KUALA LUMPUR: The level of illicit trade in Malaysia has not reached an alarming level, which could partly be the reason behind the lack of a specific focus by the government in addressing the issue, said the Institute for Democracy and Economic Affairs (Ideas).

Research director Ali Salman said there needs to be a deeper understanding of the definition of illicit trade for further enforcement efforts, along with a unified policy in tackling illicit trade.

“I’m not saying that the government is not doing anything about illicit trade, but a formal and agreed upon definition will help in coordinated action,” he told The Edge Financial Daily on the sidelines of the second Global Illicit Trade Summit hosted by The Economist Events yesterday.

“From a macroeconomic view, I would say that the level of illicit trade is not at an alarming rate. Perhaps that’s why you don’t see a single-minded focus from the government in coming up with a definition for illicit trade,” he added.

While it is not alarming, Ali said the emergence of illicit trade in any industry must still be given policy attention as the illicit market will continue to grow if not dealt with.

Earlier during a presentation on “Spotlight on Malaysia”, he pointed to the emergence of illicit trade in the tobacco industry, which he said is a product of the high excise duties on cigarettes.

He said the price difference between legal and illicit cigarettes has created a gap between supply and demand, giving room for the illicit market to thrive as consumers opt for the cheaper option.

This is also true of the automotive spare parts industry as protectionist policies in the sector has resulted in the higher price of legal parts, which leads to higher usage of counterfeit parts, he added.

This issue is further exacerbated by the stagnant growth in wages of consumers, as the lower purchasing power pushes people towards cheaper alternatives including illicit products.

Instead of introducing policies to limit the supply of illicit goods such as increases in tax on tobacco products, he said the government should instead address the demand for these goods.

“We cannot deny that the income levels in Malaysia are stagnating. Wages have not kept pace with economic growth and the rise in prices. When that happens, demand for certain illicit good increases and we cannot address the demand issues just by enforcement.

“We need to introduce market-based measures and intelligently address the supply and demand gap. The situation can only improve once constraints on the formal supply is removed,” he said.

Ali also noted that there should be greater cooperation between the private and public sectors, adding that while the government does invite the private sector for its input on policies, they have been largely “symbolic in nature” with little outcome.

“I have participated in a number of consultations with government agencies. My general takeaway is that many of these consultations are, I would say, symbolic in nature. They are not substantive.

“It seems to me, more often than not, the government’s policy actions are driven by bureaucratic and political considerations rather than purely business and public policy interests. That’s my general view,” added Ali.

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First published in The Edge Financial Daily, on March 23, 2018.