What Is Illicit Trade? What Are Its Consequences?

Illicit trade is a complex problem and a menace to the world’s economic growth. It poses a serious threat to consumers’ health and the reputation of legitimate manufacturers while stunning a country’s economic growth.

The world’s population is growing, and the demand for novel, customizable products is increasing at a fast pace. This rapidly growing market provides space for the expansion of illicit financial flows.

The current wave of globalization has enabled all segments of society — suppliers, manufacturers, end-consumers — to enjoy the fruits of liberalization. It has, inadvertently, also allowed parties that are involved in the trade of counterfeit or illicit products to enter a bigger market. While some profiteers carry out illicit activities to evade taxes and make more money, this form of trade is often identified as a facilitator of organized crimes and terrorism.

A Brief Historical Overview

Illicit trade gained momentum during a period of the world’s history when nearly every nation was colonized. This was mainly because colonial powers follow the economic philosophy of mercantilism.

In the 17th century, British authorities recognized smuggling as a big problem. This illegal activity continued despite the many efforts of governments to stop the entry of contraband items in their territories. In England, the smuggling of wool and hides rose exponentially when the then-government imposed high taxes on the export of these products. Some people smuggled other goods to avoid embargoes and prohibitions on particular trades.

The US saw the epidemic of illicit trade in the 1920s during the Prohibition era. During this time, there was a nationwide constitutional ban on the import, production, sales, and transportation of alcoholic beverages.

Current Scenario and Future Prospects

Why Is This Trade Widespread?

The spread of liberal economic policies and ideas across the globe allowed certain elements with mal-intentions to penetrate into the trade market. The world witnessed the onset of free trade zones (FTZs) which are lauded for their contributions to trade facilitation. On the surface, FTZs are not the reason for growing illicit trade. It is their compromised governance that allows profiteers to supply and distribute counterfeit goods to consumers across the world. The extent of monitoring and the possible oversight at FTZs should be the main concern for all stakeholders who intend to combat illicit trade. Some FTZs even lack legal authorities and customs officials, providing a clear passage for the trade of illicit products.

E-commerce is often celebrated as mobilizing the international market space, but it has also played a major role in the spread of illicit trade. With sale transactions taking place on websites and online market places under minimal to zero regulations, it has become easy for people with vested interested to sell illicit products.

What Sectors Do Illicit Trade Cover?

Illicit trade is spread across all sectors. The supply of counterfeit goods, illegal trade of natural resources, people trafficking in illegal drugs and weapons, and smuggling are some of the ways in which illegal trade exists. Illegal trade of wildlife and marine life is causing serious damage to the environment. Other forms of trade are tampering with social and economic growth of countries.

Impact of Illicit Trade

Illegal activities do not only halt economic growth, but also prevent governments from spending on human development or infrastructure as it has serious impacts on government tax collection. This indicates that illicit trade can have adverse effects on industries, consumers, and governments. The following areas are most compromised because of the unbridled trade of counterfeit or illicit goods.

1. Government tax collection

2. The reputation of legitimate manufacturers

3. Consumers health

4. Law enforcement and adherence to regulations

It is important to closely analyze its effects on each category mentioned above:

1. Government Tax Collection

A globally accepted way for a government to increase its revenue is tax collection. A government imposes taxes to ensure that the wealth is not accumulated in the hands of a few and to collect money for public spending. It also levies import and customs duties on non-essential luxury goods to protect the interests of domestic industries and products.

Illicit trade is an assault on the government’s principles and philosophy of equitable distribution of wealth. It allows profiteers to make more money and consolidate power through unfair means. This deprives citizens of their economic and social rights.

2. The Reputation of Legitimate Manufacturers

For manufacturers operating illegally, purchasing original packaging is only a click away. Through a company’s website, such manufacturers or suppliers can get access to the packaging at lower rates. They then use it to sell counterfeit goods. Many companies and industries lose major revenue as the original products available in the market are often left unsold. This is due to the easy availability of fake products that retail at lower prices.

3. Consumers Health

In an environment conducive to illegal trade, items that are injurious to public health are sold openly. The sale of fake drugs or counterfeit food items wreck havoc on people’s health. It also provides easy access to controlled products, for example, drugs that cannot be sold without a prescription.

The dire consequences of the consumption of such items are often irreversible. Both the public and the government end up with a health crisis on their hands caused by illicit goods.

4. Law Enforcement and Adherence to Regulations

This activity is a flagrant violation of the rule of law. Widespread illicit trade creates restlessness and lawlessness in society. It also allows the funding of other illegal activities.

How to Combat Illicit Trade

Illicit trade is a complex problem and there are so many factors at play that have kept this activity going for so long. However, the fact remains that its adverse effects on both public and private sectors are manifold. It also facilitates other criminal activities. To combat this menace, public and private sectors, law-enforcement agencies, international organizations, and the civil society need to COOPERATE. These stakeholders will only be able to combat this scourge through a collaboration that covers both political and technical aspects of illicit trade.