Ofreneo and Cantos are members of Action for Economic Reforms’ management collective.  This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld, March 6, 2006 edition, page S1/5.

A few weeks ago, the Senate made a big show of  its stand against smuggling by grilling newly appointed Customs Commissioner Napoleon Morales on the latter’s resolve to crack down on big-time smugglers, including those supposedly linked with the First Gentleman.

And yet, in the Senate itself, a bill aimed at plugging the loopholes in customs administration and valuation of goods has been gathering dust since the bill’s approval by the larger House of Congress in June last year.   The House version, principally using the version filed by Rep. Lorenzo R. Tañada of the 4th District of Quezon, and crafted with the help of the Fair Trade Alliance and the Federation of Philippine Industries, provides for stricter rules on the entry of foreign goods, greater transparency in the accreditation and operations of bonded warehouses (such as making available to the public their books of accounts) and strengthened system of valuation of imports. Based on estimates by the Alliance and the Federation, the government loses as much as P175 billion a year in revenues due to outright and technical smuggling.  This figure, enough to wipe out the yearly government deficit, appears conservative, as the estimate made by the Task Force Against Smuggling (TFAS) led by then DILG Secretary Angelo Reyes was almost twice this amount.

In 2004–05, the Trade and Industry Committee of Senator Mar Roxas conducted a series of hearings on smuggling, which ended with the adoption of a bill similar to the House version. But the said bill has been languishing in the Senate and still has to be reported out by Ways and Means Chair Ralph Recto for final approval by the upper chamber.   The delay is a big P175-billion question mark.

In the meantime, there are also strange developments on the executive front.  The Cabinet Oversight Committee Against Smuggling (COCAS) has been quiet since July last year. Its action arm, TFAS, has not reported any major activity or any major apprehension.  And the Multi-Sectoral Committee Against Smuggling (MCAS) has not met either.

Which, therefore, is waning—smuggling or the executive-legislative resolve to curb it?

There are, of course, limited gains in the anti-smuggling campaign. The Supreme Court recently ruled that imported used cars are banned on Philippine territory except if they are brought into the confines of a “customs territory” such as the Subic Freeport.    However, the Automotive Rebuilding Industries of Subic immediately interpreted the ruling as a victory, by claiming that the imported used vehicles can still be sold outside the Subic Freeport so long as the required taxes and duties are paid.  But the problem precisely with the second-hand vehicle importers is that they do not pay the correct taxes and duties because the values they declare, e.g., a two-year-old Pajero valued at only $450, are ridiculously low.  Finance Undersecretary Gaudencio Mendoza complicated the situation further when he said that the Supreme Court ruling applies only to Subic, as if Zamboanga, Cagayan and the other freeports are exempt.  Thus, it remains to be seen if the used-vehicle imports, which outnumber the locally-assembled and imported brand-new vehicles, will stop rolling outside the fences of Subic and other freeports of the archipelago. Incidentally, second-hand vehicle imports are banned in other Asian countries because of the environmental hazards they pose, not to mention the danger of moving vehicles with “converted” drives creates on the road.

Another gain reported by the government in the media is the increases in Customs collection, for example, an increase of P5 billion in the first two months of the year.    This is fine except that this figure appears paltry compared to the estimated P175 billion  revenue leakages a year due to smuggling and given the fact that a growing population naturally has a growing import demand.

If Customs Commissioner Morales is serious, he can improve his collections by doing the following:

  • Check on the operations of duty-free shops at Subic, Clark and other freeports.   Why, for instance, are these duty-free shops allowed to import huge volumes of duty-free cigarettes and spirits for retailing to the general public? The government penalizes the local producers of cigarettes and spirits with increased “sin taxes”, and yet it turns a blind eye on the tax-free businesses of these cigarette and alcohol importers-retailers?
  • Create a task force to monitor and police the unloading of imports in the Binondo area and in the giant 168 mall in Divisoria. A good starting point for customs investigators is to ask the non-Filipino retailers in the mysterious mall who their principals are and where  the goods they are retailing come from.
  • Initiate, institutionalize and regularize dialogue, consultation and coordination with concerned industry associations, farmers organizations and trade unions in industries affected by smuggling.   As the top customs collector, he should not wait for the private sector and civil society to call for dialogue and consultation; he himself should initiate such activities, in order to strengthen his own position against deviant customs officials.     He should also provide stronger protection for the industry commodity experts (ICEs), some of whom have been subjected to physical harassment and intimidation by angry importers and conniving customs officials.
  • Publish the inward shippers’ manifests and the list of big importers.
  • Benchmark BOC’s operations, especially on valuation, with countries which have been successful in curbing smuggling such as India, Malaysia and the People’s Republic of China.

There are clearly many doables.  But the most important is to summon the will, on the part of the BOC, to implement a customs reform program no matter who gets hurt, and, on the part of the Senate and Congress, to pass a stronger law against smuggling NOW, while there are still surviving domestic industries.