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IMPLICATIONS OF EUROPEAN COMMUNITY 

 ENLARGEMENT FOR U.S. TOBACCO EXPORTS ///^tsf^st^ O 



By Robert W. Johnson ^ 



The European Community (EC) is the world's 

 largest market for U.S. tobacco exports. The EC-6 

 took 30 percent of U.S. unmanufactured tobacco 

 exports during the 5-year period ending June 30, 

 1972. The EC-6, plus the United Kingdom, Ireland, 

 and Denmark (which became EC members January 1 , 

 1973) took 58 percent of U.S. exports of unmanu- 

 factured tobacco during that period. None of the 

 three new members produces tobacco while the 

 original six countries are about one-third self- 

 sufficient and are encouraging domestic production 

 through a Common Agricultural PoUcy (CAP) which 

 provides high price supports and premiums to buyers 

 of EC leaf. 



The original six EC members have eliminated 

 tariffs among themselves so that tobacco and to- 

 bacco products produced in any one may move 

 duty free to any of the others. (Excise tax 

 systems for tobacco products still differ however, 

 and this has some restrictive effect on trade.) The 

 major tobacco producers are Italy and France 

 (Table 1, Appendix C). The three new members 

 will progressively lower their duties on imports 

 from the other members so that by July 1, 1977, 

 there will be no duty on raw tobacco imported from 

 EC producers and probably from some, if not aU, 

 countries which receive preferences on tobacco in the 

 EC. These include such important tobacco exporters 

 as Greece, Turkey, and Tanzania. The three also will 

 eliminate by July 1, 1977, duties on tobacco product 



imports from each other and from the other mem- 

 bers. 



The EC has adopted a common external tariff 

 (CXT) on tobacco and tobacco product imports from 

 outside the EC preferential trade area. This CXT 

 provides for a much higher tariff rate for leaf tobacco 

 valued over about $1.42 per pound c.i.f. Some highly 

 processed U.S. leaf is beginning to reach this level 

 now. All three new members will adopt, over a period 

 of time, the EC's CXT on tobacco and tobacco 

 product imports from outside the EC preferential 

 trade area. 



The EC's CAP, which encourages domestic produc- 

 tion through high price supports, and which en- 

 courages consumption of this tobacco through 

 premiums paid to buyers of EC leaf, has been the 

 subject of complaints by all segments of the U.S. 

 tobacco economy and the U.S. Government. Other 

 issues about which the United States has complained 

 are continuation of monopoly control over tobacco 

 retailing in Italy and France; excise tax harmoniza- 

 tion based on high ad valorem rates which could 

 adversely affect high-quality U.S. tobacco; sub- 

 stantially higher CXT tariff rates for more expensive 

 tobacco, which also adversely affects high quality, 

 and especially strips or stemmed U.S. cigarette 

 tobacco; and tariff preferences given to low cost 

 producers associated with the EC. ( Foreign Agri- 

 culture, Nov. 2, 1970; Aug. 30, 1971; Dec. 6, 1971; 

 April 3, 1972; and October 2, 1972.) 



MARKET HARMONIZATION 



The EC intends, eventually, to completely har- 

 monize its tobacco leaf and tobacco products market. 

 This will include harmonization of excise taxes in 

 each country in addition to elimination of tariffs on 

 intra-EC trade in tobacco and tobacco products and 

 adoption of a common external tariff. It also will 

 include adoption of a value-added tax which initially 

 may be at a different level in each country but the 

 rate of which must eventually be harmonized to a 

 common level. All nine countries are expected to 

 adopt a value-added tax by mid- 1973. Elimination of 

 intra-EC tariffs, and adoption by the new members of 

 a common external tariff will have been completed 

 by July 1, 1977. Harmonization of excise taxes may 



extend beyond mid- 1977, but the only important 

 barrier left to the free internal movement of tobacco 

 products after that date will be continuation of 

 monopoly control of retailing in Italy and France. 

 Unless present regulations are changed, monopolies in 

 those countries will continue to license retailers. This 

 gives them effective control over retail sales of 

 imported tobacco products. 



Harmonization of Common External Tariff 



The EC's CXT for leaf tobacco, which each of the 

 new members must adopt, is denominated in terms of 

 units of account (U.A.) It is: (1) For leaf valued at 



