Cigarette Counterfeiting, Problems and Thoughts on Countermeasures

From: China Tobacco/Shandong Provincial Tobacco Monopoly Bureau

Editor’s Note: Translation courtesy of the Center for Regulatory Effectiveness

Although China’s is working to crack down on counterfeit cigarettes, the manufacturing and sale of fake smokes is a covert activity that changes location, has the strong ability to regenerate. Counterfeit cigarette cases are increasingly complex. The counterfeit cigarette trade is conducted by large organizations and results in the loss of State revenue. The high level of chemicals in counterfeit cigarettes will affect the health of people to a certain extent. If the problem of counterfeit cigarettes is not solved as soon as possible, is bound to affect the healthy and orderly development of China’s tobacco market as a whole. So, what are the harms from making and selling fake cigarettes? 

Production and sale of counterfeit cigarettes results in the following types of harm:

   Damage to the normal order of the market in tobacco industry.

As we all know, China is the world’s largest producer, distributor, and consumer of tobacco.

The characteristic of a market economy is competition and competition should be based on a fair, just, open and orderly social environment, by fluctuations in market prices, by market competition by all stakeholders, by changes in market supply and economic regulation.

And counterfeit cigarettes are trampling on the law, undermining the “rules of the game” by stealing technology and through counterfeit brands, counterfeit licenses, making and selling inferior goods, selling cheap, high commissions and other despicable means of unfair competition to seize the market.

Because the cost of production of counterfeit cigarettes is lower than for the real thing, the sales price is also cheaper. If the flood of counterfeit cigarettes does not stop, smokers will not know what is real and what is not, resulting in substantial consumption of counterfeit cigarettes. Many dealers may sell a lot of large amount of counterfeit cigarettes resulting in a sales decline by regular cigarette manufacturers. More seriously, the many underground factories producing counterfeit cigarettes, counterfeit the trademarks of the regular well-known brands. This causes serious harm to China’s well-known reputation and the interests of the tobacco industry. In the long run, use of famous trademarks on counterfeit cigarettes harms China’s competitiveness in international markets and is not conducive to national strategy implementation for the tobacco industry. China’s tobacco industry market as an important component of the socialist market. Mass production and sale of counterfeit cigarettes will eventually damage the behavior of the normal operation of the socialist market order.

   Jeopardize the fundamental interests of the State.

