U.S. tobacco, prior to January 1, 1973, entered 

 the United Kingdom with a liscal charge of US 

 $12.10 per pound while tobacco from countries 

 receiving the Commonwealth preference entered at 

 US $11.92 per pound or 18 U.S. cents less. After 

 AprO 1, 1973, the $12.10 will become 1) an excise 

 tax of $10.13 per pound plus, 2) a value added tax of 

 $1.77 per pound, and 3) a duty of 20 U.S. cents per 

 pound. 



The duty for those countries that do receive the 

 Commonwealth preference became 2 U.S. cents per 

 pound or nearly zero. Both the 20 cents duty and the 

 near zero duty will be phased to the CXT for 

 countries outside the EC and the EC preference area. 

 The duty for EC and some EC preference countries 

 will be phased from 20 cents to zero. These changes 

 will have been completed by July 1, 1977. At that 

 time U.S. tobacco and other tobacco from outside 

 the EC and EC preference area will pay the full CXT. 

 Tobacco from the EC and EC preference countries 

 will enter duty free. 



Some former Commonwealth preference countries 

 such as Canada, South Africa, and probably India, 

 will have lost their 18 U.S. cents per pound pref- 

 erence and vvdll be on a more competitive basis with 

 the United States, that is, paying the full CXT. Other 

 EC members, Greece, Turkey, and perhaps some of 

 the Yaounde countries will have gained duty-free 

 access to the U.K. market. The Annex VI countries 

 (Appendix B), prior to accession, received the Com- 

 monwealth preference in the U.K. market. After 

 accession their tobacco will enter duty free. They will 

 have changed a 18 cents per pound preference for an 

 exemption from the CXT. The CXT for most of their 

 tobacco will fall within the 14 to 17 U.S. cents per 

 pound range (Table 2, Appendix C), while a large 

 proportion of leaf imports from the United States 

 will fall in the 21 to 35 U.S. cents per pound range. 

 Thus, unless this discriminatory feature of the CXT is 

 modified, tobacco from these Annex VI countries 

 will have a distinct duty advantage over U.S. leaf in 

 the U.K. market. 



Duty-free treatment for EC and EC preference 

 tobacco gives the U.K. industry a large incentive to 

 switch from its present 100-percent flue-cured ciga- 

 rette to a blended cigarette using hurley and aromatic 

 tobaccos or to use a larger proportion of lower 

 quahty, duty-free, flue-cured tobacco in its 100-per- 

 cent flue-cured cigarettes. Itahan hurley will have the 

 advantage of the buyer's premium plus zero duty 

 (Tables 9, 10, and 11, Appendix C). Greek and 

 Turkish aromatic tobaccos and Greek hurley will have 

 the advantage of zero duty. This shift could have a 

 very serious adverse effect on U.K. imports of U.S. 

 tobacco. 



Although all tobacco from outside the EC and EC 

 preference area will be accessed the CXT by July 1, 



1977, the higher tariff level provided by the CXT for 

 more expensive, high-quality tobacco will provide an 

 incentive for importing outside tobacco from the 

 cheapest source possible. This also may have a very 

 serious adverse effect on U.K. imports of U.S. leaf 

 and on the quahty of cigarettes smoked by the U.K. 

 consumer. 



Roughly, the same situation exists for Ireland 

 except that Ireland has had zero duty on imports 

 from the EC and some EC preference areas since 

 January 1, 1973, while the United Kingdom is phas- 

 ing in the zero duty from these countries at the same 

 time that it is phasing in the CXT on imports from 

 outside the EC and EC preference area. As a 

 consequence, Ireland has had an earlier incentive to 

 switch to tobaccos from the EC and countries 

 receiving preferential treatment in the EC. The 

 schedule for phasing in the CXT for outside countries 

 is, of course, the same for both the United Kingdom 

 and Ireland. 



An even sharper impact on U.S. tobacco will be 

 felt in Denmark though it is a much smaller market 

 than the United Kingdom. All unmanufactured to- 

 bacco imports has entered Denmark duty free giving 

 U.S. tobacco an equal chance to compete. Since 

 January 1, 1973, EC and EC preference area tobacco 

 continues to come in duty free while the CXT is 

 being phased in for imports of U.S. and other outside 

 tobacco. The CXT will be completely phased in by 

 July 1,1977. 



Adoption by these three countries of the CXT, 

 as presently constituted, would be exceedingly 

 damaging to U.S. tobacco exports in two ways. 

 First, Greece, Turkey, and a number of other 

 countries whose tobacco had competed on equal 

 terms with U.S. tobacco in these three markets, 

 would have duty-free entry for tobacco while U.S. 

 tobacco would pay the CXT. Second, the higher 

 tariff levels provided by the CXT for more ex- 

 pensive tobaccos is highly discriminatory to high- 

 quality U.S. leaf, much of which is stemmed prior to 

 export. The stemming process elevates the price even 

 further. 



The higher tariff classification was originally 

 intended to protect Italian tobacco wrapper, but 

 as U.S. prices have risen, and as an increasingly 

 high proportion of U.S. leaf exports has come to 

 be stemmed, U.S. prices have begun to approach 

 the upper range of tariff classification. 



Flue-cured strips accounted for 35 percent of 

 total U.S. urmianufactured tobacco exports to the 

 nine countries of the enlarged EC in 1971. The 

 average export price of these strips or "lamina" was 

 US$1.22 per pound. Adding transportation and 

 storage costs would bring the EC import price to 

 about US$1.28. At a 5-percent annual rate of price 

 increase (which is actually below the rate of the past 



