Ten Failings of the Customs Bureau

8/17/2019 Ten Failings of the Customs Bureau

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Table of Contents

Acknowledgment

Memorandum (Personal)

ENGAGING THE LABYRINTHS AND MAZES 1OF THE CUSTOMS ZONE: a preface

Part 1

Introduction 3

THE CAVEAT: Never sideline security, it may prove costly. 5 PAX ADUANA: Pursuing Peace thru the PortsTRIPOD OF A WORLD-CLASS CUSTOMS ADMINISTRATION 5BOC IN THE LIGHT OF PHILIPPINE REALITIES: 317B initial 6

collection target for 2009Part 2

What Ails the Bureau of Customs? 10

Failing No. 1

Graveyard of Careerism or Professionalism 12

Failing No. 2

Unfair Target-setting Exercise 15

Failing No. 3

Yards-Monitoring, Border-Control, and Gates-keeping Is Weak 17

Failing No. 4

Sale of Forfeited, Abandoned and Disposable Goods Is Systematically Flawed 22

Failing No. 5

Anemic Drive to Prosecute Smuggling 26

Failing No. 6

Defenseless Areas in Customs Operation Abound 29

Failing No. 7

Regulatory Capture 32

Failing No. 8

Insanity, as defined by Dr. Covey 35


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Failing No. 9

Flawed Concept of Trade Facilitation 38

Failing No. 10

Technology: Misused, Abused, Confused? 42

Part 3Doables to Address the Ten Failings 49

Part 4Imperatives of a Smuggling-free Philippines 58

Part 5Smuggling Alphabet For Those Who Mind 60

Matrix of Immediately Implementable Interventions 61


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Acknowledgment

For Someone Up There,my thanks and gratitude.

For those who helped me in this work in whatever measure,

my appreciation.

For the many who may have expected more,allow me to quote Jessie Jackson:

“I am not a perfect servant. I am a public servant doing my best against the odds.

As I develop and serve, be patient.God is not finished with me yet.”


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Memo to the Next

Customs Commissioner

TEN F ILINGS IN THE

BURE U OF CUSTOMS

(the unprintable truth)

ATTY. RAMON G. CUYCO, CESO V

April 4, 2010


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“The incoming President will face a

tremendous ch llenge in st mping out corruption

with corrupt pr ctices h ving been institution lized

in the Philippines ”

Transparency International (TI)

Philippine Daily Inquirer (PDI)February 24, 2010

MEMORANDUM (Personal)

FOR : The Next Customs Commissioner

Cc : The 15 th President of the Philippines; and

The Next Secretary of Finance

SUBJECT : TEN FAILINGS IN THE BUREAU OF CUSTOMS

FROM : Attorney Ramon G. Cuyco, CESO V

DATE : Fourth of April, 2010

_____________________________________________________________

Congratulations on your appointment!

Your job as Customs Commissioner is so important and crucial for it virtuallyaffects the life of our nation. After all, the Bureau which you head is responsible for the

collection of some 20% percent of the whole revenue pie of the country. Taxes – including customs duties - as we know are the lifeblood of the nation. Roads andbridges, education, health and social services, peace and order, the defense of thestate, the economy, our foreign relations with sovereign equals, are all dependent onthe government coffers.

Ostensibly, your performance will therefore have to be measured against your

role as fiscus procurator.

In the discharge of your task, you are clothed with powers and authority thatyou will need as you face the daunting task of not only collecting duties and taxes, butof guarding our borders against the entry of anti-social goods, of interdicting smuggledcommodities, and of seizing imports that will unfairly prejudice local produce, as well.


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Awesome power, enormous influence, expansive reach – virtual realities whichcan make or unmake an industry.

Here‟s a reminder though from Spiderman, “With great power, comes greatresponsibility.”

But before you get down to business, here‟s a foregrounder:

In a gathering of delegates from the League of Cities of the Philippines andThe Asian Foundation , British Ambassador Stephen Lillie was quoted to have saidthat “[T]he issue of corruption in the Philippine government should be made the priorityof every c andidate seeking the presidency in this year‟s election in order to achieve thecountry‟s full potential in terms of economic growth and p overty reduction.”

Lillie believes that corruption “is an issue that matters hugely to foreigninvestors, just as it does to ordinary citizens. So central government will need tocontinue to keep counter-corruption high on its policy agenda, before and after the

elections.” (Philippine Star, Saturday, February 27, 2010)

The foregoing observation is shared by many.

In his Rule of Law column (BusinessWorld, September 26-27, 2009), AugustoR. Bundang said that “if a survey were conducted today, asking people what theythink is the main cause of our economic deterioration, I would bravely opine that theoverwhelming answer would be corruption. With so much talk by politicians,government leaders, and international organizations about corruption, it would appearthat corruption is our society‟s greatest evil, the removal of which will bring about the

economic renaissance we h ave been praying for all along.”

While it is non sequitor that being able to totally eradicate corruption will “meanthat we can now say goodbye to poverty in this country,” it cannot be gainsaid that“corruption significantly undermines growth.”

Citing a discussion presented by the World Bank during the 1998 BeijingInternational Symposium on the Prevention and Control of Financial Fraud, Bundang said that “corruption, among others, increases transaction costs anduncertainty in an economy and weakens the state and its ability to promotedevelopment and social justice. This is the standard conclusion as well in many otherinternational studies and discussions on corruption and progress.”

Of late, Samantha Grant, Transparency International (TI) ProgramCoordinator for Southeast Asia was quoted by the Philippine Daily Inquirer(PDI) [February 24, 2010] to have said in the Second Integrity Forum in Makati City,that“[A]ny new government has a tremendous challenge to win back the respect of the

people. To do this, they must tackle the institutionalization of practices currentlyaccepted that are, in a word, corrupt.”


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Grant further said: “In any country with institutionalized corruption, integritypillars (the judiciary, the executive, the police, and the press) themselves arecontinually compromised.”

Grant also quoted the National Integrity Study of the Philippines in 2006,

saying: “According to the report, collusion, state capture, and leadership incapabl e ofcrushing vested interests are all areas that stil l need to be addressed.”

Grant continued: “There should be no nepotism in appointments and thereshould be a clear will to prosecute those found guilty of corruption including thepowerful. Too often it is the small fry targeted for obvious reasons.”

Former Budget Secretary Benjamin E. Diokno, in his CORE column titledLosing the fight against corruption (BusinessWorld, February 24, 2010), observes:“[A]fter more than nine years in power, the Arroyo Administration has all but lost thefight against corruption. The World Bank-sponsored governance indicators show that in2000, the year before Arroyo assumed power, the Philippines was better than 36.4% ofall government in the study. In 2008, that percentile rank on control of corruption wasdown to 26.1%.”

Diokno also cited the 2009 Social Weather Station (SWS) survey ofenterprises on corruption. In that report, Diokno notes, that “[T]here is animprovement in agencies where opportunities for corruption are relatively less prevalent– in trial courts, the Armed Forces of the Philippines, the Department of Justice, theGovernment Service Insurance System, the Commission on Elections, and thePresidential Commission on Good Government.” A second group of agencies however,which includes, among others the Bureau of Customs (BOC), was found by the

respondents as “insincere in fighting corruption,” and Diokno finds it “reasonableto accept the finding that the sincerity of officials in fighting corruption has worsened”

among this group.

I assume that the President must have been made aware of the BOC‟s insincerity

in fighting corruption even before His Excellency decided to name you as BOC Chief.

This Memo, then, will attempt to identify some ails of the agency, present somesort of general prescriptions, and, the sequel to this memo, will attempt to conductcustoms diagnostics, recommend some solutions, as well as endorse a RoadmapTowards a Transparent, Accountable and Responsive Customs

Administration.

For information.

DIR. RAMON G. CUYCO, CESO V


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Indeed, the road to change is not a walk in the park. One has to be prepared to

get bruised, be hurt, even for a hard fall. After all, the pursuit of good governance is

not a spectator sport – it is a full contact game.

Here‟s a caveat from Jacob Riis, who said: “When nothing seems to help, I go

and look at a stone-cutter, hammering away at his rock, perhaps a hundred timeswithout as much as a crack showing in it. Yet at the hundred and first blow it will split

in two, and I know it was not that blow that did it – but all that had gone before.”

