Return of local customs inspections feared

Return of local customs inspections feared

JAKARTA (JP): Indonesian and foreign businesspeople are
nervously awaiting news on the status of the preshipment
inspection (PSI) system for imports with a new customs law taking
effect in April.

Importers and most other businesspeople, who depend greatly on
imports, seem to be horrified by the possibility of customs
officials regaining the authority to inspect imports at ports of
unloading.

Though the new customs law provides post-entry audits and
selective physical inspection of imports by customs officials,
the government has not yet decided whether to retain or end the
11-year-old preshipment inspection system.

"We are afraid of the return of visions of congested ports,
countless signatures on endless paperwork, unjustifiable delays
and customs kickbacks," noted Amirudin Saud, the chairman of the
Indonesian Importers Association.

Rachmat Saleh, the trade minister when the preshipment
inspection system was introduced in June 1985 by presidential
instruction, has expressed fear that complete abolition of the
system now would mean a return to a high-cost economy.

"It also would return unfair competition in the form of
special customs treatment of certain companies," Rachmat was
quoted by the London-based Economist Intelligence Unit (EIU), an
economic research institute, in a recent survey report.

The 66-page report, issued last September, was based on a
study by the EIU in connection with the implementation of the new
customs law in April.

EIU interviewed many businesspeople, Rachmat Saleh, customs
officials and analyzed reports and discussion papers by customs
officials and a consulting company on the preshipment inspection
system and the likely impact of the new customs law.

The study, though showing some of the system's shortcomings,
highly praises the system for its great contribution to improving
the efficiency of Indonesia's foreign trade.

According to EIU, Indonesia was the first of the 26 countries
using the preshipment inspection system to adopt it largely for
trade facilitation.

The EIU, in another report issued in the last quarter of 1996,
noted importers' and businesspeople's great desperation at the
prospect of a locally-enforced post-entry audit system.

Most analysts now agree that this is not the right time to
tinker with the import inspection system because of the declining
competitiveness of Indonesian exports.

They suggest that implementation of the post-entry audit
system be phased in gradually to maintain smooth import flows as
both customs officials and businessmen have yet to familiarize
themselves with the system under the new customs law.

Soehardjo

But Customs and Excise Tax Director General Soehardjo
considered that their fears were baseless because the country's
customs administration had improved significantly in the past 10
years.

Customs officials have admitted that before 1985 fast
processing of import documents often required under-the-table
payments to customs officials.

Before 1985, dealings with customs meant delays, extra costs
and uncertainty about when importers might expect their
consignments to be released.

Nonetheless, Customs Director R.B. Permana Agung was quoted by
the EIU as contending that "PSI should not be considered a
solution to customs problems".

Soehardjo has suggested an electronic data interchange (EDI)
system which is being developed to minimize physical contacts
between importers/businesspeople and customs officials.

However, Soehardjo himself admitted last week -- less than
three months before the enforcement of the new customs law --
that his office was having great problems selling the EDI system
concept to businesspeople.

Regardless of the pros and cons of the opposing arguments, the
fact remains that only customs officials favor eliminating the
preshipment inspection system for an on-arrival inspection and
post-audit system.

The importers association and four other business
associations have repeatedly called for the retention of the
preshipment inspection system even under the new customs law.

They so dread the possibility of customs regaining full
responsibility for inspections at ports that they have pledged
their willingness to pay inspection fees.

After the introduction of the preshipment inspections,
customs' role has been reduced to checking that imports have a
valid certificate of inspection and bill of loading and have paid
all duties and taxes due. Customs officials are not allowed to
make physical inspections except when there are grounds for
suspecting violations of import regulations.

Preshipment inspections were initially conducted by the
Geneva-based Societe Generale de Surveillance, the world's
largest inspection company. But since 1991, the Swiss company has
been working as a subcontractor for the state-owned PT Surveyor
Indonesia.

Many foreign businesspeople have publicly shown their support
for retaining the system, recalling in disgust the old days of
the corruption-infested customs service.

The Indonesian Exporters Association fully agrees with the
opinion of importers, pointing out that imports have become very
important for exports because manufactured goods, which now
account for about 85 percent of exports, heavily rely on imported
raw materials and intermediate inputs.

The association's chairman, Hamid Ibrahim Ganie, argued that
any disturbance to imports automatically affected export
competitiveness.

"Of no less importance are imports of capital goods which,
together with raw materials and intermediate inputs, make up more
than 85 percent of imports," Ganie noted.

He suggested that smooth import flows were an important part
of a conducive business climate because most investment projects
depended on imported technology (capital goods).

The Indonesian National Shipowners Association also sees
preshipment inspections as the most effective system for
accelerating the unloading of cargo, thereby preventing port
congestion.

For shipping companies, congestion means lost revenue
because, unlike the system of demurrage and dispatch applied
elsewhere in the world, Indonesian port authorities are under no
obligation to compensate shippers for delays in unloading.

The shipowners association's chairman, Amirudin, is obviously
a most adamant defender of preshipment inspections because his
members would suffer the most whenever customs performed poorly.

Amirudin pointed out that, besides preventing under-invoicing
practices and accelerating the flow of imports, the system also
ensured that "we receive precisely what we have ordered from
abroad".

"Under the PSI system, our import procedure has been quite
stable, consistent and transparent. We have seen state revenues
from import duties increasing, imported inputs reaching factories
on time and investment has been buoyant.

"So the whole economy has actually been benefiting greatly
from the inspection of imports at points of loading (PSI)," he
said.

Especially worrying to businesspeople is that the mentality of
the bureaucracy, particularly customs, by and large has not
changed since 1985.

As a foreign analyst put it, "the kinds of circumstances that
necessitated the shift to preshipment inspection almost 11 years
ago have not changed much."

The EIU cited the 1996 corruption index of the Berlin-based
Transparency International which put Indonesia among the 10 most
corrupt of the 54 developed and developing countries surveyed.

There are several other factors which worry businesspeople
about the possibility of outright enforcement of the post-audit
system and selective on arrival inspections of imports in April.

One of their worries is that the post-entry audit system could
cause uncertainty among importers because the officials' customs
valuations can be revised within two years of the release of
imports. Importers could be liable to settle underpaid duties or
entitled to reimbursements for overpaid duties.

Another challenge is the introduction of the GATT valuation
code which involves complex procedures requiring training for
customs officials and importers.

The valuation code is completely new to both officials and
businesspeople because Indonesia has been using an export market-
price system.

Problems may be exacerbated by the absence of a mechanism of
appeal in the event of disputes between importers and customs
officials because neither the tax administration court or the
customs and excise advisory committee have yet been established.

Without the two institutions, complainant importers can only
appeal to the customs director general who, many businessmen are
afraid, would rarely decide against the assessments by his own
staff.

Another source of reservation about an immediate full
enforcement of the new customs law is the important role to be
played by temporary storage areas in ensuring the fast release of
goods under the inspection on arrival and post-entry audit
system.

Importers here say that there are very few such storage
facilities. Moreover, procedures for the transfer of goods to
them and their operational guidelines are yet to be
established. (vin)