Home » Across Borders » Violation of CBW Rules

Customs Bonded Warehouses, CBWs for short, are presently under increasing scrutiny not only from customs authorities but also from various government task forces. The proposed anti-smuggling bills pending in both houses of Congress have likewise proposed stringent measures on the operation of CBWs. A recent move by customs is to limit the number companies operating a CBW, particularly those common types of CBWs.

The main reason for all of these moves is that CBWs have continued to be seen as a conduit for smuggling in the country. On the other hand, the establishment of CBWs is an internationally-recognized system designed to provide an efficient and organized system for customs to manage tax and duty free imports. The procedure has been widely availed and used by thousands of legitimate exporters but also at the same time by unscrupulous traders.

Customs Bonded Warehouse

Based on international customs practices, a CBW refers to a designated physical warehouse under customs control, where imported articles are allowed to be stored without payment of duties and taxes. The maximum period for storage is generally fixed by law or regulation but in no case should it be less than a year for non-perishable goods.

A CBW is generally applicable for companies involved in ‘temporary importation’ – importations which are tax and duty free for reasons provided by law (e.g. imports for export production or for sale to export processing or free trade zones). Without a CBW, an importer will generally pay taxes and duties on those imports and upon submission of proof of exportation, secure a tax and duty drawback for those payments.

A CBW therefore should help ease the cash flow position of the company and also eliminate the transaction cost for securing those duty drawbacks. In addition, a CBW should also reduce operational costs and promote efficiencies in the supply chain and inventory management. Thus, a CBW may result in the following:

  1. direct control of the supply chain and inventory;
  2. computerized and integrated supply chain and inventory system;
  3. lower administrative and financial costs;
  4. efficient and cost-effective storage and distribution system; and
  5. immediate availability of raw materials and supplies on a “just-in-time” basis.

Present Regulations

In general, CBWs may be categorized into manufacturing, public/private, trading or regional warehouse. A manufacturing warehouse is further sub-categorized into:

  1. Garment/Textile Manufacturing Bonded Warehouse
  2. Miscellaneous Manufacturing Bonded Warehouse
  3. Common Bonded Manufacturing Warehouse

Other types of customs-controlled warehouses are Express Cargo Clearance Facilities, Container Terminals, Container Yards and Container Freight Stations. These customs controlled and secured facilities come with a well-defined cargo flow system and treated as an extension of the regular customs zone.

Since 1998, however, the Bureau of Customs (BoC) has imposed a moratorium on the issuance of licenses on all applications for specific types of CBWs as provided under CMO 3-98 (e.g. trading, common, public and private CBWs). But since that time, there had been a number of instances where the BoC granted an exception to the moratorium.

Storage and Withdrawal

Goods entered into CBWs are given tax and duty free status by way of the special procedure. The entered goods are covered by warehousing entries and corresponding guaranties or bonds. When articles are withdrawn from CBWs into the customs territory, said articles are subject to duties and taxes and are covered by “consumption” entries. Articles may also be withdrawn from CBWs for direct export or for transfer to another CBW, a PEZA zone or free trade zone. In all these entries and withdrawals, current customs procedures provide for stringent documentation and control measures.

CBW Violations

Common violations of CBW rules normally involve (a) storage of articles beyond the nine-month period, (b) delivery into unlicensed extension warehouses, (c) unauthorized withdrawals and, (d) failure to liquidate the warehousing entry and corresponding bond after valid withdrawal from CBW. Each of these violations may result in stiff fines and penalties. Due to ignorance or negligence, many traders operating CBWs have been found to have committed these violations and penalized with hefty fines, including closure of the CBW in some instances.

For companies engaged in legitimate export or trading activities, it is most important that rules governing CBW operations are strictly followed. Failing that, customs will most likely treat violators like ordinary smugglers, to be penalized with stiff fines and closure of operations, and many times, under the glare of the media spotlight.

The author is an international trade consultant, and a licensed customs broker. He is a lecturer on logistics, indirect tax and customs, and a lecturer of Ateneo and BayanTrade on Supply Chain Management. Please contact agatonuvero@yahoo.com for your comments.

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