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‘Both Sides of the Argument’? A critical review of existing evidence on the illicit trade in tobacco products in Canada
  1. Julia Smith,
  2. Sheryl Thompson,
  3. Kelley Lee
  1. Faculty of Health Sciences, Simon Fraser University, Burnaby, British Columbia, Canada
  1. Correspondence to Dr Julia Smith, Faculty of Health Sciences, Simon Fraser University, Burnaby, BC V5A 1S6, Canada; jhs6{at}sfu.ca

Abstract

Introduction The illicit trade in tobacco products (ITTP) is widely recognised as a substantial and complex problem in Canada. However, the independence of available data and quality of analyses remains unknown. Reliable and accurate data on the scale and causes of the problem are needed to inform effective policy responses.

Methods We searched the scholarly and grey literature using keywords related to ITTP in Canada. We identified 26 studies published in English since 2008 that present original research drawing on primary data. We analysed these studies for their independence from the tobacco industry, methodology, findings and gaps in knowledge.

Results The study finds 42% of the literature reviewed has links to the tobacco industry. These studies provide insufficient methodological detail, present higher estimates of the volume of ITTP and attribute the causes to higher rates of tobacco taxation. The classification of all indigenous tobacco sales as illicit, by both industry linked and independent studies, contributes to overestimates and serves the interests of transnational tobacco companies. There is need for independent and comprehensive data on the ITTP in Canada over time, across population groups and geographies.

Conclusion While there is evidence that the ITTP in Canada is a major and complex issue that requires effective tobacco control policies, there is a limited evidence base on which to develop such responses. This review finds industry-linked studies lack independence, employ biased methodologies and serve tobacco industry interests. Independent studies present more rigorous approaches, but primarily focus on youth and the province of Ontario.

  • illicit
  • contraband
  • tobacco Industry
  • Canada
  • policy
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Introduction

The illicit trade in tobacco products (ITTP) refers to ‘any practice or conduct prohibited by law and which relates to production, shipment, receipt, possession, distribution, sale or purchase, including any practice or conduct intended to facilitate such activity’.1 Illicit products include leaf, cigarettes and lose tobacco that is smuggled into a country, sold within a state without appropriate payment of tax, manufactured illegally or bears a trademark/brand without consent of the owner. The WHO estimates that 9%–11% of cigarettes consumed worldwide are illicit.2 However, accurate data on ITTP remains difficult to obtain, largely due to the nefarious nature of the trade and limited resources given to the problem.3 The coming into effect of the WHO Framework Convention on Tobacco Control Protocol to Eliminate Illicit Trade in Tobacco Products, in 2018, has led to efforts to improve measurement of ITTP.

There is growing evidence that an additional reason for the poor quality of data is the role of transnational tobacco companies (TTCs). TTCs have denied evidence of their complicity in ITTP and, in recent years, have emphasised the adverse impact of ITTP on their interests.4 5 TTCs have supported these claims by conducting or commissioning research on ITTP. Researchers have queried industry-funded research in Europe, Asia, the USA, Brazil, South Africa and Australia.6–9 Others document how TTCs have presented misleading estimates in order to influence policy.10 11 For example, assessments of industry submissions to a UK consultation on standardised packaging found most cited evidence was either produced by the industry itself or based on unrelated data.12 Research has also found that TTCs have sought to position themselves as legitimate stakeholders in policy debates.13 14

This paper conducts the first critical analysis of available research by TTCs and other actors on ITTP in Canada. A review by Gallagher et al found no previously conducted assessments of industry-funded studies on ITTP in Canada.10 We begin by assessing the independence of sources. We then compare methods and findings between those deemed to be independent, and those with links to TTCs. We identify gaps in existing knowledge and conclude by discussing the implications for strengthening research.

