An economic cancer

NationalPost.com – Opinion/Editorial
Saturday, Sept. 18, 2010

With one in four Canadian aboriginal children living in poverty, and over 50% of native people on reserve unemployed, aboriginal communities understandably are desperate to raise their standards of living. Unfortunately, for a number of reserves in Quebec and Ontario, the road to self-sufficiency has taken an illegal turn.

In a National Post investigative series beginning today, journalist Tom Blackwell explores the hidden world of the contraband tobacco business. As he reveals, its impact both on and off native reserves is detrimental to public health, safety and, ultimately, the communities themselves.

What fuels the demand for bootleg tobacco? High taxes imposed by federal and provincial governments. As of July 1, the price of a legal carton of 200 cigarettes, including tax, varied between $70 and $106, depending on the provincial or territorial tax rate. Meanwhile, the same quantity of illegal cigarettes could be purchased for as little as $6.

The greater the price discrepancy between legal and illegal tobacco products, the more attractive the latter become. In 2001, under pressure from the anti-smoking lobby, governments raised taxes, with predictable results: Between 2001 and 2008, the sale of legal cigarettes declined more than the smoking rate: 31% vs. 25%. According to a study published by the Fraser Institute in July, a 10% increase in the price of tobacco products can reduce lawful cigarette sales by 3% to 10%.

According to research compiled for Imperial Tobacco Canada, fully one in three cigarettes bought in Canada were contraband as of 2008–up from one in six just two years before.

Contraband smuggling has been linked to drug trafficking and even terrorism — drawing in organizations from the Hells Angels to the Russian mafia to Hezbollah. Criminal activity is not confined to reserves; contraband cigarettes can be purchased under the counter from urban retailers, and through dealers at coffee shops and schoolyards. Meanwhile, legitimate retailers lose business — and go out of business — because of the illegal competition.

The most serious impact may be on public health. Illegal tobacco products are readily affordable to children who might otherwise have difficulty procuring them from a legitimate retailer. Research commissioned by the Canadian Convenience Stores Association in 2009 revealed that 30% of cigarette butts collected near Ontario high schools, and 45% of those collected near Quebec schools, were from illegal cigarettes.

What are the solutions to this problem? Groups such as the Ontario Korean Businessman’s Association have called for a tax cut as well as greater penalties for dealers and smugglers. The tobacco industry would like to see a greater emphasis on law enforcement on the supply end; but also, on the demand side, it suggests a First Nations tobacco tax, imposed and collected by reserves, to level the pricing playing field between legal and illegal products.

One thing is certain: the federal government’s response to date has been completely inadequate. In May, Public Safety Minister Vic Toews announced the creation of an RCMP-led contraband tobacco unit, sniffer-dog teams in Montreal and Vancouver, and a public awareness campaign about the impact of buying illegal cigarettes. But — possibly fearing another Oka crisis–the state has made no effort to shut down illegal tobacco manufacture and sales on reserves.

The state’s failure to tackle this problem makes it effectively complicit in the illegal tobacco trade. Allowing criminal activity to flourish unchecked sets a dangerous precedent and creates an unacceptable double standard between native and non-native communities. When ordinary citizens drive through native reserves and see illegal tobacco operations thriving out in the open, it reinforces the idea that these communities are nothing but Third World outlaw zones. Aboriginal children receive the same message: Why get an education when you can buy a mansion by selling illegal smokes?

The federal government needs to act in both the short and long term. Effective immediately, it should enforce the law against illegal tobacco products, as well as lower tobacco taxes. In the long term, it should reform the Indian Act to empower aboriginal Canadians to start legitimate businesses instead of resorting to crime. A first step would be to increase aboriginal access to capital, by allowing natives to own real property outright, which they could then use as collateral.

Finally, aboriginals should be encouraged to move to areas of the country that offer jobs and higher education — so they are not relegated to dead-end ghettoes where the only business opportunities are illegal. The fact that illegal smoke shacks have become the defining landmark of many aboriginal reserves shows that the dream of turning these areas into culturally authentic native utopias has gone up in smoke.

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