THIS year has been very interesting in terms of developments in the customs and trade front. We will summarize these major developments and provide some insights on their likely impact in the coming months. For those in the trading community, these developments may be categorized as follows:
- Customs Compliance and Revenue Protection
- International Trading Agreements
- Trade Facilitation and Customs Modernization
Customs Compliance Programs
One major function of customs is the collection of revenues needed to support the government budget. The increased revenue target this year and the continuing peso appreciation in the past months have placed tremendous pressure on customs management to identify ways to prevent revenue leakages and collect taxes on past importations.
One major development this year is the more aggressive use of the ‘visitorial’ power which allows customs to visit stores and warehouses to confirm if correct taxes and duties were paid on imported goods. This has resulted in numerous seizures of traded goods in major shopping malls and in private warehouses.
Another development is the strengthening of the Post Entry Audit (PEA) group which caused the issuance of numerous audit notices. The increased customs audit activities and the launch of the customs voluntary disclosure program have translated into additional collections for customs. This year, the PEA group is expected to collect more than 10 times what it collected in its first three years of existence.
Similar to the letter-notices issued by the BIR, customs has also been issuing numerous demand letters against importers for unsettled obligations. Accordingly, customs has been able to collect hundreds of millions in additional taxes and duties through this facility since the middle of the year.
This year also marked the increased presence of the ad-hoc body (Run Against Smugglers – RATS) tasked to file criminal cases against smugglers. Overall, we have seen a very aggressive customs this year, with focus on making importers comply with customs rules and regulations. We expect the same direction from customs in the coming year.
Free Trade Agreements (FTAs) and Rules of Origin
Other than the ASEAN Free Trade Agreement (AFTA), the Philippines has already implemented numerous agreements especially those with China and Korea. The ASEAN-Japan free trade agreement has also been signed and should be implemented by next year. The ongoing negotiations between ASEAN and other countries (India, New Zealand and Australia) should be also finished this year or early next.
Preferential trade among signatory countries is generally governed by a set of trading rules called the Rules of Origin (ROO). Each free trade agreement has its own set of ROO. With three more FTAs for approval soon, we expect additional ROO under these various agreements. For the trading community, the concern now is that the growing complexity of trade rules will likely increase the transaction cost of doing business across borders, notwithstanding that tariffs are decreasing. Specifically, executive orders and customs rules will have to be issued to govern the implementation of all these FTAs.
With regard to the executive issuances providing for duty reductions resulting from AFTA and free trade agreements with China and Korea, the government has already issued EOs 613, 617, 618, 638 and 639.
Customs Modernization and Trade Facilitation
Early this year, we wrote about the status of the ongoing P500-million customs modernization program. Customs is now in the process of implementing the migration from the present automated system to the AsycudaWorld. Various automation programs involving customs processes such as entry processing, importer accreditation, bonds liquidation, bank payment, etc. are in various stages of implementation.
As we wrote last year, the impact of the customs computerization program to importers can be felt in the area of trade facilitation and trade compliance. An enhanced online system with simpler procedures and documents starting with the filing of import entry to releasing of the imported goods should result in time savings and lower transaction costs.
Finally, the planned accession to the Revised Kyoto Convention this year or early next year is expected to also result in major changes in the customs regulatory environment. This early, customs has created an RKC Management Team tasked to manage the overhaul of the existing Tariff and Customs Code and current customs rules and regulations.
2008 – What to Expect
Many of the developments outlined above will obviously continue to next year. In general, all these should result in positive changes in terms of trade facilitation, lower transaction costs and enhanced customs compliance.
The author is an international trade consultant, and a licensed customs broker. He is a lecturer on logistics, indirect tax, customs and supply chain. Please contact email@example.com for your comments.