Regional Integration and Customs Issues

Regional Integration and Customs Issues Hamid Alavi Middle East and North Africa Region, World Bank Regionalism in Developing Countries: Issues and Implications WBI, Washington DC June 23 2005

Overview Presentation Purpose Customs integration is an important requirement for successful regionalism and is helped by it Customs has a key role in the success of regional integration Customs inefficiencies create a cost in terms of lost trade opportunities (DFI will be hard to attract) and delays But customs is only one of many agencies concerned with trade logistics and trade controls Customs reforms can be motivated by regional integration Requirements and institutional development for efficient customs in a regional context June 2005 1

Customs Role in Successful Regional Integration Inefficient customs procedures can hamper trade and therefore successful regional integration Customs is one of several issues that can hamper successful regional integration Inefficient trade logistics Inefficiencies in border crossing Import and export permits Standards and technical controls Inefficient customs procedures and rules Increase times and cost at border crossings and ports Undermine the credibility of regional integration efforts Customs can help alleviate some of other issues e.g., it can be a lead agency for technical controls June 2005 2

Customs inefficiency : Time is a Trade Barrier Inefficient customs procedures increase delays in trade transactions at borders, ports and airports, in effect creating a trade barrier Trade occurs in physical space and moving goods requires time. Trade clearance costs are as important as tariffs Each day saved is equivalent to 0.5% tariff (Hummels) 7% of value of world trade is cost of administration of trade logistics (UNCTAD) Time becomes even more important in multi-stage production (global supply chain) % of vertical specialization in trade (use of imported inputs for exports) has grown 30% in the past 20 yrs and accts for half of overall trade growth. Willingness to pay to save time: Share of airfreight in US grew from 7% in 65 to 30% in 98 Airfreight 7 times as expensive as ocean shipping. June 2005 3

Efficiency gains from streamlining and simplifying customs processes Imagine if the contents of a ship can be processed in half a day instead of a day Infrastructure capacity effectively doubled Twice the cargo Twice the # of ships Twice the number of containers Increased harbor duties, excise and revenue Considerably lower cost to traders even more benefits: These efficiencies offer wider attraction to trading partners Efficiency in vessel turnaround attracts new trading, market center, distribution business. June 2005 4

Regional agreements can facilitate customs modernization Pressures from trading partners to facilitate access to markets of other partners can stimulate customs modernization initiatives, some examples from existing regional initiatives: Harmonization of the Customs Code and the enforcement regulations Simplification and Harmonization of procedures Harmonization of tariff structure with the Harmonized tariff classification Transparency Adoption of the WTO valuation agreement Temporary admission and drawback schemes Work Towards Customs Integrity Mutual Assistance agreement Partnerships with the Business community Establishment of joint border posts Joint Training Centers June 2005 6

Requirements for Efficient Customs The following are some of the key elements that can enhance the efficiency (trade facilitation) and effectiveness (revenue collection, security concerns, ) of customs in a regional context Simplification and harmonization of customs procedures Simplification and harmonization of customs documentation Development of shared border posts and facilities Development of simplified transit systems Data consolidation/information sharing and ICT development for customs operations (and other trade clearance processes) Development of risk management and post entry audit Development of a Regional Intelligence System Capacity building for regional Customs organizations June 2005 8

Simplify and Harmonize Procedures Mainly achieved through reform of customs legal frameworks (e.g., Customs Code) at the country level in line with the Convention on the Simplification and Harmonization of Customs Procedures (the Revised Kyoto Convention) The Convention serves as a blueprint for reforms and modernization of customs administrations Transparency and predictability Standardization and simplification Maximum use of ICT Risk management to facilitate legitimate trade while maintaining effective control Fast-track procedures for authorized traders with good compliance record Partnership with all stakeholders (government, private sector, other customs agencies), including joint customs controls (essential for the development of joint border stations) Complement country efforts by regional customs cooperation activities Providing training on the Revised Kyoto Convention including modern customs techniques such as risk management and post-entry audit Sharing knowledge from programs sponsored by other agencies such as the European Union s TRACECA Program Disseminating country experiences and lessons learned in individual countries customs reforms and modernization efforts June 2005 9

Simplify Documentation Trade transaction is a complex process involving: Many documents Many players A typical trade transaction can take as many as 150 different documents to complete Raw material and component supplier Manufacturer/assembler Customs agents/brokers Customs authorities Government authorities- export promotion/approval/stat. Local transport and warehousing companies Container handlers Port and harbor authorities Shippers (sea, air, road, rail, canal, ) Bank and insurance companies Each have own set of paper forms and interactions with other organizations SAD concept June 2005 10