Background

The ITTP gained increased policy attention in Canada during the 1990s amid a rise in smuggling between the USA and Canada, largely through indigenous reserves (tracts of land allocated under the Indian Act and treaty agreements for exclusive use by Indigenous Nations) that straddle the border. TTCs effectively argued that smuggling increases were due to high tobacco taxes which the federal government subsequently slashed in 1994.5 However, a Royal Canadian Mounted Police (RCMP) investigation later revealed that TTCs were themselves complicit in smuggling.15 In 2010 Imperial Tobacco, Rothmans, Benson & Hedges and JTI-MacDonald pleaded guilty to enabling ‘persons to possess and sell tobacco products in Canada at prices which did not include duties and taxes’.16 RJ Reynolds also agreed to pay $C325 million to settle legal action (without admitting guilt) related to smuggling.16

Since the early 2000s, tobacco manufacturing has expanded on some indigenous territories in Ontario and Quebec.17 Under Section 87 of the Indian Act (a statute adopted in 1867 governing how the Canadian state interacts with Indigenous Nations), individuals deemed ‘Status Indians’ (a legal identity determined by the federal government) are exempt from all taxes on tobacco products purchased on reserve. This creates two markets in Canada: sales ‘off reserve’ (subject to taxation); and sales to Status Indians ‘on reserve’ (tax-exempted). If indigenous firms sell tobacco products to non-qualifying individuals tax-exempt, or off reserve, these products are deemed contraband by the government.17 However, many indigenous peoples, due to a context of unresolved treaty rights and colonisation, reject this legal categorisation based on non-recognition of Canadian federal and provincial government authority.18 An added complexity is that some cigarette manufacturers on reserve are not licensed by the federal government. The indigenous owners of these firms cite their sovereign right to engage in economic activity on reserve.

To control the manufacture and supply of tobacco products from reserves deemed illicit, as well as the continued smuggling of cigarettes produced elsewhere via reserve lands, the RCMP launched the Contraband Tobacco Enforcement Strategy in May 2008.17 In 2013, the government passed Bill C-10 including the Tackling Contraband Tobacco Act which amended the Criminal Code to create stricter penalties, minimum sentencing, increased law enforcement and broader legal authority to address ITTP.18 Some indigenous leaders have criticised the bill for criminalising their economies.19

It is within this context that TTCs have supported studies on, and positioned themselves as allies to, combat ITTP. British American Tobacco (BAT) commissioned reports on ITTP in Canada in 2015 and 2017.20 21 In 2017, Imperial Tobacco argued in a national newspaper that proposed legislation on standardised packaging of cigarettes would lead to increases in ITTP.22 Since 2016, JTI-MacDonald has commissioned a public relations campaign—Both Sides of the Argument—which includes research suggesting standardised packaging creates opportunities for criminals to profit from ITTP.23

Methods

We searched Pub Med and Web of Science databases using the keywords Canada AND tobacco OR cigarett* AND illicit OR illegal OR smuggl* OR contraband OR counterfeit. We downloaded studies published since 2008 (the year the RCMP launched its Contraband Tobacco Enforcement Strategy), which focused on ITTP since 2000 (in order to eliminate those studies related to the earlier period of TTC complicity), retrieving 24 studies. We applied inclusion criteria (determined by reading abstracts and papers where necessary) that studies be original research analysing primary source data on the nature, scale and causal factors of ITTP, leaving 11 peer-reviewed articles.

The same searches were then conducted of ‘grey’ literature using Google. This literature was included because of its frequent citation in Canadian policy debates. Previous research on media coverage of ITTP in Canada found that sources from think tanks were quoted more frequently than scholarly research.24 To conduct Google searches, we inspected the first two pages of results and screened the subsequent two pages when relevant results were found until no further relevant results were identified. We retrieved 28 studies, excluding seven that did not meet the above criteria. When organisations, such as the convenience store associations, published annual studies containing findings from previous years, we only included the most recent study. This left 15 grey publications for a total of 26 studies for review.

We then assessed whether publications were independent of tobacco industry influence. There is evidence that research funded by, or conducted by entities funded by, industry are biased in favour of industry interests and do not conform to recognised standards of scientific practice such as peer review and validation.25 To assess independence from the tobacco industry, we searched the Truth Tobacco Industry Database and conducted additional searches of websites such as TobaccoTactics.org26 to identify financial or relational links between study authors and TTCs.

