Address by Ransford Smith on Global Dialogue on Customs Capacity Building at the World Customs Organization

Good morning, Ladies and Gentlemen,

It is my pleasure to be here this morning to address this important Global Dialogue on Customs Capacity Building, organized by the World Customs Organization. I have been requested to address the topic of “customs and trade reform agendas in the context of efficient and coherent development aid”. I will start by situating the importance of customs in the overall development process before broaching the challenges and the role of aid in facilitating the reform agendas.

Importance of Customs in international trade

Technological progress and worldwide trade and investment liberalization are presenting new opportunities for countries to harness global markets for growth and poverty reduction. But with the advent of global supply chains, a new premium is being placed on being able to move goods from A to B rapidly, reliably, and cheaply.

Being able to connect to what has been referred to as the “physical internet” is fast becoming a key determinant of a country’s competitiveness. For those able to connect, the physical internet brings access to vast new markets; but for those whose links to the global logistics web are weak, the costs of exclusion are high and growing. Whether a cause or a consequence, no country has grown successfully without a significant expansion of its trade.

In this highly competitive world, the quality of logistics can have a major bearing on a firm’s decisions about which country to locate in, which suppliers to buy from, and which consumer markets to enter. High logistics costs and more particularly low levels of service are a barrier to trade and foreign direct investment and thus to economic growth. Countries with higher overall logistics costs are more likely to miss the opportunities of globalization. As the World Banks’ Logistic Performance Index (LPI) report 2007 puts it: “Countries that top the LPI ranking are typically key players in the logistics industry, while those at the bottom are often trapped in a vicious circle of overregulation, poor quality services, and underinvestment”.

Let us consider a few facts from the same report: the customs clearance of sea cargo takes on average 2.1 days in developed countries, and 4.8 days in East Asia and the Pacific. However, traders in Latin America and Caribbean must wait up to 9 days, and those in Africa and South Asia up to 10 days.

Obstacles to moving goods across borders quickly, reliably and cheaply pose one of main development challenges. In most of the developing countries, the border control and procedures have not kept pace with the changing trading environment. It can be argued that these countries’ border agencies practices and procedures are outdated and incompatible with modern trading requirements of the global economy.

What are some of the limitations that characterize many custom regimes in developing countries? We have found these to include:

1) Excessive data and documentation requirements.

2) Lack of transparency and use of pre-ruling systems as well as unclear and unspecified import and export requirements.

3) Inadequate procedures and a lack of audit-based controls and risk assessment techniques.

4) High degree of unpredictability and lack of automation and insignificant use of information-technology.

5) Lack of modernisation of, and co-operation among, Customs and other governmental agencies.

6) Inadequate grasp of Custom valuation. (Despite receiving substantial technical assistance, many developing countries have not succeeded in adequately implementing the WTO’s transaction-based valuation standard.)

Given that the pivotal role of Customs in the overall process of trade facilitation is increasingly clear today, it is a cause of concern that customs administrations in many developing countries are still caught in the old web of control and revenue collection. And there is, as would be expected, quite a lot of resistance to change.

Challenges

What are some of the challenges facing custom administrations in many developing countries? These administrations are now confronted with:

1) More sophisticated and demanding clients, for example, traders who have invested significantly in modern logistics, inventory control and technology.

2) Greater policy and procedural requirements associated with international commitments.

3) Proliferation of regional and bilateral trade agreements, which significantly increase the complexity of administering border formalities and controls.

4) Heightened security concerns and demands to respond to the threats posed by international terrorism and transnational organized crime. There is greater pressure on Customs to implement new security protocols - (e.g. compulsory scanning of all containers- before entering US ports). Such security measures can increase trade costs by requiring costly changes in custom practices and new investment in technology and infrastructure.

5) Revenue fraud.

As many customs administrations in developing countries are struggling to meet these continually increasing demands and priorities placed on them, they urgently need to embrace reform and modernization. What does this imply? We would identify four priorities to be pursued by developing countries in collaboration with development partners.

· Firstly, simplification and harmonization of customs procedures must be pursued constantly as they are at the heart of trade facilitation.

· Secondly, the primary focus of customs’ attention should shift from physical control over consignments at the time of importation to post‑release verification using audit-based controls.

· Thirdly, in landlocked countries, there is the need to establish integrated border management or One-Stop Border Posts (OSBP).

· Fourthly, strengthening of human resources, which is perhaps the single most important issue that affects the efficiency and effectiveness of customs. This also relates to the critical issues of governance and integrity.

As you may be aware, the Commonwealth Secretariat has been providing technical assistance in the area of trade facilitation including customs reform and modernisation.

