Free Trade

To tackle illicit trade, let’s smash taxes


Last year, the Irish Revenue seized more than €32m worth of illegal cigarettes, 326 weapons, a crocodile head and a turtle shell, among other assorted contraband items. Alcohol has also been smuggled in massive quantities, with over 764,174 litres worth €4.17m seized in 2020 alone.

As criminals continue to improve their methods of concealment, the scope of undetected activities expands further. We should all be concerned by this. Not only do black markets bypass all regulatory oversight, meaning there are no controls for safety or quality, they create an incentive and funding model for additional criminal behaviour, such as arms or human trafficking, while also depriving the government of tax revenue and putting legitimate businesses at a disadvantage.

There is no silver bullet for solving this enormous challenge, and the Irish government should start by implementing smarter anti-illicit trade policies. But it should beware that many of these black markets evolve as a reaction to overregulation and over-taxation, which is something that the government could, with the right political will, address relatively easily.

We know that illicit trade is, in many ways, a consequence of restrictive policies such as sin taxes, which drive criminals to provide consumers with a cheaper alternative. Ireland’s policies, such as the recent 50-cent increase in excise duty on a packet of cigarettes, likely plays to the benefit of smugglers seeking quick profits, while doing very little, if anything, to help people quit smoking.

If the government’s aim is to reduce smoking, it could endorse reduced-risk nicotine products, like e-cigarettes and vaping, through reduced taxation and more accurate public information campaigns on the relative health benefits. Not only would this achieve the broader goals put forward by public health regulators, as research by the European Policy Information Center has found, but it could also help discourage the illicit trade of tobacco.

Within Europe, regulatory disparity encourages the illegal flow of cigarettes from low-cost countries such as Belarus and the Ukraine into the European Union. In Minsk, for example, the price of a pack is around 1.40 EUR, ten times cheaper than in Ireland. In November last year, over 5.5m cigarettes originating from the Ukraine were seized at the Dublin Port ,with the budget loss estimated at around €2.5m.

Smugglers exploit these countries’ territorial proximity to the EU, and by entering through countries such as Latvia, counterfeit tobacco products can make their way into western Europe.

Of course, black markets exist not only because there are groups willing to take the risk of smuggling products across borders, but because there is demand for overregulated products. Surveys aren’t everything, but one conducted by iReach did find that 70 per cent of adults (including 67 per cent of non-smokers) in Ireland agree that it is “understandable” that consumers might choose not to buy cigarettes and tobacco from legitimate retailers in Ireland. 

Tobacco high-cost countries such as Ireland are especially vulnerable to criminal activities, and while detection efforts should be extended, the government should consider taking decisive steps in the form of tax cuts or, at the very least, abstaining from further tax increases. 

The evidence to support this is compelling. A 2010 study published by CIRANO in Montreal found that each additional dollar in taxes raises the propensity to resort to consuming contraband cigarettes by 5.1 per cent, while each additional dollar in tax cuts decreased it by 5.9 per cent. It is clear, therefore, that higher taxes increase the attractiveness of the black market, and that the deeper the tax cuts, the higher the likelihood of stopping smuggling. 

The overarching goal behind excise tax increases, regulators claim, is to reduce smoking rates in Ireland. While it is true that the cigarette prevalence in Ireland has been consistently dropping, this doesn’t mean that if the government were to cut taxes the rates would shoot back up. 

The Irish government need only look to Canada where, in 1994, the government slashed taxes on cigarettes to tackle the booming illicit trade and, despite alarmist expectations at the time, the prevalence of smoking dropped and continues to fall. Illicit trade has since also significantly decreased.

In order to piece together a more coherent strategy, the Irish government should continue to target the supply side of the illicit market, but it would be a mistake not to consider significant tax cuts and smarter regulation. A multi-pronged approach will be the only way to reduce illicit trade and avoid the problems associated with it.

Originally published here.

Fake pesticides threaten consumer health

Counterfeiting is a real problem…

European institutions, particularly on the European Parliament’s legislative level, constantly debate and seek to regulate the use of crop protection tools. The catalogue of available products is getting thinner every year, which has been criticised by farmers. However, making chemical compounds or products illegal does not automatically rid the market of their presence. In fact, the ill effects of prohibition apply to the agricultural sector to the same extent as other consumption areas. 

In 2018, the European Union Intellectual Property Office stated that €1.3 billion are lost every year in Europe due to fake pesticides. This translates to €299 million and 500 jobs lost per year in Germany, €240 million and 500 jobs each year lost in France, and €185 million and 270 jobs lost annually in Italy.

