The global illicit trade: Where is the Philippines?

Illicit trade is the “trafficking and illegal trades in drugs, arms, persons, toxic waste, natural resources, counterfeit consumer goods and wildlife” (Organization of Economic Cooperation and Development). In the Philippines, all these forms of illicit trade exist. Add to that massive smuggling.

To measure how countries address illicit trade and other related issues, the Transnational Alliance to Combat Illicit Trade (TRACIT) commissioned the Economist Intelligence Unit to produce the Global Illicit Trade Environment Index (GITEI), which may be accessed at https://illicittradeindex.eiu.com/.

GITEI measures “the extent to which a country enables illicit trade, either through action or inaction. It is based on the findings from an extensive literature, and inputs from a panel of illicit trade experts.”

Some 84 countries were represented in global supply chains, with particular consideration for illicit trade flows. These countries represent 95 percent of global gross domestic product (GDP) and 95 percent of trade flows. The metrics built the index around four main categories, each with four to seven indicators. The categories are:

Government policy: the extent to which countries have comprehensive laws targeting illicit trade. The category focuses on legal authority at relevant stakeholders, and considers intellectual property protection, cyber security and money laundering laws.

“It measures the extent to which an economy has entered into 14 conventions related to illicit trade; its compliance with Financial Action Task Force (FATF) money laundering provisions; its stance on IP protection; its approach towards corruption; law enforcement techniques in an economy; the extent of interagency collaboration; and its level of cybersecurity preparedness.”

Supply and demand considers the institutional and economic levers that can stem or amplify illicit trade flows.

This measures the domestic environment that encourages or discourages the supply of and demand for illicit goods, including the level of corporate taxation and social security burdens, the quality of state institutions, labor market regulations and perceptions of the extent to which organized crime imposes costs on business.

Transparency and trade: the extent to which the government makes itself publicly accountable in its efforts to combat illicit trade.

The category also considers best practices in trade governance.

This category measures a country’s transparency about illicit trade and the degree to which it exercises governance over its free trade zones (FTZs) and transshipments.

Customs environment: This category measures how effectively a country’s customs service manages its dual mandate to facilitate licit trade while preventing illicit trade. Ranking: GITEI shows that Finland, the United Kingdom, the United States, New Zealand, Australia, Sweden, Austria, Netherlands, Denmark and Germany ranked in the top 10 out of 84 countries. Japan landed 14th and Korea, 17th.

Where is the Philippines in the picture? The Philippines ranked 64th globally. In Southeast Asia, it is behind Singapore 25th, Malaysia 47th, and Thailand 48th. It is in the league of Vietnam and Indonesia.

In what categories does the Philippines fall short? There are three:

Government policy (No. 79 out of 84): the extent to which countries have comprehensive laws targeting illicit trade.

Customs (60 out of 84): the effectiveness of the customs service in managing its dual mandate of trade facilitation while preventing illicit trade.

Supply and demand (55 out of 84): the institutional and economic levers that can stem or amplify illicit trade flows.

The indices have not likely fully reflected the government action against smuggling, drugs and tax evasion under the Duterte administration since 2017. Mighty Corporation is a case in point.

The government needs more resources for poverty alleviation projects, particularly in the rural sector. Today, 30 percent of the rural population is poor. High poverty retards market development and business investments.

The Federation of Philippine Industries, led by Jesus Arranza, has been active in fighting illicit trade. Its antismuggling advocacy commits to helping protect government revenues, preserve jobs and to level the playing field for all economic players.

In 2017, it commissioned the Illicit Trade Barometer Study covering eight commodities, foremost of which were petroleum, steel, resins, palm oil and cigarettes. In the five years through 2015, the amount of smuggled goods reached some P900 billion.