Sales of Duty-Free Goods in the Far East:

Accountability and Control Should Be Improved (Unclassified Version of a Classified Report)

FPCD-77-77A: Published: Sep 6, 1978. Publicly Released: Sep 6, 1978.

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U.S. Government employees in foreign countries, including military personnel, may buy American- and foreign-made goods duty-free in accordance with military and foreign affairs agreements. Merchandise control systems at U.S. military activities in Taipei, Taiwan, and the Republic of the Philippines were designed to keep U.S. goods from entering the local economy on a duty-free basis.

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 merchandise 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 sale of items in high demand in local markets. The limits on commissary 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 Philippines, 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 in excess of $1 million annually. The system has resulted in a 12% to 13% reduction in exchange and commissary sales. However, local sales of duty-free goods and overpurchasing are continuing, and relatively few "big spenders" are investigated.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Commander, U.S. Taiwan Defense Command, should: issue regulations precluding SOFA 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 the purchase of accountable items; establish lower limits on sales 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 merchandise control system and obtain Embassy permission for them to issue final departure clearance; and increase efforts to encourage local authorities to identify and prosecute those selling U.S. duty-free goods in the local market. Military 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-servicing of exchange patrons. Department of Defense personnel should not be permitted to gain financially by virtue of their official position.

    Agency Affected:


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