Reforming The Regulatory Procedures For Import and Export: Guide For Practitioners

Reforming the Regulatory
Procedures for
Import and Export:
Guide for Practitioners
Reforming the Regulatory Procedures
for Import and Export:
Guide for Practitioners
Small and Medium Enterprise Department

The World Bank Group
June 2006
(Revised version, July 2007)
Acknowledgments
The preparation of this Guide was led by Alejandro Alvarez de la Campa, from the
Small and Medium Enterprise Department of the World Bank Group. The content of
the Guide was developed jointly with Bert Cunningham, an international expert on
customs and trade. We are grateful for the comments and review provided by Gerard
McLinden, Frank Sader, Vincent Palmade, Uma Subramanian, and Marlon Lezama.
Editor: Vandana Mathur

Production Coordinator: Shokraneh Minovi
Production: Henry Rosenbohm, Dana Lane
© 2006 INTERNATIONAL FINANCE CORPORATION
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First Printing: June 2006
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TABLE OF CONTENTS
Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Purpose of Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
CHAPTER 1—RATIONALE FOR REFORMING TRADE PROCEDURES . . . 17
CHAPTER 2—PIVOTAL ROLE OF CUSTOMS. . . . . . . . . . . . . . . . . . . . . . . . . . 21
CHAPTER 3—GUIDING PRINCIPLES FOR SUCCESSFUL REFORM OF

CUSTOMS PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
1. Political Will, Commitment, Ownership, and Cooperation . . . . . . . . . . . . . . . . . . 26
1.1. Role of National Governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1.2. Role of Customs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
1.3. Role of Other Government Ministries. . . . . . . . . . . . . . . . . . . . . . . . . 30
1.4. Role of Government Agencies (Security, Control, and Regulatory) . . 32
1.5. Role of Private Sector Stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
1.6. Cooperation with Foreign Counterparts . . . . . . . . . . . . . . . . . . . . . . . 35
1.7. National Trade Facilitation and Customs Reform Committee . . . . . . 36
2. Capacity-Building Diagnostic Needs Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3. Financial and Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.1. Donor Funding for Customs Procedures Reform . . . . . . . . . . . . . . . . 38
3.2. Checklist of Cost Areas to Be Considered in a Customs
Reform Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4. Modern Legal Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5. Transparency and Predictability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6. Balance Between Facilitation and Control Objectives. . . . . . . . . . . . . . . . . . . . . . . 47
7. Integrity and other Human Resource Management Weaknesses . . . . . . . . . . . . . . 50
7.1. Corruption in Customs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8. Monitoring and Evaluation: Measuring Performance . . . . . . . . . . . . . . . . . . . . . . . 58
CHAPTER 4—STREAMLINING CUSTOMS PROCEDURES: IMPORTS. . . . 62

1. Cargo Declaration by Carrier to Customs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
2. Temporary Storage of Arriving Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
3. Customs Import Goods Declaration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
3.1. Preparation and Submission of the Customs Goods Declaration
by Importer/Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
3.2. Validation and Acceptance of the Goods Declaration . . . . . . . . . . . . . 77
3.3. Automated Risk Management/Channeling . . . . . . . . . . . . . . . . . . . . . 79
3.4. Checking the Goods Declaration and Supporting Documents
by Customs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
3.5. Assessment of the Goods Declaration by Specialist
Customs Officers (Optional) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
4. Physical Inspection of Goods by Customs Officer (Optional) . . . . . . . . . . . . . . . . 87
5. Collection of Duties/Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
6. Release of Goods by Customs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
7. Delivery of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
8. Post-Clearance Auditing of Importer (Optional) . . . . . . . . . . . . . . . . . . . . . . . . . . 94
CHAPTER 5—STREAMLINING CUSTOMS PROCEDURES:

EXPORTS AND DUTY-RELIEF REGIMES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
1. Duty/Tax Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
2. Drawback. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
3. Bonded Warehousing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
4. Free Zones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
5. Temporary Admission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
6. Transit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
ANNEX 1—Express Courier Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
ANNEX 2—Pre-shipment Inspection Procedures (PSI). . . . . . . . . . . . . . . . . . . . . . 110
ANNEX 3—Case Study: Mauritius Customs Reform and Trade Facilitation

Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
ANNEX 4—Information Exchange for Airport/Port Delivery Systems . . . . . . . . . . 133

ANNEX 5—Bibliography. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
ACRONYMS
ACV Agreement on Customs Valuation

APEC Asia-Pacific Economic Cooperation
ASEAN Association of Southeast Asian Nations
ASEZA Aqaba Special Economic Zone Authority
ASYCUDA Automated System for Customs Data
BOT Build-Operate-Transfer
CCTV Close Circuit Television
CFCs Chlorofluorocarbons
CITES Convention on International Trade in Endangered Species of Wild
Flora and Fauna
COMESA Common Market for Eastern and Southern Africa
CPCs Customs Procedures Codes
CRF Clean Report of Findings
CSD Container Security Device
CSI Container Security Initiative
C-TPAT Customs-Trade Partnership Against Terrorism
CUSCAR Customs Cargo Message
CUSDEC Customs Declaration Message
CUSEXP Customs Express Message
CUSRES Customs Response Message
DFID U.K. Department for International Development
DG Director General
EDI Electronic Data Interchange
EFT Electronic Funds Transfer
EU European Union
FDA Federal Drugs Administration
FDI Foreign Direct Investment
FOB Free On Board
GDP Gross Domestic Product
GFP Global Facilitation Partnership for Transportation and Trade
GPS Global Positioning System
HS Harmonized System
ICAC Independent Commission Against Corruption
ICT Information and Communications Technology
IFC International Finance Corporation
IMF International Monetary Fund
IMO International Maritime Organization
7
ISO International Organization for Standardization
ISPS International Ship and Port Facility Security
IT Information Technology
JICA Japan International Cooperation Agency
OECD Organization for Economic Co-Operation and Development
OSS One Stop Shop
PDF Project Development Facility
PEP Private Enterprise Partnership
PSI Pre-Shipment Inspection
SAD Single Administrative Document
SADC Southern Africa Development Community
SARS South Africa Revenue Services
SGD Single Goods Declaration
SWIFT Society for Worldwide Interbank Financial Telecommunication
UNCEFACT United Nations Center for Trade Facilitation and
Electronic Business
UNCTAD United Nations Conference on Trade and Development
UNECE United Nations Economic Commission for Europe
UN/EDIFACT United Nations Directories for Electronic Data Interchange for
Administration, Commerce and Trade
UNDP United Nations Development Program
USAID United States Agency for International Development
VAT Value Added Tax
WB World Bank
WBG World Bank Group
WCO World Customs Organization
WTO World Trade Organization
8
PURPOSE OF GUIDE
Efficient import/export procedures are critical to facilitating trade and creating an

