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By Tess B. Bacalla
, Philippine Center for Investigative Journalism
First of four parts
BONGABON, NUEVA ECIJA—In 1987, Carlito and
Lita Bayudan, both New People’s Army guerrillas, came down from
the hills to begin a new life in this quiet farming town northeast
of Manila. About to become parents for the first time, they traded
their rifles for hoes, venturing into onion farming, the occupation
of 80 percent of Bongabon residents. The young couple knew they
would have to work hard, but they looked forward to a simple and
peaceful life.
Seven years later, Lita Bayudan finds herself in
the midst of another battle—this time against smugglers. Now a
34-year-old widow and mother of two, Ka Lita has gone from
monitoring troop movements in the hinterlands to monitoring the
volume of smuggled onions from China that are being sold in
Divisoria. She has reason to be vigilant: this December, the
cooperative to which she belongs is expected to make the first
payment on a P750,000 loan, and she fears that they might not have
enough cash because smuggled and dirt-cheap Chinese onions have
flooded the market.
“The money to pay for our loan is in
storage,” says Ka Lita, referring to the sacks and sacks of onions
that they had harvested and now cannot sell without absorbing a huge
loss.
Ka Lita knows that the problem of smuggling is
not new. But even government agencies and officials said the
situation has gone from bad to worse, with technical
smuggling—which includes misdeclaration of goods, undervaluation,
misclassification and other kinds of importation fraud—now being
done on a massive and unparalleled scale.
Almost every industry in the country has been
affected as illegally imported products now range from onions to
shoes, to floor tiles, tires, garments, resins (used to make
plastics) and even charcoal, with these wares flooding both wet
markets and upscale malls and easing out locally produced goods.
Because this has meant cheaper goods at a time
when the peso’s buying power is at its weakest, consumers are not
complaining. But what many don’t see is the hundreds of billions
of pesos bilked out of the government in the form of lost tax
revenues each year, as well as the massive layoffs and bankruptcies
that are now taking place in sectors that cannot compete with
smuggled goods.
Meanwhile, the antismuggling efforts of the
government and the private sector are being defeated by unscrupulous
traders and corrupt and incompetent state officials and personnel,
especially those at the Bureau of Customs. Even incentives meant to
encourage exports have been abused by technical smugglers.
The amounts of money involved are staggering.
Last year, for example, a report by the United Nations Conference on
Trade and Development, or Unctad, showed that based on the records
of the country’s trading partners imports to the Philippines
totaled $45.4 billion.
Philippine government records, however, reported
imports of only $34.5 billion. The discrepancy of $10 billion could
most likely be accounted for by smuggled goods. This translates into
an P86-billion tax revenue loss for the government, given an average
duty rate of 6.19 percent in 2003 according to the Tariff
Commission, 10-percent value-added tax, and an exchange rate of
P54.20 to the dollar for that year.
That P89.4 billion, however, would cover only
the unpaid duties and taxes on the $10-billion worth of
“missing” goods. As much as 60 percent of all imports may be
assumed to be nondutiable, with some of them supposedly meant for
re-export. But re-exporting often doesn’t happen, as the imported
goods end up being sold locally. Even if one assumes that only
one-fourth of all nondutiable imports involved some form of fraud,
the total revenue loss for the government could reach as much as
P200 billion.
The Fair Trade Alliance (FTA) and the Federation
of Philippine Industries (FPI) estimate that tax leakage from the
collection of import duties and taxes is P174.2 billion annually, or
P52 billion more than what the finance department claims could be
generated from the President’s proposed new tax measures.
Former senator Wigberto Tañada also pointed out
that the amount of leakages could pay for one million new low-cost
houses every year, or 11,611 schoolbuildings with 30 classrooms
each. It could also be used to finance 11,613 barangay health
centers, each measuring 30 square meters and with minimum equipment
worth P1.5 million, or perhaps 19,352 kilometers of concrete roads.
Tañada, who is the FTA’s lead convener, added that the amount of
uncollected import duties translates to an annual subsidy of P58,056
for three million Filipino farmers.
The likes of Ka Lita prefer earning their own
keep instead of relying on subsidies. To recoup their investment and
generate some profit, onion farmers should sell at a farmgate price
of at least P650 per 30-kilo bag, or P26 a kilo. The going rate
these days, however, is more like P480 per bag, or P19 a kilo. Some
traders even want to buy at P17 a kilo, which is how much Chinese
red onions are being sold for.
“Luging-lugi [We will have to take a huge
loss],” complains Ka Lita, who worries that she might be sued for
estafa if her cooperative defaults on its loan. As the
cooperative’s president, she signed the loan papers and the six
postdated checks her group gave the lender.
Ka Lita knows this wouldn’t have happened if
those who were supposed to be keeping watch were doing their jobs
properly. But not one of the agencies she approached would own up to
its responsibility regarding the matter. Because the Bureau of
Customs is supposed to monitor the importation of goods, among other
things, Ka Lita asked a representative of the agency why it was
allowing imported onions when the Bureau of Plant Industry was not
issuing permits needed for these. She says she was referred to the
Plant Quarantine Service, which the customs representative said had
the duty to detect imported onions that didn’t have these permits.
Ka Lita reports that the respective chiefs of the BPI and the Plant
Quarantine Service had no concrete answer to her queries about the
illegal imports.
“They’re pointing at each other,” the
diminutive ex-rebel said in disgust. She says she told them to meet
face to face so that they would stop blaming one another.
There is no doubt, however, that the customs
bureau is supposed to be on top of matters when it comes to imports.
The bureau does not deny that smuggling exists, but plays down the
extent of revenue losses due to smuggling. No mention of such losses
were made when customs made a presentation before the now-defunct
Cabinet Oversight Committee on Antismuggling (Cocas).
