Future of Tobacco Production

  Health considerations aside, the case is weak for
promoting long-term, worldwide increased tobacco
production for economic reasons. Although tobacco
is often a very profitable crop, much of its advantage
stems from the various subsidies, tariffs, and supply
restrictions that support its high price and provide
economic rents for its producers. If the U.S. tobacco
price-support program, which is an important deter-
minant of the price of tobacco in international markets,
were abolished or radically altered, foreign tobacco
producers might have to contend with a massive in-
crease in the supply of U.S. tobacco and a fall in
tobacco prices that would make tobacco production
much less profitable.

  Other changes in the world tobacco market may
also make tobacco a much less attractive crop. At
present, despite substantial growth in tobacco con-
sumption in China, which has a self-sustaining mar-
ket, worldwide per capita consumption of tobacco is
projected to be similar in the year 2000 to that in 1974
to 1976 (FAO 1990). Demand for tobacco in the major,
developed countries has been decreasing because of
health concerns. Therefore, even without a major shift
in U.S. tobacco policy, tobacco-exporting countries
may find it increasingly difficult to market their crop
to their traditional markets in economically developed
countries. In closed markets or in developing coun-
tries, this difficulty may put pressure on prices and
cause countries to look for domestic outlets for their
tobacco crops.

  The economic implications of shifts in interna-
tional tobacco markets could be significant. When
producers are concentrated in the less-developed
countries, as they now are (except for the United
States), and their customers are concentrated in the
developed world (primarily Europe and Japan), the
income transfer may benefit the developing countries.
If developing countries begin trading tobacco among
themselves, the transfers would benefit the recipients
at the expense of other developing countries, and no
net gain would result for less-developed countries as
a group. This intercountry transfer would be similar
to that which results when high tariffs and import
restrictions benefit domestic producers at the expense
of domestic consumers.

  The U.S. tobacco industry recently opened mar-
kets for U.S.-manufactured cigarettes in Japan, South
Korea, and Taiwan (Council on Scientific Affairs
1990). Previously, sales of U.S.-manufactured ciga-
rettes and, to a lesser extent, U.S. tobacco were re-
stricted by these countries to protect their domestic
industries. The Canadian tobacco industry is also

looking for foreign markets in which to develop or
expand to compensate for the decline in the Canadian
cigarette market (Ontario Flue-Cured Tobacco
Growers' Marketing Board 1990). In China, if domes-
tic demand slackens, domestic health concerns in-
crease, or the desire to earn foreign exchange
develops, Chinese tobacco producers may enter the
international market and have a significant impact on
supply, exert downward pressure on tobacco prices,
and reduce returns for other countries.

  Regardless of future tobacco policies in the
United States and China, a significant, excess supply
of tobacco is possible. Many policies have been insti-
tuted to constrain the supply of tobacco and support
current prices. Increased demand for excess tobacco
is likely to come from developing countries, but de-
mand will depend on rates of growth in income and
on government tobacco policies.

Tobacco Taxation

  Almost all countries levy taxes directly on to-
bacco products, mostly on manufactured cigarettes
and imported tobacco. In some countries, the right to
manufacture, distribute, and import tobacco products
is reserved for a government monopoly. In such coun-
tries, the excess profits of the monopoly are a form of
indirect taxation on tobacco, in addition to the taxes
nominally levied.

  Taxes may be extracted during most stages of
tobacco processing. Import tariffs and customs duties
are frequently levied on both raw tobacco and
manufactured tobacco products. In many countries,
some brands of manufactured cigarettes are made
from tobacco blends, which include imported tobac-
cos. As a result, an import duty is usually included in
the price of these cigarettes. In addition, imported
cigarettes, usually American or European brands, are
available in many countries. Because of high tariffs,
these imported cigarettes sell at a substantial premium-
when compared with domestically produced ciga-
rettes, including domestically produced versions of
international brands licensed by the large multina-
tional tobacco companies. In addition to import du-
ties, many countries levy excise taxes on domestically
produced tobacco products and levy value-added,
general sales, and general business income taxes.

  Tobacco taxes are popular primarily because of
their low administrative cost relative to generated
revenues. Tobacco taxes are easy to collect because
most tobacco passes through only a few physical loca-
tions (cigarette factories and/or ports of entry) during
manufacturing. In countries where tobacco production
and distribution are government controlled, the

Economics   127


government may set the margins received by retailers,
as well as the prices paid to the various factors of
production. Because these prices are frequently set
administratively, rather than by the market, judging
the net profitability of the government tobacco mo-
nopoly or determining the extent of the subsidies paid
to the various production factors is difficult.

   While in some countries tobacco taxes account
for a substantial amount of all central government tax
revenues (Chapter 6, Table 21, in the United States and
Canada, these taxes account for only about 2 percent.
In 1985, income tax collections accounted for less than
1 percent of GDP in Argentina (Dornbusch and De
Pablo 1990) but almost 10 percent in both the United
States and Canada (The World Bank 1987). In Argen-
tina, a country of more than 30 million residents, only
1.5 million residents were registered taxpayers, and
only 29,000 persons actually paid any tax. Tobacco
taxes accounted for 4 percent of GDP in Argentina in
1985 (Achutti, personal communication 1990).

  Recently, taxes of all kinds have not been an
important source of finance for government opera-
tions in some Latin American countries. In these
countries, government operations are largely financed
by printing money, which resuhs in inflation. Then,
the relative importance of tobacco taxes in public fi-
nance is reduced, and if tax rates are not adjusted to
an increase in the cost of living, the real value of
tobacco taxes and retail prices may fall substantially.

  Tobacco taxes and tariffs may be either unit or
ad valorem taxes. Unit taxes are denominated at a
specific nominal rate per unit of a good (per cigarette,
per pack of 20 cigarettes, per kilogram of tobacco) and
are most susceptible to erosion in real terms as prices
increase. Even in countries such as the United States
and Canada, which have had a moderate rate of infla-
tion, unit tobacco taxes may decline over time if the
nominal tax rate is not increased enough to keep pace
with increases in the overall price level (Lewit 1988;
USDHHS 1989). To compensate for this tendency, the
Canadian cigarette tax was indexed in the early 1980s
to changes in the general price level. The Canadian
national tax is no longer indexed, but it has been
increased more rapidly than inflation in recent years,
In many countries, tobacco tariffs are ad valorem lev-
ies, which are denominated as a percentage of price
(e.g., a general sales tax). Ad valorem taxes tend to
track with inflation since the tax rises as the cost of
cigarettes increases. Although changes in the price of
imported tobacco may be captured by this mecha-
nism, little impact on cigarette prices may result be-
cause imported tobacco and tobacco products are a

small part of the tobacco market in most countries of
the Americas.

