Reforming Thai Customs: First Steps Taken

UNCLAS SECTION 01 OF 03 BANGKOK 002185 STATE FOR EAP/MLS, EEB/TPP STATE PASS TO USTR FOR BWEISEL, DBISBEE, BKLEIN, AND VBROWN COMMERCE FOR EAP/MAC/OKSA DHS FOR CBP, ICE GENEVA FOR USTR SENSITIVE SIPDIS E.O. 12958:N/A TAGS: ECON ETRD PINR PREL TH SUBJECT: Reforming Thai Customs: First Steps Taken REF: A. BANGKOK 1684 (Deputy PM Korbsak on Customs) ¶B. BANGKOK 1574 (Finance Minister Discusses Customs) ¶C. BANGKOK 1305 (Deputy PM Suthep on Customs) ¶D. BANGKOK 1223 (Ambassador Discusses with Foreign Minister) BANGKOK 00002185 001.2 OF 003 ¶1. (SBU) SUMMARY: Over the past year, threats of ludicrously high customs penalties against very prominent American, European, and Japanese companies appear to have back-fired against the Customs officials who stood to profit handsomely. After strong advocacy by this Embassy and others, including the American Chamber of Commerce, other foreign chambers, and the Thai business community, the Abhisit government has decided to address head-on at least some of the most egregious and longstanding complaints. On August 19, Deputy Finance Minister Pradit Phataraprasit, who oversees the Customs and Revenue Departments, proposed a set of reforms that would "transition the Customs Department from a duty collector to a trade facilitator." His announcement is viewed widely as a potential major step forward. Ambassador John will meet with Deputy Minister Pradit and Customs Director-General Wisudhi on September 8 to discuss these new plans and will continue to push for transparent and fair decisions in several outstanding U.S. company cases. We will report septel on these various customs disputes. END SUMMARY. -------------- -------------- Transforming from "Duty Collector to Trade Facilitator" -------------- -------------- ¶2. (SBU) In a press conference on August 19, Deputy Finance Minister Pradit Phataraprasit, who oversees the Thai Customs Department as well as the Thai Revenue Department, proposed several significant reforms to "make dealing with the Customs Department easier, more transparent, and more predictable for importers and exporters." Pradit argued that these reforms should be "the biggest overhaul of the way Customs works since its establishment over 135 years ago." This announcement came after the Ambassador had raised the need for Customs reform with the Minister of Finance and two Deputy Prime Ministers in previous weeks. The issues had also been raised by other governments, and Pradit had heard from various trade associations and chambers of commerce, both local and foreign, that Thai Customs is the top business concern in Thailand. ¶3. (SBU) A new Customs law has been in the works for several years; however, to the dismay of most business groups, many of the amendments proposed by the Customs Department in that draft would have purportedly worsened the situation. Prior to the August 19 announcement, Deputy Finance Minister Pradit pulled that draft law and decided to rework the existing law to address the business concerns. Pradit stated his office would have a new draft ready within 60 days to submit to the Cabinet for approval, after which the bill will move into a probably lengthy parliamentary process. -------------- More Business Friendly Practices -------------- ¶4. (SBU) Website Improvements: In one of the few proposals that will not require legal amendments, Pradit promised to overhaul the Customs Department's website, making it more business-friendly, with easier access to the correct tariff data and the required forms. Pradit noted that the most common complaint received from businesses is the difficulty in determining how a product will be classified and valued in advance. The Office of the U.S. Trade Representative, in the annual National Trade Estimate Report, has complained for several years about discrepancies in published tariff rates on Thai Customs' website. Following the August 19 announcement, Pradit invited two members of the Joint Foreign Chambers of Commerce to work with the Customs web designers to ensure that the site is more business-friendly. ¶5. (U) Single Window: Pradit also stated that Thailand will accelerate implementation of its "Single Window," to streamline the application and process requirements from various agencies and ministries. Ideally, shippers will be able to deal with a single point of contact at Customs to handle all of the required forms from the various ministries. ¶6. (U) Bond-Based Payments: Companies currently pay duties on a per-shipment basis, a very costly and cumbersome process. Pradit BANGKOK 00002185 002.2 OF 003 proposed changes to the law that would allow companies to post a bond with Customs, as it is done in the United States, and then make payments on a monthly basis. -------------- Predictability: Publishing Rulings -------------- ¶7. (SBU) Companies have complained about the constant variations in how a product is classified and valued by individual Customs officers; unlike most other customs services, the Thai Customs Department does not publish its rulings, even among its own officers. Because there are no publicly available rulings, individual Customs officers currently have discretion to arbitrarily increase the value of an import or reclassify it as another product with