In Latin America, China organizes smuggling to develop its markets

An investigation by the Organized Crime and Corruption Reporting Project (OCCRP), an international network of investigative journalists, shows that America's markets are facing growing contraband fueled by China Tobacco, the state-run monopoly in China.[1].

According to journalists, cigarettes produced by the China Tobacco, also known as CNTC, are increasingly found in South American countries. The packages, in Spanish, suggest that they are specifically intended for this market. However, everything seems to indicate that Chile is the only country in the region where these tobacco products can be legally sold.

Increase in seizures of contraband cigarettes made in China

In July 2020, Colombian authorities seized a shipment of Chinese cigarettes containing 96 million packs, or nearly two packs per capita. According to the Bogota Tax and Customs Police, between 2015 and 2020, six of the ten most seized brands were Chinese cigarettes. This contraband appears to be growing rapidly: while in 2016, 300,000 packs were seized, this figure rose to 6 million in the first seven months of 2020. The same trend is observed in other countries: in Brazil, the number of seized Chinese packs increased from 76,000 in 2019 to 201,000 in 2020. According to Oxford Economics, 38% of contraband cigarettes in Mexico are cigarettes produced by the CNTC or its subsidiaries, compared to 25 % in Ecuador.

Panama, the “Disneyland of smuggling”

For local experts, Panama is the nerve center of smuggling in Latin America. Chinese cigarettes destined for smuggling are delivered to the free zone of Colón, to be then distributed throughout the continent. The very weak regulation, the rarity of cargo checks and the levels of sanctions that are not enough to dissuade make the smuggling trade particularly easy and attractive.

Illicit trade supported by China

The great strength of the CNTC, and of the smuggling phenomenon associated with it, lies in the support of the Chinese public authorities for the expansion policy of China Tobacco. The state monopoly has indeed accelerated in recent years its internationalization strategy, adopting an aggressive strategy through illegal means. Juan Carlos Buitrago, director of the tax and customs police in Colombia between 2018 and 2010, shows that the Chinese state exerts diplomatic pressure to prevent an effective fight against illicit trade. According to him, the Colombian government even gave in to China in order not to include heavy measures against smuggling in a bilateral trade agreement. The Chinese ambassador even asked him to stop an operation against a smuggling network in which Chinese nationals were involved.

Practices proven by tobacco multinationals

The growing influence of the CNTC in the global tobacco market could prove dangerous for public health, and result in a reversal of the progress made since the signing and ratification of the WHO Framework Convention on Tobacco Control in 2003. However, this policy of economic expansion through smuggling is not a new phenomenon, and has largely been developed by traditional tobacco multinationals. In particular, in the 1990s, Philip Morris, having no legal outlet in Colombia, massively supplied the national market with its products, via smuggling networks. The manufacturer, having quickly dominated local brands, was able to negotiate with local authorities the legalization of the Marlboro brand on preferential tax terms. Thus, as one of the experts interviewed in the OCCRP investigation points out, "smuggling is a way to expand the market."

FT