leaf.'* After April 1, 1973 the general rate of £5.041 

 will be separated into three components: 1) an excise 

 tax of £4.220 (U.S. $10.13), 2) a value added tax of 

 £0.736 (U.S. $1.77), and a duty -of £0.085 (20 U.S. 

 cents). 



The Commonwealth rate of £4.964 also will be 

 separated into the excise tax of £4.220 and value 

 added tax of £0.736, leaving a margin of £0.008 (2 

 U.S. cents). This margin will be subject to alignment 

 to the CXT and to the zero duty rate. 



Tariff Karmonization 



The U.K. duty of £0.085 on leaf tobacco from 

 outside the Commonwealth must be reduced to zero 

 for tobacco produced in the EC, Greece, and Turkey. 

 The £0.008 margin for Commonwealth leaf will 

 become zero for some Commonwealth countries 

 specified in Annex VI of the Treaty (Appendix A.) It 

 will be increased to the CXT for certain Common- 

 wealth countries such as Canada, Australia, and 

 probably India, and for some non-Commonwealth 

 countries which now receive Commonwealth pref- 

 erences, for example, South Africa. The major to- 

 bacco exporters included in Annex VI are Malawi, 

 Zambia, and Tanzania. 



The 18 Yaounde countries whose tobacco now 

 enters the EC duty free (Appendix B) also may 

 eventually receive preferential treatment by the 

 United Kingdom, but this is a matter for future 

 negotiation. 



The United Kingdom, as a former member of 

 EFTA, has no duty on tobacco product imports from 

 other EFTA countries. There will continue to be no 

 duty on tobacco products imported from Denmark, 

 the other EFTA partner which is now an EC member. 



The tariff on tobacco product imports will be 

 reduced to zero for EC partners according to the 

 schedule provided in the Treaty of Accession. It will 

 be harmonized with the CXT for other countries 

 including nonacceding EFTA partners. The CXT for 

 cigarettes is 90 percent ad valorem. 



Excise Tax Harmonization 



The EC Council Directive adopted Decem- 

 ber 18-19, 1972, provides that the excise tax portion 

 of the fiscal charge, £4.964 or US $1 1.92 per pound, 

 may remain in effect until January 1, 1978. At that 

 time it must be harmonized with whatever common 

 level of excise tax has been decided upon by the EC 

 members. This provision was made because of the 

 technical difficulty, and the possible effect on British 

 revenue, of shifting from the present tax based on the 

 weight of tobacco leaf to a tax based on numbers of 

 cigarettes. 



The fiscal charge, prior to April I, 1973, was 

 wholly specific. That is, the tax was the same 

 regardless of the value of the tobacco. A shift from 

 this system to one based largely on the value of the 

 manufactured product, an ad valorem tax, would be a 

 drastic change and could have quite an adverse effect 

 on high-quality tobacco such as that imported from 

 the United States. 



Value-Added Tax Harmonization 



The level of the value-added tax initially may be 

 different in each of the EC members but, eventually, 

 this too must be harmonized so that the level will be 

 the same in each EC country. 



IRELAND 



Ireland imported 11.7 milUon pounds of tobacco 

 in 1971, of wliich 6.8 million pounds, or 58 percent 

 came from the United States. Other important 

 suppHers were the Republic of Korea, India, and 

 South Africa. The average value of all imports was 97 

 U.S. cents per pound. The average value of imports 

 from the United States was $1.11 per pound. 

 However U.S. exports of flue-cured strips, which 

 accounted for 68 percent of total 1971 U.S. tobacco 

 exports to Ireland, were valued at $1.21 per pound. 



"Other" leaf, that containing less than 10 percent mois- 

 ture, is taxed at £5.0910 (US$12.22) for MFN leaf and 

 £5.0060 (US$12.01) for Commonwealth leaf. This is a 

 margin of preference of £0.085 or 20 U.S. cents. This margin 

 of preference also must be harmonized with the CXT. 



Ireland, like the United Kingdom, produces ciga- 

 rettes with no additives and uses all flue-cured, 

 flavorful, high-cost leaf. The industry can experiment 

 with additives but it cannot yet use them com- 

 mercially. For Ireland, as for the United Kingdom, 

 the EC likely will insist that the no-additive rule be 

 eliminated. 



Consumption 



On a per capita basis, Ireland is the largest 

 purchaser of U.S. tobacco among the nine countries 

 of the enlarged EC. U.S. exports to Ireland during the 

 5-year period 1967-71 averaged 12 million pounds 

 per year (Table 7, Appendix C). With a population of 



