World Bank Customs
Luc De Wulf
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
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
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
Major Challenges of Customs
Operations in Developing
Complex trade regimes: multiple rules of origin,
difficult to implement tariff regimes and ambitious
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
Clearance times are often very long, imposing
substantial costs to the trader in terms of
―facilitation money‖, higher inventory level and
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
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
• 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
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
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
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
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.
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
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
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
Modern Customs Administration needs appropriate
reliance on ICT.
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
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