17Tobacco product traceability and security
|
Committee’s assessment |
Politically important |
|
Not cleared from scrutiny; further information requested |
|
|
Document details |
(a) Commission Implementing Regulation on technical standards for the establishment and operation of a traceability system for tobacco products; (b) Commission Delegated Regulation on key elements of data storage contracts to be concluded as part of a traceability system for tobacco products; (c) Commission Implementing Decision on technical standards for security features applied to tobacco products |
|
Legal base |
Directive 2014/40/EU |
|
Department |
Her Majesty’s Revenue and Customs |
|
Document Numbers |
(a) (39064),—; (b) (39064),—; (c) (39064),— |
Summary and Committee’s conclusions
17.1It is estimated that about €11.1 billion is lost by tax authorities across the EU each year as a result of the illicit trade in tobacco products. These documents set out detailed rules to put in place a “track and trace” system for tobacco products throughout the supply chain alongside new rules mandating security markings on such products. Both sets of rules should be in place by May 2019 for cigarettes and hand-rolling tobacco and by May 2024 for other tobacco products. Introduction of the new rules is a requirement of the 2014 Tobacco Products Directive and takes into account the EU’s obligations under the international Framework Convention for Tobacco Control (FCTC).
17.2The proposed new rules are complex in nature, reflecting the detailed mandate from the 2014 Directive. All products should be marked with an irremovable and indelible unique identifier which should allow a wide range of specific information to be determined.
17.3The provisions are set out in detail below, although the Exchequer Secretary to the Treasury (Andrew Jones) believes that they are likely to change “significantly and rapidly” before any final agreement is reached. While the Government supports the principle of track and trace, it is concerned to ensure that the solution adopted is proportionate, efficient and effective, can be implemented in the timescale set and keeps burdens on legitimate business to a minimum while delivering the required objectives.
17.4The Department of Health consulted in July 2015 on implementation of the Tobacco Products Directive and issued a response in January 2016. On the matter of track and trace, the Department noted that the Government was “fully considering the information provided” and would “continue to listen to all businesses involved in the supply of tobacco products in the development of EU proposals in this area”.
17.5It is clear that rules are required in order to address the illicit trade in tobacco products but it also appears that the Government has some concerns that the proposed methodology is potentially onerous, at least on the proposed timescale.
17.6On process, it would be helpful if the Government could set out its own process of consultation and how it has worked with stakeholders and the Commission on the development of these rules. The January 2016 response from the Department of Health to the consultation on the implementation of the Tobacco Products Directive was inconclusive on this topic but noted that the Government would engage with businesses as EU proposals were developed. We ask the Minister (Andrew Jones) to explain what preparatory work was undertaken by the Government between January 2016 and publication of these documents in September 2017.
17.7Given the complexity of the draft rules, we are not in a position to make a judgement as to their practicality. We agree with the Government that the approach should be proportionate, efficient, effective, and able to be implemented in the timescale set and that burdens on legitimate business should be kept to a minimum while delivering the required objectives. The Minister notes that a vote may come from mid-November onwards. We understand that adoption is indeed imminent. In that light, we would welcome the Minister’s analysis as to the extent to which the agreed approach aligns with the Government’s objectives as set out in the Explanatory Memorandum. Discussion and agreement of what appear to be complex rules has been swift. We would like the Minister’s assurance that there has been adequate opportunity to assess the impact of the agreed approach and to consult with affected stakeholders.
17.8We turn now to consideration of the UK’s withdrawal from the European Union. The new rules are due to be implemented by May 2019, which falls after the UK’s departure from the EU. In her recent Florence speech, the Prime Minister set out a preference for some form of implementation period within the framework of the “existing structure of EU rules and regulations”. We would welcome clarification from the Minister as to whether it is envisaged that these new rules, to be implemented from May 2019, would be implemented as part of the transition period.
17.9Under a post-Brexit scenario where the UK does not consider itself bound by the EU rules on track and trace and on security marking, what would be the implication of not replicating those rules? We would particularly welcome the Minister’s analysis of the impact on avoiding illicit tobacco trade across the Irish border and on access to data.
17.10We retain the document under scrutiny and look forward to the Minister’s responses to the issues raised within ten working days.
Full details of the documents
(a) Commission Implementing Regulation on technical standards for the establishment and operation of a traceability system for tobacco products: (39064),—; (b) Commission Delegated Regulation on key elements of data storage contracts to be concluded as part of a traceability system for tobacco products: (39064),—; (c) Commission Implementing Decision on technical standards for security features applied to tobacco products: (39064),—.
