Ukrainian business calls for revisions to bill on control over production, circulation of tobacco raw materials
The European Business Association (EBA) considers it necessary to revise bill No. 14245 on improving the efficiency of control over the production and circulation of tobacco raw materials due to systemic risks that could negatively affect business.
According to a publication on the association's website, the document provides for the introduction of an obligation to give priority use to tobacco raw materials of Ukrainian origin, which restricts freedom of choice of suppliers, creates preferences for certain market participants, and runs counter to the principles of a market economy. In this regard, the association notes, there is a risk of artificial price inflation for raw materials and an increase in the cost of finished products. There is also legal uncertainty.
"The concept of 'priority use' has no clear definition and may be interpreted as a de facto obligation to use 100% Ukrainian-origin raw materials regardless of their quality or available volumes," the organization explained.
In addition, the EBA believes that the provisions of the bill contradict Article 42 of the Constitution of Ukraine on the protection of competition, as well as the norms of the Law of Ukraine "On the Protection of Economic Competition" in the part concerning the prohibition of anti-competitive actions by public authorities and the creation of discriminatory conditions for business entities. The bill also fails to take into account climatic risks (droughts, floods, frosts), force majeure circumstances under martial law, and the specifics of cultivation and quality of tobacco raw materials required for industrial production.
The EBA added that the proposed norms do not comply with the Association Agreement between Ukraine and the EU, the provisions of GATT 1994, or the WTO TRIMs Agreement, which prohibit the imposition of requirements for the mandatory use of domestic raw materials as a condition of production. In addition, at present there is no confirmed information on the ability to consistently ensure clear quality standards, such as those of international manufacturers (nicotine content, moisture, taste characteristics, combustion indicators), using domestic raw materials.
As noted by the business association, the bill proposes introducing an additional system of control and traceability of tobacco raw materials (marking, GPS tracking, expansion of the "e-Excise" system, new registers), despite already existing effective control mechanisms provided by the State Border Guard Service, including video surveillance, reporting, and checkpoints. Such an innovation would increase businesses' operating costs, lacks identified sources of funding, and creates risks to production continuity.
"If the bill is adopted in its proposed version, there is a risk of a reduction in domestic tobacco product manufacturing, job losses, lower tax revenues, and a reorientation of the market toward imports of finished products. The EBA does not support bill No. 14245 in its current version and calls for its revision, taking into account the position of business, the principles of a competitive economy, and Ukraine's international obligations," the organization concluded.
According to information on the website of the Verkhovna Rada, the purpose of bill No. 14245 is to create a comprehensive legal mechanism for the electronic traceability of tobacco raw materials within the framework of the unified state electronic system for the circulation of excisable goods ("e-Excise"): from cultivation and harvesting to packaging, movement, use in the production of tobacco products, and the subsequent sale of legal products.
It provides for the expansion of the functionality of the "e-Excise" system to cover tobacco raw materials in order to generate unique identifiers (electronic stamps) and account for their movement from introduction into circulation to use; the introduction of mandatory marking of each unit of raw material packaging with electronic stamps featuring a unique DataMatrix code; expansion of the range of economic operators required to register in the system; and the creation of a Unified Register of Tobacco Raw Material Producers with detailed data on cultivation, acreage, and yields.
The bill also tightens requirements for business entities that grow tobacco (in particular, regarding the technological cycle, storage facilities with video surveillance and weight control) and introduces a system of remote monitoring of raw material movement using GPS trackers on transport. A key element is the establishment of a legal framework for the priority use of tobacco raw materials of Ukrainian origin by tobacco product manufacturers, which is intended to promote import substitution and the development of "Made in Ukraine" production. The overall aim of these measures is to strengthen tax and law enforcement oversight, prevent abuses (by distinguishing between commercial and household cultivation), and ensure transparent electronic accounting of the sector.