a higher tariff rate. In a significant shift from previous policies, Pradit proposed publishing all classification, valuation, and other Customs decisions and providing this information to importers. Pradit coined his idea the "Customs Clinic," a one-stop service provider to answer any questions about classification, valuation, or any other issues in order to facilitate trade. The details have not been hammered out, and exactly how the information will be provided and disseminated remains unclear. -------------- Improving the Appeals Process -------------- ¶8. (SBU) Customs decisions are currently appealed within Customs' own institutional structures to an appeals committee, chaired by the Customs Director-General himself. While other representatives from the Ministry of Finance sit on this "Board of Appeals," the lack of independence or any separation from the Customs officials who made the original ruling, and the ensuing conflict of interest, has long been a complaint of the business community. There is also no prescribed time period in which an appeal should be heard by this committee; some businesses report that there are appeals lodged as far back as 2000 that are still pending before the Customs Board of Appeals. While not addressing all of these concerns, Pradit promised to closely review the appeals process. He argued that businesses should be able to more easily appeal Customs decisions to an independent judicial body, rather than to a Customs committee that nearly always rules in favor of Customs. As in the other proposals, the details on how exactly this will be done are to be clarified over the next 60 days. -------------- Limited Changes to the Penalty Regime -------------- ¶9. (SBU) The current penalty provisions imposed on importers make no distinction between duty evasion and unintentional errors; penalties imposed are the same even if the errors made are inadvertent and without fraudulent intent or gross negligence. Companies are often faced with a decision to either settle or appeal the decision. If a company chooses to settle a case directly with Customs, penalties of two-times the required duty payment are typically paid. However, if a company chooses to appeal a decision, the importer risks a fixed fine of four times the duty-paid value of the imported goods (as described in the law) and/or ten years of imprisonment. The harsh penalties associated with an appeal sway most companies to simply settle their cases with Customs. (Note: The previous draft of the proposed customs law would have increased this fixed appeal penalty to five-times the duty paid value of the imported goods.) ¶10. (SBU) In his August 19 announcement, Pradit proposed giving flexibility to the Customs and the judicial system when assessing an appeal penalty, creating a range of no more than four-times the original (anywhere from zero to four) rather than fixing the penalty at the four-times amount. This simple, but significant, change in the law would also bring the Customs Department more into line with the practices of the other two Thai revenue-collecting authorities, whose officials can reduce or even waive penalties according to their respective laws. -------------- No Mention of the Reward-Sharing System -------------- BANGKOK 00002185 003.2 OF 003 ¶11. (SBU) A significant item absent from Pradit's list of reforms was the reward sharing procedures, a systemic problem in which the Customs officers and managers who determine whether a penalty should be imposed benefit financially from that decision. Thai Customs officials can share up to 55 percent of the penalty amount, which would be divided between the officers in the unit involved in assessment of the penalty along with the rest of the chain of command, up to and including the Director General. The immediate unit involved (usually either the Investigations or Legal Division) will receive 30 percent of the 55 percent amount and the balance (70 percent of the 55 percent) will then be divided and awarded up the chain of command. If a company appeals the decision, the penalty amount would increase to four times the duty-paid value of the import - resulting in a mega-reward to the Customs officials on that particular case. ¶12. (SBU) Comment: The rewards system, while transparent to an extent, has long been a source of revenue not only for the officers involved personally, but for the political parties controlling Customs. That system is not being tackled with these new changes, but Minister of Finance Korn has agreed to establish an independent working group to review the rewards procedures at all three revenue-collecting agencies at the Ministry of Finance (Customs, Excise, and Revenue). (Note: The Thai Revenue Department has no program to distribute a share of the penalties to its involved employees; the Excise Department does have a penalty-sharing system in place, but it is considered more restrictive than the Customs version.) The ability at least to get penalty decisions reviewed independently by the Thai court system, as Pradit has now proposed, would be a meaningful improvement. In concert with the American Chamber and other trade associations, we will continue to work closely with Pradit's office to track the reform efforts and to provide any assistance needed. JOHN