Anti-Smuggling Efforts in Cebu

UNCLAS MANILA 000603

SIPDIS

SIPDIS

SENSITIVE

STATE FOR EAP/MTS, EAP/EP, EEB/IFD/OMA
STATE PASS EXIM, OPIC, AND USTR
STATE PASS USAID FOR AA/ANE, AA/EGAT, DAA/ANE
TREASURY FOR OASIA
USDOC FOR 4430/ITA/MAC/ASIA & PAC/KOREA & SE ASIA/ASEAN

E.O. 12958: N/A
TAGS: ECON EFIN ETRD EINV PGOV RP
SUBJECT: Anti-Smuggling Efforts in Cebu

Ref: 07 Manila 3819


1. (SBU) Summary: Following the progress that an anti-smuggling
coalition of business chambers, companies, and foreign embassies
achieved in the Subic Freeport (reftel),a coalition led by the
American Chamber of Commerce with Embassy support visited Cebu, the
most important port in the central Philippines, to expand advocacy
against fuel and vehicle smuggling into the Philippines. Persuading
local officials to take effective action will take persistence and
close monitoring -- as it did in Subic. The group's visit to Cebu
received substantial media coverage and drew attention to the
problem there. End Summary.

Cebu Background
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2. (U) Cebu City is the second largest metropolitan area in the
Philippines after Manila. Cebu's export zones, helped by its
central location and deepwater port, have fueled its relative
prosperity by attracting significant foreign direct investment.
Cebu's government officials realize that addressing the concerns of
foreign investors is important to ensure growth in the region.

The Current Issue: Fuel and Auto Smuggling
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3. (SBU) Fuel: As reported reftel, according to official Philippine
Customs statistics, fuel demand has not kept pace with economic
growth in the Philippines. Fuel industry analysts suspect smuggling
is the major reason for this anomaly. Some of the smuggled product
may be tax-exempt oil intended for the Philippine economic zones, of
which Cebu has several. Furthermore, the numerous Philippine
islands and offshore transfers of oil to smaller ships make oil
shipments difficult to track. Estimates of smuggled fuel run as
high as 20% of the total, adding up to upwards of 10 billion pesos
in lost tax revenue for the country as a whole.


4. (SBU) Auto smuggling: High import duties for new vehicles makes
second-hand vehicle smuggling a particularly lucrative business. As
an indication of the scale of the problem, there were 29,000 new
vehicles registered with the Land Transportation Office in the Cebu
region during the first ten months of 2007, versus legal sales of
less than 5,000. Lost tax revenue for the whole country may be as
high as 5 billion pesos.

Anti-Smuggling Dialogue
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5. (SBU) Smuggling occurs throughout the Philippines. As reported
reftel, an anti-smuggling coalition made some progress in November
when Subic Freeport authorities tightened anti-smuggling measures.
This coalition held an anti-smuggling dialogue in Cebu City on
February 28 with local representatives from the Bureau of Customs,
Port Authority, the Board of Investment, Land Transportation Office,
and the Ombudsman.


6. (SBU) The lack of a single administrator or coordinator among
Philippine government agencies in Cebu made the dialogue there less
productive than the anti-smuggling coalition had hoped. Philippines
officials there acknowledged the reputation of Cebu as a haven for
smuggling, yet declined to take responsibility, pointing to the
complicated shipping process. Indeed, the Presidential
Anti-Smuggling Group has noted that while a number of vehicles were
seized, there were no arrests or convictions.


7. (SBU) Comment: The group that visited Cebu realizes that its
visit was just another step towards spurring effective action on a
multifaceted problem that occurs throughout the Philippines.
Nevertheless, the visit received substantial media coverage, raising
awareness about the issue, helping to exert at least some pressure
to address it, and highlighting the need for better coordination
between the Ombudsman, Bureau of Customs and the Department of
Justice.

Kenney