ILLICIT trade, including the counterfeiting of goods like cigarettes, is undermining regional security in the Association of Southeast Asian Nations (ASEAN), according to a new report. This costs governments billions in lost revenue and threatens to derail the bloc’s vision of economic integration by 2025.

The report by the Transnational Alliance to Combat Illicit Trade (TRACIT) and the EU-ASEAN Business Council finds that illicit trade weakens ASEAN’s political-security community, hinders economic growth in the economic community, harms the environment, and contributes to human trafficking in the socio-cultural community.

The 10 member countries of ASEAN set an ambitious goal to achieve economic integration by 2025.

“Since international trade and investment are critical elements of the Community Vision 2025, it will be paramount for ASEAN leaders to ensure that illicit trade does not derail the vision’s objectives to drive sustainable economic development, boost income generating capacity, job creation, reduce poverty and achieve better standards of living throughout the region,” the 94-page report says.

It cites the need for sustained political will from governments at all levels to prioritize the problem, develop solutions, and invest in enforcement measures.

The report details the negative impacts of illicit trade on economic growth, investment, job creation, crime prevention, and environmental protection across ASEAN.’

It lists the Philippines as one of several Southeast Asian nations grappling with a high prevalence of illicit cigarette trade, depriving the government of revenue and posing health risks to consumers.

Illicit trade often involves counterfeit or substandard goods, raising consumer safety concerns. The report specifically highlights tobacco smuggling as a major issue. While 10 percent of cigarettes consumed globally are illicit, that rate jumps to 15 percent in 16 Asian countries, including ASEAN members.

“Mapped against ASEAN’s three communities [political-security, economy, and socio-cultural], the threat of illicit trade to derail the objectives of Vision 2025 is unmistakable,” the report says.

It says ASEAN governments lost $2.9 billion in tax revenue from illicit tobacco products alone in 2017. The Philippines, for example, loses an estimated P100 billion ($1.9 billion) annually due to cigarette tax evasion.

The TRACIT report says cigarettes manufactured within ASEAN countries are smuggled to other ASEAN countries, Asia-Pacific countries, and other global markets. “For example, there are massive outflows of illicit whites and counterfeits smuggled from Vietnam and Cambodia to Europe. Exports or transshipments from Indonesia and Singapore are also significant,” it said.

“Cigarettes are exported from Indonesia to several countries in the region, predominantly the Philippines, through ports such as Nunukan and Tarakan. The brands declared for export to the Philippines are often not registered with the Philippines’s Bureau of Internal Revenue—a mandatory requirement for cigarettes to be sold legally in the country. Further, the Philippines also receives large volume of imports from Vietnam, Cambodia, and India that transit through Singapore,” it says.

“In Thailand, brands exported from Vietnam and Indonesia and that appear to have consignees based in Singapore, Hong Kong, Malaysia, and the United Arab Emirates are likely considered goods in transit which receive less scrutiny by Customs,” it says.

The report warns that other tobacco products, like smokeless tobacco, are also vulnerable. The bans on e-cigarettes in Singapore and Thailand have led to increased smuggling of illicit vaping products from neighboring Malaysia, a major e-cigarette producer.

“The Philippines has also seen a surge in illicit vaping products,” the report said. “In response, the Department of Trade and Industry recently directed Shopee and Lazada to remove more than one million listings of such products.”