During the final session of day one, Branquinho discussed the impact of illicit trade and counterfeiting on our duty and tax free industry, and the reputational harm caused by criminal activity.

“Illicit trade, counterfeiting and intellectual property theft are global challenges requiring a global commitment. Too often, fake goods sold in the domestic market are fraudulently labelled as “duty free” in order to mask their illicit origins. Our industry suffers from economic harm through lost sales opportunities, and reputational damage from having our name co-opted by this criminal activity.

“The duty free and travel retail industry takes a zero tolerance approach to any form of criminality, and wants to work hand in hand with customs and enforcement agencies to stamp out criminal activity wherever it occurs.”

Held at The Art Hotel & Resort in Bahrain from 27-29 November, the MEADFA Conference featured prominent industry leaders and thought-provoking debates and discussions, with an emphasis on Africa.

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The paper sets out the disproportionate and unfair impact illicit trade has on duty- and tax-free channels through fraudulent labelling by criminals and in terms of lost sales opportunities. It calls on national governments and cross-border enforcement agencies to work with industry to put an end to the practice.

In addition to warning consumers of the dangers of illicit goods and how to distinguish genuine duty-free products from falsely labelled ones, the position paper recommends:

1. Better regulation of informal and casual retail channels; such as street stalls and markets, and for the robust implementation of existing rules
2. Greater control over Free Trade Zones (FTZs) & Special Economic Zones; with a common approach to enforcement to prevent the emergence of illicit trade hot-spots
3. Help educating consumers; to build on industry-led initiatives such as the www.duty-free-club.ru website
4. Investigation of duty-free specific issues; such as fraudulent mislabelling, an emerging trend among criminals
5. Enhanced cooperation between industry and enforcement bodies; to tackle the “common enemy” that is illicit trade

>> Click here to read the full position paper.

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The updated report notes increasing work by governments and authorities to strengthen enforcement, but notes there is still more to be done.

It is important to know that duty- and tax-free sales are not free zone sales. Duty free sales take place in a highly regulated retail environment e.g. airports, ports, ferries, cruise ships and land border shops, and their operations are governed by national customs authorities. Our supply chain is one of the most secure in the world with processes and technologies in place to provide for verification of registration, compliance, certification, review and audit.

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The channel has long been – and will continue to be – an efficient and cost effective window to the world for brands

Many of the most popular products in duty free and travel retail stores are well known brands, as having a high profile in the duty free and travel retail category has become a hallmark of many iconic brands, and a crucial way for businesses to elevate their products to international success. For instance, brands such as Johnnie Walker and Toblerone owe much of their global popularity to the DFTR channel, and are now synonymous with international travel in the eyes of consumers. And, with an increasing consumer focus on local products and brands, the channel is evolving to provide a clear platform for the promotion of local brands and products, tapping into the ‘sense of place’ experience many shoppers value today.

The channel also presents brands with the opportunity to introduce customers to the premium section of their catalogue – because consumers generally make a saving on price when compared with the domestic market, they often choose to convert that saving into a purchase of a more premium version of their selection.

Duty Free supports the travel industry, and brands

The sense of familiarity consumers feel towards high-quality travel retail products is not just a benefit for duty free and travel retail operators. For many airports and international travel hubs, commercial income is derived primarily from retail sales, most notably duty free and tax free sales to international travellers. For example, prior to the pandemic European airports relied on commercial (non-aeronautical) revenues for around 50% of total income, which was often reinvested in airport infrastructure and operations for the benefit of passengers. As 1.72 billion passengers were lost in 2020 (representing a decrease of -70.4% of passenger traffic), it is inevitable that airports will have to rely further on commercial income for their economic survival.  

And, from a brand perspective, duty free and travel retail continues to provide a crucial revenue stream for across a variety of product categories. For many brands – especially those in perfumes and costmetics and high-end liquor – duty free and travel retail is often thought of as the ‘sixth continent’, and a market just as important as any other fixed geographic region. Duty free and travel retail remains, for example, one of the single largest markets for the sale of Scotch whisky. For beauty products it is often their largest sales channel.

Through its robust supply chain, the industry presents high-quality, genuine and authentic products to consumers, and will be an important driver of the recovery for international travel, tourism and aviation. To secure its continued success, it is vital that consumers retain their trust in the duty free industry.

