COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document COMMISSION IMPLEMENTING REGULATION (EU) .../... on technical standards for the establishment and operation of a traceability system for tobacco products and COMMISSION IMPLEMENTING DECISION on technical standards for security features applied to tobacco products
Date: 2017-12-15
Institutions: Directorate-General for Health and Food Safety, European Commission
Subjects: approximation of laws, consumer information, information storage and retrieval, labelling, marketing standard, packaging, technical standard, tobacco, tobacco industry, traceability

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 15.12.2017  SWD(2017) 455 final  COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT  Accompanying the document COMMISSION IMPLEMENTING REGULATION (EU) .../... on technical standards for the establishment and operation of a traceability system for tobacco products  and  COMMISSION IMPLEMENTING DECISION  on technical standards for security features applied to tobacco products {C(2017) 8429 final} - {C(2017) 8435 final} - {SWD(2017) 456 final} - {SEC(2017) 531 final}  
 
 
List of acronyms 

Capital expenditure 
Enterprise resource planning 
European Union 
Operational expenditure 
Small and medium enterprises 
Tobacco Products Directive 2014/40/EU 
Unique identifier 
Value added tax 
WHO FCTC Protocol to Eliminate Illicit Trade in Tobacco Products 
WHO Framework Convention for Tobacco Control 

CAPEX 
ERP 
EU 
OPEX 
SMEs 
TPD 
UI 
VAT 
FCTC Protocol 
FCTC 

1 

 
 
 
 
 
 
 
 
Table of Contents 
List of acronyms ................................................................................................................................................. 1 

1 

2 

1.1 

1.2 

2.1 

2.2 

INTRODUCTION ................................................................................................................................ 5 

Background ....................................................................................................................................... 5 

Broader policy context and reasons to act ......................................................................................... 9 

DEFINITION OF THE ISSUES ......................................................................................................... 13 

What are the main issues to address? .............................................................................................. 13 

How would the main issues evolve, all things being equal? – Baseline scenario ............................ 17 

Does the EU have the right to act and is EU added value evident– Treaty base, ‘necessity test’ 

2.3 
(subsidiarity) ................................................................................................................................................. 18 

2.4 

Who is affected, in what ways, and to what extent? ........................................................................ 19 

3 

OBJECTIVES ..................................................................................................................................... 20 

3.1 

3.2 

3.3 

General objective ............................................................................................................................. 20 

Specific objectives ........................................................................................................................... 20 

Operational objectives ..................................................................................................................... 20 

4 

POLICY OPTIONS ............................................................................................................................ 21 

4.1 

Marking packages with a unique identifier (Issue 1a) ..................................................................... 22 

Policy options for achieving objective 1a: to ensure the marking of packs with a unique 

4.1.1 
identifier whilst guaranteeing independence of the traceability system by appropriate assignment 
of roles and tasks to relevant parties ..................................................................................................... 22 

4.1.2 
4.1.3 

4.1.4 

Policy option 1a/1: Industry operated solution ........................................................................... 24 
Policy option 1a/2: Third party operated solution ....................................................................... 24 

Policy option 1a/3: Mixed solution (industry and third party) .................................................... 24 

4.2 

Recording and transmitting of data (Issue 1b) ................................................................................. 25 

4.2.1 
Policy options for achieving objective 1b: to ensure effective surveillance and monitoring 
throughout the supply chain by determining the most suitable permitted time lag between an event 
occurrence and its recording and transmission to the data storage facility ............................................... 25 

4.2.2 

4.2.3 

4.2.4 

Policy option 1b/1: Near real-time .............................................................................................. 26 

Policy option 1b/2: One day time lag .......................................................................................... 26 

Policy option 1b/3: One week time lag ....................................................................................... 26 

4.3 

Processing, storing and accessing data (Issue 1c) ........................................................................... 27 

Policy options for achieving objective 1c: To ensure effective surveillance and monitoring 

4.3.1 
throughout the supply chain by identifying a system architecture which guarantees full and timely access 
by competent authorities and the Commission to the data recorded ......................................................... 27 

4.3.2 

4.3.3 

Policy option 1c/1: Establishment of a decentralised model as per manufacturer/importer ....... 28 

Policy option 1c/2: Establishment of a decentralised model per Member State ......................... 28 

4.3.4 
Policy option 1c/3: Establishment of a combined model: decentralised for recording per 
manufacturer/importer with centralised surveillance ................................................................................ 29 

4.4 

Compatibility of components of the traceability system (Issue 2) .................................................. 30 

4.4.1 
Policy options for achieving objective 2: To ensure an effective transfer of information 
throughout the distribution chain by an optimal selection of data carriers ............................................... 30 

4.4.2 

4.4.3 

4.4.4 

Policy option 2/1: Single data carrier per level ........................................................................... 31 

Policy option 2/2: Limited variety of data carriers per level ....................................................... 31 

Policy option 2/3: Free system allowing any existing data carrier .............................................. 31 

2 

 
 
4.5 

Security features (Issue 3) ............................................................................................................... 31 

4.5.1 
an optimal selection of application methods for security features ............................................................ 31 

Policy options for achieving objective 3: to facilitate the authentication of tobacco products by 

4.5.2 

4.5.3 

Policy option 3/1: Printing or affixing ........................................................................................ 32 

Policy option 3/2: Printing or affixing or a combination of printing and affixing ...................... 33 

5 

ANALYSIS OF IMPACTS ................................................................................................................ 34 

5.1 

Marking packages with a unique identifier (Issue 1a) ..................................................................... 37 

5.1.1 
Policy options for achieving objective 1a: to ensure the marking of packs with a unique 
identifier whilst guaranteeing independence of the traceability system by appropriate assignment of roles 
and tasks to relevant parties ...................................................................................................................... 37 

5.1.2 

Policy option 1a/1: Industry operated solution ........................................................................... 37 

5.1.2.1 

Economic impacts .............................................................................................................. 37 

5.1.2.2 

Social impacts .................................................................................................................... 39 

5.1.3 

Policy option 1a/2: Third party operated solution ....................................................................... 39 

5.1.3.1 

Economic impacts .............................................................................................................. 39 

5.1.3.2 

Social impacts .................................................................................................................... 40 

5.1.4 

Policy option 1a/3: Mixed solution (industry and third party) .................................................... 40 

5.1.4.1 

Economic impacts .............................................................................................................. 40 

5.1.4.2 

Social impacts .................................................................................................................... 42 

5.2 

Recording and transmitting data (Issue 1b) ..................................................................................... 42 

5.2.1 
Policy options for achieving objective 1b: to ensure effective surveillance and monitoring 
throughout the supply chain by determining the most suitable permitted time lag between an event 
occurrence and its recording and transmission to the data storage facility ............................................... 42 

5.2.2 

Policy option 1b/1: Near real-time .............................................................................................. 43 

5.2.2.1 

Economic impacts .............................................................................................................. 43 

5.2.2.2 

Social impacts .................................................................................................................... 44 

5.2.3 

Policy option 1b/2: One day time lag .......................................................................................... 44 

5.2.3.1 

Economic impacts .............................................................................................................. 44 

5.2.3.2 

Social impacts .................................................................................................................... 45 

5.2.4 

Policy option 1b/3: One week time lag ....................................................................................... 45 

5.2.4.1 

Economic impacts .............................................................................................................. 45 

5.2.4.2 

Social benefits .................................................................................................................... 46 

5.3 

Processing, storing and accessing data (Issue 1c) ........................................................................... 46 

5.3.1 
Policy options for achieving objective 1c: To ensure effective surveillance and monitoring 
throughout the supply chain by identifying a system architecture, which guarantees full and timely access 
by competent authorities and the Commission to the data recorded ......................................................... 46 

5.3.2 

Policy option 1c/1: Decentralised model as per manufacturer/importer ..................................... 46 

5.3.2.1 

Economic impacts .............................................................................................................. 46 

5.3.2.2 

Social impacts .................................................................................................................... 47 

5.3.3 

Policy option 1c/2: Decentralised model as per Member State ................................................... 48 

5.3.3.1 

Economic impacts .............................................................................................................. 48 

5.3.3.2 

Social impacts .................................................................................................................... 48 

3 

 
 
5.3.4 

Policy option 1c/3: Combined model .......................................................................................... 49 

5.3.4.1 

Economic impacts .............................................................................................................. 49 

5.3.4.2 

Social impacts .................................................................................................................... 50 

5.4 

Compatibility of components of the traceability system (Issue 2) .................................................. 50 

5.4.1 
Policy options for achieving objective 2: To ensure an effective transfer of information 
throughout the distribution chain by an optimal selection of data carriers ............................................... 50 

5.4.2 

Policy option 2/1: Single data carrier per level ........................................................................... 50 

5.4.2.1 

Economic impacts .............................................................................................................. 50 

5.4.2.2 

Social impacts .................................................................................................................... 51 

5.4.3 

Policy option 2/2: Limited variety of data carriers per level ....................................................... 51 

5.4.3.1 

Economic impacts .............................................................................................................. 51 

5.4.3.2 

Social impacts .................................................................................................................... 52 

5.4.4 

Policy option 2/3: Free system allowing any existing data carrier .............................................. 52 

5.4.4.1 

Economic impacts .............................................................................................................. 52 

5.4.4.2 

Social impacts .................................................................................................................... 53 

5.5 

Security feature ............................................................................................................................... 53 

Policy options for achieving objective 3: to facilitate the authentication of tobacco products by 

5.5.1 
an optimal selection of application methods for security features ............................................................ 53 

5.5.2 

Policy option 3/1: Printing or affixing ........................................................................................ 54 

5.5.2.1 

Economic impacts per stakeholder group ........................................................................... 54 

5.5.2.2 

Social impacts .................................................................................................................... 55 

5.5.3 

Policy option 3/2: Printing or affixing or a combination of printing and affixing ...................... 55 

5.5.3.1 

Economic impacts .............................................................................................................. 55 

5.5.3.2 

Social impacts .................................................................................................................... 56 

6 

COMPARING THE OPTIONS .......................................................................................................... 56 

6.1 

6.2 

6.3 

6.4 

6.5 

6.6 

Marking packages with a unique identifier (Issue 1a) ..................................................................... 56 

Recording and transmitting data (Issue 1b) ..................................................................................... 57 

Processing, storing and accessing data (Issue 1c) ........................................................................... 58 

Compatibility of components of the traceability system (Issue 2) .................................................. 59 

Security features (Issue 3) ............................................................................................................... 60 

Summary of preferred options ......................................................................................................... 61 

7 

MONITORING AND EVALUATION .............................................................................................. 63 

List of Annexes ................................................................................................................................................. 65 

4 

 
 
 
 
 
1 

INTRODUCTION 

1.1 

Background 

On 3 April 2014, the European Parliament and the Council adopted the Tobacco Products 
Directive  2014/40/EU  (hereafter:  TPD).1  The  overall  objective  of  the  TPD  is  to 
approximate  the  laws,  regulations  and  administrative  provisions  of  the  Member  States 
concerning  rules  governing  the  manufacture,  presentation  and  sale  of  tobacco  and  related 
products. It facilitates the smooth functioning of the internal market for tobacco and related 
products, taking as a base a high level of protection of human health, especially for young 
people. In addition, Article 1 of the TPD explicitly refers to the obligations of the European 
Union (EU) under the WHO Framework Convention for Tobacco Control (FCTC).2 

Articles 15 and 16 of the TPD aim at fighting illicit trade3 in tobacco products and thus at 
contributing to reducing the circulation of tobacco products not compliant with the TPD and 
other  tobacco  control  legislation,  as  well  as  reducing  artificially  cheap  supplies  of  illegal 
tobacco  products  that  have  been  found  to  affect  the  uptake  and  general  prevalence  of 
smoking.  Market  statistics  indicate  an  increase  in  the  percentage  of  the  illicit  trade  in 
cigarettes for the years 2005-2015 (see Table 1). 

Total sales in million sticks 
Illicit trade in million sticks 
% penetration of illicit trade 

2005 
767,748 
58,120 
7.6% 

2010 
676,015 
69,829 
10.3% 

2011 
645,147 
65,323 
10.1% 

2012 
617,695 
67,184 
10.9% 

2013 
573,766 
63,593 
11.1% 

2014 
555,441 
64,179 
11.6% 

2015 
546,208 
61,512 
11.3% 

Table 1: Illicit trade estimate of cigarettes (in EU25)4 

Articles 15 and 16 of the TPD provide for the establishment of systems of traceability 
and security features for tobacco products.   

1    Directive  2014/40/EU  of  the  European  Parliament  and  of  the  Council  of  3  April  2014  on  the 
approximation of the laws, regulations and administrative provisions of the Member States concerning the 
manufacture,  presentation  and  sale  of  tobacco  and  related  products  and  repealing  Directive  2001/37/EC 
(OJ L 127, 29.4.2014, p. 1), http://ec.europa.eu/health/tobacco/docs/dir_201440_en.pdf  

2   See: 

http://apps.who.int/iris/bitstream/10665/42811/1/9241591013.pdf?ua=1The  WHO  Framework 
Convention on Tobacco Control (FCTC) was adopted by the World Health Assembly in May 2003 and is 
the  first  international  treaty  on  public  health  developed  in  response  to  the  globalisation  of  tobacco 
consumption.  The  FCTC  includes  both  demand  reduction  provisions  (such  as  price  and  tax  measures, 
protection  from  exposure  to  tobacco  smoke,  content  and  disclosure  of  tobacco  products,  packaging  and 
labelling,  education  and  communication,  advertising,  promotion  and  sponsorship)  and  supply  reduction 
provisions  (such  as  illicit  trade,  sales  to  and  by  minors  and  support  for  economically  viable  alternative 
activities).The FCTC is a legally binding instrument which needs to be implemented and enforced by all 
Parties having ratified the Convention, including the EU and its Member States. 

3   For a more detailed breakdown of the categories of illicit tobacco trade see section 1.2.  
4   These figures exclude Cyprus, Luxembourg and Malta. Based on Euromonitor data from 2015. (Figures 
updated and corrected as compared those set out in the Inception Impact Assessment on implementation of 
http://ec.europa.eu/smart-
TPD, 
Articles 
regulation/roadmaps/docs/2015_sante_694_695_696_ia_da_tpd_en.pdf. These changes have no bearing on 
the subsequent analysis)  

published 

and 

the 

16 

15 

of 

at 

5 

 
 
  
 
 
                                                           
Figure 1: Tobacco supply chain 

The provisions relating to traceability set out in Article 15 TPD require all unit packets of 
tobacco products manufactured in or imported into the Union  to be marked with a unique 
identifier (i.e. UI,  containing  defined data elements)5  and their  movements  to be recorded 
throughout the supply chain (up to the last economic operator before the first retail outlet, 
see  Figure  1).6  This  identifier  is  unique  for  every  unit  packet,  allowing  for  its  individual 
identification.7  The  recorded  movements  are  to  be  transmitted  to  and  stored  by  an 
independent data storage provider (with which manufacturers and importers shall conclude 
data  storage  contracts,  to  be  approved  by  the  Commission).8  The  storage  providers  are 
required  to  be  monitored  by  an  external  auditor  and  the  data  made  accessible  to  the 
competent authorities of the Member States and the Commission.9 

The provisions relating to the security feature set out in Article 16 TPD will facilitate the 
authentication  of  tobacco  products,  not  only  for  competent  authorities  but  also  for 
consumers. Article 16 requires all unit packets of tobacco products placed on the EU market 
to carry a tamper proof security feature composed of visible and invisible elements, in order 
to facilitate the verification of whether or not they are authentic. 

The  systems  for  traceability  and  security  features  must  be  in  place  by  20  May  2019  for 
cigarettes  and  roll-your-own  tobacco  products, and  by  20  May  2024  for  all  other  tobacco 
products.10 This will enable manufacturers of other tobacco products (which are often small 
and  medium  enterprises  (SMEs))  a  longer  period  to  adapt  and  to  benefit  from  the 
experience gained before the system becomes applicable to them. 

The  implementation  of  the  traceability  system  provided  for  under  Article  15  of  the  TPD 
will  also  enable  the  EU  to  fulfil  its  obligations  under  Article  8  of  the  WHO  FCTC 

5   Article 15(2) TPD.  
6   Ibid. 
7   Article  15(5)  also  provides  for  marking  and  recording  at  aggregated  packaging  levels,  such  as  carton, 
master case and pallet level, provided the tracking and tracing of all unit packs remains possible. Once a 
unit packet is manufactured (e.g. a packet containing 20 cigarettes) it is then placed into a second layer, or 
even  third  layer  of  packaging  (e.g.  10  cigarette  packets  are  placed  into  a  carton,  and  50  cartons  into  a 
master case). In a general scenario, after the production (or importation) tobacco products are transported 
to  the  wholesalers  and  distributors  facilities.  At  this  stage  of  the  supply  chain  products  might  be 
repackaged on the basis of the elements that should be despatched to the retailer (e.g. some pallets could 
be opened and master cases contained in it would be placed into a new pallet). 

8   Article 15(8) TPD. 
9 
10  Article 15(13) TPD. 

Ibid. 

6 

 
 
 
                                                           
Protocol to Eliminate Illicit Trade in Tobacco Products (hereafter: FCTC Protocol),11 a 
legally  binding  instrument  based  on  Article  15  of  the  FCTC.  The  EU  and  its  28 Member 
States are Parties to the FCTC and the EU ratified the FCTC Protocol in June 2016. One of 
the key measures of the FCTC Protocol is the establishment of a global tracking and tracing 
regime  (Article  8),  consisting  of  national  and/or  regional  systems.  In  order  to  ensure 
international interoperability of the various national/regional systems (which are likely to be 
developed differently by Parties depending on their national/regional context), the Protocol 
provides  for  a  'global  information-sharing  focal  point',  to  be  managed  centrally  by  the 
FCTC  Secretariat.  Parties  will  be  obliged  to  ensure  that  traceability  information  is  made 
available  to  this  focal  point  upon  request,  thereby  enabling  enquiries  to  be  made  and 
relevant information to be received.  

It is Article 15 of the TPD  that  will implement  the  traceability system  required under the 
FCTC  Protocol  in  the  EU.  Due  regard  must  therefore  be  given  to  its  provisions  in  the 
preparation of the implementing legislation provided for under the TPD. It should be borne 
in mind that the FCTC Protocol requires each tracking and tracing system to be controlled 
by the Party who establishes it.12 In all cases, therefore, overall control of the system should 
be with the authorities,13 and it is crucial that the structure of the system to be established in 
the EU ensures this. 

In order to define key technical specifications necessary for the establishment and operation 
of  the  systems  of  traceability  and  security  features,  as  well  as  to  ensure  interoperability 
across the EU, Articles 15(11) and 16(2) of the TPD require the Commission to lay down 
implementing acts determining technical standards: 

1)  for the establishment and operation of the traceability system, including: 

a.  marking packages with a UI;   
b.  recording and transmitting data; 
c.  processing, storing and accessing data.14 

2)  for ensuring that the systems used for the UI and the related functions are fully 

compatible with each other across the EU.15 

3)  for the security feature .16 

As the establishment of systems for traceability and security features for tobacco products is 
required under Articles 15 and 16 of the TPD, the scope of the present Impact Assessment 
is  limited  to  identifying  and  assessing  a  number  of  alternative  policy  options  available  to 
the Commission to meet its technical implementing obligations. 

In order to conduct this assessment, the Impact Assessment draws on a variety of sources. 
These are described in detail in Annex 1 and include external expertise (a Feasibility Study 
regarding  EU  systems  for  tracking  and  tracing  of  tobacco  products  and  for  security 

11   See:  http://apps.who.int/iris/bitstream/10665/80873/1/9789241505246_eng.pdf?ua=1&ua=1  The  Illicit 
Trade  Protocol  was  adopted  by  the  Conference  of  the  Parties  to  the  FCTC  in  November  2012  and  will 
enter into force on the 90th day following the ratification of the 40th Party to the Protocol. At the time of 
drafting,  28  Parties  has  completed  full  ratification,  including  the  European  Union  and  six  EU  Member 
States: France, Austria, Portugal, Spain, Latvia and Lithuania. 

12   Article 8(2) FCTC Protocol. 
13   The notion of control is reflected in the principle of independence laid down in Recital 31 TPD. 
14   Article 15(11)(a) TPD. 
15   Article 15(11)(b) TPD. 
16   Article 16(2) TPD. 

7 

 
 
                                                           
features;17 an Implementation Study on the technical specifications and other key elements 
for a future EU system for traceability and security features), consultation with stakeholders 
(targeted18 and public19 consultations; workshops;20 meetings with Member States21), as well 
as independent technical and legal analysis. It should be noted that an important source for 
the analysis of impacts set out in section 5 of this document was the second interim report 
of  the  above-mentioned  Implementation  Study.  The  relevant  findings  of  this  study, 
including a detailed cost-benefit analysis of the policy options, are set out in Annexes 5 and 
6. 