Subnational Taxes

  Local and provincial governments may also tax
tobacco products. In the United States, all states, the
District of Columbia, and many municipalities levy
taxes on tobacco products, and many also tax tobacco
products via general sales taxes. In recent years, the
amount of tobacco tax collected by all states combined
has been almost equal to that collected by the federal
government. In Canada, all provincial governments
also levy taxes on tobacco products, and these taxes
accounted for more than 50 percent of all tobacco taxes
collected in Canada in 1989 (Canadian Council on
Smoking and Health 1989). In Colombia, approxi-
mately 10 percent of the revenue of provincial govern-
ments is derived from levies on Colombian cigarette
sales (Nares 1984).

  Differences in cigarette tax rates among coun-
tries and subnational divisions can complicate the
enforcement of tax laws. In particular, big differences
in tax rates provide an incentive for smuggling-the
purchasing of cigarettes in low-tax jurisdictions for
consumption or resale in high-tax jurisdictions. Vari-
ous tax-evasion activities have been identified: buy-
ing cigarettes in neighboring lower-tax areas for
personal consumption; organized smuggling of ciga-
rettes for commercial resale; purchasing cigarettes
through tax-free outlets (international ports of entry,
military stores, and Indian reservations); and illegal
diversion of cigarettes within the traditional distribu-
tion system (forged tax stamps and underreporting)
(Advisory Commission on Intergovernmental Rela-
tions 1977).

  In the United States, as the differentials in state
tax rates increased rapidly during the late 1960s and
early 197Os, the level of cigarette tax evasion also
increased substantially. In response, the Federal Cig-
arette Contraband Act was enacted. Law enforcement
problems, stemming from organized interstate ciga-
rette smuggling, contributed to the deceleration of
state tax increases in high-tax states (Advisory Com-
mission on Intergovernmental Relations 1985). Be-
cause the range of real prices has declined among
states, interstate smuggling has become less profit-
able. This decline in profitability and increased fed-
eral enforcement have probably accounted for the
subsequent decline in cigarette smuggling (Advisory
Commission on Intergovernmental Relations 1985).

  International cigarette smuggling can have an
adverse impact on national tobacco companies and
reduce revenue for governments. In Colombia, where

128   Economics


cigarettes are subject to indirect taxation of up to 120
percent of the wholesale price, contraband U.S. ciga-
rettes have been smuggled into the country from the
United States, Panama, Venezuela, and the Caribbean
(Nares 1989; TobaccoInternaf'ional1989). The president
of Coltabaco (Cia. Colombiana de Tabaco S.A.), the
Colombian tobacco company, estimates that smug-
glers now control 35 percent of the national cigarette
market (Nares 1989). In Canada, citizens cross the
U.S.-Canadian border to purchase Canadian ciga-
rettes in U.S. duty-free shops. The increase in this
activity may be linked to recent substantial increases
in Canadian cigarette taxes (USDA 1990).

Effects of Excise Taxes on Smoking

  One nearly universal economic concept is the
law of downward-sloping demand-that is, the quan-
tity of a commodity demanded declines as the price
for that commodity increases. Numerous econo-
metric studies have confirmed that this law holds for
cigarettes, even though they are addictive, and the
relation has also been demonstrated for various addic-
tive drugs (Henningfield 1986). Because excise taxes
increase the price of cigarettes, such increases should
reduce the demand for cigarettes.

  An analysis of the price elasticity of demand for
cigarettes estimates the effect on consumption of a
change in excise tax rates. Price elasticity of demand
measures the degree of responsiveness of demand to
changes in price; it is the percent change in the quan-
tity of a good demanded, divided by the percent
change in price that caused the demand change. Thus,
an elasticity of -0.5 means that a 10 percent increase
(decrease) in price would reduce (increase) by 5 per-
cent the quantity of cigarettes demanded. To deter-
mine the effect of a tax change, the price elasticity of
demand must be multiplied by the percent change in
price that resulted from a tax change, since cigarette
taxes account for only a part of the total retail price of
cigarettes. The elasticity of demand with respect to a
tax change is generally less than the price elasticity of
demand.

  Numerous attempts have been made to measure
the price elasticity of demand for cigarettes (Table 11).
The estimates are from econometric studies that at-
tempt to explain differences in cigarette consumption
as a function of price, income, and demographic vari-
ables. Different data sets, units of observation, and
statistical techniques were used. Estimates were
derived from (1) time series of per capita cigarette
consumption for countries as a whole or for cross
sections of states or countries and (2) survey data on
the smoking behavior of cross sections of populations

at a point in time and over time. Each of these proce-
dures may result in problems of interpretation. In the
time-series studies, the estimates of both price and
income elasticity are sensitive to the construction of
the different models. In addition, time-series esti-
mates are frequently unstable because the indepen-
dent variables tend to be highly correlated with each
other. On the other hand, estimates based on cross
sections of tax-paid sales may be biased upward be-
cause some cigarettes sold in low-tax areas are con-
sumed by smokers in high-tax areas. As a result, the
estimated price elasticity of sales exceeds the price
elasticity of actual consumption.

  Data for participants in two national U.S. sur-
veys were used to evaluate the effects of price (tax)
differences on individual smoking behavior (Lewit,
Coate, Grossman 1981; Lewit and Coate 1982). For a
sample of 19,288 persons aged 20 to 70 from the 1976
National Health Interview Survey, the overall price
elasticity was estimated at -0.42 for cigarettes (Lewit
and Coate 1982). A more detailed breakdown sug-
gested that increased prices primarily reduced the
number of smokers (measured as prevalence, or the
participation rate) (Lewit and Coate 1982). The esti-
mated effects on the number of cigarettes consumed
per smoker were not statistically significant. Differ-
ences in the estimated price elasticity were also found
among groups; reported elasticity was much higher
for adult males than for adult females and much
higher for persons aged 20 to 25 than for those in other
age groups (Table 12).

  In a methodologically similar study, smoking
was analyzed for a national sample of 6,788 youths,
aged 12 to 17, surveyed between March 1966 and
March 1970 (Lewit, Coate, Grossman 1981). Because
antismoking messages were broadcast during this
period (under the Federal Communications Com-
mission's Fairness Doctrine), these researchers were
also able to investigate the effect of that policy on
teenage smoking. They reported that elasticity of de-
mand for cigarettes was greater in absolute value for
teenagers than for adults (Table 12). In addition,
smoking participation was more responsive to price
than was quantity smoked. The estimated teenage
smoking participation elasticity was -1.20, and the
elasticity for quantity smoked, conditional on smok-
ing, was -0.25.

  These results suggest that increases in tobacco
taxes can deter smoking. Since teenagers appear to be
more responsive than adults to changes in the price of
cigarettes, excise tax increases may be very effective in
preventing the onset of smoking by teenagers. By
preventing the onset of this addictive behavior,

Economics   129


Table 11.  Recent estimates of the price elasticity of demand for cigarettes

Reference

Walsh (1980)*

Lewit, Coate, Grossman (1981)

Lewit and Coate (1982)

Peturinen (1984)*

Advisory Commission on
Intergovernmental Relations (1985)

Bishop and Yoo (1985)

Mullahy (1985)

Radfar (1985)*

Collishaw, Myers, Rogers (1985)

Porter (1986)                          -0.27

Worgotter and Kunze (1986)*
Becker, Grossman, Murphy (1990)

Chaloupka (1990)                      -0.26

Townsend (1990)

Jacobson and Rodway (1990)
Studies mentioned in Townsend (1990).

