The Global Customs Dilemma - Trade Facilitation versus Revenue Collection & Enforcement

When a customs officer, in any country, is asked ‘what is your role?’, the official answer should be ‘my role is to facilitate legitimate trade”. A recent strap line for the World Customs Organisation was ‘Borders divide, customs connects’. Accordingly, it is evident that the 21st century attitude to customs operations is based on the facilitation of export, import and transit trade.  Protocols, such as the WTO Trade Facilitation Agreement, the WCO SAFE Framework of Standards and the Revised Kyoto Convention support, indeed encourage, this approach to cross border trading operations and supporting regulatory control. UNCEFACT defines trade facilitation as "the simplification, standardization and harmonisation of procedures and associated information flows required to move goods from seller to buyer and to make payment”

But, how realistic are these concepts and protocols? Most customs agencies are under pressure to operate an anti smuggling net, detect counterfeit and contraband goods, ensure prohibitions and restrictions are enforced, identify misdeclarations and, not least of all, to collect revenue due. Consequently, the big question is the relationship between revenue collection, enforcement and facilitating trade. Customs operations, globally, are based on a risk management approach utilizing IT platforms such as CHIEF, in the UK, and Asycuda used widely around the world. Import declarations, sometimes pre-arrival, are entered into such systems which provide the first stage of assessing the transaction. Based on the electronic review of the entry the consignment will be subject to no further checks, documentary checks or physical examination (there may be a further ‘fast track clearance route for accredited traders). Those who advocate facilitation of trade would suggest the proliferation of ‘no further checks’ for the vast majority of cross border trade. This is a reasonable approach in regions where declarants tend to understand their customs obligations, are generally compliant and levels of corruption are minimal. Realistically, this means the customs dilemma is more of an issue in developing countries than in the developed world. It is also, arguably, a fact that import duty revenue is rather more significant in developing countries. In some countries the operating budget for the customs agency is calculated as a percentage of the revenue they collect (for example, in Nigeria, it is 7% of revenue collected).

Of course, every import has a corresponding export and it is very clear that good trade facilitation does encourage increased trading volumes. So, can good trade facilitation be accomplished without detriment to revenue and safeguarding imperatives? The answer could be ‘yes’ when the measures required by the WTO Trade Facilitation Agreement are fully implemented globally. Tools and resources like the Single Window, benefits for ‘Trusted Traders’, trade information portals, globally networked customs and collaborative border management will all accelerate the trade facilitation agenda. Indeed, they could actually lead to improved revenue collection by allowing customs agencies to deploy their, limited, resources to those areas and transactions where the high risks really lie. For example, the ‘trusted trader’ (Authorized Economic Operator in the EU) concept, which is enshrined in the WCO SAFE Framework of Standards, essentially divides the global international trading community between companies that have been vetted in relation to their compliance history, procedures and security measures and those which have not volunteered to undergo the accreditation process. As such, customs authorities are better positioned to focus their activities on non-accredited traders and could, conceivably, collect increased revenue by better utilization of their resources. Similarly, providing improved access to customs regulations, regimes and procedures should lead to improved compliance rates. 

Technology has a huge part to play in resolving the dilemma. For example, cargo scanning technology has progressed enormously both in terms of output and speed of throughput. Consequently, in medium risk environments, it can become an appropriate counter-measure to save the need for intrusive examination of cargoes. Also, Single Window platforms make it quick and simple for authorities to share information and apply intelligence led techniques to their risk identification and mitigation processes. However, there is a warning in this context. The maximum benefits of technology to trade facilitation will only be realized when the processes and procedures supporting the technology are appropriate, streamlined and harmonized. Some jurisdictions have a history of implementing technological solutions to customs operations and, subsequently, carrying out the requisite business process re-engineering. This sequencing is the wrong way around and rarely results in the anticipated benefits.

So, trade facilitation and revenue collection / enforcement do not have to be mutually exclusive and can, indeed, be mutually supportive. It should always be recognized that trade facilitation does have a direct correlation with trader compliance. It is hard to justify facilitation when trader compliance levels are low. The duty to facilitate legitimate trade implicitly endorses the need to identify illegitimate trade. Currently, in the UK, in preparation for the post Brexit environment, facilitation is very near the top of the agenda for the Treasury and HMRC. If there is no trade agreement, or a limited agreement, with the EU, it will be crucial to find a resolution to the dilemma.

Article written by Jon Walden - Associate of Strong & Herd LLP

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