If only for this, the author hopes to make this work as his initial road map which

he intends to regularly consult as he goes on his bivouac to a new customs

administration.

RGC

Lavezares, Northern Samar


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Part 1

Introduction

In the past, the Philippines‟ Bureau of Customs (BOC) had a very simple

mandate: collection of revenues for the government and the prevention and

suppression of smuggling and other frauds upon customs.2

The equation then was expressed in terms of assessments made, of duties and

taxes collected, as well as of arrests and apprehensions conducted as they relate to

smuggling activities.

But those days of simple concerns had gone with the winds. Times have changed

so rapidly, radically and extensively. With the advent of the World Trade Organization,

the Bureau of Customs was pressed to add Trade Facilitation into its core

competencies. Rightly so, for the faster business is done, the better it is for world‟s

trade and commerce. This is the wave of the future, the demand for globalization.

Every nation wanting to keep pace with the changing world should live with this

ground-level reality. Any attempt to ignore this “red flag” will surely redound to

isolation. The demands of world trade have to be addressed more significantly side by

side with those of revenue collection and the suppression of smuggling. TradeFacilitation is international, while Revenue Collection and the Suppression of

Smuggling are primarily local.

THE CAVEAT: Never sideline security, it may prove costly.

“The amount of bad news over the past weeks has been bewildering for many

people in the world. Stock markets have plunged, banks have stopped lending to one

another, and central bankers and treasury secretaries looking worried appear daily on

television. Many economists have warned that we are facing the worst economic crisis

the world has seen since 1929. The only good news is that oil prices have finally started

to come down,” 3 wrote Joseph Stiglitz, a Nobel Laureate and a former Chief Economist

2 Section 602, Tariff and Customs Code of the Philippines.3 TIME Magazine, October 27, 2008, p. 26;


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of the World Bank sometime in the last quarter of 2008. But, it may still appear relevant

up to this writing albeit with variance in magnitude.

Against this backdrop, let me issue a caveat: Pursue all means – except half-

baked and faint attempts – to cushion the impact of a worldwide financial crisis; but,

not at the expense of whatever gains we have achieved in upgrading the level of

awareness in the arena of global peace and security. Let us never forget that terrorists

are today‟s most heartless violators of global peace and social harmony; and they

respect no time, feel no guilt, and mind nothing in carrying out their devilish design, be

it in the most unlikely places, in the most unchristian ways, and in the most immoral

circumstances. Worse, they might even be emboldened by the apparent shift in Uncle

Sam‟s focus – from protecting America‟s shores to averting the economic meltdown at

home and around the world.

At a time when even the world‟s number one police – the United States of America – is not immune from external threats, nor shielded from ideological invaders,

and neither free from even the faintest sign of terror, it becomes highly improbable that

smaller nations with lesser capability to defend themselves, would fare any better than

the country that is equipped with the most sophisticated defense-capability that science

and technology can offer.

Without doubt, the Philippines is one of these countries with lesser defense

capabilities. Ergo, it is vulnerable in so many ways.

And, what is it for the Bureau of Customs? How can it remain relevant in thepresent scheme of things? What should it do? Should it choke our ports and airports

with all border-control apparatuses; throw all the monkey wrenches so that it will be

difficult for groups to carry on with their legitimate fronts that finance their terroristic

agenda, even at the risk of causing negative repercussions on trade and commerce? Or

should it relax its border control to allow unimpeded flow of goods in response to the

demands of commerce, even at the risk of exposing our vulnerabilities to the dark

forces of terror?

Or, can we serve the requirements of trade and commerce even as we respond

to the demands of peace and security? Is it achievable? Doable?


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PAX ADUANA: Pursuing Peace thru the Ports

Of late, another equally if not, more important concern is pre-occupyingeveryone‟s time, effort and money. I refer to Security .

With the 9/11 in USA having claimed some 3,000 innocent lives, the BaliBombing in Indonesia, the Gas Attack in Japan‟s Subway, the carnage in Great Britain,in Spain, in Angola, in Pakistan, as well as here in our native Philippines, the tentaclesof terrorism are all over the world. Yes, the threat to world security is real, not simplyimagined. That the Push of Bush on Iraq‟s producing weapons of mass destruction(WMDs) turned out to be a hoax will not erase the vivid recollection of the Twin Towersin New York crumbling like a deck of cards right in the heartland of the world‟s mostpowerful nation. Yes, Virginia, terrorists strike anywhere, any time, in any nation – bigand small, and in any place – hallowed or otherwise. Terrorism knows no boundaries,and respects no metes and bounds. Countries that are rich, as well as theimpoverished; communities that are Christian as well as Islam; people at war as well asthose in peace; everyone, every creed, every race – they are not immune from thisglobal menace.

And bombs explode in the desert, in the valleys, in the high seas. They hit

government buildings, business establishments; military installations as well as religious

sites; in highways and railways, in airports as well as seaports; they detonate, they sow

fear, instill terror, wreak havoc. They damage; they maim; and, they kill – not just

people but also businesses, not just their targets, but their human bombs as well.

The need therefore to address Security Concerns – especially in customs

zones – can never be over-emphasized.

Pax Aduana should be among the major cogs in all customs administrations all

over the world – including the Philippine Customs. Pax Aduana is more than just

revenue; it is about promoting peace and securing development.

TRIPOD OF A WORLD-CLASS CUSTOMS ADMINISTRATION

In fine, every customs administration should have a local, international, and

global perspective, if it has to make itself relevant in the world‟s stage of governance.

Local perspective shall address its revenue collection activities; International perspective

shall deal with Trade Facilitation undertakings; while its Global perspective shall address

the concerns of Security.


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Put differently, a world-class customs administration can be achieved and

sustained only if it rests on a tripod where the main pillars are REVENUE COLLECTION,

TRADE FACILITATION and SECURITY. I shall call this – the Tripod of a World-class

Customs Administration.

In the Philippines, we cannot sacrifice REVENUE COLLECTION in the light of

present realities – BOC being the 2nd biggest revenue raiser for the national

government; neither can we renege on our international commitment on TRADE

FACILITATION as it promotes and expands trade even as we make good our

membership in a league of nations – pacta sunt servanda ; and, more importantly, we

can never court terrorism and disaster by relaxing SECURITY screens in our ports and

airports.

Only when the tripod evenly supports our programs can we deliver a world-class

customs administration. A breakdown in any of the main pillars will have deleteriouseffects not only on BOC mandate, but on the very foundation of the country‟s peace as

well.

While a thorough customs examination process in the name of revenue collection

may impede commercial traffic to the detriment of free trade and commerce, an

unreasonable relaxation of our border controls in the name of trade facilitation may

abet the unrestricted entry of terrorists‟ resources, thus sacrificing internal security and

making our country a virtual sitting duck in terroristic mal- adventures. A balance

between the fiscal requirements of our national treasury, the interest of trade,

commerce and the economy, as well as the demands of peace and security musttherefore be maintained. Yes, it‟s a tough job, but there is no choice. We cannot

sacrifice any of the three pillars.

BOC IN THE LIGHT OF PHILIPPINE REALITIES: 317B initialcollection target for 2009

The BOC is the second tax revenue collector for the national coffers second only

to the Bureau of Internal Revenue (BIR). BIR and BOC have a combined collection

share which accounts for 80% of the total revenue collection figures of the national

government. The performances of these two agencies are therefore placed under close

monitoring by their administrative supervisor – the Department of Finance, the

country‟s chief fiscus procurator.


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As a yearly exercise, the powerful and uncompromising Developmental Budget

Coordinating Committee (DBCC) just ram down the throat of Customs assessment

people, the Bureau‟s yearly collection target.

Take the case of the 2009 collection target – the DBCC originally set P317B for

the BOC. Fortunately for the latter, it was trimmed down to P277B – a P40B difference;

then, it was further lowered to the current P273B. In other words, a P43B off the

rightful figures that should have been initially set by the DBCC had the target-setting

exercises been ICT-aided where intelligence data are readily available from the agency‟s

datahouse.