environment conducive to economic development, growth, and direct foreign invest-
ment.
The purpose of this guide is to assist World Bank (WB) and International Finance
Corporation (IFC) staff, in particular Business Development Officers/Task Managers
in the IFC field offices, as well as any other task managers, implement trade facilita-
tion and Customs reform programs.
This guide has been written from a non-technical perspective to be as practical as

possible. It draws upon a host of technical documentation prepared by various inter-
national organizations involved in Customs reform and trade facilitation programs. It
identifies key areas necessary to implement efficient and effective import/export pro-
cedures based on internationally recommended best practices.
Examples of how some developing countries have successfully implemented par-

ticular reforms are referenced throughout the guide. The authors have not included
many case studies and examples of individual countries, given the extensive and
recent literature that exists on this. The WB published in 2005 the Customs
Modernization Initiatives: Case Studies, which includes many country case studies; and
the Customs Modernization Handbook, which provides numerous examples of specif-
ic reforms in different countries.
This guide will assist task managers working to implement Customs reforms in
determining:
■ Whether a country’s import/export procedures are inefficient;

■ What symptoms to look for, and how to quantify the problems;
■ Where to find internationally accepted best practices to benchmark
existing import/export procedures;
■ How to determine which parties or agencies are responsible for which
bottlenecks;
■ Where to start, with whom to talk, who are the counterparts;
■ Who to win over or get on board;
■ Key elements of any project to be undertaken;
■ Dangers/problems to be aware of
9
10
EXECUTIVE SUMMARY
Over the past decade, world trade has grown more than twice as fast as world Gross
Domestic Product (GDP). Those countries able to create an environment conducive
to direct foreign investment and able to trade most efficiently and effectively, attain
the highest levels of growth and development. While increased trade openness
through lowering of tariffs by both developed and developing countries has fostered
trade, it is clear that open trade regimes will only foster trade integration when there
are complimentary policies in place. Removing non-tariff barriers and implement-
ing trade facilitation and Customs reform programs are equally important objec-
tives for promoting economic development. This is especially important since bor-
der formalities have become increasingly complex due to the policy and procedural
requirements directly associated with international and regional trade commitments,
World Trade Organization (WTO) accession, and European Union (EU) member-
ship. The additional border formalities being imposed to secure the international sup-
ply chain following the terrorist attacks of Sept. 11, 2001, represent further serious
constraints on the free flow of goods across borders.
Customs reform/modernization and trade facilitation programs are critically

important if countries are to reduce trade transaction costs and enhance internation-
al competitiveness. With total trade transaction costs estimated in the range of 10%-
15% of the total value of world trade, and Customs compliance costs likely 5%-7%
of that sum, programs that would reduce such costs by even 1%-2% can have a huge
positive impact on world trade and economic growth. Trade facilitation is currently
on the agenda of the WTO Doha Round negotiations, which signifies the economic
importance of such initiatives.
Faced with these driving forces for change, Customs is the pivotal agency through
which such reforms must be focused. Customs remains the primary revenue collec-
tor in many developing countries, meaning that reform and modernization of this
institution is critical to improving the fiscal situation found in many least-developed
economies. Customs also is the source of extremely important trade data upon which
many economic policies are based. Customs must maintain a level playing field for all
traders by ensuring openness and fairness. It has an extremely important role to play
in protecting society from prohibited and unsafe goods, detecting the minority of
unscrupulous traders and persons carrying drugs, weapons, and other contraband,
while facilitating trade for the vast majority of compliant traders and travelers.
Maintaining an appropriate balance between these two competing objectives of
enforcement and facilitation is not an easy task for any Customs service. With good
governance now a cornerstone for economic development, redressing rampant fraud
11
REFORMING THE REGULATORY PROCEDURES FOR IMPORT AND EXPORT:
GUIDE FOR PRACTITIONERS
and corruption in Customs services has also become an essential aspect of such
reforms.
The purpose of this guide is to assist World Bank and IFC staff when contemplat-
ing engaging in customs reform and trade facilitation. It has been written from a non-
technical perspective to be as practical as possible. It draws upon a host of technical
documentation prepared by various international organizations involved in customs
reform and trade facilitation programs in order to identify the best internationally rec-
ommended import/export procedures, and the capacity-building measures required
to implement them successfully. Examples of how specific developing countries have
successfully implemented specific reforms are referenced throughout the guide.
Customs reform and trade facilitation programs must not be limited just to the
Customs service itself, but also include the requirements and participation of the
myriad of other public and private stakeholders involved in international trade
transactions. This includes associations representing: importers/exporters; Customs
brokers/clearing agents; carriers; shipping agents; warehouse operators; freight for-
warders and other cargo handling/logistics providers; commercial banks; airport/port
authorities; and other border agencies, e.g., police, immigration, health, agriculture,
fisheries. Customs and all impacted parties must collaborate through national consul-
tative committees, such as Customs reform and/or trade facilitation committees.
When reforming Customs and introducing trade facilitation measures, it is essen-

tial from the very outset that every effort be made to: minimize the incidence of
Customs interventions; simplify and streamline the complexity of data/documentary
requirements, work/paper flows, procedures, processes and controls; and ensure that
proposed reforms are in full compliance with international Customs conventions, rec-
ommended practices, and agreed standards. Only when this has been completed,
should information and telecommunications systems and solutions be applied to sup-
port these Customs reforms and trade facilitation efforts.
It is critically important that capacity-building assistance to reform import/

export procedures be structured bearing in mind the following key principles:
1. There must be political will, commitment, and ownership for change,
as well as cooperation and partnership among all public and private
stakeholders.
2. An accurate capacity-building, diagnostic needs analysis must be under-
taken that recognizes that each country’s program must be tailor-made.
3. Adequate financial and human resources must be found to implement
the program.
12
EXECUTIVE SUMMARY
4. The supporting legal framework must be modernized.