In 2018, EUROPOL revealed that some 360 tonnes of illegal or counterfeit pesticides were seized in Europe in a joint effort with the European Anti-Fraud Office (OLAF). Counterfeit pesticides, now estimated to represent 14% of the European crop protection market, pose serious health risks to consumers. They are not subject to the rigorous safety assessments of food safety authorities. Adding to that, untested products can also lead to considerable harvest loss, resulting in less food security for European consumers.

Recent numbers make the 2018 statistics pale in comparison. In 2020, EUROPOL stated that 1,346 tonnes of counterfeits, illegal, and unregulated products had been taken off the market, or the equivalent of 458 Olympic-sized pools, with a total worth of €94 million of criminal profits seized. In the illegal trade raids, one can also notice an uptick in seizures of illegal pesticides, which relates to non-approved products. Year after year, the European Food Safety Authority (EFSA) records the presence of unapproved pesticides in European food. As a result, there have been calls upon member states to increase their inquiries into the imports of non approved pesticides into the European Union. In an effort to tackle this problem at its roots, we believe that a re-evaluation, conjointly with farmers associations, of the approval of these substances is a sensible solution. Suppose the European Union or member states outlaw a chemical substance due to health concerns, yet the ban results in an uptick in illegal trade with absolutely no safety assessment. In that case, a sensible compromise solution that takes into account the worries of producers while respecting the safety of consumers is in order.

Note on the illicit trade with fertilisers: In 2012, the Danish newspaper “Politiken” published an extensive report on the prevalence of illicit trade with fertilisers, which triggered a question to the European Commission about the extent of this problem. In a written answer, the Commissioner in charge replied in July of 2012 that Berlaymont was not aware of illegal trade in this area, and assured the necessary observation and enforcement mechanism were in motion to avoid it. Given the extent of fraudulent trade with organic food and the prevalent spread of fake pesticides, we believe that an investigation into the existence of illicit fertilisers in Europe is opportune.

Illicit trade is a significant challenge for societies in today’s globalised world. From cosmetics to medicines and agricultural products, illicit trade is putting millions of consumers around the globe at risk. The scope of the problem is transnational, and, therefore, the cost of misguided policies is very high. Our goal should be to create and sustain the conditions under which there would be no incentive to turn to the black market. This can be achieved by reducing tax burdens, enhancing branding and marketing freedom, introducing harsher penalties for fraudulent trading practices, and ensuring transparency across the EU.

Originally published here.

Why the free trade agreement with Mercosur should be ratified despite media hysteria about the Amazon fires

The hysteria has been fuelled by media outlets that prioritise sensationalism over unbiased reporting…

It is now more than a year since the European Union and Mercosur (Argentina, Uruguay, Paraguay, Brazil) reached a trade agreement, ending twenty years of negotiations. Described as “historic” by former European Commission President Jean-Claude Junker, the agreement provides for the lifting of 91% of customs duties on European exports and 93% of customs duties on imports into the EU. Because of the size of the free trade area it creates (780 million consumers), this agreement is the most significant economic agreement ever negotiated by the EU. 

However, one issue continues to divide the Member States: the Amazon rainforest. Two months after the announcement of the agreement between the EU and Mercosur, the fires of the summer of 2019 had indeed caused a lot of commotion. French President Emmanuel Macron immediately reacted by declaring that he would not sign the treaty “as is” – accusing Jair Bolsonaro of having “lied” about his climate commitments. A few days earlier, Irish Prime Minister Leo Varadkar had already warned that Ireland would oppose the treaty if Brazil did not step up its efforts to protect the Amazon. A month later, Austrian MPs voted against the agreement. More recently, in June, Dutch MPs also opposed the deal. The ratification of the treaty thus seems to be in real danger. 

The rejection by several heads of state and national MPs of a treaty that took twenty years to negotiate is a response to an inevitable global hysteria. The curve of Google searches on the Amazon suggests that the world discovered in August 2019 that there was a fire season. 

This hysteria has been fuelled by media outlets that prioritise sensationalism over unbiased reporting. In August 2019, the BBC headlined: ‘Amazon fires up 84% in a year’, ignoring the fact that variations from year to year can be considerable and that the number of fires in 2018 was meager. The BBC even attached a truncated graph to the article that obscures the underlying trend. 

Indeed, if we look back over the last 15 years, the trend is downwards, as the National Institute for Space Research (NISR) data clearly shows. The fires of 2019 were not exceptional; the total number of fires was only 7% higher than the average of the last ten years – the average of the last ten years (2009-2019) is 25% lower than the average of the previous ten years (1998-2008). The 7% increase is mostly in ‘dry brush and trees felled for livestock’ as environmentalist Michael Shellenberger points out in Forbes.  

