EU and BAT sign agreement for combating illicit trade in tobacco

British American Tobacco (BAT) and the European Union have entered into an agreement on co-operation to combat illicit trade of BAT cigarettes in the EU (43 pages, PDF). Individual Member States may choose, and are expected, to sign the agreement over time.

The agreement covers general co-operation between BAT and the Anti-Fraud Office of the European Community (OLAF) and also defines a set of payments BAT are to make to the EU Commission.

BAT is to make a payment of USD 200 million to the EU Commission over a 20 year period. Under the schedule of payments, Appendix F, this amount equates to EUR 134 million (as agreed between parties in November 2009). In Year 1, a payment of EUR 3 million is to be made, in Years 2 through to 19 there is to be an annual payment of EUR 6 million and in Year 20 a payment of EUR 23 million.

The agreement includes a number of specific measures that are actionable following a seizure by the authorities of a Member State participant to the agreement of 50,000 or more cigarettes bearing a BAT company trademark. In particular, the Member State may notify BAT of the seizure, via OLAF, and BAT will then arrange to inspect the seized cigarettes. If these are found to be genuine BAT cigarettes, BAT will provide OLAF with information on the source of manufacture and of the intermediaries that may have been involved prior to the seizure, provided this is reasonably available.

Under the agreement, for any seizure that it has been notified of, BAT will make a payment equivalent to the taxes and duties that would have been paid in the Member State at the time of the seizure. Further, if the total number of BAT cigarettes seized in the EU in that same calendar year is greater than 150 million cigarettes, then BAT will make a second payment equal to four times the taxes and duties that would have been paid on that seizure. In broad terms, only genuine BAT cigarettes that have been seized when in the process of being smuggled into the EU will trigger the payments and contribute to the running total. It follows that seizure of counterfeit cigarettes and seizure of genuine BAT cigarettes that have paid tax and duties in one Member States and were seized in the course of being smuggled to another Member States are excluded. These payments relating to the volume of seized cigarettes are independent of, and in addition to, the headline USD 200 million figure mentioned earlier.

The agreement covers cigarettes, roll-your-own tobacco and all other products containing tobacco intended to be burned or heated under ordinary conditions of use.

The agreement with BAT is in similar mould to the agreements signed with Japan Tobacco International (49 pages, PDF) in 2007 (for 15 years) and with Philip Morris (55 pages, PDF) in 2004 (for 12 years).

For further information or advice please contact Pedro Fernandes.

Reckon LLP is an economics consultancy with expertise in data analysis, economic regulation and competition law.

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