5. Transparency and predictability is a must to promote voluntary compli-
ance.
6. An appropriate balance must be maintained between facilitation and
control objectives with authorities exercising minimum intervention at
time of release through the application of risk-management techniques
and non-intrusive technologies, and most controls exercised on a post-
clearance audit basis.
7. Integrity and other human resource management weaknesses must be
redressed.
8. Procedural, document, and data requirements should be kept to a mini-
mum, with information and communication technology applied,
according to recommended international best practices and standards.
9. A monitoring and evaluation system must be put in place to measure
impact.
Provided that all of the conditions mentioned above are in place and there is real
commitment to engage in comprehensive reforms, the guide provides detailed infor-
mation regarding best import clearance processes that could be used to drive the
reform as efficiently as possible:
■ Cargo declaration by the carrier to Customs—This includes the minimal
manifest data required to be transmitted in advance of the ship, aircraft,
or truck’s arrival in the country of import, to allow Customs to select
high-risk cargo requiring inspection immediately upon arrival.
Additional information is required regarding various security initiatives,
including the International Maritime Organization’s (IMO) initiative
called International Ship and Port Facility Security Code (ISPS Code)
and U.S. Customs and Border Protection Container Security Initiative.
■ Temporary storage of arriving goods—This includes the importance of
having adequate airport/port infrastructure, cargo-handling and ware-
house facilities to physically off-load and store goods while the importer
or his agent is informed in a timely manner of the cargo’s arrival.
■ Preparation and submission of the goods declaration by the importer/cus-
toms broker to Customs—This includes the importance of creating ‘sin-
gle window’ or one-stop-shop customer service centers where all rele-
vant authorities can provide required services to traders; use a single,
standardized document format and content for multi-agency reporting;
minimize the number of approval authorities’ signatures/stamps; make
maximum use of information and communications technology (ICT)
where Customs declaration can be transmitted to Customs, and all of
13
the supporting approvals for permits and certificates can be applied for
and authorized electronically; and move towards paperless goods decla-
rations, with the onus placed on the importer/broker to retain copies of
all supporting documents for Customs’ post-clearance audits.
■ Validation of the goods declaration by Customs ? This is necessary to
ensure it complies with all Customs and other agency requirements,
including tariff classification, Customs valuation, and origin of the
goods to ensure the proper amount of duty/tax is assessed. This process
includes using state-of-the-art automated risk management, profiling,
and process channeling techniques to identify and deal effectively with
errors or omissions, as well as those consignments deemed to require
detailed document and/or physical inspection. The guide discusses the
various software applications and reference databases that can be
applied to support Customs during this key verification process.
■ Physical inspection of goods by Customs and other agencies—This includes
making maximum use of non-intrusive technologies, such as X-ray
scanning, to facilitate the cargo inspection process.
■ Collection of duty/tax—This involves use of electronic payment/funds
transfer systems that allow facilitated payment techniques to traders
while increasing transparency and reducing administrative costs for
Customs.
■ Release and delivery of goods—This includes automating messaging to
expedite notification by Customs and other agencies to the
importer/broker and other interested parties the status of the goods,
e.g., why a consignment is being withheld, or which goods can be
released and delivered.
■ Post-clearance auditing of the importer’s books and records by Customs—
This involves moving to the concept of authorized economic operator
whereby highly compliant traders who have been certified by Customs
and other agencies for expedited clearance procedures (e.g., paperless
declarations, with random physical inspections performed at their
premises) are subject to periodic audits to verify compliance.
The Guide also discusses in detail the best practices related to export and duty
deferral regimes, which are critically important to supporting the competitiveness
of export-oriented domestic industry, including:
■ Exemptions—How to put in place effective systems for the approving
and post-clearance monitoring inputs that have been granted full or
partial exemption of duty/tax while they are being manufactured into
finished products for export.
14
EXECUTIVE SUMMARY
■ Drawback—The importance of having an effective system whereby

exporters may complete a simplified application and be granted a time-
ly refund of duty/tax paid on imported inputs that are subsequently
exported in finished goods.
■ Bonded Warehouses—How bonded warehouses can be used effectively to
allow traders to defer payment of duty/tax on specified goods for a peri-
od of time until they can be removed and entered into home consump-
tion.
■ Free Zones—Examples of various free zones, free ports and special eco-
nomic zones are discussed, explaining how these areas outside the
Customs territory can be used effectively to attract foreign investment
and spin off economic development.
■ Temporary Admission and Transit Control—The guide discusses how
Customs can best control the goods that temporarily enter the country
either for repair, further processing, or simply to be transported through
the customs territory while minimizing the chances of such goods being
diverted, substituted, or otherwise remaining in the country.
The Guide refers the reader to an abundance of sources where additional techni-
cal information and technical assistance may be obtained to support Customs reform
and trade facilitation programs under consideration.
15
16
CHAPTER 1
RATIONALE FOR REFORMING

