Understanding the U.S. Illicit Tobacco Market:: Characteristics, Policy Context, and Lessons from International Experiences

Understanding the U.S. Illicit Tobacco Market:: Characteristics, Policy Context, and Lessons from International Experiences


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Tobacco use has declined because of measures such as high taxes on tobacco products and bans on advertising, but worldwide there are still more than one billion people who regularly use tobacco, including many who purchase products illicitly. By contrast to many other commodities, taxes comprise a substantial portion of the retail price of cigarettes in the United States and most other nations. Large tax differentials between jurisdictions increase incentives for participation in existing illicit tobacco markets. In the United States, the illicit tobacco market consists mostly of bootlegging from low-tax states to high-tax states and is less affected by large-scale smuggling or illegal production as in other countries. In the future, nonprice regulation of cigarettes - such as product design, formulation, and packaging - could in principle, contribute to the development of new types of illicit tobacco markets.

Understanding the U.S. Illicit Tobacco Market reviews the nature of illicit tobacco markets, evidence for policy effects, and variations among different countries with a focus on implications for the United States. This report estimates the portion of the total U.S. tobacco market represented by illicit sales has grown in recent years and is now between 8.5 percent and 21 percent. This represents between 1.24 to 2.91 billion packs of cigarettes annually and between $2.95 billion and $6.92 billion in lost gross state and local tax revenues.

Understanding the U.S. Illicit Tobacco Market describes the complex system associated with illicit tobacco use by exploring some of the key features of that market - the cigarette supply chain, illicit procurement schemes, the major actors in the illicit trade, and the characteristics of users of illicit tobacco. This report draws on domestic and international experiences with the illicit tobacco trade to identify a range of possible policy and enforcement interventions by the U.S. federal government and/or states and localities.

Product Details

ISBN-13: 9780309317122
Publisher: National Academies Press
Publication date: 04/30/2015
Pages: 240
Product dimensions: 6.00(w) x 8.90(h) x 0.40(d)

Table of Contents

Summary 1

1 Introduction 13

Context and Committee Charge 13

FDA Authority and Responsibilities 19

Tax Avoidance and Tax Evasion 23

Lost Lives and Lost Revenues 26

The Role of the Tobacco Industry 27

Learning from Elsewhere 28

Organization of the Report 29

2 Characteristics of the Illicit Tobacco Market 31

The Supply Chain and Illegal Procurement Schemes 31

The Role of Tax and Price Factors 42

The Role of Nonprice Factors 47

Estimates of Profitability 48

Summary and Recommendations 53

3 Participants in the Illicit Tobacco Market 55

Supply-Side Participants 55

Users of Illicit Tobacco 65

Youth Access to Illicit Tobacco 71

Summary and Recommendations 74

4 Measuring the Size of the Illicit Tobacco Market 77

Methods 77

Estimates for the United States 92

Summary and Recommendations 107

5 Interventions in the Illicit Tobacco Market: Policy and Regulatory Options 111

Controlling the Supply Chain 111

Tax Harmonization 127

Public Education Campaigns 130

Summary 136

6 Interventions in the Illicit Tobacco Market: Law Enforcement 139

Federal Enforcement 140

Enforcement in Two Key States: Virginia and New York 145

The Risks of Cigarette Smuggling 151

Enforcement Challenges and Opportunities 156

Summary and Recommendations 159

7 Interventions in the Illicit Tobacco Market: International Case Studies 161

Spain 161

United Kingdom 162

Canada 164

European Union 169

Summary 171

8 Possible Changes in Tobacco Products: Considering Consumer and Supply Responses 173

Policy Context 174

Product Appeal and Consumer Response 174

Supply 189

E-Cigarettes: A Tobacco Alternative 191

Summary and Recommendations 194

References 197

Appendix: Biographical Sketches of Committee Members and Staff 221

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