Imperial Brands PLC

…1 of 8 IMB submission to the European Commission Call for Evidence: Reform of the Union customs legislation 19 September 2022 Company background Imperial Brands PLC (IMB) is a FTSE 100 business headquartered in Bristol in the UK and is the parent company of a dynamic international business specialising in tobacco and non-tobacco products. Our PLC name reflects the breadth of our brands’ focus across four distinct entities: Imperial Tobacco, ITG Brands, Fontem Ventures and Logista. Alongside our core tobacco brands, our commercial focus is also on our Next Generation Product (NGP) portfolio. These NGPs offer several alternative choices for those adult smokers who are looking to transition to a potentially less harmful alternative. Included in our portfolio is blu, a market leader in the vape category, and Pulze - our heated tobacco offering.

Included in our portfolio is blu, a market leader in the vape category, and Pulze - our heated tobacco offering. Introduction We welcome the opportunity to contribute to the European Commission’s (Commission) Call for Evidence on the reform of the Union customs legislation. In the following sections, we would like to draw the Commission’s attention to certain issues arising from the in the implementation and application of the current legislation. These problemns are of concern for our company and we would like to propose solutions potentially contributing to the process of modernisation of the Customs Union. Our submission will focus on the challenges created by the growth of e-commerce such as new distribution channels for illicit and counterfeit goods.

…the challenges created by the growth of e-commerce such as new distribution channels for illicit and counterfeit goods. In this regard, we call on the Commission to consider the removal of the customs duty ‘de Minimis’ threshold of €150 for e-commerce to counter new illicit trade channels. Furthermore we encourage the Commission to evaluate, in collaboration with the private sector, new and emerging technologies (such as blockchain and artificial intelligence (AI)) that could support the Customs Union in reducing the security risks associated with e-commerce.

…intelligence (AI)) that could support the Customs Union in reducing the security risks associated with e-commerce. Finally, we call on the Commission to address non-harmonised application by Members States of certain non-binding rules under the current Union Customs Code (UCC) and consider more closely which rules should be incorporated into legally binding implementing and/or delegating acts to facilitate uniform application by the Member States. We hope that this submission will contribute to the ongoing work of the Commission on the reform of the Union customs legislation. Ref. Ares(2022)6468002 - 19/09/2022 2 of 8 Cross-Border E-Commerce The growth of global retail e-commerce over the past years created new opportunities for the global economy such as new consumption behaviours, jobs, and methods of trade.

…years created new opportunities for the global economy such as new consumption behaviours, jobs, and methods of trade. Following the global lockdown measures in the wake of COVID-19, consumers’ reliance on e-commerce has surged, doubling the value of cross-border e-commerce in Europe has doubled in value from €108 billion to over €220 billion between 2019 and 2021.1 The fastest growing categories of Consumer-Packaged Goods (CPG) sold online in the EU are packaged food, soft drinks, and excisable goods such as tobacco. The proliferation of CPGs via e-commerce have led to serious supply chain challenges.

…excisable goods such as tobacco. The proliferation of CPGs via e-commerce have led to serious supply chain challenges. Firstly, the EU customs authorities and national postal operators still rely on labour-intensive manual clearance of packages which is both inefficient and prone to human error and makes it impossible for customs authorities to check every single consignment.2 Secondly, poor quality of information for the small, low-value consignments delivered by post or express courier, inaccurate data (due to misdeclarations) and the lack of adequate monitoring technologies have made the CPG trade, and particularly the trade in excisable goods, a target for fraud, counterfeiting and illicit trade.

…the CPG trade, and particularly the trade in excisable goods, a target for fraud, counterfeiting and illicit trade. According to the OECD, law enforcement agencies have indicated a significant growth in the use of both postal and courier streams by criminal networks as a delivery method for illicit trade.3 The changing trade environment due to the rapid expansion of cross-border e-commerce is impacting all EU Member States and a more inclusive, proactive and innovative collaboration between the public and private sectors is required to overcome the various challenges. While several measures currently in place have helped Member States improve their awareness and give the right priority to risk management in e-commerce and the trade in excisable goods, there is still a need to further strengthen national customs authorities’ actual implementation of risk management activities.

…still a need to further strengthen national customs authorities’ actual implementation of risk management activities. Furthermore, a closer cooperation with businesses can help authorities determine innovative solutions to address the many challenges to customs risk management and to develop a targeted approach to manage the growth in e-commerce traded goods. Excisable Goods: challenges for companies and governments Companies trading in goods with high excise duties, such as tobacco, vapour products, nicotine pouches, alcohol and energy products are a major target for illicit trade which comes both from the smuggling of products across borders without the payment of taxes (contraband) and the illegal manufacturing of such products, often with illegally produced trademarks (counterfeit).

(contraband) and the illegal manufacturing of such products, often with illegally produced trademarks (counterfeit). The influx of contraband and counterfeit leads to losses of excise, VAT, and import tax revenues for EU Member States as well as losses in profits for businesses. EU authorities and the industry have been taking steps to collectively address this challenge. For instance, in 2010 the EU law enforcement agencies have coupled their efforts with policies and technologies provided by the tobacco industry to reduce the number of cigarettes illegally entering the EU.4 However, the reduction of smuggled cigarettes across EU borders was replaced by a growth in the illegal manufacturing of counterfeit cigarettes, possibly manufactured within the EU itself.

…by a growth in the illegal manufacturing of counterfeit cigarettes, possibly manufactured within the EU itself. The latest KPMG ‘Project Stella’ report published in June 2022, shows that the majority of illicit cigarettes consumed within the EU do not comply with EU health warnings, legal format or regulations.5 As these products have not been subjected to the same level of quality checks during their manufacturing process, they may pose a significant risk to consumer health and safety risk.

…quality checks during their manufacturing process, they may pose a significant risk to consumer health and safety risk. 1 OECD, “Connecting Businesses and Consumers During COVID-19: Trade in Parcels”, 2020, Link 2 World Customs Organization, “WCO Study Report on Cross-Border E-Commerce”, 2017, Link 3 OECD, “Role of Small Shipments in Illicit Trade and Its Impact on Enforcement”, 2018, Link 4 European Commission, “Contraband and counterfeit cigarettes: frequently asked questions”, 2010, Link 5 KMPG, “Illicit cigarette consumption in the EU, UK, Norway and Switzerland – 2021 Results”, Jun 2022, Link 3 of 8 There have been several instances where counterfeits have hampered industry’s e-commerce operations for NGPs in the EU market. For example, in April 2021, Italian customs officers confiscated two illegal shipments of vape products and its consumables from the UK.

…2021, Italian customs officers confiscated two illegal shipments of vape products and its consumables from the UK. These counterfeit devices, which involve inhalation, have not passed the same stringent quality controls as their genuine counterparts and pose a serious health and safety hazard to uninformed consumers. Unregulated and illegal vape consumables seized at borders often contain high traces of heavy metals, such as aluminium and lead, that exceed the legal limits. Consumers expect that the products they purchase in the EU, including via e-commerce channels, comply with all safety requirements in accordance with EU-wide and national legislation.

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