Problems of the post-shipment import system

Problems of the post-shipment import system

Beginning next month, the inspection of imports will change
from pre-shipment inspection to on-arrival inspection. Economist
Hartojo Wignjowijoto, president of PT Aspecindo Kreasi, a
business consulting company examines the shift.

JAKARTA (JP): The preconditioning campaign for the
implementation of the new customs law (No.10/1995) seemed to
focus on the electronic data interchange or on speeding up the
paper flows, rather than on the physical flow of goods and its
associated potential problems and external transaction costs.

The extra and uncertain size of the transaction costs of
clearing the release of goods out of the port seem to have
preoccupied importers' minds. This is the logical consequence of
the shift from pre-shipment inspection to post-shipment or on-
arrival inspection combined with post-audit documents by customs
officers beginning in April.

The trauma of excessive charges, legal and illegal, at
Indonesian ports long before the Presidential Instruction
No.4/1985, still bothers importers. The idea of this instruction
which introduced the pre-shipment inspection system was to uproot
rampant corruption within the customs service.

Under both Presidential Instruction No.4/1985, which was
amended by Presidential Instruction No.3/1991, on the pre-
shipment inspection service for imports, both state-owned PT
Surveyor Indonesia and its subcontractor, the Geneva-based
Societe Generale de Surveillance (SGS), have been doing an
excellent job.

The physical flow of imports have been smooth and transparent
and the handling costs have been certain.

Now, the pendulum is about to swing back to post-shipment
inspection.

This change has had an important bearing on the prospects of
our exports which depend mainly on imported basic and
intermediate materials. The efficiency by which imports are
handled and cleared directly influences the competitiveness of
our exports.

It should be remembered though that the pre-shipment
inspection service also has costs of its own -- fees paid to PT
Surveyor Indonesia and SGS. But this service has created
certainty with regard to transaction costs.

Of no less importance is the pre-shipment inspection system's
contribution to preventing congestion at Indonesian ports and
minimizing handling and clearance costs. One may not realize that
this system actually utilizes the port capacity of the countries
of origin of imports to minimize the risks of congestion at
poorly-equipped Indonesian ports.

The arguments against pre-shipment inspection include the
inspection fees and the nationalistic pride of returning the
inspection authority to the customs service.

The customs service has insisted that the EDI system would be
able to overcome all potential problems. But this is a matter of
trust, not a matter of technical sophistication of handling both
the paper shuffle and the flow of goods.

Judging from their past dismal record (before June, 1985), why
should we trust the customs officials? Should we trust the
customs officials at the risk of slowing down imports, and
thereby adversely affecting our export competitiveness?

The answer to these questions lie with the big money involved.
The large fees under the pre-shipment inspection system have been
flowing into the pockets of state-owned PT Surveyor Indonesia and
its subcontractor SGS.

The big money involved in the post-shipment inspection service
would, hopefully, go to the state coffers. But the big tips
(mostly untaxed), to be charged illegally by customs officers on
importers, will be enjoyed by officials individually or in a
group.

But the biggest potential problem is the uncertainty to be
faced by businessmen regarding the size of the side-payments and
the delivery schedule of their imports. The final victim will be
our export competitiveness.

Further down the line, this also means that our national
economic interests will be at stake, since our current account
deficit has been increasing steadily almost to a critical level.

The government is indeed faced with a difficult choice. But
the alternative is not so complicated if the primary parameter is
national economic benefits and not the financial costs of either
pre-shipment or post-shipment inspection.

The choice should be based on the following objectives,
including minimizing the risks of congestion at Indonesian ports,
abolishing the uncertainty regarding the physical clearance of
imports and minimizing the opportunity for malfeasance by customs
officials.