* Illicit trade costs up to $40 bln in lost annual taxes
* Tobacco product packets to have trackable serial numbers
* Duty free ban would cost $3 bln/yr - airlines, airports
* Pact to cost “hundreds of millions of dollars” - BAT
By Stephanie Nebehay
GENEVA, March 19 (Reuters) - A global pact to halt smuggling and counterfeiting of tobacco products, which costs governments up to $40 billion a year in lost taxes, has become bogged down over ways to trace products, officials said on Friday.
The agreement would also ban duty-free sales of cigarettes, popular with international air travellers, but which health campaigners claim are often diverted into illicit trade.
The aim is to reach agreement in Geneva by Sunday ahead of a meeting in November in Uruguay where the pact could be adopted.
But by Friday, debate had not even begun on duty-free sales.
Campaigners have accused multinational tobacco companies and duty-free lobbyists of trying to derail the week-long negotiations being held among officials from 168 countries under the auspices of the World Health Organisation (WHO).
“There is a consensus that track-and-trace measures are needed to combat traffic in illicit products,” Vijay Trivedi, policy advisor to the WHO Framework Convention on Tobacco Control (FCTC) secretariat, told Reuters.
“The devil lies in the detail,” he said.
The closed-door talks have stumbled over discussions of details, mainly a “tracking-and-tracing” system for tobacco products at the heart of the new treaty, formally a protocol to the 2005 Framework Convention on Tobacco Control.
The draft treaty would require countries to license tobacco manufacturers and retailers and set up the tracing regime with a global data base.
Within three years of adoption, all unit packets of cigarettes would have to be marked with unique serial numbers.
Philip Morris International, (PM.N), which sells Marlboro cigarettes and is the world’s largest non-state-owned tobacco firm, and British American Tobacco (BATS.L), the world’s second-biggest cigarette maker, say that they would back a protocol with effective measures against illicit trade.
But they say that a tracking system must cover all countries and producers and warn its cost will be passed on to smokers.
“I would say it would cost hundreds of millions of dollars for the industry to implement,” Pat Heneghan, global head of anti-illicit trade at BAT, told Reuters.
“There are also physical challenges with high-speed production of tens of thousands of cigarettes per minute to get the code on every pack and registered in a data base at that speed,” he said.
Goekhan Aladag, director of regulatory and fiscal affairs at Philip Morris International, said that it began tracking and tracing 10 years ago at the level of master cases, which contain 50 cartons each. The system is now implemented in 124 countries.
“We are implementing carton tracking in risk markets,” he said, naming Russia. “We’re working to extend it to pack level.”
Tobacco kills 5.4 million people a year from cardiovascular disease, cancers, diabetes and other illnesses, the WHO says.
Illicit trade cheats governments of lost tax revenues and undermines efforts to reduce tobacco use and save lives. “It is a double whammy for governments,” said Trivedi.
“Having a licensing system on a global scale would be a significant improvement in combating illicit trade and would wipe out a significant portion of smuggling,” a Western government official at the talks told Reuters.
“The biggest issue of contention is whether you have to license retailers,” he said.
The 2005 treaty obliges governments to protect their populations from exposure to tobacco smoke and reduce demand through price and tax measures, regulating packaging and labelling of tobacco products and curbing tobacco advertising and sponsorship.
“There is still a lot of optimism that a decision can be reached. But it will take a lot of work and negotiations,” said Gigi Kellett of Corporate Accountability International. “We want to make sure an effective protocol comes out at the end.”
Airports, airlines and duty-free operators are fighting the ban on duty-free tobacco sales. In a joint statement they said $3 billion in annual revenue would be lost despite “no evidence whatsoever” that products intended for duty-free are diverted.