The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

This paper uses mirror statistics and research in the field to estimate the magnitude of Tunisia’s informal trade with Libya and Algeria. The aim is to assess the scale of this trade. The main findings show that informal trade represents an important part of the Tunisia’s bilateral trade with Libya and Algeria, accounting for more than half the official trade with Libya and more than official trade with Algeria. The main reasons behind this large-scale informal trade are differences in the levels of subsidies on either side of the border as well as the varying tax regimes. Tackling informal trade is not simply a question of stepping up the number of controls and sanctions, because differences in prices lead to informal trade (and to an increase in corruption levels among border officials) even in cases where the sanctions are severe.

Customs fraud and informal trade have grown exponentially in Tunisia in recent years. Several studies have been conducted to try to identify the sources of this phenomenon and to estimate its scale. Customs bonded warehouses (magasins et aires de dédouanement – MAD) are suspected to be major sources of goods for this parallel trade sector. In this article, two approaches have been used to identify and quantify the fraud risks in these facilities. The first approach is based on interviews and observations in the field and the second is based on statistical analysis that uses the customs value density of goods sold on informal markets as an explanatory variable. Undervaluing goods leads to revenue losses estimated at more than USD 150 million per year. Several deficiencies have been identified as potential sources of fraud and the inspection and monitoring system needs to be amended.