May 24, 2006 HON. RALPH G. RECTO
Chairman
Committee on Ways and Means
Senate of the Philippines
Dear Senator Recto,
Warm greetings from the Cebu Furniture Industries Foundation, INc. (CFIF) !
The CFIF is the primary business support organization of the Philippine export furniture industry and is composed of 174 furniture manufacturers and exporters as members.
We would like to respectfully express our concern to certain provisions of the pending bills in the Senate related to Anti-Smuggling and the Customs Bonded Warehouse as presently provided in SB No.1969, introduced by Senator Mar Roxas; SB No. 1979, introduced by Senator Serge Osme?a; and SB No. 2154, joint bill of the Committees on Trade & Commerce and Economic Affairs.
At the outset, we would like to state that as legitimate members of the furniture export industry we support legislative measures that will stop rampant smuggling which adversely affects the advancement of our Philippine economy. We believe that if left uncurbed, such illegal activity can ultimately affect our legitimate businesses as it can distort market prices. However, we are alarmed at some of the current provisions of the pending bills mentioned above because of their adverse effects to the export industry including here in Cebu.
Cebu furniture companies comprise 20% of the Philippine furniture industry. Over 300 furniture manufacturers and exporters are located here in Cebu with companies directly employing 80,000 people and providing indirect employment to more than 140,000 people down the production line.
In 2004 alone, Cebu's total furniture exports amounted to US$ 120M or 41% of the country's total furniture exports of US$ 294 M.
Majority of those who are engaged in the furniture manufacturing and exporting industry import raw materials and components not available in the country but are needed to sustain their manufacturing operations. Their prices are based on the current importation rules and cost. The new bill from the Senate as they are stated now, will drastically increase the cost of business which the exporters cannot afford at this time. We are faced with a more dangerous competition from low cost manufacturing countries like China whose government do everything possible to boost their manufacturing business and their economy.
Should the proposed bills be implemented into law, as it is formulated, many manufacturers (not only in the furniture industry) will be affected which will result to the closure of some businesses. Already, some of our member companies owned by foreign investors are contemplating on looking for more competitive places to set-up or even to move their businesses. This to us is very alarming.
In the recent study among countries all over the world, the Philippine' competitiveness in terms of government efficiency fell to # 47 from # 42 last year. Our country fared poorly in terms of public finance, institutional frameworks, and business legislation. In terms of economic performance, the Philippines fell to # 41 in 2005 from #37 in 2004 as the country ranked in the bottom 10 in terms of domestic economy performance and international trade investments.
With the pending legislations we are afraid that our competitiveness will again suffer.
Specifically, we would like to call your attention to the following concerns:
A. In SB No. 1969, Section 5
Subsection C-1 which states that THE BONDED WAREHOUSING OF FINISHED ARTICLES WITHOUT EXCEPTION SHALL BE CONSIDERED AS SMUGGLING. There are certain articles in finished forms that are needed as accessories or intermediate products and would form part of products for re-export. When used as such they lose their original identity as finished goods. Examples of these are packaging materials such as cartons, glasses, caps, wrappers.
Subsection C-2 which considers as smuggled articles those imported IN EXCESS OF THE VOLUME OR QUANTITY ALLOWED UNDER LICENSE OF THE CUSTOMS BONDED WAREHOUSE. Our position is that the volume or quantity of importation must not be restricted as this would be in violation of the WTO regulations and is a restraint of trade not conducive to growth and development of export since most raw materials needed for products for exports are imported based on the changing demands of the foreign buyers.
Subsection F which states that FAILURE TO LIQUIDATE IMPORTED ARTICLES UNDER BOND WITHIN 30 DAYS FROM WITHDRAWAL FROM THE BONDED WAREHOUSE is also considered smuggling. This provisions of BOC CMO 39-91 and the present practice which allows a period of nine (9) months, extendible for another three (3) months to process/manufacture the imported raw materials into products for export. A 30-day processing for manufacturing period is simply unrealistic and impractical.
B. In SB No. 1969, Section 6
Creation of a new Section to be known as Section 1911 of the TCCP, the second provision of which ALLOWS INDUSTRY ASSOCIATIONS ACCESS TO ALL DOCUMENTS, BOOKS AND RECORDS OF ACCOUNTS CONCERNING THE OPERATIONS OF A BONDED WAREHOUSE and therefore, of its accredited members. Opening the warehouse records to industry association wold be violative of the privacy and trade secrets of members of the CBW, and the information can be wrongly used by the industry association which most of the time is dominated by the major firms in the industry.
C. in SB No.2154, Section 18
An amendment to Section 1904 of the TCCP, which states that The collector shall require from the importer an irrevocable letter of credit, bank guarantee or CASH BOND equivalent to the amount of such duties, taxes and other charges to which articles shall be then subject and upon compliance with all legal requirements regarding their importation.
This provision effectively deletes the use of Surety Bond which is the most practical and least expensive form of collateral for duties and taxes. Cash bond is tantamount to taxing importers outright for goods intended for export, therefore, would be violative of the provisions of the Export Development Act and would entail problems on the part of the exporters. Likewise, issuance of Letter of Credit or Bank Guarantee in favor of the BOC would mean having the bank earmarked the corresponding amount of duties and taxes against the importers depository account until the Warehousing entries are liquidated.
This implies that the capital of exporters who import their raw materials will be tied up, limiting their available capital for their operations, adversely affecting more than 90% of our exporters who are small and medium enterprises (SMEs).
In view of the foregoing concerns, we, therfore, seek your assistance to incorporate and consider our issues in the final Committee Report and during the deliberation of the bills on the floor.
We hope that with your support, we can make the export industry in this country more conducive for business and investors.
Yours truly,
MICHAEL C. BASUBAS
President
May 17, 2006
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