We then analysed the studies by comparing the methodological approaches of independent and non-independent studies. These were considered against the strengths and weaknesses of various methods used to measure ITTP as identified by Ross,3 Merriman27 and Reuter and Majmundat.28 Finally, we compared estimates of ITTP and identified knowledge gaps.

One limitation is that we include only English language publications. While excluding French publications likely overlooks research on ITTP in Quebec, given that most Canadian journals publish both French and English versions of articles, and research institutes and think tanks in Canada primarily publish in English, our search likely collected most relevant research. Future research analysing French language evidence on ITTP in Canada may be warranted.

Results

Independence from the tobacco industry

We found that 42% of the reviewed studies on ITTP in Canada lacked independence from TTCs. Of 15 grey publications, 11 (73%) were published by organisations with industry links. For example, reports by consulting firm KPMG were commissioned by BAT.20 21 Reports by Growth for Knowledge (GfK) were commissioned by Imperial Tobacco and the National Coalition Against Contraband Tobacco (NCACT).29 30 Along with receiving funding from TTCs, NCACT includes the Tobacco Manufacturers Association of Canada among its members.31 Both the Canadian Convenience Store Association (CCSA) and Ontario Convenience Store Association (OCSA) have received funding from the tobacco industry.32 All think tanks publishing on the ITTP have financial or personal connections to TTCs (table 1). The Canadian Taxpayers Federation, which has not disclosed funding sources, has no apparent direct links to TTCs (and so is not classified as linked to the industry here), but is a member of the Atlas Network which has a history of receiving industry funding and advancing its interests.33 The three remaining grey publications are published by Physicians for a Smoke Free Canada34 35 and by the Ontarion Tobacco Research Unit (OTRU) at the University of Toronto, neither of which have links to the tobacco industry.36 None of the peer reviewed studies indicate any funding from the tobacco industry.

Table 1

Research entities with links to tobacco industry

Methodological approaches

A World Bank research guide on ITTP notes the importance of ‘well documented, methodologically sound’ data.27 The methodology of most studies included here with industry links is poorly documented. GfK’s Illicit Monitor draws on online survey data but does not explain how participants were recruited or results analysed.29 The OCSA butt collection does not document how contraband status was determined.37 Without such details, it is not possible to assess methodology. Indeed, poor methodological explanation is deemed, in itself, to be an indicator of weak validity and reliability.27

Studies conducted independently of the tobacco industry provide fuller methodological detail. The most common approach in the reviewed studies is survey data analysis. While polling smokers is the most direct approach to obtaining estimates of ITTP, limitations—such as possible under-reporting—also need to be considered (see table 2). Physicians for a Smoke Free Canada notes that discrepancies between two surveys on tobacco use in Canada raises questions about how survey methods influence results.36 While independent studies rely on government administered surveys,38–42 industry-linked studies use online surveys.29 30 Authors of the latter argue that online surveys mitigate under-reporting as respondents are likely to be more honest when anonymity is assured.30 However, there is no evidence that online surveys are more accurate,43and the authors do not provide information regarding sampling and analysis. While online surveys may have particular advantages, the lack of methodological detail in the studies discussed here limits validity of results.

Table 2

Methods used to estimate the ITTP in Canada

Ten studies estimate ITTP through residual methods such as comparisons of consumption and tax-paid sales and econometric modelling. While such analysis is frequently based on readily available data and generates reproducible results that can be particularly useful in depicting trends in the illicit market over time, it can be difficult to determine the differences between tax avoidance and evasion within economic reports, and to isolate causes for fluctuations in results.3 A ITTP research guide notes, ‘Analysis using trade, legal sales and other economic data relies on a number of assumptions as there are almost always other, non  illicit, reasons for different sources to yield different results, and researchers typically have to make assumptions about unknown factors.’28 The assumptions by the Fraser Institute, in a report that argues that high taxes fuel ITTP,44 are assessed by OTRU.36 It finds that ‘the Fraser Institute Report’s conclusion is not supported by the evidence cited in the report and missed substantial evidence from the literature.’ OTRU then combines residual methods with survey analysis to demonstrate the opposite finding, namely that contraband usage in Ontario declined during a period of taxation increases.