TRADE PROCEDURES
Globalization and rapidly expanding international trade are accelerating economic
growth and development in many regions of the world. Over the past decade, world
trade has grown more than twice as rapidly as world GDP. It is no surprise that those
countries that record the highest growth rates and levels of development are those that
have been most successful in integrating into the world trading economy. Integration
brings with it improved allocation of resources, intensified competition and pressures
to raise productivity, as well as exposure to new technologies, designs, and products.
Those countries able to trade effectively and efficiently are more likely to reap the eco-
nomic benefits.
One of the reasons for this growth in world trade has been increased trade open-
ness through lower levels of protection in both developed and developing countries. It
is clear however that open trade regimes will only foster trade integration when there
are complimentary policies in place. While there have been strides made towards trade
openness at the multilateral level, and there is a proliferation of bilateral and regional
trade agreements that progressively reduce tariffs and spur trade1, non-tariff barriers
remain a serious impediment. Indeed, the complexities of administering border for-
malities and controls have actually increased due to the greater policy and procedural
requirements directly associated with international and regional trade commitments,
especially those related to accession to the WTO and membership in the EU.
1 For example, since the early 1990s, Chile has negotiated and implemented preferential trade agreements with Canada, Central
America, EU, Mexico, and the U.S., as well as complementary economic agreements with MERCOSUR, Peru and Venezuela,
and is finalizing agreements with Korea, Bolivia, New Zealand and Singapore. Unilateral trade liberalization has brought a grad-
ual lowering of its almost uniform ad-valorem tariff rate from 11% in 1998 to 6% in 2003. From 1996-2003, the average growth
rate for both imports and exports was around 21%, with Chile expecting for 2004 an increase of 13.8% in exports, correspon-
ding to 23,500 million USD, way above the annual average of 18,500 USD in the years 1996 to 2002 and 20,000 million USD
for imports.
17
As trade opportunities have increased, the private sector in many countries has
responded by investing heavily in modernizing logistics, inventory control, manufac-
turing, and information technology systems. There has been a heightened awareness
and quantification of the high costs associated with complying with inefficient and
outdated border formalities. In recent years, there has also been a growing recognition
of the importance of good governance and integrity, especially within Customs serv-
ices. Parallel with globalization and liberalization of trade, competition for foreign
investment has also significantly increased.
While Customs reform and trade facilitation were already gaining international
importance, the attacks of Sept. 11, 2001, have made securing the international sup-
ply chain a global priority. Customs administrations around the world have been
called upon to play a greater role in protecting society from a wide range of potential
threats against national security.
Unfortunately, in many customs services around the world, all these added
responsibilities, increased workloads, and high public expectations have not been
accompanied by corresponding increases in financial and human resources necessary
to reduce the high costs associated with inefficient import/export procedures at fron-
tiers. The costs of the various non-tariff barriers and heightened security considera-
tions remain a serious barrier to trade, investment, and economic development.
Customs reform and modernization initiatives, when combined with improve-

ments to ports and trade related institutions, can lead to significant benefits to reduc-
ing trade transaction costs2 and significantly enhance the competitiveness of a coun-
try. While there remains a lack of accurate quantitative analysis on this subject, trade
transaction costs are frequently estimated to be in the range of 7%-10% of world
trade value, with Customs compliance costs likely being 5%-7%3. With total trade
transaction costs likely in the range of 10%-15% of the total value of the goods trad-
ed, the benefits of trade facilitation initiatives alone, (excluding the benefits of any
2 Trade transaction costs include direct costs and indirect costs. The direct costs include: compliance costs related to supplying
information and documents required for the movement of goods and related means of payment, as well as charges for trade-relat-
ed services (e.g., trade insurance, port management). The indirect costs include procedural delays e.g., the time for customs clear-
ance and cargo handling; lack of predictability in the nature, application or interpretation of regulations, formalities and con-
tracts (i.e., lack of transparency leading to arbitrary interpretations); and lost business opportunities. See UNECE/Trade/299,
ISBN 92-1-116824-4, “Trade Facilitation – The Challenges for Growth and Development”, Paper by Anthony Kleiz entitled,
“Costs and Benefits of Trade Facilitation”, pgs. 165-166.
3 As Mr. Anthony Kleitz, Head of Trade Liberalization and Review Division at the OECD, states in his 2002 paper on the Costs
and Benefits of Trade Facilitation: “There exists a significant volume of business complaints and compelling qualitative arguments
for addressing trade facilitation, both at the national and multilateral level. Nevertheless, the available studies and information on
the costs of inefficient trade procedures and the benefits of trade facilitation are frankly disappointing. Quantitative information
is patchy, imprecise and unconvincing. Partly because we are talking about the sum of a large number of relatively small costs, it
is hard to generalize about the overall costs and benefits turn out to be fairly small in percentage terms, they can still have big
effects through the global supply chain linkages. There is clearly great potential for further empirical research and modeling in
this area, including through work on methodologies, to demonstrate the importance of the trade facilitation agenda. In pursuing
such work it will be important to pay special attention to the weaker members of the international economy to ensure that,
through capacity building, they are also able to reap significant benefit from trade facilitation.”
18
RATIONALE FOR REFORMING TRADE PROCEDURES
Customs reform program) have been typically estimated at between 1%-5% of the
value of total world trade4.
The Doing Business in 2006 report states that the process of importing goods, (that
is port and inland transport), only accounts for a quarter of the time that it takes to
complete the whole import process. However, the documentation procedures (pre-
arrival documents) and the time spent in customs and inspections altogether account
for the other 75% of the total time (see Figure 1).5
Inland
Transport
13%
Custom
and
Inspection Pre-arrival
16% Documents
59%
Port and
Terminal
Handling
12%
Source: Doing Business in 2006
Figure 1: Delays Encountered in Different Phases of the Import Process
As stated in the Doing Business report as well, the red tape and number of proce-
dures in developing countries is a much bigger hurdle than in high-income countries.
This obviously has an important impact in the transaction costs that companies face
in developing countries when importing goods (see Table 1).
4 Note: 1994 Columbus Ministerial Declaration of Trade Facilitation cited the figure of 2%-5 %.
5 See Doing Business in 2006
19
Table 1: Days to Complete Each Stage of the Import Process

Port and Inland
Pre-arrival terminal Customs and transport to
Region documents handling inspections warehouse Total time
OECD high income 8 2 2 2 14
East Asia & Pacific 18 3 4 3 28
Latin America & Caribbean 24 4 5 3 36
Middle East & North Africa 25 5 9 4 43
Europe & Central Asia 25 4 7 7 43
South Asia 24 6 7 10 47
Sub-Saharan Africa 33 8 10 9 60
World 23 5 6 5 39
Source: Doing Business Report 2006
The World Bank’s 2004 Global Economic Prospects report estimated that if those
countries that are currently below the world average in trade facilitation capacity
could be raised halfway to the average, trade among 75 countries would increase by
US$377 billion annually6. A recent study of the Asia-Pacific Economic Co-operation
region alone estimated that reducing such costs to just 5% by 2006 would add to this
region’s GDP at least US$154 billion or 0.9% each year. The same report estimated
that implementation of customs modernization and trade facilitation reforms in
Singapore, Thailand, and the Philippines alone would yield a US$3.9 billion increase
in real annual income7.
While debate continues over the quantum of the potential benefits to be derived
from implementing Customs reform and trade facilitation programs, it is clear that
even the smallest cost reduction (e.g., less than 1%) in trade transaction costs of the
supply chain within the global economy can result in significant positive impact on a
country’s level of trade and economic growth8.
6 World Bank, Global Economic Prospects, 2004, “Realizing the Development Promise of the Doha Agenda”, Pg 179-180.
7 APEC Economic Committee, 2002, “Measuring the Impact of APEC Trade Facilitation on APEC Economies: A CGE Analysis,
“Singapore.
8 An important outcome of the work conducted to date has been to show the asymmetrical effects of trade procedures and trade
facilitation on SMEs and on enterprises in developing countries. This is because small-value consignments tend to attract a dis-
proportionately high cost burden, due to the fixed costs that must be paid in any case.
20
CHAPTER 2
PIVOTAL ROLE OF CUSTOMS

