Tobacco Smuggling Irks Canada
Antismoking lobbies accuse Canadian tobacco companies of encouraging the contraband
MONTREAL — CANADIAN tobacco companies are being accused of encouraging cigarette smuggling in an effort to boost sagging sales.
Stiff taxes on tobacco have dramatically cut cigarette consumption in Canada, especially among teenagers. But a Canadian antismoking group says the tobacco firms are selling cheap cigarettes in Canada by exporting them first to the low-tax United States.
"Ninety-five percent of the tobacco exported to the US is brought back either by professional smugglers or cross-border shoppers," says David Sweanor, staff lawyer with the Non-Smoker's Rights Association in Ottawa.
Mr. Sweanor says almost all the cigarettes smuggled back into Canada were produced here, because Canadian cigarettes are a different blend than American.
Cigarette smuggling is a big business for criminals. At a border crossing on the Quebec-Vermont line, Canadian customs officials say cigarette smuggling has become one of the most serious offenses.
"We found a car with 650 packs hidden in the door panels and under the seats," says Donald Crook, a customs officer.
The economic reasons for smuggling are simple: Canada's tax, designed to discourage smoking, pushes the average price of cigarettes to $5.50 (Canadian; US$4.62), versus $1.74 in the US. And the smugglers run little risk.
Fines are low, although cars, trucks, and boats used to carry contraband cigarettes can be seized. A tractor-trailer of cigarettes, driven across an unguarded road at night, can net a small fortune in profits for the smugglers, and for the Canadian tobacco companies who shipped the cigarettes legally to the US.
"The Canadian tobacco companies are profiting by smuggling because they are supplying the market," Sweanor says.
The Non-Smoker's Rights Association worries that progress in getting Canadians to kick the tobacco habit will be eroded by cheap imports smuggled in tax-free. Since the Canadian government decided to raise tobacco taxes in 1980, consumption has dropped and today only 26 percent of adult Canadians smoke.
"We started at a per capita rate that was higher in Canada than in the United States; now it is much lower," Sweanor says. He also points to the teenage smoking rate which has dropped from 48 percent in 1980 to 16 percent.
"The teenage market is very price sensitive and lower prices could have some of them back smoking," Sweanor says. The tobacco industry uses many ploys to make smoking cheaper, he says, including selling packages of 15 and loose, roll-your-own tobacco, which was taxed lower than manufactured cigarettes.
SWEANOR'S lobby had the Canadian government boost taxes on loose tobacco.
"As they come up with a new gimmick, we work to knock it down," Sweanor says. "Their latest ploy is to ship tobacco to the lower-taxed United States."
Cigarette manufacturers deny the charge. "I'm not knowledgeable about smuggling activities," said Joe Heffernan, president of Rothmans Inc., last week.
But his sales department must be. Figures from Statistics Canada, a government agency, show that cigarette exports to the US jumped sharply for the second straight month. That happened after the federal government suspended a $1-a-pack tax on cigarettes exported to the US.
The Canadian manufacturers forced the tax change by saying they would shift production from Canada to the US, with a loss in jobs and tax revenue.
On another front the government is moving to stop the flow of illegal cigarettes into Canada. Ottawa has bought 45 new detector kits, at a cost of $15,000 each.
Canada Customs has made 8,300 tobacco seizures this year, representing more than $9 million in duties and taxes evaded.
"Hundreds of millions of dollars are being lost through smuggling," said federal Revenue Minister Otto Jelinek in announcing the plan. "It's an epidemic we have to get under control."
The Anti-Smokers Rights Association agrees. But it is not as interested in tax revenue as it is in continuing to lower the number of Canadians addicted to tobacco.