Illicit Trade

A free and open marketplace is fundamental to improving competitiveness, increasing investment, generating jobs and improving the economies of the EAC Region. Illicit trade undermines each of these goals, and is a growing menace within East African market. Illicit trade is a multifaceted problem and includes, among others:

A product which is an identical copy of a branded product and packaging, which is manufactured by parties that do not have the relevant intellectual property rights (trademark, copyright etc) authorising them to manufacture such branded products and is usually made with the intent to deceptively represent its content, origins and effectiveness (especially for drugs).

Parallel Imports:
A non-counterfeit product imported from another country without the permission of the intellectual property owner. Parallel imports are often referred to as grey products. They mainly occur when different versions of a genuine product being produced legally for sale in different markets find themselves being sold by unofficial distributors in markets outside their territories. They also occur when manufacturers or distributors, set different price points for their products in different markets. Parallel importers ordinarily purchase products in the cheaper market, to go sell them in the more expensive market.

The movement of product (either genuine or counterfeit) from one jurisdiction or excise regime to another in circumstances where it is unlawful to do so because it is done without payment of applicable taxes and or duties in the relevant jurisdiction, or in breach of laws prohibiting its import or export.

Undeclared Local Production:
A product which is manufactured and sold for consumption in the same country, and which is not declared to the local excise authorities and therefore excise tax is not paid. These products may be manufactured in approved factories, or they may be manufactured in illegal covert operations.

Pirated Products:
The unauthorized and illegal duplication of copyrighted software, music, movies etc; and selling of products that bear similar brand names with well established brands (for example Rodo, instead of Roto for water tanks); which can often fool the consumer into thinking they are buying the known brand.

The profitability and market share of legally registered East Africa companies, especially those involved in manufacture of fast moving consumer goods have been negatively affected by counterfeits and illicit trade. This has serious negative impacts on the viability of industries, jobs, tax revenues and the health of consumers across the region. Furthermore, the prevalence of illicit trade in the EAC market has become a major deterrent to investors, both domestic and foreign.

Counterfeits and pirated products pose other serious risks including the loss of international competitiveness by intellectual property owners; damage to human health and safety, loss of government revenue, stifling of creativity and innovation and loss of trade and investment competitiveness.

The most affected products include batteries, detergent products, ball point pens, electrical and electronic appliances, perfumes, cosmetics, pharmaceuticals, agrochemicals, building appliances, computer software and hardware, audio and visual disks, automotive spare parts, as well as alcohol and tobacco.

Illicit Trade is facilitated by weak border controls (especially contributing to smuggling); inadequate sanctions (which are insufficient as deterrent because the balance of risk and reward is not weighed more against the offenders); and corruption, which weakens enforcement of existing regulations and undermines any controls put in place.

Another facilitator is consumer behaviour – in many markets, consumers are aware (from appearance, price and place of sale) that they are purchasing smuggled or counterfeit goods, but they are happy to buy, because of the lower price – without demand, there would be no supply.

In recognition of the impact of illicit trade in the EAC region, the EAC secured funds from ICF (Investment Climate Facility) to assist in developing a policy and then a legal framework. A Draft Report on the Formulation of an EAC Policy on Anti-Counterfeiting, Anti-Piracy and Other Intellectual Property Rights Violations has already been carried out.

In the interim (given that the EAC law may take long duration to develop), EABC has done the following:
• Requested the EAC to use the EAC Customs Union Management Act which outlaws counterfeit goods imports into the EAC Customs Union territory.

• Dialogued with EAC secretariat to allow EABC to propose draft regulations which they accepted. To this end, EABC intends to secure funding for a Consultant to develop regulations and guidelines to implement the law.

• Under the Trade & Industry Committee (TIC) , a sub-committee to champion fight against counterfeits is in the process of being formed.

EABC urges Partner States government to put in measures to combat illicit trade, including reducing the economic incentives to engage in illicit trade; strengthen controls at border points; enforce existing national and regional laws; introduce punitive measures against the culprits, including seizing and destroying illicit goods and machinery.

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