On the contrary, even as government insiders and
businessmen complain of escalating technical smuggling, the bureau
has been crowing about its achievements. Its 2003 annual report says
that it had exceeded its collection target of P100 billion by “a
whooping [sic] P13.055 billion, or 13 percent higher than the
target.” It calls last year “a moment of triumph.” What its
report leaves out, however, is how much higher the collected revenue
would have been were it not for what insiders, businessmen and
observers describe as rampant technical smuggling.
Many say technical smuggling cannot exist
without the collusion of unscrupulous traders and corrupt government
personnel and officials. In an interview, Customs Commissioner
George Jereos describes corruption in his agency as being
“petty.” Many other people think otherwise.
To begin with, economists and businessmen say,
the BOC’s targets are too low. “You start from a low base due to
technical smuggling and corruption, your projections will be lower
than what they should be,” says economist Nonoy Oplas, who also
heads the Minimal Government Movement.
Even the defunct National Antismuggling Task
Force (Nastaf) described the bureau’s collection targets as
“unrealistic/too low” in its final report to President Arroyo.
Nastaf also said customs collection has failed
to keep pace with the growing value of imports. Citing data from the
National Statistics Office, Nastaf noted that the ratio of
collection to the value of imports has declined through the years.
In 1995, it said, customs collected P1 billion for every P7-billion
worth of imports. By 2002, P1 billion was collected for every
P19-billion worth of imports.
Oplas says even if tariff rates are declining
because of the country’s commitment to the World Trade
Organization and other trade agreements, these could still be
compensated by larger import volumes. “If percent increase in
imports volume is much larger than percent decrease in tariff
rates,” he says, “then total collections should still
increase.”
Observers say one only has to look at official
figures to realize that the customs bureau is probably doing its
math wrong if it feels entitled to puffing its chest. In 2003, for
example, 67 percent of imported yarns were entered in the customs
ledgers under warehousing, which means these were supposed to be
re-exported as part of finished products. Yet only five of the top
20 yarn importers were included in the Garments and Textile Export
Board’s (GTEB) list of Top 100 garment exporters for that year.
The same was true for fabrics: 80 percent of the total imports for
2003 were declared under warehousing. Of the top 20 fabric
importers, only 11 were listed among GTEB’s Top 100 garment
exporters.
Garment industry insiders surmise that much of
the “warehoused” fabric and yarns were sold to the domestic
market without the importers paying any taxes. As incentive to
exporters, warehousing entries—so-called because they have to be
stored in a customs-bonded warehouse—are tax- and duty-free.
Jose Sereno, executive director of the
Association of Petrochemical Manufacturers of the Philippines (APMP),
believes something similar has been happening in the petrochemical
industry. He says that as late as 1998, only 25 percent of imported
resins were placed in customs-bonded warehouses. Today, close to 72
percent are being placed under warehousing. “This is questionable
because we do not see an equivalent increase in exports of plastic
products,” says Sereno. “Besides, many of the local resin users
are APMP’s clients, so we know their volume of consumption.”
Overall figures quoted in a Nastaf report
indicate that this may have already become a common experience among
Philippine businesses. In the first half of 2003, imports declared
as warehousing comprised 42 percent of imports, while consumption
entries, meaning imports bound for the domestic market, made up the
remaining 58 percent.
In 2002, imports totaled $35.4 billion, of which
$15.5 billion, or 44 percent, was declared as warehousing entries.
Only 4.8 percent of the imports declared under warehousing, however,
were re-exported. “At least 95 percent of warehousing entry may
have been diverted to the domestic market,” said Nastaf.
The rise in the proportion of consumption and
warehousing entries means that an increasing volume of imported
products is being placed in customs-bonded warehouses purportedly
for re-export. Without a corresponding rise in export figures,
however, it is likely that a generous share of the warehouse entries
wound up in the local market.
Still another indication of the rampant
diversion of imported items declared as warehousing entries is the
accumulation of uncollected bonds that had been posted by importers.
The Nastaf report estimates these to be anywhere between P5 billion
to P10 billion annually. Data provided by customs meanwhile show
that the value of unliquidated/expired bonds for 2000 to 2003 is
P1.27 billion, covering the Port of Manila, the Manila International
Container Port, and the Ninoy Aquino International Airport. The
bureau says this figure represents 95 percent, “more or less,”
of its total expired bonds for the same period.
Customs bonds are intended to guarantee payment
of taxes and duties as well as other charges in case a company that
has warehousing entries does not re-export these as intended.
Articles entered for warehousing may remain in bonded warehouses,
owned and operated by the importers, for a maximum of one year, from
the time these arrived at the port of entry. Surety companies that
issue the bonds are supposed to collect those that are forfeited,
but this rarely happens.
Under the present system, customs does not go
after the importer that does not re-export warehoused items, but is
supposed to hunt down the surety companies that issued the bonds.
More often than not, however, these companies fold up as fast as
they are formed.
It may seem unlikely that illegally imported
onions were passed off as warehousing entries and then later dumped
in the local market and spelled doom for the modest dreams of Ka
Lita, who is now growing other vegetables while contemplating what
to do next with her cooperative’s onion stock. But representatives
from several industry sectors say the absence of audits has made
anything possible in the customs warehousing system. They say some
importers even make it appear that they exported items placed in
customs-bonded warehouses through what insiders call “paper
exporting”: they rent a container and ship it empty to a foreign
port.
“Nobody in customs is checking,” says a
broker. “If I want to send a bomb to New York, the best place to
ship it from is Manila.”
(To be continued)
Part 2 |Part
3 |Part 4 |
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