Tracking Illicit Trade in Southeast Asia

06 Dec 2012

The research was supported by an NIH Fogarty grant on the “Political Economy of Tobacco Control in Southeast Asia. It measured illicit consumption by comparing estimates of consumption to tax-paid sales, and measured smuggling by comparing imports recorded by a country to exports reported by trade partners. Discrepancies indicate illicit consumption and smuggling.

National focus

These methods provide objective estimates independent of those provided by the industry and are relatively inexpensive to undertake. Such studies also focus policy responses to the particular problems faced by each nation.

Smuggling is on the rise, with no clear relation to tax increases evident

Consistent links between tax increases and increases in smuggling are not evident across countries. For most countries, smuggling fluctuated year-over-year.

However, table 1 shows periods where smuggling increased and decreased between one tax increase and the next.

Other factors important

The fact that increased smuggling does not necessarily follow tax increases suggests that factors like border control and interdiction efforts affect the magnitude of smuggling. Tax increases and other policy changes to address consumption can be undertaken without regard to the potential for increased smuggling.

By studying patterns of tobacco flows into and out of a country, certain trading partners can be identified as the major sources of potentially illicit trade of tobacco.

Trade discrepancies not only provide an estimate of smuggling activity, but they can pinpoint important sources for illicit cigarettes. Table 2 displays the proportion of cigarettes smuggled into each country from the top two origins of illicit cigarettes for each country.

Table 1: Periods of smuggling increase and decrease following a tax increase Source: UN Comtrade

Targeted efforts directed toward a country’s most substantial sources of smuggled cigarettes can focus scarce resources. Origins of importance to multiple countries can be the focus of region-wide efforts.

When cigarette imports vastly exceed tobacco consumption in a country, this should flag concerns that the country is serving as a conduit for smuggled cigarettes.

Imports excessive

Cambodian net cigarette imports vastly exceed the amount needed for local demand. For example, in 2004 legal net imports were six times that needed to meet demand given local production, and nearly twice the magnitude of consumption.

By 2010, net imports nearly doubled to 1.6 billion packs. Cigarette flows that outstrip both consumption and exports are a clear indication of smuggling and can point to the need for coordinated action with regional partners to reduce illicit consumption in other countries.

Where domestic consumption revolves around the consumption of a unique tobacco product, illicit production locally may be the key concern highlighted in such studies.

Table 2: Top 2 Sources for Smuggled Cigarettes, 2010 Source: United Nations Comtrade Database

In Indonesia, kreteks are the dominant form of consumption. The country is the also largest producer of this tobacco product. Because of this, the magnitude of smuggling is low relative to illicit production.

The existence of many small producers, supported by favourable tax rates imposed on their products, exacerbates illicit production by increasing the costs of tax enforcement and compliance monitoring. Illicit consumption in Indonesia amounted to 23 billion cigarettes by 2004 or 2.6 trillion Rupiah in revenue losses.

Effective actions

The use of effective tax stamps, effective licensing and monitoring of production, and reduction of tax advantages accorded to small producers can target both illicit consumption and production.

The findings from these studies both highlight useful approaches to measuring the magnitude of illicitly traded tobacco and point to policy steps that might be taken to prevent illicit trade.

This project received support from the NIH Fogarty International Center, awarded to Duke University’s Program on Global Health and Technology Access in collaboration with the Southeast Asian Tobacco Control Alliance and the American Cancer Society.

The content is solely the responsibility of the authors and does not necessarily represent the official views of the Fogarty International Center or the National Institutes of Health.

Article taken from the COP5 Bulletin, and supplied by the Southeast Asia Tobacco Control Alliance (SEATCA)

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