03 February 2014

51 years of smuggling cost $410B

MANILA, Philippines—“Illicit funds,” estimated at $410.5 billion, flowed into and out of the Philippines between 1960 and 2011, a significant portion of which occurred through smuggling, said a report published Tuesday by a Washington-based research and advocacy group.
The illicit flow of funds through trade reduced domestic savings, drove the underground economy and facilitated crime, according to the Global Financial Integrity (GFI) group.
“There’s a crisis in this country, as far as the amount of illicit money flowing into and out of the country through the use of trade,” GFI managing director Tom Cardamone told the Inquirer in an interview on Monday. “And that comes down to the ability or inability of the customs department to get on top of this issue.”
The report put the Bureau of Customs (BOC) in its cross hairs, pointing to massive technical smuggling as the main cause of the illicit flow of funds.
Crime, corruption
Over the 51-year period, the Philippines suffered $132.9 billion in illicit financial outflows from crime, corruption and tax evasion.
Conversely, $277.6 billion was illegally transferred into the country “predominantly through the misinvoicing of trade transactions,” said the report titled “Illicit Financial Flows to and from the Philippines: A Study in Dynamic Situation, 1960-2011.”
Underdeclaration
Misinvoicing is more commonly known locally as “technical smuggling,” or the underdeclaration of imported goods’ value, quantity or quality in order to reduce customs duties.
Since 1990, it is estimated that misinvoicing has cost the Philippine government at least $23 billion in lost tax revenues.
GFI’s report, funded by Ford Foundation, coincides with the current drive of the Aquino administration to reform the BOC, which ranks as one of the most corrupt agencies in various perception surveys.
On the average, one fourth of the value of all goods imported into the country is underreported to customs officials, the study found.
Of all the illicit inflows into the country, 96 percent were due to outright or technical smuggling.
“Ninety-six percent of these illicit inflows are due to the misinvoicing of trade,” Cardamone said.
“By misinvoicing, we’re talking about misreporting the price, quality or quantity of goods. Customs fraud is another way to discuss it. That’s what it is. It’s essentially misrepresenting what’s in these containers.”
Negative impact
In terms of the illicit outflows, 72 percent of the estimated amount was due to the misinvoicing of goods, while 28 percent was due to corruption. “That’s money coming out of government coffers, basically,” Cardamone said.
The GFI managing director rejected the argument that smuggled goods—which are often sold on the market cheaper than legally imported goods or locally produced goods—were beneficial to price-conscious consumers.
“The problem is that illicit flows facilitate illegal activity,” he said. “It’s used to perpetuate the illegal activities of the underground economy. That’s why it’s a negative to the economy.”

“For the sake of argument, let’s say that [smuggling] keeps prices down. But what you don’t see there—what the consumer doesn’t see—is the tax loss to the government and the [resulting] lack of government services that they might also benefit from,” Cardamone said.
Perennial standout
Asked why GFI decided to come up with the report on the Philippines at this time, the official of the research and advocacy group said the country perennially stood out as one jurisdiction with a significant problem in the illicit trade of goods.
“Over the last several years, we’ve done studies on Mexico, Russia and India. For geographic diversity, we picked a nation in the Pacific of Southeast Asia,” Cardamone said.
“In our annual study, the Philippines kept coming up year after year after year in the top 10 or top 12 or top 14. So we said, that’s a good one [to study].”
On behalf of disenfranchised
GFI, he said, was acting on behalf of the country’s underprivileged.
“We feel that the people whose interests are being furthered are the poor people of the Philippines, who are basically disenfranchised because of their economic status and lack of political power, and their inability to ‘game the system’ as so many others do,” Cardamone said.
As for the Aquino administration’s drive to address smuggling, the GFI official said there was “no way to tell” whether recent reform efforts had met with success because the latest data on smuggling the group used were from 2011.
It would take at least two more years to assess the administration’s efforts to combat smuggling, Cardamone said.
Political will
“What has this government done to address the problem? Rhetorically, it seems that they’re doing quite a bit,” he said, but added that it was
“unclear if there is a political will” within the customs bureau to implement the planned reforms.
“But with the President’s statement during the State of the [Nation] Address last July, specifically about the customs department, political will seems to be changing for the better to really address this problem in a significant way,” he said.
South Korea experience
The GFI official said the country should draw inspiration from South Korea, which started, more or less, at par with the country in the 1960s in terms of corruption and smuggling levels.
Since then, however, South Korea has shown a downward trajectory in terms of corruption, which corresponded with a decline in smuggling activities. The Philippines, on the other hand, exhibited the opposite.
Too early to tell
“Political will is great. Research is great. Informing institutions is great. But it has to be sustained over the long haul, or it looks just like window-dressing,” Cardamone said.
“From where I sit, it’s still too early to tell whether the government has what it takes to reform the bureaucracy to be able to sustain these reforms over the longer period, 5, 10, 20, 30 years, which is what it’s going to take to make the Philippines look like South Korea,” he added.

source:  Philippine Daily Inquirer



Commentary

Bureau of Customs’ crucial role in inclusive growth

By

Will farmers and fisherfolk have a merry Christmas? Only if BOC exercises its role in inclusive growth.
President Aquino wants our impressive growth to be more inclusive. The trickle down approach benefiting the poor in the long run is not good enough.