The media is not the only one involved in maintaining myths about the Amazon. In August 2019, President Emmanuel Macron wrote in a tweet, “The Amazon, the lung of our planet that produces 20% of our oxygen, is on fire. This is an international crisis”. The idea that the Amazon is “the lung of the planet” comes up very regularly. Curious, Michael Shellenberger asked Dan Nepstad, an Amazon expert and lead author of the IPCC’s Fifth Assessment Report (Working Group II, Chapter 4). His answer was clear: this idea has no scientific basis. While it is true that plants produce oxygen, this oxygen is then entirely absorbed by organisms in the Amazon soil. The net contribution of the Amazon rainforest to the production of ‘our oxygen’ is therefore zero. Moreover, the Amazon ecosystem produces oxygen and stores carbon, but so do the soy farms and pastures, the IPCC expert reminds us.

In 2020, the obsession with the Amazon rainforest does not seem to have eased. Last August, Le Parisien still ran the headline: “Fires in the Amazon: the most catastrophic summer since 2010”. This information is entirely irrelevant and misleads the reader:

  1. The fire season is not over, so there is no point in jumping to conclusions.
  2. The data already available for June and July are not particularly worrying: the number of fires is more or less equal to the median.
  3. Even if 2020 turns out to be an exceptional year, it would be too early to conclude that the trend is really on the rise.
  4. As the IPCC expert points out, it is too often forgotten “that there are legitimate reasons for small farmers to use controlled burning to keep insects and pests down.”

In a statement issued on 17 June, several hundred NGOs demanded a freeze on the negotiations until a guarantee is obtained “that no Brazilian products that cause increased deforestation are sold in the EU”. But is this really reasonable? We are talking about the quarter of the Brazilian population that is still below the poverty line and is simply trying to get out of poverty by growing soya and raising cattle. What right does the West have to prevent the Brazilian countryside from developing in the same way that the European countryside developed centuries ago? Indeed, let us not forget that until the 14th century Europe was 80% covered with trees – compared to 40% today, according to Shellenberger in his latest book Apocalypse Now.

This does not mean that the entire Amazon should be destroyed. The question is not even relevant. As Nepstad reminds us, ‘only 3% of the Amazon is suitable for growing soya’. The challenge, however, is to do more with less. In this respect, Brazil benefits from a technology that was non-existent at the time of the development of European agriculture: genetic engineering. Indeed, thanks to their increased yield, in 2014, GMOs made it possible to use 20 million fewer hectares to produce the same amount of food and fuel – slightly more than the area covered by the French forest.

In Forbes, Dan Nepstad tells Shellenberger that “Macron’s tweet had the same impact on Bolsonaro’s electoral base as Hillary Clinton’s tweet calling Trump’s electorate pathetic. Postponing ratification of the treaty is not penalising Bolsonaro; it is rewarding him. Conversely, ratifying the treaty supports vulnerable populations – let’s not forget that poverty kills more than climate. The benefits for European consumers would also be colossal. So what are we waiting for?

Originally published here.

Fake products create real hardships

Protecting brands is not just about economics, it is also about human rights…

The hardships in factories around South-East Asia aren’t new to European media consumers. Thousands of workers all around the continent are affected by adverse living and work conditions — particularly in those factories that make counterfeited goods. In 2016, counterfeited goods amounted to 6.8% of EU imports from third countries, according to the OECD and the European Intellectual Property Office EUIPO. China remains by far the largest producer of fake goods in the world, all while having amongst the worst human rights records.

“Dotted around China’s industrial heartland, well-connected consultants are helping factory owners flout labour laws to churn out goods that end up on the shelves of well-known Western stores”, writes the Hong Kong-based South China Morning Post in a piece that outlines the corruption and abuse that surround the counterfeit goods market.

In Europe, there is a mechanism that allows for oversight and accountability of production sites. No, I’m not talking about political committees or government institutions, but: brands. Brand recognition and corporate responsibility allows Western democracies and its consumers to keep an eye on the products and services they want to support with their hard-earned Euros. If a tech-company is found to produce microchips in factories that accept child labour, inhumane work hours, or unsafe work environments, they will be reprimanded by public opinion, media coverage, and the loss of their customer base. As a result, corporate decisions are made to seek to prevent this from happening in the future. However, counterfeit marketers forgo this accountability, often by tarnishing the reputation of an existing brand.

This is why brands play an essential role in distinguishing good actors from bad ones. In Europe we regularly have conversations about labelling, ignoring that first and foremost, brands are labels in themselves. Trusted brands build a reputation on responsibility, something that they rightfully intend to protect. When it comes to fighting counterfeiting, consumers, producers, and government actors ought to be on the same side.

