criminal networks use the profits from counterfeit cigarettes to fund other activities, such as human trafficking, drug trafficking, and even terrorism.

Society cannot be successful in addressing this issue unless governments and private sector are able to work together. It is reassuring that some countries with a history of cigarette trafficking, such as in eastern Europe and central Europe, have seen the illicit trade in cigarettes steadily decreasing. Coupled with effective enforcement of the rule of law, these countries have also been opening up to better alternatives to cigarettes.

Governments have a vital role to play. They define regulation, taxation, and law-enforcement. To that point, three-in-four (74%) survey respondents agree that governments must take into account illicit trade as an unintended consequence when deciding how to regulate and tax tobacco and nicotine-containing products.

Consumers need to be incentivized toward legal and better products, and the public is calling on government to create policies that allow smokers to access these products, so that they are not driven to the black market.