Improving Customs Processes Is Part of the Trade Facilitation Agenda. Good Diagnostics Are the Key Starting Point. Human Resources Policies Need to Be at the Center of Customs Reforms. An Adequate Legal Framework Is Important. Improved Integrity Is Key to Promoting Investment and Growth. Risk Management Underpins Much of Modern Customs Practices. Customs Valuation Is a Core Customs Function.... (see full summary)


This handbook aims to make a positive contribution to the efforts that many countries are undertaking to modernize their customs administrations. The handbook views a competent and well-organized customs service as one that successfully balances its various responsibilities to ensure a high level of compliance with revenue objectives and regulatory requirements while at the same time intervening as little as possible in the legitimate movement of goods and people across borders.

The handbook recognizes that conditions differ greatly across countries, so that each customs administration will need to tailor its modernization efforts to national objectives, implementation capacities, and resource availability. Nevertheless, meeting the modernization objectives will most likely require the adoption of the core principles discussed in this handbook: adequate use of intelligence and reliance on risk management; optimal use of information and communications technology (ICT); effective partnership with the private sector, including programs to improve compliance; increased cooperation with other border control agencies; and transparency through information on laws, regulations, and administrative guidelines.

Success in customs modernization is, as importantly, tied to the overall trade policy environment. Simple, transparent, and harmonized trade policies reduce administrative complexities, facilitate transparency, and reduce the incentives and opportunities for rent-seeking and corruption. Customs modernization, therefore, also needs to be examined from the broader and complementary perspective of trade policy reform.

Improving Customs Processes Is Part of the Trade Facilitation Agenda

Trade facilitation measures need to complement trade liberalization if countries are to increase their external competitiveness and become better integrated into the world economy. When the European Community, introduced a common external tariff in 1968 it quickly realized that to fully benefit from its common market, it needed to streamline customs processes. In the same vein, the World Trade Organization (WTO) in 1996-as part of the Singapore agenda-added trade facilitation to its negotiation agenda realizing that nontariff barriers, to which excessive customs costs belong, are at times more important trade barriers than tariffs and prevent the achievement of trade liberalization objectives.

Trade involves goods crossing borders. This requires that a number of procedures foreseen in the national legislation be followed. Some of these procedures pertain to issues of security and standards, while others deal with customs. Customs procedures are governed by the national legislation and implemented by customs staff that operate mostly under the Ministry of Finance. Conforming to these procedures is not costless, but these costs are often excessive. It is not the intention of the handbook to elaborate on inefficiencies nor to detail all the dysfunctionalities of customs organizations and customs operations, even though some of these are described in individual chapters, as introduction on how best to remedy them. Yet, it is their persistent recurrence and their impact on a country's competitiveness that prompted traders and political leaders to seek out ways to make their customs organizations more effective and efficient. This handbook aims at assisting them in this ambition. It must suffice, therefore, to briefly note the main inefficiencies that these reforms aim to address. First, outdated legislation may not clearly establish the authority of customs, may be out of tune with international commitment, may provide for inadequate transparency and predictability, and may require complex procedures while preventing full use of information technology and risk analysis. Second, customs staff may lack the competence to interface with traders that operate in a constantly changing and challenging business. Often their compensation packages, including career management and training, are inadequate, so that motivating and retaining qualified staff is a major challenge. Third, operational procedures are often excessively and unnecessarily complex and open to discretionary decisions while exporters have poor access to duty-free inputs. Fourth, customs all too often makes insufficient use of available communications and information technology, and thus is out of tune with modern business practices that rely on advanced notification, direct trader input, and tracking devices. This increases costs to traders, opens the door to discretionary decisions, and undermines oversight and audit activities. Fifth, high levels of corruption characterize many a customs agency, as is testified to in investors'; surveys and corruption indexes. Sixth, smuggling activities undermine revenue generation and impart unfair advantages to unscrupulous traders, and undermine the intended protection policies embedded in the tariff structure. In sum, customs procedures are often excessively time consuming, unpredictable, and weak in their revenue generation function.

Good Diagnostics Are the Key Starting Point

Customs operations consist of sets of interlocking processes. To be efficient and effective they need to be adapted to changing trade practices and modern management approaches as well as reflect the various objectives of the country. Yet, customs practices in quite a few countries are not well attuned to these criteria. Rooted in long-standing traditions, they tend to delay the clearance of cargo and conduct operations in a nontransparent manner. Experience shows that effective customs modernization processes generally start with good initial diagnostic work to identify the shortcomings of the existing system, to define a strategy for reform, and to mobilize stakeholder support. Successful modernization also requires a comprehensive approach, that is, an approach that encompasses all aspects of customs administration to address the issues identified, as well as an adequate sequencing of actions. Strategies need to be realistic and should consider the country's capacity to implement, the time that is required, and the level of stakeholder and political support that is needed.

These reform efforts also need to be consistent with the trade policies pursued and should have the capacity to adapt to changing circumstances. For example, the emphasis on issues such as trade facilitation and national security are now more prevalent than in the past.

Human Resources Policies Need to Be at the Center of Customs Reforms

The task of customs has become increasingly difficult because of the growing complexities of trade policy due to the proliferation of regional and international trade agreements, the greater sophistication of traders, and the multiple and shifting objectives imposed on customs. Security is now a new important challenge. Uniformity of customs operations across the territory and across cargo categories is important, and speedy release of goods is crucial to supporting the competitiveness of traders. There is also a need to adhere to international standards on value and classification, as well as regional standards on rules of origin.

Good human resources management is the linchpin to effective and efficient customs administration. This is too often neglected. The management of human resources is multifaceted. It includes recruitment, training, staff compensation and promotion, as well as...

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