Smuggling incentives

A colleague of mine pointed out that free traders might think that smuggling is a good thing, in that you remove the deadweight costs to the economy of tariffs and increase consumer welfare as a result.

Roberto Saviano in "Gamorra" describes the huge economic incentive to smuggle.

" Fearing a customs inspection, Xian preferred unloading them on the open sea. That way the merchandise could be put on the market without the burden of taxes, and the wholesalers wouldn't have to pay import fees. You beat the competition on price. Same merchandise quality, but at a 4, 6,10 percent discount. Percentages no sales rep could offer, and percentages are what make or break a store, give birth to new shopping centres, bring in guaranteed earnings and, with them, secure bank loans. Prices have to be lower. Everything has to move quickly and secretly, be squeezed into buying and selling. Unexpected oxygen for Italian and European merchants. Oxygen that enters through the port of Naples"

Saviano talks earlier in the book about his appreciation of his classes on Keynes and marginal values of products (ice creams worth more next to the desert than in Greenland). Here is someone who studied economics and took his field work/writing to the extreme by immersing himself in the black economy. He is now paying the price by living in hiding from the Napoli mafia.

Photo by Mary Sesami, Flickr

Smuggling

Roberto Saviano writes famously in Gomorrah about the Camorra mafia but also gives insights on smuggling of goods into Europe:

"The port of Naples is an open wound. The end point for the interminable voyage that merchanise makes. Ships enter the gulf and come to the dock like babies to the breast, except they are here to be milked, not fed...

These days the merchandise unloaded in Naples is almost exclusively Chinese - 1.6 million tons annually. Registered merchandise that is. At least another million tons pass through without leaving a trace. According to the Italian Customs Agency, 60% of the goods arriving in Naples escape customs inspection, 20% of the bills of entry go unchecked, and fifty thousand shipments are contraband, 99% of them from China - all for an estimated 200 million euros in evaded taxes each semester. The containers that need to disappear before being inspected are in the first row. Every container is duly numbered, but on many the numbers are identical. So one inspected container baptizes all the illegal ones with the same number".

The book Economic Gangsters give further insight in how smugglers paid less duty on chicken exports to China from Hong Kong...by declaring the chickens as turkeys which qualify for lower tariffs and banking on the inspectors not noticing the difference.