World Bank Customs Modernization Handbook

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World Bank Customs Modernization Handbook Powered By Docstoc
					 World Bank Customs
Modernization Handbook

        Luc De Wulf
         World Bank
        GFP Meeting
 Washington D.C., July 7, 2004
         Context and Objectives
   Trade liberalization has at times not led to the
    hoped for development, growth and poverty
   Some of this is due to limited market access and
    behind- the-border structural problems.
   But, inadequate trade facilitation services –
    including Customs administration--also share the
   This project aims at supporting Customs
    modernization and complements the limited
    publicly available literature on the subject
   A sister publication with eight Customs
    Modernization case studies is being prepared.
         Audience of the Project
   Policy makers : highlight the importance and key
    aspects of customs reforms so as mobilize support
   Practitioners in national government, Customs
    agencies and donor organizations: inform on the
    major elements of a successful customs reform
    and assist in the design of the reforms
   Private sector: present the customs reform as an
    element of trade facilitation
   Students and academics: Provide a systematic
    overview of the major issues of customs
    operations and guidance on new thinking on u
    issues such as valuation and rules of origin.
  Customs Operations : Before and
          After Reform
Before Reform                  After Reform—XXI Century
 Revenue and control           Move from physical
  focused. Lip service to        control to post release
  trade facilitation             verification using risk
                                 management techniques.
 Elaborate and largely
                                Trade facilitation is
  manual procedures              important
 100% physical inspection      Single agency for border
 Long clearance times           control; security concern
 Exporters have poor           Intensive use of ICT
  access to duty free inputs    Regional groupings
                                 promote harmonization
    Major Challenges of Customs
     Operations in Developing
   Complex trade regimes: multiple rules of origin,
    difficult to implement tariff regimes and ambitious
    valuation rules.
   Government wide personnel policies often make
    it difficult to attract, retain and motivate staff with
    the required skill mix required by the increasingly
    complex trade transactions.
   Corruption is often high at Customs and
    undermines the confidence of traders and investors
   Exporters frequently have inadequate access to
    duty free import, thereby undermining the external
    competitiveness of the country.
   International trade techniques are increasingly
    complex and rely on IT support (DTI, advance
    information , etc.). Customs need to match this
    ICT reliance.
   Clearance times are often very long, imposing
    substantial costs to the trader in terms of
    ―facilitation money‖, higher inventory level and
    financing costs.
     Chapter 1 Strategy for
 The objectives of Customs are now broader
  than in the past and are evolving. They
  include revenue generation, protection of
  society –also against unfair competition of
  smugglers-, security and trade facilitation.
 Reforms must be adjusted to the country
  circumstances. There is no ―One size fits
  all‖. Reform strategy should be based on
  good diagnostic analysis.
All stakeholders should be brought on board.
 The MOF must be assured that revenue
 generation will not be jeopardized; the private
 sector must believe that the initiative will help
 them; Customs staff and management must
 ―buy in‖ to the reform, external TA and
 financing may have to be mobilized and
Performance indicators should be prepared to
 ensure that objectives are clear and to permit
 adjustments to the reform process. Such
 indicators should be updated and regularly
 shared with all stakeholders.
Chapter 2 Organizational and HR
       Issues in Customs
The performance of Customs is crucially
  dependent on its staff. The organization of
  Customs may impact on HR and other
  issues and therefore deserves to be carefully
  reviewed during any modernization
  initiative .
1.  Human Resource Issues
Customs operations are increasingly demanding and
    require that the adequate skill mix is available
    and that staff is motivated. Issues that demand
    the attention of management include :
 Define the desired skill mix
 Adjust recruitment and training practices to
    acquire over time such skill mix.
 Seek out a compensation package that motivates
    staff; a bonus system may be useful if well
    designed and implemented.
2. Customs Organization
The traditional Organization is undergoing strong
   changes as its position within G’nt is being
   revisited and as several are merging with other
   Revenue Agencies.
• Autonomous Revenue Agencies : An attempt to
   take advantage of autonomy, so far mostly related
   to compensation packages. Need to use enhanced
   autonomy for modernizing operational
   procedures, IT and training.
• Management Contracts: Can help to raise revenue
   in post conflict situations and gradually hand over
   management back to national authorities. Need for
   good performance indicators and clear contract
Chapter 3 Legal Framework
   An inadequate legal framework can seriously
    hamper effective and efficient customs
    operations. It may prevent the use of advanced
    ICT, selectivity, electronic lodging of declaration
    or bestow excessive powers to customs officials.
   The Revised Kyoto Convention incorporates
    modern customs procedures. The Convention was
    adopted by 114 countries at the 94the Session of
    the Council in 1999, it has been ratified by 32
    Contracting Parties. In addition it is reflected in a
    flexible manner in the customs legislation of many
    other countries.
Chapter 4. Integrity in Customs

