Nicotine/Tobacco Research and Policy Experts Endorse Tobacco Harm Reduction in Letter to World Health Organization

Fifty-three tobacco research and policy experts from 15 countries today endorsed many of the tobacco harm reduction principles that I have advocated for 20 years.  In a widely publicized (here) open letter (available here) to Dr. Margaret Chan, director of the World Health Organization, they declared:

“Tobacco harm reduction is part of the solution, not part of the problem.  It could make a significant contribution to reducing the global burden of non-communicable diseases caused by smoking, and do so much faster than conventional strategies. If regulators treat low-risk nicotine products as traditional tobacco products and seek to reduce their use without recognising their potential as low-risk alternatives to smoking, they are improperly defining them as part of the problem.”

Just as I have done before (here), the experts warn that harsh regulation of e-cigarettes could have the unintended effect of protecting cigarettes:

“On a precautionary basis, regulators should avoid support for measures that could have the perverse effect of prolonging cigarette consumption. Policies that are excessively restrictive or burdensome on lower risk products can have the unintended consequence of protecting cigarettes from competition from less hazardous alternatives, and cause harm as a result. Every policy related to low risk, non-combustible nicotine products should be assessed for this risk.”

The letter’s signatories also endorse a tax strategy that I have promoted for many years (here):

“The tax regime for nicotine products should reflect risk and be organised to create incentives for users to switch from smoking to low risk harm reduction products. Excessive taxation of low risk products relative to combustible tobacco deters smokers from switching and will cause more smoking and harm than there otherwise would be.”

The letter points to the enormous public health gains that are possible with tobacco harm reduction:

“The potential for tobacco harm reduction products to reduce the burden of smoking related disease is very large, and these products could be among the most significant health innovations of the 21st Century – perhaps saving hundreds of millions of lives.”

It is encouraging to see such widespread international support for my long-held positions.

Swedish Tax Proposal Threatens Successful Tobacco Harm Reduction

Sweden, which represents the world’s best example of the population effect of tobacco harm reduction, is considering increasing its snus tax by 22%, according to the Swedish national newspaper Aftonbladet.  An April 2 article claims “it would be the first time ever that a can of snus would cost more than a pack of cigarettes.”  Swedes are reportedly outraged by the proposal.  Public health experts should be outraged as well, given such a tax hike’s threat to the developed world’s lowest smoking and lung cancer rates.

As expected, the Karolinska Institute’s tobacco expert Hans Giljam expressed support for a higher snus tax.  However, even he admitted, “There is a risk that many will quit snus and move to cigarettes.  And if many start smoking instead of using snus, we will get sicker. That is a certainty.”

That is unquestionably the strangest endorsement of tobacco harm reduction ever heard.  Giljam couched his comment in dire, unfounded or exaggerated warnings about links between snus and a host of diseases, but he waffled on how much snus use triggers health effects.  “It takes decades of study to reach such conclusions.  It is one of the pedagogic problems we face; we don’t really know what the health effects of long-term snus usage are.”

In fact, decades of study have defined the long-term health effects snus use – nearly zero.  And even Giljam acknowledges that smoking is at least ten times more dangerous than using snus.  His support for equalizing taxes on snus and cigarettes is unfathomable.

This article is available only in Swedish (here), so the English translation I have could account for Giljam’s bizarre logic.  But I sincerely doubt it.  Like anti-tobacco extremists everywhere, those in Sweden not only completely ignore the phenomenal Swedish tobacco experience, they enthusiastically endorse policies that would destroy it. 

Australia: Tobacco Control and Bootlegger Paradise

Australia is the darling of anti-tobacco extremists.  They tout that country as the model for draconian cigarette regulation and taxation.  Australia imposed mandatory plain packaging last December, and exorbitant excise taxes have raised the price of a pack of cigarettes to 16 Australian dollars (AUD). 

A new report (here) from KPMG tracks the effect of these policies on smoking prevalence and consumption.  The unintended consequences remind one of America’s Prohibition Era fiasco.

KPMG compares Australia’s exorbitant per-pack prices with those of other countries in the region (all in AUD), including Cambodia (1.12), Vietnam (1.08), Indonesia (1.43), Thailand (3.07) and Papua New Guinea (5.37).  It comes as no surprise that these differences have created a huge illicit market in Australia, accounting for about 13% of all cigarette consumption. 