Tobacco is a high revenue product. In 2010, China’s tobacco industry realized business profits and taxes of 604.552 billion yuan, an increase of 87.639 billion yuan which was an increase of 16.95%. Tobacco turned 498.85 billion yuan over to state systems, an increase of 87.25 billion yuan, up 21.2%. China’s tobacco industry has made significant contributions to State revenues to ensure effective control of the national market economy. If allowed to continue, manufacture and sales of fake cigarettes would seriously damage the country’s fiscal revenue. Because counterfeiting is an offence, their production and operation activities are generally conducted underground resulting in a great loss not only to national tax but also because of the need to allocate special funds needed for the law enforcement crackdown on cigarette counterfeiting. According to information, the fake “Hongtashan” cigarettes alone amounted to tax revenue loss of more than 5 billion yuan.
   Harm to smoker’s health.  
 Many counterfeit cigarettes manufacturers use mostly tobacco waste, poor, substandard tobacco even moldy leaf tobacco. Counterfeit cigarettes in the filter paper use inferior quality products even waste or contaminated waste products. Studies show that a counterfeit cigarette combustion will produce a large quantity of 3.4-benzopyrene and other carcinogenic substances. The tar content significantly exceeds the national standard. Counterfeit cigarettes contain “bemisia tabaci” eggs that, once inhaled, will be like “pork tapeworm” as chronic parasitic in humans, the large population of which will cause very great harm to the nervous system and, in severe cases, can lead to necrosis of the brain. Second, industrial dyes and industrial flavors used counterfeit cigarettes, and their combustion products, will produce severe damage to the reproductive system and visual system, resulting in “my eyesight is getting worse and even blindness” and other symptoms of toxic amblyopia and including sexual dysfunction. More seriously, is that residual sulfur ingredients used in curing smoked harm the respiratory system and even pose a direct threat to life.
For example, national legislation expressly limit the content of hazardous substances in tobacco, tar content should be limited 15-25 mg. According to the tests, the tar content of counterfeit cigarettes can be more than 50 mg. Inhalation of large amounts of tar in the smoke, will substantially increase various forms of cancer and the possibility of cardio-pulmonary and cerebral-vascular disease.
Proverb: “Rome was not built in a day,” At present, counterfeit cigarettes exist for several main reasons: 
   Counterfeiting is driven by opportunism.
From an economic point of view, counterfeit cigarette achieve profits that can not obtained normally. Because of their low cost and the ability to sell counterfeit cigarettes for prices similar to real cigarettes, large profit margins exit, profits several times higher than on normal cigarettes. Criminals are willing to take the risks, at the expense of national laws and regulations, because they seek huge profits. Criminals captured or arrested selling fake goods admitted that they interrogation record, many suspects have admitted that the fantasy of making a fortune overnight was their initial motivation. They slid into the abyss of crime, and embarked on a road of no return.
   Local protectionism is a factor in local crime, counterfeit cigarette products are rampant.
Local Government is investor and the direct beneficiaries of the development of the local economy. Although market access for Governments and enterprises are different, but local government is always at the core of economic development. The market economy itself is a process of development as is the transformation of government functions, some local interests talk about economic benefits to the neglect of social benefits and only pay attention to economic development without paying attention to the legal system. Sometimes local and regional interests are elevated at the expense of the State and public interests.
   Law enforcement against the underlying causes of counterfeit cigarettes is difficult.
From the perspective of the rule of law, the existence of “fake” products highlights the need for law, a legal means, as a manifestation of the will of the State, which has a strong deterrent. The legal system is not perfect which makes it difficult for law enforcement officers. Currently, rampant counterfeiting calls for a heavy legal response. Law enforcement should bring into full play deterrent force; provide the necessary physical punishment, and provide a starting point for criminal punishment and the highest penalty. On the other hand, economic sanctions should be a deterrent, reflecting the economic principle of severe punishment. In recent years, the NPC Standing Committee has promulgated the “Product Quality Law”, “Consumer Protection Law,” “Anti-Unfair Competition Law,” “punishment for production and sale of fake and shoddy goods law” and other relevant laws. Implementation of these laws appears to have a deterrent effect. However, current law enforcement and justice is still the weak link in the operation of the law. 
However, relevant departments may have poor supervision and lack of administrative enforcement tools, making it difficult to deter the selling of counterfeit goods. First, prior to the fight against fake and shoddy cigarette products, in order to confirm counterfeit cigarette products required the Trade and Industry Bureau, and the Bureau of Quality Supervision and other departments since the products are difficult to identify. Submitting counterfeit cigarettes for confirmation was expensive and time consuming. The follow-up investigation and evidence collection is difficult. Supervision of tobacco products market is not strong. The market lacks effective supervision of product quality. Fake tobacco products cause the prevalence of crime. At present, at the national level, there is only scattered monitoring of the cigarettes market, the cigarettes sampling system is far from perfect and not comprehensive. Some Tobacco Monopoly Bureau managers knowingly market counterfeit tobacco products with the indifferent, do-whatever attitude which encourages arrogance by counterfeiting criminals.
Judging from the social environment, this is a period of time in which economic activities often focus only on pursuing material interests, ignoring the cultural spirit of professional ethics, resulting in a decline in moral standards. Especially in today’s China which is in a transition period, the large number of small commodity producers, of low cultural grade, maintain market economy ethics and lack understanding of laws and regulations are short-sighted and not operate the business according to law, just to get rich by illegal profits.
