Congress Warned Of Black - Market Risk If Cigarette Prices Too High
By Jeffrey Taylor
12/10/1997
Dow Jones Online News
(Copyright (c) 1997, Dow Jones & Company, Inc.)
WASHINGTON -- In crafting tobacco legislation, Congress should avoid raising cigarette prices so much that a black market springs up to sell them more cheaply, law-enforcement officials told a House subcommittee.
The group, including representatives of the Royal Canadian Mounted Police and the U.S. Bureau of Alcohol, Tobacco and Firearms, testified that Canada's experience doubling cigarette prices from 1984 to 1993 held cautionary lessons for Congress as it considers steps to fight underage smoking. Smuggled cigarettes from the U.S. poured across the border, undercutting the goal of reducing tobacco consumption, the witnesses said.
"By early 1994, it was estimated as much as 40% of the Canadian domestic tobacco market was being supplied through smuggling," said Sgt. Alain Giroux of the Canadian Mounted Police. That lead to an increase in violence associated with smuggling and in the involvement of organized crime.
The activity prompted a major crackdown on smuggling along the Canadian border by the Mounties and U.S. law-enforcement agencies, he said, plus a rollback of the cigarette-tax increases.
While public-health officials say price increases are the single most effective way to reduce teenage smoking, Republicans in Congress have frequently warned that a big increase or an attempt to ban cigarettes would quickly result in a booming black market. The proposed $368.5 billion national tobacco settlement that Congress is considering would provide a 62-cent per pack price increase, which the industry contends will grow to more than $1.50 a pack after retailer and wholesalers tack on their profit margins.
Tuesday's testimony before the Commerce Health and Environment subcommittee bolstered Republicans' argument, although Mr. Giroux noted that the border crackdown has allowed some Canadian provinces to begin increasing tobacco taxes without a corresponding increase in smuggling.
Moreover, a U.S. law-enforcement official testified that other components of the proposed settlement-including education, law-enforcement efforts and the lack of a sudden, dramatic price increase-might actually prevent development of a black market. "The resolution does not make the kind of drastic and immediate changes ... that would almost certainly lead to ... illegal markets," said Dennis C. Vacco, New York State attorney general.
The health-care subcommittee and its parent panel, the House Commerce Committee, are holding hearings on various aspects of the proposed tobacco settlement as a prelude to the expected enactment of comprehensive legislation next year. Senate hearings have already concluded, and both houses are expected to begin drafting legislation in January.