National Post

Wednesday, December 22, 1999

No smoking gun

Ottawa is demonizing the tobacco industry yet again. Yesterday, Anne McLellan, the Justice Minister, announced a $1-billion (US) lawsuit against RJR-Macdonald, related cigarette manufacturers and the Canadian Tobacco Manufacturers' Council for conspiring to avoid Canadian taxes. At issue is the increase in cigarette smuggling from the U.S. that followed the dramatic hikes in tobacco taxes in the early 1990s. And while an RJR-Macdonald subsidiary and employees have been found guilty in the U.S. of evading duties, the case is far less clear from a Canadian standpoint.

To begin, what law prevents Canadian manufacturers from exporting their products? Ottawa's contention that the cigarette manufacturers had no right to ship their goods to the U.S. forms the nub of the lawsuit. Further, the Tobacco Manufacturers' Council is named in the suit because it allegedly worked to divert the government's attention by agreeing to co-operate with the RCMP in combatting smuggling, which seems a rather spurious complaint. Rather than admit that the broad public acceptance of smuggled cigarettes was the logical reaction of Canadian smokers to a sharp increase in taxation, Ottawa has chosen to vilify cigarette companies. The tobacco industry "cannot and will not be allowed to frustrate Canadian health policy," Allan Rock, the federal Health Minister, sternly declared at a joint press conference with Ms. McLellan.

Curiously for a case supposedly about the ability of the Canadian government to exert sovereignty in matters of taxation and health policy, it will be heard in a foreign country, specifically the U.S. Federal Court in Syracuse, N.Y.

Why? The chance for an outrageous financial settlement is much greater in the U.S. The tobacco industry has made deal after deal to assuage the concerns of North American governments. Yet each successive arrangement merely emboldens governments into further, greedier, attempts to grab tobacco profits.

Paradoxically, the ultimate result of this latest legal action could be an increase in smuggling and the de-Canadianization of the tobacco industry. Higher taxes and massive legal settlements will only serve to push up the cost of smoking, giving Canadians even more reason to buy black-market smokes. The same developments could also encourage cigarette manufacturers to set up shop offshore to free themselves from a federal government that plainly cannot kick the habit of raising taxes.

It is clearly wrong for tobacco companies to knowingly evade duties. But there is nothing illegal about manufacturing Canadian-brand cigarettes and selling them to whoever wishes to buy them in another country. If the purchasers subsequently smuggle them into Canada, they are the people to sue. We look forward to Mr. Rock's and Ms. McLellan's suit against, among other smugglers, those from the First Nations.