FPCD-77-77A Sales of Duty-Free Goods in the Far East
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DOCUHENT RESUME 07437 - [C2968053] Sales of Duty-Free Goods in the Far East: Accountability and Control Should Be Improved (Unclassified Version of a Classified Iseport). FPCD-77-77A; B-180731. September 6, 1978. 9 pp. 6 appendices (38 pp.). Report to Secretary, Department of Defense; by H. L. Krieger, Director, Federal Perscnnel and Compensation Div. Attention: Assistant Secretary of Defense (Comptroller). Issue Area: Personnel anagement and Compensation (300). Contact: Federal Personnel and Compensation Div. Budget Function: National Defense: Department of Defense - Hilitary (except rocurement contracts) (051). Organization Concerned: Department of the Air Force; Department of the Army; Department of the Navy. Congressional Relevance: House Committee on Armed Services; Senate Committee on Armed Services. Authority: FPA Circular 378. U.S. Government employees in foreign countries, including ilitary personnel, ay buy Aerican- and forei;l-mad goods duty-free in accordance with military and foreign affairs agreements. erchandise control systems at U.S. military activities in Taipei, Taiwan, and the epublic of the Philippines were designed to keep U.S. goods from ente-ing the local economy on a duty-free basis. Findings/Conclusions: Personnel under the Status of Forces Agreement (SOFA) in Taiwan realize profits from sales of personal property after a prescribed period of ownership, thus circumventing the SOFA. In many cases, waivers of the holding periods were granted. The merchandiste control system developed at Taiwan, estimated to cost in excess of $100,000 annually, limits patrons of exchanges and commissaries, the dollar amount of monthly purchases, and the ale of items in high demand in local arkets. The limits on coamlssary and high demand items are too high. Exchange sales, which averaged $141 a month for every U.S. individual for February 1976 through February 1977, are not limited in total but should be. In the Pilippines, the sale of U.S. duty-free goods in the local market is the most prevalent criminal activity engaged in by U.S. personnel. A system established to control duty-free merchandise sales was estimated to cost n excess of 1 million annually. The system has resulted in a 12% to 13% reduction in ehange and commissary sales. aowever, local sales of duty-free goods and overpurchasing are continuing, and relatively few "big spenders" are investigated. Recommendations: The Commander, U.S. Tiwan Defense command, should: issue requlations precluding SOrA personnel from retaining an amount in excess of acquisition cost in the sale of personal property including vehicles; require personnel to demonstrate need prior to permitting +he purchase of accountable items; establish lower liaits n sale, of beer, soda, and tobacco; establish dollar limits on exchange sales; restrict privileges of certain dependents; grant authority to Area Coordinating Officers to administer the erchandise control system and obtain Bsbassy permission for them to issue final departure clearance; and ncrease efforts to encourage local authorities to identify a prosecute those selling U.S. duty-free goods in the local market. ilitary officials in the Philippines should: increase efforts to identify and investigate "big spenders" and punish violators; reduce total exchange purchase limits; reduce purchase limits on cigarettes, liquor, and wine; and eliminate cross-servic4.ng of exchauge patrons. Department of Defense personnel should not be permitted to gain financially by virtue of their official position. (TI) -a_ . 6os-3 REPORT BY THE U.S. Genera Accounting Office Sales Of Duty-Free Goods In The Far East: Accountability And Control Should Be Improved This is an unclassified version of an August 28, 1978, GAO report on the need to im- prove the accountability and control of sales of cuty-free goods in the Far East. U.S. Government employees, includinj mili- tary personnel, in foreign countries may bry Americarn- and foreign-made goods duty-free in accordance with military arid foreign f- fairs agreemrents. Resale of these goods is restricted to persons within the duty-free commur.ity, but often permission is granted to sell outside this community. Some of these goods are obtained without authorization, and this has been a continuing problem for U.S. and host country authori- ties. Control over his problem can be im- proved by gaining cooperation of host- country authorities and by reducing the availpble nuriber of items. Military personnel should be treated as other U.S. Government personnel. Their official position should not entitle them to gain financially on the sale of personal property, particularly on privately owned vehicles, shipped duty-free at the expense of the U.S. Government. D S T FPCD-77-77A 'fCC~·OU~' SEPTEMBER 6, 1978 UNITED STATES GENERAL ACCOUNTING OFFICE 'i .WA.SHINGTOCN,D.C. 20548 FEDERAL PER' 'JNNEL AND COMPENSATIO,. DIVISION B-180731 The Honorable The Secretary of Defense A.