Within this setting and faced with these drivers for change, one of the most impor-
tant complementary policies necessary to support economic growth, development,
and poverty reduction though trade and investment is putting in place an efficient
and effective Customs administration. In most countries, Customs is the oldest pub-
lic institution. While primary responsibilities of Customs offices have not changed
significantly throughout the years, their focus and importance have changed dramat-
ically during the past decade.
1. Collector of Revenue
Customs collects duties and taxes on imports and occasionally on exports9. In many
developing countries, Customs revenues remain a significant portion of total state
revenue. This situation will continue for many years, despite declining tariff rates due
to successive rounds of trade liberalization, given major obstacles many developing
countries face in broadening their tax base to collect more revenue from income tax
and consumption taxes10. In all countries, imports will continue to be a major tax
base for the levying import taxes (e.g., VAT/GST, sales tax, excise tax). Customs is the
only organization positioned to effectively levy tax on imports and has a key role in
assessing refunds on exported goods. Customs is also the primary agency responsible
for ensuring that goods imported temporarily are re-exported, and not diverted/con-
sumed inside the country.
9 Few countries currently levy export duties/taxes since such measures undermine the competitiveness of a country’s exports. Where
such export taxes exist, it is normally Customs that must collect them.
10 For example, revenue from import duties in African countries comprise just under 30% of total tax revenue; 22% in the Middle
East; 13% in Latin America; and 15% in Asian countries. In developed countries, tariffs provide only a small share of total rev-
enue, on average less than 1% of overall import value. High import tariffs in developing countries are a key factor which hampers
trade between the developed and developing countries.
21
2. Source of National Trade Data

Data provided on Customs declarations by carriers and importers/exporters at the
time of import and export is the source upon which national statistical trade data is
compiled. Customs has an important role to play to ensure that the data declared is
accurate and timely to support the central statistics office, central bank, ministry of
finance and other bodies in taking appropriate decisions regarding monetary, trade,
transport, tourism, and other national economic policies.
3. Guarantor of a ‘level playing field’ for Trade and Commerce

If Customs does not maintain a level playing field, significant economic damage and dis-
tortions can occur in the domestic marketplace, effectively driving honest and compliant
traders out of business. Customs must ensure that import tariffs are applied consistently
and uniformly to all traders to prevent economic distortions. In most developed coun-
tries, Custom tariffs are used increasingly to protect domestic producers from unfair
competition11. Customs must ensure that imported goods are: not misclassified, under
or over-invoiced or given preferences or concessionary rates in tariffs due to their origin
or other reasons. Customs must also prevent goods from being smuggled into the coun-
try. Such unfair preferences reduce a trader’s duty/tax liabilities, thereby giving a trader
an undue advantage in the marketplace. More recently, Customs has been called upon to
protect the commercial interests of trademark and copyright holders by detaining and/or
seizing at the border counterfeit goods infringing intellectual property rights. Customs is
also called upon to protect domestic industry by applying anti-dumping and countervail
duty/tax on those imported goods determined to be illegally dumped or subsidized, and
therefore causing economic injury to domestic producers.
4. Front Line Protector of Society

Customs is responsible for preventing cross-border movement of dangerous and
unsafe goods, including goods improperly labeled/marked, or deemed unsafe for con-
sumption by authorities responsible for health, agriculture, fisheries, product con-
sumer protection, etc. Customs protects society against drugs, weapons, illegal aliens,
and trade in prohibited or restricted goods contravening international conventions,
e.g., goods listed on the Convention on International Trade in Endangered Species of
Wild Flora and Fauna (CITES); ozone-depleting Chlorofluorocarbons (CFC’s); to
outlawed cancer-causing toxic pesticides or insecticides.
Since the events of Sept. 11, 2001, Customs’ anti-terrorism security responsibili-
ties have been heightened. The focus and responsibilities for Customs services around
11 For example, Customs duties in developed countries currently account for less than one percent of overall import value.
22
PIVOTAL ROLE OF CUSTOMS
the world have been raised dramatically, with Customs not only being called on to
control goods at the border, but also to play a key role in securing the entire interna-
tional supply chain. This involves Customs being asked to certify low-risk traders who
are known to be compliant, and legitimate traders who have the ability to secure their
goods from the time of manufacture, through their export and transport to the coun-
try of import. By certifying authorized economic operators, Customs services in both
the import and export country are better able to focus their attention on known high-
er risk or unknown traders that require more scrutiny before and at time of arrival of
their goods in the country of import. Since security concerns related to international
terrorism are unlikely to dissipate for years to come, Customs will play a vital role in
combating this new type of warfare.
5. Facilitator of Legitimate Trade