While rooting out fake products will not eliminate injustice, it is a crucial stepping stone in the fight against organised crime. Outside of the situation of factory workers, counterfeit goods are often linked to criminal organisations of the worst kind. A 2015 report by the French Union for Industrial Production points to the fact that 20 percent of illicit cigarette sales finance international terrorism (according to the French Centre d’analyse du terrorisme in 2015). This number has been filtered out of a total number of 75 international prosecutions involving large-scale counterfeiting of tobacco products.

Actionable items to consider are vast, but first and foremost, we need to put fighting counterfeiting high on the agenda list of trade agreements around the world. If we seek to fight organised crime, we need to do so with our trading partners not against them. It’s important to note that this is not a one-way street — fighting these bad actors also means opposing the parasitic nature of corruption and fraud that plague the host countries of these organisations as much as they do those that import the goods.

Lastly, fake goods represent an active health threat. The EU is inundated with fake consumer products. According to an annual report by the European Commission, there were 2,253 alerts of dangerous products on the EU market in 2020, 10% of which were COVID-19 related, so like for instance masks and hand sanitizers. In a comical way, Commission Didier Reynders held up a stuffed animal monkey at a press conference in Brussels, to underline that fake children’s toys also represent a significant health threat to the most vulnerable in society: children.

Counterfeiting has no place in a mature market place. The EU ought to step up its game to find more allies in its approach to root out fake products, so that less consumers are defrauded or put in harm’s way.

Originally published here.

To fight human rights abuses, we should protect credible brands

In recent years, there has been welcome attention paid to how worker safety and rights are protected in countries that trade with Europe….

While most trade takes place within legal and regulated channels, there remains an entire sector of the global economy that peddles in knock-offs and illicit goods.

The threats posed by illegal trade go way beyond safety and product quality considerations. The creation of parallel supply chains that have no respect for human rights imperils our shared efforts to ensure that all humans are treated with respect and dignity. 

The European Union should level up on its efforts to expose forced child labour and harsh treatment of workers across the world by raising awareness about these activities through its anti-illicit trade policies, and by partnering up with affected brand owners to eradicate abuses and illegal trade.

Often, we lack knowledge about how specific products make it to our local stores. Let us use chocolate as an example. Labourers produce cocoa in South America and West Africa, and then it’s sent to Europe where chocolate makers turn cocoa into chocolate bars that we see on our shelves. The cases of child labour in these areas are numerous and, likely, many of these illegal practices go undetected. In Mexico, for example, products such as green beans, coffee, cucumbers, and tobacco are often produced by using child labour, some legal and some not. As of 2019, 152 million children were still in child labour. 

China’s reluctance to abide by liberal values, in this regard, is well-known. It was estimated that at least 100,000 Uyghurs, ethnic Kazakhs, and other Muslim minorities are being subjected to forced labour in China following detention in re-education camps. Cruel treatment is used to produce gloves, clothing, and consumer products that are later shipped to Europe. Illegal trade, from this perspective, is any kind of economic exchange that involves human rights abuses at any of its stages. 

Brands globally strive to achieve sustainability and enforce labour standards while parallel supply chains only exist to generate quick profits by exploiting legal loopholes and using other human beings as a means to an end. Moreover, illegal trade has been linked to terrorism and the same groups that smuggle cigarettes and goods also traffic humans and weapons.

Cigarettes are among the most illegally trafficked goods in the world. The global black market for tobacco products is large and growing, and in countries that are among the world’s largest tobacco producers such as Brazil and Malawi, the incidence of child labour is high. Children who are involved in illegal work miss out on their chance to get an education and to elevate their status in their own societies. As a result, developing regions continue to cripple with poverty.

As in the case of cocoa, gloves and other consumer goods, the only way to know for sure that what we buy was produced and shipped legally is by putting trust in specific brands. EU policies and those of member states should encourage branding and marketing of goods produced legally and in accordance with human rights conventions in order to root out parallel supply chains. Restrictive tax policies punish official retailers and open doors to criminals who disregard basic human rights and would do anything to get the profits they seek.

An effective partnership between affected brands and government bodies is the way to address abuses and illegal activities. The Achieving Reduction of Child Labour in Support of Education (ARISE) programme executed by the International Labour Organisation is a great example of such cooperation in action. Through addressing the identified social and economic factors that encourage small-scale tobacco farmers to employ children in dangerous work, it prevents and makes strides towards the elimination of child labour in supply chains.

