Documents considered by the Committee on 19 December 2017 Contents

15Tobacco product traceability and security

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny; drawn to the attention of the Treasury Committee and the Health Committee

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 product

Legal base

Directive 2014/40/EU

Department

Revenue and Customs

Document Numbers

(a) (39064),—; (b) (39064),—; (c) (39064),—

Summary and Committee’s conclusions

15.1In an effort to tackle the illicit trade in tobacco products, the EU is introducing a “track and trace” system for tobacco products throughout the supply chain.

15.2These documents set out detailed rules to put in place such a system 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 (OTPs), such as cigars, cigarillos, pipe tobacco and snuff.

15.3The proposed new rules are complex in nature, reflecting the detailed mandate from the 2014 Tobacco Products 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.

15.4We were unable to consider the documents until 22 November, by which time they were close to agreement. At our meeting that day, we noted their complexity and sought assurances from the Exchequer Secretary to the Treasury (Andrew Jones) about the consultation process. We asked for an update on the agreed texts.

15.5The Minister has responded, explaining that the documents have been adopted—with “important changes”—and that they were supported by the UK. He says that the Government has had ongoing dialogue on implementation of these measures with the Commission, other Member States and both large and small businesses and their trade bodies since the Tobacco Products Directive was agreed in 2014. Dialogue will continue throughout the implementation period to ensure that burdens on business are kept to a minimum.

15.6The Minister points to a number of changes which have been made in the course of the drafting process, including:

15.7On the UK’s withdrawal from the EU, the Minister notes that the UK—as a signatory to the World Health Organisation’s Framework Convention on Tobacco Control (FCTC) Illicit Trade Protocol—is obliged to introduce a track and trace system in any case. The EU and international provisions reflect the need for access to data held by, and co-operation between, all parties. The measures support continuing efforts to tackle smuggling, including across the Irish border.

15.8We have received a number of submissions from third parties who are concerned about the impact of the proposed new rules on OTPs.126 The submissions have been published on our website. In summary, they argue that there is very little, if any, illicit trade in such products and that the requirements are prohibitively burdensome for many of the small businesses involved in OTPs.

15.9We note that these detailed measures have now been adopted and that a number of changes were made to the original texts published by the Commission.

15.10We are very grateful to all those third parties who made representations to us about the specific implications for the OTP (Other Tobacco Products) sector. We received no representations from other affected sectors or interests. It is regrettable that the delay in establishing the Committee means that the concerns of the OTP sector could not be taken into account in our scrutiny of these measures before their adoption. We nevertheless draw the submissions to the attention of the Minister and his officials and trust that the Government will take on board these concerns during the implementation process, working with the Commission, other Member States and the sector. We note from the submissions that similar representations have been made to the European Commission and to the Government.

15.11On the OTP sector specifically, we observe that the rules will not apply until 2024, by which time the UK will be outside the EU. While the rules will become EU retained law under the EU (Withdrawal) Bill, there may clearly be scope to amend the detail of the rules, so as to respect the UK’s international obligations, meet wider revenue and public health objectives and avoid undue burdens on small and micro businesses in particular. We further note that the FCTC Illicit Trade Protocol is yet to come into effect and has not yet been ratified by the United Kingdom, although ratification is imminent. Under the terms of the Protocol, each Party need only apply track and trace to cigarettes within five years of the Protocol entering into force on each Party, and to OTPs within ten years. The 2024 deadline is thus an EU deadline and the UK would—subject to the terms of the UK’s withdrawal—be able to extend it domestically until 2028 at least.127

15.12As the legislation has now been adopted and the focus turns to implementation, we consider it appropriate to draw these documents to the attention of the Treasury Committee and the Health Committee so that those Committees are aware and are able to scrutinise both implementation and potential future changes post-Brexit. We clear the documents from scrutiny.

15.13We would encourage all sectors and interests affected by these measures to make representation to the Government during the course of implementation should they consider that their concerns are not being duly taken into account.

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

15.14These documents constitute 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.

15.15On track and trace, the rules cover Unique Identifiers and identifying codes, data repositories and the recording of product movements. The security markings rules require every unit pack of tobacco products to be marked with a security feature. Further background to, and details of, these documents were set out in our Report of 22 November 2017.128

15.16In his original Explanatory Memorandum (EM), the Minister believed that the provisions were likely to change “significantly and rapidly” before any final agreement was reached. While the Government supported the principle of track and trace, it was concerned to ensure that the solution adopted was proportionate, efficient and effective, could be implemented in the timescale set and kept burdens on legitimate business to a minimum while delivering the required objectives.

15.17The 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 of Health noted that the Government was “fully considering the information provided” and wouldcontinue to listen to all businesses involved in the supply of tobacco products in the development of EU proposals in this area”.

15.18At its meeting of 22 November, the Committee agreed that rules were required in order to address the illicit trade in tobacco products but it also appeared that the Government had some concerns that the proposed methodology was potentially onerous, at least on the proposed timescale. The Committee also agreed 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

15.19The Committee asked the Minister to:

15.20On the UK’s withdrawal from the European Union, the Committee asked:

The Minister’s letter of 12 December 2017

15.21The Minister notes that the regulations have now been voted on and approved by the written procedure, and the UK voted in favour of their introduction.

15.22He says that the Government has had ongoing dialogue on implementation of these measures with the Commission, other Member States and both large and small businesses and their trade bodies since the Tobacco Products Directive was agreed in 2014. Officials have listened to the concerns of the industry about implementation and have visited a number of tobacco product distribution sites to see how these measures will have an impact in practice. This dialogue, he says, will continue throughout the implementation period to ensure burdens on business are kept to a minimum and a system is delivered which is, as far as possible, effective, efficient and proportionate. The Minister adds that, when the draft legislation was published in September 2017, HMRC took steps to draw the draft texts to the attention of industry stakeholders and encourage them to raise any concerns with the Commission during the consultation exercise.

15.23On the timing of agreement, the Minister acknowledges that discussion and adoption have been swift, but that the Commission has made a number of important changes in response to issues raised by the industry and Member States. These have included: an easing of the process for generating ID codes for aggregated packs of products; a transitional period for smaller businesses for some requirements; and more use of agreed international standards.

15.24The Minister expresses the position on Brexit-related matters in the following terms:

“With regard to the impact of EU Exit on these requirements, the nature and detail of any UK obligations under EU law after March 2019 are still to be determined through negotiation. The UK and the EU are signatories to the World Health Organisation Framework Convention on Tobacco Control (FCTC) Illicit Trade Protocol, a global rather than an EU treaty. This includes the requirement to introduce a track and trace system for tobacco. Regardless of application of the Directive and membership of the EU, the UK will need to implement a system of this nature. The provisions of the Directive and Protocol also reflect the need for access to data held by, and co-operation between, all parties. Both support our continuing efforts to tackle smuggling, including across the Irish border, a concern which the government shares with the Committee.”

Previous Committee Reports

Second Report HC 301–ii (2017–19), chapter 17 (22 November 2017).


126 Collation of correspondence received from Association of Independent Tobacco Specialists (AITS); Gawith Hoggarth; Imported Tobacco Products Advisory Council (ITPAC); McChrystals (Leicester) Limited; Oettinger Davidoff AG/Davidoff Distribution (UK) Limited; and Tor Imports Ltd (December 2017).

127 Entry into force requires ratification by 40 Parties. At the time of writing, 34 Parties had ratified and we understand that there is a hope that the threshold of 40 will be reached in 2018.

128 Second Report HC 301–ii (2017–19), chapter 17 (22 November 2017).




22 December 2017