FREE TRADE ZONES AND TRANSNATIONAL CRIME- Mr. Piotr Stryszowski-(Virtual)

Strong message in regards to the front door and the back door of international trade. I would like to welcome, and I believe that they are, he's online, Mr. Piotr from the OECD, you're online, to join us. Hello Piotr. Hello, good evening, good afternoon. Please, the floor is yours. Do you have any presentation? Thank you. Yes, I do have a presentation. I'd be very grateful if it could be uploaded. And let me say it's a real pleasure and honor to be here at this great forum. Let me also say that I very much regret I cannot be with you in person. Unfortunately, the sanitary situation in France is not good enough yet, and we are still banned from making any official international travel. But yet, thanks to the technological advancements, I'm able to be there with you. And, well, I want to also thank the previous speaker for excellent presentation, full of really relevant examples. My presentation will be slightly different. We'll take a step back and focus on, well, on the one hand, on evidence on the issues of abuse of free trade zones in illicit trade, but on the other hand, on the solutions that we can provide to counter this threat. The previous speaker also mentioned the notion of coffee being abused to conceal some contraband. And actually, I must say, I'm really grateful to have some coffee with me because it's past 11 p.m. in France. So, thanks to this formidable beverage, I'm able here to deliver the speech. My name is Piotr Stryszowski, and at the OECD, I manage the task force on countering illicit trade. The OECD is an international organization that is basically providing evidence, facts, on current economic problems that, well, shed some light on these problems and also suggest what the solution could be. The task force that I manage, of course, as its name suggests, looks at the problems of illicit trade. So, next slide, please. So, let me begin very briefly with the modus operandi of the task force. It's very basic. As you can see, there are three steps that we follow. The first step is evidence, right? Facts. Any policymaking, we believe, should be based on facts. Unfortunately, illicit trade, by definition, is illicit. So, here, data are hard to find, and I would say 80% of our work is looking at evidence, looking for evidence, right? We, being an international organization, have this luxury of having access to excellent customs data or enforcement data that provide us with some skeleton of information, how illicit trade operates, where these goods are shipped from, where these goods are shipped to, what modes of transport are abused, what are the sizes, trends, etc., etc. But statistical data are not everything. So, lots of our work are interviews with experts from enforcement community, from trade community, from industry, from all sorts of communities that might complement this data with crucial expert knowledge. And once we provide this evidence, once we develop knowledge of how illicit trade looks like these days, then gradually we come at, I would say, scoping of governance gaps, of trying to understand why some parts become more abused than the other, why in some areas the climate for criminals that run illicit trade is so good. So, we go here then from evidence into guidance. We say to policymakers, hey, why don't you focus on such issues as free trade zones? Because in these areas there might be some problems, there might be some gaps to be filled. But once we do it, the next step, the very last step, is the implementation. Because it's not enough to say there might be some issues with free trade zone, it is necessary to say how exactly to fix it. And this modus operandi will basically try to implement in all areas of illicit trade, in all aspects, not only for free trade zones, but also such issues as information sharing, small parcels, or problems with online platforms. But today, let me provide you some evidence and, well, sketch some solutions related to free trade zones. Next slide, please. Let's begin with evidence, what we know about illicit trade and free trade zones. Here, let me take, I would say, a couple of steps back and, well, get to the reports that we've published several years ago. As I said, providing evidence on illicit trade is not easy. It's not like you take the data, put the data into a parametric apparatus and then you have a set of tables that tell you the whole truth. No, the process is very slow, it's very laborious, it goes step by step by step. And at one point, when we tried to gauge the map of routes in illicit goods, we concluded that free trade zones appear on this map too frequently. There are some anomalies related to free trade zones. We were scratching the surface, on average, and here I want to highlight, on average, free trade zones spur illicit trade. Put it differently, the evidence that we have demonstrates that, on average, illicit trade is driven by free trade zones. These quantitative findings that you can see on the screen, there is this cover with some fancy picture, was complemented with dialogues with experts. We had a number of dialogues, one of them was carried out in the beautiful city of Alicante in Spain, in the headquarters of the European IP office, and basically these experts from the trade community, from the industry community, and from the enforcement community said, of course, of course, there are some problems with free trade zones. The suggestions provided by data are true. So our narrative can be changed from there seems to be a problem with free trade zones is a problem with some free trade zones, right? These experts and these dialogues provided us with some additional facts and also pointed at some findings from our analysts, and these findings were that, in fact, the abuse of some free trade zones is more systemic than we think. In particular, there are clear signals that near certainty that free trade zones in illicit trade are abused only or mostly by organized crime with strong links to terrorist networks. Of course, this is not our core area of work. Here I need to defer to expertise of our colleagues from Europol and Interpol, but anyway, let me just highlight two very interesting facts. The first one is the fact that when you look again at the map of routes in illicit trade, you do not only find free trade zones there, but you also find countries with very weak or almost no governance. Countries like Syria or Afghanistan appear there very frequently, and that suggests that, indeed, terrorist networks or organized criminal networks that operate in these countries might or actually do have stake in illicit trade that then at one point also passes through free trade zones. So this is the hint. The second hint is the illicit trade. Only illicit trade amounts to like 450 billion U.S. dollars a year. 450 billion U.S. dollars a year. This is