Customs Administration in the World of 2003

Those of us who travel frequently have a variety of experiences in dealing with customs officials at points of arrival and departure at airports, at land border stations, and at seaports. Some of those experiences are humorous, some appalling, many quite boring. Most travellers have stories to tell about their travails with customs officials. In some countries, customs officials actually perform immigration functions, in addition to their responsibilities related to the administration of trade.

However, in addition to the more familiar traveler processing, customs plays a strategic role in a country’s economy. The administration of a country’s external trade policies, the application of fiscal measures, and the enforcement of trade laws are the main responsibilities of customs administrations in the world today. The efficiency of customs processing of commercial shipments for import, export or transit is a critical consideration that investors make before deciding to advance their business interests in any given country. In all too many countries, customs still represents a negative factor for trade and investment – and overall economic development. The factors of inefficiency in trade administration cost those countries in terms of increased prices for imports, less attractive exports and loss of export markets, loss of revenue for the governments’ budgets, loss of investment and new job opportunities, and loss of economic development.

Unfortunately, the problems related to customs administration are all too common, particularly in developing countries and in countries with economies in transition. “Customs” still represents frustration and extra costs to traders in many countries, and this is unfortunate, especially for those poorer countries that so desperately need trade and investment to foster the development required to bring about better lives for their citizens and residents.

On the other hand, customs administrations throughout the world do face many challenges in these modern times. There are several main factors that have made life more challenging for customs officers in 2003:

* The amount of world trade has grown astronomically. The value and volume of world trade are now more forty times larger than in 1970.
* Transportation innovations have facilitated the ever more rapid movement and delivery of goods. The advent of containerization and the development of multi modal transport have significantly reduced delivery times. Containerized shipments can be moved from one mode of transport to another (e.g., sea to rail) without having to be unpacked and repacked. This innovation for speed has in turn has led to the advance of just-in-time inventory systems, which rely on the prompt, predictable delivery of goods to production lines.
* The development of courier services has also pressured customs administrations with demands for more rapid clearance times. Certain types of goods are moved at breakneck speeds – a service for which clients are charged extra fees.
* Trade administration obligations under the World Trade Organization over the same period have made customs work vastly more complex. It is no longer sufficient to just determine the value of goods and how much revenue is to be paid before consignments are released from customs control. There are now more complicated responsibilities related to intellectual property; anti-dumping, countervail and surtax measures; physo-sanitary rules; dispute settlement procedures; rules of origin; product standards; and so on. Further, the development of preferential trade blocks, such as the EU, NAFTA, ASEAN, EAEC, SACU, COMESA, and others has made “Rules of Origin” and the determination of country of origin of goods a critical responsibility of customs administrations.

* Technological innovations have further assisted the tracking and ever more rapid movement of goods around the world. Automated advance cargo reporting systems now provide information on shipments prior to their actual arrival at their final destination. The continuing development of e-commerce also represents a further challenge for customs. Orders for goods can be taken electronically, orders can be received and processed electronically, payment for the sale of goods can be made and received electronically, but unfortunately, deliveries cannot be made electronically!

Regrettably, many customs administrations have failed to react positively to these formidable, yet common challenges, with the unfortunate consequences that they have exacted heavy costs on their nations’ economies.

While the situation differs from country to country, here are some rather typical attributes that still plague many trade administrations in the world today –

• Inefficient, inappropriate and antiquated customs procedures
• Consequential opportunities for rent-seeking, and gross inefficiencies in trade administration
• Inconsistent customs procedures within one country, and from one country to the other
• Low salaries and benefits for administrative officials, who cannot support their families on their official income
• Lack of transparency in trade policies, administrative procedures
• Failure to respond to needs of businesses for service; lack of service standards in customs processes (no predictability for business planning)
• Preoccupation with transaction-by-transaction controls, rather than periodic audit compliance techniques
• Lack of provisions in law and in human capacity for risk management, selectivity and audit-based compliance verification, resulting in deplorable “service”, long, costly clearance times; all traders are subject to the same, burdensome scrutiny and compliance verification techniques, typically before shipments are released by customs
• Outdated customs laws, which fail to provide the basis for a self-assessment system; many current customs laws are outdated, impose unnecessary controls, and prevent modernization of the trade administration
• Widespread, outdated emphasis on paper-based customs documentation requirements and customs control procedures
• Too much discretionary power given to officials in customs laws and operational policies
• Heavy-handed enforcement measures, or lack of modern enforcement techniques to ensure a level playing field in a given market
• Lack of formal, transparent appeal and dispute settlement procedures, and
• Inappropriate or obscure authorities in law for tax exemptions (based on political, rather than economic criteria); unfairness to some traders, manufacturers and investors (exemption provisions, if necessary, should be transparent, available to all who qualify under transparent conditions).

While these descriptions do not apply to every customs administration, they are unfortunately all too typical.

The way forward for customs administrations is clear and certain. Solutions are available. Many countries have succeeded in reforming their trade administration. However, to delay making the necessary changes, or worse to avoid facing these challenges is catastrophic to a country’s economic prospects and way of life.

In a future article, we shall further explore these problems, and in a more positive vein, the solutions and various options that are available. Just as the problems themselves are common and typical, certain adaptable solutions have proven successful in modernizing trade administrations in overcoming these redoubtable challenges.

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The author
Douglas J. Cruickshank is an International Trade Specialist Advisor with the electronic Business School International.

He has served in the Trade Administration of Canada for twenty-five years, in progressively more senior positions up to the level of National Director.
This professional consulting involves the provision of high level consulting to approximately 80 countries Worldwide for leading agencies such as UNCTAD, World Bank, International Monetary Fund and projects supported by the World Bank.

Douglas has advised governments on customs re-engineering as they apply in terms of WTO accession and international conventions which in turn are reflected in customs operations.

Douglas may be contacted at: cruickshank_dj@hotmail.com