Misconceptions
about RA 9280 (2)
THERE seems to be only two positions on RA 9280 -
those for it and those against. Obviously, most licensed
customs brokers support the law while those engaged
in corporate practice are mostly against it. To date,
there are still various conflicting interpretations
as to RA 9280 and its implementing rules and regulations
(IRR).
This two-part series does not intend to answer all
the questions given the varying interpretations of
the law. What we intend to do is to clarify the issues
and hopefully, provide readers with inputs to help
them make their own informed decisions and not simply
rely on hearsay and biased views.
Below is a continuation of the frequently asked questions
and our suggested answers and opinions (which we hope
is as objective as we can be):
What happens when the IRR of RA 9280 takes effect
on March 27, 2005? Upon effectivity of the IRR of
RA 9280, the public should in general be bound by
its provisions and any violation may result in possible
administrative complaints (for licensed customs brokers)
and/or criminal complaints (for both professional
and non-professional).
This is certainly a very sensitive issue. For those
who believe that RA 9280 and its IRR expressly prohibit
existing corporate practice, there seem to be a lot
of ongoing violations of the law. For one, licensed
individuals allowing themselves to continue as principal
or alternate brokers of corporations may be in violation
of the law.
Secondly, customs personnel and officials allowing
corporate practice may also be deemed to have violated
the law. Of course, there are contrary opinions to
the above and this is not as easy and simple as it
looks.
The Bureau of Customs (BoC) has already issued numerous
memoranda effectively allowing continued operation
of corporations pending issuance of its Customs Administrative
Order (CAO).
On the other hand, there are reports that the draft
CAO expressly prohibits corporations from registering
with the BoC as a customs broker. While most companies
have already renewed their registration with customs
and even as they have prepared their own contingency
plans, much is at stake on the issuance of the CAO.
What are the penalties for violating RA 9280 and its
rules? Persons violating RA 9280 and its rules may
be found liable administratively and criminally. For
licensed customs brokers, an administrative case may
be filed before the Professional Regulatory Board
(PRB) and in case of positive findings, the professional
license of the individual may be suspended, revoked
or cancelled.
The administrative case may be filed separately from
the criminal case to be filed in the regular courts.
A criminal case may result in fines and/or imprisonment.
For non-licensed individuals deemed to have violated
RA 9280 and its rules, a criminal complaint may be
filed in court and the penalty may similarly involve
fines and/or imprisonment.
What are the new requirements to practice the Customs
Broker profession? Under the rules, the PRB is tasked
to supervise the customs broker profession and is
authorized to issue the certificate of registration
and professional identification cards. We should wait
for the guidelines to be issued by the PRB on the
issuance of the certificate of registration of professional
identification cards.
What is important to note is that in the future, licensed
individuals will not be allowed to register with BoC
without such documents. While the issuance of such
documents is a matter of course, it would seem that
the PRB, in the exercise of its power of supervision,
may not issue the same on valid grounds, for example,
if there is an existing administrative or criminal
complaint against the individual for violation of
RA 9280.
What is the continuing professional education for
customs brokers? Many professionals registered with
the Professional Regulation Commission (PRC) are required
to have continuing professional education as a requirement
for being allowed to continue practicing the profession.
For lawyers, the Supreme Court requires all lawyers
to finish 36 units/hours of professional education
every three years. We expect a similar program for
customs brokers to be provided soon. The PRB should
be issuing rules and guidelines soon to implement
the continuing education program.
What is the role of the Bureau of Customs as far as
customs brokers are concerned? The Bureau of Customs
obviously retains its administrative power and functions
over customs operations and as such, customs brokers
practicing their profession can be subject to supervision
and control by the BoC in so far as the practice will
impact on revenue collection and compliance with customs
laws and regulations. For one, the BoC retains its
power to conduct audit of customs brokers under RA
9135.
Also, to ensure the protection of revenues and compliance
with customs laws, BoC may subject customs brokers
to additional rules. For example, customs may require
customs brokers to submit periodically additional
information and records in regards to importations
being cleared with customs. In the future, we foresee
both importers and customs brokers being subject to
reportorial requirements, similar to the requirements
made by BIR.
How much should Customs Brokers charge as Professional
Fees? Both RA 9280 and its IRR are silent on the rates
for professional fees. However, the code of ethics
for customs brokers requires that professional fees
be charged on the basis of the standard rates adopted
by the PRB.
Accordingly, the PRB has adopted the CAO on customs
brokerage charges as the standard for professional
fees. The issue here is whether the standard rates
are mandatory and whether failure to charge such rates
constitutes unethical practice which is a ground for
possible revocation or cancellation of the license
if an administrative complaint is filed.
While the wording in the code of ethics indicates
that the standard rates are mandatory, there are some
who are of the opinion that the non-application of
rates is not necessarily unethical and as such, the
rates should only serve as a guide.
