1. Industry and Market Response Contact details David Clifford Research Officer University of Bath d.clifford@bath.ac.uk

2. Work Package 5 objectives Examine transnational tobacco companies (TTCs) efforts to influence tax policy in EU member states Examine impact of tobacco control policies on cigarette pricing in the UK Report on state of the art systems for supply-chain tracking & tracing of tobacco products Examine TTCs efforts to market and promote smokeless tobacco products in the EU

3. Methodology Country case studies: Bulgaria, Czech Republic, France, Poland, and United Kingdom (UK) Methods –Analysis of internal TTC documents (mainly PMI & BAT) –Interviews with 24 key stakeholders –Analysis of secondary literature (e.g. market analyst reports, trade journals) –Analysis of UK price & market share data 1999-2009, and General Household Survey 2001-2008

4. TTC influence over tobacco tax policy TTCs lobby collectively on tax level –Keep taxes low and prevent large tax increases –Significant during privatisations and EU accession TTCs lobby separately on tax structure –PMI favour specific taxes, and occasionally higher minimum taxes –BAT favour a mix of specific and ad valorem taxes

5. TTC tactics to influence tax policy Build local lobbying capacity –Develop (and exploit) manufacturers associations and front groups Spread misinformation on impacts of tax increases –e.g. tax increases will lead to a fall in tax revenue due to the fall in consumption and rise in smuggling Gain access to, and develop close relationships with, policymakers –Political donations –Meetings with key personnel (target: Finance and Trade Ministries) –‘Revolving door’

6. TTCs undermining tax policy Evidence of involvement in illicit tobacco trade –Prior to market opening, TTCs extensively involved in cigarette smuggling –Despite legal agreements, TTCs continued to be involved in illicit tobacco trade, and were failing to control market supply chain, up to at least 2010 Exploiting loopholes and price fixing –Systematically mis-selling RYO as pipe tobacco at a lower tax level –Some evidence suggests TTCs was involved in price fixing

7. TTC pricing strategy: UK case study 4 price segments: premium, mid-price, economy, and ultra-low price (ULP) Pricing strategy differs by price segment: –Real price increases highest on mid-price and economy brands (4-6%), but often negative in real terms on ULP brands –ULP losses offset by increasing prices on higher-end brands Prevalence of smoking expensive cigarettes has fallen, prevalence of smoking cheap brands and RYO has not changed. ULP brands most popular among young and low socio-economic groups RYO and ‘make-your-own’ products play a similar role to cheap brands.

8. Conclusions Consistent patterns of TTC behaviour across all case study countries –Building relationships with policymakers –Fostering/exploiting a lack of understanding of tobacco taxation –Complicit in smuggling in to or out of case study countries –Exploiting tax loopholes –Undermining tax increases through pricing and product innovation

9. Tobacco tax recommendations 1.Consider large tax increases to prevent under-shifting, and closely monitor industry pricing to identify over-shifting 2.Increase understanding among politicians/civil servants of effective tobacco tax policy, particularly during tax harmonisation process 3.Increase awareness of industry efforts to mislead and undermine policy, and hence the need for Article 5.3 of FCTC. Particularly required in Finance and Trade ministries. 4.Amend Council Directive 2010/12/EU to ensure that tobacco tax on all smoking tobaccos are increased to match cigarettes 5.TTCs should not be considered as reliable stakeholders in an international protocol to tackle the illicit trade of cigarettes

10. Tobacco pricing recommendations 1.Prohibit below-cost selling and price-based marketing 2.Governments should require that industry submit data on marketing spending and brand specific prices, and make the data freely available to allow continued monitoring of industry pricing behaviour 3.Industry arguments that tax increases will lead to smuggling to be countered by the industry’s willingness to increase prices in the UK, even though they are already among the highest in the EU

11. Acknowledgements University of Bath Tobacco Control Research Group, in particular: C. Flower, A. Gilmore, S. Peeters, G. Taylor, and former colleagues V. Skafida, K. Smith, B. Tavakoly, S. Williams, H. Reed Funding: The project ‘Pricing Policies and Control of Tobacco in Europe (PPACTE)’ is partly funded by the European Commission Seventh Framework Programme Grant Agreement HEALTH-F2- 2009-223323. Professor Anna Gilmore is supported by Grant Number R01CA160695 from the National Cancer Institute and is a member of the UK Centre for Tobacco Control Studies (UKCTCS).

12. Industry exploiting different loose tobacco tax rates in Poland

13. Average cigarette prices in real terms (CPI) by segment (2001-2 to 2009-10)

14. Proportion of UK population smoking cheap and expensive cigarettes