  -0.40       Europe, 1987-l 988

LT -0.6 to -0.8     Canada, 1973-1988

`The first estimate is pre-1961, and the second post-1961.
sU.S. Health Examination Survey, Cycle III.
_National Health Interview Survey.
`khe first estimate is for a price increase, and the second for a decrease.
$T = Short term; LT = Long term.
National Health and Nutrition Examination Survey.

-0.42

-0.48"
-0.96

-0.45

-0.45

  -0.47

ST'-0.23
LT -0.39

ST -0.42
LT -0.91

  -0.54

LT -0.75

Estimated aggregate
price elasticity        Data, country, dates    ~__
  -0.79, -0.38+    Ireland, 1953-1976

   -1.44      HES III*
          12- to 19-year olds
            United States, 1966-1970

NHIS_
Elasticities by age and sex
20- to 74-year olds
United States ,1976

Finland, 1960-1981
Tested, 1982-1983

Pooled time series of state cross sections
United States, 1981-1983

Time-series aggregate data
United States, 1954-1980

NHISS bv sex
United Siates, 1979

United Kingdom, 1965-1980
(quarterly)

Canada, 1950-1982

Time-series aggregate data
United States, 1947-l 982

Austria, 1955-1983

Pooled time series of state cross sections
United States, 1956-1985
NHANES II*'
Full sample; also by age, sex, race, and
education
United States, 1976-1980

130   Economics


Table 12.

Age group
(years)

12-17

20-25

26-35

36-74

Estimates of the price elasticity of
demand for cigarettes in the United
States,* by age group

     Elasticity
Total Participation Quantity+
                   ..~-

-1.40     -1.20      -0.25

-0.89     -0.74      -0.20

-0.47     -0.44      -0.04

-0.45     -0.15      -0.15

All adults (20-74)  -0.42     -0.26      -0.10

All ages (12-74)   -0.47     -0.31       -0.11

Source:  Lewit and Coate (1982); Lewit, Coate, Grossman
$1981); Lewit (1985).
Calculated from source data.
`Elasticity for quantity smoked for persons who smoke.

prevalence of smoking and its associated detrimental
health effects would decline grkdually but substan-
tially over several decades-rather than in the years
immediately after a tax increase. In addition, since
price elasticity affects prevalence of smoking far more
than quantity smoked, attempts by smokers to com-
pensate for fewer cigarettes (by inhaling more deeply
and frequently, reducing idle burn and butt length, or
even switching to higher tar and nicotine brands)
appear to be relatively infrequent responses to price
increases.

  Formal estimates of the price elasticity of de-
mand for cigarettes in Latin America and the Carib-
bean are not readily available, and few data have been
gathered for other developing countries (Chapman
and Richardson 1990). In many developing countries,
the price elasticity of demand for all tobacco products
may be difficult to measure and may be much lower
than that for cigarettes. In response to a tax increase
on cigarettes, smokers may substitute lower-priced
tobacco products. In many Latin American and Car-
ibbean countries, the price of cigarettes varies widely
by brand, and smokers may respond to a tax (price)
increase by switching to a lower-priced brand. This
recently occurred in the Philippines; when cigarette
taxes were increased more on high-priced than on
low-priced brands, consumers switched to low-priced
brands. Total cigarette tax collections declined even
though the tax rate had been increased on all brands
(Singh 1988a,b,c,d). Marginal consumers may

respond to a tax increase by switching to "roll-your-
own" or homemade cigarettes. In addition, as noted
above, high taxes and tariffs encourage smuggling,
which may provide cigarettes at less-than-fully taxed
prices.

Modeling Addiction

  Although the addictive nature of cigarette con-
sumption has been recognized for some time
(USDHHS 1988), most economic studies of the
demand for cigarettes have not explicitly allowed for
addiction. The consumption of addictive goods in
general was not believed to conform to the rational,
utility-maximizing model that is the paradigm of
standard economic analysis. Recently however,
Becker and Murphy (19881, among others, have devel-
oped models of rational addiction that distinguish
between the consumption of addictive and nonaddic-
tive goods and that allow for economic analysis. The
Becker-Murphy models recognize that current con-
sumption of addictive goods depends on the level of
past and future consumption. The model accounts for
tolerance, reinforcement, and withdrawal-factors
that distinguish between use of addictive and non-
addictive substances (USDHHS 1988). With regard to
the price elasticity of demand for cigarettes, the
Becker-Murphy approach implies that lower past
prices and lower future prices lead to greater current
consumption and that the long-term response will
exceed the short-term response to a permanent price
change.

   To test the rational addiction model, Becker and
colleagues (1990) used a time series of cross-sectional
samples of U.S. per capita state tax-paid cigarette sales,
by state, for 1956 to 1985. The results demonstrated a
linkage across time periods between price and ciga-
rette demand. In particular, the authors found that a
10 percent permanent increase in the price of cigarettes
would reduce current consumption by 5 percent ini-
tially and by 7.5 percent over the long term.

  Using data for participants aged 18 to 74 in the
second National Health and Nutrition Examination
Survey, Chaloupka (1990) tested several implications
of the rational addiction model. The resultant esti-
mates of the price elasticity of demand were less than
those reported by Becker and colleagues (1990) and by
Lewit and Coate (1982); the latter analysis did not
explicitly allow for the addictive component in ciga-
rette demand.

  The application of the rational addiction model
to cigarette consumption is a recent development; fur-
ther investigation and refinement are required before
the contribution of the model to the understanding of

Economics   131


smoking behavior can be fully evaluated. The range
of estimates of the long-term price elasticity of ciga-
rette demand derived from the model are not incon-
sistent with previously published estimates; thus,
analyses of the effect of doubling the U.S. cigarette tax
in 1983 (discussed next) are not likely to be invalidated
by further refinement of the model.

Analysis of Recent Tax Increases

  After the federal excise tax on cigarettes was
doubled in 1983, total U.S. cigarette consumption de-
clined (Lewit 1988). Before 1982, retail cigarette prices
had been increasing more slowly than the general rate
of inflation, and as a result, the real price of cigarettes
was declining. In anticipation of the January 1,1983,
tax increase, U.S. tobacco companies increased the
wholesale price of cigarettes at regular intervals begin-
ning in August 1982 (see also Chapter 2, "The Emer-
gence of the Tobacco Companies"). From 1983 to
1991, the federal excise tax did not increase, but retail

cigarette prices continued to increase more rapidly
than the general rate of inflation-because of an
aggressive pricing policy of the tobacco companies
and increases in taxes in many states. Between 1981
and 1988, the price of cigarettes, adjusted for inflation,
rose by 57 percent. Based on a price elasticity of -0.42,
per capita consumption should have declined by
about 23 percent over this period (Figure 5). Data from
USDA indicate a decline of about 20 percent. US. per
capita cigarette consumption had been declining
slowly-about 1 percent per annum since the mid-
1970s. The very rapid acceleration in the rate of de-
cline-to about 3 percent annually after the excise tax
and associated price increases-is consistent with
Lewit and Coate's (1982) estimates and serves as fur-
ther evidence that excise taxes may be a potent tool for
reducing cigarette consumption.

