SGS assignment questioned

SGS assignment questioned

It obviously ran counter to our national sense of pride to
have been forced, by decades of bitter experiences, to distrust
our own customs service. And it was quite regrettable that
economic imperatives compelled us to vest part of our customs
inspection authority with a foreign entity -- the Geneva-based
Societe Generale de Surveillance (SGS) inspection company.

Nonetheless, we see the well-meaning suggestion of a review of
the assignment of SGS and replacement of the pre-shipment
inspection of import goods with a post-audit system, which was
made by the Econit economic research center, as unreasonable. The
conclusions of Econit's public policy review of the pre-shipment
inspection of imports, as announced to the mass media on Monday,
seems to have been drawn from inaccurate and incomplete
information on the overall objective of the pre-shipment
inspection procedure.

Econit's review concludes that the bottom line of the SGS
assignment is negative because of the large amount of service
fees the company charges and the delays in shipment caused by
inspection. It also suggests that the pre-shipment inspection
runs counter to GATT rules and argues that since the country's
import tariffs have been lowered to an average 19 percent there
is now little incentive to under-invoice import prices.

As recently as June, the Indonesian Importers Association --
actually the most relevant and competent party to assess the
performance of SGS -- announced the findings of the
questionnaires that 1,000 members had been asked to fill out. Of
the 821 importers who responded to the questionnaires, 99 percent
considered the pre-shipment inspection the most effective and
efficient procedure for facilitating import flows. They also
strongly recommended the maintenance of the procedure. That means
almost all of the importers oppose the restoration of the upon-
arrival (post-audit) customs checks at Indonesian ports as
practiced before May, 1985.

The government itself, which as the employer of SGS is
naturally most concerned about its performance, earlier announced
that even though import tariffs have been lowered steadily in
line with the economic reform measures and total imports now
consist mostly of capital goods and basic materials, which are
either exempted from tariffs or subject to very low duties,
government receipts from import duties rose sharply from Rp 544.5
billion in 1984 to Rp 2.65 trillion (US$1.2 billion) in fiscal
1993/94. That indicated that under-invoicing of imports has been
reduced to a negligible level.

Econit seems to be inadequately informed of the overall
objective of the pre-shipment inspection. This procedure is
designed not only to verify export prices and customs tariff
classifications, but also the quality and quantity of imports.
The government acknowledged that during the first five years of
its assignment, SGS had saved more than $4.5 billion in foreign
exchange through the correction of the prices of capital goods
and materials imported by oil mining contractors. Had the prices
not been corrected, the government would have lost a great deal
of income because the development and production costs deducted
by the contractors would have been much higher, thereby cutting
into the government's share of the concession's output.

The inspection also is designed to check whether the capital
goods to be imported by licensed investors under the duty-free
facility are really not available from local suppliers. The
correction resulting from pre-shipment inspection has also saved
hundreds of millions of dollars by diverting imports to local
sourcing.

The pre-shipment inspection for customs clearance does not
violate any rules of the General Agreement on Tariffs and Trade.
In fact, the Agreement on Pre-shipment Inspection concluded by
the GATT negotiators on Dec.15, 1993, recognizes the need of
developing countries to have recourse to pre-shipment inspection
as long as and so far as it is necessary to verify the quality,
quantity or price of imported goods.

Despite all the benefits of using SGS, the government has been
wise to plan early on its gradual phasing out by establishing PT
Surveyor Indonesia which now has more than 12 offices in
exporting countries. Seven more offices will have been opened
before the end of this year, so that the new company, which is 80
percent owned by the government and 20 percent by SGS, will be
responsible for inspecting 85 percent of Indonesia's total
imports.

The most formidable challenge now is to see to it that PT
Surveyor Indonesia will gain as high a reputation, credibility
and technical competence as that of SGS, which has so far been
hired by 30 foreign governments and hundreds of private companies
to do inspection jobs.