Background
17.11These documents are draft EU implementing legislation for Articles 15 and 16 of the Tobacco Products Directive 2014/40/EU (TPD), a Directive aimed at further tackling the health issues which arise from smoking. Article 15 mandates a track and trace system for tobacco products, taking effect from May 2019 for cigarettes and hand-rolling tobacco, and May 2024 for other tobacco products. Article 16 mandates security markings on tobacco products to the same timetable.
17.12The two Commission “Implementing” documents will be adopted as long as a qualified majority of Member States on the responsible expert Committee support the text. The Commission Delegated Regulation will not enter into force if either the European Parliament or the Council object within two months.
Article 15 –Track and Trace
Unique Identifiers and Identifying Codes
17.13The regulations require that each Member State appoint an independent provider of unique identifiers (UIs) known as an ID issuer. The regulations set out the format that these UIs must take and the extensive list of information that must be derivable from them. This includes details of where and when the product was manufactured, the identity of the machine used, the destination market and planned transport route and a unique identification number for the pack. Aggregated packs of products will also require a UI which can be linked to the UIs of the individual or smaller aggregated packs it contains.
17.14Manufacturers and importers of tobacco products can order UIs from the ID issuer, who may make a non-discriminatory charge for doing so proportionate to the number of UIs issued. When applied to packs, the regulations require that the readability of the codes must be tested and the testing device be fitted with an anti-tamper device supplied and installed by an independent third party.
17.15The regulations require that every economic operator, facility and machine used in the manufacture and supply of tobacco products be given a unique identifying code, also to be issued by the ID issuer. This will include wholesalers, distributors and retailers, with a separate code required for each site. In the case of retailers, codes may be obtained on their behalf by other registered economic operators, such as a wholesaler or manufacturer.
17.16The regulations also set out technical standards for how the codes are recorded on packs.
Data Repositories
17.17The regulations require a two-tiered repository system for the storage of data in respect of tobacco products covered by the scheme. Each tobacco manufacturer or importer must appoint an independent third party provider to act as a primary repository for the data relating to its products. All parties appointing primary repositories must then agree between them the appointment of an independent third party to operate a secondary repository where data from all the primary repositories is deposited and can be accessed by Member States and the Commission. The operator of the secondary repository must also establish a router for data exchange between the primary and secondary repositories and ID issuers.
17.18The regulations set out extensive technical requirements for the repositories and router, and costs shall be borne by the importers and manufacturers of tobacco products.
Recording of Product Movements
17.19The application of a UI to a product and all dispatches and receipts of products between locations must be recorded and transmitted to the primary repository by the manufacturer or importer or the router by any other economic operator (i.e. wholesaler or distributor).
Article 16—Security Markings
17.20These regulations require every unit pack of tobacco products to be marked with a security feature. The feature must be made up of at least five different elements including at least one each that is overt, semi-covert and covert. Member States must set out a range of acceptable elements for manufacturers and importers to choose from, and this range must include 12 types of element specified in the regulations. One of the elements used must be supplied by an independent third-party.
17.21The regulations set out requirements for how the markings are applied to packs, arrangements for the verification of products using the markings, preservation of the integrity of the system and requirements for the independence from the tobacco industry of the third-party provider used.
Minister’s Explanatory Memorandum of 10 October 2017
17.22The Minister notes that the legislation will take direct effect and will not need to be transposed into UK law. However, additional UK legislation to support the regulations in the area of sanctions for non-compliance and possibly in other areas of implementation may, he says, be required.
17.23The Minister sets out the Government’s position in the following terms:
“Track and trace for tobacco products is a requirement of the FCTC Illicit Trade Protocol, to which the UK is a signatory. The government is fully committed to implementation of the Protocol, including track and trace. The illicit tobacco trade is a global business, and an international system of tracking products is a sensible and justifiable response.
“In considering the proposed EU regulations in this area, the government is concerned to ensure that the solution adopted is proportionate, efficient, effective, can be implemented in the timescale set and keeps burdens on legitimate business to a minimum while delivering the required objectives.”
17.24On consultation, the Minister notes that the Commission consulted publicly on the drafts from 4 September to 2 October. He adds that, on 2 July 2015, the Department of Health published a nine-week public consultation on the draft implementation of the whole of the Directive.
17.25Regarding timing, the Minister explains that a vote may come from mid-November onwards depending on the progress of negotiations. Officials have since confirmed that the Commission Implementing Regulation and Implementing Decision are likely to be put to a vote by written procedure in mid to late November. The Commission Delegated Regulation is likely to be adopted by the Commission on a similar timetable, giving the European Parliament and Council two months within which to object.
Previous Committee Reports
None.
28 November 2017