  The Omnibus Budget Reconciliation Act of 1990
provides for two increases in U.S. federal excise taxes
on cigarettes and other tobacco products (USDA 1990).

Figure 5. Predicted and actual per capita (218 years of age) consumption of cigarettes, United States,
      1979-1988*

4poo-

3w-

3,60@

3poo-

3#200-

3poo-,

1982   1983   1984   1985    1986   1987    1988

  o Actual   + Predicted

Source: Crise and Griffin (1988); U.S. Department of Agriculture (1991).
`Actual values from source; predicted values calculated by Lewit (unpublished data). Predicted values are based
on a price elasticity of -0.42.

132   Economics


Figure 6. Per capita consumption and real price of cigarettes in Canada, 1982-1987

500

      0
      1982       1983        1984

Source:  ERC Statistics International Limited (1988).
*Relative cost per pack of cigarettes (1981= 1.0).

The cigarette tax was increased four cents per pack
beginning January 1,1991, and will increase an addi-
tional four cents on January 1,1993. The tax on snuff
increased from 24 cents per pound to 30 cents per
pound in 1991 and will increase to 36 cents in 1993.
Chewing tobacco tax will increase by eight cents per
pound (to ten cents) in 1991 and by 12 cents in 1993.
Taxes on other tobacco products were also increased.
Although it is still too early to judge the effect of these
taxes on tobacco consumption, the impact may not be
the same as that from the 1983 tax increase because of
the substantial increase in retail tobacco prices since
1982 (also discussed in Chapter 2, "The Emergence of
the Tobacco Companies"). The current tax increases
will result in a smaller percent increase in retail prices
than did the percent increase that accompanied the
1983 tax rise.

  In Canada, in part due to a very aggressive
antismoking campaign, both federal and provincial
cigarette excise taxes have increased substantially
since 1980 (Figure 6). The federal tax rose by 179
percent between 1980 and 1988, and provincial taxes

2.5

2.0

    cd
   2.
  8
1.5 g
K

1.0 z

0.5

0.0

1985        1986       1987

rose by an average of 367 percent during the same
period. Overall, the real price of a pack of cigarettes
almost doubled between 1982 and 1987, and per capita
consumption fell by more than 30 percent during the
same period.

  In Latin America, evidence of the impact of cig-
arette tax increases on consumption is found in Brazil,
where after years of rapid growth, per capita cigarette
consumption fell substantially in the early 1980s in
response to a large cigarette tax increase and a general
economic slowdown (USDA 19851. In developing
countries, income may play an important role in de-
termining smoking behavior. A decline in per capita
cigarette consumption in Peru and Bolivia in the 1980s
has been attributed to falling incomes in both coun-
tries (Chandler 1986).

Health Consequences of Tax Changes

  In some countries, a policy of aggressively in-
creasing cigarette taxes could lead to a large reduction
in smoking-related illness and an improvement in the
general level of health. The information on price and

Economics   133


income elasticity given here can be used to make
rough estimates of the health effects of changes in
tobacco taxation in the United States and Canada.

  Both Warner (1986) and Harris (1987) have pro-
vided crude estimates of some of the health effects that
might result from the 1983 U.S. federal tax increase.
Based on the conservative assumption that one of
every four lifelong smokers dies of smoking-related
illness (Mattson, Pollack, Cullen 1987), Warner calcu-
lated upper-bound estimates of the impact on mortal-
ity of increases or decreases in federal excise tax.
Warner estimated that an eight-cent tax increase,
maintained in real value over time, would avert
450,000 premature deaths among Americans aged 12
or older in 1984 and that this number would rise to
860,000 after a 16-cent increase.

  Harris estimated that as a result of the post-1983
tax-induced price changes and their impact on con-
sumption, 100,000 additional persons will live to age
65. About 54,000 of these persons are among the
600,000 teenagers who will live to age 65 as a result of
having been discouraged from starting to smoke.
Thus, for the 1983 U.S. federal tax increase, the main
effect on mortality will not be realized for decades.
Although no estimates have been published on the
impact of the tax increase on other health measures,
reductions in smoking-related morbidity and disabil-
ity should raise aggregate health levels long before the
projected reduction in mortality is fully realized.

  For other countries in the Americas, elasticity
estimates from the United States and Canada may be
misleading, and country-specific estimates are
needed. More precise estimates depend on additional
information about the number of persons who smoke
less, stop smoking, or do not start to smoke as a result
of tax changes. But the declining economy in Latin
America and the Caribbean and the attendant decline
in tobacco consumption suggest that excise taxes
could have a substantial impact on long-term morbid-
ity and mortality in the region. This supposition is
reinforced by the latency of the health effects of to-
bacco use (addressed earlier) and by the fact that the
tobacco epidemic is still immature in many countries
of Latin America and the Caribbean (Chapter 3,
"Smoking-Attributable Mortality in Latin America
and the Caribbean").

Equity, Incidence, and Distribution of the
Tax Burden

  Tobacco excise taxes are primarily a revenue-
generating device. As such, attention must be paid to
the distribution of the burden of these taxes among the
general population and to their impact on the economy.

Tobacco taxes are mainly collected from manufactur-
ers and distributors at the wholesale level. To the
extent that these businesses can raise the retail price of
cigarettes, they do not pay the tax but shift the inci-
dence of the tax burden to consumers. In addition, the
tax may lower the demand for tobacco, which would
result in lower tobacco prices (Sumner and Wohlgen-
ant 1985) and place some of the incidence of the tax
burden on tobacco growers.

  Because the tobacco tax is primarily paid by
smokers (Sammartino 19871, the distribution of the tax
burden in the general population mirrors the distribu-
tion of smokers. In the United States, as the health
hazards posed by tobacco use have become more well
known, tobacco consumption has decreased more
rapidly in higher than in lower socioeconomic groups
(USDHHS 19891. Consequently, tobacco consump-
tion has become more concentrated in lower socio-
economic groups, and tobacco tax increases, as a share
of income, would fall most heavily on these groups.
Sammartino (1987) analyzed the distributional ef-
fects of a hypothetical $1 billion increase in the U.S.
federal excise taxes on beer, wine, distilled spirits,
tobacco, gasoline, airfares, and telephone service and
concluded that an increase in the tobacco tax would be
the most regressive.

