Customs as developmental agency?
Can an institution widely known to be a hotbed of massive graft and corruption become an instrument for economic growth and development? Can an agency openly castigated as corrupt and incompetent by the President redeem itself in the public eye, and actually be seen as a do-gooder?
Well, try the Bureau of Customs. A friend recently lamented how the issue of massive corruption in that agency quickly faded in the eyes of media and the public after the pork barrel scandal surrounding Janet Lim-Napoles broke out. And yet, he pointed out, the money lost in Customs is estimated by the Department of Finance to run into hundreds of billions of pesos, against only about P10 billion pocketed in the Napoles scam. The difference, of course, is that the Customs leakages mostly represent taxes that government failed to collect, while the lost pork barrel funds were real hard-earned taxpayer money that got stolen outright. Still, both represent funds that could have gone a long way toward uplifting our economy, and millions of lives along with it. Unfortunately, in a society with short memories and even shorter attention spans, it seems that media can only afford to focus on one hot issue at a time, while the public’s capacity for outrage can only accommodate one object of ire at a time as well.
As for Customs, the hullabaloo comes at a time when there are reasons other than corruption why the agency ought to be in the public eye. In many (if not most) countries of the world, customs offices have assumed less importance over time as a revenue agency, but are being measured more in their key role in trade facilitation, a crucial element in all modern international trade agreements. In the Asean Economic Community (AEC) Blueprint, for example, prominent among the outstanding commitments made by member-countries in the trade pact are trade facilitation measures primarily in the hands of their customs authorities. This is especially because the elimination of import tariffs is nearly complete, save for a few commodities that the countries consider sensitive, such as rice in our case. (It is for this reason, by the way, that oft-expressed fears that we would be suddenly deluged by an onslaught of competing products from our Asean neighbors once AEC takes effect in 2016 are largely misplaced.)
Indeed, there is a trend all across the world of greatly diminished dependence on trade taxes as a contributor to government revenues. In a list of 160 countries compiled by the World Customs Organization (WCO), around two-thirds of countries now have customs duties contributing only less than one-tenth of total revenues. Those at the upper end of the list are mostly least developed countries in Africa, with the exception of Bahrain and Kuwait (because both collect no personal income taxes). The Philippines appears at the middle (79th in the list ranked from lowest to highest percentage), with our customs duties accounting for 7.4 percent of total government revenues. Among our Asean neighbors, Singapore has 0.03 percent (third in the list), Malaysia 1.3 percent (28th) and Thailand 5.8 percent (68th); Indonesia has no data.
In light of such trend, the WCO has been playing down the fiscal (revenue-raising) function of customs authorities. Greater emphasis is now placed on their economic development function via trade facilitation, alongside the control function (combatting commercial fraud and illegal cargo like prohibited drugs) and protection/security function (countering terrorist activity). Trade facilitation is defined as “the simplification and harmonization of international trade procedures,” referring to “activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade.” The aim is to reduce associated cost burdens and maximize efficiency, while safeguarding legitimate regulatory objectives. Business costs are affected by the need to provide information, submit declarations and submit to border checks, which lead to time delays, forgone business opportunities and reduced competitiveness.
With tremendous growth over the years in cross-border movement of commodities, as international trade has grown by leaps and bounds, the need to streamline and minimize disruptions to the movement of goods due to border procedures assumes great importance. Hence, these have become the subject of major international trade agreements and protocols, the most encompassing being WCO’s Revised Kyoto Convention, which the Philippines is signatory to. Similar provisions are part of the AEC Blueprint and the Philippines-US Trade Facilitation Protocol.
Are we compliant with our trade facilitation commitments under these international agreements? Sadly, no—and this is one reason we continue to have difficulty attracting foreign investments. Measures we have yet to deliver include pre-arrival clearance to expedite release of cargo, and full implementation of the National Single Window (a single online platform for obtaining various required clearances for import shipments). With attention inordinately focused on its revenue collection role, Customs’ developmental role as trade facilitator has been all but neglected. Hopefully, its recent revamp and its reinvention via the Customs Modernization and Tariff Act now pending in Congress could change all that. It is crucial that the latter ensure consistency with global norms and compliance with our international commitments.
Customs as a developmental agency? In this globalizing world, this is in fact what it is supposed to be.
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