Another  key  source  and  starting  point  for  the  current  analysis  was  the  impact  assessment 
that  accompanied  the  original  TPD  proposal.22  The  methodology  employed  in  the  TPD’s 
impact  assessment  has  to  a  large  extent  been  replicated  in  the  current  document,  in 
particular in relation to the calculation of social benefits as set out in sections 5 and 6, and 
with respect to the assumptions made regarding the effectiveness of the future systems of 
traceability  and  security  features.  Such  an  approach  was  deemed  essential  for  ensuring 
consistency  and  robustness  of  the  current  analysis,  and  allows  for  gauging  the  potential 
contribution of the various policy options under consideration to achieving the overall TPD 
objectives.23   

In addition to the Commission's obligations under Articles 15(11) and 16(2), Article 15(12) 
of the TPD empowers the Commission to adopt delegated acts to define the key elements of 
the  data  storage  contracts  that  manufacturers  and  importers  of  tobacco  products  should 
conclude  with  an  independent  third  party,  as  required  under  Article  15(8)  of  the  TPD. 
Following careful consideration of the regulation guidelines24 it was concluded that it would 
not  be  necessary  to  include  this  analysis  in  the  current  impact  assessment,  in  particular 
given  that  what  remains  for  the  Commission  to  define  under  this  act  is  unlikely  to  have 
significant  economic,  environmental  or  social  impacts  beyond  those  of  the  policy  options 
currently under assessment,25 and certain elements are likely to concern compliance of the 
contracts with specific Union and national law.26 Finally, the suitability, independence and 
technical capacity of the third party  selected, as well as  of the data storage  contract  to  be 
signed by it, are required to be approved on a case-by-case basis by the Commission.27   

17   See https://ec.europa.eu/health/sites/health/files/tobacco/docs/2015_tpd_tracking_tracing_frep_en.pdf  
18   See http://ec.europa.eu/health/tobacco/consultations/2015_tpd_consultation_en  
19   See http://ec.europa.eu/health/tobacco/consultations/2016_traceability_security_features_en  
20   See http://ec.europa.eu/health/tobacco/consultations/2016_stakeholderworkshop_tpd_en; 

http://ec.europa.eu/health/tobacco/2017_stakeholderworkshop_tpd_en  

21   See http://ec.europa.eu/health/tobacco/events_en#anchor4  
22   See Impact Assessment accompanying the Proposal for a Directive of the European Parliament and of the 
Council on the approximation of the laws, regulations and administrative provisions of the Member States 
concerning the manufacture, presentation and sale of tobacco and related products, SWD(2012) 452 final, 
http://ec.europa.eu/health/sites/health/files/tobacco/docs/com_2012_788_ia_en.pdf 

23   See also Annex 7 
24   See http://ec.europa.eu/smart-regulation/guidelines/tool_5_en.htm  
25   Most  of  the  key  elements  of  the  data  storage  contracts,  where  not  already  defined  in  the  TPD  (such  as 
access rights to the repository [Article 15.8 TPD]; information to be stored; possibility to modify or delete 
recorded data [Article 15.9 of the TPD]) are inseparably related to the content of the implementing acts for 
which  the  current  impact  assessment  is  being  carried  out  (i.e.  technical  specifications  for  transmitting, 
processing and accessing stored data).  

26   Such as the protection of sensitive information and personal data 
27  Article 15(8) TPD. 

8 

 
 
 
 
                                                           
 
The establishment of a traceability system by legislative means, i.e. Article 15 of the TPD 
complemented by the implementing and delegated acts to be adopted by the Commission 
under Articles 15(11) and (12) of the TPD, will also enable the EU to ensure, at the stage of 
designing the traceability system, that there is no possibility for obligations assigned to a 
Party to be performed by or delegated to the tobacco industry, in line with Article 8(12) of 
the FCTC Protocol.  

1.2 

Broader policy context and reasons to act  

Illicit  trade  is  broadly  defined  as  any  practice  or  conduct  prohibited  by  law  and  which 
relates to production, shipment, receipt, possession, distribution, sale or purchase, including 
any practice or conduct intended to facilitate such activity. Illicit trade takes different forms. 
The  main  categories  of  tobacco  products  traded  illicitly  are  contraband  tobacco  products 
(i.e. legally produced products which have been diverted into illicit trade, not respecting the 
legal  requirements  in  the  jurisdiction  of  destination),  counterfeit  tobacco  products  (i.e. 
brand protected products which have been falsified without consent of the brand owner and 
are  not  in  compliance  with  the  legal  requirements  in  the  destination  jurisdiction)  and 
illicit/“cheap” whites (i.e. products produced [often legitimately] in their country of origin 
at  very  low  cost,  destined  to  be  smuggled  into  other  jurisdictions  and  not  in  compliance 
with requirements in the destination jurisdiction). Illicit products may be also sourced from 
illicit manufacturing within a given jurisdiction.  

The availability of illicit tobacco products strongly undermines the objectives of the TPD, 
as well as of EU tobacco control policy more generally. Firstly, illicit tobacco products are 
less likely to be in compliance with product regulation provisions, meaning that consumers 
do  not  benefit  from  key  public  health  measures  such  as  those  provided  for  in  the  TPD.28 
Secondly,  illicit  tobacco  products  contribute  to  smoking  initiation  and  facilitate  tobacco 
consumption,  in  particular  for  young  people,  by  providing  a  cheaper  and  more  affordable 
source of tobacco products than the legal supply chain.  

The implementation of Articles 15 and 16 of the TPD aims at reducing the availability of 
illicit supplies by increasing the security of the legal supply chain.29 The traceability system 
provided  for  under  Article  15  will  enable  the  movement  of  legal  tobacco  products  to  be 
monitored (tracking) and allow the public authorities to determine at which point a product 
was  diverted  into  the  illicit  market  (tracing).30  The  security  feature  system  provided  for 
under Article 16 will facilitate authentication of unit packs of tobacco products, not only by 
competent authorities but also by consumers. 

In thus exercising a control function on the legal supply chain, the traceability and security 
features  systems  will  contribute  first  and  foremost  to  addressing  the  issue  of  contraband 
tobacco products, i.e. those legally produced but diverted into illicit trade.  

28   Including health warning and ingredients provisions etc. 
29   The adoption of measures to secure the supply chain in order to fight illicit trade of tobacco products is 
mentioned  as  well  in  the  Communication  from  the  Commission  to  the  Council  and  the  European 
Parliament,  Stepping  up  the  fight  against  cigarette  smuggling  and  other  forms  of  illicit  trade  in  tobacco 
products - A comprehensive EU Strategy, Brussels, 6.6.2013, COM(2013) 324 final, p. 15.  

  The Commission recently published a Progress Report on the implementation of the 2013 Communication 
http://eur-lex.europa.eu/legal-

(Brussels, 
content/EN/TXT/PDF/?uri=CELEX:52017DC0235&from=EN   

COM(2017) 

12.5.2017, 

final): 

235 

30   COM(2013) 324 final, p. 10. 

9 

 
 
  
 
                                                           
It  should  nevertheless  be  underlined  that  the  systems  may  play  a  role  in  addressing  other 
forms  of  illicit  tobacco  trade  (counterfeit  and  illicit  white  tobacco  trade),  including  by 
enabling  authorities  to  recognise  and  identify  normal  and  abnormal  product  flows  and 
fluctuations.  Given  that  an  abrupt  fluctuation  (e.g.  a  sudden  decrease  in  legal  sales  of 
certain  tobacco  products  in  a  given  area)  may  indicate  that  significant  quantities  of  illicit 
products  have  begun  to  circulate  (whether  contraband,  counterfeit  or  'illicit  whites'),  such 
information  will  be  a  useful  tool  for  Member  States  and  will  enable  them  to  take 
appropriate investigative measures where necessary.  

The below case studies provide examples of how the systems provided for under Articles 
15 and 16 of the TPD may contribute in practice to addressing the various forms of illicit 
tobacco trade.  

Traceability and security feature case studies: contraband, counterfeit and illicit 
white 

  Case  study  1:  A  dispatch  truck  fails  to  arrive  at  its  next  expected  destination 
along  the  supply  chain.  By  accessing  the  stored  traceability  information, 
authorities will be in a position to determine where the last recorded movements 
of the products in question took place. This will help to pinpoint the exact point 
of diversion (contraband).  

  Case  study  2:  Regular  dispatches  to  a  specific  retail  outlet  are  suddenly 
cancelled  or  significantly  reduced  at  the  request  of  the  retailer,  due  to  reduced 
demand.  By  accessing  the  stored  traceability  information,  authorities  will  be 
able  to  monitor  such  unexpected  fluctuations  and  investigate  whether  they  are 
due to increased circulation of illicit products in the area concerned (for example 
sale of counterfeit or illicit white products in a certain area/by a certain retailer).   
  Case study 3: Tobacco products which do not carry security features, or whose 
security features have been tampered with, compromised or are otherwise non-
compliant, are identified by consumers and/or owners of retail outlets in which 
they  are  placed  on  the  market.  The  consumers  and/or  retailer  outlet  have  been 
alerted  to  the  fact  that  these  products  are  likely  to  have  emanated  from  illicit 
trade and are in a position to take appropriate action and inform authorities.        

It  is  recalled  that  the  consumption  of  tobacco  products  is  related  to  serious  negative 
consequences (health risks such as various cancer types, cardiovascular problems, increased 
risk  of  blindness,  impotence,  lower  fertility,  impact  on  the  unborn  child  etc.).  Their 
treatment costs more than EUR 25 billion a year. The associated further productivity loss is 
estimated at EUR 8 billion a year. Last but not least, tobacco is the most significant cause of 
premature death in the EU, responsible for almost 700,000 deaths every year.31

Reducing illicit trade will contribute to strengthening the internal market in lawful tobacco 
products, and ensure lawful trade occurs within a regulatory framework that takes account 
of  the  objective  of  ensuring  a  high  level  of  public  health,  thus  alleviating  the  burden  on 

31   TPD Impact Assessment, p. 1-2, 15.   

10 

 
 
 
 
 
  
                                                           
health budgets for Member States. In addition, a side effect of the reduction of illicit trade 
will be an increase in budget revenues from the taxes on tobacco products.32  

A 2012 study estimated the amount of duty that EU tax administrations lose to illicit trade 
at about EUR 11.1 billion a year.33 Were illicit trade to be eliminated, it has been estimated 
that tax revenues would increase in the range of EUR 6.1 billion to EUR 7.2 billion a year34 
(after  discounting  for  decreases  in  the  tobacco  consumption  of  artificially  cheaper  illicit 
products, according to the principles of price elasticity35).  

The establishment of a traceability system will also support wider EU efforts to fight illicit 
trade  in  tobacco.36  As  the  key  measure  to  secure  the  supply  chain,  it  forms  part  of  the 
comprehensive EU strategy to step up the fight against cigarette smuggling and other forms 
of  illicit  trade  in  tobacco  products.37  In  addition,  synergies  and  complementarities  with 
other  EU  systems  can  be  envisaged,  and  combined  use  by  authorities  of  the  future 
traceability system with existing systems such as the Excise Movement and Control System 
(EMCS) – a computerised system for monitoring the movement of excise goods under duty 
suspension in the EU – has the potential to improve the overall monitoring capacity of EU 
authorities, increase the amount of data at their disposal and allow for cross-comparison of 
information. This in turn will generate positive synergies in combatting illicit trade, given 
that exchange of information is central to the fight against fraud.  

As mentioned, one of the principle reasons for action stems from the need to fulfil the EU's 
legal obligations under the FCTC Protocol, a task which the EU has fully committed to via 
its  2016  ratification  of  the  Protocol.  Related  to  this  is  the  potential  for  the  EU's 
implementation  to  positively  influence  the  FCTC  Protocol  ratification  process  in  general. 
Ratification by a total  of  40 Parties  is required for the Protocol to  enter into force. While 
this process has been completed by more than half of the required number of Parties, there 
remains  a  significant  way  to  go.38  The  development  of  a  traceability  system  by  the  EU  – 
which  will  be  among  the  first  Parties  to  implement  the  Protocol's  tracking  and  tracing 
requirements (as well as the first to develop a system across multiple countries i.e. all EU 
Member States) – may encourage further ratifications, not only by remaining EU Member 
States39 but by third countries and regions, who will be in a position to draw on the EU's 

32   The  relevant  EU  legislation  consists  of  the  Council  Directive  2011/64/EU  on  the  structure  and  rates  of 

excise duty applied to manufactured tobacco.   

33   Study on  the  measuring  and  reducing  of  administrative  costs  for  economic  operators  and  tax  authorities 
and obtaining in parallel a higher level of  compliance  and  security in imposing excise duties on  tobacco  
products 
see: 
https://ec.europa.eu/taxation_customs/sites/taxation/files/docs/body/ramboll-tobacco-study.pdf  

(Ramboll 

Study), 

34   Ibid. 
35   Demand for tobacco products exhibits price elasticity, i.e. the quantity demanded responds to a change in 
the price of tobacco products. Higher prices generally lead to lower consumption. This effect explains the 
difference  between  the  tax  gap  calculated  on  the  basis  of  the  size  of  illicit  market  and  the  expected 
revenues  under  the  scenario  in  which  artificially  cheap  illicit  products  are  fully  eliminated  and  partially 
replaced with correctly priced licit products.   

36    It  should  be  noted  that  both  DG  TAXUD  and  OLAF  have  participated  in  the  Inter-Service  Group  on 
Traceability and Security Features (led by DG SANTE), and that DG SANTE is a member of the Inter-
Service Group on the Structure and Rates of Excise Duties Applied to Manufactured Tobacco (led by DG 
TAXUD), as well as the Inter-Service Group on the Progress Report on the 2013 Communication (led by 
OLAF).    

37   COM(2013) 324 final. 
38 

28 

ratifications 

time 
https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=IX-4-a&chapter=9&lang=en  

completed 

revision 

2017). 

(July 

last 

the 

of 

at 

See: 

39   6 EU Member States had completed ratifications at the time of last revision (July 2017). 

11 

 
 
                                                           
 
experience.  As  the  EU  has  been  a  key  player  in  developing  the  tracking  and  tracing 
obligations under the FCTC it is well placed to continue to play a vital role in this respect.  

the 

four 

Finally,  while in  the past  the EU and the Member States have concluded legally binding 
anti-contraband  and  anti-counterfeit  agreements  with 
tobacco 
manufacturers, the aims of which were to reduce the number of contraband and counterfeit 
tobacco  products  smuggled  into  the  EU,40  a  decision  not  to  renew  the  first  of  these 
agreements  –  with  PMI  –  following  its  expiry  in  2016  was  recently  taken  by  the 
Commission.  This  followed a technical assessment by the Commission  of the experience 
with the PMI agreement which found that, though it had made an important contribution to 
the  fight  against  PMI  illicit  trade,  the  market  and  legislative  framework  had  changed 
significantly  since  its  entry  into  force.  The  assessment  concluded  that  the  TPD  and  the 
FCTC  Protocol  were  now  the  best  instruments  with  which to  fight  against  illicit  trade  in 
the EU.41  

largest 

40   Philip  Morris  International  (signed  in  2004  and  expired  on  July  2016);  Japan  Tobacco  International 
(signed in 2007, due to expire in 2022); British American Tobacco (Holdings) Limited (signed in 2010, 
due  to  expire  in  2030);  Imperial  Tobacco  Limited  (signed  in  2010,  due  to  expire  in  2030).  In  2016  the 
European Commission decided not to renew its agreement with Philip Morris International.  

41  Technical assessment of the experience made with the Anti-Contraband and Anti-Counterfeit Agreement   
     and General Release of 9 July 2004 among Philip Morris International and affiliates, the Union and its   
     Member States, SWD(2016) 44 final 
     https://ec.europa.eu/anti-fraud/sites/antifraud/files/technical_assessment_pmi_24022016_en.pdf 
https://ec.europa.eu/anti-fraud/investigations/eu-revenue/philip_morris_international_2004_en   

and 

12 

 
 
 
 
 
                                                           
2 

DEFINITION OF THE ISSUES 

2.1  What are the main issues to address?  

The purpose of this Impact Assessment is to identify and assess a set of alternative policy 
options capable of enabling the Commission to meet its implementing obligations relating 
to  the  establishment  and  operation  of  systems  for  traceability  and  security  features,  as 
provided for under Articles 15 and 16 of the TPD.  

The main issues which these options must address can be broken down as follows: 

1.  The need to determine technical standards for the traceability system, including: 

a.  marking packages with a UI;  
b.  recording and transmitting data; and 
c.  processing, storing and accessing data.  

2.  The need to determine technical standards to ensure full compatibility of components of 

the traceability system.  

3.  The need to determine technical standards for security features. 

Issues  1  (a.  b.  and  c.)  and  2  stem  from  the  traceability  system  requirements  under 
Article 15 TPD. In a workable traceability system, these issues will be closely interlinked: 
the marking of a tobacco pack with a UI, which will contain the information required under 
Article 15(2) TPD, will be the first step in the process (issue 1a). Economic operators will 
have to read this UI at all subsequent points in the supply chain (until the last point before 
the first retail outlet) in order to ensure that information on all of the product's movements 
is recorded and transmitted to a data storage facility (issue 1b), where it will be processed 
and made accessible to authorities for monitoring and enforcement purposes (issue 1c). (In 
this way, they will be provided with an overview of all tobacco product movements in the 
EU,  making  it  possible  for  them  to  identify  instances  of  illicit  trade  and  take  appropriate 
action).  In  order  to  ensure  that  the  system  operates  smoothly,  key  technical  compatibility 
requirements  must  be  put  in  place  (issue  2),  in  particular  to  ensure  that  all  economic 
operators are in a position to record (scan) the required information. 

Figure  2  below  illustrates  how  these  issues  should  combine  and  interact  in  a  functioning 
traceability system. 

13 

 
 
 
 
 
 
 
Figure 2: Illustrative workflow of issues and their interaction in a working traceability system 

Issues  3  stems  from  the  security  feature  requirements  under  Article  16  TPD.  It  is 
important  to  highlight  that  this  is  a  separate  and  distinct  issue  from  those  relating  to  the 
traceability system under Article 15. The requirement for unit packets of tobacco products 
to  carry  security  features  is  intended  as  an  additional  means  (on  top  of  the  traceability 
system requirements) of verifying whether or not the products are authentic,42 not only for 
authorities but also for consumers. It is also the only issue that does not stem from FCTC 
Protocol requirements. For this reason, it is necessary to treat it independently.   

Further details relating to the questions to be addressed under each issue are set out below. 

Issue 1a: Marking packages with a unique identifier (UI) 
This  issue  is  at  the  core  of  the  traceability  system.  In  order  to  track  and  trace  tobacco 
products,  it  is  necessary  to  mark  each  packet  with  a  UI  containing  defined  data  elements 
(such as date and place of manufacturing, intended retail market etc.), as set out in Article 
15(2)  of  the  TPD.  The  marking  is  the  basis  for  all  subsequent  steps  performed  within  the 

42 Recital 29 TPD 

14 

 
 
 
 
 
 
 
 
 
                                                           
traceability  system.  The  process  of  marking  with  a  UI  can  be  broken  down  into  the 
following main sub-tasks: 

  generation  of  a  part  of  the  UI,  providing  for  its  uniqueness  (i.e.  through 

serialisation)43  

  application of the UI on packs (i.e. printing/affixing), 
  optical  verification  of  its  correct  application  (i.e.  scanning  the  UI  to  ensure  it  is 

correctly applied). 

A  proper  assignment  of  responsibility  for  each  of  these  tasks  amongst  the  various  parties 
involved  in  the  operation  of  the  traceability  system  is  central  in  order  to  provide  for  an 
effective system, ensure the required full control by the competent authorities (as required 
under  the  FCTC  Protocol)  and  prevent  potential  manipulation.  Various  potential  task 
allocation arrangements are presented under policy options 1a/1, 1a/2 and 1a/3. 

Issue 1b: Recording and transmitting data 
Once  products  are  marked  with  UI,  a  key  task  is  the  recording  and  transmission  of 
information  on  their  subsequent  movements.  Article  15(5)  of  the  TPD  specifies  that 
Member States shall ensure that  "all economic operators involved in the trade of tobacco 
products, from the manufacturer to the last economic operator before the first retail outlet, 
record  the  entry  of  all  unit  packets  into  their  possession,  as  well  as  all  intermediate 
movements and the final exit of the unit packets from their possession". Article 15 further 
clarifies that this information must be transmitted to a data storage facility. 

A key consideration in this context, given the nature and objectives of the system, as well as 
the  need  to  avoid  the  possibility  of  manipulation,  is  the  time  that  elapses  between  the 
occurrence  of  a  reporting  event  (e.g.  dispatch  from  facility;  arrival  at  subsequent  facility; 
aggregation  of  unit  packs/disaggregation  of  unit  packs  etc.)  and  the  transmission  of  the 
related  information  to  the  data  storage  system(s).  Article  15  does  not  define  precise 
modalities in this respect. Alternative maximum permitted time limits are presented under 
policy options 1b/1, 1b/2 and 1b/3. 

Issue 1c: Processing, storing and accessing data 
Following the recording and transmission of product data (issue 1b), the question of how it 
should  be  processed,  stored  and  subsequently  accessed  by  competent  authorities  becomes 
crucial. A system architecture that is capable of enabling easy upload of data by all relevant 
economic operators, providing secure storage of that data and offering full accessibility to it 
for  competent  authorities,  as  required  under  Article  15  of  the  TPD,  is  necessary  to 
guarantee  effective  monitoring  and  enforcement.  Alternative  system  architectures  are 
presented under policy options 1c/1, 1c/2 and 1c/3. 