   In some Latin American countries, such as Bra-
zil, Uruguay, and Venezuela, prevalence of smoking
is also higher for lower socioeconomic groups (Chap-
ter 3, "Prevalence of Smoking in Latin America and
the Caribbean"). In these countries, tobacco tax in-
creases might also be regressive. In most other coun-
tries of the Americas, however, cigarette smoking is
positively correlated with income. Moreover, in most
Latin American and Caribbean countries, high-in-
come smokers are more likely than low-income smok-
ers to consume more cigarettes and purchase
expensive brards of cigarettes. When increased reve-
nues from tobacco taxes reflect expenditures on to-
bacco, the taxes may be proportional relative to
income even in countries in which smoking is more
common among the lower socioeconomic groups. To-
bacco taxation may be progressive in countries in
which smoking prevalence is positively correlated
with income. The actual incidence of tobacco taxes
must be determined for each country, and attempts to
make cigarette taxes progressive, as was recently done
in the Philippines, can be thwarted if high tax rates
cause smokers to substitute low-price/low-tax brands
for high-tax brands (Singh 1988a,b,c,d).

  Although the potential regressiveness of tobacco
taxes is a valid concern, the desire for proportional or
even progressive tax systems does not require that all

134 Economics


potentially regressive taxes be avoided. Most tax sys-
tems are a mix of many different taxes, and fairness
can be achieved by increasing progressiveness else-
where in the tax system to balance tobacco tax in-
creases or, perhaps more importantly, by directing
revenues to the maintenance of or increases in benefits
for low-income groups.

Use of Tobacco Taxes

  Health care costs and work-loss rates are greater
for smokers than for nonsmokers. In the United States
and Canada, both public and private insurance plans
provide much of the financing for health care and
disability benefits. Thus, increases in tobacco taxes
have recently been advocated as a form of user tax
(similar to the U.S. federal gasoline tax used to finance
highways) or as a corrective tax to compensate for the
additional health-related costs that smokers impose
on others.

  Several studies have attempted to measure the
medical care, morbidity, and mortality costs attribut-
able to smoking in a particular year. These estimates
(described earlier in this chapter) cannot be used to
establish the appropriate level of tobacco taxation be-
cause, in addition to several methodological limita-
tions, the estimates do not explicitly distinguish
between costs borne by smokers (e.g., the cost of pre-
mature death) and costs shifted to others (i.e., external
costs). Moreover, these estimates do not adequately
account for the social insurance benefits that non-
smokers realize but smokers do not because of their
premature death associated with smoking.

  Smokers tend to contribute to retirement plans
at the same rate as nonsmokers do, but they do not
collect, on average, the same total pension over a
lifetime as nonsmokers do. Smokers' uncollected pen-
sion claims revert to nonsmokers by increasing the
ratio of benefits to contributions that nonsmokers re-
ceive. In any particular country, the magnitude of the
burden of smoking-related costs borne by nonsmokers
is determined by the costs of the excess illness, the
morbidity and mortality caused by tobacco, and the
national system for financing health care, disability,
and retirement in that country. The key variable is the
amount of excess tobacco-related costs borne by non-
smokers relative to the rate of taxation on tobacco. In
reviewing the situation in Ontario in 1978, Stoddart
and colleagues (1986) found that, even with a govern-
ment health care system and high-technology medical
care, health care expenditures attributable to smoking
amounted to a maximum of 30 percent of the tax
revenue on tobacco products. They also concluded that

no uncompensated externality existed in Ontario in
1978. Collishaw and Myers (19841, using a different
methodology, also found that for Canada in 1979, total
tobacco taxes exceeded government-financed health
care costs attributable to smoking.

  In the most recent and comprehensive examina-
tion of the external costs of smoking in the United
States, Manning and co-workers (1989) found that
cross-subsidies, implicit in the current U.S. system for
financing health care, disability, and pension benefits,
transfer from never smokers to smokers and from
smokers to never smokers. Thus, on average, never
smokers subsidize the excess nonaged health care,
disability, and sick-leave benefits of smokers, and
smokers subsidize the Medicare and retirement bene-
fits (pensions and Social Security) of never smokers.
Manning and associates (1989) reported that their es-
timates of the net external economic costs of smoking
are quite sensitive to two parameters: the rate of dis-
count and the determination of which health differ-
,ences between smokers and never smokers are
actually caused by, rather than merely associated
with, smoking. Nonetheless, their best and high esti-
mates of the external economic costs of smoking fell
below the average excise tax (state plus federal) im-
posed at the time of their analysis, which suggested
that, at that rate of taxation, smokers probably com-
pensated for the costs of smoking imposed on never
smokers. Since the publication of their analysis, evi-
dence of additional hazards of passive smoking has
been reported (Glantz and Parmley 1991). Such evi-
dence suggests that the net costs that smokers impose
on never smokers in the United States may have been
underestimated.

   No known studies from other countries in the
Americas evaluate the excess financial burden im-
posed on never smokers by smokers. However, un-
compensated financial externalities may be sub-
stantial in countries at the upper end of the income
scale where life expectancy and patterns of tobacco
consumption are similar to those in the United States
and Canada. In the few countries at the lower end of
the income scale, such uncompensated externalities
may be minimal for two reasons: (1) in the absence of
well-organized institutional support systems, the ex-
cess costs of smoking are unlikely to be shifted from
smokers to never smokers and (2) the total cost of
smoking-related illness may be low if life expectancy
is short (as in Bolivia and Haiti [PAHO 199011, if many
competing causes of disease and death are operative,
if smoking is a recently introduced activity, or if med-
ical care is inexpensive.

Economics   135


  The essence of the argument for tobacco taxes is
that tobacco-related illnesses may impose an uncom-
pensated burden on never smokers regardless of their
income class. If, however, smoking is positively cor-
related with income, smoking-related illness is more
likely to occur among persons higher in the income
distribution.  Hence, increases in smoking-related
illnesses may result in a shift in health care resources
to provide expensive hospital-based care for affluent
smokers. If such a shift occurs at the expense of health
programs for low-income groups, it may have an un-
desirable effect on the health of the disadvantaged and
on the total income distribution, including transfers
(Lewit 1988). As a means of addressing this particular

Conclusions

inequity, high tobacco taxes might be justified,
whether they discouraged smoking or were used to
finance excess health care for smokers.

  Another justification for a high tobacco tax is
that, to smokers or potential smokers who lack complete
information on the dangers of tobacco use, the tax may
signal the total costs of tobacco use, including the costs
of ill health. An increase in tobacco taxes could im-
prove health by discouraging tobacco use among per-
sons who would not have used tobacco if they were
fully informed. The effect would be particularly ben-
eficial if it interfered with the initiation of tobacco
use-before smokers became addicted.

1.  Because the health costs of tobacco consumption
result from cumulative exposure, they are most
pronounced in the economically developed
countries of North America, which have had
major long-term exposure. Since many countries
of Latin America and the Caribbean are experienc-
ing an epidemiologic transition, the economic im-
pact of smoking is increasing.

2.  The economic costs of smoking are a function of
the economic, social, and demographic context of
a given country. In the United States, estimated
  total lifetime excess medical care costs for smokers
exceed those for nonsmokers by $501 billion-an
average of over $6,000 per current or former
smoker. Similar formal estimates for many Latin
  American and Caribbean countries are not available.

