Outlook

Smuggling at its worst under Aquino

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Smuggling in the Philippines is at its worst under President Aquino’s administration, with the smuggled value averaging $19.6 billion annually, an explosion from the comparable figures of $3.1 billion and $3.8 billion yearly during the terms of Presidents Joseph Estrada and Gloria Macapagal-Arroyo, respectively.

In Mr. Aquino’s first two years in office, the value of smuggling totaled $39.2 billion, more than the $35.6 billion during Arroyo’s nine years in office.

These estimates are based on data from the International Monetary Fund’s Direction of Trade Statistics, which contains two sets of data. The first set has the value of exports as reported, for example, by China to the Philippines. The second set of data has the value of imports from China as reported by the Philippines. To compare the two sets of data, economists use various formulas, the simplest of which involves reducing the export value by 10 percent to account for the cost of freight, insurance and other shipment costs.

To explain, China reported that its exports to the country from July 2010 to June 2012 amounted to $33.3 billion. On the other hand, the Philippines reported that its imports from China during the same period totaled only $14.7 billion.

To estimate the amount smuggled—either through under-declaration of the goods’ values or outright covert entry into the country—the export figure of $33.3 billion is reduced by 10 percent to reflect the cost of freight, insurance and other costs, to come up with a figure of $29.9 billion. This figure less the $14.7 billion imports reported by the Philippines yields a discrepancy of $15.2 billion, the estimation of the value of smuggled goods during the period.

The discrepancies in the two sets of figures may in part be due to reporting errors, for instance due to different reporting times. However, especially when the discrepancies involve significant amounts and when a time-series is available, the methodology approximates the magnitude of smuggling in a country, and has been routinely used by international-trade economists and multilateral institutions.

TABLE 1:

SMUGGLING ESTIMATES: ANNUAL AVERAGE

IN $ BILLIONS

Estrada (July 1998- Jan 2001)      3.1

Arroyo  (Feb 2001 – June 2010)   3.8

Aquino (July 2010 – June 2012)   19.6

(Based on IMF’s Direction of Trade Statistics)

The estimates of smuggling from several countries during Mr. Aquino’s term so far are shown in Table 2.   While China, Japan, and Korea account—as these have in the past two decades—for the largest value of smuggled goods, there has been a surge of smuggled goods, from the United States, Indonesia and India.

The validity of these unexpected findings is bolstered by reports from trade organizations and government officials of massive smuggling of pork, chicken and other agricultural products—even onions—from the United States and of rice from Indonesia and India.
SMUGGLING ESTIMATES: IN $ BILLIONS

First 24 months of PGMA,  first 24 of PBSA

Selected Countries

ARROYO AQUINO

China         2.0    15.2

Japan          1.1    7.3

Korea         0.1    4.3

Singapore 1.1    2.5

Thailand    0.2    1.4

Indonesia   -0.1   1.3

US    -0.3   0.8

India          -0.3   0.4

TOTAL      3.9    33.2

(Based on IMF’s Direction of Trade Statistics)

A group of trade associations had raised alarm that smuggling of agricultural products “is the worst in the last 20 years.” Even the agriculture department publicly complained that the customs bureau had been inutile in stopping the smuggling of agricultural commodities. National Food Authority administrator Lito Banayo—who recently resigned to run for Congress—maintained that massive smuggling of rice had been undertaken by farmers’ cooperatives using the NFA’s rice import permits. “Never has there been a case of 2,000 container vans docking and then just ‘disappearing’,” a customs staff member said.

The Senate, in a resolution in 2008 that called for an investigation into smuggling, had in fact used the same method of using IMF data to justify the urgency of its probe. It explained that the government’s lost revenues can be estimated by computing the 12-percent value-added tax and an average 7-percent duty on the calculated smuggled value.

Using this method on the $39.2 billion in smuggled goods for Mr. Aquino’s first two years in office, the customs bureau was not able to collect revenues of P327 billion during the period, made up of the P207 billion of value-added taxes and P120 billion in customs duties—or about 12 percent of the state’s total revenues.

The runaway smuggling in the country has cut deep into government revenues from import duties. In 2011, while the value of imports rose 10 percent from the previous year, collected duties increased only by a measly 2.2 percent. Customs Commissioner Ruffy Biazon, however, blames his agency’s weak performance on what he claimed was the “unrealistic targets” set by the Development Budget Coordination Committee, conveniently failing to explain that these goals are based on conservative estimates of the value of exports this year.

“Either the smugglers are running circles around Biazon, or the tuwid na daan is really a very crooked one,” an official of a trade organization said. Another remarked: “Don’t you notice that Biazon isn’t crying that he’s not included in Aquino’s senatorial slate, while his deputy commissioner for intelligence Danny Lim has recently become so quiet?”

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