The KPMG studies combine residual methods with pack swap surveys (interviewers inspect survey respondents’ tobacco packaging for evidence of tax paid sales, such as tax stamps).20 21 While mixed methods strengthen validity, expertise in sampling and pack analysis are required if pack swap surveys are to be informative. Research finds that the elderly, youth and individuals not fluent in the native language are unlikely to participate in surveys.27 Ross notes that several criteria should be taken into consideration in order to determine if a pack is illicit or not.3 It may also be difficult to determine, without further data such as from surveys, the difference between products legally purchased without tax (such as through duty free shopping) and those purchased illegally to evade taxes. As the KPMG studies provide no information on sample size, recruitment or analysis methods, it is impossible to determine if the surveys mitigate the limitations of residual analysis.

Three studies use butt collection methods, two of which are ongoing studies conducted by convenience store associations.45 46 To be informative, butt collections must protect against bias based on location. In their independent study of two municipalities, Stratton et al found a much higher proportion of contraband butts in the location closest to indigenous reserves.47 They further note that analysis of butts requires specific controls for error in identifying contraband and, unlike pack swap surveys, there is no opportunity to ask smokers if the purchase was tax-exempt or tax-evasion. Neither the OCSA nor the CCSA provide details on how butts were classified.44 45

Few studies reviewed applied mixed methods, the approach recommended by research guides.3 27 28 These include the independent analyses by Guindon et al 48 and the OTRU report discussed above,36 both of which combined survey and residual analysis. The industry-funded GfK and KPMG studies apply mixed methods but do not provide sufficient detail to allow validation of their methodology.20 21 29 30

Estimates of ITTP

Estimates of youth cigarette preference for illicit products—all of which come from independent sources and use data from federal government Student Tobacco, Alcohol and Drug surveys—range from 9% to 13%.34 41 Most estimates on the general/adult population instead measure contraband cigarette consumption and come from both independent and industry linked sources that employ a wide range of methods. While detailed comparisons of estimates are not possible due to varying methods, sample sizes and study populations, a pattern is discernible in that all of the studies produced by entities with links to the tobacco industry generate higher estimates than those produced by independent sources. Thirteen studies (both independent and industry linked) provide estimates for Ontario, ranging from 11% to 51% of cigarettes consumed (figure 1).48 49 The only independent study on contraband consumption across Canada estimates national consumption at 5% in 2013.48 This estimate 48 is much lower than the industry-linked estimate (15%)50 for the same year. Similarly, the most recent (2013) independent estimate for Ontario of 11%48 is lower than an estimate (31%) from an industry-linked source.30

Figure 1

Estimates of contraband consumption in Ontario.

Estimates of trends in ITTP in Ontario from industry-linked sources also report higher numbers than independent sources (figure 2). The independent study by Guindon et al reports an upward trend in contraband consumption from 2006 to 2007, when it reached 28%, followed by a decline to 11% in 2013.48 Two industry-funded studies describe a similar trend, but with higher estimates (from 23.5% in 2006 to 48.6% in 2007), and less dramatic decline to 31% (but still an increase from 2006 estimates) in 2013.29 30 

Figure 2

Trends in illicit consumption in Ontario.

A common feature of independent and industry-linked studies is to define all tobacco from indigenous reserves as contraband. This blanket definition (applied by 13 studies) does not consider that if sold to Status Indians or sold with tax levied, indigenous products are not contraband. For example, five studies draw on survey data asking what brand(s) of cigarette participants usually smoke. Four of these classified all responses related to ‘First Nations/Native brands’ as contraband,36–39 with only one differentiating between ‘discount’ (12.9%) and ‘First Nations’ (9.3%).37 Authors argue that survey respondents are unlikely to be Status Indians as the surveys were conducted off reserve. However, only 49.3% of Status Indians live on reserve.51 Only Stratton et al use the designation ‘legal Native’ to differentiate between cigarettes ‘manufactured and sold by First Nations owned tobacco companies holding a tobacco license’, and those produced by unlicensed facilities.46 If all butts from indigenous manufacturers were classified as contraband, estimates would have almost doubled (from 5.3% to 9.7% in one site and from 33% to 58.1% in another). Focusing on the difference between tax avoidance and tax evasion, the study by Guindon et al also differentiates between sources of tobacco, distinguishing among products bought on reserves, through duty free shopping and other channels.52 However, they maintain the assumption that all indigenous-manufactured products are purchased illegally.