3.  Evidence of the cost-effectiveness of smoking con-
trol and prevention programs has increased. In
Brazil, for example, the cost of public information
and personal smoking-cessation services is esti-
mated at 0.2 to 2.0 percent of per capita GNP for
each year of life gained; treatment for lung cancer
costs 200 percent of per capita GNP per year of life
gained.

4.  In Latin America and the Caribbean, as GNP in-
creases, cigarette consumption increases, particularly
  at lower income levels. This effect is attenuated at
higher income levels.

5.  Advertising tends to increase consumption of cig-
arettes, although the relationship is difficult to
quantify precisely. Advertising restrictions are
generally associated with declines in consump-
tion and, hence, are an important component of
tobacco-control programs.

6.  The case for promoting increased tobacco produc-
tion on economic grounds should be reconsid-
  ered.  Although tobacco is typically a very
profitable crop, much of the advantage of produc-
ing tobacco stems from the various subsidies, tar-
iffs, and supply restrictions that support the high
price of tobacco and provide economic rents for
tobacco producers. Although the tobacco indus-
try is a significant source of employment, produc-
tion of alternative goods would generate similar
levels of employment.

7.  Increases in the price of cigarettes, which are a
price-elastic commodity, cause decreases in smok-
ing, particularly among adolescents. Excise taxes
may thus be viewed as a public health measure to
diminish morbidity and mortality, although the
precise impact of taxes on smoking will be influ-
enced by local economic factors.

136   Economics


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Economics   242


Chapter 5
Legislation to Control the Use of Tobacco
in the Americas

Preface   145

Introduction   147
Purposes of Legislation   147
Method of Analysis   147

Legislation to Control Production, Manufacture, Promotion, and Sales   148
Control of Advertising   148
North America   149
Latin America   150
Caribbean   150
Requirements for Health Warnings and Statement of Tar and Nicotine Yield   150
North America   151
Latin America   152
Caribbean   152
Restrictions on Sales to Adults   152

Legislation to Change Smoking Behavior   253

Control of Smoking in Public Places   153
North America   153
Latin America   154
Caribbean   154
Control of Smoking in the Workplace   154
North America   156
Latin America   157
Caribbean   157
Preventing Young People from Smoking   157
North America   157
La tin America   158
Caribbean   158
Mandating Health Education on Tobacco   158
North America   159
Latin America   161
Caribbean   161
Model Legislation   161

The Impact of Antitobacco Legislation   161

Conclusions   162

Appendix 1. Notes to Tables   163

Appendix 2. Legislation Reviewed for the Americas   169

References   175


Preface

  Governments express their will fhrough legislation and regulation. Historically,
many public health issues have been managed by governmental rule making. Some of the
major scientific advances of recent years haue been translated into public health pracfice
through thegradual dezlelopment of sanitary codes, public health laws, or equiz,alent sets of
regulations.

  In recent years, the pace of enacting legislation to prezlent and control tobacco use has
accelerated. The current status of tobacco-control legislation in the Americas is reuiewed
in this chapter, and a comprehensive set of current legal citations is provided for selected
countries of the Americas.

Legislation

145


Introduction

  Ninety-one countries worldwide have enacted
legislation to control tobacco use (Roemer, in press).
Less than one-third of these countries are in the Amer-
icas, and their laws vary in scope and rigor. Com-
prehensive laws, which provide a wide range of
control, are rare; most laws in the Americas are cate-
gorical and deal with one or another aspect of tobacco
promotion and use. Restrictive legislation has gener-
ally been enacted at the national government level,
but the potential of subnational legislation is reflected
in the large number of restrictive laws, ordinances,
and bylaws enacted by state or provincial and local
governments in Canada, in the United States, and,
increasingly, in many Latin American and Caribbean
countries.

  Although tobacco has been in use in the Ameri-
cas for centuries (see Chapter 2), public policy on
tobacco control is fairly recent. The sale of tobacco to
minors has long been prohibited, but more for moral
rather than health reasons. For years, local ordinances
have prohibited smoking in cinemas and theaters as a
fire-prevention measure. But legislation focusing on
control of tobacco use to prevent chronic disease
began in North America only 25 years ago. Following
the issuance in 1964 of the Surgeon General's land-
mark report (Public Health Service 19641, the U.S.
Congress passed the Federal Cigarette Labeling and
Advertising Act in 1965.

  In 25 years of worldwide efforts to control the
smoking epidemic, the key role of legislation has be-
come clear. In 1990, the 43rd World Health Assembly
reaffirmed the effectiveness of tobacco-control strat-
egies and, in particular, legislation and policies to
(1) protect against exposure to environmental tobacco
smoke in workplaces, public places, and public trans-
portation; (2) increase the real price of tobacco; and
(3) control direct and indirect advertising and promo-
tion of tobacco products (World Health Organization
[WHO] 1990a,b).

Purposes of Legislation
  Law is a powerful tool for closing the gap be-
tween social policy and scientific knowledge about
tobacco. The purposes of such legislation are as follows:
o To set forth government policy on production,
promotion, and use of tobacco, and to place the
government squarely on the side of health.

o To encourage smokers to stop smoking, and to
dissuade young people from starting to smoke or
from using smokeless tobacco.
o To provide protection against the dangers of expo-
sure to environmental tobacco smoke in enclosed
public places.

o To monitor and control the content of manufac-

tured tobacco products.
o To contribute to the development of a social climate
in which smoking and other forms of tobacco use
are unacceptable.

o To provide for the allocation of resources to support
effective programs to combat smoking.

o To provide the legal basis for enforcement of a

tobacco-control policy.

These purposes are widely recognized, although they
may be formulated in various ways (Bechara and
Jacob 1985).

  Two principal types of legislation have been
enacted:  (1) legislation to change the production,
manufacture, promotion, and sale of tobacco (supply)
and (2) legislation to change smoking behavior (de-
mand). Within each of these two broad categories,
specific kinds of laws have been enacted to combat
tobacco use. For example, the latter category includes
nonsmokers' rights laws, which aim to protect non-
smokers from the health effects of exposure to envi-
ronmental tobacco smoke.

Method of Analysis

  The kinds of laws in these two categories of
legislation were examined through 1990 for North
America, Latin America, and eight Caribbean coun-
tries (Bahamas, Barbados, Bermuda, Grenada, Guy-
ana, Jamaica, Saint Lucia, and Trinidad and Tobago).
Special comment is made on the French overseas de-
partments and territories in the Americas. The princi-
pal focus is on the laws of countries in Latin America
and the Caribbean. Particularly noteworthy national
legislation and regulation are described in Appendix 2.

Le@sla tion

147


Legislation to Control Production, Manufacture, Promotion, and Sales

  Laws and policies in this category are directed
toward controlling the tobacco industry (including
growers, manufacturers, and distributors), as well as
advertising agencies, the media, and tobacco retailers.
However, these laws can change the social environ-
ment for a whole population and thus influence the
conduct of individual persons. For example, laws
banning the advertising and promotion of tobacco
alter the environment in which young people grow
up and help free them from pressure to smoke.

