Shedding Light on the Dark Side of Trade: Strategies for Analyzing the Extent and Impact of Illicit Imports

This paper provides researchers with a flexible set of tools for measuring and analyzing illicit imports, defined here as imports of goods produced from illegal or otherwise unethical activity. Using estimation and modeling techniques originally developed during the U.S. International Trade Commission’s factfinding investigation on illegal, unreported, and unregulated fishing, this paper shows how similar approaches can be used for different sectors and production practices. For researchers seeking to use these tools, the first step involves defining the scope of analysis, particularly the types of illicit activities to be analyzed. Scoping decisions are usually based not only on what a researcher considers to be illicit activity, but also the intended audience of the research and data availability. The second step involves estimating the extent of illicit production among possible import partners and then tracing that illicit product into import supply chains. Researchers can accomplish these estimation exercises using careful and deliberate data management techniques as well as a reasonable set of assumptions for gap filling, and these techniques are explored in great detail. The third step involves analyzing the impact that illicit imports have on domestic producers that compete directly with these imports. A flexible partial equilibrium modeling framework is presented that can accommodate different kinds of industries as well as different policies for reducing exposure to illicit imports. In order to demonstrate the potential applicability of these tools, the paper concludes with two case studies focused on known illicit trade issues within the forest products and cotton sectors, providing ideas for how research could be pursued within each sector.