At a time when the government has rightfully declared war against smuggling, there are very few studies or figures that shed light on the factors that led to the growth of this phenomenon. One exception is the World Bank study conducted in 2013 on
informal cross-border trade.
More recently, a study on the tire market in Tunisia done by a former high-level Tunisian customs officials estimates that the market is currently 73% dominated by the informal sector (see figure below).
Such an estimate presents clear challenges given the lack of data available on tires and the absence of precise statistics on the fleet of vehicles in circulation. Nonetheless, the country’s demand for tires can be estimated based on the number of vehicles in circulation multiplied by a coefficient of annual consumption for each category of vehicle.
The World Bank study thus estimates close to TD 270 million in informal imports of tires, with TD 40 million in formal imports and the national output of the Société Tunisienne des Industries de Pneumatiques (STIP) of TD 60 million, a local manufacturer of tires.
Even more interesting are the primary reasons for this increase in smuggling: a 94% tax on importation as well as non-tariff barriers, for example, by requiring authorization for each customs clearance transaction.
What forms of economic protection are there other than protective tariffs? Although the legal framework does not require it, in practice, tire importers must produce a certificate of conformity issued by the general directorate of manufacturing industries, which determines whether importation is approved, to support the customs declaration of clearance for use. In some cases, this directorate withholds authorization for the categories of tires manufactured by STIP and in other cases, it imposes quotas on imports on a quid pro quo basis, requiring the purchase of a certain quantity of tires from STIP.
The administration, therefore, has significant discretionary power to determine whether to approve legal imports of tires. The need at times to purchase certain quantities of tires from STIP therefore creates very little incentive to import tires legally in Tunisia and likely explains why smuggling is so widespread.
There are several reasons why it is important to protect tire imports, one of which is the presence of STIP in this sector. STIP was created in 1980 at the initiative of a pool of development banks in association with PIRELLI, with the aim of manufacturing and selling tires and other items made from synthetic rubber. STIP operates a factory in Msaken, 150 kilometers south of Tunis, and a factory in Menzel Bourguiba, 60 kilometers north of Tunis, and employs perhaps fewer than 1,000 people total at both sites.
Even with this economic protection of STIP, the company faces severe challenges from increasing debt. The existence of STIP in this industry distorts the tire market completely.
In this case, merely attempting to stifle smuggling has limited chances of success because the incentives to smuggle are currently very strong. Curbing smuggling requires a reduction of customs duties to a maximum of 15% (against 27%), the elimination of the excise tax (currently 30%), and freeing tire imports from having to meet established standards and specifications.
As paradoxical as that might seem, a drastic reduction in customs duties and the elimination of the excise tax may have positive effects on state revenue because at present, approximately US$35 million is collected. With customs duties at 15%, close to US$50 million would be collected since, with a reduction of tariff barriers and the elimination of non-tariff barriers, there would no longer be a compelling motive for smuggling.
The example of the tires also demonstrates that smuggling is often the result of decades-old tariff and non-tariff barriers and that a strictly suppressive solution is destined to fail, as has been the seen in other cases worldwide.
More recently, a study on the tire market in Tunisia done by a former high-level Tunisian customs officials estimates that the market is currently 73% dominated by the informal sector (see figure below).
The World Bank study thus estimates close to TD 270 million in informal imports of tires, with TD 40 million in formal imports and the national output of the Société Tunisienne des Industries de Pneumatiques (STIP) of TD 60 million, a local manufacturer of tires.
Even more interesting are the primary reasons for this increase in smuggling: a 94% tax on importation as well as non-tariff barriers, for example, by requiring authorization for each customs clearance transaction.
What forms of economic protection are there other than protective tariffs? Although the legal framework does not require it, in practice, tire importers must produce a certificate of conformity issued by the general directorate of manufacturing industries, which determines whether importation is approved, to support the customs declaration of clearance for use. In some cases, this directorate withholds authorization for the categories of tires manufactured by STIP and in other cases, it imposes quotas on imports on a quid pro quo basis, requiring the purchase of a certain quantity of tires from STIP.
The administration, therefore, has significant discretionary power to determine whether to approve legal imports of tires. The need at times to purchase certain quantities of tires from STIP therefore creates very little incentive to import tires legally in Tunisia and likely explains why smuggling is so widespread.
There are several reasons why it is important to protect tire imports, one of which is the presence of STIP in this sector. STIP was created in 1980 at the initiative of a pool of development banks in association with PIRELLI, with the aim of manufacturing and selling tires and other items made from synthetic rubber. STIP operates a factory in Msaken, 150 kilometers south of Tunis, and a factory in Menzel Bourguiba, 60 kilometers north of Tunis, and employs perhaps fewer than 1,000 people total at both sites.
Even with this economic protection of STIP, the company faces severe challenges from increasing debt. The existence of STIP in this industry distorts the tire market completely.
In this case, merely attempting to stifle smuggling has limited chances of success because the incentives to smuggle are currently very strong. Curbing smuggling requires a reduction of customs duties to a maximum of 15% (against 27%), the elimination of the excise tax (currently 30%), and freeing tire imports from having to meet established standards and specifications.
As paradoxical as that might seem, a drastic reduction in customs duties and the elimination of the excise tax may have positive effects on state revenue because at present, approximately US$35 million is collected. With customs duties at 15%, close to US$50 million would be collected since, with a reduction of tariff barriers and the elimination of non-tariff barriers, there would no longer be a compelling motive for smuggling.
The example of the tires also demonstrates that smuggling is often the result of decades-old tariff and non-tariff barriers and that a strictly suppressive solution is destined to fail, as has been the seen in other cases worldwide.
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