Track & Trace
Track and Trace is a volume-control system which monitors the manufacturing and distribution of tobacco products. Its stated aim is to combat the illegal trade of tobacco products in Europe. The European system entered into force in May 2018 and has been in place since May 2019 for cigarettes and fine-cut tobacco. Other tobacco products, including those 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 primarily designed for large-scale cigarette manufacturing, overlooking traditional European tobacco products and the way they 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 carry a Unique Identifier (UI) code, which is scanned and recorded throughout 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, a highly developed IT infrastructure, and renewed packaging machinery.
The system requires that European manufacturers or importers of tobacco products request a UI for each package from an independent organisation, the ‘ID Issuer’, 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 an independent third party appointed by the European Commission only five months before the implementation deadline. In addition, each tobacco pack must carry a ‘security feature’ consisting of at least five authentication elements, determined by each Member State for its own market. In most European countries, this additional obligation requires upgrading 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 with third countries’ national packaging and labelling regulations that prohibit their presence. In the absence of international interoperability between national systems, European manufacturers have only three 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 creates a significant competitive disadvantage for 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 applies 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 trade barrier, penalising its “own” companies. Only after adoption was it recognised as an issue that needs to be addressed. More than two years after the system’s implementation, the European Commission has still not solved it.
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Track & Trace fails to meet the internal market objectives of the Tobacco Products Directive. The initial aim of Track & Trace was to create an EU-wide system. Instead, it is now a patchwork of national ones that once again disproportionally impacts smaller and mid-sized companies. The Implementing Regulation provides that the competent ID Issuer for the issuance of UI codes is the entity appointed in the Member State in which the products are manufactured or imported, and that this entity should be recognised as such by the other Member States (reflecting the “mutual recognition” principle that is key to the internal market). However, it also allowed Member States to derogate from this general rule and to require that only their appointed ID Issuer is the competent one for that market. All 27 Member States have used this derogation, making it more difficult for smaller companies to market their products across Europe.
Track & Trace fails to cater for the specificities of niche tobacco products. Track & Trace is an EU-wide monitoring system that is overly complex and prohibitively costly, and has been primarily designed for large-scale, standardised cigarette manufacturing processes, completely ignoring the specificities of other traditional and niche tobacco products and of European smaller and mid-sized companies. For example, the Security Feature requirement was met in most Member States by using upgraded tax stamps. This solution, however, cannot always be replicated for niche tobacco products, such as traditional European nasal snuff, once the system applies to these products in 2024. European manufacturers are fully committed to making the system work. Before extending it to all other tobacco products, the European Commission must take stock of the complex implementation during the first phase and carry out a new impact assessment. This should focus on the specificities of niche tobacco products, including packaging sizes and materials, manufacturers’ profiles, production speed, processes and machinery, distribution, and, obviously, the ability to continue exporting to third countries.