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As these criminal activities result in millions of lost sales opportunities every year, illicit trade presents significant implications for the wider international economy. Thankfully, with some of the most secure and transparent supply chains in the world, duty free and tax free retailers can tackle illicit trade in a united and robust fashion. Illicit trade hurts all stages of the duty free industry, both economically and commercially, which is why we take a zero tolerance approach to the practice.

Recent disruptions to supply chains and global shipping routes, in combination with the rapid rise of e-commerce, have provided traders of illicit goods with a fountain of new opportunities to exploit. It is therefore unsurprising that a recent report by the OECD estimated that up to 5.8% of EU imports are now counterfeits. As the trade of counterfeit and pirated goods is a dynamic and ever-changing phenomenon, the duty free industry’s approach to tackling the practice has adapted to reflect this. With such transparent and highly controlled supply chains and retail channels, our industry is able to continuously monitor the risk of illicit trade, ensure any risk is neutralised before it occurs, and adjust industry-wide efforts to tackle it. 

The illicit trade of tobacco products – namely cigarette smuggling – is estimated to cause a EUR 10 billion loss to the EU and national budgets every year. This captures the damage illegal practices cause to the duty free industry and the wider economy. To this end, the World Health Organization (WHO) Protocol to Eliminate the Illicit Trade in Tobacco Products was introduced to provide a global framework for eradicating the practice. The duty free industry fully supports the implementation of the Protocol’s provisions, which include the establishment of licensing, a tracking and tracing system, a requirement for record keeping, and other security and preventive measures. 

As the majority of these measures are already standard practice without the need for regulation, the duty free industry strongly rejects any implication that it could be a source of international illicit trade. The purpose of the WHO Protocol is to eliminate illicit trade practices, and it should not be used as a vehicle for the WHO to achieve other policy objectives, such as limiting the availability of legal duty free tobacco to legitimate customers.

Over the next two years, the duty free industry will work together to ensure our anti-illicit trade credentials remain strong and well understood across all our categories. We will continue to support the anti-illicit trade enforcement community, and assist governments in countering this growing international threat. Illicit trade affects all sectors of the duty free industry, from customer perception, to industry validity and economic progression. To continue combating this, regulators and governments must demonstrate a greater deal of trust in the industry. As duty free sales support transport infrastructure, lower flight costs, and enhance the overall consumer experience, this trust is vital for the continued recovery of international travel. 

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Too often, the duty free and travel retail industries are wrongly perceived as ‘free zones’, exempt from normal rules and regulations. This is not the case. All duty free and travel retail sales take place in highly regulated retail environments that are governed by strict customs allowances, such as airports, ports, ferries, cruise ships and land border shops. Duty free and travel retail stores at these locations are within security controlled areas, free from passing or casual customers. As a result of this, sales of duty free and travel retail products are subject to security protocols, including the requirement for customers to show proof of international travel and restrictions on allowances, to name just two. In order to deliver such secure conditions, members of the duty free and travel retail industry willingly engage with governments and regulators to deliver on all legal requirements. With this approach, to the industry can deliver a fully robust supply chain which instils both industry and public confidence. 

As is unfortunately the case in every industry, there are unscrupulous actors who seek to co-opt the authenticity of our products. This often occurs when counterfeit items are labelled or stamped with markings designed to resemble those placed on genuine duty free goods. Our industry has zero tolerance for this kind of fraudulent activity. We strongly encourage all our customers to purchase duty free products only from trusted retailers operating in secure travel environments. Any goods purchased in other locations (including the domestic market) purporting to be duty free goods are not, in fact, genuine products. Our industry will continue to work closely with enforcement agencies to stamp out any illegality where it occurs. Meantime, customers can rest assured that all products purchases from a secure environment duty free store are authentic, and genuine.

The duty free and travel industry is already fully complaint with all the important and wide ranging controls that protect the channel against issues including illicit trade. To further this, we have developed our own technologies and processes to ensure verification of registration, compliance, certification, review and audit. In the unlikely event that industry participants are found to have discrepancies in their stock and control procedures, they are subject to financial penalties from customs authorities.

The duty free and travel retail industry has one of the most demonstrably secure, dependable and legitimate supply chains in the world. However, its transparency can only be protected if governments, regulators and customers continue to trust in our industry. A lack of trust puts the long-term future of the channel under threat, in addition to all the customers, passengers, businesses, travel hubs, jobs and livelihoods that have come to depend on duty free sales. 

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