The tentacles of smuggling

Smuggling, like kidnapping and corruption in government, has been a malignant cancer in the country’s economic landscape. It devours the guts of all companies – local or foreign, big or small – trying to stay alive in the jungles of Philippine business.

A decade ago, it was mostly technical smuggling that the government was running after. Today, it is the blatant physical assault of smuggling. And of just about every commodity conceivable: rice, canned goods, petroleum products, cements, drugs, garments, motorcycles, vehicle and vehicle parts, tobacco, liquor, and even humans. No wonder local businesses have flagged down this problem as urgent.

That the Philippines is vulnerable to such entry of smuggled items may be due to our unique archipelagic structure. We have a number of major ports that serve as doorways for importations, but it is not here where the might of smugglers currently strikes.

It is, unfortunately, in the numerous smaller ports found all over the country where unscrupulous "entrepreneurs" in connivance with "take"-holders (those in the take) among local officials bring in merchandize that undermines local industries and companies, and robs the government of billions in tax money.

SONA statements cannot cut smuggling tentacles

When the President devoted some time during here recent State of the Nation Address (SONA) to speak strongly of curbing this malady, the business community was briefly placated. It was after all what they wanted to hear.

But how the administration will translate this SONA promises into action may demand a lot of patience from our businessmen. Smuggling, after all, is not eradicated by penalties or vigilance. Nay, not even by strong, big words.

Sure GMA’s punches against bootlegging before and during the SONA were impressive: "Blue-collar time for a blue-collar crime." To the Bureau of Customs: "go beyond the goods and get me the big-time smugglers." To the Justice Department: "sue smugglers for a no bail economic sabotage." In short, "Death to smugglers."

These, plus a litany of other similar gigantic statements, are comforting to hear. That is, until one realizes that if kidnapping was so hard to crack, smuggling could even be a more nerve-wracking undertaking in a country with so many illicit points of entry and so lacking in honest people to patrol the seas and the ports.

For the average businessman, it’s the after-SONA reality that is really worrisome. It’s the morning, days, weeks, months and years of waiting for government to apprehend and put behind bars just a single big-time smuggler.

In the meantime, local businesses – specially the micro- and small-enterprises – are fighting hard to stay alive amid the unceasing onslaught of commodities made in our friendly neighbor countries.

The anatomy of smuggling is larger than what our President seems to be describing. It is, sadly, not just enough to issue an edict for her Customs people to bring to heel the masterminds.

First, we have deplorably lagged behind in the race to be production efficient in many areas. The Philippines attracts smugglers because locally produced goods are often more expensive. Our neighbors, on the other hand, had prepared years ago and are now churning out cheap goods by the hundreds of thousands.

Look at rice. Rice smuggling will continue to make healthy margins as long as smuggled rice is cheaper than the cost of locally produced and milled rice.

Second, our local Customs and other involved agencies are apparently ineffective in stemming the onslaught of illicit shipments. It also takes a lot of resources to patrol our shorelines. Of course, speedboats manned by daring men are not enough. These men and women must have the integrity and strength of will not to succumb to the temptation of corruption.

Third, local enforcement is weak. I remember years ago when PX goods were sold in "safe" houses whose gates were cautiously opened only to an elite few. Today, there is a proliferation of tiangges – in established malls at that – selling all these smuggled goodies. No one asks where the items being sold come from.

Smuggled untaxed diesel near Malacañang?

Take for instance, petroleum products. Sources have pointed to a compound located in Beata, Pandacan that is reportedly being suspected as depot and storage for smuggled untaxed diesel. This depot was supposed to have been closed by Mayor Lito Atienza of Manila as part of an agreement (script?) that allowed the oil majors to continue operating at Pandacan. Maybe the good Mayor was not aware of it but the number of storage tanks in the said depot continued to increase at the same time that Mayor Atienza was lambasting the oil majors and coercing them to leave Pandacan before end June this year.

As we all know, the good Mayor had a sudden change of mind and heart and the oil companies continued to operate their Pandacan installations. But the sad part is that the depot in Beata that was announced publicly as closed by Mayor Atienza continues to operate rather surreptitiously between the hours of 7 p.m. up to 5 a.m. See what I mean about smuggled goods being easily and openly available?

Better business climate may be the answer

Donald Dee, president of the Employers Confederation of the Philippines, noted during a dialogue of business leaders with economic managers two weeks before the SONA that rampant smuggling is hurting small companies. ECOP, like GMA, also blames Customs. Businessmen perhaps may also be barking up the wrong tree.

Dee says that micro- and small enterprises that comprise a big part of Philippine commerce complain that they still have no access to credit, that their markets are dwindling, and to top it all, there’s still too much smuggling.

Taking off from Dee’s pronouncement, I would like to underscore that smuggling is just one problem. The bigger quandary, if we really think about it, is government’s inability to provide the necessary infrastructure to improve our local businesses’ competitiveness.

Despite the published low interest cost, cheap money is not readily available as banks are constrained to extend additional lending. They are still waiting for the passage of the Special Purpose Asset Vehicle bill that is supposed to open the valve for more investment lendings.

Although part of the much-maligned Purchase Power Adjustment (PPA) has been deferred, the cost of electricity continues to be high. The other costs of doing business, such as security for example, continues to rise because of unstable peace and order situation.

Government should not be surprised about the increasing incidence of smuggling despite tough talk and measures. This "entrepreneurial" activity called smuggling will continue to prosper as long as legitimate businesses remain uncompetitive. There is just too much money being made through smuggling. And the entrepreneurs and their "take" holders will continue as long as the margins remain healthy.

This is business reality and this is the challenge facing the president after the SONA.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reygamboa@linkedge.biz. If you wish to view the previous columns, you may also visit my website at http://bizlinks.linkedge.biz.