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)