Issue 2: Compatibility of components of the traceability system  

43   The remaining information necessary to complete the UI (as set out in Article 15(2) TPD) will need to be 
added at a second stage (e.g. information which may not be possible to foresee in advance of production, 
such as such as production shift/time of manufacture). The addition of this information will not, however, 
affect the uniqueness of the identifier. These parts should be clearly defined. 

15 

 
 
 
 
 
 
 
 
                                                           
 
The Commission is required to determine technical standards to ensure that components of 
the  traceability  system  are  fully  compatible  with  each  other  (e.g.  along  the  supply  chain, 
across Member States etc.).44 These standards should facilitate the process of recording and 
transmission  of  product  data  for  relevant  supply  chain  actors  (who  will  need  to  ensure 
compatibility  with  external  components  such  as  scanning  devices)  by  ensuring  that  the 
information  contained  in  the  UI  is  encoded  on  packs  in  a  pre-defined  manner  via  data 
carriers45 (e.g. barcodes). The authorised variety of data carriers should therefore be clearly 
defined. 

It should be noted that Article 15(5) of the TPD also provides for the marking and recording 
of  aggregated  packaging,  such  as  cartons,  mastercases  and  pallets,  provided  that  the 
tracking  and  tracing  of  unit  packs  remains  possible.  As  all  events  entailing  aggregation, 
disaggregation  and  re-aggregation  of  unit  packs  along  the  supply  chain  will  need  to  be 
recorded,  and  the  related  information  transmitted  to  the  data  storage  facility,  it  will  be 
necessary to foresee the placement of UIs also at aggregated packaging levels, as outlined 
in the figure below:  

Figure 3: Unit pack and aggregation levels 

The various alternatives are presented under policy options 2/1, 2/2 and 2/3. 

Issue 3: Security features 
The  TPD  requires  all  unit  packets  of  tobacco  products  placed  on  the  EU  market  to 
carry a tamper proof and indelible security feature, composed of visible and invisible 
elements.46  In  general,  security  features  may  be  composed  of  one  or  a  number  of 
authentication  elements  (e.g.  special  inks  visible  in  ultraviolet  or  infra-red,  watermarks, 
high-tech  micro-prints,  chemical,  biological  and  electronic  taggants,  holograms,  security 
threads, etc.), which may be combined to generate a complete security feature meeting the 
requirements of Article 16 TPD.  

The method of applying security features on packs is important for ensuring that they are 
able  to  fulfil  their  authentication  function  and  meet  the  requirements  of  the  TPD,  in 

44   Interoperability is also a key consideration of Recital 30 TPD. 
45   A  data  carrier  can  be  defined  as  a  medium  that  holds  machine-readable  data.  Data  carriers  come  in 
different designs and types e.g. one dimensional (1D) barcodes, two dimensional (2D) barcodes, electronic 
cheap sets and radio frequency transmitters. 

46   Article 16(1) TPD. This requirement is separate from the requirement under Article 15 to carry a UI, and is 
intended to facilitate verification of whether or not unit packs of tobacco products are authentic, not only 
for competent authorities but also for consumers. 

16 

 
 
 
 
 
 
 
 
                                                           
particular  the  requirement  to  be  irremovable,  indelible  and  tamper-proof.  The  chosen 
method  should  take  into  account  different  manufacturing  processes  and  packaging  types, 
the  need  to  allow  for  future  innovation  and  technological  developments  capable  of 
enhancing  the  security  feature,  as  well  as  the  needs  of  consumers  and  enforcement 
authorities. The alternative policy options are presented under options 3/1 and 3/2. 

2.2 

How would the main issues evolve, all things being equal? – Baseline scenario 

Though  exact  figures  for  illicit  tobacco  trade  penetration  are  difficult  to  establish,  overall 
levels remain high, as confirmed by a recent progress report.47 Illicit trade in cigarettes as a 
percentage of total trade is estimated to have amounted to 11.3 % in the EU in 2015.48 In 
addition,  there  are  significant  variations  across  EU  countries:  some  Member  States  have 
witnessed  decreases  while  others  have  witnessed  increases  in  recent  years.49  It  has  been 
estimated that in some Member States the illicit market share may exceed one quarter of the 
entire tobacco market.50 

Concerted efforts to fight illicit trade, in particular by means of tracking and tracing, have 
been scarce at Member State as well as at international level. The Impact Assessment of the 
TPD  outlined  how  national  legislation  to  address  illicit  trade  in  tobacco  products  is  not 
harmonised across the EU.51 Without EU action, it is likely that Member States would adopt 
different  national  solutions.  This  would  not  only  hinder  the  functioning  of  the  internal 
market,  but  lead  to  different  levels  of  monitoring  and  enforcement,  as  well  as  to 
interoperability  issues,  which  would  be  detrimental  to  the  proper  functioning  of  the 
measures and to the supply chain.  

Where the marking of tobacco products has taken place in the past, this has most commonly 
been carried out by tobacco industry, using the system developed, owned and operated by 
it.  This  system  has  not  been  developed  with  a  view  to  meeting  the  specific  legal 
requirements  of  independence  and  control  set  out  in  the  TPD  and  FCTC  Protocol.  
According  to  the  WHO  FCTC  Secretariat,  the  industry  system  conflicts  with  the  FCTC 
Protocol  and  does  not  meet  the  requirement  of  Article  8.2  for  the  tracking  and  tracing 
system to be “controlled by the Party”.52  

At  international  level,  currently  three  countries  (Brazil,  Kenya,  and  Turkey)  have 
implemented specific  marking  systems  for  tobacco  products intended  to  comply  with  the 
requirements  of  Article  8  of  the  FCTC  Protocol. The  EU  closely  monitors  these 
developments,  notably  in  the  context  of  information-sharing  practices  under  the  FCTC. 
Further details relating to their operation are set out in Annex 10. The national contexts of 
these systems, however, differ significantly from that of the EU, which is in many respects 
unique: not only is the EU's system required to comply with the specific legal framework 
set out in the TPD, but it must be capable of operating across its multiple Member States. It 
is therefore necessary for the EU to develop solutions suitable for its specific situation. 

47   COM(2017) 235 final, p.7. 
48   See Table 1. 
49   Based on Euromonitor 2015 (these figures exclude Cyprus, Luxembourg and Malta). 
50   COM(2017) 235 final, p.8. 
51   Impact Assessment of the TPD, p. 38.  
52   http://www.who.int/fctc/protocol/faq/en/index2.html  

17 

 
 
 
 
 
                                                           
Traceability  requirements  have  recently  been  introduced  in  the  EU  in  the  field  of 
pharmaceutical  products.53  This  system  aims  to  reduce  the  number  of  falsified  medicines 
circulating  in  the  EU  and  represents  a  concrete  example  of  traceability  from  the  health 
sector  which,  like  the  traceability  system  for  tobacco  products,  is  enforcement-driven. 
Nevertheless,  important  differences  between  the  two  exist  which  make  direct  comparison 
difficult:  the  system  envisaged  for  medicinal  products  foresees  a  'check-in,  check-out'  (or 
end-to-end) verification system, rather  than the  recording of all  intermediate supply-chain 
movements as is the case for tobacco products, and the scanning of aggregated packaging 
levels  is  not  provided  for.  Finally,  the  system  for  medicinal  products  is  not  yet  fully 
operational, making it difficult at this stage to draw on the system's practical experience. 

The failure of the EU to take action would also lead to a significant regulatory gap, given 
the recent decision (outlined in section 1.2) not to renew the first of the legally binding anti-
contraband  and  anti-counterfeit  agreements  with  the  four  largest  tobacco  manufacturers, 
following its expiry in 2016. 54 Such a decision was based on a clear presumption of future 
action on the part of the EU to implement the systems provided for under the TPD and the 
FCTC Protocol.  

All of the above further underlines the need for timely implementation of Articles 15 and 
16  of  the  TPD  in  the  EU.  In  the  absence of  this,  the  current  high  levels  of  illicit  trade  of 
tobacco  products  are  likely  to  persist  or  increase.  This  would  negatively  affect  the  free 
circulation of compliant products and also undermine the objective of a high level of health 
protection pursued by the TPD. 

From a legal perspective, the absence of action at EU level would render it very difficult for 
Member States to meet their obligations under Articles 15 and 16 of the TPD in a workable 
and  interoperable  manner,  namely  to  ensure  the  tracking  and  tracing  of  all  unit  packs  of 
tobacco  products  and  their  marking  with  a  security  feature.  It  would  in  addition 
significantly  increase  the  difficulty for  Member  States  to  meet  their  obligations  under  the 
FCTC Protocol, not least the requirement to make the traceability information of each Party 
available  to  the  'global  information-sharing  focal  point'  foreseen  under  Article  8  of  the 
FCTC Protocol.  

2.3 

Does the EU have the right to act and is EU added value evident– Treaty base, 
‘necessity test’ (subsidiarity) 

This initiative implements Articles 15 and 16 of the TPD. The power to adopt implementing 
acts is conferred upon the Commission by these articles. A subsidiarity check was already 
carried  out  in  the  Impact  Assessment  of  the  TPD  and  compliance  with  the  principle  has 
been confirmed by the Court of Justice of the EU.55  

In the absence of the adoption of these acts, the Commission would not meet its obligations 
under the above mentioned provisions. 

53  Commission Delegated Regulation 2016/161 of 2 October 2015 supplementing Directive 2001/83/EC of  
      the European Parliament and of the Council by laying down detailed rules for the safety features appearing   
      on the packaging of medicinal products for human use. 
54   https://ec.europa.eu/anti-fraud/sites/antifraud/files/technical_assessment_pmi_24022016_en.pdf  

and https://ec.europa.eu/anti-fraud/investigations/eu-revenue/philip_morris_international_2004_en 

55   Judgment of 4 May 2016, Philip Morris Brands and others (C-547/14) ECLI:EU:C:2016:325. 

18 

 
 
 
                                                           
 
In addition, the EU, as Party to both the FCTC and the FCTC Protocol, has committed to 
tobacco  products.56  The  EU's 
tracing  system  for 
establishing  a 
implementation 
products  may 
traceability system for 
encourage ratification  by  remaining  EU  Member  States  as  well  as  third  countries, 
thereby contributing to accelerating the entry into force of the FCTC Protocol.  

tracking  and 

tobacco 

its 

of 

2.4  Who is affected, in what ways, and to what extent? 

A list of affected stakeholders and related information is set out in Annex 8. 

56   Article 8(2) FCTC Protocol. 

19 

 
 
 
 
 
                                                           
3 

OBJECTIVES 

3.1 

General objective 

The general objective of this initiative  is to implement the systems for traceability and 
security  features  provided  for  under  Articles  15  and  16  of  the  TPD,  and  thereby  to 
address the issue of illicit trade in tobacco products, which undermines the free circulation 
of products compliant with the TPD and other tobacco control legislation.  

3.2 

Specific objectives 

The specific objectives of the implementing acts can be summarised as follows: 

  ensure effective tracking and tracing for tobacco products within the EU. 
  ensure an effective system of security features for tobacco products. 
  ensure international interoperability of the EU's traceability system with the future 
global tracking and tracing regime provided for under Article 8 the FCTC Protocol.   

In all cases, the assessment of effectiveness must take into account the need to ensure the 
ability  of  authorities  to  oversee  the  establishment  and  operation  of  the  systems,  and  the 
extent to which national enforcement activities are facilitated. 

3.3 

Operational objectives 

The operational objectives of this initiative have been identified with the aim of developing 
appropriate solutions for the five main issues referred to in section 2.1:  

 

 

 

 

 

Issue 1a: to ensure the marking of packs with a unique identifier whilst guaranteeing 
independence of the traceability system by appropriate assignment of roles and tasks 
to relevant parties (objective 1a). 
Issue  1b:  to  ensure  effective  surveillance  and  monitoring  throughout  the  supply 
chain  by  determining  the  most  suitable  permitted  time  lag  between  an  event 
occurrence and its recording and transmission to the data storage facility (objective 
1b). 
Issue  1c:  to  ensure  effective  surveillance  and  monitoring  throughout  the  supply 
chain by identifying a system architecture which guarantees full and timely access 
by  competent  authorities  and  the  Commission  to  the  data  recorded  (objective 
1c). 
Issue  2:  to  ensure  an  effective  transfer  of  information  throughout  the  distribution 
chain by an optimal selection of data carriers (objective 2). 
Issue 3: to facilitate the authentication of tobacco products by an optimal selection 
of application methods for security features (objective 3). 

A relationship table linking the main issues with the operational objectives and the policy 
options presented in future sections can be found in Annex 4.  

It should be recalled that Article 15 of the TPD sets out the key requirements for  tobacco 
products to be tracked and traced throughout the Union, leaving to the Commission the task 
of developing technical standards related to the practical establishment and operation of the 
system. This impact assessment identifies and addresses the main issues (listed above) not 
directly addressed in the basic act but central to achieving full system functionality. 

20 

 
 
 
4 

POLICY OPTIONS 

In  order  to  ensure  that  the  issues  referred  to  in  section  2.1  are  properly  addressed  and 
achieve the operational objectives  set out in  section 3.2, several policy options have been 
identified. 

These  policy  options  were  initially  based  on  input  received  from  external  expertise  (the 
Feasibility  Study)57  and  further  developed  by  the  Commission  (Inception  Impact 
Assessment).58  In  parallel,  in  order  to  test  the  policy  options,  as  well  as  to  gain  the  key 
views  of  stakeholders 
(Member  States;  economic  operators;  non-governmental 
organisations; solution providers; the general public), a series of consultation exercises was 
undertaken.59 Further external expertise was also sought (Implementation Study)60 and legal 
and independent analysis was carried out. 
Based  on  this  input,  the  options  have  been  further  adapted,61  in  particular  to  take  into 
account  the  realities  of  the  supply  chain,  the  enforcement  needs  of  competent  authorities, 
the burdens that may reasonably be imposed on different operators and the need to make the 
systems adaptable to future technological developments and innovation.  

With respect to  the latter  point, where possible across the policy options the use  of  open, 
non-proprietary  standards  has  been  included  and  technical  specifications  are  set  out  in 
general terms instead of via specific requirements that may undermine flexibility or favour 
proprietary technologies.62 Open standards and generalised technical specifications play an 
important role in allowing systems to keep up to date with technological advances. This is 
crucial for their effective functioning over time and for preventing them from being locked 
into specific or proprietary technologies and solutions. Such an approach also contributes to 
stimulating competition and innovation in the market.  

It should be noted that such an approach was widely favoured across stakeholders groups 
throughout  the  consultation  process  and  is  therefore  considered  to  be  beneficial  for 
economic  operators  and  public  authorities,  as  well  as  for  the  long-term  viability  of  the 
systems. 

In relation to the traceability system provided for under Article 15, it should be noted that 
all policy options should be capable of enabling it to achieve the basic system functionality 
illustrated in figure 4 below.   

57   See: http://ec.europa.eu/health/tobacco/docs/2015_tpd_tracking_tracing_frep_en.pdf  
58   See: http://ec.europa.eu/smart-regulation/roadmaps/docs/2015_sante_694_695_696_ia_da_tpd_en.pdf 
59   A full overview of procedural steps, including external expertise and consultation exercises, is provided in 

Annex 1.  

60   Ibid. 
61   Certain policy options have been added, removed or modified as compared to those examined at previous 
phases  in  the  process  (such  as  Inception  Impact  Assessment  phase).  For  previous  versions  of  the  policy 
options, see Annex 1. 

62  For example, while the content and format of the product information messages that economic operators 
will be required to transmit should be clearly set out in the implementing legislation, none of the policy 
options  presented  below  entails  the  prescription  of  a  particular  technology  or  protocol  with  which  to 
ensure  transmission.  Economic  operators  will  be  free  to  decide  on  the  solutions  depending  on  their 
capacity to meet the system requirements.  

21 

 
 
 
 
                                                           
Figure 4: Flowchart of a functioning traceability system including use cases 

A set of options for each of the main issues identified in section 2.1 is presented below.  

4.1  Marking packages with a unique identifier (Issue 1a) 

4.1.1  Policy options for achieving objective 1a: to ensure the marking of packs with 
a unique identifier whilst guaranteeing independence of the traceability system 
by appropriate assignment of roles and tasks to relevant parties  

As explained above, the process of marking tobacco packs with a UI consists of:63 

  generation  of  a  part  of  the  UI,  providing  for  its  uniqueness  (i.e.  through 

serialisation);64 

  application of the UI;  
  optical verification of the UI. 

The  TPD remains  silent as  to the task allocation of these main functions, but  reference is 
made  to  ensuring  the  independence  of  the  traceability  system.65  In  addition,  the  FCTC 

63   See section 7.1 of the Implementation Study, Annex 5. 
64   The remaining information necessary to complete the UI (as set out in Article 15(2) of the TPD) will need 
to  be  added  at  a  second  stage  (e.g.  information  which  may  not  be  possible  to  foresee  in  advance  of 
production,  such  as  such  as  production  shift/time  of  manufacture).  The  addition  of  this  information  will 
not, however, affect the uniqueness of the identifier. These parts should be clearly defined. 

65   Recital 31 TPD. 

22 

 
 
 
 
                                                           
Protocol  stipulates  that  the  system  must  be  controlled  by  the  Parties.  This  means  that 
competent authorities must be able to control, supervise and direct all relevant actions. This 
approach does not exclude the possibility for other actors to operate and perform a sub-set 
of  activities  that  are  necessary  for  the  effective  functioning  of  the  system,  as  long  as 
competent authorities maintain full control of the system.  

Against this background, and given the various levels of the supply chain (as illustrated in 
Figure 3 below), the allocation of roles and tasks concerning the above main functions of 
marking tobacco packs with a UI must be clearly defined.  

Figure 5: Activities related to marking packages with a unique identifier 

It should be recalled that UIs will need to be applied not only at unit pack level but also at 
aggregated packaging levels (see Issue 2, section 2.1), and that in such cases the above sub-

23 

 
 
 
 
tasks  –  generation,  application  and  optical  verification  –  must  also  be  performed.  UIs  for 
aggregated  packaging  levels  should  primarily  enable  identification  of  the  unit  packs 
contained within the aggregation66 – e.g. by listing or linking to their UIs.  

The policy options below set out the alternatives for the allocation of roles and tasks. 

4.1.2  Policy option 1a/1: Industry operated solution 

Under this option manufacturers and importers67 of tobacco products are responsible for all 
three  sub-tasks  identified  above,  both  at  the  level  of  unit  packets  as  well  as  for  any 
aggregated  packaging  produced  at  the  manufacturing  facility.  Where  aggregation  (or  re-
aggregation)  of  unit  packs  is  carried  out  by  subsequent  supply  chain  operators,  such  as 
distributors,  the  operators  in  question  would  be  allowed  to  generate  UIs  themselves,  or 
request  them  from  the  manufacturer.  These  operators  would  then  be  responsible  for 
applying and verifying them on the aggregated packaging. 

Nevertheless, as all three key sub-tasks related to marking with a UI are performed by the 
industry  under  this  option,  it  would  be  necessary  to  set  in  place  extensive  control 
mechanisms to ensure the independence of the system and its full control by the competent 
authorities.  The  execution  of  these  extensive  controls  would  be  the  responsibility  of  the 
competent authorities and may involve their own presence or the presence of an appointed 
third party in the manufacturing facilities.     

4.1.3  Policy option 1a/2: Third party operated solution  

Under  this  option,  independent  third  parties,  with  no  link  to  the  tobacco  industry,  are 
responsible  for  carrying  out  all  three  sub-tasks  identified  above.  The  independence  and 
technical  capabilities  of  the  third  parties  would  be  assessed  by  the  competent  authorities. 
The independent third parties would require permanent access to the production facilities in 
order to install and operate their equipment on the production lines.  

Distributors and operators at subsequent points along the supply chain would be allowed to 
apply and verify UIs on the aggregated packaging themselves, after receiving them from an 
independent third party. 

4.1.4  Policy option 1a/3: Mixed solution (industry and third party) 

This option proposes dividing responsibility for the different sub-tasks between the tobacco 
industry,  supply  chain  operators  and  independent  third  parties.  This  division  of  the  tasks 
would  be  such  as  to  allow  competent  authorities  (via  the  independent  third  parties)  to 
control, supervise and direct all relevant actions of the system, whilst permitting sub-tasks 
of a more technical nature to be carried out by the economic operators. The division of tasks 
under  this  option  means  that,  in  the  case  of  unmarked  packages  of  genuine  products 
found in circulation, economic operators would remain fully and directly accountable. 

66   Tracking and tracing of unit packs must remain possible, according to Article 15(5) TPD. 
67   Importers  are  legally  responsible  for  assuring  the  conformity  with  the  requirements  of  Article  15  TPD 
before  the  imported  products  enter  into  the  EU  territory.  It  is  assumed  that  most  of  importers  will  meet 
their obligations by requiring their suppliers to apply unique identifiers directly on the non-EU production 
lines. 

