Point of Information

Time to Revisit "Sin-Tax Failure"

In early 1994, the Mackenzie Institute published "Sin-Tax Failure", a definitive exploration of the trade in contraband tobacco in Canada and its consequences. Even if we say so, we thought it was a good study and it did get cited in Parliament. We have also been told (unofficially) that Prime Minister Chretien - usually notorious for preferring single sided briefing sheets - read it after he learned that one of his own staffers was providing contraband cigarettes inside the PMO. The story is probably like most apocryphal ones; even if it isn't true, one hopes that it is.

The 1994 study had some unkind things to say about a number of figures in the Mohawk community, who by and large deserved it at that time, and we then harbored some deep suspicions about Grand River Enterprises (GRE) - a new company on the Six Nations Reserve that intended to manufacture cigarettes while taking some advantage of aboriginal entitlements.

Fourteen years is a long time and some things remain constant, while others can certainly change.

First, the market in contraband cigarettes is back with a vengeance as a consequence of excessive taxes and duties designed to inhibit the behaviours of those who continue to smoke. Then, as now, this is a strategy of failure that forgets an old truth: So long as a demand exists, somebody will supply it at a reasonable cost. If legal product is too expensive and too regulated, contraband product will invariably appear.

Secondly, a variety of actors have appeared to take what profit they can out of the situation. These will range from individuals working to benefit themselves, to organized criminal societies, and worse - particularly given the growing linkages between criminality and fundraising for terrorist groups. In the United States, there have been three cases (so far) where individuals associated with Hizbollah or al Qaeda have been moving contraband cigarettes and using some of the proceeds to benefit terrorism.

What is different this time are some of the sources of cigarettes that supply the contraband market. A bewildering array of counterfeit packages have appeared in Canada and the US, often mimicking those of responsible licensed manufacturers; as have strange brands from Asia and Latin America. Some carry the required legal health warnings, many others don't. Some cigarettes represent even worse hazards to the consumer than might be expected, others could harbor fungus and microbes that are dangerous to our agricultural industries.

One surprise to the Institute so far, was the development of Grand River Enterprises over the past 14 years: Since 1994, they have become a major employer in the Niagara Peninsula; cooperate fully with all Canadian laws and regulations; and become a large well-established corporation. Among other things, they not only provide quality cigarettes for First Nations communities, but also have contracts to supply the Canadian military (and those of some of our Allies). All in all, here is a major First Nations business success story. However, what should have been no surprise is that the contraband industry is now victimizing GRE.

GRE products are now among those being counterfeited or mimicked by unlicensed producers and hawked in a variety of places. For example, this writer recently encountered someone selling "Red Sagoes" on the streets of Toronto; GRE has a well- established brand called "Sago", not "Red Sago". Some outlets on First Nations reserves also have a habit of selling bulk supplies intended for the Aboriginal market to other parties. Given the low priority the contraband trade currently has for law enforcement, there may be little that licensed responsible producers can do to protect themselves and their reputations.

Some American officials may be up in arms over the remote connection between Hizbollah and GRE that was suggested in a May 2008 story in an obscure newspaper called the Epoch Times. The facts are these: GRE manufactures cigarettes and distributes them to merchants on native reserves. Some merchants are irresponsible and divert product (perhaps from GRE, but almost certainly including cheaper and more attractive counterfeits) to contraband dealers. So far, three -- out of hundreds, if not thousands -- of contraband dealers have been linked to terrorism. To take these facts and suggest that a corporation like GRE backs Hizbollah is ludicrous.

However, this situation does clearly indicate that a brand new exploration of the contraband market is necessary; who else could undertake it but the Mackenzie Institute?

The Mackenzie Institute

The Institute was formed in 1986 to provide research and comment on such diverse subjects as terrorism, organized crime, political extremism, propaganda, conflict and other such matters. It does not shy away from controversy.

The Institute holds to the proposition that our democratic institutions need to be defended and enhanced, and works to do what it can to protect the stability of Canadian society.

Those who support its purposes are invited to become Friends of the Institute, and those who contribute $60 (or more) to it, receive its publications for the next twelve months.

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