This organisation represents the interests of some 17 companies, most of whom specialise in imported tobacco products, the main emphasis being in imported cigars and pipe tobacco, and, in some cases cigarettes and hand-rolling tobacco (HRT). Whilst the precentage of the total market they represent is small it is, in most cases, their sole business and their prosperity, and indeed survival, is dependent upon an orderly market.

  We comment only upon Part One of your notice.

  1.  Customs & Excise (C&E) have a long history of enforcing the Customs Regulations and importers have always been aware that these must be adhered to. Until fairly recent years the movement of tobacco products was only possible through Bonded warehouses and product could only be removed to home use upon payment of the appropriate excise, which had to be pre-agreed with C&E. Latterly duty deferment was introduced but C&E's control was unaffected. We believe that for straightforward transactions by importers clearing goods for home use C&E requirements are clear and workable and can be complied with by importers.

  2.  The reference to the "shadow economy" in 1. above is more directly concerned with this question covering bootlegging and smuggling. Much work has been done by this organisation and the Tobacco Manufacturers Association (TMA) together with C&E since smuggling became significant over the last six years. What started as a relatively insignificant problem, mainly confined to HRT has now grown to enormous proportions. Government admitted a year ago that the loss to the Revenue was £1.5 billion but it is generally believed that this is now more likely to be £2 billion, and growing rapidly.

  The trade has had many meetings with C&E to discuss this and try to find a way to overcome the problem. Many of the 90 recommendations made by C&E's ATFR review would have merely made life more arduous and burdensome for legitimate traders than now and would not have effectively stopped those intent on circumventing the regulations.

  C&E, with the best will in the world, are relatively powerless to tackle this problem. The vast daily traffic across the Channel makes it impossible to stop every vehicle or passenger without such traffic grinding to a halt. The £35 million extra funding granted to C&E a year ago to tackle this problem resulted in relatively few extra officers being employed and in any case the target they were set was to achieve an extra Revenue of £80 million, a drop in the ocean compared to the total losses.

  We do not believe that C&E can reasonably be expected to achieve much greater detection of smugglers given that the root cause is not created by C&E but by the very best difference in values of tobacco products between this country and our near neighbours in Europe.

HRT is some five times more expensive here than in Belgium.

Cigars, particularly large cigars, are nearly three and a half times more expensive than in Spain.

Cigarettes are some three times more expensive here than most of continental Europe.

  The opportunity for enormous profits to smugglers, many of whom make three trips a day, with profits of at least £5,000 per trip has led to a black economy which is having severe implications on importers and on thousands of small retailers and is now having an effect on employment. The increased penalties on conviction recently introduced have had minimal effect, bearing in mind that less than 5 per cent of smugglers are detected.

  None of this is the fault of C&E but of the levels of Excise imposed by the Chancellor, and the industry has repeatedly warned him and the Treasury of the consequences of this action. However the health lobby has acquired power far beyond what would be reasonable, bearing in mind that almost a third of the population choose to enjoy a legitimate product.

  It is clear that the problem of smuggling could be resolved at a stroke by reducing excise levels on tobacco products to about halfway towards the levels in Europe which would reduce smugglers' profits to a level that would be uneconomic for them. Government's comment on this is that it would contradict their health policy but the question must be asked whether a step in this direction would not be better than to encouarge a black economy, which also has given rise to law and order problems.

  3.  We have no comment.

30 September 1999