With its $7 billion IMF bailout hanging in the balance amid a dire economic crisis, debt-ridden Pakistan is seeking urgent solutions to boost tax revenue and fiscal stability.
In early September, Karachi and national government authorities convened for a high-level meeting on Pakistan’s illicit tobacco trade, with participants stressing the significant tax losses caused by the illegal market as well as its devastating public health consequences. While the country’s key authorities are rightly focusing on a collaborative, cross-sector response, the presence of industry representatives from Philip Morris International (PMI) and Pakistan Tobacco gives serious cause for concern.
Indeed, Pakistan’s illicit tobacco situation is a microcosm of the global problem, with Big Tobacco manoeuvring to undermine the public health fight at every turn. From discouraging cigarette tax hikes by exaggerating the size of the illicit trade to countering industry-independent track and trace systems, the tobacco industry’s smokescreen and trojan horse tactics must be exposed in Pakistan and globally to ensure the deployment of World Health Organisation (WHO)-aligned anti-smuggling efforts.
Big Tobacco’s two-faced gambit:
Despite the tobacco industry’s constant efforts to position itself as a proactive ally in the fight against the illicit cigarette trade, nothing could be further from the truth. Facing falling sales and stronger regulations in legacy markets such as North America and Europe – particularly higher excise taxes – Big Tobacco has long resorted to intentionally oversupplying smaller and less-regulated markets.
While seemingly counterintuitive at first glance, this practice enables cigarette manufacturers to circumvent stronger tax regimes in neighbouring countries, where the illicit product eventually reaches smokers attracted by its lower prices, resulting in stronger industry profits at the expense of public health.
After flooding the market with cheap illicit cigarettes, Big Tobacco pours millions into misleading studies – such as the recently-published annual PMI-funded KPMG report on Europe’s illicit consumption – that overestimate the illicit market’s size. This tactic notably serves to legitimise its false narrative that higher excise taxes are to blame and therefore should be avoided, while also exaggerating the role of criminal groups’ counterfeit manufacturing to downplay its own well-documented contribution to the illicit market.
WHO-led illicit trade roadmap:
Consequently, the WHO Framework Convention on Tobacco Control (FCTC) and its Protocol to Eliminate Illicit Trade in Tobacco Products (ITP Protocol) resoundingly reject Big Tobacco’s involvement in anti-smuggling efforts.
As mandated in Article 15 of the FCTC, government parties to the convention must implement track and trace systems, while Article 8 of its Protocol specifies that “obligations assigned to a Party shall not be performed by or delegated to the tobacco industry”, a clear distinction intended to ensure that public health and finances take precedence over Big Tobacco’s commercial interests.
While the Protocol places governments in the driver’s seat, it intends for them to work in partnership with private technology providers entirely independent of the tobacco industry to uphold high security and technical standards, such as unique and non-removable identification markers. Crucially, the Protocol’s Article 8 strictly limits the tobacco industry’s government contacts to the minimum necessary for enforcement, while making the industry financially responsible for traceability implementation.
Big Tobacco’s trojan horse:
As Dr Vera Luiza da Costa e Silva powerfully asserted at the first meeting of the WHO Working Group on track and trace, while “the industry pretends to be part of the solution,” the track and trace mechanism that it has “developed and promoted…Codentify or Inexto, is far less transparent than the tool required by the Protocol.”
Developed by PMI, the Codentify system has long been the foundation for Big Tobacco’s global manipulation of track and trace efforts. As the University of Bath’s world-renowned Tobacco Control Research Group (TCRG) has repeatedly documented, tobacco companies rely on “front groups to promote their own ineffective and inefficient technology,” with Swiss authentication solutions provider Inexto at the heart of this strategy.
Despite extensive efforts to hide its Big Tobacco links, Inexto has been widely exposed as an industry avatar, offering a thinly-veiled guise of WHO-required independence to tobacco manufacturers’ track and trace infiltration attempts. Headquartered just blocks away from PMI’s Swiss HQ, Inexto acquired the Codentify patent for 1 symbolic Swiss franc from the Digital Coding and Tracking Association (DCTA) in 2016, while several top Inexto executives, such as former CEO Philippe Chatelain, helped develop Codentify while previously employed at PMI. What’s more, the DCTA was itself a front group founded by the industry’s ‘Big 4’ – PMI, British American Tobacco (BAT), Imperial Brands and Japan Tobacco International (JTI) – to market Codentify to public authorities.
Inexto creating controversy globally:
In Pakistan, where the industry actively feeds the illicit market, a Karachi court notably annulled a track and trace tender involving Inexto in 2020 amid revelations of its deep industry ties, mirroring the company’s exclusion from a tender in Argentina in 2017. Meanwhile, Inexto has generated controversy across Africa, with anti-tobacco associations in Ivory Coast and Burkina Faso criticising their respective governments’ traceability schemes over Inexto’s involvement in violation of the ITP Protocol.
Inexto equally participated in the consultation process for the EU’s compromised track and trace system, with its representatives joining ‘Big 4’ lobbyists in meetings with EU officials, whose minutes revealed that Inexto was not, as claimed, financially independent from the tobacco industry. As in Africa, the presence of Inexto’s non-compliant system in EU track and trace has failed to help curb the illicit trade or boost tax revenue.
Indeed, the EU system has been deemed as significantly less independent, ambitious and effective by leading tobacco control actors including TCRG, the EU-level SmokeFree Partnership and France’s Alliance Against Tobacco (ACT) – claims supported by the European Commission’s own cigarette excise tax data.
Championing a bold way forward:
Working with a group of MEPs, these civil society leaders have produced a White Paper – published and presented in the European Parliament last spring – spotlighting Big Tobacco’s covert influence over the EU’s track and trace via actors like Inexto, while offering a roadmap for future action based on an ambitious application of the WHO’s ITP Protocol.
Exposing the tobacco industry’s myriad tactics and proxies with core responsibilities in the EU system, this European initiative notably feeds into the broader goal of creating a global system, which the WHO has championed since the ITP Protocol’s entry into force in 2018. Crucially, unifying the fight against the illicit trade will help drive more efficient and coordinated enforcement efforts needed to thwart the tobacco industry’s offensive.
Big Tobacco’s interference in global anti-smuggling efforts, as recently showcased with Pakistan’s emerging initiative, poses a dire threat to both public and fiscal health. Moving forward, the industry’s covert tactics and use of front organisations must be widely spotlighted and opposed to bolster governments’ capacities to protect their citizens while ensuring the integrity of global anti-tobacco initiatives.
This article does not endorse or express the views of Qrius and/or its staff.
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