What Does the Future Hold for Traceability in Europe?

The European Union represents the world’s first attempt at implementation of wide-scale, multi-country tobacco traceability and the largest iteration of the FCTC Protocol to Eliminate Illicit Trade in Tobacco Products (the Protocol) in action. The implications in relation to one of the world’s largest tobacco market’s interpretation and implementation of the Protocol, as well as the benefits that traceability can provide in terms of combatting illicit trade, has the significant potential to influence tobacco traceability the world over.

Thus, the EU’s policies and systems should be intensively reviewed and scrutinised in terms of meeting the core objectives of the Protocol and whether the European model is fit for purpose as a viable benchmark for other nations to follow. The European Commission’s obligatory five-year review of the EU Tobacco Products Directive (TPD) provides a forum for this issue to be further analysed, as well as an opportunity to address any issues or shortcomings prior to other nations simply adopting the European model as the best fit for their own market.

Against this background, a number of developments in Europe are in play, including Brexit, which removes one of Europe’s largest tobacco markets, as well as a number of member state regulatory initiatives that have the potential to impact tobacco supply chains and hence will have a direct impact on track and trace.

Revision of the TPD

The TPD entered into force in 2014, repealing the previous legal framework to introduce a wide array of new policies in relation to public health and tobacco products. Most notably, it introduced the requirements for track and trace and security features under Articles 15 and 16.

The TPD was meant to incorporate the World Health Organisation’s (WHO) Framework Convention on Tobacco Control, including the provisions of the Protocol. The EC’s interpretation of the Protocol vis-à-vis the TPD has been the subject of much debate and even legal actions over the years, and this discourse has been rekindled within the context of the TPD’s revision, which is meant to be completed by the end of 2021.

In December 2020, two members of parliament, Michèle Rivasi and Cristian Busoi, convened a webinar with policy makers and members of civil society, which focused on the rising problem of parallel trade in Europe and the EU systems and policies that have been put in place to address it. Panelists included a senior WHO representative as well as leading public health NGOs.

According to the hosting members, the European system is undoubtedly compliant with Article 15 and 16 of the TPD but falls short of compliance with the Protocol and needs to be rewritten. Referring to the Articles as ‘obsolete’, the members also stated that the current traceability system itself must be modified to comply with the provisions of the Protocol. Echoing these points, the NGOs present also expressed concerns related to the independence criteria for service providers and auditors.

Independent from industry?

The subject of the European traceability system being compliant with the Protocol is primarily centred around the concept of ‘independence’ from the tobacco industry, in terms of both engagement with policy makers as well as operation of key aspects of the solution itself.

The issue of independence is not a new one. Indeed, it has been the subject of numerous academic and news publications that have highlighted the tobacco industry’s extensive lobbying during the development of the regulations and system, as well as the fact that many of the solution providers involved in the delivery of the system have strong links to the tobacco industry (eg. companies that have conceived and/or implemented the tobacco industry’s self developed system known as Codentify/Inexto. This issue will certainly get more airplay as the discussions continue within the Commission and the various stakeholders express their views.

Is the EU system working?

After one year of operation, the Commission published a two-page review that provided little, if any, information with respect to the efficacy of the system. The document did, however, provide some statistics on the number of economic operators and facilities, and messaging within the system.

The system appears to be functioning, for the most part, in terms of it being ‘up and running’, although it is unclear if the obligations under the TPD have been strictly met with respect to the deadlines established.

The report focused for the most part on the ‘steep learning curve’ experienced by all stakeholders, as well as the related technical issues and measures that would be put in place to address them. What was noticeably missing, however, in the petite report was any information related to enforcement, increased revenue collections for member states, or whether or not the system was delivering on its core mandate to combat illicit trade.

As the system will soon have been operating for two years, it is only reasonable that key stakeholders insist on concrete measures of success, which up until now have not been documented.

Does the system provide sufficient transparency?

As discussed above, a two-page annual report is probably not adequate provide enough detail on 750,000 economic operators, 1.5 million facilities and over 30 billion unique identifiers, in relation to the €10-€20 billion black market tobacco market.

Another opportunity for the Commission and the tobacco industry to provide transparency to policy makers and stakeholders is in the form of the annual audits required under the TPD. These audits have been performed but the audit reports have not been made public by the EC, and the Commission is under no obligation to make them so.

The scope of the audits also poses significant questions in relation to what the auditors are actually focusing on in their review. For example, are the auditors conducting a vulnerability assessment or even looking at the software used to generate unique identifiers? Is it the same, or related in any way to the original Codentify software? Furthermore, the annual auditors to be appointed are chosen and paid for by the tobacco industry.

As discussed in the December webinar, this could represent a textbook case of conflict of interest. The issue of independence is nothing new. It was thoroughly debated during the conception of the TPD in various fora and, in particular, at the 2013 plenary. During this session, various NGOs suggested that the Commission, and not the industry, should choose the auditors. An amendment to include this requirement was, in fact, adopted by the European Parliament but was later dropped during final negotiations.

The issue of independence across the entire system will likely not go away easily as there simply may be too many instances of ‘industry’, and not the member states, being in control of virtually all aspects of the EU’s system.

It must be noted that when the TPD was promulgated, the EU had not yet ratified the Protocol and thus, legally speaking, was not required to adhere to Article 8 of the Protocol. Now that the EU has ratified, the Article 8 provisions around independence from the industry have considerably more weight. Many would argue that given all the time and effort put into the whole endeavour, stakeholders have every right to a reasonable measure of transparency.

Looking forward in 2021

This year is certain to be dynamic when it comes to Europe’s tobacco control policies. Several member states have already commenced with further national regulations to exercise their own discretion with respect to tobacco control.

In France, for example, the discussion of a delivery quota system based on a country’s consumption may soon be introduced in the French national assembly. At the same time, in Germany, the Minister of Finance recently announced that vaping liquid and heated tobacco products would be taxed at the same level as traditional cigarettes.

Brexit will see one of Europe’s largest tobacco markets establish its own stand-alone traceability system for products manufactured or imported into the UK. HMRC has published clear guidelines on this transition which also requires Northern Ireland to also submit supply chain data to the EU.

When it comes to the TPD, there is no doubt that the lobbying activities of key stakeholders will ramp up and the discourse will progress. This is a positive development for track and trace as it will provide a platform for some key issues to be exposed on a wide scale, for the first time, for all to see. It also provides a real-world case study of one of the world’s largest market’s interpretation and test drive of the Protocol.

When it comes to regulation, transparency is always a good thing. Shining a bright light on the EU system can only serve as a reference point for other nations and tobacco control advocates working on their own traceability system with regard to what or what not to do.