Impact on the SDGs
Like illicit trade in many other industries, revenues from illicit trade in tobacco products have been linked to funding terrorism, organized crime and loss of revenue to governments. Illicit tobacco is often smuggled through the same networks as drugs, weapons and other illicit goods. (Interpol, 2014).
Illicit tobacco trade results in a considerable loss of tax and duty revenue for governments, and helps fund organized crime as well as terrorist groups (OECD, 2016). The low penalties and detection rates, coupled with high profit margins, makes this type of illicit trade an important source of revenue for criminal networks.
Over the years, several efforts have been made to recognize the detrimental effects of illicit trade in tobacco on countries and develop efforts to tackle the same. Back in 2003, the World Health Organization (WHO) recognized the need to regulate the illicit trade in the tobacco industry as imperative to promoting public health.
As a result, the WHO orchestrated the adoption of the first international treaty back in 2003 called the Framework Convention on Tobacco Control (FCTC). The FCTC, recognizing that illicit trade in tobacco as a serious issue, adopted the Protocol to Eliminate Illicit Trade in Tobacco Products (Protocol). Adopted in November 2012, this treaty, pending ratification by 7 more countries as on date, aims to control illicit trade. Local governments have also increased efforts to curb the same and control and monitor the supply and distribution chains of tobacco products.
“Illicit trade in tobacco can be defined as any practice or conduct prohibited by law which relates to production, shipment, receipt, possession, distribution, sale, or purchase of tobacco products including any practice or conduct intended to facilitate such activity.” – Department of State, United States
The annual value of the illicit trade in tobacco is estimated at US$ 40 billion (Euromonitor International, 2016), with 1 in every 10 cigarettes consumed being illicit (WHO, 2015).
Among the forms of illicit trade affecting tobacco products, the manufacturing, distribution and sale of so-called “illicit whites” appears as an increasingly worrying phenomenon. According to the KPMG, “illicit whites brand flows continued to represent over one third of C&C in the EU, equating to 3.5% of total cigarette consumption. The number of illicit whites brands increased by 12% with many identified in small volumes; this may further complicate identification of the source and nature of the product" (KPMG, 2016). Tobacco products “in –transit” means lesser taxes and duties on these products, which becomes one of the avenues for cross border smuggling.
As is for most industries, illicit trade in the tobacco industry is rampant the market is estimated to be tens of billions of dollars (FATF, 2012):
Illicit trade in tobacco products negative impacts the prospects of achieving a number of the SDGs. Illicit trade in tobacco products increases the accessibility and affordability of tobacco products, with adverse effects on public health and well-being – in particular of young people, the poor and other vulnerable groups. As noted by WHO, the economic and social impacts disproportionately effect developing countries and countries with economies in transition. Illicit trade in tobacco products also represents a major source of illegal income for organized crime and terrorist organizations and damages the sustainability of legitimate enterprise and the security of the legal supply chain.
The following sub-headings analyze the impact that the illicit trade in tobacco products has on the achievement of SDGs 1 (no poverty), 3 (good health and well-being), 8 (decent work and economic growth), 12 (responsible consumption and production), and 16 (peace, justice and strong institutions).
Poverty reduction, employment, and responsible production (SDG 1, 8 and 12)
Agriculture plays a significant economic role in developing countries and has the potential to make a positive impact on poverty alleviation and employment. Given its hardiness, tobacco grows well in a variety of climates and topographies. In 2012, tobacco growers and workers produced nearly 7.5 million tons of raw tobacco on almost 4.3 million hectares of agricultural land across more than 120 countries.[i] Worldwide, the tobacco industry estimates that some 33 million people are employed in tobacco growing, usually part-time, counting family members, seasonal workers, and other laborers.[ii]
While global efforts to decrease tobacco consumption and advent of smoke-free products – which use less tobacco than traditional cigarettes – will eventually have an impact on tobacco farming and encourage crop diversification, this sector will remain an important source of employment (SDG 8) and poverty reduction (SDG 1) in developing countries for many years to come.
