Track and Trace is a volume-control system which monitors the manufacturing and distribution of tobacco products. Its stated aim is combatting the illegal trade of tobacco products in Europe. The European system entered into force in May 2018 and is up and running since May 2019 for cigarettes and fine-cut tobacco. Other tobacco products, including products which are not subject to any known illegal trade such as pipe tobacco, chewing tobacco or traditional European nasal snuff will also have to be tracked and traced as of May 2024.
The system was mainly designed for and exclusively based on large-scale cigarettes manufacturing overlooking traditional European tobacco products and the way these are manufactured and distributed. Whilst the European Commission claimed the system would create a “level-playing field” within the industry, it in fact drove further market consolidation.
The European Track & Trace system requires that each tobacco package carries a Unique Identifier (UI) code that will be scanned and recorded all along the distribution chain and transmitted to both the manufacturer’s and the EU-wide database, allowing authorities to trace and authenticate tobacco products. This required an entirely new level of data transfer, as well as a highly developed IT infrastructure, and renewed packaging machineries.
The system requires that European manufacturers or importers of tobacco products request a UI for each individual package from an independent organisation, the ‘ID Issuer’, which has been appointed by the Member State authorities. Manufacturers or importers of tobacco products must also set up (and integrate) a database (‘Primary Repository’) to store all the data related to every individual package. All this information is then copied into an EU-wide database (‘Secondary Repository’), which is operated by another independent third-party that was appointed by the European Commission only five months prior to the implementation deadline. In addition, each tobacco pack also must carry a ‘security feature’ consisting of at least five authentication elements that are determined by each Member State for their own markets. In most European countries, this additional obligation required to upgrade the stamps commonly used for excise tax collection.
How does this system work?
What is wrong with Track & Trace?
The European Union, with Track & Trace, establishes a self-imposed barrier to trade
According to the European Commission, all products manufactured in the EU must carry the European UI codes on the packaging, including products destined for export to third countries. However, these EU codes are incompatible with national tracking and tracing measures in place or being adopted in certain third countries; or are incompatible with third countries’ national packaging and labelling regulations when these prohibit the presence of such code. In absence of international interoperability between national systems, European manufacturers have only 3 options: either giving up on that market (losing volume and revenues); shifting production outside the EU; or trying to implement double-coding (i.e. having two distinct codes on the packaging), which is not a long-term solution, but rather a very costly quick-fix. It is also not a solution at all for certain niche tobacco products.
This self-imposed barrier to trade introduces a significant competitive disadvantage for the many smaller and mid-sized companies manufacturing in the EU, compared to multinationals that operate globally. Whilst the 2014 Tobacco Product Directive clearly mandated that UI marking only apply to products placed on the EU market, the European Commission extended this requirement via the Implementing Regulation. By doing so, the European Commission not only overstepped its mandate, but also created a barrier to trade penalising its “own” companies. Only after adoption it recognised this as an issue that needs to be addressed. More than two years after the implementation of the system, the European Commission has still not solved it.