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Scourge of Smuggling: Root Causes, Solutions
Domestic Economy

Scourge of Smuggling: Root Causes, Solutions

Talks on the root causes, socioeconomic impacts and ways to combat the harmful phenomenon of smuggling were the central themes of a Tuesday meeting between members of Tehran Chamber of Commerce, Industries, Mines and Agriculture.
Inward and outward illegal trade in Iran is estimated to reach $25-30 billion per year. While some officials believe this figure to be exaggerated, all are unanimous on the need to effectively tackle the issue, read an article by the Financial Tribune’s sister newspaper Donya-e-Eqtesad.
A report prepared by the Office for Business and Economic Affairs at the Ministry of Industries, Mining and Trade has listed the top smuggled commodities across different provinces.
Gold and artifacts top the list, with nearly $3 billion worth of illegal imports per year.  Apparel and clothing ($2.7 billion), home appliances ($2.1 billion), cellphones ($1.8 billion), computers and parts ($1.5 billion), spare parts ($1.5 billion), cosmetics ($1.1 billion) and cigarettes ($912 million) are the other top commodities smuggled into the country. Pharmaceuticals, medical equipment and black fabrics are reported to be other imported products in high demand.
East Azarbaijan, West Azarbaijan, Ardabil, Ilam, Bushehr, Khorasan Razavi, South Khorasan, Sistan-Baluchestan, Kurdestan, Kermanshah, Khuzestan Golestan and Mazandaran provinces recorded the highest value of inward smuggling, according to the report.
Fuel is the main commodity smuggled out of Iran, as a result of the considerable difference between fuel prices in Iran and neighboring countries. Government-subsidized commodities such as wheat and flour are also smuggled out of the country via border regions.

 Root Causes
Heavy import duties and restrictions on import of certain commodities, cumbersome customs procedures, reluctance to obtain quality standards and certifications, dire socioeconomic situation and lack of sufficient employment options in border regions, lack of competitive advantage in domestic products and  partial government policies  in controlling prices of domestic and foreign products are some factors that give rise to smuggling, according to Mojtaba Khosrotaj, deputy minister of industries, mining and trade and TCCIMA member.
“Some legal provisions, including duty exemption on goods carried by passengers, sailors and border residents, and numerous tariff classes also pave the way for abuse and smuggling,” said the official.
Khosrotaj referred to loss of government revenues, health and safety hazards, distortion of market prices, collapse of local industries and unemployment as key problems associated with smuggling and called on related officials to come up with an accurate and comprehensive plan to combat smuggling of goods and currency.

 Solutions
To combat smuggling, the deputy minister suggested reducing economic viability of smuggling operations by imposing heavier fines and penalties on smugglers while simultaneously reducing import tariffs.
Tight control of entry and exit border checkpoints, closely tracking the supply and distribution chain and facilitating formal trade through elimination of unnecessary bureaucratic procedures were other approaches proposed by the official to reduce informal trade.
Khosrotaj also emphasized the need for increased transparency in administrative procedures and promoting purchase and use of domestic products among the public. He announced new cultural programs by the Ministry of Industries, Mining and Trade to encourage the use of domestic goods.
Another TCCIMA member, Seyyed Hamed Vahedi, observed that reducing the government’s size and strengthening the private sector could create more motivation among market players to combat smuggling.
TCCIMA board member, Pedram Soltani, noted that reducing import duties to zero might be the only way to combat smuggling of certain commodities.
“The cost of smuggling has drastically reduced in recent years so imposing heavier fines and penalties is no longer an effective preventive measure,” he said.
The Ministry of Industries, Mining and Trade has repeatedly stated that fighting illegal imports is among its top priorities. Industries Minister Mohammad Reza Nematzadeh recently announced a comprehensive plan to combat smuggling through implementation of the global GS1 coding system for commodities that have domestic counterparts such as pharmaceuticals.
GS1 is an international organization that develops and maintains standards for supply and demand chains across multiple sectors. The standards facilitate identification of items, locations, shipments, assets and associated data.
 “The coding system will enable the ministry to track the contraband products anywhere in the distribution network,” said Nematzadeh.

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