Gray-Channel Economics: Drivers of Smuggling

This paper describes the principal forms of import tax evasion associated with the importation of food and agricultural products into China and examines the main drivers and inhibitors of such smuggling activity. The paper then shows some evidence of smuggling activity found in import/export statistics and makes inferences about the economics of tax evasion. Finally, the paper suggests some government policies that can be applied to limit these illicit activities and some relevant approaches to business planning by private-sector traders and distributors to minimize the potential disruption caused by seemingly cost-advantageous illicit trade channels.