Frozen products, used and new clothes, and agricultural products like onions and garlic are just some of the commodities commonly smuggled into the country. Based on 2017 data the BusinessMirror obtained from the Bureau of Customs Intelligence Group (BOC-IG), the top commodities smuggled into the country were agricultural products with 36 shipments seized, general merchandise came in second with eight shipments seized, and used and new clothes at seven shipments seized.
In 2016 the BOC-IG said the top commodities smuggled in were used and unused clothing at 28 shipments seized, followed by general merchandise with 22 shipments seized, and frozen products with 11 shipments seized.
BOC data showed a total of 12 commodities being monitored by the bureau. These include motor vehicles and automotive parts and accessories; tobacco; steel and aluminum; hardware; electronic goods; illegal drugs and pharmaceutical products, among others.
In his BusinessMirror article, “The antidote to smuggling,” which was published last year, Dr. Jesus Lim Arranza defined the two types of smuggling: outright and technical smuggling. He said that, while outright smuggling could already be a thing of the past, technical smuggling is still very much being done in customs-bonded warehouses (CBWs) and economic zones.
How is smuggling done in CBWs? 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, some manufacturers, through manipulation of the formula of manufacture, are doing smuggling in CBWs. Manufacturers 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 their way into the local market and sold practically untaxed, depriving the government of much-needed revenues and, at the same time, adversely affecting the country’s manufacturing industry.
Arranza said: “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 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 locally as finished tin cans, even if the duties and taxes of its tin-plate importations were not paid.”
To curb this smuggling scheme, Arranza said CBW operators and manufacturers importing through the warehousing entry should be required to submit to the 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.
He added: “A periodic audit by the 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.”
Customs Commissioner Isidro S. Lapeña promised that, under his watch, the BOC will improve its collection efforts, curb the instances of corruption and smuggling, and improve trade facilitation.
“We are also doing other activities to improve revenue collections, such as trade facilitation. To ensure that the contraband goods do not enter the Philippines, like shabu, I suspended the green lane and made the port of selectivity on the red lane. And we monitor very closely if this will cause congestion in our ports in the examination of container vans. But, so far, it’s not [causing congestion],” Lapeña said.
“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, when its actual volume was 20 MT. The imported used clothing would be used in the production of industrial rugs,” Arranza said.
He added: “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 MT could 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.”
According to Arranza, 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 antismuggling laws. Government law enforcers and the private sector should, therefore, be vigilant and always be on the lookout for these types of illegal activities.
The Department of Finance (DOF) said the Bureau of Internal Revenue (BIR) and the BOC are implementing measures to improve revenue-collection efficiency and curb smuggling and tax evasion in the country.
The measures include the agreement between the BOC and its corresponding agency in China to set up a data-exchange system to facilitate timely sharing of trade information against smuggling.
During a recent DOF Executive Committee meeting, Customs Deputy Commissioner Edward James Dy Buco reported that the bureau has requested from its China counterpart several data on Chinese commodity imports and exports to the Philippines between the years 2015 and 2017, monthly or quarterly export and import data of China to the Philippines by commodity for 2018, export data on all shipments going to the Philippines and manifest of vessels carrying cargoes bound for the Philippines.
Lapeña visited Beijing in February to personally discuss with officials of the General Administration of Customs of China (GACC) the government’s concerns over trade discrepancies between the two countries.
During the meeting, the GACC officials, led by Deputy Director General Zou Zhiwu, expressed China’s support for the Philippines’s anti-smuggling efforts and agreed on the designation of focal persons between the two countries to facilitate the coordination between their respective Customs agencies, the BOC said.
The agency said a cooperative arrangement between the BOC and the GACC will be signed during the proposed visit of Chinese officials to Manila in April this year.
The Customs chief also met with Director Yuan Ziwei and Deputy Director Zhao Ru Xiao of the GACC’s International Cooperation Division to discuss the progress of the Philippines-China agreement concerning Cooperation and Mutual Assistance in Customs Matters, which was signed by the two countries in April 2010.
In December last year Finance Secretary Carlos G. Dominguez III said official trade data show that the estimated discrepancy between registered Chinese exports to the Philippines and registered Philippine imports from China have been declining but still very large, with the gap reported at 60 percent in 2010; 57 percent in 2015; 48.7 percent in 2016; and 48 percent over the January to July 2017 period.
In 2010 registered Chinese exports to the Philippines was at $11.56 billion, but Philippine imports from China as reported by the Philippine Statistics Authority (PSA) was only at $4.628 billion, resulting in a trade discrepancy of 60 percent, or $6.936 billion.
For the first seven months of 2017, Chinese exports to the Philippines hit $17.77 billion, while the PSA reported imports from China at $9.24 billion, a discrepancy of 48 percent or $8.53 billion.
In 2015 trade data show that Chinese exports to the Philippines was $26.69 billion, against the PSA’s records of imports from China of $11.47 billion or a gap of $15.22 billion. In 2016 the gap narrowed, with Chinese exports to the country at $30.35 billion, against PSA records of imports of $15.56 billion or a discrepancy of $14.79 billion.
The Customs chief earlier reported to Dominguez that the wide discrepancy between China’s recorded exports and imports to the Philippines may be attributed to the gross misdeclaration or undervaluation of goods in terms of either volume or weight; and the possible use of “consignees for hire,” which leads to goods released to “hidden” traders and not to the consignees on record.
Earlier, the DOF said the BOC and the BIR are set to forge an agreement on information sharing and coordination, among other ways of cooperation, to strengthen their joint campaign against smuggling and beef up collections on excise taxes on imports.
Last year a multi-industry study conducted by Fight Illicit Trade (Fight IT) Movement revealed that over a period of five years, P904.6 billion worth of goods were smuggled into the country by illicit traders.
The P900-billion figure only covers eight industries, namely petroleum, steel, resins, wood, cigarettes, sugar, palm oil and automotive batteries, with the total amount of smuggled goods that entered the country from the period of 2011 to 2015 pegged at a higher value based on the study.
Fight IT, a movement launched in 2015 under the Federation of Philippine Industries (FPI), commissioned the study, which was conducted by the University of Asia & the Pacific.
Based on the study, the economic impact of illicit trade on the country’s GDP for the same period was valued at P495.5 billion, the decrease in domestic production was estimated at P1.1 trillion, while the number of displaced workers due to smuggling was at 291,070.