Monday, September 25, 2017

Does the govt encourage legal trade?

The Ministry of Commerce has recently held several meetings and issued announcements about its plans to tackle illegal trade.

A man walks past a truck stopped in Bago Region on the main highway between Myawaddy and Yangon. (Boothee/The Myanmar Times)A man walks past a truck stopped in Bago Region on the main highway between Myawaddy and Yangon. (Boothee/The Myanmar Times)

Officials announced that mobile teams would begin checking imports at seven international seaports and Yangon airport from July 2 and seize any illegally imported items. The ministry will also order mobile X-ray machines to help mobile teams detect illegal goods, while they will also raise the proportion of prize money that goes to the teams in an effort to reduce corruption.

Education of import rules is also being promoted: Recently the ministry met with mobile phone handset traders to resolve the problem of illegal imports in the sector, where 98 percent of handsets are imported informally.

But some important questions need to be asked. What are the barriers to legal trading? Has the ministry’s ambitious plans to stop illegal trade really been efficient? And what other things do we need to do to tackle the problem?

While there was little growth in official trade figures between 2011-12 and 2012-13, when trade volume was about US$18 billion, the figure rose almost 40pc to $25 billion in 2013-14. This growth raises the question of whether trade volumes are really increasing, or whether it just reflects higher levels of legal trade.

By comparing Myanmar’s official trade figures with those of its trade partners, we can see how big an issue illegal trade is. It is most obvious between Myanmar and Thailand, where imports to Myanmar were barely one-10th of exports from Thailand last year.

It’s important to recognise that Myanmar’s trade rules and regulations are at the root of this problem. One example is that the government doesn’t give official import licences for imported alcohol. It appears that senior government officials are deliberately delaying for a group of privileged businesspeople. As a result, most foreign-made wine and beer is imported illegally but nonetheless ends up on shelves throughout the country to slake local thirsts. Foreign-made medicines and food products also make up a huge proportion of illegally imported goods. The ministry has blamed this on the Food and Drugs Administration’s tardiness in granting permission to officially import these items.

But not everything can be conveniently blamed on the FDA. Economists have pointed out that the smuggling of mobile phone handsets and computer accessories is driven by high import taxes and uncertainty of the tax system.

In short, trade rules and regulations are the biggest factor in encouraging illegal trade.

Corruption is the next most important factor. While the ministry has devised ambitious plans to tackle smuggling, they have made few inroads into the issue of corruption. Senior government officials, prominent businesspeople and even those tasked with eliminating illegal trade are involved in this corruption.

Another problem is ethnic armed groups, particularly along the Thai-Myanmar border in Kayin and Mon states. At Myawaddy just one border gate to Thailand is overseen by the government, while more than 20 gates are controlled by ethnic groups. Mobile teams steer clear of these areas and mostly try to uncover illegal imports from the safety of Bago Region near the Sittoung Bridge, which links Bago with Mon State.

Another hindrance to anti-smuggling efforts is the lack of cooperation between government departments, as well as between the central and state governments. Finally, there is the ethics of traders. Government officials have remarked that it is not only small entrepreneurs who are avoiding paying tax; this ignominious category conspicuously includes some of the country’s biggest business tycoons. Members of mobile teams have voiced suspicious that these moguls could be using ports and airports to bring in large quantities of illegal goods.

“Ordinary” businesspeople, meanwhile, avoid paying taxes by bringing in goods illegally through border trade. That means bribing officials or using shortcuts to avoid checkpoints. If they can’t do it themselves, they pay others to do it on their behalf. Many feel they don’t have a choice but to import illegally if they want to stay in business.

These are the major barriers the government and traders face to promote legal trade. Unless it addresses them in an orderly manner, most illegal traders will not switch to formal imports.

Translation by Zar Zar Soe