Knowledge gaps

The Ministry of Public Safety Task Force on Illicit Tobacco Products notes that a primary source of illicit tobacco in Canada is ‘illegal importations of counterfeit cigarettes and other illicit products that arrive in Canada via marine containers.”53 However, no studies focus specifically on ITTP through marine ports or provinces with marine borders. Media reports also suggest an online business of illicit selling of tobacco products purchased in China.54 At present, there is no research on this trade. Instead, half (13) of reviewed studies focus on contraband from indigenous reserves.

Half of reviewed studies also focus on ITTP in Ontario. Only two studies provide estimates from other provinces,47 48 and only the CCSA’s report provides comparisons across provinces.47 It finds that Ontario has the highest prevalence of contraband use (32.8% of butts collected), and Saskatchewan the lowest (11.7% of butts collected). However, considering the methodological limitations described above, regarding industry-linked studies and butt collections, CCSA’s reports have limited reliability. There are no independently conducted estimates of illicit consumption among the adult population across Canada over the past 5 years, with the most recent studies focusing on youth preferences.

There is also no independent research on the drivers of ITTP. Four studies from think tanks with links to the tobacco industry claim high taxes drive ITTP but, as discussed above, these are not supported by evidence.42 49 55 56 In the only independent study that discusses other possible causes of ITTP, OTRU notes the need for further research on drivers such as easy access, organised crime, insufficient enforcement and lack of information.43

Discussion

This review suggests that TTCs support a substantial proportion of available research on the ITTP in Canada. While 42% of studies reviewed have links to TTCs, if convenience store association studies from each year (as opposed to just the most recent year) were included, this percentage would be much higher.

In addition to funding studies conducted by consultants, we identified TTC relationships with third parties, notably retail associations and think tanks, which also conducted research on the ITTP. We report elsewhere how think tanks are perceived as independent experts and convenience store associations as responsible business people.33 Previous research also shows how links to the tobacco industry maintained by these organisations go largely undeclared and/or unreported in the media.24 Instead, findings from industry-funded studies are publicly presented as independent evidence-based research. In this context, the findings of this paper suggest funding of consultants and third parties has been strategically important as credible sources of data following guilty pleas, fines and/or legal settlements by TTCs for cigarette smuggling. When media or other parties cite research on ITTP, it is recommended that funding and other links to the industry be identified as required in standard research conflict of interest declarations.

The lack of clear methodology used by industry-linked studies raises questions about reliability and validity. While independent studies describe their design to allow methodological scrutiny, and rely on recognised data sources and methods, the industry-linked studies reviewed fail to meet such standards. It is either not possible to interrogate their methodology or the studies use methods deemed unreliable and biased. When citing research on the ITTP, it is recommended that media and other parties use only sources with clearly stated methodologies, preferably including multiple methods and recognition of limitations of those methods employed.

As documented in other jurisdictions,10 industry-linked studies appear to unduly overestimate the volume of ITTP in Canada. The strategic value for the industry of producing high estimates is apparent in the timing of such data and the attributed causes of ITTP, notably higher excise taxes and sales from indigenous reserves. The announced plans by the federal government to adopt standardised packaging has coincided with the production of industry-supported studies on ITTP in Canada. Independent evidence from countries that have already adopted standardised packaging shows no associated increase in ITTP volume.57

Importantly, the prominence of industry-linked studies in Canada has been facilitated by lack of official government data, and limited independent research, on ITTP. This study argues that there is an urgent need to address knowledge gaps by applying mixed methods approaches, extending research beyond the focus on Ontario, understanding the range of supply sources and varying demand across the country, and identifying the drivers of the trade. Future research might consider using additional methods, such as discarded pack collections and rigorously designed online surveys.