     “Misuse of public power for private gain”
Whenever such misuse can go unchecked corruption
  can be expected.
Corruption at Customs reflects society at large and
  anti corruption efforts will benefit from ―whole
  government approach‖.
WCO’s Revised Arusha Declaration spells out ten
  key elements of an anti corruption Program.
SUMMING UP: Modernization is the most
  powerful anti-corruption policy, but a targeted
  anti-corruption strategy can make substantial
Chapter 5 Managing Risk
   Risk management seeks to strike an appropriate
    balance between trade facilitation and control.
   Aims at adjusting operational practices to
    minimize the chances that events occur that
    prevent the organization from achieving its
   Allocates resources in accordance with the risks,
    and thus eases control of less risky shipments
    (selectivity in inspection, pre-arrival import
    declaration, delivery of goods before duty
    payments, rewards for recognized importers).
Chapters 6-7 Lessons learned
from Modernization Initiatives
   National authorities, at times with donor
    support, have devoted lots of resources and
    attention to modernization of customs
    operations. Drawing on eight case studies
    and the WB experience these are several
    key lessons that should be kept in mind
    when setting up such projects.
•   Political commitment from the top.
•   Provide clear project objectives.
•   Prepare good diagnostic
•   Ensure that other trade agencies are also improving, unless
    that trade facilitation objectives will not be achieved.
•   Identify performance indicators.
•   Partial reforms can be useful, but the long term objective
    of modernizing customs operation should not be lost sight
•   Get stakeholders on board (MOF, Staff, private sector).
•   Ensure adequate life cycle funding for the reform (also
    ICT), particularly for the time when donor support stops.
Chapter 8. Customs Valuation
   Customs valuation goes to the core of customs operations.
   This guiding principles of Customs valuation are given in
    the WTO valuation principles, that instruct that foremost
    importance be given to using using invoice prices. Some
    well identified exceptions are provided (alternate
   Developing countries have struggled with the application
    of the WTO valuation principles. Issues : trader’s
    proclivity to under invoice in the face of weak capacity to
    check values, importance of informal trade and trade in
    second hand goods.
   Proposed Strategy includes: Simplify tariff system, Build
    Valuation capacity in Customs, Establish Valuation
    database, Exchange information with other Customs
    The PSI Option : Chapter provides guidelines
Chapter 9 Rules of Origin (ROO)

 Non-preferential rules of origin.
The desirable WTO/WCO initiative for
  harmonization has not yet been completed. Such
  agreement would provide a standard for all
  trading partners and would set the standard against
  which to judge the non-preferential ROOs .
   Preferential Rules of Origin .
•   Practice: They tend to be very complex and differ
    across products and agreements (NAFTA ROOs
    are 400 pages) and are difficult to administer,
    particularly for small developing countries. They
    often serve other than trade integration objectives
    and often are restrictive.
•   Suggestion: ROOs should be simple (avoid
    product by product rules), easy to administer (e.g.
    standard formula for the value added rule ),
    predictable for trade and similar across
    preferential regimes.
    Chapter 10 Duty Relief and
These import regimes imply substantial ―revenue
  foregone‖. Unless clear objectives are achieved
  they should be abolished.

Many are designed to grant exporters access to duty
 free imports. Necessary for export
 competitiveness. Revised Kyoto provides clear
   Temporary admission:
   The preferred method by importers as no cash outlay
   Needs account-based management and inspection and
    safeguards against loss of revenue. Important to use
    computer application to effect control.
   Drawback system should still be available as back up for
    unexpected or exceptional exports.
   Drawback:
   Often preferred by Customs as it protects revenues.
   Exporters do not like this much because (i) needs cash
    outlay, (ii) refunds often are delayed,(iii) refunds lose real
    value because of inflation
   Temporary admission should be available to exporters in
    good standing.
   Exemptions

   Should be strictly limited to those required by
    international agreements (e.g Vienna for
    diplomats) and non-commercial goods (e.g.
   Authority to grant exemptions should be
    transparent and extremely limited.
   Redundant exemptions should be eliminated as
    soon as possible.
Chapter 11 Transit Issues
Transit presents special problems for landlocked
  countries (leakages and convoys). Transit policies
  are only in part a Customs issue; other agencies
  involved. Three key issues need to be addressed:
 Secure the cargo to prevent leakage.
 Provide a guarantee in case goods do not leave
  the country as expected.
 Ensure that guarantee is promptly released when
  goods leave the country. This requires good data
  transmission. .
Participation of the private sector to set up effective
  administrative arrangement often helps. Transit
  corridor authorities deserve to be studied as
  examples (e.g Trans Kalahari Corridor)
Chapter 12 Cargo Security
While not a totally new to Customs, security
  concerns are receiving great attention after 19/11.
New initiatives- multinational and national, are
  undertaken and Customs should cooperate with
  other border agencies to enhance the security of
  cargo. Failing to cooperate with these various
  initiatives can undermine export competitiveness.
  This is a rapidly evolving field of concerns for
  Customs and deserved focused attention.
   Chapter 13 Information and
   Communications Technology
Modern Customs Administration needs appropriate
  reliance on ICT.
Key Observations:
 ICT is changing constantly
 Use of ICT has helped in mobilizing revenue,
  combat corruption and reduce clearance time
 Much ICT equipment is underutilized
 Managing ICT should be core function of
  Customs Administration
 ICT requires sustainable funding
   Build own system
   Costly with frequent overruns
   Difficult to get it right ; tendency to formalize
    poor customs practices
   Some excellent examples exist
   Buy off the shelf. Several options now available.
   They incorporate best practices
   Often come with appropriate TA for
    implementation and support
   Choosing the appropriate ICT system should
    involve comparison shopping.
   Procuring the ICT system should ensure value for
Thanks for your attention