-tention: Assistant Secretary of Defense (Comptroller) Dear Mr. Secretary: We r.ave ompleted a survey of the merchandise control systems used at U.S. military activities in Taipei, Taiwan, and the Republic of the Philippines. The systems are designed to keep U.S. goods from entering the local economy on a duty-free basis. Our objective included determining the cost and effectiveness rf the systems as implemented at U.S. activities under the direction of the Taiwan Defense Command (TDC); and the U.S. Naval Base, Subic Bay, and Clark Air Base. Republic of Philippines; and various military and civilian activities in the Manila area. U.S. Forces serving under the Status of Forces Agreement (SOFA) realize and retain large profits on the sale of personal property and privately owned vehicles brouqht into Taiwan under duty-free privilee I Deltod CONTROL OVER THE SALE OF PERSONAL PROPERTY BY MILITARY ACTIVITIES IN THE REPUBLIC OF CHINA Although it is not possible to estimate the volume of duty-free U.S. commissary and exchange goods entering the local market, on the basis of the number of stores in Taipei selling the goods and the fact they can be sold for twice the purchase price, it must be substantial. Main shoppers at the local markets are 980731 wealthtr Chinese, western business people, and bar ostesses. They buy such things as food products, soaps, cosmetics, glasses, dinnerware, bedding materials, rugs, and other items. Military officials believe the local sale of U.S. goods could be stopped if the Republic of China (ROC) took aggressive action, but the ROC tacitly approves such sales as in the best interest of the ROC business community. The United States has not formally appealed to the ROC to eliminate the sales. Need co eliminate large profits on sales of personal prcTerty i inclu-ngprivately owned vehicles Personnel under the Ministry of Foreign Affairs Agreement (MOFA) may not sell personal prorerty including privately owned vehicles, outside the duty-free community for personal profit. profit taking is viewed as diminis'hing the stature of the Such in American mission, damaging the U.'. image abroad, and results be undue personal advantage. Excess proceeds from sales must donated to U.S. charities or he U.S. Government. SOFA personnel on the other hand realize profits from such sales after owning the property for a prescribed period of time thereby circumventing the Status of Forces Agreement. During the period March 1976 throuyh February 1977, exchange ROC sales of Sony color TV averaged 1 for every 2 principals in and air conditioner sales 1 for every 1.68 principals. During of the period January 1, 1977, through March 10, 1977, profits about $541,000 were made on 155 privately owned vehicles (1974 sol by SOFA personnel in the Taipei area. Examples or newer) on ranged from a $9,740 profit on a 1976 Ford Granada to $22,400 a 1977 Mercury Gran Marquis. Many of these sales involved waivers of the required holding prof- periods. Others may have been purchased with the intent of iting. An examination of a number of sales of privately owned vehicles revealed that they were purchased when the individuals had a year or little more than a year of their tour in Taiwan remaining. B-180731 Withdrawal of permission to personally profit should result in fewer imports of high value items and privately owned vehicles at a cost to the Government and ir equal treatment of U.S. Government personnel stationed in Taiwan. Need to strengthen merchandise controls To limit sales of U.S. commissary and exchange goods, a merchandise control system, estimated to cost in excess of $100,000 annually, was developed which limits patrons of ex- changes and commissaries, the dollar amount of monthly pur- chases, and the sale of items in high demand in local markets. The limits on commissary and high demand items are too high. For instance, beer and soda are limited to 4 cases a week for a sonsor and a dependent. During the period Feb- ruary 1976 through January 1977, beer and soda sales averaged 3.38 and 2.90 cases, respectively, for every U.S. man, woman, and child in Taipei. Sales averaged 4.24 and 3.74 cases respectively each summer month. Exchange sales are not limited in total but should be. Duiring February 1976 through Febzuary 1977, exchange sales averaged $141 a month for every U.S. man, woman, and child, including major appliances and $123 excluding them. This volum seems high, especially when compared with monthly allowances for 'J.S. Forces in Korea where there also is a problem with local sales of duty-free goods. The allowances, excluding large item purchases, are $100 for one person, $140 for a family of two, and $160 for a family of three. Persons responsible for administering the merchandise control system and investigative officials told us that unaccompanied wives (whose husbands are not stationed where the wives live and have exchange privileges) and non-command- sponsored wives (wives of lower graded enlisted personnel whom the Government does not transport or provide housing) are a major source of U.S.