Tanzania: EU Tobacco Curbs Set to Hurt Developing Nations

Source from:  Tanzania Daily News 03/20/2013

TOBACCO exporters from Least Developed Countries (LDCs) including Malawi and Tanzania are likely to lose traditional markets after plans by the European Union (EU) to make cigarettes less attractive to new smokers.

The measures are expected to impact negatively on the sector's growth which according to a 2010 World Trade Organisation (WTO) survey provides more than 60 per cent of the foreign earnings of a country like Malawi.

However, a reliable source from the government told the Business Standard on the condition that he should not be named that the EU market size has started reducing imports even before the decision due to its declining smokers' population. Instead, the fast growing Asian market for tobacco products was offering new prospects to maintain the income and the badly needed foreign exchange earnings for the LDCs.

"There is growing demand for tobacco products from the Asian countries, a situation that gives confidence to local producers over the threat of losing the traditional western markets," stated the source. According to the World Health Organisation (WHO), Tanzania employs a three-specific tax structure for cigarettes.

It levies lower tax on tobacco products that contain more than 75 per cent locally produced tobacco to protect domestic production. For example, for cut rag or cut filler, the tax rate is 17,736/- per kg while other tobacco taxes are 30 per cent ad valorem on cigars, 35 per cent duty on imports from outside the East African region and 18 per cent VAT.

The real average price of cigarettes has been falling and the economy is growing, resulting into greater affordability of cigarettes in the country. The steady total consumption with growing population resulted in slight decrease in per capita cigarette consumption.

The retail price of most sold brand of cigarette is highest in the EAC region. However, the tax share in the retail price is the lowest indicating greater industry profit in the region. The LDCs are deeply concerned over the proposed Tobacco Products Directive (TPD) which is inconsistent with the EU's binding obligations under the TBT (technical barriers to trade) Agreement.

The EU policy proposals came after Australia, last December, enforced a ban on cigarette logos and required packets to be plain olive green with graphic health warnings. To bring in the world's toughest rules on tobacco packaging, it had to win a court fight against major cigarette makers British American Tobacco, Imperial Tobacco, Philip Morris and Japan Tobacco.

The Australian law was seen as a precedent for other countries considering a similar move, including India, Norway, South Korea and Canada. But it could still face an upset at the WTO, where Ukraine, Dominican Republic and Honduras have launched litigation in a bid to force Australia to overturn it.

The EU's draft tobacco law, which aims to prevent young people from taking up smoking, was published in December, just weeks after Australia's rules came into force. It needs to be approved by EU governments and the European Parliament, which could take two years.

The EU needed to provide scientific evidence to show that its plans would reduce tobacco consumption and not just introduce barriers to trade. It also cited WTO rules that require technical regulations "take account of the special development, financial and trade needs of developing country members" to avoid creating unnecessary trade obstacles for poorer countries. Enditem