Illicit trade: For the attention & consideration of APEC

International trade has grown exponentially with the acceleration of globalization and the growing partnership between the business world and governments. The process has been greatly enabled by the development of information and communication technologies (ICT), which have dramatically blurred geographical barriers and aided trade on a massive scale.

With the impressive trade growth, however, illicit trade – in the form of counterfeit and smuggled goods – has also grown exponentially. When APEC leaders meet in Singapore this November for their 17th summit, they will be looking at an international trade arena wherein illicit goods compete aggressively and profitably with goods that are legally traded and properly taxed.

There was a time when we could view illicit trade as a problem that countries must deal with individually as best they can. Not anymore. Illicit trade has expanded on such a scale, impacting the social, political and economic spheres, that nothing less than a multilateral approach among the nations will now suffice.

A worldwide scourge

In his book aptly titled Illicit, Moises Naim gives a succinct definition of illicit trade: “It is trade that infringes the rules – the laws, regulations, licenses, taxation system, embargoes and all the procedures that countries use to organize trade, protect their citizens, raise the standard of living and enforce codes of ethics.”

Based on this definition, one can understand why illicit trade is a scourge to the Asia-Pacific region and to the rest of the world. In its various forms, notably counterfeiting and smuggling, illicit trade is integrated into the activities of international crime syndicates and threatens the very fabric of globalization and the benefits of legitimate trade and exchange activities. The Asia-Pacific region, which has benefited greatly from the globalization process, has a great deal to lose from the continued spread of illicit trade within its territory – especially because a significant part of the trade not only enters the region, but originates here.

The IMF, the World Bank and other international institutes have estimated that the parallel economy – arising from tax evasion, undeclared trade and other criminal activities – represents 15 percent to 20 percent of global GDP, about $13,000 billion. Worse, since the 1990s, illicit trade has increased seven times faster than legal trade, with major consequences for the global economy.

What has abetted the growth of this grey economy is the insatiable desire of consumers to buy goods at the lowest possible prices, without regard to their source. Technological advances, combined with the liberalization of trade and financial services, have facilitated the emergence of criminal networks that control parallel market activities and have the capability to produce consumer products of all kinds.

Cheap goods are understandably appealing to consumers, even if they are of lower quality. But there are also those products that pose real dangers to health and safety, such as counterfeit pharmaceutical products and spare parts for air or land transport vehicles. Health and safety concerns raise the issue of counterfeiting from a mere question of vanity (in the case of luxury goods) to a genuine threat to human safety in the case of medicines that can cripple or kill and spare parts that can endanger lives.

Thus, the cost goes well beyond economic considerations to the social, political and cultural spheres.

Finding solutions

Because the problem is global, only concerted action on a global scale can solve it. But the search for availing solutions has been hampered by lack of global awareness and understanding of the real nature of illicit trade and its ramifications. The first step toward a solution is to measure the extent of the problem.

As things stand now, although many political leaders know that there is a problem, they mostly do not know yet the extent and effects of illicit trade. There is still a paucity of data that will enable us to get a grip on the problem. The figures and statistics of inter-professional federations and international organizations show only trends and estimates. And that according to experts is insufficient for battling a formidable enemy.

It is in this light that I proposed that the APEC Business Advisory Council (ABAC) assist in this initiative. The ultimate objective is to draft a Global Illicit Trade Index that will provide a measurement of the parallel economy. The index will initially deal with specific sectors for which precise data can be collected, such as the pharmaceutical, automotive spare parts, tobacco, music and film industries. The object of this approach is to come up with a composite picture of the problem from the standpoint of each sector, in each country, and the state of effectiveness of the efforts made by individual countries to fight illicit trade.

Overall, the index will provide an assessment of the economic losses due to illicit trade for each country. It will also enable comparisons between the programs set up by the various countries and the various sectors.

Needless to say, this initiative needs the support of APEC members in order to succeed. All countries in our region have a major role to play in creating the index because the data will come from their societies. The task requires cooperation and partnership between APEC and ABAC, and between the public and private sectors. And it is in this spirit that I have proposed that ABAC will assist in this initiative. Hopefully, ABAC will be able to bring this to the attention of APEC’s leadership next year in Japan.

Most welcome is the Milken Institute’s decision to collaborate with us in the creation of the index and its publication. Moreover, the Institute will assist in securing the necessary resources for the production of the index.

The Milken Institute is an independent economic think tank whose mission is to improve the lives and economic conditions of diverse populations in the United States and around the world by helping business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity. With the help of such a reputable organization such as the Milken Institute, the publication of an annual index will finally shed light into the economic impact that illicit trade has on governments worldwide and how governments rank according to their incidence on illicit trade.

Our road map is quite ambitious and challenging. The initial steps have been taken for the creation of a Global Index on Illicit Trade. Now we must ensure that we complete the journey.