Illicit Trade and the World Trade Organization

Raising Awareness, Identifying limitations and building strategies

Clinic: Georgetown University Law, Spring 2017

Beneficiary: Permanent Mission of the Republic of Colombia

Executive Summary

Redacted memo can be accessed here

As the first step in the direction of encouraging a worldwide response, this Memorandum intends to raise global awareness of the significant problem that illicit trade represents. To that end, it will refer to the international instruments currently available to fight against this collective threat, making the inevitable conclusion that international regulation has not only been fragmented, but also insufficient vis-à-vis this subject-matter. As a second specific objective, it will also present the available tools to tackle the issue, incorporating this subject matter into the WTO’s framework. Intrinsically intertwined with this goal is the suggestion of a broad definition of “illicit trade”, which is specifically designed for its use at the WTO.

“Illicit Trade” is a global problem. It abuses the international trade system and negates the foundations of the multilateral legal framework. “Illicit trade” destabilizes institutions, recognizes no frontiers and nullifies the collective objective of fair trade. And, yet, it is not on the WTO’s agenda.

The reality of today’s world shows that illicit trade is all around us: from the falsified medicines containing no active ingredients being brought to treat patients in North America, to illegally-captured fish products being acquired by consumers in Asia. This is, indeed, a serious matter.

Illicit trade practices often defeat the object and purpose of trade liberalization, which is to create development and wealth-sharing among States. Illicit trade does not contribute to the States’ economy the way licit trade does as it does not go through the ordinary (legal) channel.

The conundrum of “illicit trade” starts with its very definition. The notion of “illicit trade” encompasses a broad variety of issues, ranging from the crossborder sale of illicit products (such as narcotics) to the sale of licit goods for illicit purposes (such as money-laundering). To make things worse, no comprehensive definition thereof exists at the international level. Preliminarily, illicit trade has been defined as an exchange in the control / possession of a good or service that a lawmaker (national or international) deems illegal, because the object of the exchange is dangerous or morally repugnant.*

Nonetheless, if one uses only the above-referred preliminary definition, illicit trade would solely cover trading of prohibited weapons, endangered species, illicit timber, narcotics or conflict minerals. However, traditional illicit goods are not currently the sole issue at stake, albeit part of the considerable problem. It is often the case that fraudulent actors engage in sophisticated schemes through which they trade or deal with licit products (such as electronics or footwear) for criminal or otherwise non-licit purposes (like money laundering).

It is estimated that illicit international trade amounts to roughly $650 billion, taking into account – only – trade in goods. Illicit financial flows are on the order of $1.3 trillion. Moreover, the “illicit economy” represents approximately 15% of the world’s GDP and 7% of the world’s circulating merchandise.** It, thus, has the potential of impacting, in a negative way, both the major and the small economies of our planet alike. To illustrate why this is, truly, a worldwide phenomenon, below are a few examples that evidence the wide-spread extent of the problem.

*OECD, 2016, Illicit Trade: Converging Criminal Network, OECD Reviews of Risk Management Policies, Paris, page 19.

**World Economic Forum, 2013, Out of the Shadows: Why Illicit Trade and Organized Crime matter to us all, Switzerland, page 1.

Redacted version of memo can be accessed here