Countering illicit trade not only requires cooperation between global institutions but also the designing of effective strategies and improving regulatory frameworks between countries
The sobering fact that India does not rank high in the Global Illicit Trade Environment Index (GITEI), an annual study brought out by The Economist Intelligence Unit, and needs to take corrective action to bring down the risks of illicit trade raise troubling concerns for policymakers. According to the index based on four parameters — Government policy; supply and demand; customs environment and transparency and trade — India ranks 49 globally and nine, in the Asia Pacific-rankings which we can most certainly improve.
In the context of the growing menace of illicit trade worldwide, the World Economic Forum (WEF) estimates the global market of illicit trade to be about $3 trillion by 2022. It has been pointed out by the WEF that while everybody does express concern, the response to this problem has been disorganised and leaves a lot to be desired.
The need of the hour today, as brought out at the sixth edition of MASCRADE (Movement Against Smuggled and Counterfeit Trade), conducted under the aegis of FICCI’s Committee Against Smuggling and Counterfeiting Activities Destroying the Economy (CASCADE), is to proactively and conscientiously address the many issues exacerbating the state of the global problem of illicit trade and understand its visible outcome and measurable impacts. There is also an immediate need for harnessing the potential of multilateralism through inter-governmental actions and of an effective monitoring and inspection of Free Trade Zones (FTZs) to ensure legitimate trade flows so that FTZs do not become “hotspots”’ for illicit trade and organised crime.
Countering the beast of illicit trade not only requires an understanding of and cooperation between institutions globally but also the designing of effective global strategies and improving the regulatory framework. Unfortunately, no country can claim to have eliminated the problem. Everybody has had varying degrees of success and all countries have paid a price. Trade in smuggling, contraband, counterfeit and pirated goods has risen steadily in the last few years and now stands at 3.3 per cent of global business. Hence, its existence and operation are broad in scope and large in value, impacting not only the global economy, causing losses to the industry, Government and society but also adversely affecting the health and safety of consumers. Additionally, it is facilitating an underground economy and organised crime. Tragically, illicit operators display greater cooperation between each other across nations than what governmental institutions do, both within a country and across borders. It is imperative for countries to share experiences in order to understand the global dimensions of the illicit trade challenge so that a possible framework may be set up to tackle it.
Highlighting the challenges of tackling the problem of tobacco smuggling, Tim Sheppard, Counsellor (Australian Border Force), Australian High Commission, emphasises that if the risks are minimised upfront there will be less work for law enforcement officers to do. According to him, high tax rates on tobacco have actually incentivised tobacco smuggling. On a moderate investment, importing a container of illicit cigarettes could provide a 5,000 per cent return on investment without the same kind of fines or penal provision such as in narcotics. The Australian Government was cognisant of the problem and consequently increased the fines and prison terms for tobacco smuggling to 10 years of imprisonment and penalty to the tune of five times of duty avoided. Also, the close cooperation between the Australian Border Force and Department of Home Affairs, the Australian Criminal Intelligence Commission, the Australian Transaction Reports and Analysis Centre, the Commonwealth Director of Public Prosecutions and the Australian Taxation Office has led to good results. More than 600 tonnes of illicit tobacco, estimated to be about AUD 600 million in evaded duty, has been seized in the last one year.
Vincenzo Tuzi, Guardia di Finanza Attaché, Embassy of Italy says that the number of unusual products seized in recent times indicate the presence of large criminal organisations who have kept a tab on markets and economics before starting production of market-specific counterfeit goods. To tackle such a scenario, Tuzi emphasises the need for every country to have the same penalties for certain kinds of fraud. This would facilitate cooperation in investigation.
Italy has an anti-counterfeiting MIS in place which at an operational level allows Intellectual Property Rights (IPR) holders to work actively with the law-enforcement agencies by sharing information about their products that could be a target for fraud. The system provides reports for the IPR holders on fraud and other information useful for the protection of their rights. This database also provides useful feedback through data and risk analysis for various statistical purposes and has proven to be a starting point for further investigation projects on a tactical and strategic level.
In their report, Huw Watkins, Head of Asia Policy, IPR, UK and Julian Saldanha, First Secretary, Revenue and Customs, British High Commission, say that 2.5 per cent of exports worldwide were counterfeit goods as were 6.5 per cent items used in IT and communication. India ranked sixth in the world in counterfeit production. Given this background, enforcement agencies need to look at the entire chain in the life cycle of counterfeit goods —from the placing of orders, to manufacturing, to shipping, to importation, to retail sale to wholesale and reworking and transportation. This needs to be followed by an identification of areas in the chain where disruption of the illegal activity could be done. As per Watkins, while FTZs have been beneficial for trade, they have also been very vulnerable to exploitation by criminals.
Outlining some of the challenges that the US faces while dealing with the SAARC countries and with India, Shilpi Jha, Senior Legal Counsel for Intellectual Property-South Asia, Embassy of the USA, says there is a major lack of awareness, right from the consumers up to the Government level, on not just IPR issues but also on industry and Government initiatives in this area. There is also a lack of coordination among agencies especially given India’s federal polity, the fear of losing/lack of trust as industries always fear that sharing too much data with custom/police will cause information to leak out and counter-wise the enforcement machinery feels that by doing too much work on behalf of the industry, the latter’s responsibility will diminish.
Such insights on stemming and addressing the challenges of illicit trade are very instructive for India in its fight against this debilitating malaise. The Australian experience in tackling tobacco smuggling could be useful for the country as it is facing a similar challenge today. The possibility of developing an anti-counterfeiting information system in India on the lines of the Italian experience could be definitely explored. The strategy of examining each link in the counterfeit chain and tackling the weaker link to disrupt the chain, an approach adopted by the UKIPO could also be usefully examined by the authorities. These authorities could also examine the role of SEZs and find out whether there exist similar instances of such misuse in the country. India could also consider MOUs with online trading platforms to educate them about the possibility of their being misused for the sale of counterfeit goods. The authorities could relook at the present efforts at publicising the ill-effects of buying smuggled and counterfeit goods and develop a more robust publicity strategy to this effect. Finally, issues such as a lack of trust, lack of cooperation among agencies and lack of appreciation of the nefarious impact of counterfeiting are common to India. An institutional mechanism to address these challenges could also be explored.
If India develops a greater communication flow between nations and between various enforcement agencies in the country, modifies the many best practices according to the needs and situations prevalent here and equips enforcement agencies with the latest technological tools that keep them ahead of the curve, then we will be able to weaken this adversary, which has been damaging economies and societies and compromising the safety and security of nations the world over.
(The writer is former Chairman, Central Board of Indirect Taxes and Customs, Member, FICCI CASCADE)
