Smugglers’ Run: Hong Kong #3 in Asia on EIU Illicit Trade Index

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A report on illicit trade in Asia suggests that Hong Kong has come a long way from its days as a pirate’s paradise.

Photo: Left to right – Chris Clague, Senior Editor, Thought Leadership, Economist Intelligence Unit. Simon Jim, Chairman, EuroCham Intellectual Property Rights Committee. Lina Baechtiger, Executive Director, EuroCham, Singapore. (Photo credit: Anne Valluy for EuroCham Singapore)

Hong Kong has ranked third overall out of 17 Asian countries in a new study on the illicit trade environment.

The Economist Intelligent Unit (EIU), sponsored by the European Chamber of Commerce Singapore (EuroCham Singapore), released a report ranking countries’ performances on combating illicit trade activities on the basis of four major categories: Intellectual Property; Transparency and Trade; Customs Environment; and Supply and Demand. The sub-scores of the categories were generated from EIU’s previous ratings and expert surveys. The average scores make up the overall Illicit Trade Environment with Australia (85.2) topping the rankings, followed by New Zealand (81.8) and Hong Kong (81.4).

“There is a lot of interest in this because this is an unique way of going after the issue. The OECD, the United Nations Office on Drugs and Crime (UNODC), and a number of organisations have made estimates of the size and trend in illicit trade. But this report offers a number of indicators where countries can measure their progress in combating illicit trade,” Chris Clague, Senior Editor, Thought Leadership at the EIU puts.


Hong Kong: Surprise!

Hong Kong comes first in the Supply and Demand category under which higher taxes and higher social security burdens result in lower scores. The report that Hong Kong’s domestic policies are “most conducive to limiting the supply and demand of illicit goods” and that the city is “alone at number one for its labour market regulations.”

“The consensus among our experts is that Hong Kong has made substantial improvements, including intellectual property protection,” Clague notes. “Hong Kong’s image as a hub of illicit trade might be true two decades ago but that’s no longer the case.”

Another surprise comes from the Transparency and Trade category, where Hong Kong ranks only 9th alongside other developed economies namely New Zealand (12th), Taiwan (13th) and Singapore (14th) while China, a country known for producing counterfeit goods, comes fifth on the list. The category measures countries’ performance on sharing information and cooperating with stakeholders from the international community and the private sector. Clague explains that while the image of China has not being cooperative and not being transparent holds sway with the global media, it is an over-characterisation – at least when it comes to illicit trade and transparency. By contrast, international transshipment hubs such as Hong Kong and Singapore still need to step up monitoring and enforcement.


Way forward

The report points out that illicit trade tends to follow the same routes as its licit counterparts. With robust regional trade infrastructure proliferating, such as the Trans-Pacific Partnership (TPP), there will be opportunities for more trade of both types. Clague calls for more frequent cooperation and discussions of the types of policy actions that should be taken to combat illicit so as to break down the connection between illicit and licit trades.

Looking forward, the team will refine the methodology, such as taking into account the proximity effect, and hopes the Index will become the new standard on illicit trade for sound local and international policymaking.

“As a chamber, we really wanted to have a study that could have a tool to discuss with policymakers and see how we can help both private and public sectors,” asserts Lina Baechtiger, Executive Director of EuroCham Singapore. To this end, the Intellectual Property Rights (IPR) Committee of the European Chamber of Commerce has created an accompanying recommendation paper on IPR protection, public-private partnerships and free trade zone governance. Notable recommendations include introducing a digital records system for enforcement purposes and establishing a formal public-private partnership arrangement as an anti-illicit trade working group.

The “Next step is that there is more international cooperation and that countries do use this [index] as a way to benchmark their performances,” Clague concludes.