Customs administrations must continually strive to maintain an appropriate balance
between their often perceived to be conflicting or competing objectives of facilitating
trade on one hand while enforcing laws to collect revenue and protect society on the
other. Given the rapid growth and huge volume of international trade, this is indeed
a daunting task12. The objective must remain to allow the vast majority of legitimate
trade to move with minimal customs intervention or intrusion. ICT must play a
major supporting role, such that data required for pre-screening and release of goods
is sent to the Customs administration sufficiently prior to arrival of the goods. To
maintain an appropriate balance, Customs must utilize increasingly sophisticated
risk-management techniques to identify that small percentage of suspected high-risk
cargo that needs to be scrutinized either prior to loading in the country of export, or
at time of arrival in the country of import. Given the limited time available at time
of arrival to identify high-risk goods, it is critically important that Customs apply pro-
filing or risk-management techniques on such goods before their actual arrival in the
country. For those goods which Customs chooses to inspect, it is important that such
verification be performed as quickly and effectively wherever possible utilizing non-
intrusive inspection techniques (e.g., X-ray or other devices) to minimize cargo dwell
times and related costs.
The recent initiative to include Trade Facilitation on the agenda of the WTO Doha
Round has raised significant interest in both governments and the private sector. If the
negotiations are successful, WTO member states would be required to make commit-
ments to implement various trade facilitation measures designed to simplify and
streamline Customs requirements, procedures, and controls in line with the currently
non-binding international Customs conventions, standards, and best practices13.
12 In 2002, goods with a total value of over US$6.3 trillion crossed international border controls through the Customs controls of
both exporting country and the importing country
23
With the advent of the Internet’s cyber-marketplace, trade is now being conduct-
ed online around the world. Traders and consumers alike are demanding receipt of
their goods in shorter and shorter timeframes, with overnight delivery of not just doc-
uments and other low-value goods, but increasingly spare parts, and high-value and
time-sensitive products. Express courier services have effectively responded to this
exponential growth in demand to move small or low-value package freight quickly
and inexpensively. Huge investments by express carriers in aircraft, trucks, and pack-
age sorting facilities strategically around the world have required Customs services to
adapt quickly to this phenomenal growth in trade to support consumers’ demands.
6. Cornerstone for Civil Society and Good Governance

Tackling corruption in Customs has become one of the demands of developed coun-
tries and donor institutions when linking aid to good governance. Given Customs’
key role in correcting fiscal and trade imbalances, corruption in Customs is seen as a
major obstacle to economic growth from trade and investment, and an impediment
to sustainable poverty alleviation. Attempts to reform and modernize Customs will
inevitably fail or certainly be unsustainable if corruption is not dealt with in a com-
prehensive manner. Significant effort has been made to study the underlying causes
for corruption in Customs and to develop integrity strategies to combat it. Integrity
strategies must be an integral part of any program designed to modernize Customs
procedures and facilitate trade.
It is clear that if governments around the world are to be successful in protecting

their societies while facilitating legitimate trade, closer cooperation is essential among
all border agencies. Equally important, there must be close partnerships among those
border agencies and the various private sector stakeholders directly involved in the
trade transaction. Eliminating non-tariff barriers that involve a myriad of government
agencies and private sector stakeholders is neither a simple nor inexpensive task.
Experience has shown that of all these parties, Customs is the pivotal agency to bring
together all the myriad of divergent interests to tackle these serious challenges. A
poorly functioning and corrupt Customs administration can effectively negate the
improvements achieved in other trade-related areas. Unfortunately, for many devel-
oping and newly industrialized countries, reforms that modernize customs adminis-
trations and related import/export formalities remain an uncompleted challenge.
13 The WTO trade facilitation agenda has been brought as a result of an increasing commitment by governments to pursue a private
sector oriented growth strategy, combined with increased private sector assertiveness and demands for better government services.
Successful traders require transparent, predictable, secure and speedy clearance of their goods at time of import and export. Traders
are increasingly demanding reductions in trade transaction costs that are only possible through implementation of simplified and
internationally recommended harmonized and simplified Customs procedures and requirements. To reduce costs, just-in-time
inventory have become the norm in many sectors. Instead of goods being placed in warehouses upon import, the transport con-
tainer itself is becoming the warehouse, with goods moving directly from the container onto the production line or store shelf.
24
CHAPTER 3
GUIDING PRINCIPLES FOR

SUCCESSFUL REFORM OF
CUSTOMS PROCEDURES
Efficient and effective implementation of import/export procedures in least devel-
oped and newly industrialized countries requires a concerted effort by all stakehold-
ers involved in the process. Unfortunately, there is neither a single or definitive set of
universally accepted simplified import/export procedures, nor is there a single model
for reforming Customs administrations. Each country’s geography, level of develop-
ment and infrastructure, legal framework, type and volume of trade, human resource
strengths, and weaknesses are unique and therefore anyone contemplating reform in
this area would be committing a fatal error by presuming that they have found a ‘sin-
gle solution or formula for all’.
There are, however, tried and tested fundamental principles that must be applied
to improve chances of implementing modern and streamlined import/export proce-
dures. The international landscape is littered with unsuccessful Customs reform and
trade facilitation programs. The main lesson to be learned from these failures is that
unless a comprehensive, holistic approach is taken, which redresses all the various sup-
porting aspects of capacity building and reform, attempts to simply implement new
import/export procedures will inevitably fail immediately or be unsustainable in the
medium term. This section of the guide discusses in detail each of these key guiding
principles (shown in Box 1) for ensuring a successful and sustainable implementation
of best Customs procedures.
25
Box 1: Guiding Principles to Implement Customs Procedures Reforms
It is critically important that capacity-building assistance to reform import/export procedures be structured

bearing in mind the following key principles:
1. There must be political will, commitment and ownership for change, as well as cooperation and partnership
among all public and private stakeholders.
2. An accurate capacity-building diagnostic needs analysis must be undertaken that recognizes that each specific
country’s program must be tailor-made.
3. Adequate financial and human resources must be found to implement the program.
4. The supporting legal framework must be modernized.
5. Transparency and predictability is a must to promote voluntary compliance.
6. An appropriate balance must be maintained between facilitation and control objectives with authorities exer-
cising minimum intervention at time of release through the application of risk-management techniques and
non-intrusive technologies, and most controls exercised on a post-clearance audit basis.
7. Integrity and other human resource management weaknesses must be redressed.
8. Procedural, document, and data requirements be kept to a minimum, with information and communication
technology applied according to recommended international best practices and standards.
1. Political Will, Commitment, Ownership,

