Vice Squad
Monday, January 12, 2004
Canadian Tobacco Lawsuits

As they inch towards decriminalizing marijuana, our neighbors to
the north are also having a go at Big Tobacco. In Ontario, court
proceedings are underway
to determine if a lawsuit, now nine
years old, can move forward as a class action. The claim is that
three tobacco companies conspired to withhold from consumers
information about the addictiveness and adverse health effects
of cigarettes. If the case achieves class-action status, the
potential liability would be enormous for Rothmans Benson &
Hedges, Imperial Tobacco Canada, and JTI MacDonald.

JTI MacDonald faces another problem over in Quebec, where the
provincial government is looking to collect up to $1 billion
in back taxes from the Toronto tobacco manufacturer. The government
is particularly interested in the years 1990-94, when smuggling was
widespread. (The linked article says, "During that period, it has been
estimated that as much as 60 per cent of cigarettes smoked here
[Quebec] were from black market sources," but Vice Squad has heard
other estimates of 75 per cent.) During this time, Canada had imposed
very high excise taxes on domestic cigarette manufacturing and
imports. Exported cigarettes were exempt from the tax, however,
so an apparently common ruse was to export the cigarettes and then
surreptitiously re-import them, avoiding the high duties. The black
market brought the usual social costs of gangs and violence, until
the Canadian government reduced the incentive to evade by cutting
the cigarette tax. While legal vices can usually sustain quite high taxes,
there are limits: when the taxes become sufficiently high, the sort of
outcomes usually associated with a prohibition are reproduced under
a legal regime.

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