In conclusion, illegal trade that is facilitated through parallel supply chains that abuse human rights exists because of the dynamic loopholes in place. Every government effort to stamp out some goods – such as cigarettes – out of the market by taxing them and imposing various marketing restrictions is a call for criminal groups who use child labour and forced labour to scale up their work. 

Driven by profit, criminals completely ignore basic ethical considerations and know no boundaries. While law enforcement is crucial, is it also important to make sure that consumers can readily access information about goods produced by trustworthy brands, and that those are available so there is no incentive to turn to the black market.

Originally published here.

The EU-Mercosur Agreement is an opportunity, not a threat

This agreement provides the tools to oppose China in the region…

The agreement between the European Union and Mercosur is being called into question – under false pretexts. It is time to realise what is really at stake.

The trade agreement between the European Union (EU) and Mercosur (an economic community comprising several South American countries) is criticised – or even practically dead to some. This was France’s intention from the outset: more protectionism, less free trade.

It all started with the fires in the Amazon, in Brazil. According to the forest and environmental expert Emmanuel Macron:

“Our house is burning. Literally. The Amazon, the lung of our planet that produces 20% of our oxygen, is on fire. It is an international crisis. Members of the G7, meet in two days’ time to talk about this emergency. #ActForTheAmazon”

With such calls, the right thing to do is to put things into perspective. We know that the number of fires in Brazil this year is higher than last year, but it is also about the same as in 2016 and lower than in 2002, 2003, 2004, 2005, 2006, 2007, 2010 and 2012.

Although the number of fires in 2019 is indeed 80% higher than in 2018 – a figure that has been widely reported recently – it is only 7% higher than the average for the last ten years. Moreover, most of the fires are currently occurring on already deforested land in the Amazon.

The popular myth is that the Amazon is “the lung of the Earth”, producing “20% of the world’s oxygen”. At least that’s what Emmanuel Macron’s tweet says. In reality, both are inaccurate… and not just because your lungs don’t produce oxygen. Yet this figure will continue to circulate as long as there are reports to be delivered; the Associated Press agency itself has propagated it – it had to withdraw it afterwards.

According to the Scientific American :

“In fact, almost all of the Earth’s breathable oxygen comes from the oceans, and there is enough to last for millions of years. There are many reasons to be appalled by this year’s Amazon fires, but depleting the Earth’s oxygen supply is not one of them.”

So no, you won’t suffocate because of the fires in the Amazon.

Ireland and France are nevertheless proposing to terminate the agreement with Mercosur for environmental reasons. Unfortunately for them, no environmentalist pretext can hide their real motives: to defend the protectionist interests of Irish and French farmers, who have complained about increased competition from countries like Argentina.

This agreement is of great geopolitical importance; it is a vital sign against protectionism. If ratified, this agreement with Mercosur would establish the largest free trade area that the EU has ever created, covering a population of over 780 million inhabitants, and would consolidate the close political, economic and cultural links between the two areas.

The agreement eliminates tariffs on 93% of exports to the EU and grants ‘preferential treatment’ to the remaining 7%. In addition, it will eventually eliminate customs duties on 91% of the goods that EU companies export to Mercosur. The number of formal complaints to the WTO in 2018 was 122% higher than in 2009. In 2018, the EU was the second biggest defender of WTO complaints, almost twice as many as China.

Then there’s the importance of China.

This country is not mentioned at random. It is crucial to understand the Chinese influence in South America. Since 2005, the China Development Bank and the China Export-Import Bank have granted more than $141bn in loans to countries and companies belonging to Latin American and Caribbean states.

In Latin America and elsewhere in the world, Chinese loans are seen as both profit-seeking and a form of diplomacy. The Development Bank focuses on eight areas: electricity, road construction, railways, oil, coal, telecommunications, agriculture and public services. With this agreement, it becomes possible to counter Chinese influence. France and Ireland must stop opposing it and work on a joint agreement in Europe.

Giving consumers more choice, guaranteeing more free trade for producers on both sides and defending geopolitical interests through trade policy: all this should be obvious. Unfortunately, it seems that nothing is obvious anymore, at least for the current political class.

Originally published here.

Illicit trade in pesticides is booming: why?

If the legal market cannot ensure farmers are able to buy pesticides to protect their crops from various diseases, then the black market fills the gap.

Pesticides are some of the most regulated products in the world. At the same time, if illegal pesticide producers were a single company they would be the 4th largest company in value in the world. Overregulating pesticides doesn’t decrease demand for them. In 2018, the European Union Intellectual Property Office stated that €1.3 billion are lost every year in Europe due to fake pesticides. This translates to €299 million and 500 jobs lost per year in Germany, €240 million and 500 jobs each year lost in France, and €185 million and 270 jobs lost annually in Italy.

