In the first part of my series on smuggling, I defined the two types of smuggling, which are outright and technical smuggling. And while outright smuggling could already be a thing of the past, technical smuggling, however, is still very much being done in customs bonded warehouses (CBW) and economic zones.
How is smuggling done in CBWs then? As defined, a bonded warehouse is a building or other secured area in which dutiable goods maybe stored, manipulated or undergo manufacturing operations without payment of duty. It may be managed by the state or by private enterprise, of which, in the latter case, a customs bond must be posted with the government.
As such, smuggling in CBWs is being done by some manufacturers through its manipulation of the formula of manufacture. Manfacturers and some government officials connive to overstate or increase the manufacturer’s wastage factor so that a large portion of what are supposed to be wastages, would eventually find its way into the local market and sold practically untaxed, depriving the government of its much-needed revenues, and at the same time adversely affecting the local manufacturing industry.
A classic example of this scheme was the “modus” used by a manufacturer of tin cans for reexport, which we uncovered after getting suspicious of the declared wastage in its formula of manufacture. The company declared a 30 percent wastage when average industry wastage was only about 3 percent. Hence, the tin-can manufacturer would only be accountable to reexport finished tin cans that would be equivalent to 70 percent of its total duty-free importation of tin plates. The remaining 27 percent of its bloated wastage factor were being sold as finished tin cans locally, even if the duties and taxes of its tin-plate importations were not paid.
To curb this smuggling scheme, CBW operators and manufacturers importing through the warehousing entry should be required to submit to the Bureau of Customs (BOC) and the Department of Trade and Industry (DTI) their quarterly performance report, including the list of machinery that they have and their corresponding rated production capacity. A periodic audit by BOC on the CBW should also be conducted. And most important, the process of certifying the formula of manufacture by concerned government agencies must be revisited. An actual process should be undertaken to determine the wastage factor in the presence of representatives from both the government and private sectors.
‘Ukay-ukay’ smuggling at economic zones
Another classic-smuggling scheme at economic zones that we uncovered, was our discovery of the smuggling activities of a manufacturer of industrial rugs for reexport at the Subic Freeport Zone. In particular, this Subic locator underdeclared the volume of one of its importations of used clothing at only 10 metric tons (MT), when its actual volume was 20 MT. The imported used clothing would be used in the production of industrial rugs.
The underdeclaration made the Subic locator only accountable to reexport finished industrial rugs that would be equivalent to 10 MT of its 20-MT importation of used clothing. The other 10 MTcould eventually get into the local “ukay-ukay” market and sold to consumers, circumventing the law against the importation of used clothing and putting the health of countless Filipinos at risk.
Fighting smuggling is a tedious and continuous process. And as we continuously figure out measures to prevent smuggling, smugglers for their part, are also continuously developing new schemes to circumvent the country’s anti-smuggling laws. Government law enforcers and the private sector should, therefore, be vigilant and always be on the lookout for these types of illegal activities.