Customs Modernization and Tariff Act Series 1: Abandoned Goods Are Not Government

Property
We have, in various public fora, discussed the benefits of the Customs Modernization and Tariff
Act or CMTA (Philippine Republic Act 10863) in terms of trade facilitation and simplifying
customs processes. In the coming weeks and months, we will write articles that will discuss
various changes under the CMTA and their impact on the trading community. For this issue, we
will expound on the concept of abandonment under the old and new rules, and the resulting
benefit to importers.

Abandonment New Rights and Benefits

Under the old rules, goods deemed abandoned automatically becomes government property.
Under the new rules, abandoned goods are NOT government property and the importer has:

the right to reclaim the goods after payment of the duty and tax, and all other charges
and expenses; and
the right over the proceeds of the sale, after deduction of any duty and tax, and all
other charges and expenses.

Under the CMTA, importers should understand that even if there is failure to file the import
entry within the prescribed period, the goods do not become government property and importers
may (a) request for extension of the period to file the entry, (b) reclaim the goods, or (c) collect
the proceeds if the goods have already been sold.

Old Rules (Section 1801, Tariff and Customs Code of the Philippines)

Under the old rules, there are three instances of abandonment:

Express and written notice to abandon from the importer;

Failure to file entry within 30 days from discharge from the vessel; and
Failure to claim the importation after the filing of an import entry within 15 days from
date of posting of Notice to Claim such importation.
When a shipment is declared abandoned, it becomes automatically property of government and
may be disposed by donation or auction.

New Rules (Sections 1129 and 1130, CMTA)

Under the CMTA, goods are deemed abandoned under the following instances:

Express and written notice to abandon from the importer;

Failure to file entry within 15 days from discharge from the vessel or aircraft (note
that the period may be extended for another 15 days upon request);
Failure to pay the duties and taxes 15 days after final assessment;
Failure to claim the importation within 30 days after payment; and
Failure to claim the goods in customs bonded warehouse within the prescribed period.
Notice of abandonment shall be made by electronic notice or personal service. Expressly
abandoned goods under paragraph (a) above shall ipso facto be deemed the property of the
government.

For impliedly abandoned goods under paragraphs (b), (c), (d) and (e), an importer may reclaim
the goods after compliance with legal requirements and payment of corresponding duties, taxes,
and other charges within 30 days from lapse of the period to filed the import entry. When these
goods are sold by customs by public auction, the proceeds of the sale, after deduction of duty and
tax and all other charges, shall be turned over to persons entitled to receive them.

In other words, the balance of the proceeds shall be returned to the importer. In case there is no
claimant, the balance shall be deposited to the Forfeiture Fund.

Forfeiture Funds (Section 1151, CMTA)

All proceeds from public auction sales, after deduction of the charges and expenses and subject
to the claim of the owner or importer of an impliedly abandoned goods as discussed above, shall
be deposited in an account to be known as Forfeiture Fund.

The fund shall be managed by the Bureau of Customs and shall be used for the following:
 outsource the management of the inventory, safekeeping, maintenance and sale of
abandoned and forfeited goods;
facilitate customs seizure, abandonment and forfeiture proceedings and the disposition
of goods;
enhance customs intelligence and enforcement capability; and
support the modernization program, and other operational efficiency and trade
facilitation initiatives.

Customs Modernization and Tariff Act Series 2: Background and History of CMTA
This is the second in a series of articles on the Philippine Customs Modernization and Tariff Act.

Preliminary Work. Sometime in 2007, the Philippine Bureau of Customs (BoC) announced that
the Revised Kyoto Convention (RKC) will be adopted before the end of the year and that the
same will be implemented in the coming years. Known formally as the The International
Convention on the Simplification and Harmonization of Customs procedures (Kyoto
Convention), the original convention entered into force in 1974.

In November 2007, BoC created an RKC Management Team to push for accession to the
convention and to lead the implementation of the RKC by preparing measures to ensure
compliance with the international agreement. Based on a study conducted at that time, only about
55% of existing customs laws and regulations were compliant with international customs
standards.