Air, Sea, Land International Transport Ship s Documents Manifest Bills of Lading Sea/AW Bill Container Plans Foreign Chambers Commerce Overseas Embassies Post/ Courier IMPORT Pay Taxes /Dues Clear Customs Release Goods Customs Certificates Of Origin Legal Invoices Port Informal Processes Invoice Packing List Declaration Delivery Note Licenses Certificates Government Approvals Storage IMPORTER P.O. Contract Terms Delivery Instructions L.O.C. Bank MANUFACTURING/ VALUE ADD DOMESTIC SUPPLY CHAIN Raw Materials Packaging Transport Storage Quotations P.O.s Delivery Notes Con. Notes Invoices Statements Chamber of Finance Commerce Ministry Pay Payments Remittance Advice MANUFACTURER EXPORTER Government Departments Pay Taxes /Dues Clear Customs Release to Port Customs Port Processes Internal Transport Storage Container Handling Loading Book/Confirm Transport Port Invoice Informal Packing List Processes Declaration Delivery Note Certificates Of Origin Form A EUR.1 Licenses Certificates Government Approvals EXPORT Port Shipping Documents Customs Receive Goods FOREIGN BUYER Bank L.O.C. Packing List Invoice LOC Approval LOC Courier 11

Enhance the Efficiency of Border Crossing Joint border facilities help neighboring countries collectively economize on their border resources and significantly facilitate trade Efficient joint border facilities reduce the # of stops incurred in a cross border movement by combining the activities of both countries border agencies at either a single common location or at a single location in each direction In addition to Customs, as the main organization at the border, other agencies include border police, veterinary, sanitary and phytosanitary agencies, ministries of transport, telecom, In usual cases, the work of these agencies in repeated on both sides of the border However, joint-border processing requires A high degree of harmonization of customs legal frameworks Joint clearance procedures (joint labs, etc.) Sharing of jurisdiction on foreign territory that normally requires ratification by the legislative bodies of two bordering countries June 2005 12

Joint Border Processing Options Joint border processing involves a single methodology based on combining the activities of both countries border agencies (either in sequence or simultaneously) at a common location. However, the implementation of the concept has different variants Straddling facilities On both sides in common shared zone US/Canada, Germany/Poland, Germany/Czech Rep, Australia/Hungary Common border facility Countries agree to locate facilities wholly within the national territory of one country, with officials from both countries working together Bosnia/Croatia, Bulgaria/Romania Juxtaposed border facility Two separate zones with their own facilities Officials may be stationed in each other s territories to do joint controls Country of entry processing Eliminate the need for outward processing by contracting arrangements with the country of entry (most customs are more interested in inward traffic than outward) Becoming common in Europe (UK) in relation to air and ferry transits. June 2005 13

Simplified Transit Systems Essential for small or land-locked partners to regional agreements. Key constraints to transit movements include Weak legal framework Complex and outdated border procedures and documentation Lack of coordination among border agencies Lack of mutual recognition of customs control procedures Weak transport and trade professionals Inadequate guarantee systems Inadequate customs and transport logistics Some success elements (based on European experience) Revise legislation Give special status to authorized traders (consignor/consignee) Allow for comprehensive guarantees or guarantee per transit movement Use modern instruments to speed up transit trade Eliminate paper-based transit system, harmonize based on SAD Minimum Common Core (MCC a transit application) provided centrally Unique Movement Reference Number (MRN) WCO s Customs Data Module including data to identify high-risk cargo Advanced electronic transmission of customs data June 2005 14

Use of ICT A key principle is that countries must first reform customs laws and procedures according to country circumstances and international best practices and then use ICT to reinforce the reform process. ICT should not be used to re-engineer poor and antiquated customs procedures in the hope that it would help solve inefficiency, corruption, and other problems Automate Codes and standards Customs only one among many Phased approach/demonstration effect Supporting and implementing structure Reengineer back-offices Simplify trade documents and eliminate duplication SAD Steering committees and working groups (cross agency) to design components and draw up action plans Streamline and simplify customs processes June 2005 15

Data Consolidation and Information Sharing Systems built around customs MIS systems long term difficulties in technology areas such as flexibility, interoperability, international standards, volume, ongoing support and support costs. Single windows Shipping Agents Traders Customs EDI Server Freight Forwarders Ministry of Commerce A facility providing standardized information and documents with a single body to fulfill requirements for import, export and transit regulations and clearance Customs Brokers Figure B Cargo Handling Port Authority Banks Expedite and simplify information flows between trading community and the government June 2005 16

Risk Management and Post Entry Control With the growing volume of international trade and passengers as a result of regional agreements, the traditional method of inspecting every traveler or cargo consignment has become a hindrance and is no longer practical Risk management offers a solution by allowing customs to focus its resources on detecting and examining high-risk cargos and travelers, while not impeding the movement of low-risk cargos and travelers Time allocated for customs clearance can be further shortened by combining risk management with post-entry auditing, in which customs scrutinizes shipment after its entry has been cleared particularly on those identified as high-risk importers June 2005 17

THANK YOU! Hamid Alavi Middle East and North Africa Region, World Bank halavi@worldbank.org