4.1.3 Different classification of goods. In ASEAN, the harmonized system code is in
place. As the taxes are different, shippers tend to arbitrarily classify their goods so as to
pay minimum tax. For example, some customs classify toys as plastic goods while others
classify them as decoration items. This misclassification is either due to the lack of
education among the customs authorities or due to logistics unfriendly practices. Also,
a transit delay occurs when the LSPs challenge the customs officials on the classification
codes. The logistics costs also increase because of detention, as the containers are
detained at the port thereby increasing port charges.
The classification of goods depends on the interpretation even at a country level.
For example, at the two ports of Malaysia where different customs checkpoints charge
different duties at these ports for same goods (15 per cent at Port Klang and 25 per cent at
Johor port). In Brunei, customs officials are not well educated in the classification
system. So, the shippers have to rely on whatever they say. In Brunei and Thailand,
customs official can change the classification codes arbitrarily and intentionally.
In Indonesia and Cambodia, there is language problem, as codes are in English and
customs official do not fully understand English. Also there is a lack of knowledge
among customs officials in Vietnam, Cambodia and Laos, especially regarding technical
goods such as electronics where addition of a new component to the product requires
change in classification. In addition, Indonesia and Thailand do not allow the import of
any used parts, which increases the potential of goods misclassification.
4.1.4 Lack of border crossing coordination. Border crossing coordination is a problem
at both the national and regional levels. Although trade facilitation is routinely mentioned
as a primary objective by regional border agencies, border-crossing coordination between
regional neighbors remains a secondary priority. Long-standing rivalries between
headquarters and border crossing points, as well as a tradition of police control over
borders, have led some border agencies to closely protect their individual mandate, versus
the overall objective of optimizing the efficiency of border crossing points as a whole.
Except for the Philippines, where there is no adjoining border with other ASEAN
countries, border coordination problem is present in almost all ASEAN countries.
The customs of each country do not coordinate with each other, thus sometimes
requiring duplication of documents at the border. Similarly, in Laos, most of the goods
route through Thailand. To truck to the Laos border, LSPs need to meet multi-country
requirements. In such a situation, two sets of documents for Thai and Laos customs are
required. At the Singapore-Malaysia border also dual inspection and duplicate forms
(different customs forms) are required thus increasing lead time and creating physical
bottlenecks of trade volumes.
4.1.5 Inefficient inbound clearance process. At times, customs clearance can be quite
lengthy. Automobiles, for example, need an average of ten days to clear customs.
The inventory cost from this delay is ultimately passed on to consumers.
The inbound clearance process is very fast and easy in Singapore and Brunei.
However, most of the other ASEAN countries including Cambodia, Indonesia, Laos,
Malaysia, the Philippines, Thailand and Vietnam suffer from a lack of transparency on
clearance time. In Indonesia and Thailand the inbound clearance process can be very
time consuming. In Myanmar, it takes three weeks to approve an import licence, after
which the clearance process can begin.
4.1.6 Arbitrary independent rulings. Where customs has several offices in a single
jurisdiction there are chances of poor coordination among one another resulting
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in passing of arbitrary independent rulings. The lack of clear rules in many customs
increases the chance of such arbitrary independent rulings. This passing of arbitrary
independent rulings forms a serious impediment to free trade. These rulings are related
to malpractices adopted by the customs authority.
As an example, in Indonesia, the port of Tanjung Priok has three offices, each of
which seems to run independently and invoke arbitrary rulings. When shippers do not
agree with the ruling, customs officials are often able to get through with their arbitrary
rulings by involving others in the customs hierarchy.
Transparency in the rules is also important. So, if there is a delay in shipment, the
reasons for delay and the expected time is known to concerned parties. In Thailand,
the rules are not clear and transparent and the customs officials are not fast enough.
The rules and regulations in Myanmar change rapidly.
4.1.7 Volatility in border traffic. Customs officials typically note that a reason for
delay at the border crossings is the high variability of daily traffic during the week.
Even with the effort to improve the efficiency of border processes, such fluctuations are
likely to turn the border into a bottleneck and create long queues.
Congestion is a problem at border checkpoints. Even in process efficient Singapore
there are 1-2 hours of traffic jam at the checkpoint. For Laos, although the shipment
volume is low, bureaucracy is very high. An LSP has to provide ample advance notice.
Shippers do not want their cargo to get stuck at any of the terminals. Culture plays a part
too. For example, on Friday since the Malaysian customs do not operate 24 hours for
religious reasons, a number of trucks have to queue overnight at the Singapore-Malaysia
border. Problems in domestic land transportation are also faced in Thailand due to
traffic congestion and restricted hours for entry of trucks into Bangkok.
4.1.8 Multiple uncoordinated offices. Some customs jurisdictions have several
offices, which often run independently. It is a problem in countries with more than one
port, such as Indonesia and the Philippines as these countries are archipelagic in
nature, thus being widespread and hence difficult to control. In Indonesia, while the
major ports are coordinated, the small ports lack coordination. The East and West
Malaysian ports also lack coordination in terms of the customs rules. Thailand also has
a large number of private ports which tend to interpret existing regulations differently.
4.1.9 Improper penalties. Penalties are often imposed by the customs officials without
adequate cause to extract fine which one must pay to be repealed. It impedes free trade
by increasing the total time for shipment, and hence a higher cost of shipment. Moreover,
such penalties may lead the shipment to lie at the yard, thus influencing the quality of the
shipment. In most of ASEAN, such penalties are rare. In Malaysia, Cambodia and
Myanmar, however, penalties are imposed on late submissions, amendments, and
related to inspections in order to elicit arbitrary money. In Indonesia, such penalties
are quite common.
4.2 Foreign investment-related barriers
Foreign ownership regulations pertain to those regulations that either limit equity
ownership in the firm or regulate the form of establishment, such as through a
separately-capitalized subsidiary, representative office, or joint venture. Each country
wants to protect its national interest. While some counties are quite liberal and allow
foreign companies to have majority equity, other countries require local majority
ownership. Such regulations inhibit foreign firms as they struggle to find the right