ADVOCACY

Track & Trace

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 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 the traditional European tobacco products and the way these are manufactured and distributed.

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 leads to around 720 million scans a day at EU level.

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 export ban

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 can and are incompatible with national tracking and tracing measures in place or being adopted in certain third countries; or can and are incompatible with third countries’ national packaging and labelling regulations. Due to the absence of international interoperability European manufacturers are facing a de facto export ban imposed by the EU.

In its Impact Assessment, the European Commission estimated that some 3.2 billion unit-packs of tobacco products are exported yearly, which represents approximately 11% of the products falling under the scope of Track & Trace. For traditional European smoking tobacco, chewing tobacco and nasal snuff, export represented approximately 46 000 tons in 2018. By including products destined for export, the European Commission created a barrier to trade penalising its “own” companies and recognised that only later as an issue that needs to be addressed.

In consequence, this self-imposed EU export ban introduces a significant distortion of competition by rendering European smaller and mid-sized companies uncompetitive. These companies do not have manufacturing sites all over the world which would have allowed them to simply shift production to outside of the EU.

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Track & Trace ignores the internal market objectives of the Tobacco Products Directive

The problems with the Track and Trace Regulation are myriad. For example, the competent ID Issuer for the issuing of UI codes is the entity appointed in the Member State in which the products are manufactured or imported and should be recognised as such by the other Member States. However, when Track & Trace went live in May 2019, only three Member States applied this default rule, while 25 derogated from it and required that the competent ID Issuer for their market has to be used, obliging manufacturers to work with up to 25 different ID Issuers in up to 25 languages. This entirely defeats the internal market objective of the European Tobacco Products Directive and serves no specific purpose.

Track & Trace is overly complex and costly for European smaller and mid-sized companies

While derogating from the original spirit of the Regulation, more than half of Member States have appointed a national company to run the system for their own market. This had a significant impact on the operational cost of the system as the fees set by most ID Issuers for issuing the codes are much (3 to 20 times) higher than what was foreseen in the European Commission’s Impact Assessment. Taking only three recurring costs into account and leaving all necessary investments aside, the cost of the EU Track & Trace system per unit is already 5 times higher than what the European Commissioner presented to the Member States prior to its adoption. There again, European smaller and mid-sized companies are further disadvantaged since traditional and niche tobacco products require more packaging lines and capital investments to operate the system whilst they are manufactured on a much smaller scale.

The process of establishing Track & Trace was unduly cumbersome creating insecurity and not allowing technology companies to have competing systems ready well in advance. Whilst it took the European Commission four years and two studies to develop the legislative instruments, the Member States authorities were left with 13 months to implement it, and the European manufacturers with a few days only to organise the manufacturing infrastructure, integrate the system and test it before going live. Technical details and legal clarity are crucial to enable economic operators to comply with the system, but those were continuously discussed behind closed doors by the European Commission and the Member States in “comitology” meetings (9 meetings between the adoption of the Acts and the implementation deadline). No appropriate information was timely shared with the companies. While grappling with the interpretation of some technical aspects of the Regulation (which obviously was not complete or clear enough), the Commission and Member States agreed on several changes and variations which had detrimental impacts on the preparedness of the European manufacturers. In April 2019, just a month before the implementation deadline, the Commission tried to clarify the structure and elements of the UI codes which obliged several database providers and manufacturers to make substantial adaptations to just recently set-up systems. A few weeks later, on the 2nd of May 2019 (i.e. 11 working days prior to the implementation deadline), the European Commission realised the difficulties Track & Trace represented down the distribution chain and had to adopt a new temporary measure. This legal unclarity and the opaque process could have been avoided if the European Commission had abided by well-established and self-professed better-regulation principles.

Track & Trace is an EU-wide monitoring system that is overly complex and prohibitively costly, which has been mostly designed with the large-scale and standardised cigarette manufacturing processes in mind, completely ignoring the specificities of other traditional and niche tobacco products and European smaller and mid-sized companies. Nonetheless, European manufacturers are fully committed to make the system work and await for to the post-implementation review of Track & Trace, which the European Commission intends to carry out in 2021, before extending the system to all other tobacco products. The lessons from these failures must be learnt by paying greater attention to the expertise provided by all stakeholders.