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Ukay-Ukay: Cheap, Branded–and Smuggled

Posted By MIRIAM GRACE A. GO On March 31, 2003 @ 9:33 am In Business & Economy | No Comments

After several of them were suspected of being smugglers’ accomplices, NGOs are now banned from bringing in duty-free used clothing. So why does the multimillion-peso underground business of ukay-ukay continue?

FOR A GOOD PART OF 1999, A NONGOVERNMENT ORGANIZATION (NGO) based in La Union was able to solicit some 120,000 pieces of secondhand shirts and blouses and 48,000 pairs of used pants from foreign donors every month. The relief goods just kept pouring in so that the NGO placed them first in a warehouse in Metro Manila, then transported them in batches to the communities it was supposedly serving in the northern provinces.

That same year, what used to be an insignificant enterprise of very cheap secondhand clothes in Baguio City boomed into a multimillion-peso trade. From a few stalls in previous years, the number of stores seeking permits to sell used imported clothes grew to almost 100 that year, according to the city government’s business licensing office.

The Department of Social Welfare and Development (DSWD) soon suspected a connection between the unusual volume of garments donations received by the NGO and the items flooding side-street stalls in Baguio. The city was just a 45-minute drive from where the NGO was based.

“The NGO invited suspicion because all the donations it was receiving were used clothing—two container vans of those every month,” said Elma Pille, executive assistant at the DSWD’s National Operations Office. She was part of a unit, now defunct, that evaluated the requests of NGOs to be allowed to bring in used clothing, tax-free, for distribution to needy communities. She declined to reveal the NGO’s name.

A 40-foot container can hold 400 bales of clothes, and each bale can hold 200 to 300 pieces of shirts and blouses, or 120 pairs of slacks. If the Ilocos Region-based NGO received two 40-footers of garments every month, Pille said, “then all the beggars in the country would have been clothed already—like fashion models at that”

Each time DSWD representatives did a surprise inspection of the NGO’s warehouse in Manila, they were told that the containers were sealed and that the people in charge of opening them were not around. The next thing they knew, the secondhand clothes had been repacked and the boxes were being delivered to fictitious recipients and addresses in the north before finding their way to Baguio City.

Illegal But Tolerated

The DSWD found that the NGO was fronting for a smuggler of secondhand clothes that had been selling briskly in bargain stalls in the summer capital. In Baguio, where the trade is being promoted as a tourist attraction, it is called wagwag (to dust off). In Cebu, where it is equally lucrative, it is called ukay-ukay (to sift or rummage). In Metro Manila, some call it “SM,” a playful allusion to a popular chain of department stores but which actually means segunda mano (secondhand). The business, illegal but tolerated by local authorities, also thrives in other major cities such as Davao, Zamboanga, Iligan, Dipolog, and Bohol.

As the underground ukay-ukay business grew, merchants tapped more NGOs to bring in the goods without having to pay heavy customs taxes. The DSWD uncovered more such cases.

This prompted then Vice President and Social Welfare Secretary Gloria Arroyo to issue Department Order 28 on Nov. 10,1999. The officials concerned were directed to “hold in abeyance all applications for duty-free entry of commercial quantities of used clothing until after a thorough review of the process and pertinent guidelines shall have been completed.” The order was based on Republic Act 4653, enacted in 1966, which prohibited the importation of used clothing and rags.

Arroyo formed a legal panel that would study the process. Pille said Arroyo wanted to stop NGOs from being used by the smugglers. “She feared that since these NGOs are licensed by the DSWD, the department would be dragged into cases once they engaged in illegal activities.”

Arroyo may have learned from her experience as trade undersecretary dealing with the textile and garments sector. The Federation of Philippine Textile Industries had been complaining that the underground ukay-ukay trade was eating into the income of legal garment manufacturers.

Lawyer Agnes Devanadera, a member of the legal panel that looked into the activities of the ukay-ukay syndicate, said that on the surface the used-clothing stores are providing cash-strapped consumers with affordable products, with apparel sometimes costing just P50 to P100 apiece. In the long run, however, the underground trade will have an adverse impact on the economy because the local garments manufacturer, losing out to these ukay-ukay stores, will eventually lay off workers or close shop.

NGOs, whether regional or national in operations, apply for permits to import duty-free donations at the DSWD central office. They have to submit a distribution plan, a document listing the kind and quantity of donations they will receive, the barangays where they plan to distribute the goods, and the number of intended beneficiaries. The DSWD works out with the central office of the Department of Finance (DOF) for the exemption of the shipments from customs taxes. The Bureau of Customs (BOC) does not release the goods unless a DSWD representative is present during the inspection of the goods at the NGO’s office or warehouse. The DSWD also conducts random interviews with the supposed recipients.