Among the measures identified for the RKC implementation strategy were the following:

Support for the Senate ratification of the RKC and approval of legislative measures;
Drafting of the omnibus bill to amend the Tariff and Customs Code of the Philippines
(TCCP);
Drafting of the Manuals of Operations to govern the main areas in customs operations
(entry processing, customs bonded warehouse, administrative and judicial
proceedings, transit goods, etc.);
Infrastructure support (e.g. Information and Communication Technology); and
Provision for human resource training, capacity building and change management.
What is the RKC? In order to meet the growing demands of governments and the international
trading community, the original convention was revised and updated in June 1999. The World
Customs Organization (WCO) Council adopted the RKC as the model for efficient and modern
customs procedures in the 21st century. To date, there are 105 countries which are signatories to
the convention.

RKC was designed by the WCO to standardize and harmonize customs policies and procedures
worldwide. It likewise serves to implement customs-related principles developed by the World
Trade Organization (WTO), such as the agreements contained in Article V (Freedom of Transit),
Article VIII (Fees & Formalities Connected with Importation and Exportation) and Article X
(Publication & Administration of Trade Regulations) of the GATT 1994. As a whole, the
convention provides a comprehensive set of over 600 legal and technical provisions outlining the
basic principles of modern customs procedures and practices.

International Standards. Foremost among the governing principles of the RKC is the
requirement that customs should provide transparency and predictability for the importing,
exporting, logistics, transport and forwarding industries. The convention promotes trade
facilitation and effective controls through its legal provisions that detail the application of simple
yet efficient procedures.

Specifically, the RKC provides core principles for the following:

Predictability (standard principles for customs processing of goods, conveyances and

persons moving across borders clearance procedures)
Transparency (provides all information relating to customs)
Legal (prevents arbitrary or unfair actions by customs)
Use of Information Technology

Initial Drafts. As an external consultant for the BoC RKC Management Team in 2008, we
assisted BoC in drafting a bill, with the main purpose of incorporating the principles and
provisions of the RKC into the TCCP. For the next 12 months, the team focused on writing the
draft provisions and the revision of old provisions found inconsistent with the RKC.

By the middle of 2009, a draft was submitted to the BoC management and soon thereafter, a
draft bill was filed in Congress, then entitled Customs and Tariff Modernization Act (CTMA).
The bill was not passed by the Lower House by the end of its term. In 2010, several versions of
the CTMA were filed in both houses. The Lower House was able to approve its version but the
Senate failed to act on such bill.

CMTA RA 10863. In 2013, new versions were again filed. In the early part of 2015, after the
conduct of numerous public consultations in the Lower House, a technical working group was
created. The TWG was chaired by Rep. Sharon Garin and was composed of representatives from
the House Committee on Ways and Means, BoC, Department of Finance and external
consultants.

For the next 6 months, the TWG worked on the consolidated bill, taking into consideration the
adoption of the provisions of both the RKC and the WTO Trade Facilitation Agreement (TFA),
the revision of all other old provisions and the inclusion of anti-smuggling provisions. By the
middle of 2015, a consolidated bill (now entitled CMTA instead of CTMA) was submitted to
the mother committee in the Lower House and by the third quarter of 2015, the bill was approved
by the mother committee. At about the same time, the Senate Committee on Ways and Means
also started conducting its public hearings.

In the last quarter of 2015, both houses approved the CMTA and work started on the
harmonization of the House and Senate versions. In January 2016, the bicameral committee
convened. On January 21, 2016, both houses ratified the final version and thereafter, the same
was transmitted to the Office of the President. On May 30, 2016, Republic Act No. 10863 was
signed and approved by the President.

Customs Modernization and Tariff Act Series 3: New Concepts and Revised Policies
We have previously mentioned that while the initial draft of the Customs Modernization and
Tariff Act focused on the adoption of the Revised Kyoto Convention, the final version not only
adopted the RKC and the World Trade Organization Trade Facilitation Agreement but it also
included revisions of the old law based on proposals from the private and public sectors as well
as inclusion of additional anti-smuggling provisions. As a result, the CMTA has radically
departed from many of the concepts and policies under the old law.