Compare this with the agency‟s target in 2008 – P254B. The initial target would

have been 63B higher or a 24.8% increase. Whew! Atta Himalayas!

Too high! No basis! No consultation! Unreasonable!

Yes, these are some of the lamentations that reverberate in the customs zone.

These can be heard not just from customs authorities but from port users and other

stakeholders as well.

The reactions to astronomical collection target are varied. Customs people are

apprehensive they might be “attrited” should they miss their respective targets. The

brokers and importers are worried for fear of harassment, skyrocketing “tara”

(whatever this means) and overzealousness of customs enforcers that might result in

unnecessary delay in cargo clearance and “unwarranted increase in the “cost of doing

business. Still, others are worried that even the entry of “anti-social goods” may be

abetted in their vain attempt to collect taxes just to meet the revenue targets.”

This early, at a time when tariffs are declining, exports are affected, and the

effects of the global economic crunch will continue to be felt worldwide until the coming

months. Customs officials and employees are scratching their heads, wracking their

brains, and, drawing out plans to beat their assigned targets. After all, they have no

other choice.

There was a time when Customs was headed for the “kill.” It had the right mix

after all – new leadership albeit ephemeral, new hope, and new slogan.

Encrusted with an air of precision, the agency‟s battlecry then was: “Rule #1 -

Beat the target; Rule # 2 - Beat the target; Rule #3 - Beat the target.”


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Unfortunately, Customs did not only fail to beat its target; it crushed heavily on

the weight of the assigned target. Yes, a target it (BOC) never set in the first place, but

was just imposed upon by people in high places.

A deeper look into the Bureau‟s operations however will tell us that not only are

the collection targets too high, but the organizational structure is also inadequate to

respond to the grueling demands of collecting every centavo for the national

government. Add to this the hackneyed concepts of doing things that are prevalent in

the Customs bureau and you have an “almost complete ingredients for failure.”

So, did the BOC scale the Himalayas of P317Billion? Or, even the downscaled

P273B last year?

Of course, it didn‟t.

Whatever, it may be well for the BOC to harken to the forewarning of Harold L.Sirkin4 who wrote: “Countries and companies are facing an economic environment that

is not only borderless but also ruleless.” 5

Sirkin said, “This is the future world of what we call „globality‟, a world of

hypercompetition in which Americans – and Swiss and Japanese – compete with

everyone from everywhere for everything. And not just for customers and market

share: they‟ll compete for energy and raw materials, skilled and unskilled workers,

knowledge, patents, financing, suppliers, partners, even potential acquirers.” 6

Sirkin explains that “Global competitiveness in the era of globality – where thenew rules are no rules – requires new ways, new thinking. This is a battle that any

nation dare not lose.” 7

He illustrates further: “The road going forward is like an eight-lane highway with

no access and egress signs, no directions, no lane markings, no speed limits, no police

and no one knowing if they should drive on the left side or the right side of road. You

make your own rules and do your best to get to your destination. In the world of

globality, you can‟t wait for someone else to set the rules.” 8

4 Senior Partner, Boston Consulting Group, and Co-author of the book titled – Globality:

Competing with Everyone from Everywhere for Everything;5 TIME, October 27, 2008, p. 41;6 Ibid, p. 42;7 Ibid;8 Ibid;


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Is the Customs bureau primed for this kind of environment?

I doubt.

This is so because, organizationally, the BOC suffers from intrinsic flaws that

were – and still are – responsible for what I shall call – Ten Failings in the Bureau ofCustoms.


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Put differently, the Ten Failings in the Bureau are what one might call – the

Unprintable Truth.


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Failing No. 1

Graveyard of Careerism or Professionalism

There are many things that are valued, treasured, cherished and held in high

esteem in the Philippine Customs Bureau, but careerism or professionalism is not one of

them.

A closer inventory of the tasking, assignment and/or deployment of people in the

Bureau will show that closeness – for whatever reason or bonding (or is it funding?) –

more than competence, capability, rank and employment status, is more determinative

of which assignment is going to whom, or where the official is going to be deployed.

Consequently, seniority in rank as well as employment status is made as sacrificial

offerings in the altar of friendship and vested interests.

If at all, some personnel were tapped to handle sensitive or critical assignments,

it does not necessarily manifest that careerism or professionalism played their part. In

all likelihood, kinship, friendship or other relationships spelled the difference.

One only has to watch and see the proliferation of ad hoc bodies, task forces,

special assistants, units and even committees. Most of these were created ostensibly to

perform some tasks which are reserved by law and existing administrative issuances for

regular officials, employees and/or regular organizational units to perform.

Unfortunately, these functions – most of which involve the exercise of discretion – are

unreasonably, irregularly, and illegally transferred to, or assumed by, these ad hoc

units, or specially privileged individuals – in derogation of the powers and functions of

regular officials/employees of the organization. All of these have been done by citing

the most abused and hackneyed phrases – “In the interest of the service,…;” or, “In the

exigency of the service,…:” as well as other “whereases,” most of which do not really

redound to the interest of public service, neither do they justify any deliberate or

wanton disregard of civil service rules and regulations.

As a result, any Tom, Dick and Harry can become “somebody” overnight, with

powers and prerogatives to decide the fate of anybody – which may even include those

of their seniors in law, in position, in status, or even in intellect and competence – their

only credential being their friendship, kinship or other relationships with the Head of

Office.


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And, these unwarranted privileges extend beyond the circle of friends, kins and

associates of the Head of Office. It extends, with more viciousness, even to the

associates, friends and relatives of their Chiefs of Staff. Still, further, down to the circle

of friends of the Chief Aide of the Chief of Staff – his/her driver, errand boys, body

guards, and other hao-shiaos.In other words, their promotion is accident-driven ; they got promoted – no

matter how ephemeral – and made substantially more powerful than they were before,

just because of the accident of closeness, bonding and association.

We can cite specific examples. Here are some:

1. A Senior Official – without any criminal or administrative charge leveled againsthim – was placed on “floating status,” in derogation of his rights under the civilservice law. While this senior official has not shown any outrage over this

demeaning treatment or discrimination against his person, it does notnecessarily mean that it is acceptable. Why should the government keep onpaying the salary and other allowances of this official when he has no actualassignment? His fault? Whose fault? Who is prejudiced? One thing is certain,the government is not at fault, yet it suffers damage for someone‟s wrongfuldecision.

2. A Junior Officer was designated as Special Assistant to the Bossman, withpowers so vague yet so broad that even Deputy Commissioners, Directors, andCollectors form a beeline to his office and would rather read his mood swings

than deal directly with the Boss if they want something done or undone in theirrespective areas of jurisdiction. Power of the staff?

3. A Collector VI, with salary grade 26, the highest rank among the Collectors, andwho rose from the rank, was made to report to the Office of the Commissioner

“without specific assignment,” a.k.a. “floating,” without a pending administrativeor criminal case. The Collector pleaded understanding. He invoked his fortyyears or so in the service. He sued for time saying he will retire by December inpreparation for his congressional dream. When told that his‟ was non -negotiable,he asked to be re-assigned to a Port that is at least appropriate to his rank, butall these pleas were turned down. He had no choice, he had to report to theOCOM, and “floated.” Frustrated, he resigned. Fortunately for him(unfortunately for others?), he is now a Congressman. A position that allows himto participate in the approval process of BOC‟s budget proposals. A poetic

justice?


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The list is endless.9

In fine, competence, professionalism, intellectual superiority, and even CESO

eligibility are not necessarily effective passports to higher positions. These stuffs will

not catapult one to the totem pole of the organization; closeness, kinship or association

have been noticed to be more effective.

Damn professionalism, damn careerism; what matters most is materialism. After

all, you don‟t stay at the top for so long. So make hay, while your “sun” is up. (Not a

good reason though.)

