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Economics 1 Page

Production Quotas

Question

Updated Dec. 9, 2013 4:17 p.m. ET

PARIS—Even when there's no smoke, there's sometimes fire.

A French court ruled Monday that tobacconists should have the exclusive right to sell electronic cigarettes—the smoke-free alternative to tobacco products—dealing a potential blow to the burgeoning e-cigarette industry. The commercial court of Toulouse also ruled that e-cigarettes should be subject to the same broad ban on advertising as their tobacco-based counterparts.

E-cigarettes only represent a tiny fraction of the multi-billion-dollar global tobacco market, but their popularity is surging.

The surprise ruling could influence efforts to regulate the sale of e-cigarettes across Europe, which is grappling with the question of whether they should be treated as tobacco products.

It comes as tobacconists—which have a monopoly in France when it comes to sales of traditional cigarettes—and e-cigarette vendors bristle over who gets the right to sell the smoke-free devices.

The ruling, if it stands, could be a setback for France's rapidly expanding e-cigarette outlets. If legislation were to follow the court reasoning, it would force e-cigarette stores to close.

At stake is a booming market. E-cigarettes—battery-powered devices that heat a nicotine-based liquid and turn it into vapor—have become increasingly popular in recent years, partly because smokers see them as a less harmful alternative to traditional cigarettes.

While e-cigarettes still only represent a tiny fraction of the multibillion-dollar global tobacco market, their popularity is surging. Euromonitor International analyst Shane MacGuill expects global sales for e-cigarettes to reach about $3.5 billion this year, with around $700 to $800 million in Western Europe.

In France alone, the market for e-cigarettes is expected to more than double this year to around €100 million ($137 million) from €40 million last year, according to a recent study from the French office for the prevention of smoking.

Eager to further tap this growing market, France's 27,000 tobacconists—a fixture of French towns with their red Tabac signs—have called on the government to give them the exclusive right to sell e-cigarettes.

Annie and Hervé Pontus, who run a tobacco shop outside Toulouse, went a step further, taking a case to court against Esmokeclean, which operates several e-cigarette shops in the area.

"It's a clear victory on all fronts," said Bertrand Desarnauts, the Pontus's lawyer.

Esmokeclean will appeal the ruling, said its lawyer Benjamin Echalier, who called it "completely absurd." He said e-cigarettes aren't classified yet at the European Union or French level in any particular category and should be seen as an "ordinary consumer product."

Esmokeclean and other e-cigarette makers can still sell their products directly to consumers pending appeal.

Marisol Touraine, France's health minister, has said she wants to ban e-cigarettes from public spaces and ban advertising on them.

All eyes are now on efforts from European legislators to come up with a regulatory framework for e-cigarettes, whose risks or benefits on people's health is a matter of considerable debate.

EU health ministers this summer said that liquids for e-cigarettes that contain at least 2 milligrams of nicotine per milliliter should be regulated as medicines, which would limit the sales of these products to pharmacies in many countries, including France. The European Parliament, however, said that e-cigarettes and e-liquids should be regulated just like regular cigarettes.

Negotiators from both the Parliament and EU member states have said they want to reach a compromise on the new regulation before the end of the year.

European officials briefed on the talks say that member states may be willing to let go of medicines regulation for e-liquids with a higher nicotine content, as long as the final law contains strict health-and-safety rules.

Under discussion are bans on sweet flavorings that could make e-cigarettes attractive to teenagers as well as bans on refillable cartridges that some regulators fear could be dangerous for small children that accidentally ingest e-liquids, these officials say. However, those proposals are still opposed by the Parliament and some member states that continue to push for medicines regulation.

For the around 300 shops selling e-cigarettes in France, the Toulouse ruling came as a shock.

"The court went beyond its powers deciding on a matter that is not yet subject to a law," said Mickaël Hammoudi, who heads a French e-cigarette lobby group. "This puts 2,500 jobs at risk."

—Gabriele Steinhauser contributed to this article.


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Title: Production Quotas
Length: 1 pages (287 Words)
Style: MLA

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Production Quotas

In France, tobacconists have been permitted by the law to sell electronic cigarettes. These are tobacco products that do not produce smoke and, therefore, bring a lot of competition to the cigarette industry. E-cigarettes are, however, also subjected to advertising limitations put on other tobacco products. E-cigarettes consist of only a small percentage of the multi-billion dollar world tobacco market, but they are increasing in popularity. 

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