24 

 
 
                                                           
Based on discussions  with experts  and relevant stakeholders,  the  generation of  a part  of 
the UI (providing for its uniqueness) has been identified as the sub-task most fundamental 
to system control, as it provides control over the supply of identifiers, offers the possibility 
to ensure their uniqueness and best protects against manipulation.    

Under the mixed solution,  independent  third parties,  with no link to  the tobacco  industry, 
would be responsible for the generation of a part of the UIs for all packs (both unit packs 
and  aggregated  levels).  The  independence  and  technical  capabilities  of  the  third  parties 
would be assessed by the competent authorities. Independent third parties would not require 
permanent  access  to  the  production  facilities  but  would  be  requested  to  install  anti-
tampering devices (such as surveillance cameras) on production lines in order to provide for 
additional checks. The parts of the UIs generated would be transferred by the independent 
third parties to manufacturers and importers upon request, via secure channels. 

Manufacturers and importers would be made responsible for sub-tasks of a more technical 
nature; i.e. application and verification of UIs. 

Distributors and operators at subsequent points along the supply chain would be required to 
request  UIs  for  aggregated  packaging  levels  from  the  third  parties  and  to  subsequently 
apply and verify them.  

It  should  be  pointed  out  that,  as  independent  third  parties  will  not  be  in  a  position,  time 
wise, to obtain from the manufacturers all the information necessary to form the UI (as set 
out in Article 15(2) of the  TPD),  such as time of  manufacture,  the remaining information 
would  need  to  be  completed  on  site  by  the  manufacturer  (or  distributor/operator).  These 
parts should be clearly defined. 

It should be noted that although this option presents a more complex division of tasks than 
the  previous  options  outlined,  its  technical  feasibility  has  been  confirmed  in  analysis  by 
experts.68 

4.2 

Recording and transmitting of data (Issue 1b) 

4.2.1  Policy options for achieving objective 1b: to ensure effective surveillance and 
monitoring  throughout  the  supply  chain  by  determining  the  most  suitable 
permitted  time  lag  between  an  event  occurrence  and  its  recording  and 
transmission to the data storage facility  

The  TPD  requires  all  economic  operators  involved  in  the  tobacco  product  supply  chain 
(from the manufacturer to the last economic operator before the first retail outlet) to record 
all  movements  relating  to  unit  packets  of  tobacco  products  –  including  the  entry  into 
possession, intermediate movements and final exit from possession – and transmit this data 
to  the  relevant  data  storage  facility.  In  order  to  enable  competent  authorities  to  carry  out 
their surveillance and enforcement activities effectively, in particular in cases in which it is 
necessary to take rapid action, up-to-date information relating to product movements should 
be available to them.  

In  order  to  ensure  this,  it  is  necessary  for  information  on  the  movement  of  products  (or 
'events') to be recorded and transmitted to the data storage facility in as timely a manner as 

68   See section 7.1.2. of the Implementation Study, Annex 5. 

25 

 
 
                                                           
possible.  Maximum  permitted  time  lags  between  the  occurrence  of  an  event  (e.g.  the 
scanning  of a  UI  upon  application;  the  dispatch  of  products  from  a  facility;  the  arrival  of 
products at a subsequent facility; aggregations performed by economic operators etc.) and 
its transmission to the data storage by economic operators should therefore be defined.  

Three  possible  options  have  been  identified:  a  near  real-time,  once  daily  or  once  weekly 
time lag. A longer time lag would not allow for attainment of the policy objective identified 
as it would no longer be possible to effectively monitor the movements of products. 

4.2.2  Policy option 1b/1: Near real-time  

This option proposes a minimum permitted (near real-time) time lag between a supply chain 
event  and  its  recording  and  transmission  to  the  relevant  data  storage  by  an  economic 
operator. 

Real-time  reporting  requirements  are  often  in  the  order  of  several  seconds.  However,  in 
order to provide some margin for the internal processes of economic operators, this policy 
option foresees a near real-time requirement (e.g. transmission to data storage facility up to 
a  number  of  hours  after  an  event  occurrence).  Economic  operators  would  be  allowed  to 
process the event in their internal systems and would then be required to transmit the related 
information  to  the  data  storage  facility  by  the  elapse  of  the  set  time  lag.  Competent 
authorities would receive regular reports containing smaller data volumes. 

4.2.3  Policy option 1b/2: One day time lag 

This  option  proposes  a  maximum  permitted  time  lag  of  24  hours  between  a  supply  chain 
event  and  its  recording  and  transmission  to  the  data  storage  facility  by  an  economic 
operator. Relevant processing of the event data by the economic operator’s internal system 
could take place during this time and competent authorities would expect to see once-daily 
transmissions  to  the  data  storage.  This  would  result  in  the  need  for  economic  operators 
making  use  of  the  24  hour  permitted  time  lag  to  locally  store  and  later  transmit  a  larger 
amount of data (compared to option 1b/1), which could be transmitted in batches. 

4.2.4  Policy option 1b/3: One week time lag 

This option proposes a maximum permitted time lag of 7 days between a supply chain event 
and  its  recording  and  transmission  to  the  data  storage  by  an  economic  operator.  Relevant 
processing  of  the  event  data  by  an  economic  operator’s  internal  system  could  take  place 
during this time and competent authorities would expect to see once-weekly transmissions 
to the data storage. This would result in the need for economic operators making use of the 
7  day  permitted  time  lag  to  locally  store  and  later  transmit  a  larger  amount  of  data 
(compared to option 1b/1 and 1b/2), which could be transmitted in batches. 

26 

 
 
 
4.3 

Processing, storing and accessing data (Issue 1c) 

4.3.1  Policy options for achieving objective 1c: To ensure effective surveillance and 
monitoring  throughout  the  supply  chain  by  identifying  a  system  architecture 
which  guarantees  full  and  timely  access  by  competent  authorities  and  the 
Commission to the data recorded 

In order to ensure effective surveillance and enforcement activities, the TPD stipulates that 
the Commission, the national competent authorities and the external auditor shall have full 
access69  to  the  data  which  is  recorded,  transmitted  to  and  subsequently  stored  within  the 
facilities  of  an  independent  third  party.70  By  accessing  the  data  stored,  competent 
authorities  will  have  the  possibility  to  systematically  monitor  the  movement  of  tobacco 
products throughout the supply chain ("tracking”). In addition, at the time of any inspection 
it will be possible to recreate the route taken by the product and to determine at what point 
it was diverted into illicit trade ("tracing"). 

In  this  context,  the  architecture  of  the  storage  system,  the  means  by  which  data  can  be 
processed and stored by it and the ease with which competent authorities can access it are 
key  aspects  to  be  defined.71  Three  policy  options  have  been  identified  in  this  respect:  a 
decentralised  model  per  manufacturer/importer,  a  decentralised  model  per  Member  State 
and a combined  model that  is  decentralised  for recording  (per manufacturer/importer) but 
which  comprises  a  common  copy  of  data  providing  for  read  access  by  the  competent 
authorities of the Member States, at centralised level.  

It  should  be  pointed  out  that  both  the  Inception  Impact  Assessment  and  the  Feasibility 
Study had identified the establishment of a single centralised data storage as an additional 
alternative  option.  Following  further  scrutiny  of  the  relevant  legal  provisions,  as  well  as 
careful consideration of the input received from stakeholders,72 a decision not to retain the 
option of a single centralized data storage was taken. The current impact assessment instead 
adopts an approach based on the establishment of technical standards to ensure that the data 
storage  contracts  effectively  serve  the  purpose  for  which  they  are  intended  –  namely  to 
ensure  an  effective  and  independent  system  for  the  traceability  of  tobacco  products  –  but 
are  nevertheless  capable  of  providing  authorities  with  the  global  overview  and  ease  of 
access to the stored data necessary. 

It  should  be  noted  that  the  above  approach  does  not  exclude  the  possibility  for 
manufacturers to freely opt for one single data storage provider for the EU. 

69   Article 15(8) TPD. 
70   Ibid. 
71  As far as data storage technologies are concerned, the system requirements are not envisaged to go beyond 
the  specifications  of  systems  currently  used  in  many  economic  sectors.  See  also  section  10  of  the 
Feasibility Study. 

72   Certain stakeholders, in particular manufacturers of tobacco products, strongly supported a decentralised 

storage architecture during the consultation process.  

27 

 
 
 
  
 
                                                           
4.3.2  Policy  option  1c/1:  Establishment  of  a  decentralised  model  as  per 

manufacturer/importer 

This  policy  option  provides  for  the  establishment  of  multiple  independent  data  storage 
repositories organised per manufacturer or importer (i.e. decentralised). It leaves the choice 
of  independent  data  storage  provider  to  each  manufacturer  or  importer.  In  all  cases  the 
suitability of the third party must be approved by the Commission.73   

In order to ensure that information recorded by economic operators is correctly processed, 
this  option  provides  for  a  data  router  service  run  by  an  independent  third  party  and 
responsible  for  ensuring  the  transmission  of  data  to  the  correct  data  storage  facility. 
Furthermore,  to  ensure  that  the  required  access  to  the  stored  data  is  granted  to  the 
Commission,  the  competent  authorities  of  the  Member  States  and  the  external  auditor,  as 
provided for in Article 15(8), this option includes the creation of a central query tool (called 
‘discovery service’ in Figure 4 below) run by an independent third party and linked with all 
decentralised  repositories.  This  would  allow  authorities  to  address  queries  relating  to  the 
data  stored  in  all  individual  repositories  (e.g.  similar  to  using  a  system  with  access  to  all 
libraries in the EU to identify the location of a particular book). The query tool would not 
permanently  store  any  traceability  data  but  would  facilitate  data  searches  (in  contrast  to 
option 1c/3 below). 

Figure 6: Decentralised model per manufacturer/ importer 

4.3.3  Policy option 1c/2: Establishment of a decentralised model per Member State 

This  policy option  proposes  the establishment  of  one  data storage  repository  per Member 
State. Each repository would host data exclusively related to the Member State in question, 

73   Article 15(8) TPD clarifies that the suitability of the third party refers in particular to its independence and 

technical capacity. 

28 

 
 
 
                                                           
i.e. related to tobacco products manufactured and/or placed on the market in that Member 
State,  and/or  imported  into  the  EU  on  its  territory.  For  this  purpose,  each  Member  State 
would be responsible for the identification of an independent data storage provider which 
would  host  data  related  to  it,  and  with  which  each  (relevant)  manufacturer  or  importer 
would sign a contract.  

To  ensure  the  required  access  to  the  stored  data  by  the  Commission,  the  competent 
authorities of the Member States and the external auditor, as provided for in Article 15(8), 
this  option  provides  for  the  creation  of  a  central  query  tool  run  by  an  independent  third 
party and linked with the national repositories, similar to that described under policy option 
1c/1. Such a central query tool would allow competent authorities to analyse data hosted in 
the repository of other Member States (thereby allowing Member States to, inter alia, verify 
products merely in transit across their territory).  

To ensure the transmission of data to the correct data storage facility, this option provides 
for a router service, similar to that described under the policy option 1c/1. 

4.3.4  Policy  option  1c/3:  Establishment  of  a  combined  model:  decentralised  for 

recording per manufacturer/importer with centralised surveillance 

This  policy  option  provides  for  the  establishment  of  a  data  storage  system  which  is 
composed  of  multiple  decentralised  repositories,  organised  per  manufacturer/importer,  as 
well  as  for  a  central  surveillance  solution,  including  a  single  centralised  data  storage 
repository, run by an independent third party, which can be commonly accessed and viewed 
by Member States. The main difference as compared to policy options 1c/1 and 1c/2 is that 
the  central  element  stores  a  copy  of  all  data  transmitted  to  the  individual  decentralised 
repositories  in  one  common  data  repository  (see  Figure  5).  The  presence  of  this  single 
central data repository, managed by an independent third party and made accessible to all 
Member States, would provide competent authorities with a global overview of the supply 
chain,  not  limited  to  the  specific  "search  question"  necessary  under  the central  query  tool 
system  in  the  options  above.  This  would  enable  Member  States  to  ensure  full  access 
according to Article 15(8) of the TPD.  

To ensure the transmission of data to the correct data storage facility, this option provides 
for a router service, similar to that described under the previous policy options.   

29 

 
 
Figure 7: Combined model - centralised for surveillance and decentralised for recording (per manufacturer/importer) 

4.4 

Compatibility of components of the traceability system (Issue 2) 

4.4.1  Policy  options  for  achieving  objective  2:  To  ensure  an  effective  transfer  of 
information throughout the distribution chain by an optimal selection of data 
carriers 

Marking with data carriers (which contain the UIs), such as barcodes, will take place at unit 
packet as well as aggregated packaging level. To assure effective identification of products, 
a data carrier must be able to hold a UI containing all the required information.74  
Technical  specifications  relating  to  data  carriers  are  central  for  ensuring  readability  of  all 
information required under Article 15 of the TPD across the supply chain and by all actors. 
This further guarantees the interoperability of the system. Three alternative policy options 
have been identified. It should be noted that in order to ensure full compatibility, it will be 
essential for data carriers to use open standards based on non-proprietary solutions, so that 
they are available to all operators.75 

74   The  unique  identifier  marking  the  unit  pack  shall  allow  for  determining  the  information  stipulated  in 
Article  15(2)  TPD.  The  unique  identifiers  applied  at  aggregated  levels  will  need  to  be  unequivocally 
related to lower levels including the unit pack, but are not subject to the same information requirements.   
75   Several data carriers have already been made subject to international standards, e.g. ISO/IEC 16022:2006 

(Data Matrix) and ISO/IEC 18004:2015 (QR Code) 

30 

 
 
 
                                                           
4.4.2  Policy option 2/1: Single data carrier per level 

This  option  proposes  a  single  authorised  data  carrier  per  packaging  level,  i.e.  one  data 
carrier  for  unit  pack  level,  and  one  separate  data  carrier  for  carton,  mastercase  and  pallet 
level respectively.76  

Manufacturers  and  importers  would  need  to  adjust  their  machinery  to  apply  and  read  the 
authorised  data  carrier,  depending  on  the  packaging  levels  being  produced/imported. 
Wholesalers  and  distributors  would  have  to  make  use  of  scanners  that  are  capable  of 
reading  the  authorised  data  carrier  for  aggregation  levels,  and  competent  authorities 
carrying out inspections would have to do likewise for all packaging levels. 

4.4.3  Policy option 2/2: Limited variety of data carriers per level 

Under  this  option,  economic  operators  may  choose  from  a  limited  number  of  authorised 
data carriers per packaging level, i.e. a limited number of data carriers for unit pack level, 
and a separate limited number for carton, mastercase and pallet levels respectively (overlaps 
in the authorised data carriers per level are likely).77  

Manufacturers  would  need  to  adjust  their  machinery  to  at  least  one  data  carrier  from  the 
limited  authorised  list.  Wholesalers  and  distributors  would  have  to  make  use  of  scanning 
devices  that  are  capable  of  reading  all  the  authorised  data  carriers  for  aggregation  levels, 
and  competent  authorities  carrying  out  inspections  would  have  to  do  likewise  for  all 
packaging levels.   

4.4.4  Policy option 2/3: Free system allowing any existing data carrier 

This  option  proposes  that  any  data  carrier  may  be  placed  on  the  unit  pack  and  at 
aggregation levels, as long as it is able to hold a UI containing all the required information.  

Manufacturers would therefore need to select at least one type of data carrier  meeting the 
necessary  requirements  and  adjust  their  machinery  accordingly.  Conversely,  wholesalers 
and  distributors,  as  well  as  competent  authorities  carrying  out  inspections,  would  need  to 
ensure that they use scanners capable of reading all data carriers available on the market.  

4.5 

Security features (Issue 3) 

4.5.1  Policy  options  for  achieving  objective  3:  to  facilitate  the  authentication  of 
tobacco  products  by  an  optimal  selection  of  application  methods  for  security 
features 

The  method  of  applying  security  features  on  packs  is  important,  in  particular  given  that 
different packaging types (e.g. paper, wood etc.) may require different application methods. 
An important additional consideration is that Article 16 of the TPD permits Member States 
to allow the use of tax stamps or fiscal markings for the security feature, provided they meet 
the requirements of that article (including those to be laid down via implementing acts). It is 
important to ensure that future developments and innovation in the field of security feature 
technology,  which  may  provide  enhanced  protection,  are  capable  of  being  incorporated. 
The  chosen  method  of  applying  security  features  to  packs  can  play  an  important  role  in 

76   This  option  does  not  restrict  the  right  of  economic  operators  to  place  additional,  not  pre-defined  data 
carrier(s) on packages, where necessary for internal logistic purposes, provided that this does not interfere 
with the prescribed data carrier(s) and all relevant labelling provisions are complied with.    

77   Ibid. 

31 

 
 
                                                           
achieving this by widening the potential variety of authentication elements that may be used 
to form security features.     

Further  information  relating  to  the  two  methods  of  adding  security  features  provided  for 
under Article 16 (printing or affixing) has therefore been sought via external expertise78 and 
consultation.79  The  latter  provided  competent  authorities,  economic  stakeholders  and 
consumers with an opportunity to provide targeted input.  

The  Commission  was  provided  with  a  useful  overview  of  existing  methods  as  well  as 
insight into their feasibility and expected impact for different production lines. The needs of 
enforcement  authorities  were  also  clarified  and  potential  future  evolutions  in  the  field  of 
security feature technology were indicated.  

It  emerged  as  important  that  the  technical  standards  to  be  laid  down  by  the  Commission 
ensure flexibility and avoid prescribing the use of specific authentication elements to form 
the security feature, an approach which would favour proprietary solutions and exclude the 
incorporation of technologies yet to be developed.  

Taking this into account, two policy options were identified in line with Article 16: the first 
would allow a choice between printing and affixing of security features on unit packs. The 
second would extend this choice to permit, in addition to the above,  a combination of the 
two methods, i.e. a security feature applied to unit packs via a combination of printing and 
affixing.  

4.5.2  Policy option 3/1: Printing or affixing 

Under this option there would be two possible methods for adding a security feature to unit 
packs. 

Printing  is  the  first  of  these,  provided  it  is  performed  in  a  way  that  renders  the  feature 
irremovable. This requires the printing to take place directly on the unit pack (i.e. before it 
is  wrapped  in  surrounding  material  such  as  cellophane).  Under  this  method,  it  may  be 
possible for the printing to be performed either on the manufacturers’ production lines or at 
a previous stage (such as by the suppliers of packaging material). 

Affixing  is  the  other  method  by  which  security  features  could  be  placed  on  unit  packs, 
provided  it  is  performed  in  a  way  that  renders  the  feature  irremovable.  This  is  likely  to 
involve  placing  the  security  feature  in  an  area  where  it  is  impossible  to  tamper  with  it 
without  breaking  or  damaging  the  unit  pack  and/or  the  use  of  specific  technologies  (e.g. 
frangible  papers).  Affixing  must  take  place  directly  on  the  unit  pack  and  before  it  is 
wrapped  in  surrounding  material  such  as  cellophane.  Affixing  is  currently  the  most 
common  method  by  which  Member  States’  tax  stamps  or  fiscal  markings  are  applied  to 
packs.80  

78   See Annex 1 (parts on Feasibility Study, Implementation Study). 
79   See Targeted Stakeholder Consultation, Annex 2; Public Consultation, Annex 3. 
80   For the avoidance of doubt, for the purpose of Article 16 of the TPD, affixing is considered as a broader 

term than mere labelling. See further sec. 8.6.1 of the Implementation Study, Annex 6. 

32 

 
 
 
                                                           
4.5.3  Policy option 3/2: Printing or affixing or a combination of printing and 

affixing  

Under  this  option  there  would  be  three  possible  methods  for  adding  a  security  feature  to 
unit packs. 

In  addition  to  the  two  above-mentioned  methods,  the  placing  of  security  features  on  unit 
packs via a combination of  both  printing and  affixing  would be allowed. Under  this third 
option, individual elements would be printed and affixed. A combined set of these elements 
would therefore form the security feature in the sense of Article 16 of the TPD. 

33 

 
 
 
 
 
5 

ANALYSIS OF IMPACTS 

The  impact  assessment  analyses  social  and economic  impacts  of  the  policy  options  under 
evaluation.  No  particular  environmental  impacts  have  been  identified.  Impacts  on 
fundamental rights (in particular the right to conduct a business) were already assessed in 
the Impact Assessment for the TPD, which constitutes the legal base for the establishment 
and implementation of systems of traceability and security features.81 Likewise, the Impact 
Assessment of the TPD already included an assessment of trade impacts with respect to the 
implementation of the systems in question.82  

Each of the discussed policy options differs not only in terms of costs, but also as regards 
their potential for attaining the reference level of social and economic benefits. The analysis 
set out in the following sections takes these differences into account, most importantly by 
assessing the extent to which the individual policy options and their measures 

  are suitable to achieve the operational objectives set out in section 3; 

  are necessary to achieve these objectives; 

  allow these objectives to be achieved at maximum benefit and minimum costs.  