9 As of press time, a District Collector in Central Philippines, “appears to be a casualty in what is

dubbed as a political vendetta launched against former administration partymates who have

jumped into other political fences.” The Collector who is “a consistent topnotcher in revenue

collection, found himself removed via a CPO (Customs Personnel Order) issued last week” by the

Customs Commissioner. The Collector, a brother of a Metro Manila Mayor who was a key official

of the administration’s political party before the switch, is another top-rank Collector who will

have to “sit it out in the Ocom in the remaining months of the Arroyo Administration” despite

reported sterling performance. [Customs Chronicle, December 14-20, 2009]


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Failing No. 2

Unfair Target-setting Exercise

Ask a BOC official about revenue targets – Collectors and their deputies,

Appraisers, Examiners and other assessment personnel – and the likelihood is great

that you‟ll invariably get answers accentuated with expletives, protestations, and

exasperation.

They will tell you that their respective units‟ collection quota were fixed without

consultation; that the figures were arrived at without checking with their customs

database; or, that the projections were based on galactical or outlandish assumptions.

Yes, Virginia, even the appreciation of the peso is being blamed for the mess.

I had the occasion to attend some target setting coordination meetings when I

was acting Deputy Commissioner for Revenue Collection and Monitoring Group of the

Bureau. Before the start of those meetings, we were advised – strongly forewarned is

the more apt term – never to “question the assigned targets.”

I ask myself: So why the need for these target-setting coordinating conferences?

Normally, if one is to measure how effective he has been, his report card shall juxtapose what has been set as target with what has been actually achieved within a

certain timeframe. So, in target-setting exercises, reason dictates that the organization

and its officials should be consulted; be allowed to comment, react, or make a counter-

proposal. The failure to consult, smacks of unfair imposition. Unfortunately, this is what

is actually happening in the Bureau of Customs, year in and year out.

The Development Budget Coordinating Committee (DBCC) – an inter-agency

forum – is a very influential body that paints the fiscal and economic landscape of the

country. It is composed of the Secretaries of the Department of Budget and

Management (DBM), the Department of Finance (DOF), and the National Economic

Development Authority (NEDA). They discuss budgetary assumptions, estimates,

projections, and other fiscal and revenue related figures. The result of their discussions

will determine the amount of revenue that the Bureau of Customs shall be required to

raise. Same is true with BOC‟s sister agency, the Bureau of Internal Revenue (BIR ).


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In fine, target-setting is done by higher authorities, and the figures are just

imposed upon the BIR and BOC functionaries for the latter to collect. The assessment

and collection personnel of BOC are not involved during the deliberations. And, by

admission of one Finance Undersecretary, the Revenue Performance Evaluation Board‟s

(RPEB) – a creation of the Lateral Attrition Law – RPEB‟s macro assumptions data donot include the individual targets of customs assessment people.

Customs appraisers and examiners lament, “They set our target; they tell us

never to question it. We have no choice but to achieve it; lest, we get „attrited‟.”

Result: They unreasonably lay upon BOC‟s shoulders the entire weight of the

Himalayas. And with the “Sword of Damocles” dangling over our heads, there can

never be any rational strategic planning where revenue officials could effectively map

out the necessary revenue collection interventions.

Consequently, these BOC officials cannot be faulted if they work half-heartedly.

Ma- aatrite ka lang naman, bakit hindi ka pa magpayaman?” a customs revenue

official commented albeit in jest.

Not necessarily justifiable, but not necessarily without reasons, either.


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Failing No. 3

Yards-Monitoring, Border-Control, and Gates-keeping Is Weak

The law is clear - Section 1201 of the Tariff and Customs

Code (TCCP), declares, thus: “ All articles imported into the Philippines whether subject

to duty or not shall be entered through a customh ouse at a port of entry.”

In other words, no imported goods can legally come in contact with the

Philippine customs territory unless they pass through duly constituted ports of entry.

Otherwise, the imported goods are treated as smuggled articles.

The Bureau of Customs (BOC) has designated ports of entry all over the

archipelago. Nationwide, the BOC has 15 collection districts with designated

port/airports of entry. Only through these ports can goods be legally introduced into

Philippines customs territory. Articles and merchandise that pass through these

facilities are processed, thus: they are declared before customs authorities; examined

and classified; assessed for the imposition of corresponding duties and other taxes; and

eventually cleared or released to the consignees or importers.

A port of entry in so far as it relates to customs administration, exists for

purposes of entry and declaration of the goods, examination and classification, as wellas assessment of duties, taxes and other imposts. A port of entry is a government

facility designed to enforce customs laws, rules and regulation inside Philippine customs

territory.

These ports of entry are manned by customs authorities. They are tasked to

make sure that all goods legally allowed access to Philippine customs territory are

properly taxed. Dereliction of duty on the part of customs authorities manning these

ports of entry will naturally occasion tax leaks, worse, entry of anti-social goods.

Such is the crucial role of a port of entry. In like fashion, such is the delicatenature of the task of the customs authorities stationed thereat.

This structure appears sufficient, adequate and functional. But, that was then,

when life was simple.


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Today, however, this old structure is no longer working, it has become obsolete;

it has become flawed; it has become inadequate that it has become virtually inutile in

the government‟s effort to fight smuggling. It now abets huge tax leaks in a magnitude

that is staggering.

Here‟s why?

With the creation of legislated freeports, economic zones, and – of late – PEZA

registered buildings outside of the zones – the traditional check and balance mechanism

obtaining in the old structure of the Philippine Customs is no longer functioning

effectively as it was envisioned.

This is so, because the laws that created these legislated freeports, as well as

the executive fiats that designated ecozones, have carved out – by legal fiction –

certain areas in the Philippines and declared them as “separate customs territory,”

thereby putting them beyond the reach of Philippine customs authorities. Separate

customs territories in the Philippine soil are – under the contemplation of law – ex-

border, which simply means that they are, for customs purposes, beyond the Philippine

territory. Philippine customs authorities therefore cannot discharge their functions,

namely: classification, examination, appraisal, assessment and clearance of cargoes.

This being so, the check and balance mechanism where customs authorities

guard the ramparts of every port of entry, every yard, every gate has weakened

considerably. Their authority to process importation is unavailing simply because these

“separate customs territories” are beyond their jurisdiction, thus: there shall be nocustoms assessment, examination and clearance processes in so far as goods brought

into the country through the freeports, or intended to be brought to the freeports are

concerned. We therefore have a case where tons and tons of goods and merchandize

are brought into Philippine soil, yet customs authorities are proscribed from laying their

hands on them for lack of jurisdiction.

If the customs authorities have difficulty suppressing smuggling when imported

goods are within Philippine soil, how then can we expect them to be otherwise when

the imported goods are without Philippines soil? If customs authorities failed in abating

smuggling in areas where they have jurisdiction, how can they succeed in areas wherethey are devoid of legal authority?

Yet, customs people cannot use this modern scheme of “separate customs

territory” as justification for their incompetence or inefficiency.


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But, what is really the impact of this “separate customs territory” concept on

Customs‟ scheme of things?

A huge number of the containerized cargo are destined to be delivered to these

Freeports, and ecozones. Currently, goods that are bound for these economic enclaves

are not assessed duties and taxes because of the legal fiction that their destinations –

the freeports and ezozones – are beyond the borders of Philippine customs; hence, tax-

free. In other words, this huge volume of containerized cargoes are not paying

customs duties and taxes, and are not within the monitoring authority of customs

authorities.

With existing set-up and related agreements still obtaining, customs will be

helpless in so far as the collection of taxes and duties on these Freeport-bound and

PEZA-bound goods are concerned.

Unless remedied, this old structure will remain as a weak link in the Bureau‟s

collection efficiency. It will continue to be the source of the biggest tax leaks – outright

and technical smuggling. And, it will hound the BOC as it remains to be one of the

failings in the Bureau.

But, what specifically ails the present structure of the Bureau?

There are plenty, among which are:

In the Port of Manila (POM) – where 33 % of the Bureau‟s revenue collections

are generated – the cargo-handling and arrastre services are outsourced from privateterminal operators.

Presently, access to the container yards and other facilities of the private

terminal operators – even by the customs personnel – is limited to a very few

(Commissioner, some Deputy Commissioners, Dist Collector, ESS, CISS, and some few

that are authorized by the Commissioner). Outside of these privileged few, access to

areas where imported goods are stored is solely dependent on the private terminal

operator‟s assent. Consequently, tax-related vigilance by audit, monitoring and other

revenue personnel of the Bureau is effectively curtailed by the set-up.

