Business group calls for united front vs smuggling that’s crippling local industries

FPI chair and FIGHT Illicit Trade Movement ( FIGHT IT) head Jesus L. Arranza. | CONTRUBUTED PHOTO

MANILA, Philippines — The country’s leading anti-smuggling crusader called on both the public and private sectors to stand united on the issue of addressing the rampant illicit trade in order to end smuggling which had already been crippling at least eight local major industries.

Dr. Jesus Arranza – Chairman of the FIGHT Illicit Trade ( FIGHT IT) movement, a broad alliance of the country’s local industries which has been safeguarding the consumers and government against ill-effects of illicit trade, expressed disgust over the litany of endless smuggling.

He disclosed that the government is losing at least P250 billion revenues a year due to rampant smuggling that deprives the country of much needed funds to allocate for basic and welfare needs of the country’s poorest of the poor. The value of goods is about 2.03 trillions, he added.

Globally, according to a report from the Organization for Economic Cooperation and Development (OECD), revenues from all illicit trade combined have been estimated at $870 billion per year, representing 1.5 percent of the Global Domestic Product (GDP).

The OECD noted that illicit trade has negative impact on economic stability, social welfare, public health, public safety and environment.

READ: BOC filed 91 cases vs smugglers in 2022, report shows

FIGHT IT emphasized that for as long as the public and private sectors remain divided on the smuggling issue which he says is the “worst form of illicit trade,” this economic menace will continue to haunt our existence.

Arranza, who is also the chair of the Federation of Philippine Industries (FPI) said, smuggling is creating unfair competition for locally produced goods because it erodes the local market of cheaper, no value-added tax (VAT) or undervalued and substandard imported goods displacing the locally produced commodities.

For one, he pointed out, smuggling causes job displacement because of production downsizing, if factories directly affected by the illicit trade are not totally shutting down, aside from the consumers’ exposure to health and physical risks, including financial loss for not getting the real value of their money.

The FPI, with 120 member companies and 34 industry associations, said goods smuggling is rampant in most developing countries, the Philippines included, which deprives the government of revenues from uncollected taxes and customs duties.

Another study, this time conducted by Center for Research and Communication Foundation, Inc. (CRCFI), noted five major findings: (1) rampant evasion of taxes on imports due to various forms of smuggling and tax evasion, (2) massive smuggling losses are observed in petroleum, steel, resin and wood, (3) counterfeit tax stamps and unregistered volumes are rampant in cigarettes, (4) economic impact and multiplier effects on GDP household income and employment are significant, and (5) smuggling weaves a vicious network of negative economic repercussions.

Arranza then mentioned eight industries directly hit by the onslaught of the rampant smuggling which needs urgent action and attention: textile and garment, tire manufacturing, steel industry, LPG gas tank manufacturing, coconut oil industry, sugar industry, and cigarette manufacturing.

During its heydays, Arranza said, textile and garments industries used to maintain 1.5 million spindles but now reduced to a little over 100,000 spindles to spin yarns. This was due to the influx of “ukay-ukay” across the country.

Another industry hit by illicit trade is the tire manufacturing which used to have six companies nationwide. Now, only one firm survives and is situated in Clark Free Port in Pampanga.

READ: Systems approach vs smuggling

The glass manufacturing industry, on the other hand, is under pressure by the influx of sub-standard glass products because of the court’s issuance of an injunction stopping the Department of Trade and Industry (DTI) from implementing the mandatory standard flat for glass.

Same with the steel industry which has been affected by conflicting government policies on steel importation and standard regulations.

Meanwhile, the LPG gas tank manufacturing industry cried foul with local firms accusing DTI of giving preferential treatment to foreign cylinder companies. They claimed foreign firms can get PS license from DTI within three months contrary to the local debacles.

Also one of the hardest hit industries by the illicit trade is the palm olein importation since smuggling of palm olein is rampant.

FIGHT IT said the House committee on ways and means’ inquiry on palm oil/olein smuggling was apt as its importation supposedly for animal feeds – making it VAT free – increased by leaps and bounds while hogs were being culled to prevent the spread of the African Swine Fever.

The group said there are reports that some palm oil/olein importations are being sold as cooking oil, unfairly competing with locally produced coconut oil which are subject to VAT; or being diverted into the production of Bio-diesel fuel which under the law, only coconut oil should be used, unfairly competing again with the locally produced coconut oil.

As for the sugar industry, questionable importations allegedly involving ranking government officials were raised due to purported supply shortage, FIGHT IT noted.

READ: P2 million worth of smuggled onions seized in Tondo raid

Lastly, the group said, unabated smuggling challenges the viability of the country’s legitimate cigarette manufacturers. It pointed out that smuggled cigarettes are sold at P2 per stick, easily undercutting legitimate cigarettes by not paying excise taxes. The lowest priced tax-paid cigarette is sold at P6 per stick.

This uneven playing filed not only adversely affects local cigarette manufacturers, but exposes to great risk tobacco farmers, FIGHT IT said. The tobacco farmers and cigarette manufacturers in Cambodia, Vietnam, China, and Indonesia are greatly benefitting from the smuggling of these products into the Philippine borders, it added.

According to Arranza, even if the government was able to earn more revenues when the tax on cigarettes and alcohol were raised, the government failed to collect the needed revenues to fund its Universal Healthcare Program.

“The increased tax made the smuggling of cigarettes an even more lucrative business. It may worsen the country’s problem on smuggling,” he stressed.

READ: Business group backs stricter laws vs cigarette smuggling

The FIGHT IT chief disclosed that the people behind the smuggling had leveled up their operations. In fact, he added, some brands are no longer smuggled into the country but are “illegally manufactured” in the Philippines.

To make the matter worse, Arranza said, the illegal cigarettes are being manufactured inside the Clark Free Port Zone in Pampanga. Proof of this was a factory raided by authorities which is supposedly manufacturing cigarettes for export bore “Tagalog” markings in its packs.

This prompted the CRCFI to conclude that illicit trade for cigarettes goes beyond smuggling and tax evasion, noting the fact that another injury to the Philippine economy is the extensive sale of counterfeit cigarettes.

Arranza urged “everybody to join FIGHT IT and the government efforts in ending the smuggling in all its form and entirety, putting behind bars the people involved in this vicious social and economic menace.”