Over the period 2011-2018, the sales of pesticides remained stable at around 360 million kilograms per year in the EU. In France, for example, despite the government’s ambition to drive down the use of pesticides, demand for pesticides have risen considerably in the past years. In Poland, the sale of pesticides in Poland in 2016 increased by 12.3 per cent compared to 2011. What this tells us is that as long as that overregulating pesticides only boosts illicit trade.

A quick look at the role of pesticides in farming explains why demand for them persists. Pesticides are instrumental in helping farmers prevent and/or manage pests such as weeds, insects, and plant pathogens. Substantial increases in yields recorded over the past 80 years can be mainly attributed to the use of pesticides. Without pesticides, crop losses would be between 50-80 per cent. Between 1950 and today, the world’s population grew between 1% and 2% each year, and to ensure it can be fed, we have to utilise natural resources in a smart way, and that is what pesticides allow us to do.

However, since the health of consumers is of paramount importance, pesticides need to undergo the necessary rigorous safety assessments by food safety authorities. The main danger associated with counterfeit pesticides – now estimated to represent 14% of the European crop protection – is that they go unchecked thereby endangering the lives of European consumers. Untested products can also lead to considerable harvest lost, resulting in less food security for European consumers.

When it comes to illicit trade in any product, not just pesticides, increasing the customs control and penalty for counterfeiting activities seems like a straightforward solution. Neither of these can fully fix is the issue which, however, doesn’t undermine their significance as a tool to tackle illicit trade. Although we as a society can all agree that fighting illicit pesticides that pose threat to our health should be our priority, very few crimes are taken to courts. For example, in Slovenia, 27,1 tons of illegal pesticides have been detected and seized since 2003 according to the Financial Administration, and yet not a single court case was initiated. In Belgium and Italy, the situation isn’t any better. The justice system should take illicit trade more seriously.

Along with increasing the punishment for illicit trade, it is also necessary to re-evaluate, conjointly with farmers associations the approval of these substances. If outlawing some chemical substance on a member state or the EU level leads to a spike in illegal trade, then a comprehensive discussion to find a solution that works for consumers and producers has to take place. Demand for pesticides won’t simply go away, and we cannot solve the problem of booming illicit trade by turning a blind eye to this fact. We need a compromise to protect the wellbeing of European consumers.

Originally published here.

Biden Has an Opportunity to Improve Trade With Europe

The Europeans killed a potential deal during the Obama years, but the world is a different place now.

Trade relationships with Europe have been painstakingly petty for the last four years. In 2019, the U.S ended the WTO’s appellate body by refusing to appoint new members, which meant that the world’s arbiter on trade had had a more difficult time opposing new tariffs—and new tariffs there have been. The ongoing trade war has targeted a wide range of products on both sides, from Harley-Davidson motorcycles to French wine and Kentucky bourbon. Whenever Trump would target a new product, the EU would reciprocate with new tariff implementations or hikes.

What ended up targeting American blue jeans-lovers in Estonia and Bordeaux wine connoisseurs in New York began as a much less symbolic tariff on steel and aluminum. In Donald Trump’s protectionist mindset, he believed he was doing U.S manufacturing a favor, but in reality he punished those businesses that rely on imported industrial goods for their production. During his administration, many Republicans who had held dear the principle of free trade seem to have forgotten their own position. Perhaps his upcoming departure from the White House will allow them to remember it.

Under the Obama administration, the U.S had pushed for the Transatlantic Trade and Investment Partnership (TTIP). The free trade agreement would have created one of the largest trade zones, with the (then) 28 member states of the European Union and the United States. The EU’s executive body, the European Commission, said that TTIP would boost the EU’s economy by $142 billion, the U.S economy by over $100 billion and the rest of the world by $118 billion.

Despite strong American advocacy in Europe for the agreement, the European Union itself stalled and then walked away. Environmentalists held massive demonstrations throughout the EU, claiming that TTIP would undermine European food standards and distort the marketplace by reducing prices. They made a safe bet on the skepticism of Europeans toward American food, and on consumer nationalism. The Anglo-Saxon approach to business does not play well in countries like France, where labor regulations thoroughly protect workers, and the flexibility and entrepreneurship of Americans is seen as obsessively commercial. This played right into the hands of those industries that considered American competition as a scourge.

When Barack Obama left office, TTIP negotiations were not just at a standstill—they were unofficially dead. The election of Donald Trump worsened trade relationships with Europe, but TTIP had been killed by Europeans, not Trump.

