The End of the EU Anti-Smuggling Agreement with PMI: Irrelevant?
We woke up on the morning of July 7th to find our signals on PMI (Philip Morris International) and Tobacco popping, by 3.98 and 3.60 sigmas respectively. That’s what we call ‘an anomaly.’
At Asymmetrica, we like anomalies: our SIGINT and our data analytics platforms are designed to identify them, prompting our subject matter experts (SMEs) to dig deeper into the data to uncover the underlying (hidden) relationships.
For those of you who are not statistician geeks: a “sigma” is mathematical shorthand for a standard deviation from the mean, the mathematical average value. There is a rule of thumb for standard deviations in a normal spread around the mean, known as the 68–95–99.7 Rule. In other words, 68.27%, 95.45% and 99.73% of the values lie within one, two and three standard deviations of the mean, respectively. So 99.73% of cases will lie within 3 sigmas from the mean.
A four sigma deviation, like our PMI signal this morning, has a vanishingly small probability. It means our signal was literally “off the charts.”
What does it mean?
Our signals (built with feeds we input, using Predata algorithms) measure chatter and contestations in public fora. So there was an enormous spike yesterday in people discussing and arguing about PMI and Tobacco.
What were they looking at and arguing about? (What was driving the signals?)
The PMI signal that jumped 3.98 sigmas was driven (at a rate that far exceeded even the composite PMI signal) by queries and arguments about the “Plain tobacco packaging” Wikipedia entry, and, to a lesser extent, they were reading in Spanish about the history of Philip Morris International. In third place they looked at the @InsidePMI Twitter handle, run by PMI.
The drivers of the Tobacco signal spike were all in English and centered around Wikipedia entries for “Plain tobacco packaging,” “Smoking ban,” and “Tobacco politics.” Again, the interest in “Plain tobacco packaging” was spectacular.
Why the sudden interest yesterday?
Yesterday the European Commission announced that it would not be renewing its anti-smuggling cooperation deal with PMI. The 2004 deal was the result of the settlement of a lawsuit of the EU against each of the Big Four tobacco companies (Philip Morris International, British-American Tobacco, Japan Tobacco International and Imperial Tobacco) for being rather lax about monitoring the smuggling of their own products into and within the EU. Under the deal, the tobacco companies agreed to implement much more effective tracking & tracing technology, collaborate with law enforcement, and pay EUR 1.25 billion to the EU and its Member States. PMI’s deal expires this month; the other three of the Big Four have until 2022.
Many EU politicians and regulators had opposed the renewal of the deal with the tobacco industry, while the industry had not been shy about expressing its wish for the deal’s renewal. However, a lawsuit by the industry against new EU anti-tobacco laws complicated collaboration.
The EU’s decision not to renew the deal was diplomatically announced by both sides in the best possible light: illicit trade of PMI products has been reduced by 85%, both proving the deal’s effectiveness and rendering its renewal unnecessary. PMI announced that the deal’s protocols had become internalized to how the company does business, announcing: “The supply chain control measures outlined in the agreement will remain an integral part of how we do business in the EU and around the world.”
Furthermore, there is another reason the deal is not as necessary as it once was: last year the European Parliament gave its approval for the European Commission’s ratification of the World Health Organization (WHO) Protocol to Eliminate Illicit Trade in Tobacco Products (known to the wonks as the ‘FCTC Protocol’). While, in Asymmetrica’s view, the FCTC Protocol has some not insignificant gaps, the tobacco industry vociferously welcomed the ratification of the first international treaty to fight tobacco smuggling, a scourge simultaneously for industry, governments and communities, we have all been talking and writing about for years.
So what does it all add up to?
The highly anomalous spike in Asymmetrica-built Predata signals, against the background of the EU announcement, means that people took note of the EU announcement and interpreted it as a move hostile to the tobacco industry, and they are trying to assess the future of tobacco brands and tobacco regulation.
The interest could be by worried investors or EU legislators considering more aggressive anti-tobacco legislation, like plain packaging, which is starting to spread like wildfire — already implemented in Australia, the UK and Ireland, with many other countries avowedly considering it. In Asymmetrica’s analysis of the staggering numbers of people rushing to inform themselves (and then argue) about these topics likely comprises politicians, bankers and average citizens reading the news.
The sudden interest in the Spanish language history of PMI could be one of two things — or both: Spanish legislators who are considering implementing plain packaging (which they are), or an interest in the expected outcome of PMI’s lawsuit against Uruguay, which had closing arguments yesterday in ICSID arbitration at the World Bank.
We’ll continue to track these and all our signals to gauge public reaction to news stories and local events pertaining to illicit trade and brand integrity.
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