The United Kingdom has joined the 26 other EU Member States and the European Community as a signatory to the 2004 anti-contraband and anti-counterfeit agreement with Philip Morris International (PMI) and the 2007 cooperation agreement with Japan Tobacco International (JTI). Now all EU Member States are parties to these agreements. Every year, the European Community and the Member States lose hundreds of millions of euros in unpaid taxes from contraband and counterfeit cigarettes. Moreover, counterfeit and other forms of contraband create a parallel illegal supply chain that compromises legitimate distribution channels and competes unfairly with genuine products.

In welcoming this development, Commission Vice President Siim Kallas commented: “This united front by the Community and all the Member States shows how seriously we take the fight against illicit tobacco products. It is a strong signal to other companies that such legally binding arrangements are an essential tool to strengthen our action in this area. As the agreements now cover the entire territory of the EU, implementation will become even more comprehensive and efficient. It will be more difficult for illegal traders to find loopholes. This is not only to the advantage of the UK, but to the EU as a whole since it protects EU financial interests more effectively.”

On 9 July 2004 the European Community and ten Member States signed an anti-contraband and anti-counterfeit agreement with PMI. Since that date, sixteen Member States have joined the Community and the initial ten Member States in their fight against cigarette smuggling and have signed the agreement with PMI. On 14 December 2007 the EC together with 26 participating Member States and JTI signed a similar multi-year cooperation agreement to combat future cigarette smuggling and counterfeiting. The United Kingdom has now joined all other EU Member States and the European Community as signatories to the agreements. The United Kingdom will now be able to join the other Member States in benefiting from the advantages flowing from the agreements. The agreements include a guarantee by the participating producers to make payments in the event of future seizures in the European Community of its genuine product, above a set quantity. These payments are made without regard to fault or wrongdoing by the producers. These payments are available to all participating Member States.

The agreements require the participating producers to build on their existing review processes for selecting and monitoring customers, to enhance their capacity to track and trace certain packaging, and to provide expanded support to European law enforcement in its battle against the illegal trade in cigarettes. Under the agreements, the producers agree to continue limiting their sales to volumes commensurate with legitimate market demand. The agreements also incorporate into a comprehensive contractual framework the participating producers' existing compliance programmes.

Producers have a responsibility to fight illegal trade in their products, in full cooperation with relevant government authorities. A lawsuit against R.J. Reynolds and its affiliated entities for civil claims arising out of conduct related to contraband cigarettes is currently pending before the United States District Court – Eastern District of New York. The European Commission has always made it clear that it would like to see legally binding agreements negotiated with other international tobacco companies and is always prepared to have discussions with producers who are willing to improve ways to combat illegal trade in their product and associated criminal activity, such as money laundering.