Squaring new security concerns with the need to facilitate trade is a daunting challenge for many customs administrations
Customs administrations are not the most popular of organizations. In many countries, they are perceived as remarkable mainly for their corruption and inefficiency. And, in an ideal world of free trade and mutual trust, they simply would not exist. They are, however, almost unavoidable. Even their revenue collection role continues to be important as trade taxes are now-and will continue to be for the foreseeable future-a significant source of revenue for many countries, especially developing ones. Customs also has a key role to play in collecting other taxes, notably the value-added tax (VAT). For this reason, the IMF-a strong advocate of trade liberalization-devotes a good deal of its technical assistance to improving the performance of customs administrations. More generally, too, trade facilitation is receiving greater attention in the context of the Doha Round of global trade talks, with ministers endorsing the multiagency Integrated Framework initiative as a viable model for trade development in least developed countries.
But how, exactly, can customs administration be improved? What are the challenges, and how can they be addressed? This article brings together the lessons the IMF has learned over many years of providing technical assistance
What is the main role of customs administration? In a world of heightened security concerns, customs officers have a range of tasks, primarily related to the movement of goods across national borders. In addition to collecting tax revenue on growing volumes of merchandize trade, they play an important role in other areas of border control-more than half of VAT in developing countries is often collected at the border. They combat smuggling, administer the complex provisions of an ever-expanding number of regional trading arrangements (with over 160 now notified to the World Trade Organization), collect international trade statistics, and address security worries (a role that has come to prominence, in particular, in the United States after the terrorist attacks of September 11, 2001).
Despite significant trade liberalization over recent decades, for many developing countries, and especially the poorest of them, tariff revenue continues to be a core component of government finances. While collected tariff rates-tariff revenues as a percentage of import value-over the past 25 years have more than halved in the developed countries of the Organization for Economic Cooperation and Development (OECD), elsewhere in the world the reduction has been less marked. The average collected tariff rate in Africa remains especially high. In sub-Saharan Africa, trade taxes still account for around one-fourth of total tax revenue; in Asia and the Pacific, they account for about 19 percent (see table).
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At the same time-no doubt reflecting in part the reduction in tariff rates-trade flows have soared since 1980, especially for developing countries (see chart). And it is these trade volumes that drive the workload of customs administrations. Thus, the demands made on customs administrations are likely to continue to increase, and the challenge will be to ensure that trade taxes are levied in a way that does the least collateral damage to international trade flows.
Easing trade flows often requires improvements in customs administration. What are the key problems that need addressing? Undoubtedly, they will vary, but in a typical unreformed customs administration, the whole process of assessing and...