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Latest Developments
in ASEAN
AS a result of the failure of WTO members
countries to enter into major agreements during the ministerial meeting in Cancun,
Mexico two years ago, the focus of many countries and regional groupings have
been towards bilateral and regional trade arrangements. These arrangements
ostensibly will impact on the trading community in the short and medium term.
In the Asia-Pacific region, many of the trade negotiations involve the ASEAN member
countries and the major trading countries of Asia. Specifically, the regional
agreements between ASEAN and the big three Asian countries (China, Japan and Korea)
are in various stage of negotiations or implementation. The RP-China bilateral
trade agreement is now being implemented, with the early harvest program soon
to be implemented. The RP-Japan agreement is scheduled for approval by September
this year. For ASEAN, efforts continue towards further reducing tariffs for goods
and harmonizing rules governing trade in services. While China and India have
become growth engines, attracting most of the foreign direct investments in the
region, ASEAN remains attractive with its 520 million inhabitants and with a total
GDP of US$700 billion. AFTA-CEPT. As a background, ASEAN Free Trade Area
(AFTA) involves the removal of obstacles to free trade among the 10-member states
of ASEAN. It includes the lowering of tariff rates and the removal of quantitative
restrictions and other non-tariff barriers that limit or prevent the entry of
imported goods. While the intent of AFTA is create an integrated market for ASEAN's
half billion people, the ultimate objective is to increase the region's competitive
edge as a production base for the world market. The main instrument for
making ASEAN a free trade area is the Common Effective Preferential Tariff Scheme
(AFTA-CEPT), which hopes to reduce intra-regional tariffs and remove non-tariff
barriers. For the ASEAN 5 (RP, Malaysia, Thailand, Indonesia and Singapore), 99%
of products lines in the inclusion list are already in the 0-5% duty rates. The
rest of ASEAN like Cambodia, Myanmar, Laos and Vietnam have 80% of their products
moved to inclusion list; with 66% of those in the list already in the 0-5% range.
Japan, US and the EU remain as the largest trading partners of ASEAN, with Japan
as the largest source of imports. Intra-ASEAN trade has increased 4.2% (export)
and 1.6% (imports) in 2003. New Rules of Origin. Under AFTA-CEPT, there is a set
of rules to determine the country of origin of a product for purposes of availing
of the special rates. To prevent transshipment of goods originating from
non-ASEAN states, it is not enough that the goods were exported from a member
state. The rule on country of origin is based on the concept of "substantial
transfor-mation", which assigns origin to the country where the last substantial
transformation occurred. Substantial transformation may be roughly defined on
the basis of a change in tariff heading, achieving a threshold of proportion of
value-added, or on the basis of certain manufacturing processes. The basis of
substantial transformation is a 40% threshold level of the value of the product.
For products availing of the preferential tariff rates under CEPT, a new rules
of origin has been issued with effect from January 2005. The new rules
intend to provide new standards in the method for calculating local/ASEAN content
and guidelines for costing methodologies and the treatment of locally-procured
materials. It also provides new procedures for verifying local/ASEAN content calculation.
What is most important with the new rules is that it now allows the cumulation
of materials with less than 40% but more than 20% ASEAN content for purposes of
computing the local content of the final product. Apparently, this was not allowed
under the old rule, which was based on the "all or nothing" principle.
In addition to the new rules of origin, special substantial transformation rules
have been issued for several product sectors (e.g. wheat flour, iron and steel).
ASEAN+3. The ongoing regional trade negotiations between ASEAN and the
three major trading countries in Asia (Japan, China and Korea) will involve a
wide-ranging area for economic cooperation, including trade and investment. The
trade agreements are ongoing with plans for early harvest programs. Already, there
are discussions on the prospects of creating an East Asia Free Trade Area in the
not so distant future. According to studies, the US will potentially be the biggest
loser once ASEAN+3 evolves into a fully integrated common market. AEC - The Future
of ASEAN. The ASEAN Economic Community (AEC) is one of the three pillars
under the ASEAN Community concept, which includes the ASEAN Security Community
(ASC) and the ASEAN Socio-Cultural Community (ASCC). With the prior establishment
of the building blocks towards ASEAN economic integration, the movement towards
an AEC by 2020 is the most logical step in the economic ladder. Policy makers
foresee an AEC established towards the direction of an "FTA plus" arrangement.
An FTA Plus arrangement is basically a zero-tariff free trade agreement with additional
benefits akin to a common market. Most of the initiatives toward the creation
of the AEC are to be submitted by end of this year. Even as these initiatives
are being finalized, the various building blocks for economic integration are
being established not only for ASEAN but for the major trading countries of East
Asia.
