WTO DDG González: WTO rulebook instrumental in tackling fraud, weeding out illicit trade

The WTO rulebook plays a crucial role in helping to weed out illicit trade and food fraud, Deputy Director-General Anabel González said at a “WTO Trade Dialogues on Food” webinar held on March 3, 2022 . She stressed that with every step the WTO takes to open trade, the WTO reduces the incentives for fraud, making illicit trade less lucrative. Her full comments are provided below.

WTO Deputy Director-General Anabel González

Thank you very much Doaa and thank you very much to all the excellent speakers for their preceding comments, and for agreeing to join the WTO for this important conversation.

Let me start by saying that “licit” and “illicit” trade are two sides of the same coin.

Here’s what I mean:  anything that the WTO or the international community does to put trade on a sound footing by definition contributes to weeding illicit trade and fraud.  Nothing would be ‘illicit’, if we did not have a benchmark for what is ‘licit.’

In trade law, that benchmark are WTO rules, and all of the regional and national trade laws, rules and regulations that flow from it.  So that’s point number 1.

Point number 2 is that embedded in the WTO rulebook are a variety of different instruments designed to allow Members to exercise control over their borders and to enforce their trade laws.   I will give you but a few examples, since a comprehensive list would risk us losing viewers!

The WTO has a Customs Valuation Agreement that  aims for a fair, uniform and neutral approach to the valuation of goods for customs purposes.  Applied correctly and consistently, it weeds out fraud.

The WTO also has a Pre-Shipment Inspection Agreement. Preshipment inspection activities are all activities relating to the verification of the quality, the quantity, the price, the currency exchange rate, and the customs classification of goods that are to be exported.  Once again, if used effectively, it can help weed out fraud, corruption and a whole of range of illicit activities.

Of particular importance to the food safety field are all the quote unquote “conformity assessment” provisions enshrined in the WTO Agreements on Sanitary and Phytosanitary Measures and Technical Barriers to Trade.  These are the measures that allow governments ascertain the conformity of imported products against product regulations (which can include the sampling imports, their laboratory testing, and other such requirements).

This is but a flavour of the enforcement infrastructure enshrined in WTO rules that I just referred to.

Point number 3 is perhaps a less obvious point.  With every step that the WTO takes that open trade, it reduces the “incentives” for fraud.   Let me take an old and well-known example to many of you, the prohibition of the earlier part of the last century. Prohibition in the US was a nationwide constitutional ban on the production, importation, transportation, and sale of alcoholic beverages from 1920 to 1933.  Following the ban, criminal gangs gained control of the beer and liquor supply of many cities, ultimately leading to the repeal of the prohibition.

Of course, there are many legitimate ethical and moral reasons for banning various products and I am not in any way questioning that; and the respect of local customs and traditions is of course key.

The point I wish to make however, is that restrictions create an incentive for circumvention; they make it lucrative to do so.   This goes as much for high tariffs, as it does for all other types of restrictions or excessively complex regulatory environments.

High import and export tariffs in certain countries are known to have encouraged the smuggling of certain foods and liquors. Import distribution and licensing arrangements, onerous product regulatory standards, and the lack of uniform food safety and trade standards, all tend to create opportunities for criminals to engage in illegal agri-food trade.

Therefore, as big picture frame, it would be important to be aware that trade opening is itself one of our biggest weapons in combatting illegal trade.  With the caveat of course, that the proper enforcement of border controls, rules and regulations will always remain necessary.

Ongoing WTO agriculture negotiations are seeking to do precisely that; to reduce the sometimes astronomically high tariffs (called tariff peaks in our lingo) and the subsidies that not only distort trade, but which are a conducive to a range of illicit activities and fraud.

Later in the Webinar…

Once again thank you Doaa and thank you to our panellists for the wealth of information they have given us.

Doaa in my first answer I tried to provide the broad framework for the WTO’s role on illicit trade. What I would now like to do is to zoom-in on “food crimes” more specifically, as you ask me to do.

From what I have heard on this webinar from the distinguished speakers we have with us, and what we in the WTO know about food crime, it can be broken down into the following categories:

  • Dilution of ingredients
  • Substitution of ingredients
  • Concealment of real product content
  • Inclusion of unapproved enhancements
  • False or misleading labelling
  • Counterfeiting, and therefore brand name infringement; and finally
  • Grey market theft and diversion

All of the above applies to food, but would apply equally to the complex field of agrochemicals mentioned in this Dialogue.

Now, I referred before to two key WTO Agreements in the food safety and consumer protection fields.  The Agreements on Sanitary and Phytosanitary Measures and Technical Barriers to Trade. Food safety lies entirely within the purview of the SPS Agreement. The Agreement allows governments to regulate food imports based on science and risk assessment techniques, and also allows them to ensure conformity of imports with national rules and regulations.  One of its main axes is its encouragement for governments to adhere to international standards (such as those of Codex and other international standardizing bodies), and to actively participate in building these international norms when they don’t exist.

Therefore, dilution, substitution, concealment and unapproved enhancements can all be tackled through the regulatory environment that the SPS Agreement not only allows, but also encourages, WTO Members to pursue.

The Agreement on Technical Barriers to Trade, on the other hand, specifically addresses the prevention of deceptive practices and tackles product labelling.  It allows governments to regulate labels, giving them a vital instrument to tackle false or misleading food labels.

The WTO also has an Agreement on Trade-Related Intellectual Property Rights (TRIPS in our jargon).  The Agreement creates a path for WTO Members to protect the intellectual property content of their traded goods, including brand names, and gives them the legal tools to combat infringement.  Once again, a vital tool in fighting food or agrochemical counterfeits.

As for grey market theft and diversion, as I said earlier in this Dialogue, the more WTO Members succeed in opening trade, the less incentives there will be for either theft or diversion.  I would also be remiss if I were to not mention the WTO Trade Facilitation Agreement, which was created to reduce the red tape at borders that can sometimes end up being costlier than actual customs duties.   That Agreement too, if properly applied, would reduce the fraud and corruption that often finds a home in regulatory complexity.   Regulatory complexity allows fraud to camouflage, if you will.

Ongoing negotiations in the WTO span a range of different subjects, some of them old like agriculture (but still extremely relevant of course) and some of them new (like e-commerce and investment facilitation as you mention Doaa).   Let me repeat, all trade opening, whether in an old or new field, helps us take a step forward in combatting illicit trade.  E-commerce negotiations, and digitalization more generally, if properly used could significantly weed out fraud and illicit trade by removing the middle-man.  Simpler and cleaner processes and ways of trading can also make the trade itself more clean, with appropriate safeguards of course.

And with this, let me close here and take questions from viewers.

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