Quebec has been hard hit by the contraband market and, given its experiences with the Warrior’s Society, remains deeply concerned about the political instability the Black Market can engender. In November 1993, the Quebec government proposed a cut in cigarettes taxes to Ottawa. The object is to reduce prices to about $23 a carton, a point where legal cigarettes can fairly compete with contraband products. Moreover, as Quebec faces the loss of all tobacco revenues, lower cigarette prices will allow the Provincial government to garner some income from tobacco. The plan has merit. However, the anti-smoking lobby believes that lower prices will encourage more people to smoke and is hesitant to see the reversal of their high-tax, high-price strategy.

Between February and April of 1992, the Federal Government imposed an $8 Export Tax per carton on Canadian cigarettes. This undercut the smuggler’s profits for a short time, but the presence of Native manufactured cigarettes and American cigarettes increased almost immediately. DK’s and Putter’s appeared within two weeks of the start of the tax — which suggests they had been preparing for the situation in advance. These measures did not fill the gap caused by the export tax, but given time they certainly might have. American distributors also knew the export tax was coming and stockpiled supplies in preparation for it. They now tend to keep high inventories against a reimposition of the tax.

The anti-smoking lobby remains ready to demonize the tobacco companies and asserts that a renewed tax will cripple the Black Market problem. They have valid points — chief of which is that the tobacco companies continue to profit from cigarettes which area exported to the US and then smuggled back into Canada. They also point out that the brief life of the Export —Tax reduced cigarette export to the U.S. from 730,000 cartons in February 1992, to 146,000 in March and 252,000 in April. When the export duty was removed, exports jumped to 958,000 and then climbed to over 1,000,0000 in June and have increased ever since.

In January 1994, the Canadian Cancer Society launched a comprehensive report aimed at reimposing the Export Tax on cigarettes. It was endorsed by the Non-Smokers’ Rights Association and the National Campaign for Action on Tobacco. The called for increased taxes and increased spending to solve the contraband problem. These include a windfall profits tax on manufacturers to recover gains arising from contraband, a renewal of excise taxes on cigarettes bound for the US, reducing duty-free exemptions for travellers and enhanced controls on packaging to allow contraband to be traced to wholesale suppliers.

These are fair points, but are not entirely valid. The tobacco companies are legitimate businesses — even if their product is increasingly under attack. They have law-abiding suppliers, employees and shareholders who depend on them and if someone is going to supply the Canadian market, one might argue that it might as well be them. The main manufacturers are, however, foreign owned and can produce popular Canadian brands outside Canada if taxed out of the free market. Moreover, if taxes remain high, less reputable competitors are poised to take advantage.

An aside: The Silks are working on expanding their production capabilities in the expectation that high taxes will remain on cigarettes. Their plants are expanding and they are placing orders against the 1994 tobacco crop. Organized crime will continue to expand its role in smuggling with counterfeiting and the smuggling of American brands. The new Six Nations company, Grand River Enterprises (GRE), is preparing for the production of Sago and Wind Sail cigarettes. In the usual way of the Silks, they wrap themselves in tradition by calling themselves the "People of Turtle Island" and assuring outsiders that Iroquois chiefs support the company, elected Chief Steve Williams and apparently one of the estimated 30 traditional chiefs on Six Nations do.

The Silks are asking for government licences and promise to use the profits from GRE to support the community — based on previous experiences with Silk profit sharing, nothing is likely to actually happen. Their pledge to share revenues cannot be taken on the word of the company alone. Moreover, the GRE Brief states that they will not pay taxes or open their books to anyone from off the Reserve.

Even if their licences are refused, Grand River Enterprises is already in production and would present a fait accompli to both outside government and the community. Two of the Silks behind the project are Peter and Jerry Montour, some Reserve residents suspect they have connections to the Mafia in Hamilton. Another partner is Kenny Hill, nephew and partner of Reg Hill. The brief mentions Six Nations businesses which helped build the factory, but typically neglects to mention they are owned by close relatives of Reg Hill, Steve Bomberry, Joe Anderson and other Silks.

High tax-driven prices are a form of social engineering and as such, will be enthusiastically undermined by many citizens — eve some non-smokers. This was the experience in Prohibition, and remains an element of the demand for contraband cigarettes now. Artificial prices also fly in the face of the natural laws of the market. So long as there is a demand for tobacco, it will be filled and people will pay the lowest reasonable price for it. The Black Market is, in many respects, an assertion of the basic laws of economics and human behaviour. Moreover, the morality of the high-price, high-tax strategy is reversed by its rejection. Resort to the Black Market threatens the social contract whereby the citizens give their consent to be governed. By participating in the Black Market that consent is conditionally withdrawn. For a government to continue the conditions which created the market is to invite a more general withdrawal of consent.

There is another practical issue to using high prices to control consumption. After 30 years of clear warnings about the hazards of smoking, it must be assumed that people who continue to smoke are cognizant of the risks they take. The risk and assumption of responsibility for smoking are theirs an theirs alone. Yet high tax-driven prices for cigarettes endanger other people. For example, if taxes remain high while imports diminish, robberies of stores will increase and more clerks in convenience stores will have their heads blown off in robberies. They didn’t ask to assume the risk for the smoking habits of others. If Natives continue to enjoy their tax-free status for cigarettes, the disruptions caused by the Warrior’s Society and organized criminals will continue - especially at Akwesasne and increasingly in Six Nations. A majority of Mohawks didn’t ask to have their lives disrupted by crime, and when they tried to resist they paid for it.

There is no reason to believe that many of these proposed measures will succeed. Smugglers are resourceful and already involved in illegal activities — any loophole in regulations will be exploited. For example: The Canadian Cancer Society proposes packaging requirements that would allow contraband to be traced back to New York wholesalers and that export duty rebates be allowed for legitimate dealers. The results of such regulations are predictable: A New York wholesaler will place his orders and receive his cigarettes, he will sell them to a seemingly- reputable dealer and receive his rebate. The dealer will probably be a temporary numbered company which will re-sell to another such company and then to the Akwesasne smugglers. By the time Canadian investigators unravel the trail, at least two or three other ones will have formed. The wholesaler will appear to be totally innocent of any wrong-doing.

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John Thompson is President of the Mackenzie Institute which studies political instability and terrorism. He can be reached at: mackenzieinstitute@bellnet.ca