and Cooperation
1.1 Role of National Governments
The primary responsibility for the success of Customs reform and trade facilitation
programs rests with individual national governments. Research conducted by various
international organizations has identified the critical importance of high-level politi-
cal will and commitment to the successful conduct of capacity-building programs to
support such reforms14. Political will and commitment has to be demonstrated by
national governments through concrete financial, material, and/or human resource
investments. These investments must be a prerequisite or fundamental criterion when
deciding whether to support and/or fund capacity-building activities involving
Customs reform and trade facilitation. Unless there is agreement that such national
support and commitment will be maintained over the longer term, capacity-building
efforts are highly unlikely to be sustainable, regardless of the quality of the initial
design and implementation of such programs.
It can be easy for politicians and senior government officials to express their
wholehearted support and commitment for streamlining import/export procedures
and reforming the various border institutions that must administer them.
14 See World Bank PREM notes series, April 2002, No. 67; Organization of Economic Co-Operation and Development (OECD)
Center, Technical Paper No. 175, April 2001.
26
GUIDING PRINCIPLES FOR SUCCESSFUL REFORM OF CUSTOMS PROCEDURES
Unfortunately, experience has shown repeatedly that such endorsements and goodwill
are frequently not translated into allocation of appropriate levels of human, material,
or financial resources necessary to support implementation of such programs. Indeed,
given the high level of political change and volatility in many developing countries,
and the inherent vested commercial interests involved with border formalities and
collection of revenues, it is very important to obtain bipartisan political support for
such capacity-building initiatives to ensure that gains realized and improvements
achieved will be resilient to inevitable policy and/or institutional changes. It is criti-
cal that the prime responsibility for capacity building in this area rest with national
government and that the national government be prepared to match donor funding
and technical support with their own human and financial resource commitments.
Another reason Customs reform/trade facilitation capacity-building programs fail

is that there has been inadequate participation, commitment, and ownership by the
Customs and other border agency personnel directly affected by these reforms. Such
personnel need to be informed and personally involved from the earliest stage of any
capacity-building initiative, especially in the important diagnostic stage where capac-
ity-building needs are established. Wherever possible, Customs and other border
agency staff at all levels need to be provided with an opportunity to participate in the
design, implementation, monitoring, and evaluation of capacity-building efforts.
Effective promotion and communication strategies need to be devised, and project
implementation teams selected from all ranks of Customs and other agencies.
Governments in least-developed and newly industrialized countries rarely place

sufficient priority on Customs reform or trade facilitation programs during their con-
sultations and negotiations with international institutions. Consequently, financial
lending institutions often do not consider Customs reform or trade facilitation as an
important part of structural adjustment programs or as conditions for loans. In most
countries, Customs reform and/or trade facilitation measures have not been initiated
as separate projects in their own right, but as an element of larger efficiency-enhanc-
ing endeavors. Normally, they are undertaken only out of necessity by governments
to comply with requirements for the accession to a Customs Union15, for purpose of
expanding regional trade links16, or to enhance revenue collection17. Even if trade
facilitation is not the primary objective, it should be certainly one of the main posi-
tive outcomes of any successful customs reform program.
Unfortunately, all too often national governments are content to allow donors or
capacity- building providers to dictate the direction of reform and modernization
15 For example, Customs reform programs were only initiated by Latvia and Turkey as part of the proposed accession to the EU.
16 For example, Chile’s Customs reform and trade facilitation programs were only initiated when it entered into trade agreements
with neighboring countries.
27
efforts, rather than take a strategic approach to obtaining support. Since Customs in
most developing countries is viewed simply as a revenue-collection agency, it is nor-
mally the senior policymakers in the ministry of finance that must champion the
modernization of their Customs service and its import/export procedures.
1.2 Role of Customs

The national Customs administration is the key or pivotal agency to be brought on-
board when considering streamlining import/export procedures. In most developing
countries, it is almost always the most difficult agency to convince and obtain commit-
ments from. Customs is responsible for implementing the contradictory objectives of
both border control and facilitation of legitimate trade. Without Customs commitment
and leadership in implementing institutional and procedural reforms, real progress will
be difficult, if not impossible to achieve. Laws in most countries provide Customs with
significant authority to establish and enforce most import/export procedures/controls.
Because Customs deals on a daily basis with all government agencies and private sector
stakeholders, it is ideally positioned to take a strategic approach to setting the scope and
direction of reforms and to identify necessary capacity-building needs.
Many of the most important reform initiatives related to Customs can be under-
taken within existing human and financial resources, without resorting to significant
external funding or technical assistance. The sad fact is that management in many
customs services in developing countries often simply does not possess the basic
capacity to undertake even the simplest reforms and refuse to make commitment to
reforms due to involvement in fraud/corruption. Management in many Customs
services frequently fails to reallocate available resources to support productive capaci-
ty building or reform initiatives. One of the problems encountered in implementing
institutional reform in Customs services is that director generals (DG) of Customs
frequently change, with changes in government. Since reform programs require tech-
nical knowledge, strong management, continuity and commitment, successive
changes in senior management can also seriously undermine progress.
In response to the lack of progress in implementing essential institutional and proce-

dural reforms due to lack of institutional commitment, political interference, vested com-
mercial interests, corruption, and insufficient management capacity, governments in some
developing countries are recruiting expatriate Customs experts from developed countries
to temporarily head-up their Customs administration (and/or other tax departments) or
support their senior management teams by giving such experts operational authority18.
18 In various countries, experienced expatriate senior managers from Customs services of developed countries have been recruited to
Head of Customs, or in a senior line manager position or to support the Head in an effort to ensure that institutional reforms
were implemented e.g. Mauritius, Zambia, Uganda, Lesotho, Mozambique, Fiji, Bermuda.
28
While such an approach may be necessary under certain circumstances, it is essential

that local managers be groomed and trained to take over management of the organi-
zation in the medium to long term, i.e., within 3-5 years when institutional reforms
should have taken solid root.
In constructing program proposals and plans, Customs consultants, technical spe-

cialists and in-country advisors must ensure that there are specific activities designed
to promote local participation and ownership. It is extremely important to cultivate
such participation and encourage champions to come forward, before implementa-
tion activities commence. Wherever possible, local Customs staff should be directly
involved in the initial diagnostic study and capacity-building needs analysis.
A communication strategy involving local Customs personnel and senior manage-

