IDEAS publishes paper on illicit trade

Maritime officers looking at cartons of cigarettes that was seized from the ship. - Bernama

KUALA LUMPUR: IDEAS has published a new policy paper on illicit trade in Malaysia, which explores the factors behind the activity and offers policy recommendations to overcome it.

Entitled Illicit Trade in Malaysia: Causes & Consequence, the paper highights the economic impact of the country's markets being unable to reach their full economic potential, the discouragement to formal businesses competing in an unfair environment and loss in government revenues as well as social costs from unemployment and crime syndicates.

Authored by Adli Amirullah, Amirah Fazira and Ali Salman, the paper argues that trade integration offers opportunities for economic growth but high domestic taxes, law border enforcement and supply constraints can lead to an increase in illicit trade flow and reduce trade openness.

The black market becomes an alternative the legal market is too complicated or costly to operate in, according to the paper, while weak law enforcement makes it an obvious choice for both suppliers and consumers.

The paper cites the illicit tabacco market, one of the five top smuggled commodities in Malaysia, rising to 56% of the market, pushing formal businesses out.

"Illicit trade constitutes a substantial threat to various industries which either wind up jumping on the illegal bandwagon or forced to be closed down as a result of the inability to compete with the shadow economy counterpart. It also implicates economic and social costs to the country beyond just the loss in government earnings and therefore should be addressed," said Ali Salman IDEAS director of research and co-author of the study.

The policy paper is available for download from the IDEAS website: http://www.ideas.org.my/policy-paper-no-44-illicit-trade-malaysia-causes-consequences/