Sparks flying in cigarette dispute

30.04.08 15:59 Filed in: The Prague Post
Ríman calls on EU to resolve Czech-Austrian squabble

A Czech-Austrian trade row over cigarettes is catching fire.
Industry and Trade Minister Martin Ríman is now calling on groups afflicted by Austria’s limit on Czech cigarette imports, like the “trafika” newsstands dotting the border, to sue the country through the European Union legal system.
Austrians are allowed to bring only 200 cigarettes, 100 cigarillos, 50 cigars or 250 grams of loose tobacco home from their visits to the Czech Republic — limits that technically should apply only to non-EU states. For member states, the EU sets guideline levels four times higher.
“This is not about getting more money to flow into the state treasury. It’s a matter of principle,” said Tomáš Bartovský, spokesman for the Industry and Trade Ministry. “[In this case] one EU member state is restricting the free trade of goods from another member state.”
It’s atypical for member states to file complaints against each other, hence Ríman’s plea to tobacconists, Bartovský added.
The Czech Republic had drawn complaints for its low cigarette taxes, but those taxes were raised to proper EU levels at the start of the year, which coincided with the end of an EU grace period. Taxes now sit at 1.92 Kc ($0.12/0.08 euros) per cigarette. But despite the Czech compliance, Austria has still not lifted its restrictions.
The Austrian government has defended its actions, saying it needs to fight illegal cigarette smuggling. Officially, it says, the lower limits only apply to packages that do not feature health warning messages in German. A glued-on label is not deemed sufficient.
Austria tries to control tobacco consumption, because of its adverse health effects, by setting minimum prices and high tobacco taxes, said Harald Waiglein, the Austrian Finance Ministry’s spokesman.
“Unfortunately, the import or smuggling of cheap cigarettes on a grand scale from neighboring countries to the east thwarts these efforts,” Waiglein said. As a result, teenagers, especially, smoke more cigarettes than they could afford to buy at Austrian prices, foiling Austria’s health policy, he said.
About 14 billion cigarettes are sold in Austria legally each year. Customs officials confiscated some 79 million smuggled cigarettes last year and the number of unrecorded cases can not be reliably estimated, Waiglein said.
Cigarette smuggling between the Czech Republic and Austria remains attractive because of the price difference between their cigarettes, which leaves room for substantial profit.
The cost of a package of Petra cigarettes, a common brand, averages 57 Kc, according to the Czech Statistical Office. In Austria, the minimum price of a pack is 3.25 euros ($5.20/81.38 Kc). There is no price floor in the Czech Republic.
The difference in excise taxes drives this disparity, since the vast majority of cigarette prices are composed of taxes, said Dominic Brisby, general manager of Imperial Tobacco CR. Although the Czech Republic has had a rapidly increasing excise tax for cigarettes, they are still much cheaper here than in Austria and Germany. This fuels the black market.
“The illicit trade in tobacco products benefits only criminals, creating a black market that is uncontrolled and unregulated and which threatens governments, consumers and legal tobacco manufacturing as well as the distributive trade,” Brisby said.
Imperial Tobacco has signed a memorandum of understanding with customs authorities and will “work very closely with them to help tackle this [problem],” he added.
While cross-border trade may interfere with cigarette companies’ pricing strategies, they have not asked Ríman to take action on their behalf. Brisby said that his company does not have a position on the issue, but is aware that some of its wholesale and retail partners have concerns about the Austrian import restriction.
Austria isn’t the only country dealing with smuggling. The Czech Republic serves as both a transit point and as a destination for illicit tobacco products, Brisby said. Taxation is the cause of such smuggling, his company contends.
“The driver of tobacco smuggling is high taxation, and we have concerns about an increased level of inflow once the full impact of the latest excise tax increase takes effect,” Brisby said. “The higher the tax, the higher the incentive is for the criminal.”
Austria’s health minister, Andrea Kdolsky, is adamant that lowering taxes in her country is not an option, however. In a written answer to Ríman, she said that the Austrian government needs to protect the health of its citizens.
“To us, it seems as though in reality they want to protect their domestic [tobacco] retailers,” countered Bartovský. Ríman will contact Austria’s Health Ministry once more for further discussion, Bartovský added.
Late last year, the Austrian Finance Ministry made a pact with tobacconists, who by law hold a monopoly on the sale of tobacco products, a tradition going back to Emperor Joseph II. They had threatened to go on strike should import restrictions be lifted. The pact will see cigarette prices rise by 10 percent, with that extra cash money going toward a “solidarity fund” to help retailers close to the Czech border.
Meanwhile, Austrian media reports have raised the possibility of going back to pre-EU-accession limits on cigarettes. Austrian officials denied any such plan.
“As the Czech Republic has reached the minimum level of taxation for cigarettes, it is legally not possible to set the limit back to 25 cigarettes,” Waiglein said.