In other words, government taxation functions – examination, monitoring and

audit of imported goods – are effectively curtailed by private entities whose main

business is just to provide arrastre and terminal services. Some BOC officials cannot just

have access to these facilities without their permission. We just cannot move

containers, examine their contents, or simply unlock them without being allowed to use

their equipment and other facilities. Every time we move containers, BOC has to assure


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them of the service fees. In other words, Customs cannot just do its task –

examination and monitoring – unless the terminal operators grant access and allow the

use of folklifts and other equipment.

All because of existing administrative issuances.

And, in the MICP, where another 33% of the Bureau‟ revenue is collected, the

same situation happens.

In these two major metroports, the Bureau of Customs does not have physical

control of the gates.

All because of existing administrative issuances.

Also, cargoes unloaded at these two metroports that are intended for the

ecozones are released from the customs zones without any physical control and

restrictions from the Bureau. These are released to and transported under the care of

escorts of the Philippine Ecozone Authority (PEZA) – none from the Bureau of Customs.

Again, all because of existing administrative issuances.

But, can administrative issuances or agreements have precedence over Section

604 of the TCCP which provides: “[T]he Bureau of Customs shall, for customs purposes,

have exclusive control, direction and management of customhouses, warehouses,

offices, wharves, and other premises in the respective ports of entry, in all cases

without prejudice to the general police powers of the city or municipality and the

Philippine Coast Guard in the exercise of its functions wherein such premises are

situated”?

Unless control of the gates in all customs zones is restored back to the Bureau,

we cannot hope to answer the question: Which is more extensive, technical smuggling

or outright smuggling?

This situation, among others, is what makes our border-control, our gate-

keeping, our yards-monitoring defective; unfortunately, it accounts for one of the major

failings in the Customs bureau.

By the way, if the freeports and the ecozones are treated by law as “separate

customs territory” or “beyond the territorial jurisdiction” of Philippine customs, what

then are customs offices and personnel doing in these economic enclaves? If customs

authorities do not have exercisable powers and functions inside freeports and ecozones,

what then is the purpose of establishing Subic Collection District inside this former US

military facility? Or the Port of Clark inside Clark Economic Zone? In CEZA as well as in


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Failing No. 4

Sale of Forfeited, Abandoned and Disposable Goods Is Systematically Flawed

Under the law, the customs operatives can seize cargoes, articles or commodities

that are imported into the country in violation of the Tariff and Customs Code of the

Philippines. And the law further provides that cargoes that have been forfeited or

abandoned shall become properties of the government and may be disposed of in a

manner prescribed by law – the TCCP.

Yet, there is hardly any serious attempt to address the problems brought about

by seizure, forfeiture and auction of disposable imported goods. Despite the fact that

the number of abandoned and overstaying cargoes that should be auctioned off publicly

had multiplied by leaps and bounds. Unfortunately, they have remained unsold, and,

worse, unaccounted for so many years.

The TCCP, as amended, says: “An imported article is deemed abandoned under

any of the following circumstances: (a) When the owner, importer, consignee of the

imported article expressly signifies in writing to the Collector of Customs his intention to

abandon; or (b) When the owner, importer, consignee or interested party after due

notice, fails to file an entry within the thirty (30) days, which shall not be extendible,

from the date of discharge of the last package from the vessel or aircraft, or havingfiled such entry, fails to claim his importation within fifteen (15) days, which shall not

likewise be extendible, from the date of posting of the notice to claim such

importation.” 10

Said provision went further by saying: “Any person who abandons an article or

who fails to claim his importation x x x shall be deemed to have renounced all his

interests and property right s therein.” 11

In short, the TCCP prescribes the filing of entry within a “non -extendible period”

of 30 days from the date of discharge of the last package from the carrier. And theSupreme Court had occasion to clarify that the “entry” referred to “both the IED and

the IEIRD should be filed within 30 days from the date of the last discharge of the last

10 Section 1801, TCCP, as amended;11 Republic Act 7651, June 04,1993 amending Section 1801 of the TCCP;


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package from the vessel or aircraft.” 12 Failing in this, the merchandize will be deemed

abandoned.

Said the Court: “RA 7651 no longer requires that there be other acts or omission

where an intent to abandon can be inferred. It is enough that the importer fails to file

the required import entries within the reglementary period.” 13

And even if they have filed the required entry within the mandatory period of 30

days, if the owner or consignee failed to claim these goods within 15 days from the

filing thereof, still they will be deemed abandoned, hence, “auctionable” as they

become properties of the government.

Unfortunately, this provision has been observed more in the breach than in the

compliance – not just by the brokers, importers or consignees, but by customs

authorities as well.

Turning a blind eye on the “non-extendible period” of 30 days, the BOC had the

gumption to even dish out an administrative issuance that patently contravenes this

express mandate of the law. It issued Customs Memorandum Order No. 15-94 where it

introduced the idea of requiring prior “notice to the owner” before abandonment can

set in. A clear case of an administrative issuance contravening the law.

Legally infirmed. Void ab initio.

Yet, since its issuance, Customs Memorandum Order No. 15-94 has been used to

defeat the prescription of the law.14

And, they succeeded.

Resultantly, hundreds and hundreds of containers have remained unclaimed,

abandoned, yet unsold. The owners, importers or consignees of these unclaimed and

unsold cargoes posit that theirs have yet to be effectively declared abandoned. But

they aver that there cannot be any abandonment as they have yet to receive “prior

notices.”

Worse, some of these overstaying cargoes have been “raided, divested and

molested” of its contents, to the damage and prejudice of the government. And, even

12 Chevron Philippines, Inc., vs. Commissioner of Customs, GR No. 178759;13 Ibid.14 Fortunately, the Supreme Court has ruled in Chevron Philippines, Inc. v. Commissioner of

Bureau of Customs, G. R. No. 178759, August 11, 2008, where the High Court disagreed that

Notice to the Party is necessary, hence, no implied abandonment. However, said decision is a

subject of a Motion for Reconsideration.


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these “raiding, divesting, and molestation” have not been properly addressed, both by

the government and the terminal arrastre operators.

In the two biggest ports of the country – the Port of Manila (POM) and the

Manila International Container Port (MICP) – which account for the more than 60% of

the Bureau‟s revenue collections, huge amount of revenues have been unreasonably

lost on account of overstaying, abandoned and unsold cargoes. And the volume of

these disposable cargoes is so big.

As to why the public auction is not immediately done confuses a dispassionate

inquirer. Finger pointing often ensues thus – Auction authorities say they have yet to

receive the Order of Abandonment from the District Collector; the District Collector

excuses himself by saying that the Law Division has not yet submitted its post-hearing

recommendation; the Law Division in turn claims they cannot conclude the hearing yet

as it cannot even proceed because the owners, importers, consignees cannot be servedsummonses as they cannot be located in their reported addresses; and, at times, the

apprehending officer or the BOC lawyer-prosecutor does not appear during the hearing.

And the resolution of the case drags to unreasonably long periods of time – some even

take years.

In the meantime, the value of the goods has dissipated, with some of the

merchandize “raided, divested, and molested.”

Yet, the BOC organization has created so many units and tasked so many

officials, to monitor this area of concern. Conversely, it has also divested some regularunits from doing their thing in favor of privileged ad hoc bodies, or special assistants, all

because the regular units are not “confidentially” aligned with the bureau‟s leadership.

Surprisingly, every time the top honchos of the Finance Department ask the BOC

leadership on the total import volume that have been cleared by Customs, the latter

can only offer vague and motherhood statements while some are even “counter-

intuitive” to the real situation. No one seemed to have a more or less accurate figure.

In fact, during BOC‟s first command conference for 2008, Finance Secretary Gary

Teves can only “bite his nail” in exasperation when he commented: “Almost all sectorsof the society – even the political opposition – are one in saying that the country is

having a robust economy, yet your figures on import volume is down. How can we

reconcile this? Teves asked.

Elsewhere in this work, the pitfalls in the seizure, forfeiture and auction

processes will also be discussed.


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( Note: The author submitted an auction reform proposal some three years back.

