In September, the European Scientist covered the efforts of governments in both Europe and sub-Saharan Africa to institute tobacco traceability systems in line with World Health Organisation (WHO) recommendations. In this exclusive interview with Allen Gallagher, tobacco control researcher at the University of Bath and a partner in the Stopping Tobacco Organisations and Products (STOP) project, and Michael Eads, managing director of Sovereign Border Solutions and former executive for customs modernisation at the South Africa Revenue Service (SARS), we take a closer look into why the WHO’s guidelines for the tracking and tracing of tobacco products matter for curbing the illicit trade and protecting public health.
Could you explain for our readers why the concept of traceability or “track and trace” matters for combatting the illicit trade in tobacco products? How do these systems impact public health and government revenues?
Tracking and tracing the legitimate supply chain aims to reduce the supply of illegal tobacco products, given that such products are often diverted from legal supply chains before ending up on the illicit market. The illicit tobacco trade is a serious public health problem as it puts more product on the market, often at a cheaper cost that makes it easier for young people to start using tobacco and for current users to continue consumption.
As such, illicit trade increases overall tobacco consumption levels and exacerbates health inequalities. Lower cost products appeal to the most price-sensitive smokers, which tend to be those of lower socio-economic status. Research has estimated that, globally, more than 164,000 premature deaths per year could be prevented from 2030 onwards if there was no illicit tobacco trade.
Traceability of products is nothing new. Most products are traced to their origin of manufacture in order to assure quality and deal with any potential recalls (e.g. in the automotive industry, every component should be traceable). Track and trace (together referred to as traceability) involves three essential technical components:
- The first is a unique identifier (UID), much like a standard serial number. This establishes the uniqueness of the item (e.g. a pack of cigarettes).
- The second involves security features that ensure the product is genuine and that taxes have been paid. There are many ways of doing this, similar to those features we find on currency (banknotes) and identifying documents like passports. Available technologies include inks, printing techniques, and other features such as holograms, reflective foils, and in some cases embedded fibres.
- The third is the capturing of supply chain “events,” from the manufacture of the product to when it exits the warehouse and when it enters the distribution chain. The product is scanned along these supply chain events using standard data carriers (like bar codes or QR codes) and each event is logged in a database. This allows enforcement officers to know where a product was made, and where it may have potentially entered an illicit channel.
These technologies are standard for many products in a typical supply chain. For tobacco products, traditional tax stamps (with robust features) are combined with the other two technologies (UID and data carriers) and applied to products in the supply chain.
What are the best practices when it comes to implementing a “good” traceability system? How do the protocols put forward by the Framework Convention on Tobacco Control (FCTC) impact effectiveness?
There are several resources that identify best practices for track and trace systems. STOP, a global tobacco industry watchdog, has published a policy brief on “Protecting Your Country’s Tobacco Track and Trace System From the Tobacco Industry.”
Tobacco companies, for their part, have a clear incentive to undermine effective tracking and tracing. STOP’s brief outlines how governments must ensure they implement the Protocol to Eliminate Illicit Trade in Tobacco Products (‘the Protocol’) fully in line with Article 5.3 of the global Framework Convention on Tobacco Control (FCTC), to ensure their systems are free from tobacco industry influence. There is a requirement within the Protocol itself that each country’s obligations “shall not be performed by or delegated to the tobacco industry.”
STOP makes a range of recommendations for governments trying to implement a track and trace system for tobacco products, including recommending that they:
- Ensure their tendering process for their system is fully transparent;
- Source solution components independently from the industry; and
- Maintain direct contractual control over any service providers involved in the development of the system.
The Framework Convention Alliance also has a detailed guidebook on implementing Article 8 (on tracking and tracing) of the Protocol, which highlights a range of best practices. ISO standard 22382:2018 provides guidelines and best practice for tax stamps used for track and trace. The Protocol itself includes high level requirements but does not specify particular technologies.
The FCTC is quite insistent on keeping tobacco companies out of the policymaking process. To what extent do officials in Europe and other signatory countries adhere to that rule?
A key obligation in the FCTC is Article 5.3, which requires governments to protect tobacco control policies from the vested interests of the tobacco industry. There are guidelines to help governments adhere to this obligation, including limiting government interactions with the industry as much as possible and ensuring that any interactions that do take place are transparent
STOP’s “Global Tobacco Industry Interference Index” aims to assess how well governments across the world have implemented Article 5.3. Last year’s report ranked a group of 33 countries drawn from Africa, the Eastern Mediterranean, Latin America, North America, Europe, South Asia, South East Asia, and the Western Pacific, based on the measures their governments have in place to prevent tobacco industry interference.
The rankings for the three European countries featured in the report were quite varied. The UK was found to have the lowest level of industry interference, but still had room for improvement. France ranked 6th and Ukraine 19th. These countries all scored better than South Africa (which ranked 25th), but all countries need to keep working to ensure that policy processes are protected from the tobacco industry. Tobacco companies that stand to gain from having policy influence will always work to achieve this, in every country.
On a general level, how does the tobacco industry approach the subject of traceability for their products? Do we see variations in the stances of different companies, or do they approach the issue as a bloc?
Effective tracking and tracing of tobacco products is such a threat to the industry that major tobacco companies have worked collaboratively to undermine the process via promotion of their own ineffective track and trace solution, first known as Codentify.
