receive preferential treatment in each of the other eight EC 

 partners. 



The member states of the European Community intend 

 to move by stages to a harmonized excise tax on cigarettes 

 consisting of an ad valorem element and a specific element. 

 An ad valorem tax will adversely affect the sale of cigarettes 

 containing high-quality, high-priced tobaccos such as those 

 exported by the United States. An EC directive adopted by 

 the Council of Foreign Ministers December 1972 requires 

 that during the first stage of harmonization, July 1, 1973 to 

 July 1, 1975, the specific portion of the excise tax in each 

 member state must be between 5 and 75 percent of the 

 excise tax applied to retail prices of most popular brands of 

 cigarettes. The United Kingdom and Ireland are not 

 required to comply with the provisions of this Directive 

 until January 1, 1978. Denmark's excise tax apparently 

 already complies with the Directive. An earlier Council 

 resolution made a similar proposal for the six original 

 members, and Germany now has a tax with an ad valorem 

 element of 25 percent, and the other original members have 

 a tax 95 percent ad valorem. 



The tobacco monopolies in Italy and France may have 

 unrestricted access to the tobacco markets in the three new 

 members for their cigarettes made with low-cost tobacco 

 while these three countries will be restricted in marketing 

 their cigarettes, made with expensive, high-quality U.S. and 

 other tobaccos, in Italy and France. A council resolution 

 provides that exclusive right of importation and wholesale 

 marketing must be aboUshed by January 1, 1976. This 

 action represents little reform in monopgly operations, 

 however, for as long as the monopolies can license retailers 

 and thus control retail trade, access for outside tobacco 

 products will remain limited. 



These policies are discriminatory to high-quality tobacco 

 such as that exported by the United States, and unless 

 eHminated or substantially modified, can be expected to 

 have a strong adverse effect on U.S. tobacco exports to the 

 three new members. This report discusses the present 

 magnitude of these tobacco markets and analyzes the 

 possible effects of EC accession on U.S. tobacco exports to 

 these markets. 



Hugh C. Kiger, Director 

 Tobacco Division 



