Indonesia cannot afford to wait for customs reform<\/p>\n
Djimanto
\nSecretary General
\nIndonesian Footwear Association
\n(APRISINDO)
\nJakarta<\/p>\n
The article by Richard B. Ness \"Don't throw in the towel on
\nCustoms reform\" in this paper (Feb. 25) was written from the
\nprivileged position of an industry (mining) which has not had to
\nstand by and watch its domestic market destroyed and its workers
\nthrown out of jobs by imports smuggled in from Asian neighbors.<\/p>\n
To the rest of us, \"a fair and professional manner\" of the
\ncustoms officers is just a dream. The article does not even
\nmention the effect that smuggling in the form of underinvoicing
\nis having on domestic industry. Ness simply asserts that the
\ndomestic industry is not competitive and is seeking non-tariff
\nbarriers as tariff rates continue to decline.<\/p>\n
We have never asked for protective tariffs. Even if tariff
\nrates decline to zero, the 10 percent value added tax (VAT) is
\nstill payable on imported finished products and is based on the
\nlanded costs of the goods, the main component of which is the
\ndeclared customs value. If importers can collude with customs
\nofficers and get away with declaring an invoice price at a
\nfraction of the true value of the goods, the importer pays less
\nVAT; sells at ridiculously low prices and the damage to domestic
\nindustry will be major, before and after the ASEAN Free Trade
\nAgreement (AFTA) is effective.<\/p>\n
This has nothing to do with the efficiency of domestic
\nindustry. We are not afraid of fair competition. But we are very
\nafraid of the influx of grossly undervalued finished goods that
\nare now flooding the domestic market. We have suggested a return
\nto a new method of pre-shipment inspection of imports (PSI) based
\non risk management that maintains customs sovereignty, not as a
\nnon-tariff barrier, but as a means by which the government can
\nbring this terrible situation under control and a level playing
\nfield can be reinstated. All we are asking for is \"fair trade\".<\/p>\n
What Ness is in effect suggesting is that instead of
\nadvocating the introduction of a system of control that we know
\nwe can trust, we should stand by and wait and watch our domestic
\nindustries destroyed whilst Customs suddenly receives an infusion
\nof integrity.<\/p>\n
We are not \"running away from reform\". We simply cannot wait
\nfor customs officers to \"become honest\". In 1985, the Cabinet
\nintroduced PSI out of desperation that a reform of customs was
\nimpossible. Customs were given their chance and they blew it. The
\nsituation must be brought under immediate control as a signal to
\nthe world that this government intends to put its house in order.<\/p>\n
The Cabinet decision last week to set up an inter-ministerial
\nanti-smuggling team is a government admission that in the last
\nfive years the customs service has failed. However, we must also
\nhave a system to check the under-valuation and misdescription on
\na day-to-day, shipment-by-shipment basis.<\/p>\n
But a more important reason why Ness' article really does miss
\nthe point is that the proposed third party system is a program
\nbased on risk management called MRTI. Under this program, only
\nthe high-risk shipments would be inspected in the country of
\nexport, unlike under the old PSI system between 1985 and 1997
\nwhereby all imports were subject to physical inspection.<\/p>\n
The MRTI, based on a risk analysis system, professionally
\nmanaged and outsourced to a third party, would result in low risk
\ngoods such as raw materials for domestic producers and presumably
\nequipment for large scale investors described by Ness as being
\nexcluded from the requirement of an overseas physical inspection.<\/p>\n
Based on our previous experience with PSI outsourced to a
\nprofessional surveyor, we could be reasonably sure that the high
\nrisk goods that are being smuggled in and destroying our
\nindustries would be correctly described and correctly valued. So
\nthere's no need to raise the spectre of a 100 percent PSI system.<\/p>\n
We would agree with Ness that MRTI is not the long-term
\nsolution to the problem of customs. But our industries are dying
\nand our budget deficit shows no sign of being reduced.<\/p>\n
The new risk management system would be a shock therapy that