New Concepts. We have outlined below many of the major concepts and policies as originally
provided under the CMTA, as follows:
 Expansion of the customs mandate to include trade facilitation;
Promotion of paperless transactions through the use of information and
communication technology;
Definition of free zones to harmonize rules and regulations governing all special
economic zones, free ports and similar authorities;
Provision for tax and duty status on relief consignments to, among others, promote
donations and international aid during calamities and major disasters;
Provision for legal interest in case of non-payment of duties and taxes;
Procedure for advance ruling to allow early resolution of customs issues even if there
is yet no actual importation involved;
Provision on Authorized Economic Operator or AEO, an expansion of the original
concept of Authorized Operator under the RKC and an adoption of the expanded
program of the the World Customs Organization (WCO) to promote both trade
compliance and security in the supply chain;
Definition of alerts to harmonize and simplify rules on the apprehension of
shipments, to make the process transparent for the trading community, and to prevent
abuse by customs enforcement officers;
Provision for summary remedies such as distraint on personal property and levy on
real property to collect duties, taxes and other charges arising from a customs audit;
Creation of a Forfeiture Fund for the purpose of outsourcing customs functions,
facilitating processes, capacity building, and modernization through automation; and
Creation of a Congressional Customs and Tariff Oversight Committee to oversee the
implementation of the CMTA.

Revised Policies. Many policies under the old law have likewise been revised or amended such
as the following:

Requirement that majority of the Deputy Commissioners must come from the ranks;
Provision for the mandatory transfer of assessment officers after 3 years;
Redefinition of the term declarant, to allow importers to transact with the bureau,
either directly or through authorized representatives;
Provision for restricted imports to cover imports that are generally prohibited unless
given prior permits from certain regulating agencies;
 Provision to allow motion to quash or recall of a Warrant of Seizure to prevent delay
in the processing of shipments;
Procedure allowing the submission of provisional goods declarations in cases of
incomplete documents or information necessary to file the import entry;
Additional conditions for the exercise of the power to visit and inspect commercial
establishments by non-customs personnel;
Provision for transit shipments as against transshipment;
Redefinition of the concept of abandonment; and
Procedure allowing settlement while forfeiture proceedings are ongoing.

Implementation. Once fully implemented, the CMTA should in general provide for (a) less
discretion on customs decision-making, (b) adoption of internal best practices, (c) clear,
simplified and harmonized processes, and (c) reduced penalties for errors and omissions.

Given the scope of work required, full implementation of CMTA will take years, albeit many of
the major policy reforms will be issued piece-by-piece.

Customs Modernization and Tariff Act Series 4: Title 1-Preliminary Provisions

Title I of the Customs Modernization and Tariff Act (CMTA) has four chapters: Chapter 1
provides the short title; Chapter 2 the general and common provisions; Chapter 3 defines the
types of importation; and Chapter 4 is a special provision on relief consignment.

Chapter 1 (Short Title)

As previously mentioned, the original title of the initial bills filed in Congress in 2008 was
Customs and Tariff Modernization Act or CTMA. The approved law revised the short title
based on the misconception that the term tariff refers to the Tariff Commission and that the term
modernization should properly refer to customs only.

In most customs jurisdictions, tariff administration is an inherent function of the customs office
and there is no separate office assigned to perform tariff administration. In the Philippines, we
have a separate agency known as the Tariff Commission which is under the National Economic
and Development Authority whereas the Bureau of Customs is under the Department of Finance.
Chapter 2 (General and Common Provisions)

We have outlined below the specific changes provided under this chapter:

Declaration of Policy (Section 101) is a new provision which specifically mentions

the promotion of trade facilitation as a major customs function. (Section 101)
Definition of Terms (Section 102) defines new terms not previously provided in the
old law such as Admission, AWB (airway bill), AEO (Authorized Economic
Operator), Carrier, Conditional Importation, Perishable Goods, Tentative Release,
Transit, Travelers and Third Party.
Section 103 (When Importation Begins and Deemed Terminated) expounds on the
instances when importation is deemed terminated.
Section 104 (When Duty and Tax is Due on Imported Goods) has a new provision
providing for 20% legal interest on duties and taxes that are already due and
demandable.
Section 105 (Effective Date of Rate of Import of Duty) provides the applicable dates
depending on the type of goods such as those for consumption, goods withdrawn from
customs bonded warehouses or from free zones and goods for public auction.
Sections 106 (Declarant) has redefined the declarant to refer mainly to the owner of
the goods. Section 107 provides the rights and obligations of a declarant.
Section 108 on penalties adopts the Revised Kyoto Convention (RKC) policy that
penalties should not be substantial for errors in the goods declaration and those not
involving gross negligence or fraud.
Section 109 promotes the use of ICT in customs processes.
Section 110 adopts the RKC policy providing equal treatment of parties transacting
directly with customs or through representatives.
Section 111 and 112 is based on the RKC policy to provide transparency and
accessibility to information not otherwise considered as confidential in nature.
Section 113 (Decision and Ruling) defines the standards for issuing decisions,
including advance rulings, relating to the importation and exportation of goods.
Section 114 provides the right to appeal a decision deemed adverse to an importer or
exporter.

