#TradeTuesday: Reducing risk – Why the government should make it standard practice to help prevent illicit trade in FTA negotiations

By Sabine Tyldesley

It is widely agreed that free trade is a good thing,  with wide ranging economic and societal benefits. But OECD evidence shows that the gains from reduced customs in Free Trade Zones (FTZ) also creates opportunities for illicit trade.  

This doesn’t, however, have to be the case. There are clear ways to tackle the issue ‘supply-side’ by including relevant provisions in free trade deals.

The misuse of containerised maritime transport, as well as the prevalence of trade in counterfeit and pirated goods, have long been a problem. But it's not only the trade in these often dangerous goods that is a concern. Increasingly, attention is turning to wildlife trafficking, environmentally damaging goods, as well as cultural property evading detection.  

Much of the current response to illegal trade has rightly been focussed on the law enforcement side, including several UK Government Departments and agencies – from HMRC, Border Force, DCMSto police forces (in turn working with Europol and Interpol). However, there appears to be a gap in fighting illegal trade through  new Free Trade Agreements (FTAs) which address the root causes and supports the mechanisms which enforce the law prohibiting the sale of these types of goods.  

This preventative approach could also support  resourcing these agencies to enable deeper collaboration with trading partners on illicit trade activities. Unfortunatley, at the moment UK law enforcement in the area  tends to be severely under-resourced relative to the negative impact of this type of crime. 

The FTAwith Australia – the first the UK negotiated from scratch –did include in its Environment Chapter a section on illegal wildlife trade (including ivory) and combating illegal trade in ozone-depleting substances and hydrofluorocarbons.  

While this was the firstfor the UK, other countries have recently  integrated frameworks which combat illicit trade into FTAs successfully. The United States and European Union (EU), for example, have recently incorporated similar provisions into their FTAs. In these the environmental or sustainable development chapters obligate parties to effectively implement the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). For examples see the EU – Andean (Bolivia, Colombia, Ecuador and Peru) Free Trade Agreement and the US-Mexico-Canada Agreement (USMCA) the latter of which includes a dispute resolution mechanisms for enforcement, too.   

But while a good first step – in particular for the environmental and wildlife impact of trade - future FTAs are a clear opportunity to go further to regulate other forms of illicit trade.  

And they should.  

As analysis shows, Free Trade Zones can be attractive to parties engaged in illegal and criminal activities, such as trade in counterfeit and pirated products, smuggling and money laundering, as these zones offer a relatively safe environment with both good infrastructure and limited oversight. 

So, what to do?  

Researchers have identified that a regulatory gap exists between law and ethics – particularly in relation to illicit trade in cultural objects – despite significant international cooperation led by the UNESCO. “Persuasive regulation” is needed to tackle illicit trades or harmful enterprises which should include more effective data sharing and law enforcement collaboration.The OECD has indeed recommended that nations use trade agreements, as appropriate, to encourage adherence to the principles for combatting illicit trade in FTZs, as contained in their “Recommendation of the Council on Countering Illicit Trade: Enhancing Transparency in Free Trade Zones."  

This includes commitments to cooperate internationally in the exchange of law enforcement information, strengthen domestic authorities' ability to compel more information on goods, and ban people who do not provide such information from FTZs.

In February 2022, the UK began market access negotiations on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). If successful  the UK will agree new trading relationships with the CPTTP’s 11 member countries, which could lead to 99.9% of UK exports to CPTPP being eligible for tariff-free trade.

And so it appears the UK is stepping ever closer to joining a free trade zone such as CPTPP and expanding trading relationships with countries where the risks of illicit trade are high. The case seems clear therefore, that in negotiating such agreements the UK must ensure that the gains from free trade are not negated by the possibility of creating a paradise of smuggling and trafficking.