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IN our previous columns, we have provided some of the latest developments in the customs and international trade front. Below is a summary of these recent developments and some others that we have not yet written about.

Customs Enforcement Measures

In recent months, we have seen the aggressive drive of customs and the presidential task force in going after alleged smugglers through the use of the ‘visitorial” power of customs. Under the tariff and customs code, customs may visit the premises and warehouse of importers and ask for proof of payment of customs duties and taxes on goods openly offered for sale to the public or those stored in warehouses. Failure to provide proof of payment of duties and taxes will result in the seizure and subsequent forfeiture of the imported goods.

Using this visitorial power, both customs and the presidential task force have been conducting raids in various commercial establishments and warehouses. The most controversial of these raids have been those made on dealers of imported luxury cars in Metro Manila and in warehouses in Subic. The luxury vehicles seized in Subic have been destroyed while those seized in Manila are still subject to forfeiture proceedings.

A legal issue has been raised against the destruction of the luxury vehicles considering that Subic is a freeport and is treated as a separate customs territory. Luxury vehicles within the freeport are not yet subject to customs laws and are subject to seizure only after said vehicles are smuggled out of the zone into the customs territory.

Assessment Letters and Audit Notices

Also, in the last six months, the Post Entry Audit group has reportedly issued more than 100 audit notices (covering the past 3 years of importations) to companies that have been profiled for possible compliance issues. Most of these companies are among the top 500 importers.

In the last two months, the Office of the Commissioner has also issued assessment / demand letters to many companies found to have discrepancies in their tax and duty payments for the past year. Many of these companies have been assessed on the basis of royalty payments paid to affiliates offshore. Many others were assessed due to discrepancies on the total value of importations as declared to customs when compared with the “costs of goods sold” or “inventory costs” declared in the financial statements submitted to internal revenue authorities.

Once an assessment / demand letter is issued, an importer basically has two options: (a) contest the assessment by formally responding and providing the legal and technical basis; or (b) pay the additional assessment. If the company refuses to take action on the demand letter, customs will most likely proceed with the issuance of an audit notice. In many instances, customs has also issued audit notices in cases where the importer has contested the demand letter. Importers should note that while a demand letter normally covers only the past year, a compliance audit will cover the past 3 years of import transactions.

Amendments to AHTN and Duty Rates

The Tariff Commission will accordingly issue very soon the latest amendments to the AHTN which has already been approved by the ASEAN secretariat. The AHTN amendments reflect the changes to the Harmonized System resulting in reductions in the number of tariff headings within the 4th digit. Once published, the amendments to the classification system will be uploaded to the customs automated system. Customs brokers and importers will need to review the existing classification or tariff heading of imported articles once these amendments are fully implemented.

With regard to the new set of executive issuances providing for duty reductions resulting from the AFTA and free trade agreements with China and Korea, the government has yet to publish these executive issuances, namely, EOs 613, 617, 618, 638 and 639.

Banking Transactions – UCP 600

The Uniform Customs and Practice for Documentary Credits (commonly called “UCP”) provides the contractual rules establishing uniformity in the national rules on letter of credit practice by the banking and trading industries. The recent amendments to these rules (UCP 600) have been issued last July 1, 2007 by the International Chamber of Commerce’s (ICC) Commission on Banking Technique and Practice.

Prior to the revisions, studies have shown that approximately 70% of documents presented under letters of credit were being rejected on first presentation. This obviously had a negative effect on the use of the letter of credit as an internationally recognized means of payment in international trade.

A major structural change under UCP 600 is the introduction of articles covering definitions and interpretations which seek to provide definitions on the roles played by banks and the meaning of specific terms and events. The changes should hopefully remove the ambiguity in the language that appears in letters of credit.

The author is an international trade and customs consultant, and a licensed customs broker. He is a lecturer on logistics, indirect tax, customs and supply chain. Please contact agatonuvero@yahoo.com for your comments.

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