All  the  positive  impacts  brought  about  by  this  initiative  rely  on  the  same  explanatory 
variable, i.e. a decrease in the size of the illicit tobacco market. As to the negative impacts, 
the initiative is considered not to have adverse impacts in social terms since, as it will be 
explained,  it  has  relatively  low  overall  costs  (estimated  at  a  fraction  of  the  expected 
benefits),  a  minimal  impact  on  the  unit  costs  and  hence  is  not  expected  to  affect 
employment in the legal supply chain. The negative economic effects are dependent on the 
costs of establishing and operating the system. 

The  figures  provided  are  estimates  and  rely  on  the  underlying  assumptions  of  the  key 
sources  outlined  in  section  1.1  as  well  as  on  other  available  data.  They  should  not  be 
presumed to be exact but rather provide an indication of the order of magnitude expected 
for the various categories of costs and benefits. The clandestine nature of the illicit market 
makes  it  particularly  difficult  to  make  accurate  predictions  relating  to  its  future  trends  or 
composition. The relative novelty of the traceability system may in turn affect the precision 
of cost estimates. Even if the individual aspects of the system are pre-dominantly based on 
currently used and tested technologies,83 the system will be the first of its kind to operate 
amongst such a broad range of economic operators in a multi-national regulatory context. 

Reference level of social and economic benefits  

The  analysis  estimates  the  reference  level  of  social  and  economic  benefits expected  to  be 
delivered with this initiative at EUR 3.8 billion a year. This level serves as a reference point 
in the subsequent analysis of individual policy options, since the different options are not 
likely to attain the same level of benefits.  

The initiative could generate a reduction in illicit trade equal to 2.45% of the total tobacco 
products market, which translates into 674 million cigarette packs per year.84 It is assumed 

81   See TPD Impact Assessment, Part 1, section 2.4 (on EU basis to act), p. 43. 
82   See TPD Impact Assessment, Part 5, section A.4.1 (on assessment criteria of impacts), p. 1. 
83   For further details on the overall technical feasibility of a traceability system for tobacco products, see the 

Feasibility Study.   

84   The benefit analysis is based on the statistics of illicit trade in the main segment of the tobacco products 
market, i.e. cigarettes, for which market estimates are provided in Table 1. This is a conservative approach, 
which likely leads to underestimation of the total benefits brought about with the present initiative.   See 

34 

 
 
                                                           
 
that the initiative could result in an increase of the licit sales by 510 million cigarette packs 
per year and a decrease of the total consumption by 164 million cigarette packs per year.  

A lower level of tobacco consumption is equal to a higher level of public health, increased 
number of healthy life-years and less suffering from tobacco related diseases affecting both 
smokers and their families. First and foremost, health must be considered a value in itself, 
both for the individual and for society as a whole. Following the methodology adopted in 
the TPD Impact Assessment, the main categories of social effects can also be monetised. It 
is expected that the initiative may generate savings in healthcare expenditure in the range of 
EUR 165 million per year and a gain of EUR 54 million per year in social productivity (i.e. 
reduction in smoking induced early retirements and work absenteeism). It is also expected 
that the initiative may lead to an increase of the discounted monetary value of saved lives 
by EUR 1.5 billion.85 

The  expected  increase  of  the  licit  sales  may  provide  EUR  2  billion  per  year  in  collected 
taxes (i.e. VAT and excise duties) and EUR 59 million per year in additional profits for the 
economic operators involved in the value chain of the tobacco products. An increase in the 
quantities  of  legally  traded  tobacco  products  should  have  a  positive  effect  in  terms  of 
employment within the tobacco sector. However, this effect is difficult to account for as it 
can  also  be  expected  that  the  traceability  system  will  induce  further  automation  in  the 
production and logistic chain.  

Table 2 summarises the reference level of expected direct economic and social benefits. It 
can be assumed that the full potential benefit will be achieved gradually over six years from 
the launch of the system, i.e. over the period 2019 to 2024.86  

Benefit 

Type 

Affected stakeholders 

Value  
(in EUR million per year) 

Savings in healthcare expenditures 

Social 

Competent authorities 

Social productivity gains 

Saved lives 

Social 

Social 

Competent authorities 

General public 

Higher collection of taxes 

Economic 

Competent authorities 

Increased  revenues  of  the  economic 
operators 

Economic 

Manufacturers, 
importers, distributors, 
wholesalers and retailers 

Total  
Table 2: Direct social and economic benefits – reference levels 

165 

54  

1497 

2029 

59 

3804 

The  expected  economic  and  social  benefits  vary  across  Member  States.  Their  magnitude 
depends  on  several  factors.  These  are:  (a)  the  estimated  size  of  the  national  markets  for 
illicit  products,  (b)  their  composition  in  terms  of  different  types  of  illicit  products  (i.e. 

Annex 7 for further explanations on the calculation of the reduction in illicit trade and the reference level 
of  social  and  economic  benefits.  For  individual  Member  States  the  impacts  differ  according  to  different 
size  and  composition  of  the  illicit  sales  on  their  respective  territories.  See  section  9.1  of  the 
Implementation Study, Annex 6. 

85   The relevant calculations followed the methodology adopted in the TPD Impact Assessment, SWD(2012) 

452 final. See also sections 9.3 and 9.4 of the Implementation Study, Annex 6 and Annex 7. 

86   See section 5.1.1.1.1 of the Implementation Study, Annex 6. 

35 

 
 
 
 
 
                                                                                                                                                                                 
contraband,  counterfeit  and  illicit  whites)  and  (c)  differences  in  the  assumed  elasticity  of 
demand reflecting income disparities across Member States. Together these factors translate 
into different relative and absolute changes in the consumption of legal products as well as 
in  the  reduction  of  the  overall  consumption  at  the  national  level.  The  magnitude  of 
economic impacts is further affected by differences in prices and taxation across Member 
States. Table 3 shows the expected distribution of economic and social benefits per Member 
State. 

SB 

EB 

SB 

EB 

SB 

EB 

SB 

EB 

AT 

BE 

BG 

CY 

CZ 

DE 

30 

31 

33 

na 

23 

104  EL 

37  ES 

18  ET 

7  FI 

27  FR 

184 

316  HR 

65 

98 

7 

10 

346 

na 

93 

144 

IE 

IT 

6  LT 

17  LU 

508  LV 

10  MT 

20 

85 

16 

1 

20 

1 

74  PL 

122  PT 

7  RO 

5  SK 

10  SL 

2  SV 

DK 
43  UK 
Table 3: Direct social (SB) and economic (EB) benefits in EUR million per year per Member State  

12  NL 

4  HU 

37 

68 

3 

197 

24 

142 

9 

6 

18 

241 

81 

22 

71 

7 

9 

38 

293 

In terms of other effects, it is recalled that the illicit tobacco trade has been identified as a 
primary  source  of  revenue  for  organised  crime,  and,  in  some  case,  terrorist  groups.  The 
European  Agenda  on  Security  adopted  by  the  European  Commission  in  April  2015 
recognises  the  need  to  cut  off  criminal  groups  from  this  revenue  source.87  The  present 
initiative has a potential of reducing such revenues by EUR 1671 million per year.88 

The  initiative  is  also  likely  to  create  positive  unintended  consequences  in  terms  of 
competitiveness,  innovation  and  job  creation  in  the  sector  for  traceability  and  security 
feature  technologies.  For  track  and  trace  solutions  and  security  features  to  be  effective  in 
meeting their objectives, they must rely on the latest technological developments. Modern 
technologies  (such  as  digitalisation  of  data,  state-of-the-art  developments  in  two-
dimensional  bar  codes,  modern  printing  technologies,  encryption  techniques  and  forensic 
technologies) will be further customised to match the specific needs of the tobacco sector. It 
is likely that the technologies developed during the EU deployment of the system will be to 
a certain extent taken over by non-EU countries, in particular in the context of the global 
implementation  of  the  FCTC  Protocol.    These  effects  are  not  directly  dependent  on  the 
policy options discussed below. However, they can be expected to positively correlate with 
the  maximisation  of  the  initiative's  benefits,  which  will  serve  as  a  proof  of  concept  and 
promote the technologies developed during the EU deployment.  

Nature of costs 

Given  the  nature  of  the  traceability  system,  all  the  costs  indicated  under  main  issues  1-3 
(section  5.1-5.4)  and  allocated  to  the  economic  operators  should  be  considered  as 
compliance  costs,  and  in  particular,  as  administrative  burdens.  The  traceability  system 
established under Article 15 of the TPD obliges economic operators until the last economic 
operator before the first retailer to report the entry of all unit packets into their possession, 
as  well  as  all  intermediate  movements  and  the  final  exit  of  the  unit  packets  from  their 
possession.  The  recording  and  transmitting  of  data  clearly  constitutes  an  information 
obligation. All the elements of the system serve this purpose. 

87   See http://ec.europa.eu/anti-fraud/sites/antifraud/files/docs/body/q_and_a_en.pdf  
88   See Commentary on the cost-benefit analysis, Annex 7. 

36 

 
 
 
 
 
 
                                                           
Regarding the system for security features (Article 16 of the TPD) all costs discussed under 
the  policy  options  proposed  for  main  issue  4  (section  5.5)  should  be  considered  as 
substantive compliance costs. 

Cost analysis 

Each of the below policy options is evaluated by looking at its various impacts in terms of 
economic costs.  

The  costs  are  divided  into  capital  expenditure  (CAPEX)  and  operational  expenditure 
(OPEX).  Apart  from  the  equipment,  CAPEX  also  includes  the  costs  of  installation, 
installation support and implementation. In order to annualise the initial capital investment, 
CAPEX  is  depreciated  over  the  period  of  six  years.  The  depreciation  allows  for  jointly 
reporting CAPEX and OPEX in terms of an annualised total cost for each of the options.89   

The relevant costs are analysed per stakeholder group. However, it must be recalled that the 
majority  of  the  costs  will  be  eventually  covered  by  manufacturers  of  tobacco  products. 
Article 15(7) of the TPD stipulates that manufacturers provide all other economic operators 
with the equipment that is necessary for the recording of the tobacco products purchased, 
sold, stored, transported or otherwise handled. The costs allocated to service providers are 
also  to  be  covered  by  the  manufacturers  who  will  be  required  to  conclude  contracts  with 
service  providers whenever certain tasks are  allocated to a third party, e.g.  data storage.90 
Each instance of the cost redistribution is indicated in the below analysis. 

5.1  Marking packages with a unique identifier (Issue 1a) 

5.1.1  Policy options for achieving objective 1a: to ensure the marking of packs with 
a unique identifier whilst guaranteeing independence of the traceability system 
by appropriate assignment of roles and tasks to relevant parties 

The analysis of the policy options identified under objective 1a covers the following tasks: 

-  generation  of  UIs  for  unit  packets  and  higher  aggregation  levels,  i.e.  cartons  (10 

packets), master cases (50 cartons) and pallets (50 master cases); 

-  application  of  UIs  (encoded  in  a  data  carrier  (e.g.  barcode)  to  unit  packets  and 

higher aggregation levels; 

-  verification if the UIs have been correctly applied; 

-  audits and additional controls.  

5.1.2  Policy option 1a/1: Industry operated solution 

5.1.2.1  Economic impacts 

Economic costs 

In terms of economic costs, policy option 1a/1 affects (a) manufacturers and importers, (b) 
distributors and wholesalers and (c) competent authorities. 

89   For further comments on the cost analysis, please see commentary on the cost-benefit analysis, Annex 7. 
90   In this context, it must be recalled that Article 8(14) of the FCTC Protocol stipulates that "each Party may 

require the tobacco industry to bear any costs associated that Party's obligations". 

37 

 
 
                                                           
Manufacturers and importers91 

CAPEX: EUR 69 million 

OPEX: EUR 23 million 

Annualised cost: 34 EUR million 

During  the  consultations,  this  option  was  clearly  preferred  by  the  economic  operators 
involved in tobacco trade as the most cost-efficient in terms of operations.  

SMEs,  in  particular  representing  the  cigar  sector,  argued  that  their  unit  costs  are 
considerably  higher  due  to  the  small  scale  of  operations.  However,  no  calculations  were 
provided to substantiate this claim.92  

The technical evaluation shows that this option could involve potential problems at the level 
of system interoperability, if multiple manufacturers are involved in the generation of UIs.93  
Distributors and wholesalers94 

CAPEX: EUR  21 million 

OPEX: 1 EUR million 

Annualised cost: 5 EUR million 

It  must  be  noted  that  these  costs  are  applicable  only  insofar  distributors  and  wholesalers 
need  to  re-aggregate  products  at  higher  packaging  levels.  The  CAPEX  element  will  be 
transferrable to manufacturers under Article 15(7) of the TPD. 

During  the  consultations,  many  respondents  underlined  the  importance  of  open  standards 
for a cost-efficient roll-out and operations of the future system. 

As regards SMEs, it seems plausible to assume that their costs will be alleviated if there is a 
competitive market of providers offering solutions tailored for smaller operations, such as 
off-the-shelf software packages or external generation of UIs. 
Competent authorities95 

CAPEX: n/a 

OPEX: EUR 16 million 

Annualised cost: EUR 16 million 

During the consultations, non-industry respondents often recalled that competent authorities 
are obliged to be in control of the future system (under Article 8(2) of the FCTC Protocol) 
and stressed the importance of the system’s independence from the industry as required by 
the TPD. For competent authorities to be able to control the system, this option includes a 
quasi-permanent presence of competent authorities at the manufacturing sites.   

Economic benefits 

The  attainment  of  the  reference  level  of  economic  benefits  referred  to  above  within  the 
industry operated system is less probable given the nature of economic incentives faced by 
economic operators and their employees.  

High  profitability  of  illicit  trade  creates  immediate  economic  incentives  for  misusing  the 
traceability  system,  e.g.  by  duplicating  identifiers  or  misreporting  logistic  events.  In 
addition,  the  strong  addictiveness  of  tobacco  means  that  illicit  trade  may  contribute  to 

91   See section 8.2.4 of the Implementation Study, Annex 6. 
92   In this context, it is important to recall that  most of SMEs are active in the production of other tobacco 
products  than  cigarettes  and  roll-your-own  products  and  hence  will  be  only  obliged  to  establish  the 
tracking  and  tracing  system  with  a  5-year  delay,  which  will  enable  them  to  benefit  from  the  prior 
experiences. Second, SMEs will likely be able to rely on providers offering solutions tailored for smaller 
operations,  e.g.  off-the-shelf  software  packages  or  services  of  external  generation  of  unique  identifiers. 
Finally, the Commission’s evaluation is bound by the TPD which does not allow for any carve-outs from 
the general obligation of establishing the tracking and tracing system. 
93   See item 2-1 in section 7.1.2 of the Implementation Study, Annex 5. 
94   See section 8.2.4 of the Implementation Study, Annex 6. 
95   See sections 8.2.3.3 and 8.2.3.4 of the Implementation Study, Annex 6. 

38 

 
 
                                                           
creating  new  demand  for  legal  products.  Consumers  initially  prevented  by  their  age  or 
economic  status  from  purchasing  the  legal  tobacco  products  can  be  initiated  with  illicit 
products. But it is also likely that such consumers will eventually turn to the legal tobacco 
products.96 

The consulted health NGOs have cited instances where the industry has been investigated 
for facilitating the supply of illicit tobacco.97 Consequently, they stressed that the schemes 
designed  or  promoted  by  industry,  or  in  which  the  industry  takes  a  major  role  in 
implementation, should be regarded as inadequate. 

The  affected  stakeholder  groups  are:  competent  authorities  and  economic  operators  along 
the  supply  chain,  i.e.  manufacturers,  importers,  distributors,  wholesalers  and  retailer.  The 
economic  benefits  for  each  stakeholder  group  should  be  adjusted  downwards  in  a 
proportionate manner to their share in the reference level of benefits.98 

5.1.2.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of the reference level of social benefits within the industry operated system is less probable. 

The  affected  stakeholder  groups  are:  competent  authorities  and  general  public.  The  social 
benefits  for  each  stakeholder  group  should  be  adjusted  downwards  in  a  proportionate 
manner to their share in the reference level of benefits.99 

5.1.3  Policy option 1a/2: Third party operated solution  

5.1.3.1  Economic impacts 

Economic costs 

In  terms  of  economic  costs,  policy  option  1a/2  directly  affects  (a)  independent  service 
providers and (b) competent authorities. Subsequently independent service providers charge 
their costs to (c) manufacturers and importers and (d) distributors and wholesalers. As far as 
the  CAPEX  element  is  charged  to  distributors  and  wholesalers,  they  can  in  turn  require 
manufacturers to reimburse this part of the costs under Article 15(7) of the TPD. 
Independent service providers100 

CAPEX: EUR  100 million 

OPEX: EUR 25 million 

Annualised cost: EUR 42 million 

Independent  service  providers  will  charge  their  costs  to  the  industry.  The  estimates  are 
based  on  the  same  cost  calculations  as  in  option  1a/1  –  i.e.  the  costs  of  manufacturers, 

96   See TPD Impact Assessment, p. 108-09. 
97   As  an  example  of  the  recent  potential  problems  with  the  industry’s  self-governance,  the  health  NGOs 
referred to the case reported in the British press: https://www.theguardian.com/business/2014/nov/16/bat-
fined-for-oversupplying-tobacco-in-low-tax-european-jurisdictions 

  Other examples are provided in: 

  Beare, M. (2003) Organized Corporate Criminality: Corporate Complicity in Tobacco Smuggling. In 
BEARE M.  (Ed.),  Critical  Reflections on Transnational Organized  Crime,  Money  Laundering,  and 
Corruption, University of Toronto Press, 183-206. 

  Collin, J. et.al. (2004) Complicity in contraband: British American Tobacco and cigarette smuggling 

in Asia. Tobacco Control, 13, 104-111. 

98   See Table 2. 
99   Ibid. 
100  See section 8.2.4 of the Implementation Study, Annex 6. 

39 

 
 
                                                           
importers  and  those  of  distributors/wholesalers  –  but  increased  with  a  10%  margin  of 
independent service providers.101  

Several respondents also drew attention to potential liability issues (e.g. costs of production 
stoppage)  related  to  the  presence  of  third  parties  (independent  service  providers)  at  the 
industry facilities. 

The technical evaluation further indicates that the presence of a third party may negatively 
affect the manufacturing process.102  
Competent authorities103 

CAPEX: n/a 

OPEX: EUR 2 million 

Annualised cost: EUR 2 million 

Under  option  1a/2,  competent  authorities  are  not  required  to  implement  extensive  control 
measures,  regular  audits  are  deemed  sufficient.  The  audits  cover  both  manufacturing 
facilities and activities of independent service providers.  

The selection of independent service providers will call for an organisational effort limited 
to the initial phase of establishing the system. As a strict minimum, competent authorities 
will have to verify providers' independence. 

Economic benefits 

The attainment of the reference level of benefits within the third party operated solution is 
highly probable. In this policy option, the presence of an independent service provider104 at 
the industry facilities provides for a high level of assurance against potential misuses of the 
system, which in turn could affect the system's overall performance. 

The affected stakeholder groups are the same as in option 1a/1. 

5.1.3.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of  the  reference  level  of  social  benefits  within  the  third  party  operated  solution  is  highly 
probable. 

The affected stakeholder groups are the same as in option 1a/1. 

5.1.4  Policy option 1a/3: Mixed solution (industry and third party) 

5.1.4.1  Economic impacts 

Economic costs 

In terms of economic costs, policy option 1a/3 affects (a) manufacturers and importers, (b) 
distributors  and  wholesalers,  (c)  independent  service  providers  and  (d)  competent 
authorities. As in policy option 1a/2, independent service providers charge their costs to the 
economic operators involved in tobacco trade. 

101  The present analysis assumes the installation of new equipment on all production lines in order to provide 
a conservative estimate of the costs brought about with this initiative. However, this does not mean that the 
initiative will force the writing off of any pre-existing equipment that will meet the TPD requirements.  

102  See item 3-1 in section 7.1.2 of the Implementation Study, Annex 5. 
103  See section 8.2.3.4 of the Implementation Study, Annex 6. 
104  Independent service providers do not face the same economic incentives (described under option 1a/1) as 

economic operators involved in tobacco trade and their employees.  

40 

 
 
                                                           
Manufacturers and importers105 

CAPEX: EUR 76 million 

OPEX: EUR 9 million 

Annualised cost: 22 EUR million 

The  costs  include  the  installation  of  anti-tampering  devices  for  verification  of  UIs.  These 
costs were assumed to be a part of the overall installation and configuration costs allocated 
to manufacturers and importers. 

During the consultations, it was noted that this policy option does not affect the operations 
of  hardware  equipment  on  the  production  lines.  The  operations  of  hardware  equipment 
alone are believed not to pose a risk to the system’s integrity, while being highly prone to 
liability  questions  if  they  become  dependent  on  third  party  actions.  This  option  also 
excludes the need for extensive integration of economic operators' hardware with that of the 
third party, and hence is less technically complex than option 1a/2. 

On the basis of the proposed allocation of tasks, the experts from Member States confirmed 
that this option represents a compromise that can ensure effective control, while respecting 
legal requirements.  

