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 – a crucial effort for protecting European citizens. The 2014 EU Tobacco Products Directive (“TPD”) requires 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.
In line with Articles 15 and 16 of the TPD, the European Commission published in September 2017 three draft acts, detailing how an EU-wide track and trace system will be implemented, including the use of security features and a unique identifier.
Read ESTA’s Position Paper on the Draft Implementing Acts
Under the combined proposal, each tobacco packaging 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 test.
Tracking and tracing tobacco products in the EU will require monitoring the movements of around 29 billion packaging units per year, or 80 million units per day.
From a technical perspective, the Commission’s draft proposal lacks in coherence, setting standards where no competency exists while failing to set standards where these are mandated and badly needed. Where it correctly sets standards, many are too complex, making them unlikely to be internationally shared. The Decision on packaging security features, for example, completely ignores the harmonisation purpose of the 2014 TPD by not setting uniform standards.
The proposed system will therefore be prohibitively costly and unworkable for mid‐sized and smaller firms. It obliges all companies in the tobacco supply chain to reorganise and modify their business and trading practices beyond what is necessary to establish a well-functioning track and trace system, as specified in the TPD.
In particular, there are three main flaws in the Commission’s draft proposal for a track and trace system that must be overcome in order to effectively fight against illegal trade. These are: (i) the status of export goods in the system; (ii) the generation and application of a unique identifier; and (iii) security features allowing uniform application throughout the EU.
Tobacco products for export are excluded from the TPD, and must also be excluded from the implementing acts. Forcing export products to comply with the system will mean they cannot be sold in third countries with restrictive packaging regulations, such as Australia. While large manufacturers will be able to get around this by relocating manufacturing outside of the EU and thus reducing European jobs, smaller and family-owned businesses cannot relocate operations as easily, and would hence be disproportionately affected by such a market distortion and self-imposed barrier to trade.
The draft Regulation requires Member States to ensure that all unit packets of tobacco products are marked with an irremovable unique identifier (UI), which will integrate data relating to the product itself, its manufacturing process, distribution and financial information. At present, the Regulation mandates that production cannot commence until these UIs have been received from a single government-selected issuer, effectively transforming the market into a State-directed enterprise. Furthermore, the draft Regulation goes further than the TPD, increasing the length of the UI and departing from international standards.
The draft Decision calls for too many security features, undermining the harmonisation objective of the TPD. For example, the number of required authentication elements should be limited to three instead of the proposed five. Even though the issue of illegal trade is mostly related to cigarettes, the requirements of the TPD will apply to all tobacco products. But the draft Regulation fails to account for this difference, and for the specificities of smaller companies and the packaging size of niche tobacco products such as nasal snuff and chewing tobacco.
For smaller companies manufacturing tobacco products other than cigarettes, the cost of enacting a track and trace system will be 10 to 15 times higher per unit produced than for large-scale cigarette makers.
Rather than listing compliant technologies, the proposal must set uniform standards and simplify the requirements for the security feature. The EU could also improve its proposed track and trace system for tobacco products sold in Europe by acknowledging other existing and efficient tools, such as the Excise Movement Control System used in monitoring excise goods intended for export.