Chapter 3 (Types of Importation)

This Chapter is based on the Section 100 and 101 of the Tariff and Customs Code of the
Philippines (TCCP). The main difference under the CMTA is that the old provision on prohibited
importation has been redefined under 2 new sectionone on prohibited goods per se and another
on restricted goods. Additionally, new provisions have been provided to define free and
regulated goods.

Under Section 117, import permits for regulated goods may be submitted after arrival of the
goods but prior to release from customs custody. Old customs rules require that import permits
be issued prior to arrival of the goods and this rule affects many importations particularly
telecom equipment and IT products arriving at Ninoy Aquino International Airport.

Chapter 4 (Relief Consignment)

Under Section 105 of the old TCCP, donations to relief organizations are duty free but subject to
VAT. There is now a specific chapter under CMTA which provides for tax and duty free
treatment of goods considered as relief consignments.

Please note that while Title I refers to preliminary provisions, this particularly chapter refers to
special procedures for a specific type of importation. The original draft bills have these
provisions together with those provisions for travelers and passenger baggage, postal matters and
express shipment.

Customs Modernization and Tariff Act Series 5: Titles II and III (Customs in General)
Title II of the Philippine Customs Modernization and Tariff Act (CMTA) has three chapters:
chapter 1 (General Administration), chapter 2 (Customs Districts and Ports of Entry) and chapter
3 (Exercise of Police Authority). Title III has two chapters: chapter 1 (customs jurisdiction) and
chapter 2 (customs control).

Title II (Bureau of Customs)

Chapter 1 (General Administration) covers the general duties and functions of the Bureau of
Customs (BOC) and covers about 6 sections. Among the salient features of this chapter are as
follows:
 Requirement that there should be at least four (4) but not more than six (6) Deputy
Commissioners, majority of whom shall come from the ranks of the bureau;
Expanded power of the Commissioner to include the power to (i) exercise any
customs power directly or indirectly, and (ii) subject to approval of the Secretary of
Finance, to assign or reassign any customs officer;
New limitation on assessment officers to remain in their assignment for not more than
3 years;
Enhanced functions for the bureau to include trade facilitation and border control; and
Submission of copies of goods declarations to various government agencies in
electronic copies (this repeals the previous requirement for manual copies).

One issue relating to the appointment of Deputy Commissioners is the requirement that majority
come from the ranks apply to former customs officers.

With regard to the submission of electronic copies of goods declaration to other government
agencies, such requirement puts pressure on the bureau to enhance its automated system to
ensure such copies are made readily and easily available.

Chapter 2 (Port of Entry) retains many of the old provisions relating to this topic. The old
provision on assignment of customs officers and employees has been qualified with the
requirement that such assignment may only be made within the bureau.

We note that there had been previous instances of customs officers being temporarily assigned to
the Finance Department and the new provision as mentioned now prohibits such reassignment to
offices other than the bureau.

Chapter 3 (Exercise of Police Authority) defines the scope and limitation of the police power as
exercised by the BOC. Among major changes under this chapter are as follows:

Law enforcement officers may exercise the power to search, seize and/or arrest but
only upon authorization of the Commissioner and such deputized officers shall
disclose the nature of their authority upon request;
Goods seized by deputized officers shall be physically turned over immediately to the
bureau;
Port and airport authorities are obliged to provide authorized customs officers with
unhampered access to all premises within their administrative jurisdictions; and
 In the exercise of the power to inspect and visit commercial establishments and
demand evidence of tax and duty payments, the owners of the establishments have 15
days to produce evidence before their goods may be subject to seizure.
Under the past administrations, law enforcement agencies were allowed to exercise customs
police authority without the supervision and control of the BOC. The cited provision now has
certain limitations. For one, these agencies must clearly be authorized by the Commissioner and
deputized officers must at all times carry their written authorizations and present the same upon
requested.

