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November, 2008


Black Market Blues

A recent report A recent report from British American Tobacco (BAT) states that this year, governments around the world will lose US$20 bn in unpaid taxes from counterfeit cigarettes sold on the black (or “grey,” partially legal - often the fake goods make their way into the legitimate line of distribution with out the knowledge of retailers further along the chain) markets. Many of these cigarettes come from China and a large portion from North Korea (which many reports have stated are state sponsored). The counterfeit cigarettes are sold all over the world including Europe and United States. While many governments have raised their taxes not as revenue-makers, but for the explicit sake of ruining the tobacco industry, in addition to the lost tax revenue, these taxes have directly led to the formation of a tobacco black market. A black market which can often be used to fund other unseemly pursuits like organized crime and reportedly, terrorism. This is just the natural by-product of a cheap-to-produce product being artificially priced up and out by government intervention - we don’t see black markets for candy bars, for example. But, instead, we have found cigarettes vaulted into the same black market category along with designer handbags, perfumes, and CDs (all items that are cheap to produce, but for varying degrees of market forces have found their sale prices exploding).

It wasn’t so long ago when the United States banned all alcoholic products, in effect raising the price of an easily-produced product to unattainable. In the wake of the constitutional ban a wave of organized crime flowed over the nation fueled by a wide and flagrant flouting of the law. A decade later, after the great experiment of government action was showcased for the world to see, the constitutional amendment to ban alcohol was overturned (not an easy feat in US politics). Now, in the US, with a political winds shifting, there is a very strong possibility that cigarette and cigar prices will be taxed heroically high. One wonders, what kind of results this particular experiment in government action will create? While it is doubtful that there will be gang wars in US cities over the right to sell counterfeit Marlboros, there is a very real chance that there will be more shadowy figures offering the poor (or merely frugal and wary) their cigarette fix for a more reasonable price. It’s only logical, that the forces of supply and demand - which do not disappear simply because the law says it should - that an expanded black market will fill the need. One just wonders whose pocket that money will be going to?

- E. D.

Tobacco International - November, 2008


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