Under the Radar: Elf Bar and Chinese E-Cigarette Makers Exploit Customs and Tax Loopholes Amidst Vaping Flavor Ban

In a span of just two years, Elf Bar, a compact and vibrant vaping device, has surged to become the world's most popular disposable e-cigarette. Boasting billions in sales, it has particularly captured the preference of underage U.S. teens who indulge in vaping. Recently, U.S. authorities made their first public seizure of Elf Bar products as part of a broader operation targeting 1.4 million illegal, flavored e-cigarettes from China, estimated at a value of $18 million.

However, an investigation by The Associated Press reveals a pattern where Elf Bar and other Chinese e-cigarette manufacturers have imported products worth hundreds of millions of dollars while adeptly sidestepping customs, evading taxes, and bypassing import fees. Public records and court documents illuminate a practice where makers of disposable vapes frequently mislabel their shipments, disguising them as innocuous items such as "battery chargers" and "flashlights," impeding efforts to curb the proliferation of products contributing to teen vaping.

Shenzhen iMiracle, a privately held company based in the Chinese manufacturing hub of Shenzhen, stands as the driving force behind Elf Bar. In response to regulatory challenges and a trademark dispute, iMiracle rebranded its products as EB Create in the U.S., abandoning the Elf Bar name. While the company claims to have ceased shipping Elf Bar to the U.S. earlier this year and is working towards regulatory compliance, details regarding EB Create e-cigarettes remain elusive.

Court documents from a 2022 hearing shed light on the extent of Elf Bar's success, with U.S. distributors reporting staggering sales. Jon Glauser of Demand Vape revealed that his company sold over $132 million worth of Elf Bar products in the previous year, emphasizing the product's rapid turnover. The appeal of Elf Bar is attributed to its robust profit margin, offering sellers a 30% profit, twice that of other disposable e-cigarettes.

IMiracle's parent company, Heaven Gifts, has previously been implicated in facilitating customers' evasion of import fees and taxes. The company's website promoted "discreet" shipping methods, assuring buyers that e-cigarettes or the company's name would not be mentioned on the package. The website openly advocated for marking lower values to minimize tax liabilities.

As the vaping landscape evolves, the investigation underscores the challenges authorities face in curbing the illicit flow of flavored e-cigarettes, particularly those enticing underage users in the U.S.

Evading Oversight: How Chinese E-Cigarette Makers Exploit Gaps in Customs Data

Amidst regulatory crackdowns, Chinese e-cigarette manufacturers, including Heaven Gifts and iMiracle, have adeptly avoided detection by exploiting gaps in customs data. In June, Heaven Gifts declared its decision to "go offline" after the FDA directed customs officials to seize its shipments, yet neither Heaven Gifts nor iMiracle is traceable in customs data reviewed by the AP and ImportGenius.

The recent seizure of Elf Bar products at Los Angeles International Airport sheds light on a critical issue – air carriers, unlike ocean vessels, are not obligated to disclose the same details about their cargo. While ships docking in the U.S. must provide comprehensive information, importers can obscure their identities and the nature of their products. For instance, recipient information is often marked as "not available" for numerous shipments of e-cigarettes from China.

U.S. companies further exploit loopholes by using third-party shippers, known as freight forwarders, to avoid disclosure. Many disposable e-cigarettes may not even be declared as vaping products; competitors like Esco Bars have imported shipments labeled as "atomizers," a generic hardware category.

The U.S. Customs and Border Protection did not provide interviews but emphasized their recent joint operation with the FDA in Los Angeles, aiming to intercept shipments that pose health risks. FDA Commissioner Robert Califf affirmed their commitment to stemming the flow of illegal e-cigarettes.

China's vaping sector, estimated at $28 billion, sees the U.S. accounting for nearly 60% of the country's vape exports. Despite encouraging exports, Chinese authorities have curtailed the domestic vaping industry, bringing companies under the control of the state-run China National Tobacco Corp. The ban on flavored e-cigarettes, except tobacco, is attributed to safety concerns and risks associated with additives. However, experts point to the underlying influence of the world's largest tobacco company, exerted through its regulatory arm, the Tobacco Monopoly Administration.

Regulatory Maneuvers: Chinese E-Cigarette Manufacturers Pivot to Global Exports Amid Domestic Restrictions

Facing stringent regulations in China, e-cigarette manufacturers like Elf Bar-maker Shenzhen iMiracle are strategically shifting their focus to global exports. The Chinese government, under the control of the China National Tobacco Corp., has tightened its grip on the domestic vaping industry, limiting flavors and asserting control over production.

Dr. Ray Yip, a former director of the Gates Foundation’s China program, notes that the tobacco administration views each e-cigarette sold as a reduction in traditional cigarette consumption, prompting heightened regulation. For many manufacturers, the domestic market holds little promise, prompting a shift to exporting products to regions like Europe.

Shenzhen iMiracle, in particular, has capitalized on regulatory loopholes, initiating U.S. shipments in late 2021. Exploiting the fact that the FDA had restricted kid-appealing flavors only in reusable vapes like Juul, disposable e-cigarettes, such as Elf Bar, evaded the ban. While the FDA has declared Elf Bar illegal, iMiracle's actions appear to violate Chinese law, although experts suggest that such rules lack enforcement when it comes to export-oriented businesses.

China's tobacco regulations state that exported vapes should comply with the laws of the destination country. However, the lack of enforcement and China's apparent indifference to the fate of products sold for export underscore the challenges in regulating a burgeoning industry with global ramifications. As Chinese e-cigarette makers pivot to exploit regulatory arbitrage, the international community grapples with the implications of unbridled exports and potential health risks associated with unregulated vaping products.

In conclusion, the evolving landscape of the Chinese e-cigarette industry reflects a strategic shift towards global markets as domestic regulations tighten. Companies like Shenzhen iMiracle, maker of Elf Bar, have found a foothold in international markets by navigating regulatory loopholes and capitalizing on lax enforcement. The shift is driven by a combination of restrictive domestic policies, economic opportunities in export-oriented markets, and a regulatory arbitrage mindset.

While the export-driven model offers financial gains to Chinese e-cigarette manufacturers, it raises concerns about the global proliferation of unregulated vaping products. The lack of enforcement of Chinese laws governing exported vapes, coupled with the FDA's challenges in regulating such products, underscores the complexity of addressing the health risks associated with this industry on a global scale.

As the industry continues to expand and adapt to regulatory landscapes, international collaboration and harmonization of standards may be crucial in addressing the challenges posed by the unregulated export of vaping products. The implications of this shift extend beyond regulatory concerns, touching upon broader public health considerations and the need for coordinated efforts to ensure the safety of consumers worldwide.