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Foreign Currency
Risks in International Trade
FOR importers and exporters, the foreign currency
risk involved in trading goods across borders is quite
difficult to understand and manage. The risk of loss
while imported articles are in transit is easily managed
by securing a marine insurance coverage. In case of
foreign currency fluctuations, what are the risks
and how exactly do you manage them?
To illustrate, a local company which
sells its goods locally buys its articles from the
US. The imported article is normally denominated in
US dollars. At the time the importer ordered the goods
from the US, the exchange rate was PhP54 per US dollar.
The goods arrived two weeks later and by then the
exchange rate was PhP56 per US dollar. Obviously,
the importer will pay more in Philippine peso to the
supplier. In addition, the importer will have to pay
higher taxes and duties considering that the dutiable
value will be higher when converted to Philippine
peso.
How will the importer recover the
higher cost of the imported goods? Normally, the importer
will sell the goods at a higher price to recover the
higher cost. But this is not always the case. If the
importer has previously agreed to sell the goods to
a buyer at the old price, the importer will certainly
have to incur the added costs as a result of the depreciation
of the Philippine peso. In many instances, the importer
is likewise unable to increase its price due to stiff
competition from sellers of similar goods. How will
the importer manage the foreign currency risks inherent
in international trading transactions?
Background of Foreign Exchange. Prior to 1984, the
Philippines was using a managed float system for its
foreign currency exchange, effectively allowing the
peso to trade 4.5% below and above the guiding rate
set by the Central Bank (CB). In other words, while
the exchange rate is allowed to float, it is not allowed
to fluctuate beyond the 4.5% range. In 1984, the CB
liberalized the foreign exchange market. This resulted
in local banks being allowed to trade foreign currency
among themselves based on prevailing market conditions
and without government intervention.
By 1993, the exchange rate stood
at PhP25 to a dollar. The exchange rate remained quite
stable until the regional crisis in 1997 which resulted
in an exchange rate of PhP40 to a dollar by 1998.
Foreign Currency Risks. There are many types of foreign
currency risks but the most typical involves transaction
risks in international trade. We have illustrated
this in our example above where the peso depreciated
from the date the import order was placed to the date
of payment to the supplier. It may happen also that
the peso appreciates during that period, in which
case the importer gains as a result in the lower peso
price payable to the supplier and the lower duties
and taxes.
For international traders, there
are other risks involved. One would be the translation
risks involved when a local company has international
businesses which would be reported locally. The earnings
overseas may increase or decrease when translated
to the Philippine peso.
Strategic Risks for Exporters. The
other kind of risk refers to strategic exposures that
may result from foreign currency changes in other
markets. To illustrate, many governments particularly
the US is of the position that the Chinese currency
is undervalued such that its exports are a lot cheaper
than exports from other countries. If China will appreciate
its currency, its exports will be priced a little
higher such that other countries may be able to compete
more.
For international traders, both
exporters and importers, foreign currency risks impact
not only on specific trading transactions but also
on how the company will conduct its purchase and supply
strategy both in the medium and long term. For exporters
in particular, foreign currency risks will impact
not only on the cost of imported raw materials but
also on how it will price its goods in the export
market. Pricing the goods in the export market not
only depends on the costs of inputs but also on the
pricing of competitive products from other export
markets, particularly China.
Certainly, managing foreign currency risks is a lot
more complicated for exporters than for importers
who are simply doing business exclusively for the
domestic market.
Shifting the Risk Offshore. An importer
selling exclusively in the domestic market certainly
will not concern itself with currency risks in the
export market.
Still, an importer generally has
two ways to manage its foreign currency risks. The
first strategy is to shift the risk offshore by agreeing
with the supplier that the selling price is in peso
even if it will be converted to US dollar at the prevailing
exchange rates upon payment. To illustrate, the importer
can negotiate to buy the goods at PhP100 per piece.
Upon arrival of the goods, the supplier will pay the
supplier by exchanging the PhP100 into US dollar based
on prevailing rate and remitting the converted amount.
In this particular case, the risk is transferred to
the supplier and the seller may gain or lose from
the currency fluctuation depending on the prevailing
exchange rate at the time of payment.
Forward Transactions. A second strategy
is for the importer to buy foreign exchange through
forward transactions instead of buying "on the
spot". Forward transactions refer to an agreed
sale of a foreign exchange to be made more than two
business days away and at some specified future date.
To cover the foreign currency requirements of an importation,
an importer may agree with a bank for the latter to
provide the foreign currency at a certain date (to
pay the supplier) based on a pre-agreed exchange rate.
The pre-agreed rate is normally based on the prevailing
rate with some adjustments, which may be an addition
or subtraction to the prevailing or spot rate.
The author is an international trade and customs consultant,
and a licensed customs broker. He is also a regular
lecturer on logistics, customs and international business.
Please contact aouvero@dlugms.com
or (632) 4050021 / 29 for your comments.
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