In Kenya, Commonwealth Secretariat assistance has developed a Community Based System (CBS) that utilizes electronic data Interchange (EDI) to reduce the burden of clearing goods for traders and public agencies alike, thus simplifying the current system and helping to increase transparency whilst improving control. The CBS was able to reduce the average time to clear goods at Mombasa by 77% (from 10 days, 8 hours to 2 days, 8 hours).

In Sierra Leone the objective was to build capacity within the Customs Department, with specific emphasis on the modernisation of the customs operations and the implementation of the WTO Customs Valuation Agreement. The two main outputs of the Commonwealth Secretariat’s intervention were the establishment of Customs Valuation Unit and an updated Customs Legislation relevant to current international trade needs and compatible with WTO requirements.

In Mozambique, following on the work that the Crown Agents had been engaged in, we provided independent advice to the Mozambique Directorate of customs on the competitiveness of its trade facilitation Information technology (IT) efforts as it related to modern risk management, transit management and customs valuation.

Presently, we are providing technical assistance to the Government of Mauritius to undertake a Dwell Time Study. We will also be providing technical assistance to the Caribbean Customs Law Enforcement Council (CCLEC) to undertake a benchmark study on the trade facilitation system and processes of the Commonwealth Caribbean region. The main focus of this project will be on custom reforms. The overall goal of this project is to assist in enhancing competitiveness of the region by developing a simplified regulatory environment and harmonized standards in conformance with best practices, using three countries as pilot cases. These are some specific examples of our interventions.

It is relevant to reflect on some of the lessons learnt and the context in which customs reform currently takes place in the developing world. The proliferation of trade agreements means that to optimise efficiency and other gains requires that modernisation be coordinated amongst neighbouring countries and within regional groupings. The changing nature of global production, with growing trade in intermediate goods and inputs, underscores the importance of having efficient customs administrations all along the value chain. Coherent development assistance must necessarily take full account of these emerging realities.

In very much the same vein, it is important to point out that although our interventions have sometimes been very specific in their scope and objectives, it is apparent from our experience in this area that, to succeed, a modernization programme must consider all institutional, policy and infrastructural aspects - from the legal and institutional framework, including procedures, and other areas such as Information Technology systems and strengthening human resources. Co-ordination amongst development partners is important to ensuring this. We have observed also a willingness by Governments to involve external consultants for the management and implementation of reform. We consider that Public Private Partnerships can play an important role in supplementing and/or supporting the Capacity Building initiatives by multilateral and other providers of assistance and encourage we this.

An important and related factor to take account of is that while custom modernisation is important, it must be viewed in the wider context of trade facilitation reform. In practice, many custom reform projects have been limited in scope. The general objective appears to have been to fix some urgent operational requirement. These reform initiatives have absorbed substantial domestic and external resources and have been mostly directed at strengthening budget revenue. Examples of such reforms are those that have introduced advanced IT platforms and changes in valuation systems. While some of these limited reform initiatives have been successful, many observers agree that these initiatives have a poor record in terms of sustainable improvements to overall efficiency and effectiveness of custom operations. In other words, isolated initiatives without comprehensive planning tend to be piecemeal, costly and unproductive.

The need to adopt a holistic approach flows from the nature of trade. Indeed, trade relies on the services of a large number of agencies and service providers, who are all participants in the trade logistics chain. International logistics encompasses an array of actions, from transportation, consolidation of cargo, warehousing, and border clearance to in-country distribution and payment systems. Therefore it is the relative efficiency of a country’s trading system that will determine whether it can harness the new opportunities from globalization. Thus reform that is limited only to customs, important as this is, will be substantially less effective if other agencies and service providers do not also enhance their performance at the same time.

We also know that trading (and investment) activities depend on a credible legal environment where the rule of law prevails, on efficient financial intermediation, and on port warehouse services that operate efficiently. The optimal way to involve other entities meaningfully in custom reforms is to cast the reform within a broader context of trade facilitation reforms.

Finally, I want to note the growing importance and relevance to this subject of South‑South merchandise trade. This has more than tripled in just over a decade, from US$577 billion in 1995 to over US$2 trillion in 2006. In 2006 South‑South accounted for 17 per cent of world trade and 46 per cent of developing countries’ total merchandise trade. Thus, active bilateral and regional cooperation between developing countries, and especially among landlocked countries, should promote an integrated approach to transit which goes beyond just customs issues. The resulting increased flow of goods will enhance growth and development.

Before concluding, may I express my appreciation for the valuable work done by the World Custom Organization in enhancing the capacity of member states in areas such as those relating to the development of global standards, the simplification and harmonisation of customs procedures, trade supply chain security, and the facilitation of international trade, to mention but a few. The Commonwealth Secretariat looks forward to deepening our co-operation with the World Customs Organisation and with other partners in support of the development priorities of member states.

Thank you very much.