That said, political institutions in Europe currently have every reason to be warmer toward trade relations with the U.S. The trade war has been difficult for everyone, and Europe understands that it leads nowhere. After four years of Donald Trump, Joe Biden should present a real alternative based on free trade, not just case-by-case mini-agreements (such as a recently signed deal on free lobster trade). Crucially, if the U.S reaches a comprehensive trade agreement with the United Kingdom (which officially leaves the European Union’s single market at the end of this year), then the EU has no choice but to prevent a loss of its competitive edge. 

Unfortunately, Joe Biden has not quite grasped this window of opportunity but has supported the European Union on the issue of Brexit. Meddling in European affairs, Biden claims that he will not sign any FTA with the U.K. unless Boris Johnson’s government respects the withdrawal agreement’s so-called Northern Ireland protocol. In essence, if the U.K. reestablishes a border (or something resembling a border) between Northern Ireland and the Republic of Ireland, then the U.S will not be a willing trading partner. Both the U.K. and the EU have struggled to find an agreement that allows for the U.K. to leave the EU and make its own internal market decisions, while avoiding cross-border checks on goods between Northern Ireland and the Republic of Ireland. The Good Friday Agreement of 1998 ended most of the violence of the Troubles (between those loyal to the United Kingdom and those who wanted to unite the country with the Republic of Ireland), by promising not to establish hard border infrastructure. To separatists, this signaled a willingness to align the island more closely with the Republic, while loyalists remained under the laws of the United Kingdom. The UK’s exit from the EU might threaten this agreement, and Joe Biden has taken the side of the EU.

Outside of supporting an odd sense of Irish-American pride, how exactly does such a move benefit the United States? While it certainly upsets the British, it would be mistaken to believe that continental Europeans in Paris and Berlin will suddenly jump out of their seats to hand American businesses access to European consumers just because we’ve turned our backs on trade with the U.K.

TTIP would have allowed mutual access to public markets, slashed tariffs, and reduced bureaucratic regulations on everything from clothes to medicine and cosmetics. Many customs duties on products between the U.S and Europe are so high that it effectively kills any trading relationships. For Americans wanting to observe this phenomenon in real time: Follow a European entering an American supermarket for the first time. Choices!

There are also tariff differences depending on goods and destinations. For instance, EU tariffs on American cars are high, while American tariffs on European cars are relatively low. Meanwhile, certain types of peanut tariffs are so high (at a rate of 138 percent) that they never find their way on the European market. In essence, U.S-EU trade is a jungle of tariff distinctions that pile an avalanche of red tape on any type of producer. TTIP intended to scrap nearly all tariffs across the Atlantic, yet the will of the EU at the time was trumped by skepticism toward American agricultural products.

Many of the most political decisions in the European Union are taken because of a sense of urgent necessity. In the European Parliament, you will hear speakers claim that the EU needs to be more centralized, because despite being the largest single market in the world, it is also a declining market. If Joe Biden wanted to save Obama’s (and his own) trade policy legacy, he could do so on one hand by pressuring Europeans to understand that competition is at their doorstep, but also by showing them what the TTIP has to offer.

The more the U.S opens itself to free trade from all over the world, the more it will convince hesitant partners like the EU to drop subsidies to large industries, and allow small businesses not to put “Europe first” at a large price, but choose the best product, including from the United States.

Originally published here.

To reduce illicit trade, make licit goods available and accessible

Criminal groups have been exploiting the pandemic to enrich themselves through illicit trade and undermine global security.

In August, the US Justice Department knocked down three $2 million worth cryptocurrency campaigns involving the Islamic State. The terrorists were selling fake masks and protective equipment for hospitals online claiming that it was FDA approved and used the profit to fund terrorist attacks.

Illicit trade across the board is a devil in disguise that lures us with cheap prices at the expense of our safety, security, and wellbeing. In order to fight it, we need to guarantee access to and availability of licit goods, especially drugs.

Weak law enforcement and corruption among customs officials are often seen as the main reason why illicit trade flourishes. Both do help facilitate illicit trade but hardly explain its persistence. According to a research conducted by Oxford Economics in 2018, only 11% of illicit trade is seized on average across Europe. Tracking and tracing smugglers is an uphill battle not least because a lot of illicit trade is carried out through official retail channels too.

Yet curbing supply alone won’t help: reducing consumer demand for illicit products is key. That would include raising awareness among consumers about illicit trade and making sure that licit goods are available and accessible. The price does play a role in consumer decision of whether to buy illicit goods or not, but as the said research by Oxford Economics showed it is not the only reason.

At the beginning of the pandemic – which hardly any country was prepared for – many Europeans countries ran out of masks and protective equipment as demand had been spiking. Combined with export bans this has naturally created favourable conditions for illicit trade. For example, OECD data suggests that since March 2020, at least 100 000 new domain names containing coronavirus related words (e.g., Covid, corona or virus) were registered on the darknet to sell medical items.

