Sugar smuggling again

Sugar smuggling again

The controversy in the past three weeks over sugar smuggling
in to Java serves only to validate the public's perception of how
grossly corrupt is Indonesia's governance and how vulnerable is
the world's largest archipelago country to contraband trade.

The rampant smuggling also demonstrates how well-designed
policy instruments often fail due either to technical
incompetence and corruption within implementing institutions or
an acute lack of inter-ministerial cooperation.

Minister of Industry and Trade Rini Soewandi painfully
discovered during an incognito visit to Jakarta's Tanjung Priok
port on Monday that almost 180 containers (around 3,758 metric
tons) of sugar apparently smuggled in from Thailand and India,
had been at the port's warehouses for more than six weeks. Yet
the customs service had not been able to track down the owners
nor the origin of the containers.

The Tanjung Priok customs service contended that it had yet to
trace the origin and importers of the commodity because the
consignment had been shipped to Tanjung Priok from the North
Sumatra seaport of Belawan as inter-island merchandise, which is
thus outside its jurisdiction.

This argument simply did not make sense. The Ministry of
Industry and Trade had decided in early 2002 to control sugar
imports in a bid to protect local sugarcane farmers by licensing
only five state companies, all based in Java, to import sugar
according to government quotas. The government also imposed an
import tariff of Rp 700 (US$0.08) per kilogram and tightly
controlled the inter-island trade of local and imported sugar
through a system of approved traders.

Port, customs and trade officials in Belawan could not have
been so technically incompetent that they were unable to
ascertain that the sugar had been smuggled in from overseas. They
could have simply checked the identity of the importers against
the five state companies licensed as sugar importers or, if it
was inter-island merchandise, checked the list of government
approved traders.

Even if the sugar had proper documents, local port and customs
officials in Belawan and Tanjung Priok should have been
suspicious about possible smuggling because commercially it makes
no sense at all to ship sugar, destined for the market in Java,
through North Sumatra. One also should feel flabbergasted to hear
that the North Sumatra trade officials had licensed the sugar
consignment as inter-island merchandise without, apparently,
knowing its origin. After all, North Sumatra's sugar output is
barely sufficient just to meet its own needs.

There should not have been any doubt at all that the sugar had
been smuggled into the country because the licenses for the
importation of 405,000 tons of sugar for this year were issued
only on Feb. 16, while the 180 containers had been unloaded as
inter-island merchandise at Tanjung Priok between Feb. 7 and
March 20.

Sugar smuggling remains an annual phenomenon during the months
before the sugarcane milling season in the country which begins
in May and lasts until August. In early 2002, the association of
sugarcane growers, suspecting that foreign sugar had been
entering the country illegally, either through physical smuggling
or under-invoicing of prices, raided freighters unloading
imported sugar at the Tanjung Emas port in Central Java and the
Surabaya port of Tanjung Perak in East Java.

A similar wave of sugar smuggling also took place in the first
quarter of last year.

Analysts have urged the government to ease the controls on
sugar imports and trade, arguing that the big difference between
local and import prices has provided a lucrative margin for
smugglers and that market-distortion measures such as special
import and trading licenses are highly vulnerable to abuse by the
corrupt officials.

The dilemma though is that while the country still depends on
imports for almost 50 percent of its domestic needs of 3.7
million tons a year, local sugarcane farmers should be protected
from unfair competition caused by smuggling or dumping practices
by foreign producers.

It would be ill-advised and premature now to lower import
tariffs or the ceiling retail price of sugar in a bid to
discourage smuggling because local sugar is still not competitive
due to technical and regulatory problems and the low yield of
domestic sugarcane farms.

But the high tariff protection can achieve its objective only
if the policy is supported by a high-powered, anti-smuggling,
inter-ministerial taskforce. In the long-run, however, domestic
sugar will remain uncompetitive if the government does not
implement a well-designed national sugar policy covering such
measures as pricing, credit financing, and business relations
between growers and refineries.

This policy should be followed by production development
programs encompassing research and development to create new
high-yield varieties for irrigated and rain-fed land, the
provision of extension services to farmers and the implementation
of reliable soil surveys in provinces outside Java to find new
areas suitable for sugarcane.

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