ADVOCACY

Track & Trace

Track and trace is a system for monitoring the production and distribution of tobacco products, with the aim of combatting the illegal trade of tobacco products in Europe. The fight against the illegal tobacco trade is crucial for protecting European citizens. The World Health Organisation’s Protocol to eliminate illegal trade and the European Directive on Tobacco Products require that such a system be established by 2019 for cigarettes and fine-cut tobacco placed on the EU market, and by 2024 for other tobacco products.

Member States will have to ensure that all unit packets of tobacco products are marked with an irremovable unique identifier (UID), which will integrate data relating to the product itself, its manufacturing process, as well as distribution and financial information. The European Commission, in coordination with Member States, will have to define and adopt the technical details and system specifications on which Track & Trace will be based. In doing so, the European Commission and Member States must keep in mind the primary objective of this Track & Trace system, which is to reduce the volume of counterfeit and illegally traded tobacco products available on the European market. It is not the system’s main goal to control the manufacturing of legally compliant tobacco products.

Tracking and tracing tobacco products in the EU will require monitoring the movements of around 29 billion tobacco packaging units per year, meaning 80 million units per day.

Each unit will be scanned up to five times before it is placed on the market. This process will require unprecedented data transfers and a very performant IT infrastructure, which will take time to design and, more importantly, to implement.

Even though the issue of illegal trade is mostly related to cigarettes, and so-called ‘illicit whites’ that often come from outside the EU, the requirements of the Directive will apply to all tobacco products placed on the EU Market. The Track and Trace system must be developed taking into account the specificities and packaging of all tobacco products and all companies, including SMEs and mid-sized companies, whether they are manufacturers, distributors or wholesalers.

For smaller companies manufacturing tobacco products other than cigarettes, the cost of implementing Track and Trace will be 10 to 15 times higher per unit produced than for large-scale cigarette manufacturers.

The system must therefore reflect industry practices and specificities, ensuring interoperability by using GS1 standards and mirroring smaller tobacco companies that trade differently than multinational companies.

A realistic system to track and trace tobacco products sold in Europe must acknowledge other existing and efficient tools, such as the Excise Movement Control System used in monitoring excise goods intended for export, and avoid redundancies and additional burdens.

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Tracking, Tracing & Authentication

The tracking, tracing and authentication (TT&A) system as foreseen by the European Commission is unnecessarily costly, burdensome and complicated, both for the tobacco manufacturers, wholesalers and distributors, as well as EU Member States. The 2014 Tobacco Products Directive provides a uniform and proportionate system, which should be translated in workable implementing legislations, and in a timely manner.

The European Commission is currently considering the creation of an unnecessary EU administrative body, multiplying third parties and increasing the bureaucratic burden and costs for operators and Member States. This shows a lack of understanding of trading practices. In addition, the foreseen governance model for the TT&A, which further involves third parties in the operating and anti-tampering system, will stand in the way of establishing an EU-wide surveillance system. Instead of effectively combatting the illegal sale of tobacco, it creates a production verification tool of compliant products and legal manufacturers.

Impact on Small and Mid-Sized Firms

It is essential for any track and trace system to reflect industry practice and the different specifications of different markets. In particular, the system must be sensitive to the practices of smaller and mid-sized firms, which have different business models, production methods and modes of distribution compared to larger cigarette manufacturers.

The European Commission has so far failed to take account of market realities in its track and trace communications, particularly for smaller producers. While EU officials have indicated that companies can start preparing for the system’s entry into force based on the Tobacco Products Directive, this legislation does not provide sufficient detail for companies to begin making the considerable investments that would be required.

Furthermore, smaller companies often do not produce enough of a single product and ship their products in mixed consignments of different goods. The track and trace system under consideration would be very time consuming and costly for this type of distribution and disproportionately disruptive for small and mid-sized companies generally, whether they are manufacturers, importers, wholesalers or distributors.

Unique Identifier (UID)

The European Tobacco Products Directive mandates that all tobacco products must have a unique identifier (UID) on the pack to comply with the tracking, tracing and authentication requirements. Although there is consensus on employing an open standard for this, EU officials have failed to confirm that the system design will comply with the industry best practice GS1 standards for production. As a result, the UID is incompatible with high-speed production and ignores the particular requirements of niche products such as traditional European snuff, which is packaged in small containers. Constant changes to the rules would require entire product packaging lines to be rebuilt, leading to economic waste.

Although the European Directive only applies to tobacco products to be placed on the EU Market, the European Commission indicates that the EU UID will also be applied on products to be exported outside the EU. From an economic perspective, including EU-manufactured products destined for export under the requirement to carry a UID risks seriously undermining European small and medium-sized enterprises and niche mid-sized manufacturers. Roll-your-own tobacco in Australia is manufactured mainly in the EU and Australian legislation does not allow any markings to be put on their packaging other than those prescribed in its own national legislation. Including export products would therefore close off the Australian market, or force European production to move to Australia.

Real-time Data Reporting

The approach to recording and transmitting product data with the tracking, tracing and authentication system is also overly complicated. The system would require near real-time reporting with allowed delays of only three hours, which is unrealistic for distributors and wholesalers. The costs, including technical investment and training, would be disproportionate to the benefits of real-time reporting.

Implementation

Implementing a track and trace system demands significant changes in a manufacturer’s production lines, development of significant database architecture and IT infrastructure as well as complicated changes to logistics and distribution systems. Without the needed legal clarity on what the technical requirements will be, tobacco manufacturers cannot invest in the appropriate printers, scanners or IT systems.

The European Commission has ruled out pre-implementation tests and ignored the inevitable risk of technical failure in its proposal. In doing so, the EU’s approach to creating a track and trace system is seriously misguided, and must be reconsidered in order to be viable.