The UAE Ranks 34th Overall And 2nd In The Region In The 2018 Global Illicit Trade Environment Index

A new method of measuring the extent to which global economies enable or prevent illicit trade has been presented at the Global Trade Development Week in Abu Dhabi. The Global Illicit Trade Environment Index, developed by the Economist Intelligence Unit, was first published earlier in June of this year.  Detailed analysis of the UAE's results was delivered during the opening session of GDTW on 20th November, attended by HE Sultan Bin Saeed Al Mansoori, UAE Minister of Economy and the Secretary General of the United Nations Conference on Trade and Development, Dr Mukhisa Kituyi. 

The Index was commissioned by the Transnational Alliance to Combat Illicit Trade (TRACIT), a not-for-profit private sector initiative focused on mobilizing the international business community most affected by illicit trade. It measures economies across four categories: government policy, supply and demand, transparency and trade, and the customs environment.

The Index expands upon an Asia-specific version first launched in 2016, and has increased the countries examined from 17 to 84. It does not score an economy's performance in combatting illicit trade but rather rates their comparative structural ability to protect against illicit trade.

The Index acknowledges that like Singapore and Hong Kong, the UAE has leveraged its geographic location to transform itself into a hub for global trade and a regional centre for financial and other services. This has brought it significant economic benefits, but the Index comments that these have not always been accompanied by commensurate efforts to combat the various types of illicit trade that flow alongside, and are often obscured by, trade in licit goods and services.

The UAE ranks 34th out of 84 countries in the Index with 67.8 points, though it comes second among 9 other Middle East and African countries covered.

Jeffrey Hardy, Director General of TRACIT, said "TRACIT prepared a set of policy recommendations inspired by the thematic categories upon which the Global Index was constructed. These recommendations are universal in nature, providing a "checklist" of fundamental measures governments can implement to improve their ability to defend against illicit trade."

Reflecting the domestic environment that either discourages or encourages the flow of illicit goods, supply and demand is by far the UAE's best in terms of its performance among of the four categories measured. It was ranked 3rd overall, behind New Zealand and Singapore but ahead of economies like Hong Kong, Finland and Denmark. Of the six indicators and sub-indicators within this category, the UAE came no lower than 5th. On the tax and social security burdens indicator, the UAE was rated equal top with five other countries.

However, the UAE's overall ranking was impacted by two categories. In transparency and trade, which relates to factors such as the availability of track and trade services and governance of free-trade zones (FTZs), the UAE ranks 58th.  While its overall score is higher for the customs environment category, this is an area in which many countries perform well and its rank was 54th, just behind Canada, South Africa and Hong Kong.

As for government policy, the UAE's showing is above the average score of the 84 countries, but is weakened by its lack of full commitment to key illicit trade-related treaties and, to a lesser extent, its cyber-security preparedness. It has ratified only 9 of the 14 illicit trade treaties considered relevant for the Index.

In other aspects of government policy, however, the Index finds that the UAE is doing better. It is part of the second group of 16 economies in the index that are all seen as least corrupt. It also does well on interagency collaboration between law enforcement and customs authorities.

Chris Clague, Managing Editor and Global Editorial Lead, Trade and Globalization at The Economist Intelligence Unit, said "The UAE has been taking more action on illicit trade in recent years, including in the areas of enforcement and new legislation,  but it can and should be doing more. In that, of course, it is not alone. Even the economies at the top of the index rankings are far from perfect in their policies and levels of enforcement. But many of those economies don't necessarily present systemic risks when it comes to illicit trade. That is not the case for the UAE, Hong Kong, Singapore or any of the regional and international hubs for trade and finance. Small moves in their illicit trade environments are bound to have an outsized impact on illicit trade flows."

Jeffrey Hardy concluded: "Among our key recommendations for the UAE are strengthening inter-agency co-operation within the Emirates, improving Customs oversight of and in free trade zones (FTZs), more robust information being provided on operators and their operations in FTZs, as well as rationalising tax policies and subsidies so they do not incentivize illicit trade and promoting accession to and full implementation of the WHO Protocol to Eliminate Illicit Trade in Tobacco Products.  These will all be supported also by a greater measure of co-operation with neighbouring countries in tackling illicit trade and improving public awareness and education on its threat'.

Tarkan Demirbas, Vice-President Middle East of Philip Morris International (a keynote speaker at the conference) said "Illicit trade, whether in luxury goods, pharmaceuticals, electronics or tobacco, funds criminal activities, including terrorism. it is a threat to security, peace and justice and it undermines legitimate businesses and misleads consumers. In our region, a study supported by Philip Morris suggests that the impact of illicit trade in cigarettes in the GCC alone could lead to lost tax revenue of more than $210 million this year alone. We need to see greater fiscal harmonization in the region, as well as higher penalties and more effective enforcement of preventative and counter measures."

With a score of 85.6 (out of 100), Finland was ranked first in the overall Index, just ahead of the UK.  Libya was ranked last.  Regionally Europe earned the highest average score (68). Of the categories measured, the highest average score was for customs environment and the lowest was in the supply and demand category. The average score overall was just under 60.