The technical evaluation indicates that this option should have no negative impacts on the 
operational processes of manufacturers.106   
Distributors and wholesalers107 

CAPEX: EUR 21  million 

OPEX: EUR 1 million 

Annualised cost: EUR 5 million 

The same impacts are expected as in policy option 1a/1. 
Independent service providers108 

CAPEX: n/a 

OPEX: EUR 14 million 

Annualised cost: EUR 14 million 

Under  policy  option  1a/3,  independent  service  providers  are  made  responsible  for  the 
generation of UIs. Independent service providers will charge their costs to the industry. The 
estimates are based on the same cost calculations as in option 1/1 for the generation of UIs, 
but increased by a 10% margin of service providers.  

During  the  consultations,  manufacturers  and  certain  solution  providers  argued  that  due  to 
efficiency  and  security  reasons,  the  generation  of  UIs  should  take  place  at  the 
manufacturing line.109  

The  technical  evaluation  does  not  confirm  this  opinion.  The  security  risks  related  to  the 
generation of UIs do not vary whether performed by the industry or a third party. The key 
issue is whether adequate security is in place to protect the generating server.110 

105  See section 8.2.4 of the Implementation Study, Annex 6. 
106  See item 3-1 in section 7.1.2 of the Implementation Study, Annex 5. 
107  See section 8.2.4 of the Implementation Study, Annex 6. 
108  See section 8.2.4 of the Implementation Study, Annex 6. 
109  However, these comments do not appear to take into account a broad range of operators that will have to 
receive  unique  identifiers.  The  externalisation  of  this  technological  block  will  help  SMEs,  in  particular 
small distributors and wholesalers, to comply with the TPD requirements. Moreover, the comments do not 
reflect the nature of the unique identifier required at the unit pack level by Article 15(2) of the TPD. The 
security risks related to potential interception will be largely limited by the specific nature of information 
included in the unique identifier. 

110  See item 5-1 in section 7.1.2 of the Implementation Study, Annex 5. 

41 

 
 
                                                           
Competent authorities111 

CAPEX: n/a 

OPEX: EUR 2 million 

Annualised cost: EUR 2 million 

Under  policy  option  1a/3,  competent  authorities  are  not  required  to  implement  extensive 
control measures as in option 1a/1, regular audits are deemed sufficient. The audits cover 
both manufacturing facilities and activities of independent service providers.  

The selection of independent service providers will call for an organisational effort limited 
to the initial phase of establishing the system. As a strict minimum, competent authorities 
will have to verify providers' independence. 

Economic benefits 

The attainment of the reference level of benefits in the mixed solution is highly probable. 
In  this  policy  option,  the  involvement  of  an  independent  third  party  provides  for  a  high 
level  of  control  over  the  supplies  of  essential  inputs,  i.e.  UIs,  as  well  as  for  additional 
controls  over  outputs  through  the  anti-tampering  devices  securing  the  process  of  optical 
verification  of  UIs.  The  proposed  control  measures  provide  for  a  high  level  of  assurance 
against  potential  misuses  of  the  system,  which  in  turn  could  affect  the  system's  overall 
performance. At the same time, the operation of hardware equipment (used in marking) by 
the  economic  operators  keeps  them  fully  and  directly  accountable  for  any  potential 
instances of unmarked packages of genuine products found in circulation. 

The affected stakeholder groups are the same as in option 1a/1. 

Option  1a/3  also  represents  the  most  beneficial  option  in  terms  of  unintended  positive 
consequences  for  research  and  innovation  as  it  promotes  dynamic  market  competition  for 
providing  a  range  of  services.  There  are  numerous  suppliers  interested  in  this  market  as 
could  be  observed  during  the  stakeholder  workshops  organised  by  the  Commission.112  In 
return,  this  can  drive  innovation,  for  example  by  stimulating  further  improvements  in  UI 
application and verification.   

5.1.4.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of the reference level of social benefits in the mixed solution is highly probable. 

The affected stakeholder groups are the same as in option 1a/1. 

5.2 

Recording and transmitting data (Issue 1b) 

5.2.1  Policy options for achieving objective 1b: to ensure effective surveillance and 
monitoring  throughout  the  supply  chain  by  determining  the  most  suitable 
permitted  time  lag  between  an  event  occurrence  and  its  recording  and 
transmission to the data storage facility 

The  cost  benefit  analysis  of  the  policy  options  identified  under  objective  1b  reflects  the 
system's requirements as to the recording and transmitting of data concerning the tracking 
and  tracing  events.  Although  the  main  parameter  is  timeliness  of  data  transmissions,  the 

111  See section 8.2.3.4 of the Implementation Study, Annex 6. 
112  For  the  reports  from  the  stakeholder  workshops,  including  the  list  of  in-person  participants,  see: 

https://ec.europa.eu/health/tobacco/consultations_en.   

42 

 
 
 
                                                           
cost calculations include the total costs of hardware and software development required for 
the recording and transmitting of data that take place under any scenario. 

In all policy options, the affected stakeholders are economic operators obliged to report the 
movements  of  tobacco  products,  notably  (a)  manufacturers  and  importers  and  (b) 
distributors and wholesalers. 

5.2.2  Policy option 1b/1: Near real-time  

5.2.2.1  Economic impacts 

Economic costs 
Manufacturers and importers113 

CAPEX: EUR 4  million 

OPEX: EUR 2 million 

Annualised cost: EUR 3 million 

During  the  consultations,  several  stakeholders  observed  that  real-time  recording  and 
transmitting of data is highly complex and its costs are very difficult to estimate. It requires 
automated synchronisation and data integrity checks of several sources of information, e.g. 
internal  enterprise  resource  planning  (ERP)  systems,  which  are  required  to  meet  the 
reporting obligations introduced by Article 15 of the TPD. However, larger manufacturers 
admitted to already working in near real time except in situations of network failures. A few 
stakeholders pointed out that the real time solutions avoid potential problems with network 
congestion  caused  by  upload  of  daily  data  batches.  A  distinction  was  made  between  data 
acquisition and data transmission, the former requires interoperability with company's other 
systems and hence may be costly to be performed in real time. 

Member States and several stakeholders stressed that in this option particular regard must 
be  given  to  the  needs  of  SMEs  for  which  near  real  time  compliance  may  be  difficult  to 
achieve. 

The  technical  assessment  confirmed  the  opinions  expressed  by  the  stakeholders  that  the 
implementation and operational complexity of this option needs to be considered.114  
Distributors and wholesalers115 

CAPEX: EUR 35 million 

OPEX: 40 EUR million 

Annualised cost: EUR 46 million 

During the consultations, very similar comments concerning technical aspects were made as 
for  manufacturers  and  importers.  It  was  highlighted  that  many  SMEs  use  the  scanning 
equipment  based  on  docking  stations,  which  transfers  information  only  once  docked  for 
synchronisation, i.e. not in real time. It will be very demanding for SMEs to introduce this 
option in time.  

Economic benefits 

Assuming  that  economic  operators  manage  to  introduce  the  near  real  time  recording  and 
transmitting of data, the attainment of the reference level of benefits in this option is highly 
probable. 

Several non-industry stakeholders pointed out that only the real time option can guarantee 
to  achieve  the  objectives  of  the  traceability  system.  Any  other  option  puts  the  ability  to 

113  See section 8.5.5 of the Implementation Study, Annex 6. 
114  See items 1-1, 3-1 and 3-2 in section 7.4 of the Implementation Study, Annex 5. 
115  See section 8.5.5 of the Implementation Study, Annex 6. 

43 

 
 
                                                           
effectively fight carrousel frauds, frauds in transit and diversion points at risk by allowing 
for time gaps.  

Member  States  also  agree  that  the  shorter  the  timespan  the  more  effective  the  ability  of 
enforcement bodies to react to possible anomalies. 

The  technical  evaluation  further  highlights  the  ability  of  a  near  real  time  solution  to 
integrate  most  effectively  with  other  related  systems  at  national  level  (e.g.  customs 
systems).116 

The  affected  stakeholder  groups  are:  competent  authorities  and  economic  operators  along 
the supply chain, i.e. manufacturers, importers, distributors, wholesalers and retailer.117 

5.2.2.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of the reference level of social benefits in this option is highly probable. 
The affected stakeholder groups are: competent authorities and general public.118 

5.2.3  Policy option 1b/2: One day time lag 

5.2.3.1  Economic impacts 

Economic costs 
Manufacturers and importers119 

CAPEX: EUR  2 million 

OPEX: EUR 1 million 

Annualised cost: EUR 1 million 

During  the  consultations,  most  of  the  economic  operators  involved  in  tobacco  trade 
expressed their preference for this option.  
Distributors and wholesalers120 

CAPEX: EUR  18 million 

OPEX: EUR 12 million 

Annualised cost: EUR 15 million 

During  the  consultations,  several  stakeholders  noted  that  daily  uploads  better  reflect  the 
current business practice geared to daily dispatches of goods. It was also suggested to have 
clear and timely requirements defining until when recording and transmitting have to take 
place instead of setting fixed-time intervals. 

Economic benefits 

The attainment of the reference level of benefits in the option of one day time lag reports is 
less probable as the technical evaluation has highlighted that it could cause potential delays 
in enforcement action.121 

The  attainment  of  the  reference  level  of  benefits  could  be  more  likely  if  this  option  is 
combined with additional requirements. During the consultations, it was suggested that the 
focus  should  be  on  when  the  shipment  happens  and  not  on  the  timing  of  pre-shipment 

116  See item 2-2 in section 7.4 of the Implementation Study, Annex 5. 
117  See Table 2. 
118  Ibid. 
119  See section 8.5.5 of the Implementation Study, Annex 6. 
120  Ibid. 
121  See item 6.1 in section 7.4 of the Implementation Study, Annex 6.  

44 

 
 
                                                           
scans.  Therefore,  it  was  proposed  to  introduce  an  obligation  to  record  any  shipment  of 
goods, i.e. movements between facilities, before the dispatch. 

The affected stakeholder groups are the same as in option 1b/1. The economic benefits for 
each  stakeholder  group  should  be  adjusted  downwards  in  a  proportionate  manner  to  their 
share in the reference level of benefits.122 

5.2.3.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of  the  reference  level  of  social  benefits  in  the  option  of  one  day  time  lag  reports  is  less 
probable. 

The affected stakeholder groups are the same as in option 1b/1. The social benefits for each 
stakeholder group should be adjusted downwards in a proportionate manner to their share in 
the reference level of benefits.123 

5.2.4  Policy option 1b/3: One week time lag 

5.2.4.1  Economic impacts 

Economic costs 
Manufacturers and importers124 

CAPEX: EUR 2 million 

OPEX: EUR 1 million 

Annualised cost: EUR 1 million 

Even if the costs are estimated at the same level as in option 1b/2, during the consultations, 
many  respondents  disagreed  with  this  option  as  creating  far  too  long  time  lags  in  the 
recording  and  transmitting  of  data  concerning  the  tracking  and  tracing  events.  Economic 
operators  among  others  claimed  that  such  a  long  time  lag may  lead  to  additional  costs  of 
data buffering and is not economically viable. No savings were expected as compared to the 
policy option of one day time lag. 
Distributors and wholesalers125 

CAPEX: EUR  18 million 

OPEX: EUR 12 million 

Annualised cost: EUR 15 million 

The same comments as made above for manufacturers and importers are also relevant for 
distributors and wholesalers.  

Economic benefits 

The attainment of the reference level of benefits in the option of one week time lag reports 
may be seriously compromised.  

According to Member States and many stakeholders, the recording and transmitting of data 
with such a long time lag defeats the objective of tracking and tracing. 

The affected stakeholder groups are the same as in option 1b/1. The economic benefits for 
each  stakeholder  group  should  be  adjusted  downwards  in  a  proportionate  manner  to  their 
share in the reference level of benefits.126 

122  See Table 2. 
123  Ibid. 
124  See section 8.5.5 of the Implementation Study, Annex 6. 
125  Ibid. 
126  See Table 2. 

45 

 
 
                                                           
5.2.4.2  Social benefits 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of the reference level of social benefits in the option of one week time lag reports may be 
seriously compromised. 

The affected stakeholder groups are the same as in option 1b/1. The social benefits for each 
stakeholder group should be adjusted downwards in a proportionate manner to their share in 
the reference level of benefits.127 

5.3 

Processing, storing and accessing data (Issue 1c) 

5.3.1  Policy options for achieving objective 1c: To ensure effective surveillance and 
monitoring throughout the supply chain by identifying a system architecture, 
which  guarantees  full  and  timely  access  by  competent  authorities  and  the 
Commission to the data recorded 

The  cost  benefit  analysis  of  the  policy  options  identified  under  objective  1c  covers  the 
establishment and operations of the data storage under the traceability system. Article 15(8) 
of  the  TPD  requires  that  the  data  storage  is  provided  by  an  independent  third  party 
contracted  by  manufacturers  and importers.  The  third  party's  activities  shall  be  monitored 
by  an  external  auditor  paid  for  by  manufacturers.  All  these  costs  are  fully  attributable  to 
manufacturers  and  importers.  The  external  auditor  will  submit  its  annual  report  to  the 
competent authorities and the Commission.   

The policy options under objective 1c have also a direct impact on the Commission, which 
under Article 15(8) of the TPD is obliged to approve the suitability of the third party, the 
data storage contract and the external auditor. 

5.3.2  Policy option 1c/1: Decentralised model as per manufacturer/importer 

5.3.2.1  Economic impacts 

Economic costs 
Manufacturers and importers128 

CAPEX: EUR 17 million 

OPEX: EUR 5 million 

Annualised cost: EUR 8 million 

During  the  consultations,  manufacturers  largely  favoured  a  decentralised  model  per 
manufacturer/importer, arguing that decentralisation per Member State (option 1c/2) would 
require complex levels of interoperability.  

However,  several  smaller  manufacturers  favoured  a  centralised  system  which  they  said 
would  simplify  the  data  transmission  process  and  be  less  burdensome.  In  this  regard,  the 
interests of distributors and wholesalers are aligned with those of smaller manufacturers.129  

127  Ibid. 
128  See section 8.3.5 of the Implementation Study, Annex 6. 
129  These  concerns  can  be  partially  addressed  by  the  inclusion  of  a  central  router  as  a  part  of  Federation 
Services. It may also be advisable to include a most-favoured customer clause as an obligatory condition 
in the data storage contracts in order to protect small and medium manufacturers and importers. 

46 

 
 
 
 
                                                           
Public authorities130 

CAPEX: n/a 

OPEX: EUR 2 million 

Annualised cost: EUR 2 million 

It  is  estimated  that  the  Commission  would  be  tasked  with  approving  230  data  storage 
contracts and 7 auditors under this option.131  

Economic benefits 

The attainment of the reference level of benefits is less probable. It may be undermined in 
terms of the system's transparency and data quality. These problems among others translate 
into suboptimal surveillance capacity.  

The  technical  evaluation  shows  that  option  1c/1  has  low  efficiency  with  respect  to  read 
access.  This  option  introduces:  (a)  a  penalty  on  the  reading  performance,  because  the 
Federation Services have to forward each query to individual storages, wait for results and 
merge the collected data, (b) potential cross-storage compatibility problems, and (c) lower 
accessibility if not all individual storages function properly.132 The "pure" distributed data 
storage  system,  i.e.  without  a  central  indexed  copy  of  data,  also  impairs  the  ability  of 
ensuring  data  integrity  of  the  system  as  a  whole,  because  the  necessary  data  validation 
against the existing records needs to be handled via queries to remote systems.133 

The  affected  stakeholder  groups  are:  competent  authorities  and  economic  operators  along 
the  supply  chain,  i.e.  manufacturers,  importers,  distributors,  wholesalers  and  retailer.  The 
economic  benefits  for  each  stakeholder  group  should  be  adjusted  downwards  in  a 
proportionate manner to their share in the reference level of benefits.134 

5.3.2.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of the reference level of social benefits is less probable than in option 1c/3. 

The  affected  stakeholder  groups  are:  competent  authorities  and  general  public.  The  social 
benefits  for  each  stakeholder  group  should  be  adjusted  downwards  in  a  proportionate 
manner to their share in the reference level of benefits.135 

130  See section 8.3.5 of the Implementation Study, Annex 6. 
131  The  number  of  data  storage  contracts  is  based  on  the  number  of  tobacco  enterprises  indicated  in  the 
Feasibility Study, page 14. The number of auditors is based on Everis' assumption as to the number of data 
storage systems in options 1c/1 and 1c/3. 

132  This problem can be illustrated with a simple numerical example. If a single storage functions with 99% 
time availability (i.e. at any time there is a chance of 1 in 100 that a storage is down), a distributed system 
of seven storages will have only 93% time availability (because 0.99 to the power of 7 equals 0.93).  

133  See items 1-1 and 4-2 in section 7.2 of the Implementation Study, Annex 5. 
134  See Table 2. 
135  Ibid. 

47 

 
 
                                                           
5.3.3  Policy option 1c/2: Decentralised model as per Member State 

5.3.3.1  Economic impacts 

Economic costs 
Manufacturers and importers136 

CAPEX: EUR 45 million 

OPEX: EUR 12 million 

Annualised cost: EUR 19  million 

The  relatively  high  cost  of  this  option  is  due  to  a  multiplication  of  processes  at  national 
level where the same implementation operations have to be carried out multiple times.   

During  the  consultations,  the  health  NGOs  favoured  a  decentralised  system  per  Member 
State,  arguing  that  this  would  ease  cross  border  investigation  efforts,  provided  that  a 
centralised surveillance element is also in place. 

The technical evaluation shows that the decentralised option per Member State could pose 
problems  for  importers  in  the  transmitting  of  data  to  correct  data  storage.  This  option 
represents the most complicated logic for routing reports.137 

The option may also disproportionately impact small and medium-sized manufacturers and 
importers selling via distributors to several Member States, as such companies would most 
likely be obliged to enter into multiple contracts with storage providers from other Member 
States. 
Public authorities138 

CAPEX: n/a 

OPEX: EUR 4 million 

Annualised cost: EUR 4 million 

It  is  estimated  that  the  Commission  would  be  tasked  with  approving  1490  data  storage 
contracts and 19 auditors under this option.139  

Economic benefits 

The attainment of the reference level of benefits is less probable. It may be undermined by 
lower effectiveness of this option in terms of the system's transparency and data quality.140 
These problems among others translate into suboptimal surveillance capacity, in particular 
in the trans-border context.  

The same problems with read access and data integrity are relevant as in option 1c/1. 

The affected stakeholder groups are the same as in option 1c/1. The economic benefits for 
each  stakeholder  group  should  be  adjusted  downwards  in  a  proportionate  manner  to  their 
share in the reference level of benefits.141 

5.3.3.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of the reference level of social benefits is less probable than in option 1c/3.  

136  See section 8.3.5 of the Implementation Study, Annex 6. 
137  See item 1-2 in section 7.4 of the Implementation Study, Annex 5. 
138  See section 8.3.5 of the Implementation Study, Annex 6. 
139  The number of auditors is based on Everis' assumption as to the number of data storage systems in option 
2a/2.  The  number  of  data  storage  contracts  is  based  on  the  assumption  that  out  of  230  concerned 
companies (see the Feasibility Study, page 14), 30 companies will sign contracts with all 19 data storage 
operators, 60 with 9, another 60 with 5 and last 80 with 1 (30 x 19 + 60 x 9 + 60 x 5 + 80 x 1 = 1490). 

140  See item 6-1 in section 7.4 of the Implementation Study, Annex 5. 
141  See Table 2. 

48 

 
 
                                                           
The affected stakeholder groups are the same as in option 1c/1. The social benefits for each 
stakeholder group should be adjusted downwards in a proportionate manner to their share in 
the reference level of benefits.142 

5.3.4  Policy option 1c/3: Combined model 

5.3.4.1  Economic impacts 

Economic costs 
Manufacturers and importers143 

CAPEX: EUR  19 million 

OPEX: EUR 6 million 

Annualised cost: EUR 9 million 

The  slight  increase  in  costs  for  this  option,  as  compared  to  option  1c/1,  is  due  to  the 
inclusion  of  a  central  copy  of  all  data  commonly  accessible  by  all  competent  authorities 
(stored by an independent third party).  

The  technical  analysis  indicates  that  the  existence  of  a  central  copy  of  data  poses  certain 
challenges in terms of data security and this part of the system will have to be adequately 
secured  from  cyber-attacks.144  This  being  said,  the  data  stored  in  the  tobacco  traceability 
system  can  be  only  potentially  sensitive  towards  direct  competitors,  suppliers  and  clients, 
who  have  already  a  good  overview  of  the  market  trends  given  the  stable  nature  of 
demand.145  
Competent authorities146 

CAPEX: n/a 

OPEX: EUR 2 million 

Annualised cost: EUR 2 million 

It  is  estimated  that  the  Commission  would  be  tasked  with  approving  230  data  storage 
contracts and 7 auditors.  

Economic benefits 

The attainment of the reference level of benefits in the combined is highly probable. 

Thanks  to  a  central  indexed  copy  of  the  data,  this  option  ensures  high  performance  and 
greater  efficiency  with  respect  to  read  access.  It  permits  effective  execution  of  more 
complex  queries  providing  access  to  cross-sets  of  data  and  thereby  enhancing  overall 
transparency, which is key to attaining the objective of ensuring effective surveillance and 
monitoring.  It  also  ensures  high  level  of  data  integrity  by  providing  for  efficient  data 
validation.147  Last  but  not  least,  it  will  considerably  facilitate  the  fulfilment  of  the 
international  obligations  by  allowing  for  timely  and  effective  responding  to  the  requests 
received  from  the  'global  information-sharing  focal  point'  foreseen  under  Article  8  of  the 
FCTC Protocol.    