the order of magnitude of GDP of Belgium. This is not order of magnitude of a jackpot in the lottery. No, this is humongous scale. This is scale that can be generated only by well-organized criminal networks that have access to whole logistical chain that can control every aspect of this chain, starting from production and liquid distribution. So these two signals, presence of countries with failed governance or poor governance, and the humongous scale of this process clearly point at strong involvement of organized crime in illicit trade that also abuses some free trade zones. These dialogues that we carried out not only provided some facts about the scale, magnitude, and nature of this problem. Of course, that was fascinating to learn what sort of goods are passing through free trade zones, right? Looking at the business models, how cigarettes are smuggled, how actually counterfeiting takes place in some free trade zones. That was fascinating. And I feel real urge in going into these great anecdotes because that's very interesting. But let me, instead of that, let me just focus on the reasons, on the diagnosis, why this happens, and on proposed solutions. When we did these dialogues, talking to experts, and when we did additional research, one thing became really apparent, why some free trade zones become so attractive for criminals. And actually, it's not a surprise, it's a trivial fact, but the reasons that are behind establishing free trade zones, which is lower oversight, less bureaucracy, easier checks. In many cases, when these factors are paralleled with, I would say, or lack of IPR respect or corruption, these factors, lower oversight, less bureaucracy, less controls, these factors become actually very much favorable for criminals that run illicit trade networks, right? On top of that, in some free trade zones, there is a fundamental misunderstanding that a zone is actually outside countries' jurisdiction, when it comes especially to customs control. When talking to, well, several customs officers from, well, some countries that appear on this list of abused free trade zones, I've heard sentences like, hey, it's a free trade zone, we have nothing to do with that, it's outside our jurisdiction. Well, it's not. Free trade zones remain in a country that hosts these zones. This is something everybody agrees with, right? So, this misunderstanding also is beneficial for criminals that find in these free trade zones great conditions for their activities. And the last reason why many free trade zones become so frequently abused is, well, great logistical facilities. In many zones, actually, zones are created to facilitate trade, right? Free trade zones. So, many zones have great, I would say, logistical transport facilities made for transit, storage, or even manipulation with goods. That's when abused by criminals can be, well, perfect conditions for illicit trade to flourish. And when we pair this with low oversight by customs, or even no oversight by customs, that's the ideal recipe for illicit trade to grow. So, what is the missing component here? Well, one term. Transparency. Next slide, please. Now, I'll just spend, well, a couple of minutes to flag a potential solution to these problems. Because it's not that all free trade zones are abused by criminals. It's not like in every single free trade zone, criminals take advantage. Unfortunately, there are some apples that are rotten. And these rotten apples, well, they, I would say, ruin the reputation of all the apples. And when I talk to my colleagues from DG Taxud of the European Commission, they have, I would say, slightly reduced, or I would say, moderate reputation about free trade zones. So, to fix this problem, to empower those zones that are, I would say, clean, that want really to spur trade, the OECD has adopted a recommendation. A recommendation on enhancing transparency in free trade zones. This recommendation, of course, is a non-binding legal instrument that is issued to all adhering jurisdictions. This is not a recommendation that is only for OECD member countries. This is a recommendation for everyone. And this recommendation includes a code of conduct, which is a very simple one-pager with some keywords, with some, I would say, even hashtags for free trade zones on what steps to take in order not to be abused by criminals in illicit trade. These are very simple hashtags, very simple solutions, like incentivize cashless payments, or proactively cooperate with enforcement in your country looking for anomalies in trade, or maintain detailed records of goods coming into a zone, staying in zone, and leaving zone, and provide all these records immediately upon request from enforcement authorities. This is not rocket science here. This is just basic principles of transparency that are in this recommendation. And the purpose of this recommendation is actually to empower those zones that want to be clean, that want to be transparent, and give them a tool to, on the other hand, implement it to be transparent, but also signal their readiness, their high standards that they have with respect to transparency, with respect to economic activity. And really to now, to go one step further, to give them this opportunity to give this signal. Next slide, certification scheme. This certification scheme has been mandated by OECD member countries, so we as the task force got the mandate from our member countries to do this assessment mechanism, right? Assessment mechanism that will tell whoever, customs, financial institutions, credit rating institutions, whether a given free trade zone is clean or not. Whether a given free zones maintain high transparency standards or not. Again, this certification scheme will be voluntary and will build on this code of conduct in the recommendation. So basically for every set of criteria, we are developing, I would say, quantitative measures that will tell whether a zone complies or not with these criteria. The certification scheme is currently being developed in collaboration with testing, inspection, certification industry. And we really hope to provide our member countries and everyone who's interested in increasing transparency in free trade zones with some results this fall, fall 2021. So please stay with us. Please continue, of course, your great job, keeping in mind that it takes free trade zones to fix their problems, of course, together with support and collaboration of governments. If there are any questions, I'll be happy to take them. Otherwise, thank you so much for having me. Gracias. Muchas gracias, Piotr. Thank you so much, Mr. Piotr. I know connecting, I know that this time is very late in Paris. We do appreciate and thank you so much for this. I'll leave you alone just in case we have any questions at the panel. So if we continue talking about free trade zones and some of the recommendations of the OECD.