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Smuggling: Tobacco

Volume 475: debated on Friday 9 May 2008

To ask the Chancellor of the Exchequer if the UK will sign the EU anti-smuggling agreement with Japan Tobacco International; and if he will make a statement. (204472)

The UK is not currently party to the agreement between Japan Tobacco International and the European Community and its member states ("the JTI Agreement"). Since the launch of the Government's Tackling Tobacco Smuggling Strategy in 2000, a comprehensive range of new measures has been introduced to counter the threats from tobacco smuggling. In particular, HM Revenue and Customs have Memoranda of Understanding (MoUs) with all major UK tobacco manufacturers, which form a strong framework for cooperation with the industry to tackle the illicit trade in tobacco. In 2006, when the strategy was refreshed, these MoUs were underpinned with the introduction of new supply chain control legislation, which places a legal obligation on tobacco manufacturers not to facilitate smuggling, along with penalties of up to five million for those who fail to comply.

The MoUs and the legislation cover many of the same issues contained in the JTI Agreement, though with some key differences in detail. For example, the legislation contains no significant exclusions, whereas the JTI Agreement does not cover products that have been duty paid in another EU member state and then smuggled into the UK. This would limit the Agreement's impact on the UK tobacco smuggling problem and could also cause legal difficulties if the Agreement and the UK legislation were to operate in parallel.

It is important also to note that the UK legislation and MoUs cover all major manufacturers. This ensures a level playing field for manufacturers, as well as guarding against the risk that smuggling is displaced to products not covered by an Agreement. We are committed to keeping our position on Agreements such as the JTI Agreement under review, to take account of any further Agreements that might be signed.

To ask the Chancellor of the Exchequer if he will assess the effect that the Memorandum of Understanding Gallaher signed with Customs and Excise on 23rd April 2002 had on the subsequent proportion of Customs and Excise's seizures of smuggled tobacco products in 2003-04 that were genuine Gallaher brands; and if he will make a statement. (204536)

HM Revenue and Customs (HMRC) publishes details of the cigarettes and hand-rolling tobacco seized in its annual reports.

The Memoranda of Understanding (MoUs) agreed between HMRC and leading UK tobacco manufacturers form one strand of the Government's “Tackling Tobacco Smuggling” strategy—a comprehensive package of measures which together have resulted in a steady decline in the size of the illicit tobacco market, from around 20 per cent. in 2001-02 to around 13 per cent. in 2005-06. Levels of seizures can be affected by a number of factors, so it is not possible to attribute changes in the proportion of seizures made up of a tobacco manufacturer's genuine brands directly to a MoU. Even if it were possible, the level of seizures would be only one indicator of the effectiveness of the Government's strategy. The key indicator is the size of the illicit market. HMRC publishes estimates of the illicit market share annually in the ‘Measuring Indirect Tax Losses’ report, which can be found in the Commons Library. In the last few years, seizures of genuine cigarettes made by HMRC have made up a progressively smaller share of total seizures, which is a further indicator of the positive effect of the MoUs.