This  option  was  considered  by  several  Member  States  to  be  the  best  solution  that  will 
among others provide for effective surveillance and help in detecting duplicates. During the 
consultations,  the  following  points  were  underlined  as  important  for  surveillance:  (a)  the 

142  Ibid. 
143  See section 8.3.5 of the Implementation Study, Annex 6. 
144  See item 5-1 in section 7.2 of the Implementation Study, Annex 5. 
145  There  are  commercially  available  information  sources  providing  standardised  and  cross-comparable 
statistics including total market sizes, market share and brand share data, distribution and industry trends 
and sub-category level information. For example, see: http://www.euromonitor.com/tobacco. 

146  See section 8.3.5 of the Implementation Study, Annex 6. 
147  See items 1-1 and 4-2 in section 7.2 of the Implementation Study, Annex 5. 

49 

 
 
                                                           
effectiveness of the query function, (b) the speed and ease of access, (c) the security of the 
data  and  recovery  process,  (d)  the  effectiveness  of  any  interrogation,  extraction  and  trend 
analysis functions and (e) the ability to modify any reporting tools. The technical evaluation 
indicates that points (a), (b), (d) and (e) can be fully addressed only under this option.148 

The affected stakeholder groups are the same as in option 1c/1. 

5.3.4.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of the reference level of social benefits in the combined is highly probable. 

The affected stakeholder groups are the same as in option 1c/1. 

5.4 

Compatibility of components of the traceability system (Issue 2) 

5.4.1  Policy  options  for  achieving  objective  2:  To  ensure  an  effective  transfer  of 
information throughout the distribution chain by an optimal selection of data 
carriers 

The  cost  benefit  analysis  of  the  policy  options  identified  under  objective  2  covers  the 
following tasks: 

  application  of  UIs  (encoded  in  a  data  carrier  (e.g.  barcode))  to  unit  packets  and 

higher aggregation levels; 

  verification if UIs have been correctly applied. 

Since  the  same  tasks  are  also  covered  under  objective  1a,  the  analysis  under  objective  2  
takes  into  account  only  additional  costs  as  compared  to  the  costs  already  included  under 
objective  1a.  Some  of  the  below  options  also  lead  to  reductions  in  certain  cost  items 
included under objective 1a, such instances are clearly indicated.  

In all policy options, the affected stakeholders are economic operators obliged to report the 
movements  of  tobacco  products,  notably  (a)  manufacturers  and  importers  and  (b) 
distributors  and  wholesalers.  The  latter  group  also  includes  vans  used  to  service  vending 
machines  and  mobile  salesforce  units.  The  CAPEX  element  of  the  costs  incurred  by 
distributors and wholesalers will be transferable to manufacturers under Article 15(7) of the 
TPD.  

5.4.2  Policy option 2/1: Single data carrier per level 

5.4.2.1  Economic impacts 

Economic costs 
Manufacturers and importers149 

CAPEX: n/a 

OPEX: n/a 

Annualised cost: n/a 

Under policy option 2/1, there are no additional costs to be incurred by manufacturers and 
importers  as  compared  to  the  costs  to  be  covered  under  the  options  presented  under 
objective 1a. 

148  See items 1-1 and 6-1 in section 7.2 of the Implementation Study, Annex 5. 
149  See section 8.4.5 of the Implementation Study, Annex 6. 

50 

 
 
                                                           
During the consultations, it was claimed that a system with a single data carrier would be 
too  restrictive  as  well  as  detrimental  for  SMEs.  Manufacturers  stressed  that  prescribing  a 
single  data  carrier  would  not  facilitate  operations  and  might  lead  to  additional  problems, 
such as in the case of imports/exports of products from/to third countries which may select 
different carriers. A number of stakeholders came up with recommendations of one to two 
optimal  data  carriers  for  each  of  packaging  levels.  These  recommendations  referred  to 
several  barcodes  based  on  open  standards,  which  are  already  in  use  in  the  sector.  Open 
standards were viewed as means to allow maximum flexibility and interoperability.  

Option 2/1 accommodates these stakeholder preferences, thanks to the possibility of adding 
optional  (non-obligatory)  data  carriers.  However,  this  option  may  pose  problems  if  a 
mandatory  data  carrier  pre-selected  for  a  given  packaging  level  does  not  meet  the 
requirements of an important sub-type of packaging at that level.    
Distributors and wholesalers150 

CAPEX: EUR 151 million 

OPEX: EUR 10 million 

Annualised cost: EUR 35 million 

The recommendations mentioned above for manufacturers and importers took into account 
the needs of distributors and wholesalers. This option is considered largely compatible with 
the requirements of the distribution chain. 

Economic benefits 

The attainment of the reference level of benefits in this option is highly probable. 

Neither  the  consultation  nor  the  technical  evaluation  suggests  that  option  2/1  poses  any 
evident risks to attainment of the reference level of benefits.  

The  affected  stakeholder  groups  are:  competent  authorities  and  economic  operators  along 
the supply chain, i.e. manufacturers, importers, distributors, wholesalers and retailers.151 

5.4.2.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of the reference level of social benefits in this option is highly probable. 
The affected stakeholder groups are: competent authorities and general public.152 

5.4.3  Policy option 2/2: Limited variety of data carriers per level 

5.4.3.1  Economic impacts 

Economic costs 
Manufacturers and importers153 

CAPEX (reduction): 
EUR 12 million  

OPEX: n/a 

Annualised cost (reduction):  
EUR 2 million 

Under policy option 2/2, manufacturers and importers are expected to lower the direct costs 
incurred under objective 1a, thanks to the broadening of a variety of permitted data carriers 
and hence potentially better reliance on the installed base of equipment.  

150  See section 8.4.5 of the Implementation Study, Annex 6. 
151  See Table 2. 
152  See Table 2. 
153  See section 8.4.5 of the Implementation Study, Annex 6. 

51 

 
 
                                                           
The concept of a limited number of data carriers was largely favoured by stakeholders. The 
flexibility offered by this option was also recognised as addressing the needs of SMEs. 

The technical evaluation further found that in comparison to option 2/1, option 2/2 enables 
economic operators to a larger extent to adapt the data carrier to the unit packet. In return, 
this  means  there  is  also  a  lower  impact  on  the  operation  processes  of  manufacturers 
(facilitating ease of operation) as it would be the case in option 2/1.154  

The same recommendations as mentioned in option 2/1 are applicable to option 2/2. 
Distributors and wholesalers155 

CAPEX: EUR 180 million 

OPEX: EUR 10 million 

Annualised cost: EUR 40 million 

The  support  for  this  option  by  manufactures  and  importers  expressed  during  the 
consultations was also mirrored by distributors and wholesalers. This option is considered 
compatible with the requirements of the distribution chain. 

Economic benefits 

The attainment of the reference level of benefits in this option is highly probable. 

Neither  the  consultation  nor  the  technical  evaluation  suggests  that  option  2/2  poses  any 
evident risks to attainment of the reference level of benefits.  

The  technical  evaluation  further  remarks  that,  as  an  unintended  positive  consequence,  the 
implementation of this option, opposed to option 2/1,  has the potential of promoting market 
competition. In return, this can drive innovation in the area of data carriers.156 

The affected stakeholder groups are the same as in option 2/1. 

5.4.3.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of the reference level of social benefits in this option is highly probable. 

The affected stakeholder groups are the same as in option 2/1. 

5.4.4  Policy option 2/3: Free system allowing any existing data carrier 

5.4.4.1  Economic impacts 

Economic costs 
Manufacturers and importers157 

CAPEX (reduction): 
EUR 25 million 

OPEX: n/a 

Annualised cost (reduction): 
EUR 4 million 

Under  policy  option  2/3,  manufacturers  and  importers  are  expected  to  lower  their  direct 
costs included under objective 1a thanks to the lack of any restrictions as to the choice of 
data  carriers  by  individual  operators  and  hence  potentially  high  reliance  on  the  installed 
base of equipment.  

154  See item 1-1 and 1-3 in section 7.3 of the Implementation Study, Annex 5. 
155  See section 8.4.5 of the Implementation Study, Annex 6. 
156  See item 7-3 in section 7.3 of the Implementation Study, Annex 5.  
157 See section 8.4.5 of the Implementation Study, Annex 6. 

52 

 
 
                                                           
However, during the consultations, most of stakeholders expressed doubts as to this option. 
Stakeholders were particularly concerned that this option would lead to incompatibility of 
the readers at the industry's disposal.  

In the technical evaluation, option 2/3, although allowing for more flexibility in adapting to 
the  production  process158,  is  considered  suboptimal  in  terms  of  the  system's  overall 
consistency.159  
Distributors and wholesalers160 

CAPEX: EUR 239 million 

OPEX: EUR 10 million 

Annualised cost: EUR 49 million 

The  same  risks  related  to  this  option  raised  for  manufacturers  and  importers  are  equally 
applicable to distributors and wholesalers.  

Economic benefits 

The attainment of the reference level of benefits in option 2/3 is less probable. 

During the consultations, it was stressed that this option could lead to the unawareness of 
competent authorities concerning certain data carriers in use and therefore could undermine 
their control functions. 

The affected stakeholder groups are the same as in option 2/1. The economic benefits for 
each  stakeholder  group  should  be  adjusted  downwards  in  a  proportionate  manner  to  their 
share in the reference level of benefits.161  

Furthermore, the technical evaluation remarks that, as an unintended positive consequence, 
the  implementation  of  this  option,  opposed  to  option  2/1,  has  the  potential  of  promoting 
market competition. In return, this can drive innovation and consequently result in a drop in 
market prices for the data carriers at question.162 

5.4.4.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of the reference level of social benefits in option 2/3 is less probable. 

The affected stakeholder groups are the same as in option 2/1. The social benefits for each 
stakeholder group should be adjusted downwards in a proportionate manner to their share in 
the reference level of benefits.163 

5.5 

Security feature 

5.5.1  Policy  options  for  achieving  objective  3:  to  facilitate  the  authentication  of 
tobacco  products  by  an  optimal  selection  of  application  methods  for  security 
features  

The  cost  benefit  analysis  of  the  policy  options  identified  under  objective  3  is  incremental 
from  the  perspective  of  competent  authorities,  i.e.  it  is  based  on  the  existing  tax  stamp 
programmes of Member States. It includes only approximate costs of likely adaptations by 

158  See item 1-1 and 1-3 in section 7.3 of the Implementation Study, Annex 5. 
159 See item 4-1 in section 7.3 of the Implementation Study, Annex 5. 
160  See section 8.4.5 of the Implementation Study, Annex 6. 
161  See Table 2. 
162  See item 7-3 in section 7.3 of the Implementation Study, Annex 5. 
163  See Table 2. 

53 

 
 
                                                           
Member  States  to  the  requirements  introduced  with  Article  16  of  the  TPD,  where  the 
existing tax stamp programmes serve as a starting point. 

The affected groups of stakeholders are: (a) manufacturers and importers who are assumed 
to  cover  the  costs  of  security  features  and  (b)  competent  authorities  who  will  need  to 
oversee the process. 

The  cost  analysis  relies  on  the  survey  of  Member  States  carried  out  by  the  external 
contractor  providing  input  to  the  Commission.  This  survey  led  to  the  following  broad 
assumptions: 

  84% of all products are presently secured with tax stamps, where: 

o  66% of all products are secured with tax stamps not requiring updates; 

o  18% of all products are secured with tax stamps requiring updates; 

  16% of all products are presently not secured with tax stamps.164 

5.5.2  Policy option 3/1: Printing or affixing 

5.5.2.1  Economic impacts per stakeholder group 

Economic costs 
Manufacturers and importers165 

CAPEX: n/a 

OPEX: EUR 15 million 

Annualised cost: EUR 15 million 

The cost calculations are based on the unit costs of tax stamps and printed security features 
reported  in  the  Feasibility  Study  and  the  assumption  that  34%  of  all  products  will  be 
affected by the new rules.  

During the consultations, manufacturers agreed that building on existing practices (such as 
tax stamps) is a good approach but also stressed that it is essential to retain flexibility and 
innovation so as to limit the possibility of counterfeiting. 

Competent authorities 

The estimates do not include specific costs for competent authorities. It is assumed that the 
competent  authorities  will  shift  the  economic  burden  to  manufactures  and  importers. 
Therefore, the inclusion of separate costs would lead to double counting.  

During the consultations, some Member States explained that tax stamps were not used in 
their  country  and  therefore  any  solution  being  solely  based  on  tax  stamps  would  not  be 
supported. Other Member States, on the contrary, were strongly in favour of continued use 
of tax stamps. In this regard, it must be recalled that not all tax stamps currently used may 
meet  the  requirements  under  the  TPD  regime,  including  technical  specifications  to  be 
introduced in the implementing act. 

Economic benefits 

The attainment of the reference level of benefits in this option is highly probable. 

Option  3/1  poses  no  evident  risks  to  attainment  of  the  reference  level  of  benefits.  Its 
strength  is  that  it  makes  the  harmonisation  of  rules  concerning  application  methods 

164  See section 8.6.1 of the Implementation Study, Annex 6. 
165  See section 8.6.4 of the Implementation Study, Annex 6. 

54 

 
 
                                                           
relatively  easier,  given  the  assumption  that  the  choice  of  application  methods  does  not 
include a combination of all methods. 

The  affected  stakeholder  groups  are:  competent  authorities  and  economic  operators  along 
the supply chain, i.e. manufacturers, importers, distributors, wholesalers and retailers.166 

5.5.2.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of the reference level of social benefits in this option is highly probable. 
The affected stakeholder groups are: competent authorities and general public.167 

5.5.3  Policy option 3/2: Printing or affixing or a combination of printing and 

affixing 

5.5.3.1  Economic impacts 

Economic costs 

Manufacturers and importers 

OPEX: EUR 15 million 

Annualised cost: EUR 15 million 

CAPEX: n/a 
The broad cost estimates for option 3/2 do not differ from option 3/1. However, option 3/2 
introduces  an  additional  degree  of  freedom  by  allowing  for  a  combination  of  different 
application  methods.  With  respect  to  18%  of  all  products,  there  will  be  a  possibility  of 
introducing the TPD security feature with a potentially more cost effective method, which 
under  this  option  might  be  a  combination  of  the  existing  tax  stamp  with  other  additional 
elements applied directly on the pack. The technical evaluation further notes that a higher 
degree  of  flexibility  in  the  available  application  method  makes  it  easier  to  adapt  to  the 
differences in product material and packaging.168 Therefore, this option also better reflects 
the interests of SMEs that insisted on flexibility and broad choice as important factors for 
them. 

Competent authorities 

During the consultations, it was argued that Member State should be allowed to choose the 
most appropriate system and it should be technically feasible for all products and producers 
and  must  allow  for  easy  authentication  by  enforcers.  A  multi-layered  system  on  different 
parts of the pack was suggested. 

Economic benefits 

The attainment of the reference level of benefits in this option is highly probable. 

Option  3/2  poses  no  evident  risks  to  attainment  of  the  reference  level  of  benefits.  Its 
particular  strength  is  higher  adaptability,  which  should  better  address  the  varied  risks  of 
counterfeiting. 

The affected stakeholder groups are the same as in option 3/1 

166  See Table 2. 
167  See Table 2. 
168  See item 6-2 in Section 7.5 of the Implementation Study, Annex 5.  

55 

 
 
                                                           
5.5.3.2  Social impacts 

For the same reasons as indicated in the above section on economic benefits, the attainment 
of the reference level of social benefits in this option is highly probable. 

The affected stakeholder groups are the same as in option 3/1 

6 

COMPARING THE OPTIONS 

The policy options presented above are compared against the criteria of effectiveness (i.e. to 
what  extent  they  fulfil  the  objectives  identified  in  section  3  and  allow  for  preventing  and 
discovering potential fraud  cases resulting in illicit trade) and efficiency (i.e. at what cost 
they do so). Particular attention is given to specific impacts of individual options on SMEs. 
The preferred options should take into account the need for minimalizing impacts on SMEs 
as far as possible within the general objective of establishing the systems of traceability and 
security features for tobacco products. 

In the case of trade-offs between effectiveness and efficiency, due regard is given to the fact 
that  the  estimated  benefits169  largely  outweigh  (more  than  twenty  times)  the  estimated 
costs.170 

6.1  Marking packages with a unique identifier (Issue 1a) 

Comparison of options for objective 1a: to ensure the marking of packs with a unique identifier whilst 
guaranteeing independence of the traceability system by appropriate assignment of roles and tasks to relevant 
parties  
POLICY OPTIONS 
1a/1: Industry 
operated solution 

EFFECTIVENESS 
MEDIUM – given the existing 
economic incentives for misusing the 
traceability system by economic 
operators and their employees. 

EFFICIENCY 
LOW to MEDIUM – the annualised costs 
are estimated at EUR 55.2 million. It also 
calls for considerable effort on the part of 
competent authorities with quasi-
permanent controls of the industry 
facilities.  
MEDIUM – the annualised costs are 
estimated at EUR 44.1 million. The 
involvement of an independent service 
provider in operating the production 
hardware may lead to liability issues and 
negatively impact the tobacco 
manufacturing processes and consequently 
their costs. 
MEDIUM to HIGH – the annualised costs 
are estimated at EUR 43 million. The 
involvement of an independent service 
provider is limited to the functions relevant 
for the system's overall integrity (i.e. 
generation of key parts of UIs and control 
over verification of UIs) and hence the 
risks of liability issues and negative 
impacts on the tobacco manufacturing 
processes are mitigated. 

1a/2: Third party 
operated solution 

HIGH – the system is better protected 
from potential misuse due to the 
involvement of an independent service 
provider. 

1a/3: Mixed solution 
(industry and third 
party) 

HIGH – the system is better protected 
from potential misuse due to the 
involvement of an independent service 
provider with respect to key functions. 

169  See Table 2. 
170  See sections 5.1 – 5.5 and Table 3. 

56 

 
 
 
 
                                                           
Impacts 
1- minimum 
2- medium 
3- high 
2 

SMEs specific impacts for objective 1a: to ensure the marking of packs with a unique identifier whilst 
guaranteeing independence of the traceability system by appropriate assignment of roles and tasks to relevant 
parties 
Policy options 

Comments 

1a/1: Industry operated solution 

1a/2: Third party operated solution 

1a/3: Mixed solution (industry and 
third party) 

3 

1 

SMEs may not have all competences to operate all 
tasks, in particular generation of UIs may be 
problematic.  
Presence of third party on the production lines may 
have a disproportionally high impact on SMEs. 
SMEs will be able to benefit from economies of scale 
created with the external generation of key parts of UIs.  

Option  1a/3  provides  for  the  best  combination  of  effectiveness  and  efficiency  and  is  the 
most proportionate option. It allows for the full attainment of objective 1a – independence 
of the system, keeping the potentially disruptive involvement of a third party in the tobacco 
manufacturing processes to the necessary minimum. Option 1a/3 ensures compliance with 
the  FCTC  Protocol  by  providing  authorities  with  full  control  over  key  functions  of  the 
system, in particular with respect to the generation of UIs. This option also minimises the 
costs  and  hence  has  no  excessive  effect  on  economic  operators.  Finally,  this  option  has 
minimised impacts on SMEs and high technical feasibility.  

In  sum,  this  option  provides  the  most  balanced  approach  considering  the  highly 
differentiated nature of concerns raised by stakeholders representing divergent interests. 

6.2 

Recording and transmitting data (Issue 1b) 

Comparison of options for objective 1b: to ensure effective surveillance and monitoring throughout the supply 
chain by determining the most suitable permitted time lag between an event occurrence and its recording and 
transmission to the data storage facility 
POLICY OPTIONS 
1b/1: Near real time 
reports 

EFFECTIVENESS 
HIGH – high visibility of events and 
accurate information in the system, 
allowing for immediate corrective 
actions. 

EFFICIENCY 
MEDIUM – the annualised costs are 
estimated at EUR 48.7 million. It is already 
practiced by big manufacturers, but as it is 
not current business practice overall, it will 
be very demanding for SMEs to implement 
in time. 
HIGH – the annualised costs are estimated 
at EUR 15.9 million. It is in line with the 
current business practice. It is not 
problematic in terms of technical roll-out.  
MEDIUM to HIGH – the annualised costs 
are estimated at EUR 15.9 million. 
However the costs may be higher due to a 
too long time lag in the transmitting of data 
and the related costs of local buffering of 
data.   

1b/2: One day time 
lag 

1b/3: One week time 
lag 

MEDIUM – it creates a limited period 
(up to a day) of blindness in the system 
impacting negatively on the accuracy 
of information.  
LOW – it creates a long period of 
blindness, i.e. impairs the accuracy of 
data and hence defeats the objective of 
the tracking and tracing system. 

