Ottawa wants to butt out illegal tobacco ring

The federal government says it wants tocrack down on contraband tobacco bytargeting illegal smoke manufacturers in First Nations communities, in Ontario and Quebec, where a price war has driven the cost of a carton of cigarettes down to $6, one-tenth the normal retail price.

Federal Public Security Minister Stockwell Day vowed to step up efforts to dismantle cigarette manufacturers and distribution networks flourishing in several parts of the country, notably in the Mohawk communities in Quebec ofKanesatake, Kahnawake and Akwesasne (which straddles Quebec and Ontario).

Day announced a new working group that brings together Canada Revenue Agency, Indian Affairs, Health Canada, the RCMP and Canada Border Services Agency to hone a federal strategy that targets illegal cigarettes. He didn't specify how much funding the group would get.

The announcement was made as reports suggested cigarette cartons are being sold for as little as $6 in the Kahnawake Mohawk Reserve, southwest of Montreal.

A price war has been brewing for a year in the Mohawk community, where the price of a carton has dropped dramatically from $22 last year, Montreal newspaper La Presse reported Wednesday.

A 200-cigarette carton normally retails for about $65.

Customers are making the trek to Kahnawake and Kanesatake from as far as New Brunswick to stock up on cigarettes, the report said.

The Quebec government is aware of the problem but said it won't take an aggressive approach to clamping down on the black market for cigarettes.

There are measures in place to control the trade of illegal tobacco products and they seem to be working, said Quebec revenue minister Jean-Marc Fournier.

"We had 48 convictions in 2004-2005, and 772 last year," he said in Quebec City Wednesday. "Actions are being taken. Still, the problem continues to exist. But we are in action."

Earlier this week, the Canadian Convenience Stores Association sounded the alarm about the crushing competition it faces from contraband cigarettes.

In a speech at a Montreal business luncheon, association president Michel Gadboissaid corner stores that must pay taxes on legal cigarettes they sellcan't compete with contraband smokes selling for a fraction of the price.

In April, the RCMP said they were closing in on the flourishing underground cigarette industry that costs the federal government as much as $2 billion in lost tax revenue per year.

Police said most of the illegal tobacco seized by authorities comesfrom the Akwesasne Mohawk reserve, which straddles the Canada U.S. border.