The legitimate tobacco industry offers several programs to promote agricultural production that encourage farmers to make tobacco farming more profitable and sustainable. This includes promoting environmentally sustainable practices, efficiency improvements through mechanization and innovation and support crop diversification efforts as a way to improve farm outcomes (SDG 12).[iii] The private sector also continues to strive to improve working conditions for farmers growing tobacco and to make tobacco farming both profitable and sustainable by adopting good agricultural practices. This includes working towards eliminating child labor in all farms that they purchase tobacco and are developing systems to monitor that such standards are maintained (SDG 8).[iv] When illicit trade in tobacco products reduces the market share and thereby profit of legitimate traders, these sorts of programs to ensure the rights of farmers and sustainability of operations are at risk.
[i] The Tobacco Atlas, http://www.tobaccoatlas.org/topic/growing-tobacco/
[ii] Harvard. Jacobs, R, Gale, F, Capehart, T, Zhang, P & Jha, P 2000, The supply- side effects of tobacco control policies. in P Jha & F Chaloupka (eds), Tobacco control policies in developing countries. Oxford University Press, New York.
[iii] PMI Sustainability Report 2016, https://www.pmi.com/resources/docs/default-source/pmi-sustainability/pmi_sustainability_report_2016.pdf?sfvrsn=143382b5_2
[iv] Philip Morris International, Sustainability available at https://www.pmi.com/sustainability; JTI, Sustainability available at https://www.jti.com/about-us/sustainability/a-proudly-responsible-business-built-on-sustainable-thinking
Health (SDG 3)
Cigarette smoking is the leading preventable cause of death worldwide.[i] Reducing tobacco consumption and mitigating the harmful effects of tobacco smoking is thus intrinsically linked to SDG 3 (ensure healthy lives and promote wellbeing for all at all ages). Notably, SDG target 3A calls for the strengthening of the implementation of the WHO Framework Convention on Tobacco Control (FCTC) as one of the means to reach the overall health goal of SDG 3. The FCTC Protocol aims at eliminating all forms of illicit trade in tobacco products by securing the supply chain, including by establishing an international tracking and tracing system, by countering illicit trade through dissuasive law enforcement measures and a suite of measures to enable international cooperation.[ii]
The global illicit tobacco trade undermines governments health policy objectives by increasing the use of tobacco products and depriving funds for anti-smoking campaigns and healthcare costs.[iii] The illegal tobacco market operates outside of formal commercial channels and is immune to government health regulations, such as requirements for marketing and labeling. Moreover, illicit tobacco products may be even more harmful by introducing products to consumers that do not meet the health regulations of the destination country, including some with ingredients not fit for human consumption.[iv]
Moreover, in recognition of the health risks associated with smoking, the legitimate industry has – contrary to illicit traders – made a commitment to developing reduced-risk products that have the potential to significantly reduce health risks when compared to smoking and is working on long-term sustainability goals across their value chains.
