Introduction

The illegal trade in tobacco products is a phenomenon that only recently has gained some prominence despite the fact that it has a much longer history. There are three main schemes characterising this trade in the last two decades: (1) bootlegging: buying an amount of cigarettes that exceeds custom regulations, (2) large-scale smuggling of untaxed cigarettes diverted from licit international trade and (3) counterfeiting or manufacturing of fake brand cigarettes (Joossens 1999; von Lampe 2006). This chapter focuses on the third scheme and aims at providing an account of the social organisation of the counterfeiting business in the People's Republic of China (hereinafter, China), generally believed to be the main source for counterfeit cigarettes worldwide. According to recent estimates, up to 400 billion counterfeit cigarettes are produced in China per year (Chen 2009; Joossens, Merriman, Ross and Raw 2009), representing roughly the number of cigarettes (legal and contraband) consumed in the United Kingdom over a six-year period. China has criminalised cigarette counterfeiting through a net of general and specific laws and regulations. Section 140 (chapter 3) of the Chinese Criminal Law of 1997 has made the production and trade of counterfeit goods in general an “Offence that Undermines the Socialist Market Economy’ punishable by a range of possible sentences from a financial penalty to life imprisonment. In addition, the Chinese Law of Tobacco Exclusive Sale stipulates that legal traders who sell counterfeit tobacco products must be fined at 50 per cent of the market value of the counterfeit products seized.

INTRODUCTION

The smuggling and illegal distribution of cigarettes is a global phenomenon in a dual sense. It can be observed in some form or other on every continent, and there are some schemes that span the globe, connecting distant places such as a clandestine factory in China producing counterfeit cigarettes with a street corner in London where these cigarettes are eventually sold to consumers.

Cigarettes are essentially a legal good. What makes the trade in cigarettes illegal is the evasion of excise and customs duties. Excise duties are taxes levied on certain goods produced or sold within the country. Customs duties are charged on goods imported from another country. Cigarettes are among the highest taxed commodities and provide a significant source of revenue for governments. While the level of taxation varies across jurisdictions, in many countries taxes account for as much as 70 to 80 percent of the price smokers have to pay for a pack at a legal retail outlet store. Through a number of different schemes, suppliers and customers circumvent the taxation of cigarettes. As a result, cigarettes are being made available at a cost below legal retail prices, providing both lucrative profits for suppliers and significant savings for consumers, while causing substantial losses of revenue to governments, estimated at around forty billion USD globally in 2007, and at the same time undermining public health policies that aim to discourage smokers through high tobacco taxation (Joossens et al., 2009).