Lockdowns, trade restrictions and generally global unpreparedness for the pandemic are some of the reasons why illicit trade has scaled up, and tackling these unintended consequences will be a major challenge for the years ahead.

We should start by strengthening IP rights and cutting the red tape to protect brands on a local level so their products are accessible and available to the public. COVID-19 is unfortunately not the only public health issue we have faced, and we have to keep in mind that every flawed policy of peaceful times provides criminals with an opportunity to strike harder in a crisis.

Since the beginning of the pandemic, there has been a 20% increase in enquiries for brand protection, most of which came from the pharmaceutical sector. Multiple European policymakers have made calls against intellectual property rights, while in fact in order to protect ourselves from fake PPE and drugs from China and alike, we have to safeguard IP rights at home.

A failure to mutually commit to regulatory harmonisation between the US FDA and Europe’s EMA is also one of the reasons why illicit trade has been booming. This would allow regulators on both ends to compete for better market approval procedures thereby gradually decreasing the bureaucratic costs for innovators.

We still don’t know how to cure 95 per cent of diseases, and it is crucial that as soon as a new drug is developed it becomes available on both sides of the Atlantic. To make it accessible though, the EU will have to allow consumers to access legal online pharmacies across the bloc.

Illicit trade of medicines puts the lives of millions of consumers in the EU and globally at risk. Reinforcing criminal responsibility for outlawed trade practices is essential but not enough. Curbing demand for illicit products by ensuring the licit ones are available and accessible should be the way forward.

By Maria Chaplia, European Affairs Associate at the Consumer Choice Center

Originally published here.

Black market — an existential threat to consumers

The latest Organisation for Economic Co-operation and Development (OECD) report found that between 72,000 and 169,000 children may die from pneumonia every year after receiving drugs from the black market.

Since that was before the world had entered the Covid-19 crisis that turned out to be a public health emergency of global scope, the shocking numbers have likely gone up by now and will continue to rise.

That is the cost of flawed policies that have failed to effectively tackle the black market.

From pharmaceuticals to tobacco products, the black market has expanded into every area of our life and international exchange. Unlike many legal small businesses that get driven out of the market because of excessive taxation and red tape or are unable to enter it at all, the black market has been booming.

According to the United Nations Office on Drugs and Crime, the transnational organised crime of the black market is a business worth US$870 billion (RM 3.6 trillion).

The black market has to be fought by economic, legal, and political means. Where free markets that safeguard property rights – including intellectual property rights – and economic freedom flourish, there is no space for black markets simply because it’s not needed: every consumer can easily find and access what they need.

Black markets exist to satisfy the unmet demand, and why that happens is the key question we have to address to solve the economic part of the puzzle.

Let’s consider the tobacco black market in the EU. In 2019, 15 billion illegal cigarettes were found in Europe, contributing to €2 billion (RM 9.7 billion) in tax revenue losses. Intrusive and anti-consumer national policies have to take the blame for that.

These policies include a second annual 50 centime tax that came into force in France, bringing the price of a pack of cigarettes up to 10.50 euros (RM 51). Similarly, in Ireland, excise duty on a pack of 20 cigarettes will rise by 50 cents for the fifth year in a row.

As long as there is a substitute available in the form of cheap smuggled cigarettes, the overall demand for cigarettes is inelastic. The higher price stops consumers from buying them legally, but it doesn’t stop them from buying it from the black market.

In another part of the world, Malaysia is losing about RM5 billion in taxes every year to the tobacco black market. It has been reported that Malaysia is today the No. 1 in the world for illegal cigarettes, where 65% of total cigarettes consumed are contraband products.

Interestingly, illegal cigarettes took up 36.9% of the market back in 2015. However, the Malaysian government wanted to discourage people from smoking by making it even more expensive. As such, excise duties were rapidly increased, resulting in legal cigarette prices, going up by 25%.

Affordability then became an issue and consumers decided to switch to a cheaper alternative, which is widely available.

This goes to show that governments should moderate tax policies to ensure that tax regimes are liberal enough not to drive demand for contraband products. Indirect taxes such as VAT, GST and excise duties make consumers foot the bill.

Despite political differences, we can all agree that the well-being of consumers is of the utmost importance, and the black market – especially in times of Covid-19 – poses an existential threat to consumers globally.

We should not only put in place smart policies to eradicate black market, but we should also repeatedly communicate the risks associated with black market to consumers and make them more aware of the tactics used by smugglers to lure them. It is time to Stop The Black Market!

Originally published here.

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