Sri Lanka is losing millions of rupees owing to the Customs Department, through a course of negative action, thwarting the growth of entrepot trading which has a huge potential in Sri Lanka, a logistics expert has complained. “There is huge potential for this business and is a step forward in President Mahinda Rajapaksa’s concept of [...]

The Sundaytimes Sri Lanka

Sri Lanka blows away millions of rupees owing to lack of support for ‘entrepot’ trade


Sri Lanka is losing millions of rupees owing to the Customs Department, through a course of negative action, thwarting the growth of entrepot trading which has a huge potential in Sri Lanka, a logistics expert has complained.

“There is huge potential for this business and is a step forward in President Mahinda Rajapaksa’s concept of a shipping hub. Unfortunately the Customs is not very progressive in this arena,” said Nalin Dharmapriya, Head of CHB (Customs House Broker)/Consultant at Eurotrans Express Pvt Ltd.

The company lost a major client and also an opportunity to help a Dubai investor to set up an international distribution centre in Colombo.

Mr. Dharmapriya has been fighting a losing battle over many years to promote entrepot trade in Sri Lanka and in desperation last month wrote to the Director-General (DG) of Customs saying that this globally-popular business is being lost due to customs officers ignoring the basic guidelines. In particular, he has cited a section in the guidelines which says “Goods under Entrepot Trade within seaport/airport will not be subjected for examination unless the Director General of Customs, Deputy Director General of Customs or the Director of Customs (Bonds) authorizes the examination of such cargo for any specific reason,” and complained that this section is not properly understood by the Customs.

Entrepot trade is where a cargo from point A to B is shipped through a middle port without any import or export levies imposed in this port. Many traders ship their cargo to the port of destination via another port which then becomes the entrepot trade port. The handling agents in this port earn handling fees for logistics and other technicalities without adding or tampering with the cargo and shipping it the port of destination. In this process, the port too earns fees and the country valuable foreign exchange.

Goods under entrepot trade should not be tampered with as they are sealed from the port of exit and must remain in the same condition when received at its ultimate destination via the middle port (entrepot trade port – in this case Colombo). If the cargo is broken, it is unlikely to be accepted at the final port and the handling agents in Colombo have to bear huge losses, which is what Mr. Dharmapriya is complaining about in relation to some shipments of cigarettes. “If there is some suspicious cargo the Customs can send the cargo back without tampering with it,” he said. He said his company handled 17 cargoes and brought in Rs 30 million in foreign exchange but the whole business is now being jeopardized after the Customs Preventive Unit recently began examining every cargo carrying cigarettes.

“The IT division stopped the last ever container we had. We were summoned a couple of times. Statements were taken, our office was raided, inspected inch by inch. We cooperated due to the fact that the officers enjoy the immunity of the Customs Ordinance and for the sake of business. We requested them not to open the packing without proper authorisation. We were pleading,” he recalled.
He said cigarettes cannot be traded once the “weather” proof packing is removed. In this case the bar codes were also exposed, which was not to the satisfaction of the buyer. “When this happens the buyers may be suspicious that some pilfered fake products has been introduced to the shipment,” he said, adding that customs officers tore and opened all boxes.

He said this action led to the stoppage of business by the principal agent.

In his letter to the Customs DG, he said the investigation carried out by the IT division was due to the lack of knowledge on entrepot trade. “Although the trade is legitimate and globally practiced they assumed it was illegal,” the letter said adding that the action caused immense damage to the company and the economy, “We have been deprived the opportunity to be in a legitimate business.” Mr. Dharmapriya said in the letter.

The logistics expert also referred to a previous instance where a certain Customs officer stopped a consignment of five containers coming from a European country and going back to the same country through the third party under the entrepot trade concept.

Though he couldn’t find any fault with the consignment, he released the shipment only after a Rs. 12 million bank guarantee was given. “This was a violation of that shipper’s rights as no bank guarantee must be asked for since no Sri Lankan laws were violated,” he said, adding that about two weeks later the shipment was allowed to be shipped.

However, it took a year which included several visits to the Customs and many reminders, for the bank guarantee to be released to the company concerned which ended up unnecessary bank interest in vain for the Rs. 12 million.

Customs has right to break seals of cargo

Entrepot is a facility to import goods either manufactured or not from one port to another country free of customs duty and other levies for re-export to a third party of any other country.

Re-export could be done immediately without any value addition or with simple processing such as re-packing, re-labeling, etc. Value addition or change to container of goods is also possible under entrepot, said Leslie Gamini, Director of Customs and Customs media spokesperson, when he clarified the procedure to Business Times.

He noted that the customs has all the right to inspect the cargo breaking the seal in front of the consignee or the handling agent.

Mr. Gamini said that the customs officers have the authority to carry out inspections of any cargo and even goods brought down under entrepot trade, breaking the seal of containers if they receive information on smuggling of narcotics, weapons or any other prohibited items.
All these inspections are carried out in the presence of consignee or the handling agent and therefore the allegation of tampering is baseless, he added. Re-packing, re-labeling and simple processing to meet the buyers requirements should be carried out in the bonded area and under customs supervision, he said.

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