In 2010, Philip Morris International (PMI) licensed Codentify for free to its main competitors (British American Tobacco, Japan Tobacco International and Imperial Brands). In, 2011 these companies, along with PMI, formed a group called the Digital Coding and Tracking Association (DCTA). DCTA spent the following years promoting Codentify, often without disclosing its links to the tobacco industry.
In 2016, DCTA sold the Codentify technology to a then-new company called Inexto, which has various ex-PMI staff on its payroll. Inexto has engaged with government bodies in Europe and beyond, many of whom are probably unaware of Inexto’s links to the tobacco industry.
So, while all of the major tobacco companies will publicly purport to support the Protocol and its track and trace provisions, they have all in reality been involved in working together to undermine them over the past decade.
To get into more specific terms, what is the relationship between the tobacco industry and the rules set out by the FCTC? To what extent do they abide by those rules, and to what extent do they try to subvert them?
Tobacco companies try to undermine the FCTC in many ways. Taking Article 5.3 as an example, tobacco companies have been particularly effective in subverting the Article’s implementation when it comes to government responses to the illicit tobacco trade. As outlined above, the tobacco industry used a range of third parties to promote its own track and trace technology to governments.
This is a clear example of one of the industry’s key strategies – using third parties, whose links to the industry are not transparent, as a way of gaining involvement in and influence over tobacco policy. Another example would be the many cases across the world of governments signing non-enforceable ‘memorandums of understanding’ with tobacco companies to try and address the problem of illicit tobacco. The guidelines for implementing Article 5.3 recommend governments “reject partnerships and non-binding or non-enforceable agreements with the tobacco industry.”
How much influence does the tobacco industry exercise over the South African government in general, and the revenue service (SARS) in particular?
The tobacco industry and government regulators in South Africa have had a longstanding, co-operative relationship. Much has been written about the tobacco industry’s influence over the policy process in South Africa; further details are outlined in the recent STOP case study on South Africa’s progress in implementing tracking and tracing.
The STOP website also contains an overview of tobacco industry influence in the country, based on a range of key indicators including industry participation in policy development. Using that specific indicator, tobacco industry interference continues to occur in many government departments, including through consultations and meetings between tobacco industry representatives and SARS but also the National Department of Finance, the South African Police Services (SAPS), the Department of Trade and Industry (DTI), the Department of Agriculture, Forestry and Fisheries (DAFF), and others.
How compliant is South Africa with the FCTC’s recommendations on issues like tobacco traceability, and how does South Africa’s experience with the FCTC compare to Europe’s?
South Africa currently uses an outdated fiscal mark, known as the Diamond Stamp, that is not fit for purpose. The South African government has not yet implemented any of the supply chain controls set out in the Protocol to Eliminate Illicit Trade in Tobacco Products. Having now cancelled its track and trace tender, South Africa still has a long way to go.
The EU, on the other hand, implemented its own tobacco track and trace system in May of last year, but this system is by no means perfect. For example, some of STOP’s research, as well as comments from the Framework Convention Alliance, have revealed concerns regarding the compatibility of specific components of the EU’s system with the Protocol.
South Africa should work on implementing its own independent and effective track and trace system. While it develops that system, South Africa should learn from the EU’s experience by developing a system that unquestionably complies with all the Protocol’s requirements.
What impact did South Africa’s ban on tobacco products (as well as alcohol) have on tobacco control efforts?
Survey research from the University of Cape Town indicates the ban led some smokers to quit smoking, which is positive from a public health perspective. The research also identified a 250% average increase in price during the lockdown, compared to pre-lockdown prices. This indicates that most smokers were willing to pay well beyond the usual retail price in order to obtain cigarettes.
Major tobacco companies have responded by increasing their prices post-lockdown, knowing consumers will still pay. This is all additional income that goes into the pockets of the companies, not the government. From a tobacco control perspective, the primary impact of the ban is that it confirms the current excise tax levels on tobacco products in South Africa are far too low.
Why did Edward Kieswetter, the head of SARS, cancel the existing tender for a “track and trace” system in South Africa? What indications has he given regarding the future of such a system in the country?
The tender was initiated under Zuma-appointed Tom Moyane’s tenure at SARS, which was the subject of many scandals and accusations of state capture by loyalists to the former President. Given all of this prior controversy, Kieswetter’s cancellation of the tender after he became the Commissioner is potentially justifiable.
However, the Commissioner has since stated that SARS’ illicit trade strategy “may or may not require track and trace”. Given the importance of effective tracking and tracing in addressing the illicit tobacco trade, any suggestion South Africa may not introduce such a system is concerning.
What lessons should South Africa learn from the European experience, and what lessons should European governments take from South Africa?
There are a number of lessons South Africa can learn from the EU’s implementation of its track and trace system in May of last year. The EU has moved in the right direction by committing to tobacco traceability, whereas South Africa appears to now be moving away from such an approach. As such, the first lesson is that South Africa should work to implement an independent and effective system for tracking and tracing tobacco products.
There are also lessons South Africa can learn from the concerns surrounding the EU’s system. The EU adopted a system with a mixed governance approach, which provides important responsibilities to the tobacco industry, namely allowing tobacco companies to select data storage providers and auditors for the system.
While it should be noted the European Commission vets these submissions and ultimately can refuse them, the amount of input that tobacco companies have in the system is problematic. South Africa, and other countries working to address the illicit tobacco trade, should learn from these weak points in the EU’s system and implement measures to ensure protection against all tobacco industry interference.