The notable focus on tobacco products from indigenous reserves is problematic. The blanket definition of all such products as ‘contraband’ creates several points of bias that serve TTC interests. It leads to overestimates of the total volume of ITTP which TTCs use to oppose the adoption of tobacco control measures. Attributing ITTP primarily to indigenous peoples ignores evidence of other sources of supply including past and ongoing complicity by TTCs. By framing the indigenous tobacco industry as wholly ‘bad/criminal’, and the non-indigenous tobacco industry as ‘good/legal’, TTCs position themselves as both the victims of, and allies in developing responses to, the ITTP.

Finally, research to date on ITTP in Canada has insufficiently engaged with indigenous sovereign rights and alternative perspectives on indigenous tobacco economies. Mi’kmaq professor and lawyer, Pamela Palmater, writes that ‘[c]urrent laws completely ignore the inherent, Aboriginal and treaty right of Indigenous nations to engage in their traditional economies. Not only do Indigenous nations have a right to trade in tobacco with other Indigenous nations, but they have a right to trade with settlers as well’.18 She further notes commitments under the UN Declaration on the Rights of Indigenous Peoples, which Canada adopted in May 2016, to protect Indigenous Nations’ right to freely pursue their economic development, and to engage freely in all traditional and economic activity. Resolving this issue requires a deeper understanding of what constitutes traditional economies, distinctions between commercial and traditional tobacco production and consumption, and relative costs and benefits derived from each. While tobacco control research has demonstrated the importance of an effective tax administration in combating ITTP, the legacy of colonisation in Canada poses particular governance challenges. Reconciling this history, with improving health and wellness through reducing ITTP, begins with genuine engagement with Canada’s indigenous peoples to understand their perspectives on these debates.

Though nationally focused, the analysis presented here has implications beyond Canada. As ITTP in Canada includes cross-border trade with the USA, as well as smuggling from Asian countries, regional and even global policy responses are needed.58 Moreover, just as ITTP permeates structures of globalisation, so do policy debates regarding effective responses. Industry-linked studies on ITTP in Australia, arguing standardised packaging increases illicit tobacco use, have been quoted in the Canadian press and submitted to legislative hearings.59 Research on the Canadian experience could similarly be used to support TTC claims in other contexts. In this sense, the critical analysis presented here aims to not only inform Canadian responses, but also implementation of the Tobacco Control Protocol to Eliminate Illicit Trade in Tobacco Products.

Conclusion

The ITTP in Canada is a major issue that requires effective tobacco control policies and tax administration alongside action by law enforcement, but there is limited evidence on which to develop such responses. TTCs and their allies have capitalised on these knowledge gaps in order to present research which employs biased methodologies and unduly overestimates ITTP. This research serves TTC interests by undermining tobacco control measures and shifting the primary blame to indigenous industry actors. The effectiveness of any efforts to tackle ITTP will require accurate data from independent sources, using rigorous methodologies, to understand the full complexity of this nefarious activity.

What this paper adds

  • We present the first critical analysis of available research on the illicit trade in tobacco products (ITTP) in Canada.

  • Transnational tobacco companies (TTCs) have supported a major proportion of the research on the ITTP in Canada which is characterised by a lack of methodological detail or uses questionable methods. This raises questions about the reliability and validity of findings. Data from the tobacco industry (or organisations with links to the tobacco industry) should be viewed with the utmost scrutiny.

  • Estimates regarding the scale of the ITTP in Canada vary greatly, with organisations linked to the tobacco industry producing the highest estimates.

  • There are numerous gaps in knowledge on the ITTP in Canada including lack of current estimates from independent sources, analysis on provinces other than Ontario and that consider sources of illicit products other than indigenous reserves.

  • There is a need to address existing knowledge gaps by applying mixed methods approaches, extending research beyond the existing focus on the province of Ontario, understanding the full range of supply sources and identifying the changing drivers of trade.

References

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Footnotes

  • Contributors JS conceptualised and led on the writing of the article. ST conducting research and contributed to drafts of the article. KL contributed to the conceptualisation and drafting of the article.

  • Funding This study was funded by US National Institutes for Health (grant number: 2R01CA091021-10A1) and by the Canadian Institutes for Health Research (grant number:PJT-153064)

  • Competing interests None declared.

  • Provenance and peer review Not commissioned; externally peer reviewed.

  • Patient consent for publication Not required.

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