Cablegate: Progress Against Smuggling in Subic Freeport

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OO RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHML #3819/01 3380217
ZNR UUUUU ZZH
O 040217Z DEC 07
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 9059
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
INFO RUCPDOC/USDOC WASHDC IMMEDIATE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION IMMEDIATE
RHHMUNA/CDR USPACOM HONOLULU HI//FPA//

UNCLAS SECTION 01 OF 02 MANILA 003819

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: Progress Against Smuggling in Subic Freeport

Ref: Manila 3387

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Summary
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1. (SBU) A visit by about 40 representatives of business chambers,
associations, companies, and foreign embassies spurred Subic
Freeport authorities to announce aggressive action on the problem of
vehicle and fuel smuggling (reftel) during meetings on November 8.
The anti-smuggling measures included a six-month ban on imports of
second-hand vehicles into the Freeport and suspension of two fuel
importers. Separately, the Philippine Supreme Court upheld its
decision to prohibit the sale of imported second-hand vehicles in
the Philippines. U.S. companies characterized the events as
"extremely significant" in the fight against smuggling and their own
lobbying efforts as "succeeding beyond expectations." However, they
cautioned that further vigilance and advocacy will be important to
ensure a lasting, nationwide anti-smuggling campaign in the
Philippines. End Summary.

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Fruitful Visit to Subic Freeport
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2. (U) On November 8, Emboffs reinforced a group of about 40
representatives from 18 domestic and foreign chambers of commerce,
companies, and embassies in a dialogue with officials from the Subic
Bay Metropolitan Authority (SBMA), Bureau of Customs (BoC), and Land
Transportation Office (LTO) to press for progress in addressing the
smuggling of used vehicles and fuel through the Subic Freeport.
During the dialogue, Philippine government officials informed the
participants that the Supreme Court had ruled in October 2007 to
uphold its February 2006 decision prohibiting the sale of
second-hand vehicles outside the freeports. As a result of the
decision, the SBMA has blocked the exit of some 2,900 used passenger
vehicles from the Freeport into the Philippines customs territory.

3. (SBU) SBMA Administrator Armand Arreza also announced a
six-month halt (until April 2008) on the issuance of permits for
importing second-hand automobiles into the Freeport. During the
halt, the SBMA, BoC, Department of Finance, and the Department of
Trade and Industry will jointly audit all vehicles in the Freeport
to gauge the extent of smuggling and collect unpaid taxes. Arreza
said an audit of fuel importers has also started and the operations
of two companies have been suspended thus far.

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But Continued Pressure Needed for Effective Enforcement
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4. (SBU) The group that visited Subic held a review meeting on
November 21 to discuss accomplishments and next steps. The
consensus was that the visit had been a significant success and had
accomplished more than had been expected. They thought the
high-profile visit of a large, united group, which included
officials from the U.S., Japan, and South Korea, had been effective
in spurring the Philippine Government to take more aggressive steps
on the smuggling problem, and concluded that this approach should be
adopted in future high-priority advocacy efforts. The participants
noted that used-vehicle auction advertisements over the past month
no longer include passenger cars. (Note: Philippine law still
allows imports of certain second-hand special-purpose vehicles.)

5. (SBU) While commending recent government actions, the
participants also agreed that it would be necessary to continue
advocacy on the issue and to carefully review administrative
processes to plug loopholes and coordinate enforcement in order to
reach the ultimate goal of lasting, nationwide, effective
enforcement. The diversion into the domestic market of tax-exempt
fuel imported through Subic for delivery to government-designated,
tax-exempt Philippine economic zones remains a pressing issue
requiring government action.

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High-Level Meeting and Press Release in the Works
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6. (SBU) As an immediate follow-through to the Subic dialogue, the
group agreed to request a joint meeting with the Secretaries of the
Department of Trade and Industry, Department of Finance, Department
of Energy, and the Department of Transportation and Communication,

MANILA 00003819 002 OF 002

and the heads of the tax collection agencies and Land Transportation
Office in order to ensure that the agencies expeditiously take the
necessary steps to fully implement the October 2007 Supreme Court
decision.

7. (SBU) The group also agreed to issue a press release on the
November 8 Subic visit to commend recent GRP actions, inform the
public of the impact of smuggling, and urge effective implementation
of pertinent laws and processes. A press release is currently
circulating for clearance and a high-level meeting with the
government officials has been requested.

8. (SBU) Some vehicle importers continue to resist the Supreme
Court decision prohibiting the sale of second-hand vehicles in the
domestic market. On November 27, 41 registered vehicle importers
issued a one-page appeal to President Gloria Arroyo in a number of
leading newspapers and requested the release of the 2,900 vehicles
being held in the Subic Freeport.

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Taking Advocacy on the Road: Cebu Next?
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8. (SBU) While the anti-smuggling group believes that Subic is
currently the port of entry for 60% to 70% of the illicit vehicles
and fuel entering the Philippines, second-hand vehicles and fuel are
also smuggled through other ports. During the November 21 review
meeting, participants supported a suggestion that the group
replicate the Subic dialogue in other ports, specifically mentioning
the Cebu port, and the Cagayan and Zamboanga freeports.

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Comment
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9. (SBU) For the companies, success will be measured by the
improved sales of new vehicles and fuel products by legitimate
dealers. Although the business sector has succeeded in spurring
government action to curb smuggling in the Subic Freeport, further
work will be needed to institutionalize reforms and sustain a more
vigorous nationwide anti-smuggling campaign. End Comment.

Kenney

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