Tobacco multinationals battle local smugglers

They can be found on the outskirts of local markets, in teeming subway tunnels and never too far from busy transport hubs like Warsaw's Plac Zawiszy. Organized in small groups, they stand holding fans of major brand-name cigarette packs at prices that make duty-free shopping seem extravagant. Since a packet of cigarettes bought over the counter in Russia or Ukraine can cost as little as half the Polish retail price, street sellers can cover the costs of their trips east, undercut domestic retailers and still turn a profit. Although Polish cigarette sales grew last year for the first time since 1997, bobbing up to 74.4 million sticks from 73.1 million in 2000, the increase inspires little optimism among tobacco firms, which blame a 26% plunge in sales from 1997 to 2000 on illegal imports. As a result, they are working to launch preventative programs this autumn. "It's our feeling that this decline is primarily driven by a non-Polish duty-paid product coming into the country," said Chris Sijtsma, the president of British American Tobacco Polska (BAT). "If you look at our research data … you don't see any significant changes in the number of adults who smoke cigarettes, … so there must be a very specific reason for this very sudden drop in the total volume in the market place - the duty non-paid product(s) coming into the market."

Although cigarette sales in the first half of 2002 increased 3% year-on-year, Sijtsma expects the industry to end the year with flat growth. The volume of cigarettes trafficked from Poland's two eastern neighbors has expanded since 1999 and represented almost 20% of the Polish cigarette market in 2001, outselling all domestic producers except U.S. tobacco firm Philip Morris, which controlled 36.7% of the market last year, according to CyberSerwis figures. Since street sellers paid no import duty or sales tax, illicit imports cost the budget zł. 2 billion ($488 million) in 2001, according to BAT's estimate. Aside from harming the state budget and international tobacco firms, the growth of smuggled cigarette sales has hurt domestic cigarette manufacturers, tobacco plantations, wholesale distributors and retailers, said Jerzy Skiba, the project manager at the National Tobacco Industry Association (KSPT). "Besides (multinationals), there are also companies that have longer-standing links with the Polish market," he said. "Polish firms lose out too." A new bill designed to curb the sale of non-duty-paid products, penned by a group of deputies from the Democratic Left Alliance (SLD), received its first reading in the Sejm in May. A special subcommittee is currently consulting with the affected industries to refine the law. The bill proposes to give local law enforcers powers to search suspects, confiscate illegal imports and work undercover in pursuit of illegal imports. The law also envisages stricter border controls and increased responsibilities for market managers for products sold on municipality-owned markets.

Cigarette manufacturers have responded with their own initiatives to stem the sales of illegal imports, aimed at providing training for local municipalities, particularly in eastern regions where 52% of cigarette consumption came from illicit imports last year, according to KSPT figures. BAT wants to help fund training to allow law enforcers to recognize smuggled cigarettes and will launch pilot schemes in a number of local districts this autumn, said Iwona Jacaszek, the firm's director of corporate affairs. "For the past two years we have commissioned research into smuggling," she said. "As soon as we had the results, we tried to raise awareness of the subject and activate legislative work because clearly the tobacco industry cannot solve the problem by itself."