Devanadera said they discovered that “a Chinese trader” was behind a number of NGOs that applied for importation permits with the DSWD.

Pille said the trader’s scheme was to look for a licensed NGO that had not been getting donations. He would use the NGO to obtain a permit from the DSWD, the DOF, and the BOC for dutyfree shipments of used clothing, to be declared as “relief goods.” In exchange for the NGO’s cooperation, the trader would give the organization 20 bales of the secondhand clothes, plus P120.000.

The DSWD estimates that a trader can earn P4,000 to P5.000 from every bale of used clothing. If there are 400 bales in a 40-foot container, this means a minimum income of P1.6 million to P2 million per shipment If the trader does not pass on the items to ukay-ukay vendors and instead sell them himself, 400 bales containing 80,000 to 120,000 pieces of T-shirts sold at P80 each would rake in P6.4 million to P9.6 million.

“Understandably, anybody who would venture into this kind of business will earn a lot, so what’s 20 bales and P120,000 to spare the NGO that allowed itself to be used?” Pille said.

It appeared, too, that a number of influential persons were behind some NGOs engaged in the ukay-ukay trade. Whenever the DSWD refused to give the BOC the go-signal to release suspicious volumes of relief goods, NGOs would put pressure on the department, dropping the name of this or that well-known person and saying that the influential person was upset that the NGO’s work was being hampered.

The DSWD has since revoked the license of the La Union-based NGO that fronted for a smuggler. It has also blacklisted the permit of an NGO in Quezon City which claimed that it burned a considerable portion of the 40-foot container of used clothing it received because the articles were dirty and stinking. Another NGO, based in Cavite, lost its license to operate after the DSWD discredited its claim that it lost a truckload of secondhand clothes donated by foreigners when the vehicle was hijacked on its way from the port to the NGO’s office.

Arroyo’s successor, Secretary Corazon Juliano Soliman, reiterated through Administrative Order 19 in January 2002 the ban on NGOs importing commercial quantities of used clothing. The administrative order contained the guidelines intended to prevent the abuse of the NGOs’ importation permits.

From November 1999 up to last year, the DSWD granted duty-free importation permits to only 31 of the 1,064 licensed NGOs nationwide. The articles they were allowed to bring in included medicines, foods, vegetable seeds, toys, books, and baby products.

Unending Supply

Yet, the ukay-ukay industry has not run out of supplies. In fact, since the DSWD banned the duty-free importation of used clothing, government has monitored more ukay-ukay stalls mushrooming. In Baguio, the number of wagwag stalls with business permits grew from almost 100 in 1999 to 255 last year. The city government has even built a three-story wagwag center along Session Road.

Clearly, with NGOs out of the scheme, the ball is no longer in DSWD’s hands. However, the customs bureau won’t let the blame fall on its lap, either.

In the last two years that the DSWD did not issue importation permits to NGOs, the BOC seized only 829.5 bales (or two 40-foot containers), 641 boxes, and 300 sacks. These were turned over to the DSWD.

Customs agents explained that it is difficult for them to seize all smuggled secondhand clothes because the smugglers now employ the “consolidation” strategy. This is done two ways. One, before a commercial vessel reaches the ports, it unloads the used clothing on small boats that meet it far from shore. The smaller vessels then dump the goods on ukay-ukay centers in the cities. Two, a trader divides his goods among overseas Filipino workers, who address the boxes of clothes to relatives or to fictitious recipients. These are claimed at Philippine ports by people working for the trader, and then sold in the open market.

Local governments do not appear bothered by the illegality of the sources of these secondhand clothes, thus cannot be expected to crack down on ukay-ukay or wagwag vendors. In Baguio, wagwag stores are issued business permits. In the cities of Cebu and Davao, ukay-ukay vendors (they only put the goods on bilaos and do not have stalls) are not required to have business permits but are made to pay alkabala or token taxes of P5 to P10 a day.

“I don’t care where their goods are coming from, as long as they bring money to the city treasury. If these are smuggled, its for the police to run after them,” said Cebu City Mayor Tomas Osmena.

The Baguio City treasurer’s office refused to give an estimate of the annual taxes paid by the wagwag sector. In Cebu, Osmena said, it is difficult to determine the taxes paid by the ukay-ukay vendors because these are lumped with the taxes paid by vendors of other products such as mangoes and Sto. Nino statues.

The government loses millions because of the unabated influx of duty-free secondhand clothes. But poor communities are the bigger losers. While the donated clothes were solicited in their behalf, the relief goods have not reached their residents, who are the intended beneficiaries.


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