Policy and Operational Lessons Learned from Eight Country Case Studies

Author:Paul Duran and José B. Sokol

Page 103

The focus of this chapter is the customs reform and modernization programs in eight developing countries-Bolivia, Ghana, Morocco, Mozambique, Peru, the Philippines, Turkey, and Uganda1-with a view to drawing lessons that could be useful in formulating reform programs for other countries. The country case studies were assigned to customs experts and consultants who either participated in the reform processes in the countries reviewed or who, in their professional experience, had accumulated significant technical knowledge of customs reform and modernization processes in a worldwide context.

Countries were selected that would present initiatives from different continents, with their respective special reform outlooks, and that would yield interesting insights.

Initiated within the framework of an institutional reform covering the entire government and Page 104 with strong leadership provided by the vice president, customs reform in Bolivia aimed at its total transformation. One of the key elements of the reform was complete staff renewal designed to rid the service of deeply embedded corruption.

The study of the Ghana experience is quite different from the other country studies. It was undertaken initially as a case study of reform that would improve the investment climate. It clearly illustrates how introducing information technology (IT)-even in the absence of a comprehensive customs reform-can strengthen revenue mobilization and speed up the clearance of cargo.

While not codified in a detailed action plan, Morocco's program of customs reform and modernization reflected a comprehensive vision and covered all aspects of customs from its organization to its operation. Reform actions were undertaken in a deliberate and pragmatic process.

In Mozambique, the most significant characteristic of the reform was the willingness to rely extensively on external consultants for management and implementation of the reform, and for the valuation of imports and exports for customs purposes. This unusual approach was adopted in the midst of rebuilding a government service that was totally destroyed after many years of war.

In Peru, customs reform and modernization was high on the agenda of the president, who provided strong political support throughout the reform process. Customs was vested with full ownership, and maintained the necessary continuity to see the process through to its completion.

Decisive factors in the success of the reform in the Philippines during 1992-98 included strong top-level political backing strong, able, and sustained operational leadership; ownership of the reform by the head of customs; and support that included some funding by private sector users of customs services. Among its weaknesses was a failure of commitment from the staff arising in part from inadequate compensation-a problem that could not be addressed because the Philippine Bureau of Customs lacked authority and funding.

Customs reform and modernization efforts in Turkey were dominated by two goals: bringing customs legislation and administrative structures in line with European Union (EU) standards in the context of a customs union with the EU, and the automation of customs procedures. The establishment of an independent Modernization Project Unit with strong political support and steady management was a critical element in the effective coordination of automation activities.

In Uganda, customs reform has been a long-term process. Started in 1990-91, its main aim was to strengthen revenue mobilization and to combat corruption.

In addition to the experiences of the country studies, reference is occasionally made to the experiences of interesting customs reform and modernization processes in countries of Southeastern Europe,2 where the Bank supported border infrastructure and institutional modernization to facilitate legitimate trade and fight smuggling and corruption. Such efforts address customs reform from the perspective of the end-user-the trading community-and cover a broad spectrum of activities, including interagency cooperation, enforcement, private sector relations, infrastructure rehabilitation, and revenue collection. Corruption issues are addressed through procedural and organizational reforms.

The country case studies were undertaken based on a common approach to ensure comprehensiveness and comparability. Five areas of the reform process were targeted:

* The background of the reform and modernization process, its economic and institutional context, factors leading to reform decisions, supporters, objectives and design, and financial and technical support.

* Issues in the reform process.

* The reform measures themselves, covering legislation; management changes; staff-related questions such as pay, selection, training, integrity, and corruption; information technology; valuation; experience with preshipment inspection; special import regimes; and selectivity in pre-and post-release control.

* Reform outcomes including impact on fiscal performance, trade facilitation, anticorruption, staffing and workload, and conformance to international standards. Where available, quantitative Page 105 performance indicators receive attention as do user reactions.

* The lessons that each of these studies contain and the judgment pertaining to the sustainability of these modernization initiatives.

Reform and modernization in the case study countries aimed at transforming customs into a professional administration. Whereas most countries pursued several objectives encompassing facilitating trade, raising revenue, and protecting the economy against harmful practices, in others the scope was more limited with emphasis on a particular area. In all cases, reform efforts were supported by external technical and financial assistance.

To provide a firm foundation to the reform process, most countries adopted a new Customs Code, adapting legal provisions to the needs of international trade practices and the application of IT. The reform of customs services included changes in the structure, organization, or status of customs administrations. In several countries, customs was given administrative autonomy, which provided flexibility in adopting a structure and in developing procedures most suited to discharging its tasks. In a few countries, customs also obtained financial autonomy.

To distill the experiences of the countries reviewed into usable lessons, this chapter is organized as follows: The first section provides background information on the economic performance, economic policies, and reforms, relative size, and degree of integration of the countries reviewed. The second section gives an indication of the principal reform objectives, their main design features, and the donor financial and technical assistance that supported them. The third section contains a detailed review of the reform components, covering the Customs Code, management changes, personnel issues (including integrity), IT, customs control, and measures for trade facilitation and for safeguarding revenues. The fourth section evaluates the outcome of the reforms, assessing their impact on customs in the areas of revenue generation, enforcement, integrity, customs clearance time, and the reaction of users of customs' services. Finally, the fifth section derives the lessons of country experiences and identifies factors that are critical for designing and undertaking successful reform programs.

Main Characteristics of the Countries Case Study

The design, enactment, and implementation of major customs reforms in the countries reviewed were influenced by concerns within the countries for improving economic management and increasing the incomes of their population, ongoing economic reform efforts, and the possibility of expanding trade links with other countries.

Economic and Population Characteristics

Wide differences were recorded in the countries reviewed in terms of the size of their economies, population, level of development, and recent economic performance (see table 6.1). Yet these factors did not influence any country's commitment to reform or its pace. Gross domestic product (GDP) levels range from close to US$200 billion for Turkey to less than US$4 billion for Mozambique. With 77 million inhabitants, the Philippines has the largest population of all eight countries reviewed, followed by Turkey with 65 million. Bolivia is the smallest of the group with 8 million inhabitants.

In terms of GDP per capita, Mozambique lies at the lower end of all countries reviewed with US$216, Turkey at the highest end with US$3,052. A wide variance of growth rates was also recorded. In some countries, the reforms contributed to higher growth rates during 1996-2001 than those achieved during 1990-95. Mozambique grew at 9.0 percent per year on average, followed by Uganda at 5.8 percent, and Morocco at 4.1 percent. Peru and Turkey had the lowest growth rates of all, at 2.2 percent.

Fiscal Performance

Reliance on import taxes3 as a source of revenue was relatively higher for most countries prior to the introduction of the reforms (see table 6.2), with import taxes as a share of tax revenue amounting to...

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