Mostly during previous BS Aquino regime
THE mining industry’s claims of its contribution to the economy aren’t all correct, among other reasons, because of one important phenomenon: There has been massive smuggling of gold not only because of a corrupt bureaucracy, but because our borders in Mindanao, a major mining area, are so porous.

In short, the country’s precious metal gold, is being stolen, and this is possible because we are a weak state, we are unable to stop it. That’s the core problem we face in the mining industry.

MUCH OF THEIR OUTPUT SMUGGLED TO HONG KONG: Child miners pan for gold in Mt. Diwalwal in Mindanao, innocently using poisonous mercury and cyanide.

The discrepancy of $4.2 billion, or 79 percent of gold value reported by Hong Kong, approximates what was smuggled out of the Philippines. In peso terms, this amounted to P200 billion. The bulk of this smuggling, or 86 percent, occurred during President Aquino’s term.

(See technical note below for an explanation on how these figures were derived from the UN data.)

Gold smuggling surged during Aquino administration. Computed from UN Comtrade Data

The data show that gold smuggling started only in 2005, but rose to huge amounts during the administration of former President Aquino, when more than two dozen Chinese companies rushed into the gold mining industry in the country. Aquino’s Liberal Party and its 2016 candidate Mar Roxas were known to be close to several miners, and were very supportive of the mining industry.

During the 2016 election campaign, Roxas used a lot of the helicopters and small planes of Eric Gutierrez, the owner of San Roque Metals (SRMI), one of the largest mining firms in the country. Congressman Edgar Erice, the LP spokesman, was also for a time SRMI’s chairman.

Because of the huge smuggling, gold had fast become one of Hong Kong’s biggest imports from the Philippines, accounting for 11 percent of its total gold imports from 2011 to 2015.

A November 2012 investigative piece in the region-wide news site Asian Sentinel entitled “China’s Filipino Gold Rush,” reported:

“A vast and growing river of gold, much of it illegal, is being mined in the Philippines by Chinese companies and is pouring into Hong Kong before most of it is transshipped into China. Chinese mining companies, many of them operating illegally, have been exporting gold, nickel and other precious minerals out through the island country’s porous coastal ports, where there are no customs officials and plenty of bribable officials to turn their eyes the other way.”

The British news agency Reuters earlier, in August 2012, in an article entitled “Philippines’ black market is China’s golden connection,” reported: “Traders and officials say it looks like much of the gold is going to Hong Kong, the main conduit for gold flows into China.”

The Reuters article also pointed out: “Hong Kong’s top source of gold imports from 2005 to 2010 was the Philippines, official data from the Chinese territory shows…Official statistics in the Philippines, reflecting legal exports, show gold exports to Hong Kong in 2010 and 2011 at just around 3 percent of the total volume recorded by Hong Kong authorities.”

The Reuters and Asian Sentinel reports were ignored by the Aquino government, and no investigation was ordered. The UN Comtrade data show that from $590 million in 2012, smuggled gold even increased to $716 million the next year.

The Bangko Sentral ng Pilipinas requires that 60 percent of gold export proceeds be sold to it, for the foreign exchange to be part of our international reserves. With $4.2 billion smuggled, and therefore not sold to the BSP, the country lost about $2.5 billion in foregone foreign exchange.

Maybe even worse, gold sales are imposed a 5 percent withholding tax and a 2 percent excise tax for a total of 7 percent in taxes. With P222 billion smuggled and therefore unreported, government lost P14 billion in foregone taxes.

The mining industry spokesmen have been claiming that it is small miners, especially those in Mount Diwalwal in Compostela Valley in Mindanao, that have been smuggling the gold.

Sources, however, explained that such small miners—mostly poor and illiterate—sell their gold to traders, who then turn these over to Chinese-affiliated firms which have the connections to ship these to Hong Kong. A significant part of the smuggled gold is shipped to Hong Kong through our ports, but undervalued, with the connivance of corrupt customs officials.

The mammoth smuggling of gold together with Duterte’s clampdown, through his determined environment and natural resources secretary Gina Lopez, on erring mining firms is worrying.

The stakes are so huge that there are now billions of reasons for removing Duterte as early as possible, by hook or by crook.

Technical note
The estimates on gold smuggling in this column are based on data from the UN Comtrade, specifically those on the trade in gold between the Philippines and Hong Kong (international product code 7108).

UN Comtrade provides two sets of data. The first set has the value of gold imports from the Philippines, as reported by Hong Kong authorities. The second set of data has the value of gold exports to Hong Kong as reported independently by our government. Imports by mainland China of gold from the Philippines have been insignificant.

To compare the two sets of data, economists use various formulas, the simplest of which involves reducing the import value by 10 percent to account for the cost of freight, insurance and other shipment costs. The difference between the reported value of Hong Kong’s gold imports, less freight and insurance and other costs, and the Philippine reports of its exports to Hong Kong represents the estimates of smuggled, i.e., unreported gold. While certainly not 100-percent accurate, because of time lags in reporting, economists use this method to approximate the scale of smuggling between the two countries.