By Rodney Van Dooren
Capital expenditure by the Government on infrastructure development, real estate, enhanced interconnectivity and other strategic initiatives play a critical role in spurring the economy. Investment across such key pillars stimulate economic growth, create jobs and attract investment. A critical enabler for this undertaking by the government is tax collection, which empowers the exchequer to fund these projects. However, the shadow economy run through illicit trade deprives the citizens of facilities, compromises health and productivity and stalls the nation’s progress.
So why is the crime in tobacco products or cigarettes so lucrative? Generally, one container of illicit cigarettes has an estimated street value of $2.3 Mio. A packet of illicit cigarettes is produced for an estimated $0.20 and can be sold in India at about $5 dollars, and the trading in illicit cigarettes is low risk, high reward; and viewed as a petty crime. Approximately 12% of the global cigarettes consumed are illicit which impacts Governments across the globe to the tune of $40.5 billion in tax losses – In India, estimates from Euromonitor indicate tax losses at close to $2 billion. To a lesser extent, the issue in India is of a domestic nature, through local illicit manufacturing; but of greater significance is the transnational supply chain – and so a domestic and transnational solution is necessary, where preventative action from countries of origin and transshipment are essential.
There are various smuggling routes around the world. With India in focus, here’s an example from closer home – Cambodia is the origin of counterfeit cigarette products, which are generally smuggled or transited in seaports through Thailand before reaching India. There are also examples of direct flights from Cambodia to India where counterfeit cigarettes were seized upon arrival. Second to that you have products that are called illicit whites (cigarette products with no legal domestic market), which in the case of India are cigarettes produced or transhipped in the UAE and smuggled into India. Then there are contraband products coming from Indonesia, typically transhipping in Singapore and eventually smuggled into India.
In every corner of ASEAN and beyond, the intricate web of illicit trade connected actors in origin countries – in the tobacco fields where the leaves were harvested, to the heart of a bustling city where the production of illegitimate and fake cigarettes is thriving, to transit/transhipment countries, and destination countries – the trade in illicit cigarettes has become a profitable venture for the unscrupulous.
Enter the transit countries, the silent intermediaries. From bustling Free-Trade Zones (FTZ’s) where speed is everything and where transparency is not a priority, to the concept of transhipment, making it impossible to open a container, even if it’s suspicious – as transit countries are the gatekeepers, overseeing the smooth transfer of goods – with their cooperation, the trade would collapse. By collaborating with origin and destination countries, transit nations could tighten their regulation, intercept shipments and dismantle the supply chains that kept the trade alive – but that isn’t happening, in some cases succumbing to the allure of personal financial gain. And so, the second thread of web is woven.
The final thread, the destination countries, in this case India, where overloaded trucks planning to cross the land border, or ships or fishing boats planning to enter a port – all hoping not to be caught. The anxiety was unnecessary, as the cigarettes make it through successfully, possibly aided. Days later, unsuspecting retailers and consumers contribute to the perpetuation of this illicit trade. The allure of cheap cigarettes drawing them in during tough economic times, especially in places like India, the Philippines and Thailand, unaware of the consequences.
Recommendations and way forward
1. Ministries and authorities should better leverage existing free trade agreements and provisions within the World Trade Organization (WTO). Morally and ethically, participating countries i.e., origin and transshipment should meet their obligations and there is work to be done to ensure that stringent checks are put in place, supported by increased efforts around transparency in trade, for export and transshipment. A transparent custom recording system where all countries in the supply chain have full visibility on the logistic flows and entities involved is essential, like that of the ASEAN Single Window for document exchange or the UNCTAD developed ASYCUDA.
2. Promote harmonization of existing gold standard regulations within India and across ASEAN. There is a need to adopt regulation requiring the manufacturer and the exporter to ensure prior to manufacture and export that the goods being exported comply with the destination market regulation. To support this there is a need to ensure that this is accompanied by implementing rules i.e., designation of the governing body for enforcement and deterrent penalties.
3. As it relates to transnational illicit supply chains, the Indian Government and other Governments facing similar issues should formally engage their counterparts in origin and transit and countries, by engaging with the in-country Embassies of the origin or transshipment country, or through the Indian Embassy in the country of origin and transhipment. Information sessions to discuss the nature of the issue is a starting point to establishing common ground and aligned actions i.e., cooperation on intelligence sharing, regulation and enforcement.
4. Special consideration should be given to the establishment of an inter-intelligence agency taskforce, working in cooperation with domestic enforcement agencies and intelligence agencies across the transnational illicit supply chain, namely the origin and transshipment countries.
About the Author: Rodney Van Dooren, Head of Illicit Trade Prevention, Philip Morris International (PMI).
Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.
From: financialexpress
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