It was simply titled – 3 rd Party Custodianship Program. The proposal aims to provide a

comprehensive approach toward solving the evils that are attendant to inventory,

transport, custodianship, marketing and disposal of seized, forfeited and abandoned

goods while in customs custody. Unfortunately, said proposal – until now – continues tolook for an audience.)


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Failing No. 5

Anemic Drive to Prosecute Smuggling

Determination and resolve to go after the smugglers are not measured in terms

of “televised crushing of seized and confiscated luxury cars.” On the contrary, that

deplorable episode of wasting government property just showed the government‟s

ignorance on how to effectively pursue effective customs law enforcement, raise

revenues for the government, and deter the recurrence of similar customs frauds.

Neither is the seriousness to “run after the smugglers‟ measured in terms of the

number of cases that were filed, nor by the amount involved in those cases. Not evenby the hand that directs the filing of these cases, say, by the Secretary of Finance, or

by the President of the Philippines.

Yes, Virginia, the determination to prosecute smuggling is shown when an

airtight case is made on any smuggling activity, irrespective of whether the respondent

is well-connected or otherwise; when charges are initiated in the offices of the

prosecutors, and eventually filed in the courts.

We see a determined effort to run after the smugglers if those indicted are the

real “big guns” not just the “fall guys;” when they are pursued relentlessly in civil,criminal and administrative avenues; when the progress of these cases are vigilantly

watched and monitored, not just up to judgment day but until we see culprits behind

bars. We see successful anti-smuggling campaign when illegally acquired assets of

these convicts are forfeited, attached, and/or appropriately escheated in favor of

government. We see a successful campaign against smugglers when these convicts,

their cohorts, or those acting under their employ are banned from plying their trade and

businesses in the customs zone.

Before the advent of the Run After The Smugglers (RATS) program, filing of

cases against the smugglers were observed to be limited only to those filed before theBureau‟s own Investigation and Prosecution Division (IPD) and the Internal Inquiry and

Prosecution Division (IIPD) of the Customs Intelligence and Investigation Service CIIS).

Cases that abnormally end up filed before the courts are a rarity. And, if at all, cases

are lodged in and investigated by the Justice Department, these are miserably

dismissed for lack of merit, or for insufficiency of evidence.


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One clear indication of the lack of resolve to run after the smugglers is the

unwarranted re-assignment of lawyers in the Legal Service of the Bureau to other

assignments, leaving the supposed stable of technically capable investigators and

prosecutors turn into a virtual ghost town. Most lawyers who were appointed to the

Legal Service did not even warm their chairs prior to their getting detail assignments inwhat they regard as “lucrative assignments.”

Today, the regular Legal Officers and Attorneys of the Legal Service are now in

the Collection Districts, in various non-investigative or non-prosecutorial assignments.

They are either tapped as Chiefs of Staff of the District Collectors – a designation that is

non-existing in the Bureau‟s plantilla; or, as Review Attorneys or Special Assistants in an

ad hoc body – normally under the beck and call of a very close associate of the

Commissioner, Deputy Commissioner or a District Collector.

There are even those who simply opt to remain “organizational lightweights” orvirtual “non-entities” for as long as they are in the good graces of the Commissioner –

or somebody very close to the Commissioner or District Collector. They prefer to work

in the backgrounds, and incognito. But they know pretty well the perks that go with

“working within the proximity of the Boss.” As they say, “out of sight, out of mind.”

The Legal Service is raided empty of its warm bodies. It is now a shell of what it

should be – a vibrant law office of the Bureau of Customs. This situation has been

going on for so long now. This remains to be so, even up to this day when the much

ballyhooed campaign against smuggling is supposedly shifting to high gears and should

therefore need the services of “technically proficient” lawyers.

Another clear indication of the absence of resolve to fight smuggling is the non-

indictment of Customs employees and officials who have a hand – either by commission

or omission – in customs frauds and other shenanigans.

Anecdotal reports are replete with tales of “smuggling cases without smugglers.”

Yet, these known smugglers are plying their nefarious trade under the very noses of

customs authorities – and, they go unmolested. Some even have the gumption to bark

orders to, influence decisions of, or even threaten customs officials.

They drop names of people in high places; they pull strings; and they push their

weight around.

They assume various names, aliases, call signs or codenames. They are known

to the top officials, to the hao-shiaos , to everyone. Yet, they have never been charged.


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Still, another indication of the absence of resolve to fight smuggling is the

number of administrative cases that were dismissed by the various Law Divisions of the

collection districts due to non-appearances of lawyer-prosecutors or their witnesses

during the hearings. While these non-appearances have nauseatingly caused dismissal

of cases, none of these “disappearing” prosecutors and their witnesses have beendisciplined, let alone, dismissed from service.

Yes, Virginia, smuggling comes in various fashions – from “hijack me” to

“default me.” It is not discriminating in the kind of commodities or goods they get

interested in – from “thumb tacks to dump trucks,” “jewelries to plastic wastes,” “rotten

meat to animal feeds,” and “elephant tusks to „melamined‟ milk.”

And, smugglers thrive anywhere – from quiet steeples, or noisy shores; through

airport‟s tarmac and coffee shops; in the high and byways of the metropolis as well as

in dimly lighted warehouses; in local wharves or busy ports. They do it on the ship,beside the ship, and sometimes they include the ship (no pun intended).

Many things happen in the customs zone, day in and day out. Many things are

felt in the customs zone, big and small. And many things are done by customs

authorities, except “run after the smugglers.”

Some observers commented: call it “professional courtesy,” if you may; but they

cannot bite the hands that feed.

Thank goodness, for a while there was RATS. Far from what it should be, but

certainly a good start.

Unfortunately, the RATS Program was decommissioned. The RATS were driven

away by the C.A.T.S. - Captain America‟s Tactical Somersault. Yes, the Millennium

Challenge Account pulled the life-support system of the RATS when it stopped funding

the program.

If at all, the only remarkable show of the government‟s determination to run

after the smugglers is the frequent visit of the Chief Executive to the customs zones.

Without this, all pretenses of waging war against the smuggling are certainly kaput.


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Failing No. 6

Defenseless Areas in Customs Operation Abound

“SWING,” “NINJA,” “HIJACK ME” and, of late “BLTB” [Barko-Lifter-Truck-Bodega]

and many more are what one hears when dutiable cargoes or articles are spirited out of

the customs zone sans the payment of customs duties. These are just some of the

known species of what the customs authorities regard as outright smuggling.

In some areas, “piggybacks” are frequently happening yet documenting it in a

customs environment is bound to fail. Anecdotal accounts will tell us that a truck that is

hired to transport a certain commodity is used to load more than the legitimate

“transportable” commodity that it should. Those that are loaded over the “legit

transportables” are what we shall call “piggybacks.”

And these “piggybacks” come in various forms: different description, different

volume, different classification, or simply different from what should be transported out

of the zone.

All because, our customs zones are wanting in customs control – in fact, we can

even say that physical control of most of our customs zones are controlled by non-

customs.

Take the case of transshipment cargoes: they are supposed to be transported

while “underguarded.” And the rule requires that every transported container should be

under the watchful eyes of an underguard. The need for “underguarding” springs from

the fact that these otherwise highly dutiable cargoes pass through our ports, yet

released to consignees without payment of customs duties, hoping that these

transshipments are raw materials that are to be processed into finished products that

shall be exported upon completion.

In other words, “transshipment” is an administrative mechanism that allows

physical entry of imported raw materials without the consignee paying customs duties

and taxes. This is to support the export development program of the government – a

sector that is heavily laden with labor and employment. Fair enough. So, let them be

released untaxed, but “underguarded” they should be.


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But, how many warm bodies do we have in the BOC that are available to

perform underguarding chores, compared to the number of containers that are

transshipped everyday?

Here‟s an example: Sometime in September this year, Mr. H. L. was tasked to

“underguard” (escort) 7 containers to Subic, 5 containers to Harbor Center, and 3

containers to NAIA. In short, so many containers, bound for three different

destinations, all in one day.

Can it be done? Can there be effective underguarding? Can Mr. H. L., be at 15

different places and bound for 3 different destinations at the same time?

I doubt, unless he is a Superman. But, Superman does not belong here, not in

the ports, neither in the airports.