With regard to the exercise of police power in ports and airports, this chapter now expressly
provides that port and airport authorities are required to provide unhampered access to customs
police authorities.

Title III (Customs Jurisdiction and Customs Control)

Many of the sections under this Title have been adopted from the old code. Under chapter 2,
BOC shall exercise control, direction and management of customs offices, facilities, warehouses,
ports, airports, wharves, infrastructures and other premises. In addition, the bureau may issue
rules and regulations to allow temporary operation of storage facilities especially for abandoned
and overstaying cargoes.

This expanded power of the bureau under this title clearly impacts on the management and
supervision of facilities and operators within ports and airports.

Customs Modernization and Tariff Act Series 6: Titles IV and V (Import and Export Clearance)
Title IV of the Customs Modernization and Tariff Act has four chapters: chapter 1 (Goods
Declaration), chapter 2 (Examination of Goods), chapter 3 (Assessment and Release) and chapter
four (Special Procedures). Title V has a single chapter covering Export Clearance and
Declaration.

Title IV (Import Clearance and Formalities)

Chapter 1 (Goods Declaration) covers general requirements and has 19 sections dealing with the
importation process. While many of the provisions have been adopted from the old code, among
the salient features of this chapter are as follows:
 Goods declarations (for consumption, customs bonded warehouse (CBW), for
admission to free zones, for conditional importation or for customs transit) are
required for ALL importations, including goods bound for freeports and Philippine
Economic Zone Authority zones and those directly discharged in freeports (e.g.
Subic).
Goods declarations shall be submitted electronically and, when printed and certified,
such printed copy shall be considered as actionable documents for purposes of filing
administrative and criminal charges against the importer.
Customs can now allow provisional goods declarations when some information or
supporting documents are not available to complete a regular goods declaration, but
such information or document must be submitted within 45 days.
Goods declarations are now required to be submitted within 15 days from discharge
from aircraft or vessel. The period may be extended for another 15 days. Under the
rules on abandonment, the importer may also reclaim the abandoned goods within an
additional 30 days.
A new provision has been provided allowing advance lodgement and clearance of
goods. At present, the Bureau of Customs allows the advance filing of goods
declaration even prior to the arrival of the goods.
International standards on the mode of payment and terms of trade are recognized.
These standards include those developed by the International Chamber of Commerce
(ICC) on INCOTERMs and on international letter of credit such as the Uniform
Customs and Practice for Documentary Credits.

Chapter 2 (Examination of Goods) retains many of the old provisions relating to examination of
goods. A provision has been provided allowing customs to adopt non-intrusive technology (such
as x-ray machines) in the examination of goods.

Chapter 3 (Assessment and Release) adopted many of the old provisions on the assessment
process which includes the valuation, classification and computation of taxes and duties on
imported goods. Among the major changes under this chapter are as follows:

A new provision provides a tax and duty exemption on goods with a de minimis value
of Php10,000 FOB or FCA.
 In lieu of the old provision on tentative liquidation, two provisions on tentative
assessment have been provided to cover (i) goods subject to dispute settlement, and
(ii) goods covered by provisional declarations.
Assessment shall be deemed FINAL after 15 days from receipt of notice. Final
assessment shall also be deemed CONCLUSIVE after 3 years from date of final
payment of duties and taxes. Within that 3-year period, customs may conduct a post
clearance audit on the subject importation.

Chapter 4 (Special Procedures) are new provisions covering rules on travelers, passenger
baggage, postal mail and express shipment (courier). Additional provision under Section 440 on
advance clearance and control on containerized cargoes has been provided to allow customs to
provide a load port survey program on containerized cargoes.

What is clearly new under this chapter is the mandate for customs to provide a simplified process
based on international practices for postal matters and courier shipments. With regard to Section
440, the version approved by the Lower House required a load port survey for all containerized
cargoes but the approved version only directs customs to implement a voluntary program.

Title V (Export Clearance and Formalities)

Many of the sections under this Title have been adopted from the old code. The only new
provision is Section 503 (Rules of Origin). Under this new provision, CMTA allows the bureau
or any other designated government agency to determine the origin of goods for export, and for
exporters to adopt a self-certification system accredited by the bureau or a designated
government agency.