Nov. 2, 2009

Tobacco prices distort competition

Ireland’s policy of setting a minimum price on tobacco products distorts competition, a legal advisor to Europe’s highest court has said.
In the case of Commission of the European Communities versus Ireland, the Advocate General said binding prices restricted manufacturers’ freedom to set prices, thereby posing a risk to free competition.
The opinion of the Advocate General is not a final judgement, although the court generally follows it 80 per cent of the time.
The European Commission took Ireland to Europe’s highest court in 2008 over its policy of setting a minimum price on tobacco products to protect public health.
Under an agreement with the Irish Tobacco Manufacturers' Advisory Committee, the Department of Health has a minimum price for 20 cigarettes of about €1.30. This was set using information on volume sales supplied by the tobacco companies for filtered and unfiltered cigarettes.
The Government says the agreement with the tobacco manufacturers was made for the primary purpose of preventing low-cost selling of tobacco products in Ireland.
By setting a minimum retail price for a packet of 20 cigarettes it undermines the ability of retailers to provide special cut- price offers on certain brands. Price control is also seen as a viable way to protect children from becoming addicted to cigarettes and to encourage existing smokers to quit, according to the Department of Health.
In his legal assessment of the arguments the Advocate General said “increases in excise duties are therefore a less intrusive measure than minimum prices, which are thus not necessary”.
A statement issued by cigarette company John Player & Sons today aid “while we don’t oppose the Commission’s view that tobacco manufacturers should have the freedom to determine retail prices for their products, the fact remains that the real minimum price for 20 cigarettes in Ireland is the street price of €4 - €5 euro due to widespread illegal cigarette selling.
This greatly incentivises criminals by giving them huge margins while denying Government badly needed revenues. 1 in 4 cigarettes smoked in Ireland today is not even bought in an Irish shop”.