Result: “Transshipped” containers are not adequately guarded. In other words,the purpose of “underguarding” is defeated, and this makes transshipment a

defenseless area in customs operation.

Yes, BOC is very vulnerable in the area of transshipment. And, we still have local

transshipment, customs euphemism for what the TCCP refer to as “transit cargoes.”

Simply put, transit cargoes are the domestic counterpart of transshipment cargoes.

In both areas – foreign and local transshipment - the evils of inadequate

“underguarding” are present, and “diversions” are just lurking along the route.

Just what is diversion?

“Diversion,” refers to the disappearance of cargoes while en route to their

registered destination, or the non-delivery of these shipments to the premises of their

registered consignee. In simple language, “highly dutiable cargoes” were spirited out of

its authorized route as a means to evade taxes. Smuggling, pure and simple.

And this happens every now and then. The sad thing is, even our customs rules

and regulations have sometimes been influenced in such a way that the entire process

is pockmarked with loopholes; virtually making the BOC unprotected and rendered

defenseless in this particular area of customs operations.

For instance: In PEZA-bound cargoes, the use of “boatnote” – a BOC pre-

formatted document that chronicles the transport, turn-over and receipt of the cargoes

– has been dispensed with; and, the PEZA Corral – a holding facility where cargoes are

opened, checked or inventoried in the presence of customs examiner and PEZA


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authorities – was abolished. These alone, have occasioned wholesale “disappearances”

of highly dutiable cargoes without trace.

There are many more defenseless areas in customs operations (DACO) and we

shall identify some more: Technical Smuggling – we are yet defenseless in this area;

Inventory – there are no rules on Inventory such that anecdotal accounts tell us thatevery time an inventory is conducted, the quantity of confiscated and other inventoried

articles irritatingly decreases ; Transport – there is no accreditation of trucks and other

motor vehicles upon whose control highly dutiable goods are placed; Surveying – it is

only very lately that attempts are being made to put in check the activities of bulk and

break bulk surveyors (even this, it has apparently been subjected to „regulatory

capture,‟ when the whole shebang was derailed by vested interest groups that, until

now, the proposed measure has remained unimplemented); Custodianship – goods

that have become properties of the government are still in the physical control and

custody of terminal operators who are not even bonded for their possession of thesegovernment acquired assets; Disposal of Wastes and Scraps in the Ecozones and

Freeports – there were anecdotal reports that one company alone would dispose of 20

to 30 truckloads a day, yet no one in Customs bureau has seen what really these scraps

or wastages are all about; the CBW – our warehousemen and customs guards are not

in their proper places of assignment during critical times; and, of course, our

Coastlines – it is one of the longest coastlines yet inadequately guarded for customs

operation virtually making Philippines customs as the “most challenged customs”

coastal security-wise. And, as if this is not enough, we have even disbanded the Water

Patrol Division of the Philippine Customs.


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Failing No. 7

Regulatory Capture

Regulation is a function of authority. Yes, it is an attribute of power and

governance. It is an extension of the will of the people expressed through their chosen

representatives. Verily, therefore, the end goal of regulation is to promote and protect

the interest of the greater number - without regard to circumstances. It applies to both

the impoverished in the slums and the elite in swanky villages. It is to be observed not

only by the governed but by the governors as well. It is aimed to benefit both the

movers and shakers in business centers as the hoi polloi in both the rural and urban

areas.

The power to regulate is normally aimed at ensuring government‟s control of any

activity that is imbued with public interest. This finds particular relevance in economic

governance.

Former Economic Planning Secretary Cielito F. Habito in his Philippine Daily

Inquirer (PDI) No Free Lunch column said: “Economic theory teaches us that

regulators are there either to ensure and promote healthy competition, or where

economies of scale make monopoly inevitable or even desirable (i.e., natural

monopoly), ensure that the monopolizing firms do not take advantage of the consuming

public and earn inordinate profits.”

Unmistakably, therefore, regulators essentially exist for the protection of the

public interest.

But what happens, when the supposed regulator is held captive by the industry

that it is supposed to regulate?

Former US President George Washington once wrote Maj. Gen. Robert Howe in

August of 1799 with these words: Few men have the virtue to withstand thehighest bidder.

Is it any wonder therefore that some government regulators end up regulated by

the sectors and interests they are supposed to regulate?

Anti-corruption analysts coined a term for this – “regulatory capture.”


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Professor Alex Magno simply describes regulatory capture as “a condition wherethe regulated actually manages to control the regulator. When that happens, self-interest rather than public interest defines policy.” 15

And, Virginia, “the costliest and most pernicious form of corruption in our

e conomy is the „corruption of policy through regulatory capture‟,” remarked EconomicPlanning Secretary Neri.

This is a wholesale graft. It abets hemorrhagic corruption. It ensures a

systematic loss of government revenue. Matter of factly, it is the worst kind of

corruption.

But it was never the intention of George Washington to justify government men‟s

inclination to graft and corruption. On the contrary, it should have given men in power

and authority sufficient time to vaccinate themselves against the evils and influence of

“regulatory capture,” with warning that somehow, somewhere, sometime, lobbyists andinterests groups will come their way to ask for favor, apply pressure, exert influence, or

buy their way in or out of the industry or sector where they move or operate.

Unfortunately, this is the present reality in the Bureau of Customs. Without

doubt, this is one of the worst failings in the agency. Yes, Virginia, the Customs Bureau

is, at present, under the talons of the industry it is supposed to control. And, this is not

the sole making of the men and women of Customs; and, neither is it their own liking

that the agency is held hostage by various interests.

Sometime back, the President was reported to have berated Customs officials “for not doing enough to improve the dismal revenue collection in the first six months

of the year.” She was quoted as having said: “(T)he economy is booming and there is

no reason why you should not meet your collection target.” 16

Citing a paradox from the book of economic intelligence guru, Jose Almonte, We

Must Level the Playing Field , Magno said that we all must learn to deal with the paradox

of national development. He said: “the stronger the economy becomes, the greater the

capacity for governance will be demanded of our state institutions.”

If, we take the word of the President that indeed, the “economy is booming,”

Professor Magno suggests that “the greater capacity for governance will be demanded”

of the Bureau of Customs.

15 The Philippine Star, First Person, August 11, 2007;16 The Manila Times, Saturday, August 11, 2007;


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Now, can the Bureau of Customs rise to the occasion? Does it possess the

greater capacity for governance?

In the customs zone, “regulatory capture” assumes many forms, yet they all

wear a globally-crafted mask known as “trade facilitation.”

But, albeit not surprising anymore, trade facilitation has not only been invoked

by the importers, traders, businessmen, exporters. It has also been invoked – with

even more propensity – by the customs officials and employees.

Oh! “Trade Facilitation,” how many crimes have been committed in thy name?


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Failing No. 8

Insanity, as defined by Dr. Covey

“One of the definitions of insanity is to keep on doing the same thing, in the

same way, and expecting a different result,” says Dr. Stephen Covey, one of

America‟s Five Most Influentia l People , and author of the book “Seven Habits of Highly

Effective People.” This definition aptly captures the government‟s knee-jerk reaction

every time there is public outrage over unabated smuggling.

As if it announces to the whole world that the Bureau of Customs is inutile in

suppressing smuggling, Malacanang‟s shoot-from-the-hips solution is always to form a

task force headed by someone – more frequently from without the BOC – who

ostensibly enjoys the trust and confidence of the Palace. In my 7 years in the Bureau of

Customs, I have witnessed ASIIC, NASTF, CASG, ASTF, and TFAS, PASG.

Of these task forces, only TFAS was headed by the Customs Commissioner in

concurrent capacity. The rest were headed by outsiders.

During the previous administration, the Economic Intelligence and Investigation

Bureau (EIIB) was disbanded. Its deactivation paved the way to the constitution of

what it called Task Force ADUANA. This was also headed by an outsider.

If there is any message the government was able to graphically convey, it is this:

the BOC, by itself, is not capable of suppressing smuggling that the government has to

employ a parallel force to put in check, or at least, attempt to address smuggling and

other frauds on customs. Unfortunately, not one of these supposedly complementary

Warriors Against Smugglers succeeded in their missions.

