Contraband cigarettes represent 16.6% of domestic consumption and cost Mexico US$980 million in lost tax revenue annually.
By Sergio Ramos for Infosurhoy.com
MEXICO CITY – They are for sale in kiosks, subway stations, stores, and even on cruises.
Illegal cigarettes smuggled into Mexico account for 16.6% of the market after representing just 2% in 2010, according to a 2012 report by the Confederation of Industrial Chambers (Concamin).
The rise in illegal cigarettes was caused by a 30% tax on legal cigarettes that took effect in January 2011, prompting smokers to opt for cheaper, illegally obtained packs, according to Carlos Humberto Suárez, president of the National Council of the Tobacco Industry (Conainta).
“The increase in taxes opened a very large market for low-priced products, and then illegal tobacco began circulating,” he said.
The increase in the illegal trade of cigarettes also has been spurred by organized crime, which profits from sales, according to Raúl Picard del Prado, chairman of the Internal Trade Committee for Concamin.
“There is a very large distribution network,” he said. “Organized crime groups are the ones that buy and distribute them. It is the same procedure used for drug-trafficking. But in this case, the risk of going to prison isn’t as big.”
The price of a legal pack of cigarettes ranges between $22 pesos (US$1.83) and $40 pesos (US$3.30), while an illegal pack generally costs only $10 (US$0.83).
Illegal cigarettes come mainly from Canada, China, India, Paraguay, the United States and Vietnam.
A total of 340 million packs of illegal cigarettes were sold nationwide in 2012, costing the government $1.18 billion pesos (US$980 million) in taxes, according to Picard del Prado.
Of the 340 million packs sold, 62% were purchased by men between 18 and 29 years old, and 58% were sold to customer living in the lower socio-economic classes, according to a survey by the consulting firm TNS Mexico for Concamin.
Sixty percent of consumers of contraband brands said the price paid for a pack is “fair,” while 75% of smokers of legal brands said the price is “very expensive.”
Neither Conainta nor Concamin has a record of a particular organized crime group running a cigarette smuggling operation. But Alfonso Cordón, the regional manager for trademark protection at British American Tobacco, said the Los Zetas drug cartel smuggles cigarettes from Central America and the Caribbean into Mexico.
“Apart from their other illicit actions, they are into contraband because these products are effective in laundering money. They are very influential in contraband,” Cordón told the Mexican daily Excélsior last August.
Contraband cigarettes in Mexico are sold in subway stations, kiosks, stores and markets, and even on cruises. In April, the Mexican Tax Administration Service (SAT) seized a shipment of 1.8 million cigarettes along the southern border with Belize. (Courtesy of the SAT)
Cordón said Los Zetas’ trafficking is split 50-50, with narcotics accounting for half and trafficking in cigarettes, humans and weapons representing the other half.
Usually, the smuggler purchases cigarettes in another country and ships them to the Colón Free Zone in Panama, where they are stored in warehouses as “transit goods” or listed as “re-export” on the customs documents, according to Picard del Prado. The cigarettes are smuggled in trailers into Mexico through Belize’s northeast border town of Corozal.
“Once a trailer enters Mexico, it disappears,” Picard del Prado said. “They already have thousands of vendors and the cigarettes are on the market.”
Concamin has identified 102 brands of cigarettes being sold illegally in Mexico. The contraband is sold mainly in the northern states (42.2%), while the southeast has the lowest consumption (11%). Mexico City registers 5.3% of the total consumption of contraband cigarettes nationwide.
Most contraband cigarette packs don’t include country of origin or list the dangers of smoking, and some packs have all the information in English, which contradicts the Ministry of Health’s regulations requiring warnings to be in Spanish.
“Illegal cigarettes constitute a health risk since they may be counterfeit, adulterated or prepared with unknown ingredients, which increase the possibility of containing potentially toxic chemical compounds or non-tobacco components,” the Federal Commission for the Protection against Sanitary Risk (COFEPRIS) said in a prepared statement.
The Mexican Tax Administration Service (SAT) seized a shipment with 1.8 million cigarettes – worth $7 million pesos (US$552,547) in tax revenue alone – on the southern border with Belize this past April.
On July 30, 2012, COFEPRIS made the largest seizure of contraband cigarettes in the country’s history when it confiscated four million packs of cigarettes from India and China in the northwestern port of Mazatlán, according to the Ministry of Health.
The Alliance against Illegal Goods, made up of several chambers of industry and commerce in Mexico, created an action plan in 2012 to reduce the entry of contraband cigarettes into Mexico.
Informational displays were placed in convenience stores and supermarkets to inform the population that illegal brands don’t meet Ministry of Health regulations.
Additionally, General Customs Administration (AGA) officials receive comprehensive training so they can identify all kinds of contraband.
The alliance also has asked the Ministry of Health to increase prevention campaigns about the dangers associated with tobacco use, especially tobacco of unknown origin.
“The government has done what it can,” Suárez said. “The warning has been given. We have regular meetings with people from both the Attorney General’s Office (PGR) and the SAT. Together, we have made significant seizures.”