Establishing a Customs Bonded Warehouse (CBW)

UNDER Section 1901 of the Tariff and Customs Code of the Philippines (TCCP) and Customs Administrative Order No. 2 – 1991 (CAO 2-91), the Bureau of Customs shall be responsible for the licensing, supervision and control of all Customs Bonded Warehouses (CBWs). Under CAO 2-91, CBWs have different classifications depending on its nature and purpose.

Types of CBWs. In general, CBWs may be categorized into the following:

1. Customs Bonded Manufac-turing Warehouse – Garment/Textile Manufacturing Bonded Warehouse – Miscellaneous Manufacturing Bonded Warehouse – Common Bonded Manufacturing Warehouse
2. Public/Private Bonded Warehouse
3. Customs Bonded Trading Warehouse
4. Multinational Regional Warehouse

Moratorium on certain CBWs. 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). Since that time, there had been a number of instances where the BoC granted an exception to the moratorium.

Unless there are reasonable justifications for the grant of a license and depending on the circumstances of the application (e.g. Industry-Specific types), the BoC will generally deny an application to operate a Public/Private or Trading CBW. It is our understanding, however, that the BoC is presently undertaking a review of its rules and regulations concerning the application process, operation, supervision and audit of bonded warehouses which could eventually lead to the lifting of the moratorium or at the very least, the relation of the rules on such application.

Benefits of CBWs. A customs warehouse 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 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 not only help ease the cash flow position of the company but should also eliminate the transaction cost for securing those 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.

Documentary Requirements. When applying for a CBW license, the applicant will normally have to prepare the following documents:

1. SEC Registration, including Articles and By-Laws
2. Lease Contract or Evidence of Ownership of Proposed Warehouse
3. Warehouse / Plant Location and Layout
4. Mayor’s Permit for Warehouse
5. Financial Statements
6. Income Tax Returns
7. List of Machinery and Equipment
8. List of Materials to be Imported
9. Formula of Manufacture/ Conversion (for manufacturing operations)

Once the documents are ready, the same will be submitted to the Bureau of Customs together with the formal application.

Procedure for Application. A formal application is normally submitted to the District Collector of the Port concerned. The CBW division of the port concerned will assess the application before the same is endorsed to the District Collector. In case the endorsement is favorably acted upon, the District Collector will submit the application to the CBW Committee for study before it is submitted to the Customs Commissioner.

At any given time, the applicant should be ready with executive summaries, power point presentations and briefing papers for submission or presentation during meetings. The applicant should also be able to arrange plant visits and ocular inspections by customs.

Implementation Issues. Once the CBW license is issued, the applicant will have to contend with the following implementation concerns:

1. Maintenance of a system of inventory and documentation of movements and controls (including electronic systems) consistent with the CBW compliance requirements;
2. Liquidation and audit of warehousing entries involving imported articles;
3. Import valuation, classification and other customs issues;
4. Technical training of staff and customs broker; and
5. Other issues related to the operation of the CBW and to compliance with general customs rules and procedures.

The author is an international trade, indirect tax (customs) and supply chain expert. He is the Editorial Board Chairman of Asia Customs & Trade, an online portal on customs and trade developments affecting global trade and customs compliance in Asia. He was also Bureau of Customs Deputy Commissioner for Assessment and Operations Coordinating Group (2013-2016). For questions, please email at agatonuvero@yahoo.com and agatonuvero@customstrade.asia