Anecdotal information attributed to have come from sarcastic sources say that

the only thing these Task Forces succeeded in eliminating is the letter “T” in their

“Task” Forces, thus, ending as “Ask” Forces. They hasten to add that the Task Forces‟

track records speak clearly for themselves – horrible failures.

They noticed that these Task Forces have invariably undergone similar

metamorphosis: from eagle-eyed watchers, to inexorably strict spot-checkers, to over-

zealous enforcers, and when their presence shall have been felt by the highly-reactive,

if not, jittery customs community, the gradual shedding-off of its Spartan-like mask

begin; then a short lull follows; and, almost always, the once hard to deal with Task


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Forces have slackened their speed a little, softened their once rigid posturing, back-

pedaled a bit, and the once unyielding enforcers have now become virtually detached

watchers. They have noticeably albeit slowly morphed into neophyte facilitators, then

pretty soon will become nauseating protectors, until they end up actively engaged in

the business they were supposed to suppress.The transmogrification of the once noble idea, that is, the Task Force, becomes

complete when its members now use the knowledge and trade secrets they have

discovered, the experience they have gained, and, the money they have accumulated,

in thwarting succeeding law enforcement campaigns aimed at addressing the problems

that they have failed to solve.

This metamorphosis, observers note, is what every Task Force will have to

undergo. Will this PASG be any different?

This late, PASG appears to be different from the rest of its predecessors. PASG

has passed the test when it reportedly relieved even high ranking police officers that

were on “DS” (detached service) but who were suspected of cavorting with the

smugglers.

Good move. Politically correct.

But the question lingers: for how long? Hopefully, for good!

In Memorial Day, a New York Times Bestseller written by Vince Flynn, two

statements appearing in the last page of the book – one a declaration, the other one aquestion – look interestingly relevant in this practice, thus:

“I think it would be a good idea to bring in a fresh set of eyes on this.”

“Are you sure you don‟t mean you‟d like to let the bull into the china shop andsee what he breaks?”

These statements appear relevant in the light of the initial successes of PASG

courtesy of some customs insiders as well as the resolute and determined effortsof the Group‟s leadership. PASG is backed up by selected operatives of the BOC‟s

intelligence and enforcement units – the organizational components principally tasked

to perform the very task, the non-performance of which gave rise to the creation of

PASG.


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If these select elements can do the job exceedingly well under PASG, what

reasons did they have for failing to do the same while under BOC? A question of

leadership?

And, these guys have been tapped by every newcomer – Commissioners as well

as Task Force Chiefs; and they have consistently responded positively – they deliver, at

least, during the initial stages of the Task Force.

But, as fast as they deliver, they also quickly lose steam.

The sad part happens when the metamorphosis of the Task Force reaches half-

way. This becomes apparent because the regulars of the BOC are returned to their

mother units, while the “outsiders” and hao-shiaos remain with the Task Force. And

these “outsiders” and hao-shiaos change role and personality – they virtually become

“bulls in a china shop,” or “fox guarding a chicken house” - until they are disbanded or

replaced with another Task Force.

Unfortunately, the government never learns: “it keeps on doing the same

thing [creating Task Forces] , in exactly the same way, and expects a different

result.”

Hello! Dr. Covey, are you there?


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Failing No. 9

Flawed Concept of Trade Facilitation

Let me open this chapter with a reiteration of what I have used in closing

another chapter elsewhere in this work, thus: “Oh! Trade Facilitation, how many

crimes have been committed in thy name?”

For the uninitiated, the concept of Trade Facilitation is an offshoot of our

country‟s membership to the General Agreement on Tariff and Trade-World Trade

Organization (GATT-WTO). With the Philippine accession to this international

agreement, the Philippine Congress came out with Republic Act No. 9135, amending

certain provisions of the Tariff and Customs Code of the Philippines.

One of the salient points of this piece of legislation is about Transaction Value as

the taxable base of import transactions.

In other words, the cost of acquiring the goods plus other allowable costs that

the importation has entailed shall be the base figures upon which the duties and other

taxes shall be determined. No more haggling, no more bargaining; unlike in the

previous tax regime where assessment is heavily dependent on the discretion or

judgment of the customs appraiser. Today, the cost of procuring these goods beyond

the borders, plus some additional inputs, shall become the basis of the duty imposition.

This scheme is mainly designed to facilitate trade, to eliminate time-wasters that

impede the movement of goods and services – especially the matter of releasing or

clearing cargoes from the customs zone. This is certainly in keeping with the Kyoto

Convention which requires that “formalities must be minimal as possible and as rapidly

as practicable.”

At the front end of transaction continuum, there shall be no more causes for

delay. No unnecessary control, no unwarranted restrictions, no more offer and counter

offer between the broker and the appraiser.

In effect, we tax him based on his acquisition cost plus allowable inputs. In this

way, we facilitate transaction, and hopefully increase the frequency of commerce and

enliven the robustness of trade and economy.


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Well-grounded.

Logical.

Indeed, facilitative of trade.

Unfortunately, there are noticeable abuses, misconceptions, costs and tolls?

And, there are negative repercussions brought about by these abuses and

misconceptions.

Let us get grounded, right in the customs zone.

In so many areas of customs operation, any attempt to institute control, no

matter how logical, reasonable, and excellently crafted, will be shot down, torpedoed,

or jettisoned in the guise of trade facilitation. Interestingly, trade facilitation is invoked

whenever convenient; and stifled or disregarded whenever some customs officials saw

the need to poke their dainty fingers into the clearance process – duty stop here,

alert order there, and hold order from somewhere.

Take the case of containerized cargoes bound for transshipment to ecozones and

legislated freeports: they are not examined before leaving the customs zones. They are

not even escorted by customs authorities during their transport to the freeports and

ecozones, much less are they examined as they enter the consignees‟ warehouses in

the ecozones.

What used to safeguard the process from customs frauds and leaks – the PEZA

Corral where customs officers alongside with PEZA authorities are on hand to examine

the containerized cargoes upon entry to the zone before they are transported to specific

locator‟s warehouses – has now become extinct; it has been abolished and eliminated,

ostensibly because of the false belief that the process tends to derogate the trade

facilitation concept of WTO. Sacrebleau!

Various reports are replete with incidents of containerized cargoes bound for but

end up in areas outside the ecozones – “diversion” in customs lingo. There are plenty

of cases when containerized cargoes have been shanghaied to undisclosed places. This

trick is called in customs community as “hijack me.”

There is even a wholesale mess. Before, containerized shipments consigned to

ecozone locators are first delivered to the zones. From there, the cargoes are

devanned and transported in smaller bulks or volume to sub-contractors of these

locators situated outside the ecozones. Today, the transport of these containers may


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now be conducted directly to sub-contractors‟ premises outside the ecozones, leaving

the cargoes un-examined, un-inspected, or unaccounted.

These are done in the name of trade facilitation.

And, the list is as endless as the opportunities which are limitless.

Result : huge tax leaks due to diversion, mis declaration, mis classification,

under valuation, or technical smuggling. All in the name of Trade Facilitation.

On the contrary, some “time-wasters, duplicators, overlappers and unwanted

oversight intruders” have become a-dime-a-dozen . Chief among these timewasters are

the ad hoc units masquerading as oversight bodies created by Customs Memorandum

Order, Customs Special Order, Customs Administrative Order, and similar issuances by

the Office of the Commissioner. Some were done with the approval of even higher

authorities, while many more were issued without the Secretary of Finance‟simprimatur, thereby violating the Tariff and Customs Code requirement for the latter‟s

approval.

Notable among them is the VRIS which practically encroaches into a line function

of the port. It does not only review the correctness of the assessment made by the

assessment people of the ports, it also issues alert orders to check not only on

assessment and examination issues, but also on enforcement or regulation-related

issues. In fact, VRIS pushes its weight on any issue over any commodity it would like

to lay its hands on.

While VRIS has – in some instances – served to check on the evils attendant to

transaction value approach, the fact remains that the Transaction Value concept has

been violated. It may be argued that trade facilitation cannot be used as an argument

for massive tax leak. Yes, but the Bureau is not defenseless against the evil sought to

be avoided b

Documents

Ten Failings of the Customs Bureau