The Aussie black market offers smokers an array of smuggled products.  Counterfeit cigarettes are inferior products manufactured offshore and packaged to resemble popular brands.  KPMG also identifies a type of contraband cigarette called “illicit white” which is produced specifically for smuggling.  One such brand, Manchester, is so popular that it has a market share of 1.3%.  In 2012, Manchester was only found in Sydney and Melbourne; this year it was available in 13 of the 16 cities surveyed by KPMG. 

I discussed earlier this year how prohibitive policies and prices in New York (population 20 million) have cost the state a quarter billion dollars that wound up in criminal hands (here).  In Australia (population 23 million), the toll is larger: KPMG estimates that the government has lost $1 billion in excise taxes to the black market.

In their popular book Freakonomics Steven Levitt and Stephen Dubner argue that “Morality…represents the way that people would like the world to work – whereas economics represents how it actually does work.” (emphasis in original) 

Australia’s treatment of smoking as a moral issue has resulted in Prohibition-Era tobacco policies and real-world economic consequences.

The Price of Prohibition: Illicit Tobacco Trade

I recently discussed Tacit Incremental Prohibition – Tobacco Elimination, or TIP-TOE (here). A new report from the United States Government Accountability Office (GAO) provides important lessons about how prohibitive policies have created a thriving illicit tobacco industry (read the report here).

The report highlights New York City, where the cost of a pack of name-brand cigarettes is a prohibitive $13.00. Here is a breakout of where that money goes:

Cigarettes at $13 Per Pack: Where the Money Goes
Who	How Much ($)	Percent (%)
Manufacturers	4.91	38
Tobacco Farmers	0.06	< 1
States (Master Settlement)	0.56	4
Local Govt. (Sales Tax)	0.61	5
Local Govt. (Excise Tax)	1.50	12
State Govt. (Excise Tax)	4.35	33
Federal Govt	1.01	8

Manufacturers, who produce, package, ship and market the cigarettes, get 38% of the purchase price. Everyone else, including local, state and federal governments, get the lion’s share. New York taxes are so high, compared to those in other states, that they have spawned a major, lucrative illicit cigarette industry. GAO breaks out the key elements:

1. Smuggling genuine and counterfeit cigarettes from foreign countries to the U.S. For example, in January the Customs and Border Protection announced that more than 22,000 cartons of counterfeit Marlboros were intercepted at the Los Angeles/Long Beach seaport complex after being shipped from China (story here).

2. Unlicensed manufacturers, located in northern New York on land controlled by the St. Regis Mohawk tribe, can produce a carton of cigarettes that sells for $20 in New York. This region is also the source for the contraband cigarettes that comprise half of all consumption in Ontario and 40% in Quebec (article here). A recent article describes the impact of illicit cigarette sales throughout Canada (here).

3. Diverting cigarettes during distribution and retail to avoid local and state taxes. “According to federal and state law enforcement officials, there are many different types of diversion schemes at the wholesale and distribution level of the supply chain. [Alcohol, Tobacco and Firearms] officials stated that criminal organizations may purchase state excise tax-paid cigarettes from wholesalers in a state with low state excise taxes, like Virginia, and illegally transport those cigarettes for resale in a state with higher excise taxes, like New York, to capitalize on state excise tax differentials.” The GAO reports that just one carton (10 packs) of cigarettes travelling from Richmond, VA to New York City will avoid $55.50 in taxes.

We can only guess at the huge scale of economic activity related to contraband cigarettes. Every so often, authorities announce a large seizure, such as one on March 8 at the Ontario-Quebec border involving six million cigarettes (here).

Excessively high taxes are irrational and counter-productive. New York should follow Kentucky’s rational risk-based tobacco tax policy, enacted in 2005, which bases excise taxes for cigarettes and smokeless tobacco products on differential risks. It recognizes that “[t]he relative taxes on tobacco products…reflect the growing data from scientific studies suggesting that although smokeless tobacco poses some risks, those health risks are significantly less than the risks posed by [cigarettes]…Taxing tobacco products according to relative risk is a rational tax policy and may well serve the public health goal of reducing smoking-related mortality and morbidity and lowering health care costs associated with tobacco-related disease.”