TRADE-COLOMBIA: Government Declares War on Smuggling

By IPS Correspondents Reprint | | Print |

María Isabel García

BOGOTA, Jan 20 2000 (IPS) - A new ban on bringing liquor, cigarettes and home appliances into Colombia through free trade areas along the Caribbean and Pacific coasts confirms that the national Directorate of Tariffs and Customs (DIAN) has declared war on contraband.

DIAN director Fany Kertzman has already confronted multinational tobacco corporations and United States trade authorities, and named names when she denounced several Colombian parliamentarians for reaping profits from smuggling.

So when president Andrés Pastrana announced last week that the ban would take effect July 1 of this year, many said that Kertzman was behind the decision.

“The government has already bit into contraband and is not going to let go until this scourge is eradicated,” said Pastrana, alluding to issues included in the DIAN publicity campaign. “For every illicit job we remove from the smuggling sector, we create four new (legal) work opportunities.”

In the Caribbean region of Colombia’s north, the ban affects trade in Maicao and Urubia, on La Guajira peninsula near the Venezuelan border, and in several muncipalities of the Urabá Gulf, bordering Panama.

These are the historic smuggling routes, used since the era when Colombia formed part of the Spanish viceroyalty of Nueva Granada.

Natural routes, both land and sea, connect the port of Colon, Panama, and other points in the Antilles islands, with Colombia’s Caribbean regions.

Since the 1970s, marijuana and cocaine trafficking have consolidated in the out-going route, while weapons and merchandise – paid for in cash, often a product of drug trafficking – are smuggled into the country.

DIAN experts estimate that some 4.7 billion dollars in foreign products are re-exported from Panama’s free zone, Colon, to neighbouring countries. Of that total, approximately 1.4 billion dollars in goods are channeled to Colombia, of which just 256 million are legally registered, with payment of appropriate taxes.

For the Pacific coastal region, the import restrictions apply to Tumaco port and Guapi, known entry points for contraband coming from Asia and Ecuador.

Cigarettes constitute the most visible – and controversial – portion of the DIAN anti-smuggling campaign.

The local market consumes an estimated 21 billion cigarettes annually, and the most-smuggled brand is reportedly Marlboro, of the US-based Phillip Morris company. Marlboro cigarettes had been Kertzman’s personal favourite, but last July she switched to Belmont, a cigarette produced by British American Tobacco (BAT).

It was around that time Phillips Morris pulled up stakes and left, because DIAN questioned the import price of 24 cents of the dollar for each pack of 20 cigarettes, while in the United States the price is 1.70 dollars.

Of the Marlboro cigarettes on the Colombian market, authorities estimate that just five percent are legally imported, while the rest enter the country through Maicao, Uribia, Urabá, Tumaco and Guapi.

In the case of home appliances, Colombia is the principal market in the Andean region for companies such as Sony, LG, Samsung, and JVC, with annual sales reaching 600 million dollars, nearly double Peru’s total.

Officials reckon that 60 percent of the appliance trade occurs illegally in the so-called “San Andrecitos,” referring to the free ports in the San Andrés, Providencia and Santa Catalina islands, Caribbean territories claimed by Colombia.

Some 10,000 commercial establishments are said to be found in the San Andrecitos, where one can obtain the same products found in the shops of authorised distributors, but at prices that are 25 to 40 percent less.

DIAN pressure on the San Andrecitos distributors to formalise their businesses has turned into an issue of public order, in part because of the employment this sector has created, but also because, allegedly, organised crime is behind the operations.

The DIAN anti-contraband campaign targets all fronts, including the final consumers. Customs officials are now requiring buyers to show receipts of purchase as they leave informal retail locales.

Kertzman has maintained that tobacco, liquor and appliance transnational corporations have been permissive – if not outright accomplices – in the contraband arriving in Colombia, pointing to the large portion of the illegal market in which their products can be found.

Some companies, including General Electric, Whirlpool, Phillip Morris and Britsh American Tobacco, reached trade agreements based on the joint customs accord signed by the United States and Colombia in January 1999.

The accord establishes that producers must only supply legally registered distributors and that they will open administrative offices in Colombia.

Sports-related clothing companies, such as Nike and Reebok, give their strong support to the DIAN measure.

Orlando Rincón, Reebok general manager in Colombia, said his company sold four million dollars in athletic shoes imported from Hong Kong in 1998, while DIAN authorities seized the equivalent of 21 million dollars in smuggled Reebok items.

In the liquor market, legal importers represent just 14 percent of the total volume. According to data from the Colombian Association of Wine and Liquor Importers, the nation consumes 1.12 million crates of contraband annually.

The high tax rates on imported liquor explain why smuggling of such products is on the rise. A bottle of imported whiskey costs 16 dollars, while a contraband bottle costs half as much. The same applies to other liquors, like rum or vodka.

The Customs Statute to be implemented in July establishes important mechanisms for controlling contraband, said Rafael Madero, president of the Customs Intermediation Societies, the only organisations authorised to handle import transactions valued at more than 1,000 dollars.

The DIAN ban means difficult times ahead for smugglers. In 1999, in joint operations with the Customs Police, authorities seized contraband merchandise worth some 51 million dollars, and initiated 150 criminal cases.

But according to the nation’s Comptroller General, the probability of a smuggler being caught and sanctioned is just 0.73 percent.

An Invamer Gallup poll of 134 members of Colombia’s multinational business community shows that 43 percent see the size of the local market as its most advantageous aspect, while just 2.2 percent cited tax and tariff rates as positives.