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What Are The Causes Of Smuggling?

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Ian Marshall answered
Smuggling generally comes about because of a number of factors which make the importation of goods more profitable when done outside of the law. For example:

  • Tax rates can differ between neighboring countries by large amounts meaning goods are cheaper in one country than another. This is usually counteracted by import duties and therefore smuggling is a way of getting around this.
  • Administration associated with the excise tax can also be complicated and costly, adding an extra burden on the importer
  • The differing rates can influence the market and make competition distorted
  • Political choices on which goods are taxable and the rates for those goods can have a huge impact, this is for example while alcohol and tobacco for example are prime candidates for smuggling because they are usually heavily taxed. Protective policies to encourage local industry can cause interesting items to become the subject of smuggling operations. In Minnesota fifty years ago margarine became a black market item after laws were introduced to protect the dairy industry.
  • Business licensing and employment legislation can also be costly and impacts profit margins of importing companies, smuggling operations most likely operate outside of this framework.
I will also make a quick note about people smuggling which is a very different situation but, apart from people trafficking, is where individuals consent to be transported in an attempt to escape from conflict, natural disaster, persecution or poverty in their home country. Through desperation they resort to these measures although this may not be the type of smuggling you are interested in.

Smuggling generally comes about because of a number of factors which make the importation of goods more profitable when done outside of the law. For example:

Tax rates can differ between neighboring countries by large amounts meaning goods are cheaper in one country than another. This is usually counteracted by import duties and therefore smuggling is a way of getting around this.

Administration associated with the excise tax can also be complicated and costly, adding an extra burden on the importer.

The differing rates can influence the market and make competition distorted
Political choices on which goods are taxable and the rates for those goods can have a huge impact, this is for example while alcohol and tobacco for example are prime candidates for smuggling because they are usually heavily taxed. Protective policies to encourage local industry can cause interesting items to become the subject of smuggling operations. In Minnesota fifty years ago margarine became a black market item after laws were introduced to protect the dairy industry.

Business licensing and employment legislation can also be costly and impacts profit margins of importing companies, smuggling operations most likely operate outside of this framework.

I will also make a quick note about people smuggling which is a very different situation but, apart from people trafficking, is where individuals consent to be transported in an attempt to escape from conflict, natural disaster, persecution or poverty in their home country. Through desperation they resort to these measures although this may not be the type of smuggling you are interested in.

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