The rural sector, composed mostly of farmers and fisherfolk, is both the largest and the poorest. Their situation has not kept pace with our economic growth. For those victimized by smuggling, their situation has become even worse.

This is actually the opposite of inclusive growth. An example of smuggling’s curse is that 20 percent of our small backyard hog raisers lost their livelihoods over a two-year period according to the Department of Agriculture’s Bureau of Agricultural Statistics.

Landmark case

Today, there is a landmark case on rice smuggling that deserves immediate attention. This is the Dec. 13, 2013 order of Judge Emmanuel Carpio of the Regional Trial Court in Davao City.

A large shipment of rice without the necessary import permit from the National Food Authority (NFA) was recently seized in Davao by the Bureau of Customs (BOC). The plaintiff argued that no smuggling occurred because NFA import permits were no longer required to import rice.

In the court order, Judge Carpio stated: “The plaintiff has the right to cause the release of the rice shipments and take possession and custody thereof…It is clear that WTO special treatment for rice was the only source of the Philippines’ right imposed on quantitative restrictions by way of import permits/import quotas in importation of rice.” However, this treatment “expired on June 30, 2012.”

The critical question is whether this treatment has indeed expired or not. In the court order, the following was recorded:

Court: But you acknowledge… that the right of the NFA to issue permit already expired based on the records?

NFA lawyer: Well, based on the records shown by the plaintiff in his complaint, your honor. We have also read it in the paper, your honor, that it has expired but there was no… (interrupted).
Court: No extension of their right to…


NFA lawyer: That is what is stated in the papers, your honor. But there is no exact legal opinion on that, your honor. We are waiting actually for a legal opinion from our Manila office, your honor.
Plaintiff’s lawyer: Anyway, the government will not be prejudiced, your honor,  because the interest of the BOC is only the payment of taxes, your honor, duties and tariff.
Analysis

Assuming the NFA lawyer was not quoted out of context, it is extremely disappointing that what he knows is only from “the papers.” In addition, he said he had no legal opinion at the time of the hearing.
From another perspective, the plaintiff’s lawyer is mistaken when he says that the only interest of BOC is revenue collection. The four other elements of the BOC mission, as stated in the BOC website (www.customs.gov.ph), are: “To provide quality service to stakeholders with professionalism and integrity; to facilitate trade in a secured manner; to effectively curb smuggling; and to be compliant to international best practices and standards”.

To collect revenue in violation of the law is to violate the four other BOC mission elements. The court order releasing the allegedly smuggled rice appears logical. But the premise of no more required import permits is contradicted by interviews I conducted with senior DA and NFA officials.

As a current member of the International Trade Committee of the public-private sector National Agriculture and Fisheries Council (NAFC) and as a former vice president for Asia of the United Nations Council for Trade and Development (UNCTAD), I can confidently say that the DA and NFA position that there are still quantitative restrictions is valid. It is unfortunate that the NFA lawyer did not argue this case with the necessary facts.

If no strong case for reconsideration is given and the rice shipment is released, it will signal the similar releases of all the other apprehended rice shipments that arrived after June 30, 2012. This is ironic, since it is only lately that we have seen successes in confiscating smuggled rice.
Next move

We commend the many successes of the newly-reformed BOC under the supervision of Finance Secretary Cesar Purisima. But the mistaken release of this landmark rice shipment may reverse the increasing confidence farmers and fisherfolk have in the government’s efforts to protect their livelihoods from smuggling. If the alleged Napoles scam is a setback to inclusive growth of P10 billion in 10 years, the smuggling scam quantified by PNoy in his Sona address of P200 billion in one year is 200 times worse.

The BOC must move swiftly with help from the DA and NFA with a strong case for reconsideration to prevent this rice shipment release. This is necessary if the BOC is to fulfill the four other elements in its stated mission. Only then can the BOC exercise properly its important role in inclusive growth, especially as it relates to the small farmers and fisherfolk who are the perennial victims of smuggling.
(The author is chair of Agriwatch, former Secretary for Presidential Flagship Programs and Projects, and former Undersecretary for Agriculture, Trade and Industry. For inquiries and suggestions, e-mail agriwatch_phil@yahoo.com or telefax (02) 8522112).

source:  Philippine Daily Inquirer





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