Tobacco smuggling in the CEE

1
Tobacco smuggling in the CEE Proposed
studyKyiv, November, 2004

• Maksym Mashlyakivskyy
• OSI-Budapest, International Policy Fellowships
  Program
• (mashlyakivskyy_at_policy.hu)

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Goal

• To measure the volume and analyze the pattern of
  cigarette smuggling in Ukraine and Poland
• The countries are chosen as case studies since
  they are interlinked by illegal cigarette trade
  and are both importers and exporters of such
  products

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Objectives

• To measure the volume of smuggling (exports and
  imports)
• To determine the share of bootlegging and
  wholesale smuggling
• To analyze the demand for illegal cigarettes
• To develop policy recommendations.

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Approach

• Surveys in the two countries
• Survey data analysis
• Econometric simulations based on macro data
• Gathering and analyzing customs statistics

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Surveys possible problems

• Unwillingness of consumers to report that they
  consume illegal cigarettes (not a big problem in
  the countries under consideration)
• Underreporting of cigarette consumption
• Difficulties with determining whether cigarettes
  consumed are legal or illegal

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Surveys Overcoming the problems

• General idea Cigarette pack talks for its
  consumer approach
• Consumption underreporting person is asked on
  the time/day when he/she opened the pack one
  counts the number of cigarettes left
• Legal vs. illegal cigarettes Legal excise
  stamp, health warning in local language
  Bootlegged excise stamp, health warning in other
  language Smuggled no excise stamp

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What we get from surveys (1)

• Shares of smuggled and bootlegged cigarettes in
  the market
• Information on distribution channels of illegal
  products
• Price differentials Legal vs. illegal
• Characteristics of individuals consuming illegal
  products

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What we get from surveys (2)

• Possibility to make simulations demand for
  illegal products
• Factors of demand wellbeing, prices, geographic
  location, availability of places to buy illegal
  cigarettes, demographic characteristics, etc.
• Strength of impact of factors on demand and
  projections for the future

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Simulations on macro data

• If the data on Poland is available a macro model
  of demand (similar to Ukrainian) including price
  differentials between countries (estimate of
  bootlegging)
• Customs data Looking for lost exports
• As a result Cross-validation of data (survey and
  macro estimates)

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Customs statistics analysis

• Data on the volume of cigarettes seized by the
  national customs services at different borders
  (for exports and imports)

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Combining survey data and customs statistics

• Estimating efficiency of customs services in
  stopping illegal imports at different borders
  (the share of illegal products seized in the
  total volume of such products in the market).
• Assuming that the efficiency of the customs
  service is the same for controlling illegal
  imports and exports, we may get estimates of the
  volume of cigarettes illegally exported from
  Poland or Ukraine to other countries (volume of
  seized illegal cigarettes intended for exports
  divided by the customs efficiency coefficient at
  a certain border)

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Outcomes

• Understanding of tobacco smuggling in the two
  countries
• Developing policy recommendations and options to
  reduce smuggling
• Possibility to estimate smuggling dynamics in the
  coming years based on customs statistics only

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Tobacco smuggling in the CEE Proposed
studyKyiv, November, 2004

• Maksym Mashlyakivskyy
• OSI-Budapest, International Policy Fellowships
  Program
• (mashlyakivskyy_at_policy.hu)