  Table 1 summarizes the types of legislation (and
the number of countries that have enacted each type)
designed to control the production, sale, and promo-
tion of tobacco. Several of these controls are discussed
further below. Economic strategies, such as tax and
price policies, are discussed in Chapter 4.

Control of Advertising
  The tobacco industry's enormous expenditure
on advertising and promotion-approximately $3.3
billion in the United States in 1988 (Centers for Disease

Table 1.  Number of countries that control the production, sale, and promotion of tobacco, by type of legislation*
    and region

                                     North         Latin
Type of legislation           Worldwide+      America       America     Caribbean*
Total ban on advertising            20            1             1            1
Some restrictions on advertising        38            2            15            4
Restrictions on sponsorship of
sports and cultural events       NAS           1             3
Rotating or stronger warnings          9            2            2           3
Standard warning"                53           0            12            2
Statement of tar and nicotine
yield                        22            1            3           3

Restrictions on sales to adults          6            2            3
Increased taxes and pricesPI           NA           2           NA

Revenue from taxes allocated to
health purposes                NA            1             1
Economic strategies9               NA            1           NA

Control [CDCI 1990a)-reflects the importance that
the industry attaches to advertising. The role of ad-
vertising and promotion in increasing sales and con-
sumption is difficult to quantify precisely (U.S. Depart-
ment of Health and Human Services [USDHHSI 1989;
Tye, Warner, Glantz 1987; Toxic Substances Board
1989; Warner 1986b) (see Chapter 4).

  Advertising sends the message that smoking is
acceptable and pleasurable. Moreover, the depen-
dence of newspapers and magazines on advertising
revenue from the tobacco industry may hinder the
publication of information about the hazards of to-
bacco use (Whelan 1984; USDHHS 1989). As preva-
lence of smoking has declined in Canada, the United
States, and other industrialized countries, transna-
tional tobacco corporations have intensified their pro-
motion of cigarettes in developing countries (Muller
1978; Nath 1986; Lokschin and Barros 1983; Stebbins
1987; Davis 1986). (See Chapter 2, "The Emergence of
the Tobacco Companies.")

  Several types of legislation control advertising
and promotion of tobacco products in the Americas

`Includes national and subnational legislation.
`Roemer (1986).

SIncludes the French overseas departments and territories.
_NA = Not available.                 Blank indicates that no such legislation is known to exist.
"A single statement of warning not rotated with other statements.
`Tax and price policies and economic strategies are discussed in Chapter 4.

148 Legislation


(Table 2). Except for Canada, Cuba, and the French
overseas departments and territories, all countries in
the Americas that have enacted legislation to control
cigarette advertising have imposed moderate, partial
bans.

North America

  Canada was the first country in the Americas to
enact a total ban on advertising and promoting to-
bacco. The Tobacco Products Control Act (Health and
Welfare Canada 1989al took effect on January 1,1989;
it provides, in Section 4, as follows:
No person shall advertise any tobacco product of-
fered for sale in Canada.

  The statute and the regulations, however, pro-
vide the tobacco manufacturing, importing, and ad-
vertising industries with a period of adjustment
during the transition to the new requirements and
with a few limited exceptions to the ban (Kyle 1990).
Per capita tobacco consumption decreased 8 percent
in the year after the act took effect (Kaiserman and
Allen 19901, although this decrease may have resulted
from the combined effect of several factors. The law
was challenged in court by Imperial Tobacco Ltd.
(Montreal) and RJR-MacDonald Inc. In July 1991, the
challenge was upheld; the law was declared unconsti-
tutional but was allowed to remain in effect pending
appeal (RJR-Macdonald Inc. v. Attorney General of
Canada 1990; Imperial Tobacco Limited v. Attorney
General of Canada 1990).

  In the United States, all cigarette advertising has
been prohibited on television and radio since the en-
actment of the Public Health Cigarette Smoking Act of
1969, which became effective in January 1971. This
ban was extended to little cigars in 1973 and to smoke-
less tobacco in 1986. Health warnings are required in
cigarette and smokeless tobacco advertisements (see
next topic).

  State and local legislation to control tobacco ad-
vertising has been used to a limited extent in the
United States because such legislation was preempted
by the federal act of 1969. Nevertheless, some cities
have restricted local advertising; bans on advertise-
ment of tobacco in transit systems and on distribution
of free tobacco products have been adopted in several
cities, including Boston, New York, and Atlanta
(USDHHS 1989). Sports stadiums in a few large cities
in the United States have voluntarily banned tobacco
advertising.

  The continued advertisement of cigarettes in
newspapers, in magazines, and on billboards in the
United States has led to several proposals to extend
restrictions to these media (USDHHS 1989). These
proposals have included the following: a total oan on

advertising and promotion of tobacco products; re-
strictions on the imagery, content, and format of to-
bacco advertisements; bans on certain types of
promotion, such as targeting of children and sponsor-
ship of sports and cultural events; and economic dis-
incentives (for example, eliminating the tax deduction
allowed, as a business expense, for advertising tobacco).

Table 2.  Countries that control tobacco advertising
    and promotion, by type of restriction*

X    W"

     W

                             Form
            Total   Mass  Spon-   and
Country        ban  media+ sorshipl content5

North America
Canada        X     X
United States           X

Latin America
Argentina            X     X     xw
Bolivia              X     X     xw

Brazil               X     X     xw

Chile               X            W

Colombia            X          xw
Costa Rica           X          X

Cuba         X

Ecuador             X            W
El Salvador           X

Mexico              X            W

Panama             X            W
Paraguay            X

Peru               X            W
Uruguay             X            W

Venezuela            X            W
Caribbean
Bahamas                        W

Bermuda                        W
French overseas
  departments
and territories'  X
Trinidad

  and Tobago         X           W
*For a summary of legislation in selected countries, see the
notes in Appendix 1 to this chapter.
`Restrictions on use of television, radio, press, and billboards.
*Restrictions on sponsorship of sports and cultural ex'ents.
`Restrictions on content, format, or location of ad\~crti~ing.
`h = Health warning required.
`For this table, the French overseas depnrtnlentc JIK~
territories are counted lvith the Cnribht3n icwtltrit'~.


Latin America                     or formal government broadcasts. Televised cigarette

  Fourteen Latin American countries have legisla-
tion restricting tobacco advertising and promotion.
The most stringent statutes restrict advertising to
statements about the quality, origin, and purity of
tobacco; ban the representation of persons; or prohibit
the association of smoking with pleasurable activities.
Argentina, Bolivia, Brazil, Colombia, Mexico, and
Paraguay have stringent laws. Bolivia requires the
tombstone format, which allows no more than the
name, brand, symbol, and representation of the to-
bacco product in a box. Argentina and Bolivia both
prohibit advertising associated with sports.

