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Tobacco, the EU and Brexit

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The UK has decided by referendum to leave the EU (Brexit), a prime minister (David Cameron), has resigned and a new prime minister (Theresa May) is about to appoint her first cabinet.

Meanwhile, a number of ground breaking, game changing tobacco control issues are in play as a result of the EU’s Tobacco Products Directive. What will be their status post Brexit and what other potential unintended consequences affecting the UK tobacco market might there be? Could we expect any change in the UK's current restrictive approach to tobacco which often goes further than mandated EU minimums? The current Health Secretary Jeremy Hunt said in 2014 that Britain should aspire to being a smoking free country. Should he be replaced in the role in Mrs May’s first cabinet the attitude to smoking of his replacement will affect the tobacco industry operating environment but the appointment of a Health Secretary without anti-smoking credentials such as the veteran MP Kenneth Clarke (once a director of BAT and also Heath Secretary though not at the same time) is extremely unlikely.

In early May the European Court of Justice ruled that the contents of the Tobacco Products Directive (TPD) including standardisation of packaging, future EU-wide banning of menthol cigarettes and regulations for electronic cigarettes, were lawful, dismissing the objections raised by Poland, Romania, PMI and a maker of e-cigarettes. The ruling confirmed the legality of the TPD leaving the way open for governments to implement it by the deadline of May 20th. In summary the TPD requires 65% graphic pack warnings, a delayed ban on menthol flavouring, minimum pack sizes, ingredients control, a ban on misleading labels, and e-cigarettes regulated as tobacco. Of course the process of transposing the Directive into local law in 28 very different countries is no simple matter and there are areas where what is implemented will depend on interpretation and local political agenda, for example plain packaging.

Good news

In theory, Brexit could mean the UK not implementing any of the TPD (other than plain packaging which is already law) with no specific legislation on menthol flavouring which would be good news for tobacco companies and vapour device manufacturers. However, this would rely on the TPD not having been fully transitioned into UK law at the time that divorce proceedings formally begin (or a legal arrangement which resets the status of existing EU-derived regulation in UK national law). The UK has - at least in recent times - a record of going beyond minimums set down by EU law in respect of tobacco regulation (plain packaging, smoking in cars with children and the public smoking ban) so the prospect of a post-EU UK being markedly less restrictive on tobacco relies on an attendant realigning of the political consensus.

A possible change for smokers post brexit could be a return to duty free sales – duty free has been banned for flights between EU member states since 1999. However, although UK citizens lost the right to buy duty free items within the EU, as VAT and duty became included in the price of the goods, they were able to bring back as much as they wished without paying extra provided the items were carried by the traveller in question, duty had already been paid in the country where the goods were bought, and the goods were for personal use or to be given away as a gift. In practice this has meant UK travellers returning from the EU facing questioning by customs if they are carrying more than 800 cigarettes, 200 cigars or 1kg of tobacco. Would this still happen after a brexit? No one knows but it seems likely that a far smaller duty free allowance would be imposed similar to that for travel from non-EU member states ie either 200 cigarettes, 100 cigarillos, 50 cigars or 250g of tobacco duty free.

Brexit and cigarette prices

A possible effect which would have a bigger impact on the UK cigarette market could be hikes on pack prices. According to the Organisation for Economic Cooperation and Development (OECD), under World Trade Organisation rules, leaving the EU would mean tariffs of at least 70% being imposed on tobacco, meaning the average price of a packet of cigarettes might rise from £9.60 to £12.74. On the other hand, this situation might lead to more cigarette factories being opened (or reopened) in the UK in order to supply the market indigenously.

Snus benefit

Another consequence might be the return to the market of snus in the UK. Sweden is the only EU country where (for reasons of tradition) oral tobacco is not banned. For years Sweden and Swedish Match, have complained of the injustice of banning snus, where there is no combustion, while allowing cigarettes, clearly products carrying higher risk to health.

When Sweden joined the EU the country demanded and received a derogation (exemption) from the EU-wide Snus ban which was implemented in 1992. Swedish Match sells its snus in the US and elsewhere in the world outside the EU, but has been denied access to what is potentially a major market for oral snuff. Among arguments advanced for lifting the oral snuff ban in the EU has been the statistic that cigarette smoking prevalence is lower in Sweden than anywhere in the EU, largely because of the popularity of smokeless tobacco, with a consequent claimed beneficial impact on the health of tobacco users. This and other arguments would probably be deployed once the UK is operating outside the EU.

What now?

With the bewildering speed of change in the political landscape of the UK following the Brexit vote almost any forecast is a hostage to fortune. However it may safely be presumed that until the various legislative processes triggered by invoking Article 50 of the Lisbon Treaty (the legal and legislative means and process by which a country may leave the EU), which may itself require the passage of an Act of Parliament’, have been set in train, the plans already announced for new legislation affecting the tobacco industry will be implemented to established timescales.

In other words, until the time when the processes enshrined in article 50 have been completed, it is to be assumed that the implementation of the EU Tobacco Products Directive, passed in May 2015, will continue. This means the industry will have until May 20, 2017 to ensure plain packaging is introduced and until 2020 for menthol and other flavours to be removed from products.

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