Ukraine's tobacco industry is being rebuffed

In Ukraine, the tobacco industry has just suffered an unprecedented legal setback. On February 2, the Pivnichny Court of Appeal for Economic Affairs rejected the appeal by Imperial Tobacco Ukraine and Imperial Tobacco Production Ukraine. The appeal challenged a decision by the Antitrust Committee (AMCU) in October 2019, which imposed a record fine of €260 million on the cigarette companies for engaging in anti-competitive collusion.[1].

The world's four largest publicly traded multinational tobacco manufacturers—Philip Morris International, Japan Tobacco International, Imperial Tobacco, and British American Tobacco—were condemned by the Antitrust Committee for engaging in "concerted practices" to maintain a dominant position in Ukraine's tobacco market. The four international majors currently account for approximately 80% of the national market. Similarly, in 2013, distributor Tedis Ukraine controlled over 99% of the local market, despite the existence of 21 other competitors.

The threat of economic repercussions

In various press releases, tobacco manufacturers have denounced the "arbitrary" nature of the decisions, which they have criticized as "unfounded and illegal." They have also indicated that they wish to appeal to international arbitration, following the example of Philip Morris, which filed a claim in January with the World Bank's International Centre for Settlement of Investment Disputes in Washington, D.C. The tobacco industry is also warning the government about the potential economic repercussions that such a decision could cause. In a press release, British American Tobacco emphasizes that "such decisions undermine any investment plans in the Ukrainian economy and cause undue harm to [their] reputation as a reliable corporate citizen."

Ukraine's proactive policy

Having ratified the World Health Organization's Framework Convention on Tobacco Control (FCTC) in 2006, Ukraine has implemented a number of tobacco control policies since 2008. According to a report cited by the Kyiv Post, although the price of a pack of cigarettes remains relatively low (two dollars), it has increased 27-fold in ten years. At the same time, tobacco tax revenues have increased twelve-fold, while the number of smokers has fallen by 40%, reaching 23% of Ukrainian adults in 2018. Furthermore, in 2017, Ukraine adopted an anti-smoking plan, involving an annual increase in tobacco taxes of 20% until 2025, with the aim of reaching European standards.

For its part, the tobacco industry has indicated that such a health policy would lead to perverse effects, such as an increase in smuggling from Moldova, where tobacco is cheaper. This causal relationship between tobacco taxation and illicit trade has not yet been proven. The smuggling argument, however, is used by the tobacco industry to dissuade public authorities from increasing taxes.

[1] Tobacco peddlers fighting multimillion-dollar fines for market collusion, Kyiv Post, February 4, 2021, (accessed February 8, 2021)

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