  A common type of Latin American law prohibits
tobacco advertising that targets young people or that
is displayed at times and places available to children
and young people. Argentina, Brazil, Colombia, Ecua-
dor, El Salvador, Mexico, and Peru have statutes of
this type.

  Virtually all Latin American countries that con-
trol tobacco advertising require a health warning on
cigarette advertisements. Some statutes, such as those
in Brazil, Colombia, Chile, and Uruguay, specify the
frequency and duration of the health warning in the
broadcast media. Brazil specifies the size, color, and
prominence of the health warnings on advertisements
on television, in the print media, on billboards, and on
neon signs. Brazil also regulates the content of tobacco
advertising by explicitly prohibiting claims of health,
relaxation, stimulation, or sexual success. Scenes of
children or adolescents are prohibited, and Argentina
prohibits the use of minors in tobacco advertising.

  In contrast, a few countries, such as Venezuela,
have generic statutes that prohibit broadcast media
from accepting advertising that directly or indirectly
encourages consumption of cigarettes and tobacco
products. Some countries-for example, Bolivia,
Costa Rica, and Panama-have statutes that authorize
the health authority to approve tobacco advertising
and thereby restrict messages that are detrimental to
health.

Caribbean

  Only Trinidad and Tobago has adopted regula-
tions that restrict the advertisement of cigarettes and
tobacco products. Regulations of the Bureau of Stan-
dards prohibit the advertisement of cigarettes and
tobacco products in cinemas or in films certified for
viewing by general audiences or by audiences that
include persons under 18 years of age. No advertising
bf tobacco products is allowed on television during
children's programs, religious programs, educational
programs, current affairs broadcasts, or parliamentary

advertisements may not exceed six minutes per hour,
averaged over the day's programs, nor seven minutes
in any single program period.

  A health warning is also required in advertise-
ments for cigarettes and other tobacco products in
Trinidad and Tobago, the Bahamas, and Bermuda,
although in Bermuda, the health warning need not be
used on television and radio.

  Jamaica has no legislation restricting tobacco ad-
vertising, but the Carreras Group Ltd., which has a
monopoly on the Jamaican cigarette market, has vol-
untarily withdrawn advertising from television,
radio, billboards, print media, and cinemas. The Car-
reras Group, however, sponsors sports and cultural
events, notably annual awards for Sportsman and
Sportswoman of the Year. The British Virgin Islands
has no local television station but receives U.S. televi-
sion programs; thus, the U.S. ban on advertising to-
bacco products on television applies to the U.S. and
British Virgin Islands.

   None of the Caribbean countries restrict the to-
bacco industry from sponsoring sports or cultural
events. In fact, in Trinidad and Tobago, the West
Indian Tobacco Company Ltd. recently received an
award as Company of the Year, largely because of its
extensive sponsorship of sports and cultural events.
In Bermuda, 1987 legislation allows the use of a brand
name when sponsoring an event or congratulating a
person or group on an achievement. Furthermore, a
health warning is not required during these activities
because they are exempt from the definition of a to-
bacco advertisement.

Requirements for Health Warnings and
Statement of Tar and Nicotine Yield

  Mandatory warnings on packages and in adver-
tisements of tobacco products are a form of health
education; these warnings alert the public to the dan-
gers of tobacco use. Most countries require warnings
that state that smoking is harmful to health. Because
such a warning is weak and may not get a smoker`s
attention, several countries have adopted several
stronger warnings, which are used in rotation (Table 3).

  Statements of tar and nicotine yield on packages
of cigarettes constitute another form of health
information. Canada, three Latin American countries,
and two Caribbean countries have enacted legislation
that mandates a statement on toxic substances in to-
bacco products.

  Only a few countries have enacted legislation
that sets a maximum level on harmful substances in
tobacco products or tobacco smoke. Canada requires

150  Legislation


detailed reporting from manufacturers and importers
of tobacco products about toxic constituents. In Uru-
guay, the Commission for the Control of Smoking,
under legislation enacted in 1988, is authorized to set
maximum allowable levels of tar and nicotine for to-
bacco products.

North America

   The Tobacco Products Control Act of Canada
prohibits the sale of a tobacco product unless it dis-
plays one of the required health messages, lists the
toxic constituents of the product and, when applica-
ble, of the smoke produced from its combustion, and
indicates the quantities of these constituents. As of
1990, manufacturers have been required to list on
packages of cigarettes and fine-cut tobacco the yield of
tar, nicotine, and carbon monoxide.
  The regulations for the Act prescribe that one of
the following messages appear on cigarette packages:
Smoking reduces life expectancy.
Smoking is the major cause of lung cancer.
Smoking is a major cause of heart disease.
Smoking during pregnancy can harm the baby.
  Every package of cigars or pipe tobacco must
display a list of toxic constituents and one of the
following messages:

This product can cause cancer.

This product is not a safe alternative to cigarettes.
Every package of smokeless tobacco must dis-

play the following message:

This product can cause mouth cancer.

  All these warnings must appear in English and
French. A new warning will state that smoking is
addictive. Other new warnings-for a total of eight
possible warnings-will include messages about en-
vironmental tobacco smoke, lung disease, and stroke.

  Canada is introducing an innovative way to dis-
tribute health warnings by requiring leaflets that must
be removed from inside packages of cigarettes before
the user can remove the cigarettes. The leaflets will
contain messages more comprehensive than those of
the health warning. The warnings on the exterior of
cigarette packages will be enlarged so that they oc-
cupy 25 percent of the two major faces of the packages.
Information on toxic constituents will also be required
to be clearly displayed on the packages (Sweanor and
Mahood 1990).

  To obtain more precise information than that
which is currently available about exposure to tobacco
smoke, the Tobacco Products Control Regulations
(Health and Welfare Canada 1989a) set forth detailed
reporting requirements for cigarette manufacturers

Table 3.  Countries that require health warnings
    or statement of tar and nicotine yield
                   -

Countrv

     Rotating
Standard or strong Statement
warning'  warnings  of yield

     ,
North America

Canada

United States

Latin America
Argentina
Bolivia

Brazil

Chile

Colombia

Costa Rica

Ecuador

El Salvador

Mexico

Panama
Paraguay
Peru
Uruguay
Venezuela

Caribbean

Bahamas

Barbados

Bermuda
French overseas
departments
and territories+

Trinidad and

       X       X

       X

X

X

X

       X

X

       X

X              X

X

X               X

X

X

X

X

X

       X

X

       X       X

       X       X

X               X

Tobago

*A single statement of warning not rotated with other
statements.
`For this table, the French overseas departments and
territories are counted with the Caribbean countries.

and importers. These requirements concern the con-
stituents of the tobacco product, the quantity of each
constituent (expressed as a proportion of the total
weight of the product), and the quantity of each toxic
constituent (milligrams per cigarette) in the smoke
produced by the tobacco product. Moreover, the reg-
ulations prescribe the specific methods to be used in
determining the quantities of such constituents.

Legislation   151