Lawmakers Seek to Block 'Gray Market' Tobacco
WASHINGTON (Reuters) - A bipartisan group of U.S. lawmakers Wednesday introduced legislation aimed at cracking down on ''gray market'' cigarettes, which are supposed to be exported but end up being sold domestically, tax-free and often to teen-agers.
The proposed law would close loopholes in existing laws governing tobacco sales that allow the gray market to thrive. The drive to clamp down on such sales is driven partly by pressure from retailers concerned about the loss of sales to the gray market and by broader public health concerns over teen-age smoking.
These cigarettes, which account for an estimated 16 percent of the total sold in the United States, are often sold over the Internet or through lunch wagons and vans that may cater to farm workers, construction crews or students, according to a wholesalers association that works with convenience stores.
The cigarettes, which do not necessarily have U.S. health warning labels on them, are sold by ``gray marketeers'' for about $10 less a carton than regular domestic cigarettes, according to the bill's sponsors, including Republican Rep. Clay Shaw of Florida and Democratic Sen. Kent Conrad of North Dakota.
They find their way onto the U.S. market through loopholes in federal laws that allow some cigarettes earmarked for foreign sale to be sold domestically under certain limited circumstances.
Because the gray market sales fall outside the regular U.S. tobacco trade, they reduce the lawsuit settlement payments that the tobacco companies are supposed to make to the states. Some of that money is supposed to go to combat youth smoking. Gray market sales may also reduce the amount of settlement money available to tobacco farmers, the sponsors said.
The sales can also hurt wholesalers and retailers who do not traffic in the gray market. And because they are cheap, the cigarettes appeal to young people, the precise group that public health and state officials are trying to persuade not to smoke.
``When the states agreed to the settlement with the tobacco companies, no one expected this sharp increase in gray market tobacco business,'' Conrad said. He cited estimates that the volume of cigarette shipments has dropped by 14.7 percent this year, while the gray market sales accounted for 16 percent of total cigarette sales.