Facts & Figures About Contraband

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Global Scope Of Cigarette Contraband

Global cigarette consumption in 2001 is estimated at 5.54 trillion units [Maxwell report 2002]. There is no official data on the total volume of contraband cigarettes and any stated figures are at best estimates. To better understand the scope, we look at the three components of such data, namely, unaccounted exports, bootlegging and counterfeit.

Unaccounted Exports

The legal cigarette industry, like any other global concern, exports a significant amount of its production. These goods usually leave the country of manufacture exempt of all duties and taxes and are considered in transit (during this time they can be bought and sold, sometimes by multiple parties unknown to the manufacturer) until they reach the final country of destination where import duties and taxes are then payable.

The term "unaccounted exports" is used to describe those industry exports that do not re-appear in official statistics as imports and thus are presumed by some to have been smuggled. The logic used by those making these claims is deceptively simple; whatever is recorded as an export in one country should also be recorded as an import in another. Based on this logic, for example, the latest 2001 data shows the unaccounted difference was 167 billion units, barely 3% of total world production. [USDA, FAS, Special Report, Sept. 2002]

However, in many countries, accurate statistical data is not readily available and therefore this figure, for certain, is over estimated. In addition, concrete measures have been taken to address whatever portion of exports were being imported by third parties without payment of taxes and duties properly due on them, and unaccounted for export volume has been substantially reduced as a result of the enhanced efforts by certain manufacturers, including JTI.

Bootlegging "duty paid" contraband

Bootlegging occurs when a significantly different tax-inclusive retail sales price in a neighboring country or within separate states of a same country, encourages the product to infiltrate across the border. It is the hardest form of contraband to control. The purchase is straightforward as is fully legal and only becomes illegal when the goods are moved across a state or country border. Increasingly large price and tax differentials within many regions of the world mean that bootlegging is a growing phenomenon and, as evidence shows, is being progressively adopted by organized crime

Counterfeit - the fastest growing form of cigarette contraband

The World Customs Organization pointed out in January 2003 that 15% of all contraband cigarettes seized are in fact counterfeit. The amount of counterfeit cigarettes produced each year in China alone is estimated to be up to 100 billion cigarettes, as acknowledged by a representative of China's State Tobacco Monopoly Administration. Although the Chinese government has taken steps to curb counterfeiting, seizing 5.7 billion counterfeit cigarettes over a series of 3,674 raids in China in 2000, the total seized counterfeit products account for less than 6% of total estimated production.

China is not the only country where counterfeit cigarettes are manufactured. Counterfeiting factories have been discovered in Albania, Bulgaria, Indonesia, Macedonia, Malaysia, Montenegro, Myanmar, North Korea, Paraguay, Philippines, Russia, Thailand, the United Arab Emirates, and Vietnam. Furthermore, as counterfeiters adopt sophisticated printing technology, it is becoming more and more difficult to detect illegal product and it is often misidentified as genuine industry output.