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Cablegate: Reforming Thai Customs: First Steps Taken

VZCZCXRO3338
OO RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHBK #2185/01 2401029
ZNR UUUUU ZZH
O 281029Z AUG 09
FM AMEMBASSY BANGKOK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8110
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC IMMEDIATE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEAWJL/DEPT OF JUSTICE WASHINGTON DC IMMEDIATE
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC IMMEDIATE
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE
RUEHCHI/AMCONSUL CHIANG MAI IMMEDIATE 6927
RUEHGV/USMISSION GENEVA IMMEDIATE 2153

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

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