\nwe want in place this year. There sould also be a clear program
\nin which customs would be cleaned from the outside. Or systems
\ncould be put in place to make a return to the old ways very
\ndifficult.<\/p>\n
In citing investors' fears that they would be subject to a new
\nlevel of bureaucracy if PSI were to be reinstated, Ness is
\n\"tilting at windmills.\" First, by dredging up one myth often
\nquoted in the articles of customs itself i.e. that PSI moves the
\ncosts from the domestic port to the foreign port, when the fact
\nis that the PSI companies have never been known to inspect goods
\nat the port of export. The goods are and were inspected in the
\nwarehouse of the manufacturer or forwarder so there is no
\nlikelihood of millions of dollars being incurred in storage fees
\nin the port of export for such investors.<\/p>\n
Most local manufacturers of finished goods have suffered from
\nunfair competition from imports through either outright physical
\nsmuggling or underinvoicing practices.<\/p>\n
Shoes smuggled from China via Singapore and Hong Kong have hit
\ndomestic factories at a time when they are being forced to depend
\nmore on the domestic market due to declining international
\norders. The production costs of a branded pair of sports shoes is
\naround US$13. After adding freight costs plus customs duty at 12
\npercent and the 10 percent VAT the landed cost of such shoes is
\nabout $20 and yet at local stores they are $14. Obviously, either
\nduties and taxes were not paid at all, or if they were paid the
\ncalculation was based on an underinvoiced price, or they were
\nmisclassified with a lower tariff.<\/p>\n
We are also faced with direct smuggling in which smugglers
\ncollude with customs officials to bring in their contraband goods
\nthrough door-to-door container services. The foreign shoes for
\nsale in Jakarta's big stores are brought in almost entirely
\nthrough such services.<\/p>\n
According to the Indonesian Electronics Association, 75
\npercent of imported electronic goods on the domestic market are
\nsmuggled. From August to November 2001, the Indonesian Textile
\nAssociation (API) recorded that around 2,900 containers of
\nunderinvoiced textile and its products entered Indonesia from
\nChina and other Asian countries.<\/p>\n
The allegation that customs corruption is causing a massive
\nloss of revenue to the state has not missed any point as alleged
\nby Ness. It is not that customs are collecting less revenue but
\nthat they have not been collecting the revenue that is due to the
\nstate. Statistics show that the effective tariff rate in 2001 was
\n10.8 percent and not 3 percent, so customs duty should still be a
\nsignificant part of customs revenue. An even higher contributor
\nis the VAT on imports, which will be a higher contributor to
\ngovernment revenue.<\/p>\n
In 2000, BPS revealed that customs undercollected $601 million
\nin customs duties if actual collections are measured on a line by
\nline basis with what was actually collected. This calculation has
\nnot even included the routine, daily underinvoicing of imports.<\/p>\n
The WTO Agreement does say that the basis of valuation is the
\ntransaction value, but it does not give a licence to importers to
\ndeclare any value they choose, nor does it relieve customs of
\ntheir responsibility to determine on a shipment by shipment basis
\nwhether the price being declared in the invoice is the actual
\nprice paid for the goods.<\/p>\n
Professional customs valuation is still needed; nowhere is it
\nneeded more than in Indonesia. And if customs are incapable of
\nperforming an accurate valuation under the new valuation regime
\nthen let the job be given to a third party. There is nothing
\n\"sovereign\" about duty collection or tax collection.<\/p>\n
Given the massive losses to the state incurred as a result of
\ncustoms corruption or incompetence, the costs of maintaining
\ncustoms cannot be compared with the fees that would be payable to
\na surveyor. The true cost of maintaining customs is definitely
\nnot the $27 million a year as quoted by Ness. It is the $27
\nmillion plus the $601 million in lost customs revenue, plus the
\nlost VAT plus the lost exports earnings through factories that
\nhave had to close. These are the figures that should be compared
\nwith the cost of the surveyor.<\/p>",
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