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The new regulation drives the tobacco market into the shadows

28/ 01/ 2021
  At the end of 2020, MPs developed a new document that will regulate the tobacco market - the draft law №4358. After reviewing the text of the draft law, the EBA experts concluded that it will introduce excessive regulation of the trade in tobacco products, as well as provoke the growth of the illegal market segment. There are several reasons for this. First, this draft law significantly restricts retail chains in demonstrating the range of tobacco products and providing information about them. For example, it is proposed to prohibit the placement of tobacco products in spots where they would be visible to the consumer. Thus, only a seller has access to those products and they can be presented only on demand. Also, the authors of the draft law propose to use a black and white poster no larger than 40x30 cm as a way to inform customers about the possibility to buy tobacco products in a particular outlet. Such requirements will complicate the work of sellers, as they will be forced to re-equip trade kiosks and sale outlets and replace trade equipment which will entail additional costs and create a financial burden. Besides, such innovations limit the rights of consumers to the necessary, accessible, reliable, and timely information about products, their quantity, quality, range and do not fully comply with the requirements of consumer protection legislation. The business is also concerned that the new requirements could lead to a significant increase in the illicit trade in tobacco products through unofficial retail channels, as well as the closure of official small tobacco retail outlets that will not be able to compete with illegal outlets. In turn, this can lead to a significant reduction in jobs and, consequently, a shortfall in the state budget. Secondly, the draft law proposes to increase the minimum age for the sale of tobacco products from 18 to 21 years. Although full civil capacity begins at 18 years of age under the Civil Code of Ukraine. Accordingly, this could lead to the dismissal of people who are currently legally selling tobacco products, but who have not yet reached the age of 21, or the closure of their business. Thirdly, the draft law envisages the application of the same type of labeling for all tobacco products which will lead to the inconsistency of Ukrainian tobacco product appearance with European ones, as EU rules establish different types of packaging labeling for different types of tobacco products. The application of common approaches to sorting tobacco products, criteria for their categorization, and requirements for production and circulation is a necessary condition for unimpeded trade between Ukraine and the EU and the realization of export potential of domestic enterprises. Also, the proposed transition period of 12 months is insufficient for changing tobacco labeling and packaging. The companies emphasize that it is very problematic and costly to implement such large-scale changes in production in less than 24 months. The draft law also bans the production and sale of cigarettes with capsules. According to various estimates of EBA member companies, such a ban will reduce the legal market, whose participants pay taxes by about 13%, and may encourage consumers of this product to consume illegally imported or manufactured cigarettes with capsules, which may pose risks to consumer health. Therefore, the EBA addressed the Chairman of the Verkhovna Rada and MPs with a request to revise the document based on comments and remarks previously provided by the EBA experts before sending it to the Verkhovna Rada of Ukraine for consideration taking into account the potential negative impact of the draft law on the economic, social, and industrial spheres of the state.   Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

At the end of 2020, MPs developed a new document that will regulate the tobacco market – the draft law №4358. After reviewing the text of the draft law, the EBA experts concluded that it will introduce excessive regulation of the trade in tobacco products, as well as provoke the growth of the illegal market segment.

There are several reasons for this. First, this draft law significantly restricts retail chains in demonstrating the range of tobacco products and providing information about them. For example, it is proposed to prohibit the placement of tobacco products in spots where they would be visible to the consumer. Thus, only a seller has access to those products and they can be presented only on demand. Also, the authors of the draft law propose to use a black and white poster no larger than 40×30 cm as a way to inform customers about the possibility to buy tobacco products in a particular outlet.

Such requirements will complicate the work of sellers, as they will be forced to re-equip trade kiosks and sale outlets and replace trade equipment which will entail additional costs and create a financial burden. Besides, such innovations limit the rights of consumers to the necessary, accessible, reliable, and timely information about products, their quantity, quality, range and do not fully comply with the requirements of consumer protection legislation.

The business is also concerned that the new requirements could lead to a significant increase in the illicit trade in tobacco products through unofficial retail channels, as well as the closure of official small tobacco retail outlets that will not be able to compete with illegal outlets. In turn, this can lead to a significant reduction in jobs and, consequently, a shortfall in the state budget.

Secondly, the draft law proposes to increase the minimum age for the sale of tobacco products from 18 to 21 years. Although full civil capacity begins at 18 years of age under the Civil Code of Ukraine. Accordingly, this could lead to the dismissal of people who are currently legally selling tobacco products, but who have not yet reached the age of 21, or the closure of their business.

Thirdly, the draft law envisages the application of the same type of labeling for all tobacco products which will lead to the inconsistency of Ukrainian tobacco product appearance with European ones, as EU rules establish different types of packaging labeling for different types of tobacco products. The application of common approaches to sorting tobacco products, criteria for their categorization, and requirements for production and circulation is a necessary condition for unimpeded trade between Ukraine and the EU and the realization of export potential of domestic enterprises. Also, the proposed transition period of 12 months is insufficient for changing tobacco labeling and packaging. The companies emphasize that it is very problematic and costly to implement such large-scale changes in production in less than 24 months.

The draft law also bans the production and sale of cigarettes with capsules. According to various estimates of EBA member companies, such a ban will reduce the legal market, whose participants pay taxes by about 13%, and may encourage consumers of this product to consume illegally imported or manufactured cigarettes with capsules, which may pose risks to consumer health.

Therefore, the EBA addressed the Chairman of the Verkhovna Rada and MPs with a request to revise the document based on comments and remarks previously provided by the EBA experts before sending it to the Verkhovna Rada of Ukraine for consideration taking into account the potential negative impact of the draft law on the economic, social, and industrial spheres of the state.

 

Be the first to learn about the latest EBA news with our Telegram-channel EBAUkraine.

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