SMEs specific impacts for objective 1b: to ensure effective surveillance and monitoring throughout the supply 
chain by determining the most suitable permitted time lag between an event occurrence and its recording and 
transmission to the data storage facility 
Policy options 

Comments 

1b/1: Near real time  

Potentially heavy burden as SMEs mainly operate with 

57 

Impacts 
1- minimum 
2- medium 
3- high 
3 

 
 
 
1b/2: One day time lag 
1b/3: One week time lag 

1 
2 

manual processes. 
In line with the current business practice. 
This option may require an IT investment in local data 
storage.  

Option 1b/1 provides for the best combination of effectiveness and efficiency in the long 
run.  However,  this  option  may  be  difficult  to  technically  implement  in  the  short  term,  in 
particular for SMEs.  Therefore, the system may need to be initially based on option 1b/2, 
while option 1b/1 would  be gradually introduced. A  necessary transition period may vary 
for  small  and  big  operators.  In  order  to  improve  the  effectiveness  of  option  1b/2,  it  will 
have  to  be  combined  with  strict  rules  as  to  the  recording  and  transmission  of  data 
concerning the dispatching events prior to the actual shipment.  

Overall, in the long run option 1b/1 is necessary to attain the full accuracy of surveillance 
information  and  therefore  the  possibility  of  immediate  incident  detection.  The  additional 
annualised  cost  of  almost  EUR  33  million  to  be  incurred  in  option  1b/1,  as  compared  to 
option 1b/2, is considered to be proportionate given the significant level of expected social 
and economic benefits.171 The latter may not be fully attainable under option 1b/2.  

6.3 

Processing, storing and accessing data (Issue 1c) 

Comparison of options for objective 1c:  to ensure effective surveillance and monitoring throughout the 
supply chain by identifying a system architecture which guarantees full and timely access by competent 
authorities and the Commission to the data recorded 
POLICY OPTIONS 
1c/1: Decentralised 
model as per 
manufacturer / 
importer 

EFFICIENCY 
HIGH – the annualised costs are estimated 
at  EUR  9.3  million.  It  provides  flexibility 
to  both  bigger  and  smaller  operators  in 
selecting data storage providers. 

EFFECTIVENESS 
LOW  –  the  system  may  not  be  fully 
transparent, the quality of data  may be 
the  ability  of 
compromised  and 
competent authorities to access the full 
set of data may be negatively impacted.  
LOW  –  the  system  may  not  be  fully 
transparent, the quality of data  may be 
the  ability  of 
compromised  and 
competent 
other 
authorities 
Member States) to access the full set of 
data may be negatively impacted. 

(of 

1c/2: Decentralised 
model as per 
Member State 

1c/3: Combined 
model 

HIGH  –  the  high  performance  and 
transparency  of  the  system  is  ensures 
through  a  central  copy  of  data 
facilitating access to the full set of data. 

the  annualised  costs  are 
MEDIUM  – 
estimated  at  EUR  23.5  million. 
It 
represents  the  most  complicated  routing 
logic  and  may  be  challenging  in  terms  of 
interoperability.  It  also  requires  a  much 
higher administrative effort in dealing with 
high number of data storage contracts. 
HIGH – the annualised costs are estimated 
at EUR 10.5 million. It provides flexibility 
to  both  bigger  and  smaller  operators  in 
selecting data storage providers. It includes 
a  central  copy  of  data.  It  will  also  lower 
administrative  burden  of  dealing  with 
enquiries  to  and  from  the  future  global 
information  sharing  point  under  the  FCTC 
Protocol. 

SMEs specific impacts for objective 1c:  to ensure effective surveillance and monitoring throughout the 
supply chain by identifying a system architecture which guarantees full and timely access by competent 
authorities and the Commission to the data recorded 
Policy options 

Comments 

Impacts 
1- minimum 
2- medium 

171  See Table 2. 

58 

 
 
 
 
                                                           
1c/1: Decentralised model as per 
manufacturer / importer 
1c/2: Decentralised model as per 
Member State 
1c/3: Combined model 

3- high 
1 

3 

1 

For SMEs active in manufacturing and importing there 
is a need to sign only one contract for data storage.   
For SMEs active in manufacturing and importing there 
is a need to sign multiple contracts for data storage. 
For SMEs active in manufacturing and importing there 
is a need to sign only one contract for data storage. 

Option 1c/3 provides for the best combination of effectiveness and efficiency. This option 
is  necessary  for  achieving  effective  monitoring  and  enforcement  by  authorities.  Other 
options  do  not  guarantee  this  to  the  extent  required.  The  additional  annualised  cost  of 
around  EUR  1  million  incurred  in  option  1c/3,  as  compared  to  the  least  expensive option 
1c/1,  is  considered  to  be  proportionate  given  the  significant  level  of  expected  social  and 
economic  benefits.172  The  same  results  would  not  be  attained  under  option  1c/1. 
Furthermore, option 1c/3 minimises the impacts on SMEs. 

Option  1c/3  creates  the  maximum  EU  added  value  by  facilitating  Member  States' 
surveillance  of  goods  in  transit  or  those  that  originate  from  another  Member  State.  In 
particular,  Member  States  will  be  able  to  access  a  full  data  set  relating  to  any  product 
recorded  in  the  system  without  undue  delays.  This  possibility  will  also  enable  competent 
authorities  to  more  easily  identify  suspicious  cross-border  activities  (e.g.  attempted 
recording of the same UIs in two or more Member States). 

Finally, as option 1c/3 will ensure that a copy of all information recorded under the EU’s 
traceability system is stored in one location, it is likely to greatly facilitate enquiries to and 
from the future global information sharing point, as specifically required under Article 8(8) 
of the FCTC Protocol. It is therefore the policy option most likely to contribute to achieving 
the specific objective of international interoperability. 

6.4 

Compatibility of components of the traceability system (Issue 2) 

Comparison of options for objective 2: To ensure an effective transfer of information throughout the 
distribution chain by an optimal selection of data carriers 
POLICY OPTIONS 
2/1: Single data 
carrier per level  

EFFECTIVENESS 
HIGH – the system will be 
interoperable and transfer of data is 
facilitated. 

EFFICIENCY 
HIGH – the annualised costs are estimated 
at EUR 34.8 million. It offers a certain 
degree of freedom based on a predefined 
data carrier per each packaging level.  
HIGH – the annualised costs are estimated 
at EUR 37.6 million. It offers a high degree 
of freedom on the basis of a pre-selected 
set of permitted data carriers. This option 
will best accommodate the needs of SMEs.  
MEDIUM – the annualised costs are 
estimated at EUR 45.4 million. 
Unstructured approach to data carriers will 
result in additional costs of adapting to a 
too broad range of data carriers and dealing 
with potentially less known solutions. 

2/2: Limited data 
carriers per level  

HIGH – the system will be 
interoperable and transfer of data is 
facilitated. 

2/3: Free system 
allowing any existing 
data carrier 

LOW – in case of the unawareness of 
economic operators or competent 
authorities concerning certain data 
carrier(s) in use, it may seriously 
undermine the system's interoperability 
and negatively impact transfer of data. 

172   Ibid. 

59 

 
 
 
 
 
                                                           
SMEs specific impacts for objective 2: To ensure an effective transfer of information throughout the 
distribution chain by an optimal selection of data carriers 
Policy options 

Comments 

Impacts 
1- minimum 
2- medium 
3- high 
2 

1 

3 

2/1: Single data carrier per level  

2/2: Limited data carriers per level  

2/3: Free system allowing any 
existing data carrier 

Medium level of flexibility that should enable SMEs to 
mitigate their installation/equipment costs 
High level of flexibility that should enable SMEs to 
minimise their installation/equipment costs 
It meets the requirements of SMEs active in 
manufacturing, but at the same time it represents a need 
for constant adaptations on the part of SMEs active in 
distribution.     

Option  2/3  is  the  least  favourable  option,  while  options  2/1  and  2/2  are  close  in  terms  of 
effectiveness and efficiency. However, option 2/2 provides for a higher degree of freedom 
for  economic  operators  and  is  therefore  considered  to  be  the  preferred  option.  Due  to  a 
higher  degree  of  flexibility  in  adapting  to  the  production  process,  option  2/2  further 
provides  for  minimised  impacts  on  SMEs,  which  under  option  2/1  would  be  exposed  to 
potentially higher installation and equipment costs. In comparison to option 2/1, option 2/2 
may also come with the unintended positive consequence of promoting market competition, 
which  would  likely  drive  innovation  in  the  area  of  data  carriers.  Option  2/2  also  avoids 
potential technical problems if a mandatory data carrier pre-selected for a given packaging 
level  under  option  2/1  does  not  meet  the  requirements  of  an  important  sub-type  of 
packaging  at  that  level.  Against  the  foregoing,  the  additional  annualised  cost  of  around 
EUR  3  million  incurred  in  option  2/2,  as  compared  to  the  least  expensive  option  2/1,  is 
considered to be proportionate.  

6.5 

Security features (Issue 3) 

Comparison of options for objective 3: to facilitate the authentication of tobacco products by an optimal 
selection of application methods for security features 
POLICY OPTIONS 
3/1: Printing or 
affixing 

EFFICIENCY 
MEDIUM to HIGH – the annualised costs 
are estimated at EUR 14.9 million.  

EFFECTIVENESS 
HIGH – it offers higher potential for 
harmonisation at the expense of lower 
adaptability to various security risks. 
HIGH – it offers slightly lower 
potential for harmonisation at the 
benefit of higher adaptability to various 
security risks. 

3/2: Printing or 
affixing or a 
combination of 
printing and affixing 

HIGH – the annualised costs are estimated 
at EUR 14.9 million. However, a higher 
level of efficiency is achieved due to 
increased flexibility as compared to option 
3/1, which may lead to lower costs for 
economic operators. 

SMEs specific impacts for objective 3: to facilitate the authentication of tobacco products by an optimal 
selection of application methods for security features 
Policy options 

Comments 

Impacts 
1- minimum 
2- medium 
3- high 
2 

1 

3/1: Printing or affixing 

3/2: Printing or affixing or a 
combination of printing and 
affixing 

Medium level of flexibility, which may affect SMEs' 
ability to acquire security features at the lowest cost. 
High level of flexibility allowing SMEs for acquiring 
security features at the lowest cost and better adapting 
to the differences in product material and packaging. 

60 

 
 
 
 
Option  3/2  provides  for  the  best  combination  of  effectiveness  and  efficiency  and  is  the 
most  proportionate  option.  It  results  in  a  higher  degree  of  efficiency,  due  to  increased 
flexibility, and hence may lead to lower economic costs for economic operators. As such, 
this option also minimises impacts on SMEs. 

6.6 

Summary of preferred options 

In conclusion, the optimal set of policy options for this initiative is found to consist of: 

  Option 1a/3 – adopting the mixed model of governance for the tracking and tracing 

system; 

  Option 1b/1 – requiring the economic operators involved in tobacco trade to report 
in  near  real  time  (this  requirement  will  be  subject  to  a  transition  period  and  more 
lenient approach to SMEs); 

  Option  1c/3  –  adopting  the  combined  model  of  data  storage  with  individual  data 
storages per manufacturer/importer and the central surveillance system  including a 
central copy of data; 

  Option 2/2 – introducing a limited variety of mandatory data carriers, where at least 

one of them has to be used; 

  Option  3/2  –  permitting  that  the  security  feature  can  be  added  to  the  unit  pack  by 

printing or affixing or a combination of printing and affixing.       

The  preferred  options  are  expected  to  deliver  reference  level  of  social  and  economic 
impacts  as  set  out  in  Table  2.  Moreover,  it  should  be  noted  that  in  particular  the 
combination  of  options  1b/1  (near  real  time  reports)  and  1c/3  (combined  model  of  data 
storage) are expected to provide for timely and efficient access to the traceability data for 
competent authorities.  

The  cost  implications  of  the  preferred  options  are  summarised  in  Table  4  below.  In 
addition, the impacts are also shown in terms of the estimated cost per unit pack. 

Preferred policy options 

1a/3: Mixed solution (industry and third party) 
1b/1: Near real time reports 
1c/3: Combined model 
2/2: Limited data carriers per level 
Total (Article 15 TPD) 
3/2: Printing or affixing or a combination of printing and affixing 
Total (Articles 15 & 16 TPD) 
Table 4: Overall cost implications 

Annualised cost 
(EUR million) 
43.0 
48.7 
10.5 
37.6 
139.7 
14.9 
154.6 

Cost per unit pack 
(EUR) 
0.001451 
0.001642 
0.000353 
0.001268 
0.004714 
0.000502 

In  total,  the  annualised  costs  of  the  present  initiative  are  estimated  at  EUR  155  million, 
including  EUR  140  million  for  the  traceability  system.  The  overall  costs  compare  very 
favourably  to  the  expected  annual  social  and  economic  benefits  of  EUR  3.8  billion  (see 
Table 2), even if the achievement of the full benefits should not be expected immediately 
after  the  launch  of  the  system.173  The  costs  amount  to  a  small  fraction  of  the  estimated 
benefits.  The  sensitivity  checks  show  that  even  if  the  expected  costs  of  the  system  were 

173  The  Implementation  Study  tested  the  sensitivity  of  its  cost-benefit  analysis  and  in  all  scenarios  the 

initiative shows a high positive internal rate of return (IRR). 

61 

 
 
 
 
                                                           
increased by a factor of 2 or 3 and the benefits were halved, the overall outcome would be 
still  positive  and  the  expected  additional  costs  per  tobacco  unit  packet  would  remain 
minimal. It should be also noted that in terms of legal revenues, the system is expected to 
partially finance itself, given  that it  will  generate  EUR 59 million in the increased profits 
for legal economic operators.  

The costs can be further split among the affected stakeholder groups. It is assumed that the 
economic operators will incur the bulk of the costs. The costs of the economic operators are 
estimated  at  EUR  151  million.  The  competent  authorities  are  expected  to  cover  the 
remaining amount of EUR 4 million.174 Table 5 below shows the distribution of both annual 
costs and benefits among the affected stakeholder groups. 

Social benefits 
219 
n/a 

Affected stakeholders 
Competent authorities 
Economic operators, incl.: 
- manufacturers/importers 
- distributors/wholesalers 
- retailers 
General public 
Total 
Table 5: Annual costs and benefits per stakeholder group (in EUR million) 

1497 
1716 

Economic benefits 
2029 
59.1 
45.4 
5.8 
7.9 
n/a 
2088 

Economic costs 
4.1 
150.6 
78.9 
71.6 
n/a 
n/a 
155 

The unit cost of the traceability system is below half a eurocent. It is unlikely to translate 
into any meaningful increase of the prices of the tobacco products manufactured in the EU.  
Therefore,  the  costs  of  this  initiative  are  not  expected  to  have  any  negative  impact  on 
international trade175 and the competitiveness of the EU tobacco industry.176  

Given  the  very  low  unit  costs  of  traceability  and  security  features  (even  after  addition  of 
taxes and excise duties) 177, the initiative is also unlikely to affect the existing consumers of 
legal products. Even if niche producers who may incur a higher increase in costs per unit 
decide  to  carry  over  these  costs  to  the  consumers,  it  will  only  increase  the  social  and 
economic benefits given the fact that the value added of the tobacco industry is lower than 
the sum of the social and economic costs of tobacco consumption.178  

174  The costs for the competent authorities are assumed to be spread out among all Member States. However, 
the  competent  authorities  of  the  countries  of  manufacturing  are  expected  to  incur  proportionally  higher 
costs.   

175  It is recalled that the impact on trade was already analysed in the TPD Impact Assessment.  
176  The  costs  of  aligning  the  security  features  with  the  TPD  have  no  impact  on  the  international 
competitiveness of the EU tobacco industry, because the requirement of applying a security feature applies 
equally to EU and non-EU products destined for the EU markets. 

177  Average post-tax unit price is estimated at EUR 4.38.  
178  See Annex 5 of TPD Impact Assessment. 

62 

 
 
 
 
 
                                                           
7 

MONITORING AND EVALUATION 

Within  the  currently  valid  legislation,  several  elements  of  monitoring  and  evaluation  are 
foreseen: 

Under Article 28 of the TPD the Commission is required to submit a report to the European 
Parliament and to the Council no later than five years from 20 May 2016. This report shall 
focus  on  the  application  of  the  Directive's  main  provisions.  The  Commission  intends  to 
consult  with  Member  States  during  its  preparation  and  they  will  in  turn  be  requested  to 
provide all relevant available information. 

As the systems of traceability and security features provided for under Articles 15 and 16 of 
the TPD will have become applicable to cigarettes and roll-your-own tobacco products by 
the  time  of  submission  of  this  report,179  monitoring  and  evaluation  of  the  application  of 
these provisions  will be included. Member States will be asked to share their experiences 
with  the  system,  e.g.  how  many  fraud  investigations  were  supported  with  the  intelligence 
delivered by the system.  

In  addition  to  the  above-mentioned  report,  general  monitoring  of  the  traceability  system 
will  be  facilitated  through  access  to  the  data  storage  facilities  for  the  Commission  and 
national competent authorities as foreseen under Article 15(8) of the TPD. Via this access, 
it will be possible for authorities to gain an overview of compliance with the provisions of 
Article 15 across the supply chain and the functioning of the traceability system as a whole. 
Additionally,  Article 15(8) sets out  that an  external auditor, proposed and paid for by the 
relevant  tobacco  manufacturer  and  approved  by  the  Commission,  shall  submit  an  annual 
report to the competent authorities and the Commission relating to the data storage facility 
in question, assessing in particular any irregularities in relation to access to the data stored 
by that facility.  

Furthermore  certain  indicators  should  be  developed  to  evaluate  the  system's  effectiveness 
over time, such as how often the system is consulted by the competent authorities or how 
often  the  system  generates  alerts  pointing  at  potential  irregularities,  which  may  serve  as 
proxies  for  the  system's  usefulness  in  fighting  illicit  trade.  These  should  notably  deliver 
insights into the achievement of the objectives and allow collection of quantified data and 
information on the state of implementation.  

For  the  specific  objectives  (to  ensure  effective  tracking  and  tracing  for  tobacco  products 
within the EU; to ensure an effective system of security features for tobacco products), the 
following indicators could be employed: 

  Data recorded and stored pursuant to Article 15;  
  Data derived from legal sales and/or fiscal revenues; 
  Comparison  of  data  recorded  and  stored  pursuant  to  Article  15  with  data  derived 

from legal sales and/or fiscal revenues from tobacco products. 

For  an  evaluation  of  the  wider  context  and  the  longer  term  impact  of  the  systems,  the 
following indicators could be used:  

179  The provisions of Article 15 and 16 of Directive 2014/40/EU shall apply to cigarettes and roll your own 
tobacco from 20 May 2019 and to tobacco products other than cigarettes and roll-your-own tobacco from 
20 May 2024.  

63 

 
 
                                                           
  Smoking  prevalence  rates  in  the  EU,  which  could  be  assessed  by  surveys  and 

market monitoring exercises, e.g. regular Eurobarometer surveys;180 

  Public  perceptions  of  illicit  tobacco  trade,  assessed,  for  example,  by  Special 

Eurobarometer surveys;181 
Illicit tobacco market trends in the EU, assessed by data from commercial providers 
(e.g. Euromonitor). 

 

On this basis, it will be possible for competent authorities and/or the Commission to map 
changing  trends  in  tobacco  product  consumption.  This  will  allow  for  the  effect  of  the 
expected reduction in the availability of illicit tobacco products over time to be quantified. 
Such  a  quantification  attempt  may  take  the  form  of  a  natural  event  analysis  on  the  cross-
country  panel data set, once  the sufficient  number of observations is  collected. Subject to 
the existing limitations in studying illicit activities, the analysis may test the effectiveness 
of the system in combating the illicit trade in tobacco.     

180  Eurobarometer  surveys  have  been  carried  out  in  the  EU  since  2003  to  assess  the  attitudes  of  Europeans 
towards tobacco, including the prevalence of tobacco use, and to explore the motivations for smoking. The 
latest  Eurobarometer 
in  March  2017: 
http://ec.europa.eu/commfrontoffice/publicopinion/index.cfm/ResultDoc/download/DocumentKy/79003. 
181  http://ec.europa.eu/anti-fraud/sites/antifraud/files/eurobarometer_report_illicit_tobacco_trade_en.pdf.      

(458)  was  based  on 

fieldwork  carried  out 

the 

This survey aimed to uncover and explore the attitudes and opinions of Europeans in regard illicit tobacco 
trade 

64 

 
 
 
 
                                                           
List of Annexes 

Annex 1:  
Annex 2:  

Annex 3:  

Annex 4:  
Annex 5:  

Procedural steps – Consultation and External Expertise 
Summary of Stakeholder comments in the context of the targeted 
stakeholder consultation on the implementation of an EU system for 
traceability and security features  
Summary of Stakeholder comments in the context of the public consultation 
on the implementation of an EU system for traceability and security features 
Relationship between issues, objectives and policy options   
Implementation Study – Technical evaluation of policy options (a part of 
Interim Report 2) 
Implementation Study – Cost-benefit analysis (a part of Interim Report 2)  
Reference level of social and economic benefits 

Annex 6:  
Annex 7:  
Annex 8:   Who is affected  
Annex 9: 
Annex 10:  
Annex 11: 

Regulatory Scrutiny Board  
Summary of third country implementation of traceability systems 
Bibliography  

65