Suggestion 1: Adopt effective and proportionate tobacco control measures, and hold public hearings on proposed new amendments, to ensure that empirical experience and stakeholder views are fully considered in the policymaking process.
The Executive Yuan’s bill to amend the Tobacco Hazards Prevention and Control Act (THPCA) passed the first reading in the Legislative Yuan on December 29, 2017. Twenty three related bills initiated by individual lawmakers have also passed the first reading. Some of these bills call for extreme mandatory measures such as increasing the size of the Graphic Health Warning (GHW) to 85% of the space of the packaging, totally banning the use of flavoring and other additives in tobacco products and terminating a business’s import and manufacturing permit should it violate regulations three times within five years.
The industry in Taiwan has consistently supported effective and proportionate regulatory measures for tobacco products. But the above mentioned proposals are disproportionate and need to undergo careful evaluation.
During a meeting convened by the National Development Council on November 29 last year, the Ministry of Health and Welfare (MOHW) representative stated that the Ministry has convened three inter-ministerial meetings about the proposed amendments and completed its internal regulatory assessment, having carefully evaluated and considered the submitted recommendations of all stakeholders. If the proposed measures are adopted, however, they will cause severe harm to legitimate businesses and to workers involved in the tobacco-product supply chain. They are also likely to further exacerbate the chronic problem in Taiwan of illicit trade in untaxed and unregulated tobacco products.
Deviating from international norms, the proposal to increase the area devoted to the GHW from the current 35% to 85% far exceeds both the minimum (30%) and recommended (50%) health warning requirements established by the Framework Convention on Tobacco Control (FCTC). Furthermore, the measure would severely restrict the use of legitimately registered trademarks, as only the remaining 15% of the pack would be available for presenting lawful product information (such as trademarks and other information mandated or allowed by law). In addition, there is no empirical proof that the proposed ban on the use of flavoring and other additives in tobacco products would be an effective tobacco control measure, yet the prohibition would deprive legitimate businesses of the use of their trade secrets. These two measures would remove legitimate products’ ability to distinguish themselves in the marketplace through their distinctive packaging and product formulas. In addition to potentially constituting a trade barrier, the result would be to hinder fair competition in the market while driving up demand for illicit cigarettes.
The proposal to terminate legitimate business’s import and manufacturing permits if regulations are violated three times within five years poses additional difficulties. If passed, it would exacerbate the current problem of the lack of an objective standard in the enforcement of the law due to inconsistent interpretations by various county and city inspectors. The adverse effects would be felt not only by legitimate importers and manufacturers who may be forced to cease business operations, but also by the entire supply chain, leading to the loss of jobs and illicit cigarettes flooding the market. The damage to Taiwan’s regulatory framework and investment climate would be substantial.
In short, hastily and incautiously implementing the proposed measures will result in a wide range of negative impacts detrimental to the government, consumers, and legitimate businesses.
Prior to adopting the new regulations, the government should conduct a comprehensive assessment of whether the proposed policies can effectively reduce smoking incidence and carefully consider its impacts on consumers, the overall business and investment environment, the volume of illicit trade, and potential ramifications to the legitimate supply chain. Likewise, we urge the Legislative Yuan to hold public hearings prior to the legislative committee’s review on proposed new amendments, inviting all stakeholders potentially impacted by the policy to express their comments. By ensuring that relevant empirical experience and the views of all relevant stakeholders are fully considered during the policymaking process, any unintended consequences hopefully can be avoided.
Suggestion 2: Continue to strengthen regulatory enforcement against the trade in illicit tobacco products, restoring sound market conditions for legitimate products.
To help provide financial support for its policy of long term care for Taiwan’s elderly population, the government on June 12, 2017 increased the tobacco tax by NT$20 per cigarette pack. But as has happened with past tax hikes on cigarettes, the price increase has led to heightened demand for cheaper, illicitly traded products. That result has occurred despite the government’s efforts – through formulation of an “Advanced Enforcement Plan on the Illicit Trade of Tobacco
Products” – to enhance border and inland inspections, as well as to improve coordination among government agencies. Data published by the Ministry of Finance in January of this year revealed that seizures of illicit cigarettes increased by 111% last year over 2016. A record high of 20.86 million packs of illicit cigarettes were confiscated in a total of 2,123 separate incidents of seizure. Based on that volume, it can only be imagined how many illicit cigarettes reached the market without being caught by the government.
In many past issues of the Taiwan White Paper, the industry has reiterated that government policy on increases in the tobacco tax and health surtax (HST) should be based on principles of “reasonableness, moderation, and predictability.” Experience has shown that any drastic adjustment in the level of the tobacco tax or HST leads to a spike in the illicit trade. Although the government’s joint enforcement plan calls for the inspection of ships arriving at Taiwan ports, the smuggling and retail sale of illicit cigarettes continues unabated.
To reduce the risks associated with the illicit trade of tobacco products, we urge the government to consider the following countermeasures:
Increase penalties for traders of illicit tobacco products, so as to enhance the deterrent effect.
Increase the monetary enforcement reward, so as to further incentivize enforcement agencies to fight against the illicit trade.
Enhance the use of relevant existing information platforms to pinpoint high-risk hotspots and individuals for targeted law enforcement efforts
Produce awareness-campaign video clips urging citizens not to engage in the illicit trade of tobacco products or purchase illicit cigarettes.
Conduct research to understand the social, health, and financial ramifications of the widespread sale of illicit cigarettes being sold at below duty-paid values.