[i] WHO, http://www.who.int/nmh/publications/fact_sheet_tobacco_en.pdf
[iii] US State Department, The Global Illicit Trade in Tobacco: A Threat to National Security, December 2015, https://2009-2017.state.gov/documents/organization/250513.pdf
[iv] US State Department, The Global Illicit Trade in Tobacco: A Threat to National Security, December 2015, https://2009-2017.state.gov/documents/organization/250513.pdf
Stable and secure economic growth and development (SDG 8, 16)
Every year, governments are estimated to lose US$40.5 billion in revenue from the illicit trade of tobacco products. In some countries, illicit trade can reach as high as 40–50% of the overall tobacco market.[i] The loss in tax revenue from illicit trade in tobacco products translates into a lack of resources for governments to provide for public services, infrastructure and healthcare.[ii] In addition, law enforcement efforts required to combat this crime and prosecute the criminals responsible requires substantial funds.[iii]
Illicit trade not only causes significant financial damage to the government’s budget and the economic stability/competitiveness of compliant traders – creating a drag drag on economic growth (SDG 8) – it is also a source of financing for criminal activities and is viewed as a major security threat by governments (SDG 16).[iv] Numerous case studies show that the proceeds from illicit trade in tobacco products are being laundered by organized crime networks and redirected to fund other criminal activities, like drug, arms, human trafficking, and even terrorism.[v] After drug trafficking, trafficking in cigarettes is one of the main sources to fund terrorist activities in the sub-Saharan region where criminals involved closely cooperate with regional terrorist groups.[vi] In central and eastern Africa, rebels accused of serious human right violations use the illegal tobacco trade to finance their activities.[vii]
The pervasiveness of this illegal trade and its nexus with organized crime is a threat to peaceful and inclusive societies (SDG 12), deprives governments of tax revenues, while also contributing towards a less conducive business environment through unfair competition, increased costs for legitimate enterprise and negatively affecting investment in the economy – all of which hampers sustainable and inclusive economic growth (SDG 8).
[i] WHO, “Non communicable diseases – Illicit trade in tobacco use”. http://www.emro.who.int/noncommunicable-diseases/highlights/illicit-trade-increases-tobacco-use.html
[ii] FCTC, “Illegal Trade of Tobacco Products: What you should know to stop it” (2015)
[iii] “The Global Illicit Trade in Tobacco: A Threat to National Security”. https://2009-2017.state.gov/documents/organization/250513.pdf
[iv] “World Customs Illicit Trade Report” (2012) http://www.wcoomd.org/en/media/newsroom/2013/june/~/media/WCO/Public/Global/PDF/Topics/Enforcement%20and%20Compliance/Activities%20and%20Programmes/Illicit%20Trade%20Report%202012/WCO%20REPORT%202013%20-%20BR.ashx; Department of State, USA “The Global Illicit Trade in Tobacco: A Threat to National Security” (2013) available at https://2009-2017.state.gov/documents/organization/250513.pdf
[v] Dr. Matthew Levitt, The Washington Institute for Near East Policy, “Attacking Hezbollah’s Financial Network: Policy Options” (2017) available at http://docs.house.gov/meetings/FA/FA00/20170608/106094/HHRG-115-FA00-Wstate-LevittM-20170608.pdf; “World Customs Illicit Trade Report” (2012) http://www.wcoomd.org/en/media/newsroom/2013/june/~/media/WCO/Public/Global/PDF/Topics/Enforcement%20and%20Compliance/Activities%20and%20Programmes/Illicit%20Trade%20Report%202012/WCO%20REPORT%202013%20-%20BR.ashx; Department of State, USA “The Global Illicit Trade in Tobacco: A Threat to National Security” (2013) available at https://2009-2017.state.gov/documents/organization/250513.pdf
[vi] World Customs Illicit Trade Report (2012). http://www.wcoomd.org/en/media/newsroom/2013/june/~/media/WCO/Public/Global/PDF/Topics/Enforcement%20and%20Compliance/Activities%20and%20Programmes/Illicit%20Trade%20Report%202012/WCO%20REPORT%202013%20-%20BR.ashx
[vii] World Health Organisation, “World No Tobacco Day 2015: Time to act against illicit tobacco” available at http://www.who.int/mediacentre/commentaries/illicit-tobaco/en/
“The SDGs, also known as Global Goals, build on the success of the Millennium Development Goals (MDGs) and aim to go further to end all forms of poverty. The new Goals are unique in that they call for action by all countries, poor, rich and middle-income to promote prosperity while protecting the planet. They recognize that ending poverty must go hand-in-hand with strategies that build economic growth and addresses a range of social needs including education, health, social protection, and job opportunities, while tackling climate change and environmental protection.” United Nations.