Author:Guillermo L. Parayno Jr.

Background. Focus of the Study. Origins of Customs Reform and Modernization Program. The Blueprint for Customs Development. The Shape of Things to Come in the Bureau of Customs. Cargo Clearance. Tracing the Seeds of the Reform. Revenue Base. Revenue Leakages and Collection Inefficiencies. Preshipment Inspection Program. Public Ethics and Accountability Program. Harmonization of Customs Procedures ... (see full summary)


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The period 1992-98 was one of golden opportunity for reform and modernization in the Philippine customs service. The country had just conducted a national election that had brought into power a government whose priorities included matters directly relating to the efficiency of the customs service. In his first state of the nation address, President Fidel V. Ramos noted his intent to strengthen tax and customs collections.


Responding to Ramos's policy direction and to the president's earlier instructions to the Bureau of Customs (BOC) commissioner to "clean up customs," the BOC prepared the Blueprint for Customs Development Towards the Year 2000. The previous administration under President Corazon Aquino (1986-92) must also be given credit for sowing many of the seeds of change. Loan negotiations with the World Bank; preparatory work with the International Monetary Fund (IMF) on the Philippine Tax Computerization Project (PTCP); and two important and reform-minded laws, the Republic Act Number 7650 and the Republic Act Number 7651, were initiated under Aquino's administration. Even the main underlying philosophy that guided the massive reengineering of the customs environment and the methods of work were based on the philosophy of the Public Ethics and Accountability Program, which was crafted and implemented early in 1987.

However, other factors also created an opportunity for reform. An experienced staff, whose uninterrupted tenure enabled it to introduce projects with long gestation periods, led the reform. The staff had the full trust and confidence of the president and his cabinet and was also supported by the business community. With the economy performing well from 1992 until mid-1997, many of the development funds required to provide impetus to the reform became readily available. In addition, the private sector contributed as part of a genuine collaborative effort with the government. This collaboration was a major factor behind the 1992-98 Customs Reform and Modernization Program.

The program was basically successful, and it was recognized in the national business community, the country, and internationally for its significant outcomes. However, the reform was not fully sustained, as progress was reversed under the administration of President Joseph Ejercito Estrada (1998-2001).

An investment climate study (Pernia and Gupta forthcoming) points out that customs and trade regulations ranked seventh out of 18 specific constraints Page 86 evaluated by firms. Exporters and foreign firms ranked customs as the major constraint on business operations. The survey also noted that bribery is typically used to speed up the process of getting government authorization or permits, thus encouraging public officials to slow down the process.

Efforts are under way to revitalize the reforms and recover lost ground. As before, the key is to harness private sector support for the program, obtain full political commitment to the reform, fully implement the measures identified earlier, and work on removing all the constraints that hinder the achievement of those objectives. Issues that should be addressed include adequate personnel compensation, staff retention, and continuity of direction and management even when the political leadership changes.

Focus of the Study

The BOC observed its 100th anniversary in February 2002. During its existence, its top management has changed about 40 times, and each administration has claimed to have undertaken reform and modernization initiatives. During 1972-86, many corrupt customs officials were sacked. In 1974, the valuation methodology was drastically revised, shifting from export value to home consumption value. In 1976, a mainframe computer system was installed to generate databases of important customs transactions such as customs bonds, orders of payment, and customs declarations. In 1986, a new purge of corrupt BOC officials was undertaken. That same year the BOC engaged a pre-shipment inspection (PSI) service for the first time. During the 1986-92 administration, the Public Ethics and Accountability Program was launched to increase the risks and reduce the rewards of engaging in corrupt practices. Attempts to exempt certain key customs positions from the civil service law that regulated those positions failed.

This chapter focuses mainly on the changes implemented from July 1, 1992, to June 30, 1998, because that reform was the only one that was preceded by the publication of a well-thought-out reform program. This publication was the Blueprint for Customs Development Towards the Year 2000, which proposed a clearly identifiable program, was approved by the president and the cabinet, was disseminated to the public, and was updated over the years. The World Bank supported the program, which also benefited from regular assessments by IMF customs experts.

Origins of Customs Reform and Modernization Program

The 1992-98 Customs Reform and Modernization Program started when the new government took office and appointed a commissioner of customs, who received full support from the president and enjoyed direct access to him. Because one of the new government's immediate concerns was the budget deficit-the BOC was behind its revenue target for the first six months of the year by more than P 3 billion-the initial work program concentrated on removing revenue leakages. This work entailed intensifying antismuggling operations; disposing of seized goods more frequently and efficiently; and collecting tax arrears, including those from government corporations and agencies.

The Blueprint for Customs Development

Work on the blueprint began toward the end of 1992. From a thorough analysis of the environment projected for customs service operations until the end of the century, the BOC carefully defined the objectives of the service and mapped out the strategies for achieving them. In addition to the primary target of revenue generation, other equally important reform objectives were set, including attaining a better business and investment environment, protecting people's health and the environment, and streamlining the bureaucracy.

Some of the factors that were perceived as helping the program achieve its objectives were as follows:

* The introduction of PSI and the Comprehensive Import Supervision Scheme (the mechanism for reviewing imports within the customs administration), which was seen as an opportunity for the BOC to gradually assume full responsibility for all customs administration.

* The World Bank loan and the PTCP, which were already in the final stages of deliberations and were expected to provide technology that would allow the BOC to overhaul its systems and procedures to better support organizational objectives.

* The widespread use of information and communication technology (ICT) by customs Page 87 partner entities, such as the shipping and airline industries, port operators, and banks, which would permit sharing databases and automating cargo clearance processes.

* The readiness of many business groups, such as the Federation of Philippine Industries, the various domestic industry associations, and the chambers of commerce, to collaborate with the BOC for more effective enforcement of customs laws.

The following were the major strategies and development principles lined up to achieve the objectives:

* The BOC would increasingly rely on clients' self-assessments and voluntary compliance with customs laws, rules, and regulations.

* The clearance of low-risk shipments and passengers was to be expedited, while enforcement resources would be concentrated on high-risk shipments through increased reliance on postre-lease clearance procedures and other postaudit processes.

* Information, communication, and other technologies would be used extensively to advance customs processes well ahead of the arrival of cargo, to automate processes, and to reduce human intervention to a minimum.

* Information and other resources would be shared extensively with clients, partners, and stakeholders both in the Philippines and abroad.

* A high degree of harmony and complementarity would be attained by means of extensive consultation with all affected groups.

* A climate that promoted involvement, commitment, integrity, and professionalism in the customs service would be cultivated.

The blueprint was presented to the president and his cabinet for approval and then disseminated widely to the public as well as to the BOC's rank and file. The public welcomed the blueprint's objectives but was somewhat skeptical that it would ever benefit from them. Few commented on the blueprint.

The Shape of Things to Come in the Bureau of Customs

Subsequent documents were prepared and issued to the public as well as to...

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