Problems in Customs weaken drive vs smuggling

(First of three parts)

Smuggling, despite current efforts to at least curb it, continues to be one of the biggest headaches of the government and local industries.

While the government heavily relies on borrowings—domestic and foreign—to finance the cost of running the country, deliver social services and set up vital infrastructure, it is still losing potentially huge revenues yearly due to smuggling.

In a recent speech, President Aquino said oil smuggling alone would cost the state some P40 billion a year. Estimates of total revenue loss due to smuggling of goods into the country vary, but officials said the amount was so huge that, if collected, it could be more than enough to cover the government’s budget deficit, which could reach P200 billion this year.

Goods are brought into the country illegally or without paying the proper taxes either through outright smuggling or technical smuggling. The latter is done through misdeclaration or misclassification of goods imported or underdeclaration of the values of the products shipped in.

The list of smuggled products is long and the kinds of goods vary, from oil and vehicles to electronics and agricultural produce.

In a speech during the 110th anniversary of the Bureau of Customs (BoC), the President said smuggling was being perpetuated by the bureau, through its system and practices, and that instituting reforms there would be a difficult and complicated process. But Aquino vowed to step up the campaign against smuggling during his administration—offenders would be put behind bars and reforms set in place to end the culture of corruption in the bureau.

To date, however, no one has been put behind bars, although 44 cases have been filed against suspected offenders since August 2010.

Business hopeful

The Aquino administration’s promise to toughen its stance against smuggling failed to excite the people and the business sector, in particular. It was, after all, not the first administration to make such a promise. Still, businessmen hold to a glimmer of hope that, this time around, something more meaningful will be done.

Traders belonging to the Philippine Exporters Confederation (Philexport) and the Philippine Chamber of Commerce and Industry (PCCI) said smuggling not only deprived the government of much-needed revenue, it also posed unfair competition to local industries.

Although smuggling is a difficult problem and has deep roots in the economy, the business sector still hopes that the government will soon be able to make a dent in the campaign against smuggling, said Sergio Ortiz Luis, president of Philexport and chairman of PCCI.

Routinely, authorities and even business groups receive reports of smuggling activities, Ortiz Luis said. But the lack of manpower and resources, along with problems in governance, enabled smugglers to carry on with their activities.

There is also the lack of will power and resolve on the part of the government to eradicate smuggling, which allows this illegal trade to thrive.

“The problem [is], the Bureau of Customs does not have enough people to monitor smuggling in all the ports and airports in the country,” Ortiz Luis said.

One of the most common ways of bringing goods illegally into the country is through balikbayan boxes, which may contain commercial quantities of clothes, medicines, bags, shoes and even agricultural products. These goods are misdeclared “for personal consumption.”

“There are a lot of Chinese goods coming in through balikbayan boxes. Detecting smuggling is difficult when items come in through these boxes because they appear to be for personal consumption,” Ortiz Luis said.

In the Philippines, where at least 10 percent of households have family members working abroad, balikbayan boxes are a common thing to see in airports and seaports, and smugglers take advantage of this fact by making their goods appear to be for personal use.

Oil, steel and food

In terms of value, oil accounts for the bulk of the estimated revenue loss due to smuggling, BoC estimates showed. Of the 44 smuggling cases worth P60 billion filed by the BoC’s Run After the Smugglers (RATS) team from August 2010 to September 2011, oil products accounted for about P47 billion.

“Oil is one of the most commonly smuggled items because it is very easy to dispose of,” a customs employee, who asked not to be named but who had worked several times in anti-smuggling operations, told the Inquirer.

Oil products are either smuggled in outright or are shipped legally with the values underdeclared.

Smuggling cases involving oil products are often difficult to investigate. When the goods are shipped in, most of the time with the aid of unscrupulous Customs people, they are quickly sold even before the investigation builds up, the source said.

Steel is another commonly smuggled product, the BoC source said. With steel products, profits are high due to the current boom in construction.

Food products, which account for the biggest share in household spending of average Filipino families, are also among smugglers’ favorites.

Permits to smugglers

In times of lean harvests, the government allows cooperatives to bring in food products from abroad to ensure that there is adequate supply. The Department of Agriculture issues import permits to cooperatives so they can import food products. However, some of these cooperatives sell their import permits often to smugglers.

“Some cooperatives do not have enough capital to do the importation themselves, so they just sell their import permits. What happens is that smugglers take advantage of the opportunity by buying those import permits,” the Customs source said.

Smuggling activities become rampant when farm outputs are low.

There are times when smugglers of food items are caught and are made to pay the necessary duties and taxes, but there are also cases when they escape punishment partly due to corruption in the BoC, the source said.

The business sector believes a significant part of the smuggling problem can be traced to the country’s unguarded coastlines. It does not help that the Philippines is an archipelago, making it easy for smugglers to slip goods into the country tax-free through ports not regularly watched by the Coast Guard or Customs personnel, said Ortiz-Luis.

A number of smuggling cases also occur in freeport zones. These enclaves can bring in duty-free goods for processing and re-exportation, or for consumption within the zone. But the importers often bring the goods to local markets for sale.

Difficult fight

Customs Commissioner Rozzano Rufino Biazon, appointed to the BoC’s top post in September last year, admits that the system and practices in the bureau make it difficult to curb smuggling.

“Customs’ problems are severe and deeply rooted,” Biazon said in Filipino.

A recent audit ordered by Biazon revealed that a significant number of the estimated 17,000 names of BoC-accredited importers turned out to be fictitious.

This does not only mean serious inefficiency but also corruption in the bureau, said Biazon, a former congressman.

Smugglers use fake company names to evade detection, he explained. Customs personnel who go after smugglers often return empty-handed because they chase after dummy companies with false addresses.

“The big question is, ‘How were fictitious companies with fictitious addresses able to get accreditation from the BoC in the past?’” Biazon said.

The fact that the BoC is still not fully automated also contributes to the problem of smuggling.

Whenever customs employees deal with importers or their representatives face to face, rather than electronically, illegitimate transactions may occur, Biazon said.

Simply put, the bureau chief said, the BoC provides an environment conducive to smuggling.

To make matters worse, legitimate businessmen have a difficult time operating in the same environment.

“There are instances when legitimate businesses are given a hard time by BoC personnel. The companies are not smuggling goods, but they find it difficult to have their imported good released by the BoC because they do not give something (to customs personnel),” Ortiz Luis said.

(To be continued)