Legal Framework for Customs Operations and Enforcement Issues

Author:kunio Mikuriya

The Need for Modern Customs Legislation. The Revised Kyoto Convention. Elements of the Revised Kyoto Convention. Overview of the Convention. Preparing a Modern Customs Code. Obligations Under the Revised Kyoto Convention. Practical Guide to the Modernization of Customs Codes. Potential Obstacles to Customs Modernization. Legal Tradition. Drafting Styles. Organization. Administrative and Judicial... (see full summary)


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Customs plays a crucial role in trade operations and revenue collection, and it directly affects the private rights and obligations of citizens. Customs is also expected to play an active role in protecting society and national security from cross-border movements of prohibited or restricted goods, including illicit drugs, counterfeit goods, endangered species, and weapons of mass destruction. Consequently, customs operations require a solid legal framework within which duties can be discharged. Without an effective legal framework that guarantees transparent, predictable, and prompt customs procedures, the international private sector will find it highly cumbersome to conduct business with or to invest in a country in a competitive international business environment. It is, therefore, of critical national interest for every country to maintain its customs activities at high levels of effectiveness buttressed by a legal system that meets internationally accepted standards.

In response to dramatic increases in trade volume and heightened requirements for security, many customs administrations are reviewing their operations in the context of international standards and best practices to assess the need for introducing legal reforms. Modernization of customs laws, regulations, and supporting legal systems is essential for modern customs administrations to cope with the increasing demands for their services. The International Convention on the Simplification and Harmonization of Customs Procedures (entered

Many thanks to Ms. Mashiho Yuasa, law student at the University of Michigan Law School, for her help in research.

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BOX 3.1 An Example of Obsolete Customs Legislation
When Yugoslavia broke apart in the early 1990s, the newly independent republics inherited the Yugoslav Customs Code, which was, by socialist standards, considered to be relatively user oriented. However, the shortcomings of the Yugoslav Code became rapidly apparent.
Designed for foreign trade exchanges largely managed by the state or state-run entities, it did not envisage the rapid surge in the number of operators. Procedures that were designed for established corporations were no longer applicable.
For example, deferred payment was no longer realistic until the reliability of new market entrants had been assessed. In addition, the old code was too detailed and quite bureaucratic. It went to the extent of determining the opening hours of customs offices, which was unrealistic in a rapidly changing economic environment. In an attempt to be user friendly, the old code arbitrarily set the maximum time allowed for customs to clear goods. In the new market economy, customs had to deal with experienced traders and novice importers within the same amount of time. As a result, officials did not have the time to properly examine suspicious transactions, as the prevailing impression was that, as all goods should be cleared in five hours, declarations could be held up by prolonged examination of any one transaction. Worse, the Yugoslav Code made it mandatory to inspect every consignment, thus preventing the introduction of selective examinations.
From the penal side, the code made a distinction between individuals and legal entities. In theory, penalties for legal entities that committed customs fraud were higher than those for individuals. This did not make much sense in a market economy environment, and it led to numerous disputes when the smaller businesses started getting involved in duty evasion, as it was not clear if the company or an individual had committed the offense.
Source: Zarnowiecki 2003.

into force in 1974 and revised in June 1999), also known as the Revised Kyoto Convention, provides an excellent blueprint for such reforms (WCO 1997).

The Revised Kyoto Convention was developed to standardize customs policies and procedures worldwide. It embodies best practices of national legislation around the world, and its implementation would enable countries to meet international commitments concerning trade and border procedures, including the rules of the World Trade Organization (WTO).1 At the same time, the Convention enables each country to tailor its policies and procedures to meet its unique legal, political, cultural, and societal requirements. Other customs legislation, such as the Customs Code of the European Community (the EU Code), is closely aligned with the Convention (European Union 1992).

This chapter discusses the need to modernize customs legislation in the context of international legal standards and examines possible difficulties in its implementation and enforcement. The chapter also briefly touches upon other legal instruments that complement existing international legislation. The first section focuses on the need for modern customs legislation. The second section provides a brief overview of the Revised Kyoto Convention. The third section discusses the process of preparing a modern Customs Code while the fourth section reviews the potential obstacles to a modern Customs Code. The fifth section discusses the process of enforcing customs law. The sixth section focuses on model legislation for intellectual property rights. The final section summarizes the main operational implications of the chapter.

The Need for Modern Customs Legislation

The realities of modern international trade have made it necessary to modernize customs legislation in many countries. Outdated customs laws constrain social and economic progress by acting as significant nontariff trade barriers (box 3.1). They prevent effective revenue collection, discourage foreign trade and investment, and potentially threaten social and national security.

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Outdated customs legislation typically includes one or more of the following characteristics:

* no comprehensive body of customs-related legislation that establishes the clear competence of customs

* noncore customs elements

* inadequate provisions for complying with international commitments, including WTO agreements

* insufficient transparency and predictability reflected in the failure to provide basic information on matters such as rules, decisions, consultation mechanisms, and adequate appeals processes

* complex or redundant customs formalities that delay clearance and create opportunities for unnecessary discretionary interventions

* no provision for selective verification of cargo based on risk management, resulting in reliance on the 100 percent examination of consignments, which hinders customs from deploying its limited resources in an efficient and effective manner

* prohibition of advance lodgment of information or goods declaration2 or post-clearance audits3

* no provision for automation or electronic communication

* ambiguous provisions that bestow customs officers with excessive discretionary power

* inadequate authority for customs to achieve its enforcement and compliance goals.

A solid and modern legal framework is the foundation of effective customs operations. Such a framework should provide for customs-related legislation to accomplish the following:

* establishes the competency of customs authorities to administer and enforce customs laws, develop administrative regulations, adjudicate or settle cases, and make decisions on customs administrative matters

* promotes transparency and predictability (for example, timely dissemination of information, advance rulings, independent audit, appeals processes)

* provides for modern customs systems and procedures (risk management, audit-based control, and adequate automation)

* simplifies customs procedures (simplified declaration, advance lodgment, and so forth)

* encourages cooperation with other customs administrations and with other governmental organizations

* provides for partnership with the private sector (formal consultations, for example)

* promotes customs integrity (clear rules that do not allow excessive discretion, unambiguous specifications of customs' officers authority and obligations, and so forth)

* provides for penalties proportional to the gravity of the offense (that is, penalties should be sufficiently strong to deter customs violations and promote compliance but should not be unjustly severe, especially when violations are minor-from the revenue and enforcement perspectives-and nondeliberate)

* is accessible to the public

* meets international standards.

The Revised Kyoto Convention

Since its inception in 1952,4 the World Customs Organization (WCO) has been working to develop modern principles that would buttress effective customs administrations by examining customs policies and practices worldwide, cooperating with its member administrations, and working with trade communities and international agencies. The early efforts for simplifying and harmonizing customs procedures culminated in the Kyoto Convention, which was adopted by the WCO in 1973 and entered into force in 1974. Globalization, rapid transformation of international trade patterns, and advances in information technology (IT) since then have compelled the WCO and its members to review and update the Convention. The resultant...

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