China Business Weekly: If the Tobacco Bureau Regulates E-cigarettes, How Can Fairness Be Ensured?

Wen |The financial state weekly reporter Chen Haojie

"Regulation is finally here, is this business still viable?"

March 23, an e-cigarette business head Zhang Ding said, he was almost all day to reply to the above questions. Looking for his inquiries, not only dealers and franchisees across the country, but also many friends outside the industry.

One day before this, the Ministry of Industry and Information Technology announced "on the revision of < People's Republic of China Tobacco Monopoly Law Enforcement Regulations > decision (draft)" (hereinafter referred to as the "draft"), put forward: "electronic cigarettes and other new tobacco products Refer to the relevant provisions on cigarettes in these regulations."

In China, this is the first time that e-cigarettes and other new tobacco products are proposed to be formally included in the regulation of specialized laws.

The news was announced within 24 hours, Zhang Ding in the company opened two policy analysis meeting one after another, we have mixed feelings. On the one hand, we are finally out of the gray zone for e-cigarettes and have a clear "identity" definition feel relieved; on the other hand, also for the industry to change the rules of the industry may be full of worry about the risk of the industry.

While I've always known that there would be such a day, but (regulation) is really coming, it is still difficult to accept. Zhang Ding said.

Franchisees are more sensitive: many franchisees who have signed the agreement, clearly put forward the idea of suspending the opening of stores, wait and see.

How should the e-cigarette industry live, in fact, Zhang Ding heart is not bottom: reference to the management of cigarettes, is a complete reference or part of the implementation of the cigarette monopoly management?

Will e-cigarettes be managed by tobacco in the future? Once the tobacco sector to start strong supervision, e-cigarettes can get fair treatment?

"If the regulatory policy is inappropriate, it is a 'small harm' to the 'big harm' to manage." Zhang Jianshu, president of the Beijing Smoking Control Association, warned.

How to manage with reference to cigarettes?

E-cigarettes with reference to the implementation of the relevant provisions of the cigarette, how to refer to?

The State Tobacco Monopoly Bureau related sources to the "financial state weekly" reporter said that the "Implementation Regulations" is still in the revision stage, the specific management regulations need to be further studied after the introduction of the specific time nodes, there is no specific time nodes.

Related departmental sources, e-cigarettes and other new tobacco products with reference to the implementation of cigarettes, once the "Implementing Regulations" modified formally implemented, the traditional tobacco regulatory approach will also apply to e-cigarettes, including monopoly licenses.

According to the current "Regulations for the Implementation of the Tobacco Monopoly Law", engaged in the production of tobacco monopoly, wholesale and retail business, as well as the operation of tobacco monopoly import and export business and the operation of the purchase and sale of foreign tobacco products, you must apply for a tobacco monopoly license. Tobacco monopoly license is specifically divided into three categories: production enterprise license, wholesale enterprise license and retail license.

This means that, for e-cigarette companies, the future production of e-cigarettes must apply to the Tobacco Monopoly Bureau and obtain the "Tobacco Monopoly Manufacturer's License", and e-cigarettes distribution and retail channels need to obtain the "Tobacco Monopoly Wholesaler's License" or "Tobacco Monopoly Retailer's License".

Zhang Ding and other industry insiders told the Financial State Week reporter that e-cigarettes are managed with reference to cigarettes, which will bring two major challenges to the industry: first, will the profits of e-cigarettes be rolled out by regulation? Secondly, how should electronic cigarettes be produced and sold in the future?

Compared with the former, the industry is more concerned about the long-term production and marketing issues. Because, after the inclusion of tobacco monopoly regulation, e-cigarettes after the production and marketing model or will be the same as cigarettes, that is, the factory - tobacco companies - retailers, e-cigarettes existing production and marketing model will no longer exist.

"With reference to cigarettes, is it completely in accordance with cigarettes to manage, or treated differently, this is the key to the problem." Zhang Ding believes that e-cigarettes, after all, are different from traditional cigarettes, e-cigarettes are only heated non-combustible type belongs to tobacco, the other main types are not tobacco products, therefore, it is not recommended that e-cigarettes and traditional cigarettes are included in the same fully regulated, but rather the implementation of categorized regulation, while increasing the tax rate of e-cigarettes, so that the e-cigarette industry can be legally regulated and sustainable development.

Strong regulation is to standardize the development

To discuss how to regulate e-cigarettes with reference to cigarettes, it is important to return to the question of why e-cigarettes should be regulated itself.

Some industry insiders say that e-cigarettes are a legal industry in China, and enterprises are set up, operated and taxed in accordance with the law, and are protected by the law, but due to the long-term lack of regulation, the industry has given rise to a number of non-compliant things, such as the problem of minors, product quality issues and so on. The purpose of regulation is precisely to solve these problems and make the e-cigarette industry more healthy and orderly development. #p#Page Break #e#

"In the absence of regulation, e-cigarettes have become a windfall profiteering industry." Wan Zhe, a well-known economist and professor at Beijing Normal University, said to the reporter of "Financial State Week" that the development of e-cigarettes has so far been collecting substitution dividends from the traditional cigarette "substitutes" while evading the due supervision from "electronic products", which is accompanied by a lot of false propaganda. Accompanied by a lot of false propaganda, such as "health said" "green said" and so on, and even some companies also promote sales to minors, so the electronic cigarette into the tobacco industry for regulation is very necessary.

