Ukraine's tobacco industry is being rebuffed

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

The world's four largest listed multinational tobacco companies, Philip Morris International, Japan Tobacco International, Imperial Tobacco, British American Tobacco, have been convicted by the Antitrust Committee for engaging in "concerted practices" in order to maintain a dominant position in the tobacco market in Ukraine. The four international majors currently control about 80% of the national market. Similarly, the distributor Tedis Ukraine controlled more than 99% of the local market in 2013, 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, like Philip Morris, which has filed a complaint with the World Bank's International Centre for Settlement of Investment Disputes in Washington, D.C. In the background, the tobacco industry is warning the authorities about the possible economic repercussions that such a decision could cause. In a press release, British American Tobacco emphasizes that "such decisions undermine any investment project 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 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, despite remaining relatively low (two dollars), the price of a pack of cigarettes has increased 27-fold in ten years. At the same time, tobacco tax revenues have increased twelve-fold, while the number of smokers has decreased by 40%, to 23% of Ukrainian adults in 2018. Moreover, in 2017, Ukraine adopted an anti-smoking plan, involving increasing tobacco taxes by 20% per year 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 demonstrated. The argument of smuggling is, however, 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 02/08/2021)

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