   Smokers’ own lack of awareness provides counterfeiters an opportunity to exploit.
Making and selling fake cigarettes prejudices the legitimate rights and interests of consumers. The rights of consumers is the most used and most reasonable means of law and public opinion to fight with. From the history of counterfeiting it is not difficult to see that, in order to ultimately curb the proliferation of counterfeit cigarettes, although the efforts of law enforcement agencies is important, improving the awareness of smokers is also an important issue. But at this stage, the majority of smokers do not take the initiative to protect themselves, thus giving fake cigarette products the opportunity for circulation. Some people, for a variety of reasons, provide a forum for counterfeiters, have tipped off the counterfeiters, or failed to report them, giving a false impression that provides convenient conditions for the counterfeiters. Thus, only when the majority of smokers have learned how to identify counterfeit cigarettes, to protect their true legal rights, and to consciously make a clean break with the fake cigarettes, will authentically made products get the final victory.
The measures and countermeasures to be taken against counterfeits.  
Combating counterfeit tobacco products is a long-term and arduous task. Counterfeit tobacco products will not disappear on their own. To fundamentally curb the proliferation of fake cigarette products and gradually drive counterfeit tobacco products out of China’s tobacco industry, you must do the following:
   Establishing the correct view, eradicate local protectionism.
Adhere to the scientific outlook in guiding development by changing the concept of certain areas of government. Establish a correct view of achievements in order to eliminate the view that “fake goods are for the rich,” that “anti-counterfeiting impedes economic development,” and other wrong ideas. Use the news media and other measures to effectively eliminate local protectionism and clear the obstacles on the road against counterfeiting. All localities and departments should continue to clean up and promptly repeal laws, administrative regulations and the State Council should contravene the relevant provisions of local laws and regulations so as to never allow local protectionism and industrial monopoly as an umbrella for making and selling counterfeit and shoddy goods. The State Council will, in due course, inspect the cleaned-up legislation.
   Strike hard at the source.
Resolutely implement the Supreme Court, Supreme People’s Procuratorate, “on for the roduction and sale of counterfeit goods in criminal cases to explain the specific application of the legal issues” and other acts of the fight against fake goods.
Make full use of legal weapons to crack down on criminal activities related to the manufacture and sale of counterfeit goods. Each sector should actively cultivate intelligence networks, wide-set eyes and ears, expanding their sources of information. Tobacco, industrial and commercial departments should use all of their advantages to combat counterfeits. The most important task is to block sources, especially raw materials and equipment, which are not used for legitimate cigarette factories. At the same time, strengthen the control of monopoly product manufacturers.
Administrative departments should further strengthen efforts to supervise their company and strictly prohibit to anyone outside the organization, specialized products, such as machinery and equipment, and tobacco-related materials. So, by cutting off the supply of raw materials and equipment, making shoddy products will become like “making bricks without straw.”
   Improve the joint anti-counterfeiting mechanism to crack down on the manufacturing core.
On the one hand, to further improve the working mechanism of the joint anti-counterfeiting efforts, the joint anti-counterfeiting team’s tasks must remain unchanged; this is a basic requirement to maintain long-term pressure. On the other hand, they must also crack down on counterfeiting, focusing on destroying the manufacturing and distribution network. First, the task force should strengthen the links between provincial tobacco, the business sector, the public security department and other departments and establish an inter-provincial joint enforcement mechanism to crack down on counterfeit fake goods production and sales. Second, in major cases, we must strive to collect valuable clues and follow them – “follow the vine to get the melon,” and completely destroy the manufacturing and distribution network of the counterfeiters which were caught. Third, strengthen coordination and supervision, inspection, public security. Tobacco, industrial and commercial departments should monitor the composition of Co-ordination Group. In addition to coordinating matters relating to the units involved in investigating counterfeiting, it should also increase supervision of cases on file and in-progress. Fourth, improve the quality of law enforcement personnel and improve their working conditions.
   Improve legislation and impose punishment.
The legal punishment for making and selling counterfeit products is not heavy. The fine three times the illegal gains or a maximum of $50,000. Criminal penalties for particularly serious cases is “at least three years to seven years imprisonment.” In reality, the punishment is mainly through fines and low-term detention. The imperfections of the law are such that criminals have nothing to fear. The legislature, drawing on the United States, France and other countries that have successful experiences, can develop a more stringent law. Of course, stringent laws only work if implemented and punish the counterfeit manufactures to make criminals feel the systemic risk and small profit of making counterfeit cigarettes is a bad bet.
   Communications work.
In support of the local government, tobacco, industrial and commercial sectors, use an effective time, such as March 15 each year, to highlight consumer rights protection, through the distribution of printed information, broadcasting and other forms of propaganda. Call on the majority of smokers tp resolutely resist the counterfeit cigarette products, so that people know about the law, and understand and use the law. The other hand, we must educate tobacco smokers on how to identify counterfeit cigarettes and to keep their eyes open to distinguish the true from the false.
Although we fight against counterfeit goods production and have made great achievements, we can not say that counterfeiting has been eradicated, the task we face is still long way to go. As the great patriotic poet  Qu Yuan of the Warring  States period wrote: “The road is long. I will search up and down.”

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