1.7. Tobacco Trade Earnings

The data on tobacco export and import for 1985-1991 and for 1992-2000 are presented respectively in Table 1.2 and Table 1.9.

Table 1.9. Balance of tobacco foreign trade in Ukraine in 1992-2000

Cigarettes

In 1985-1991, export and import was regulated by the state. During those years, the cigarette export-import balance for Ukraine was positive, and the annual export was on average 4 billion more thanimport. However, the general economic crisis after the collapse of the Soviet Union caused decline in both export and import. In 1993-1996, the legal import of cigarettes was rather low, while smuggling was very high. Cigarette export figures are rather high, but some exporting (in 1996 – 35%) was done at so-called “davalnitski” schemes. It means that some foreign firm supplies raw tobacco to a certain tobacco factory, and the cigarettes produced from this tobacco are sold to the same firm for a special price. In these occurrences, some taxes were not paid. This type of scheme encouraged the export of cigarettes, while the government received almost nothing. In 1997, these schemes were canceled and the export of cigarettes decreased and then increased annually. In 2000, the export was almost 7 billion pieces, but it has reached neither the average level in 1985-1991 (13 billion), nor the average level in 1993-1996 (9 billion). In 2001 the export decreased to 3 billion pieces. Cigarettes are exported mainly to former USSR countries (97%, Fig. 1.9). The main exporters of cigarettes are TTC (Reemtsma, JTI and Philip Morris).

The highest level of import was in 1997-1998, when, according to estimates, the level of smuggling was the lowest. In Soviet times, the main importer of cigarettes into Ukraine was Bulgaria. In 1997-2000, cigarettes were imported to Ukraine mainly from the USA (60% on average by value). The import share of cheap cigarettes from Eastern European countries declined by 20% in quantity (8% by value) to less than 1% in 2000 (see Fig. 1.10), while the EU countries share increased to 43%.

Raw tobacco

While Ukraine needs more raw tobacco than it can produce, some Ukrainian tobacco is exported. In recent years, the raw tobacco export from Ukraine has highly increased, reaching 5,000 tons (which is more than is grown in Ukraine). It means that some raw tobacco is re-exported. Raw tobacco is mainly exported from Ukraine to neighboring CIS countries (Russia, Moldova and Belarus) (Fig. 1.11).

Ukraine annually imports about 40-50 thousands tons of raw tobacco. The main country of raw tobacco import is Germany. Among the top 12 raw tobacco importers to Ukraine are the USA and other EU countries such as Italy and Greece, and only one former USSR country - Kyrgyzstan.

Foreign trade balance

Before 1996, the general tobacco trade balance for Ukraine could be both positive and negative. Up until 1996, it had been negative. In 1996-2000, the combined import spending exceeds export earnings by 525 million $US (Table 10), which is 100 million more than the tobacco excise tax revenue for the same period. The negative balance is mainly caused by the following factors: 1) Ukrainian factories import most of the raw tobacco; 2) the price of imported raw tobacco and cigarettes exceeds the price of exported ones; 3) in recent years tobacco smuggling into Ukraine exceeds the smuggling out of Ukraine; 4) facts supplied by pseudo-export (when cigarettes are declared as exported and excise tax is not paid, while actually they are sold within the country in the black market) are revealed. During the last two years the balance has been improving, but it is hard to expect that it will be positive in the near future.

1.8. Tobacco control policies and their implications