The Ministry of Industry and Information Technology "Exposure Draft" of the note also put forward, will be electronic cigarettes and other new tobacco products with reference to the "Implementing Regulations" on the implementation of the relevant provisions of the cigarette, will greatly enhance the effectiveness of the supervision of e-cigarettes, effectively standardize the production and management of e-cigarettes to solve the e-cigarettes there are risks to product quality and safety, false advertising and other issues, and to effectively protect the legitimate rights and interests of consumers.

"The introduction of the Exposure Draft, the industry generally welcomed, because the industry urgently needs to embrace regulation, only regulated to healthy development, not to stifle this emerging industry." Despite all the concerns, several industry insiders said that regulation in place is the thing they are most looking forward to right now.

In fact, in the past two years, the country's regulation of e-cigarettes has been escalating. However, due to the policy norms have been stuck in the ban on the sale of minors, online ban on the sale of two levels, the regulation of electronic cigarettes has always been a "pipa half cover". Now, along with the revision of the "Implementation Regulations", the e-cigarette industry is about to enter the licensing era, which means that e-cigarettes opened a real sense of strong regulation.

A number of electronic cigarette business people said that each policy regulation of the electronic cigarette industry is the reshaping of the industry ecosystem, favoring the leading enterprises. The belated regulation will further shuffle the competitive landscape of the e-cigarette market, and the big brands may stage a "battle of kings".

The last time the industry storm, that is, after the suspension of the sale of e-cigarettes online in November 2019, as small and medium-sized brands have gone out, e-cigarette leading enterprises have gained rapid development. As of the end of the third quarter of 2020, for example, YUEKE has partnered with 110 authorized distributors, has over 5,000 stores and over 100,000 retail stores, and has a market share of 62.6%.

How do you ensure fairness?

"Regulation is right, but incorporating it into the management of cigarettes I am against." Zhang Jianshu believes that the inclusion of e-cigarettes in the management of cigarettes, which is both unscientific and unfair.

He further said that traditional cigarettes are recognized as harmful, e-cigarettes appeared as a substitute for cigarettes, although it has taken some crooked paths, but as an emerging product, if the management is good, it may also play a useful role. For example, in the United Kingdom, e-cigarettes have helped thousands of smokers to quit smoking.

"Now e-cigarettes and ordinary tobacco is a competitive relationship, if they are all included in the tobacco monopoly regulation, is the 'small harm' to the 'big harm' to deal with." Zhang Jianshu suggested that the regulation of e-cigarettes should be handed over to departments such as the Health Commission or the State Administration of Market Supervision. For example, the State Administration of Market Supervision, "has the experience of food regulation, and with e-cigarettes do not have a substantial conflict of interest, they come to manage to be considered fair and reasonable."

In China, the tobacco management system has its particularity, the State Tobacco Monopoly Bureau and China National Tobacco Corporation, government and enterprises, co-located, the tobacco industry to implement unified leadership, vertical management, monopoly franchise. Some industry insiders suggest that if e-cigarettes are included in the established tobacco monopoly system, they will face a series of new problems: for example, this is a major change in the tobacco monopoly system, whether the next step requires a higher level of amendment of the law; for example, e-cigarettes are a product of the market economy, whether the monopoly system will curb the innovation under the control of the monopoly system? Will the monopoly system curb innovation? Will the established global dominance of China's e-cigarette industry be jeopardized? Another example, China Tobacco is both "referee" and "player", traditional tobacco and e-cigarettes or competition and substitution relationship, how to balance the interests of China Tobacco, to ensure objectivity and fairness?

"These issues are systemic problems, the test is to regulate the wisdom of the developers, how to achieve the original intention of the regulation, but also to avoid the possible emergence of systemic problems, the need for careful consideration." The industry said.

"E-cigarettes, as a new force, have opened a gap in the traditional tobacco management system, bringing challenges to traditional tobacco." Wan Zhe also said that e-cigarettes into the regulation of deserved, but whether the use of complete monopoly, yet to be demonstrated, if only the use of administrative means to replace the market-oriented rule of law, it exposes the relevant departments of the regulatory capacity needs to be improved.

Chinese tobacco system itself in recent years has also increased investment in electronic cigarettes, including Hunan China Tobacco, Yunnan China Tobacco, Henan China Tobacco, etc., a number of Chinese tobacco companies are in the research and development of their own electronic cigarette products. #p#Page title #e#

According to a notice from the Ministry of Industry and Information Technology (MIIT), the consultation on the draft is open until April 22nd. Zhang Jianshu told reporters that he will submit his written comments to the MIIT at that time.