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.
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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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