A closer look at ‘Cheap White’ cigarettes

Background Given the prominence of Cheap Whites in illicit tobacco discussions, we examined various definitions, market presence, brand proliferation, manufacturers, production locations, trademark ownership, prices and compliance with tax stamp and warning labels. Methods Data from peer-reviewed and grey literature, newspapers, trademark registries, governments/international organisation reports, and the tobacco industry were contrasted with two visual legal requirements (tax stamps and warning labels) and prices from the Tobacco Pack Surveillance System (TPackSS). Results Multiple sources identified 82 Cheap White brands and 53 manufacturers operating at least 82 production facilities. One-third of these manufacturers are in the free zones of Russia, Cyprus and the UAE. Two-thirds of the 37 Cheap White brands in the TPackSS had neither the correct health warning nor the required tax stamp in at least one country where they were purchased. Cheap Whites are on average less expensive than all other brands, but the price gap is often not as large as anecdotally reported. The cheapest Cheap White cigarettes purchased in one of the TPackSS countries irrespective of the presence of legal signs were still more expensive than the least expensive other brands satisfying both legal requirements. Conclusions We confirmed that many Cheap White brands do not comply with the legal requirements in countries where they are sold, but also found that some of these cigarettes appear to be sold legally even outside their country of origin. The presence of untaxed Cheap Whites undermines tobacco tax policies, while the availability of legal cheap cigarettes is a public health concern.

at all in the EU, but are smuggled into or sold illegally in another country/market, where they do not have the license to be sold legally." 13 The World Customs Organization defines Cheap Whites as cigarettes with "legal production in the source country and the usually legal sale to the first purchaser" while "the overall cigarette consumption at national level does not correspond to the volume of production. 2 A large number of 'Cheap Whites' cigarettes are not legally available in the destination countries and generally do not comply with regulatory standards". WCO also defines a subcategory of Cheap Whites -product doubles -that feature graphics and colors that are very similar to well-known brands, but have different, often similar names. 2 The definitions disseminated by OLAF and the original 2011 EC definition imply that Cheap Whites can be legitimate in countries where they are produced, but not in other markets, while the WCO definition opens the possibility that some Cheap Whites are sold legally in the destination country.
On the other hand, the definition adopted by the UK government, and also the only definition available in the academic literature, implies that Cheap Whites have no legitimate market anywhere. The UK's HMRC defines Cheap Whites as "brands that are legally manufactured by companies, often based in emerging economies, with the intent on exporting illegally to other countries through a smuggling network. The products are then sold illegally without domestic duty being paid". 1 Gilmore et al. (2014) 10 also define Cheap Whites as non-TTC branded cigarettes that are legally produced but have no legitimate market.
In 2014, Interpol introduced a new feature to the definition when it specifically mentioned trademark registration: "New cigarette brands (generally with registered trade brands) produced legally in one jurisdiction but produced intentionally for smuggling into other countries where there is no prior legal market for them. Tax possibly paid in production country, but rarely. Products are lawfully exported from the production country and tax will not be paid in the destination country." 22 To summarize, various institutions define Cheap Whites differently, which may reflect the varying aspects of illicit trade that they focus on. The government agencies stress tax evasion while the enforcement agencies focus on the legal aspect of the trade. The definitions of Cheap Whites are often confusing and change over time, which could reflect the evolving nature of the industry including the business model under which it operates.

Definitions of Cheap Whites by TTCs
The majority of the industry sources use the term "Illicit Whites" instead of "Cheap Whites", because it better suits the industry rhetoric about the issue. We found the first TTCs definition of Illicit Whites in the 2011 Project Star (PS) report funded by PMI 29 defining them as brands that are mainly produced for the purpose of smuggling. The 2011 PS report categorizes all non-TTCs brands found in the EU without correct marking (e.g. local tax stamps) or Duty Free labelling as Illicit Whites. The subsequent 2012 PS report 6 published in 2013 paid much more attention to the definition of Illicit Whites: "Cigarette brands manufactured outside the EU and/or in Free Trade Zones, and distributed in such a way that a large share of their volume is sold at a very low price and consumed in EU countries, although these brands are in general not registered there and not destined to be sold at legitimate retail in such markets". The 2012 PS report also defines Domestic Whites as domestic cigarette brands that are priced below the minimum tax rate. 6 The PS definitions imply that Cheap Whites can have legitimate markets even in countries where they are not manufactured. The geographical location of Cheap White production, low prices, market registration and distribution via illegal distribution channels were new features of the PS 2012 definition that clearly distinguish Cheap Whites from TTCs brands.
Interestingly, the Asia-11 4 report published in the same year as the 2012 PS report and also funded by PMI defines Illicit Whites a bit differently: "Cigarettes that are usually produced legally in one country/market, primarily for smuggling. While they may also be exported legally from some countries, they are smuggled ….. to point of sale where they have no legal distribution and are sold without payment of tax". This definition implies legitimacy of Cheap Whites in some countries, but clearly excludes brands produced by TTCs because these are not primarily produced for the purpose of smuggling (even though some are produced for this purpose 10 ) and do not have legal distribution. The follow-up report from Asia published in 2014 30 does not discuss the issue of Illicit Whites at all.
The common features of the TTCs definition are: a clear distinction between the Cheap White and the TTCs brands in terms of their legal status/distribution and a focus on low price or no tax payment, which creates "unfair" competition for TTCs since they cannot compete with the low prices of Cheap Whites. The definitions used by Europol, the 2013 EC and the TTCs are fairly similar.
All definitions, independent of the source, highlight that Cheap Whites are manufactured legally, but a lot of them are sold illegally. It seems that the only difference between the Cheap White and TTCs brands is the disproportionate share of the legal and illegal sales, and the competitive pricing/tax advantage of Cheap White brands stressed by the TTCs.

Market share of illegal Cheap Whites
One possible way to estimate the share of the illicit cigarette market composed of Cheap White brands is to analyze seizure data. The first seizures of Jin Ling, a prominent Cheap White brand, were reported in Europe in 2005. 11 The following year, Jin Ling became one of the most frequently seized cigarette brands in the EU. 22 (in   2000) where they were also commanding a growing share of the illicit market. The tobacco industry reports that there are at least six factories in Zimbabwe that produce over 20 brands of Cheap Whites, many destined for South Africa. 32 In 2010, the WCO signaled "A significant and growing threat from cheap white cigarettes" 14 as their presence spread to many European countries. 13 The 2011 WCO report states that "the popularity of "Cheap Whites" cigarettes is increasing at the expense of counterfeit