ment needs to be developed and implemented to ensure that all ranks are fully aware
and have ownership of all stages of the program, including formulation, design,
implementation, and post-implementation evaluation of capacity-building efforts.
Ideally, initiatives should be, and seen to be, policy driven by the most senior levels
of government, managed by the DG of Customs and his/her senior management
team in collaboration with other border agencies, and implemented by local imple-
mentation teams in close cooperation with the staff of other border agencies. Taking
regional approaches to such programs may offer efficiencies for the provision of tech-
nical assistance and may provide a mechanism for participants to exchange approach-
es and experiences to avoid unnecessary pitfalls19.
The establishment of a capacity-building unit in customs headquarters is vitally

important for managing such reform programs. The unit should have no operational
responsibilities and be headed by a dedicated and motivated senior Customs manag-
er that possesses the necessary authority to effectively manage such institutional and
procedural reforms. The unit should be staffed with hand-picked officers who possess
operational knowledge of particular Customs procedures or regimes. Where neces-
sary, specific officers having specialized knowledge or skills may also be seconded for
short-term periods into the unit.
Unfortunately, in many developing countries, Customs officers working in oper-

ational areas view being seconded into a capacity-building unit or reform project team
not as career-enhancing opportunity, but as a form of punishment. In addition to the
heavy workload and responsibility involved, officers can face the potential of victim-
19 For example, the Secretariats of the Common Market for Eastern and Southern Africa (COMESA) and for the Southern Africa
Development Community (SADC) have been promoting regional approaches to training and capacity building for members,
with programs initiated for exchanges of officers between Customs services. Unfortunately, the practical results to date have been
very limited in scope and slow to materialize.
29
ization from corrupt elements organized against reforms that if implemented could
minimize opportunities for corruption. Officers seconded into such capacity-build-
ing unit teams may be no longer eligible for regular overtime and other inducements
(e.g. bribes) that exist in operational areas. It is therefore extremely important that
those Customs officers seconded to implement reforms be adequately financially
compensated through performance-related special allowances, other incentives or
career-enhancing opportunities.
1.3 Role of Other Government Ministries

The myriad of other ministries and agencies operating at border crossings must also
be brought on-board at the very outset. While the ministry of finance and the nation-
al Customs service are the most critical agencies to get on board to champion proj-
ects to streamline import/export procedures, it is critically important to recognize that
neither of these authorities alone can effectively redress all the bottlenecks and con-
straints resulting from the actions of other agencies with important roles to play in
clearing goods at the border. Other ministries play vitally important roles in the
issuance of import permits or certificates. Box 2 includes some of the most common
ministries involved in the clearance of imported goods20.
Box 2: Usual Ministries Involved in the Process of

Clearing Imported Goods
• Ministry of Finance: responsible for revenue mobilization and tax issues

• Ministry of Commerce and Industry: can be responsible for issuing import permits, certificates of origin, and
others.
• Ministry of Agriculture and Fisheries: might be responsible for issuing specific permits related to agricultural
products and inspections of specific products.
• Ministry of Health: usually responsible for issuing phytosanitary certificates.
• Ministry of Transport: can have specific responsibilities in the regulation and issuance of transportation per-
mits and transit of goods through the national territory.
• National Standards Bureau: usually responsible for the inspection and laboratory analysis of certain goods
(e.g., foodstuffs, pharmaceuticals, live animals, fresh fish, meat products, seeds, plant cuttings, fresh fruits and
vegetables).
• Ministry of Defense or Security Forces: responsible for keeping weapons out of the country.
It is important to recognize that the delays and bottlenecks caused by other bor-
der agency requirements may be an even greater source of administrative costs and
cargo delays than Customs formalities. It is frequently too convenient for parties
involved in the trade transactions to place the blame for any delay at the border on
the national Customs service because Customs is the final authority to decide whether
20 The names of the ministries may vary from one country to another and not every country would involve these ministries in the
import clearance process.
30
to release the goods. The fact is that very frequently delays are caused because the
requirements of other government agencies have not been met. Until approval is
granted from these other agencies, Customs will not grant release of the goods.
Multiple regulatory prerogatives of other border control agencies dealing with agri-
culture, veterinary, health, phytosanitary and standards requirements frequently lead
to duplicative requirements and controls, generating increased compliance costs, risks
of error, and delays (see Box 3).
Box 3: Common Sources of Delays/Costs Associated with the

Requirements of Other Agencies/Ministries
• Bureaucratic paperwork and delays related to obtaining necessary import/export permits and certificates
of compliance or origin either prior to or at time of arrival;
• Policy ambiguity;
• Inordinately high rates of cargo inspection, inspection rates that often eclipse the inspection rate of the
Customs service because such agencies fail to utilize risk management techniques;
• Lack of coordination between inspection officers from Customs and other agency officials when they both
need to be present for any breaking of the seals on the container before the inspection of goods starts;
• High container/goods handling costs to move containers to inspection areas and for un-stuffing contents
to allow other agencies to simply check product labeling/marking and/or remove samples;
• Pilferage and loss when unnecessarily large samples are removed for testing and not returned to the con-
signment;
• Delays caused by the time required to transport samples to laboratories that may be located long dis-
tances from the port;
• Delays/queuing while samples wait for testing at poorly equipped or insufficiently staffed laboratories;
• Lengthy delays in having test results returned from the laboratory to responsible authorities/parties; and,
• High fees charged for laboratory analyses.
All these additional delays and costs can be avoided by implementing the follow-
ing mechanisms to enhance coordination among the agencies:
■ Establishing one-stop-shops (OSS) and single windows to integrate the
offices and staff of all border agencies under one roof with a single set
of counters for customer service and supported by electronic sharing of
information among these agencies;
■ Concentrating documentation verification within a single agency;
■ Coordinating physical inspections of cargo at one location and time,
with all inspectors from the various agencies present;
■ Utilizing risk management techniques to ensure that cargo inspections
initiated by other border agencies and samples taken for laboratory
analysis are minimized;
■ Introducing controls to ensure that samples taken by officials are prop-
erly quantified and documented, with the requirement for
untested/reusable samples to be returned to the consignee;
31
■ Ensuring laboratories are properly equipped/staffed and located in or

adjacent to the airport/port to minimize delays in transporting samples
for analysis;
■ Implementing electronic messaging between Customs and other border
agencies to ensure laboratory testing results are returned quickly and
non-release ‘holds’ that are placed by other agencies are subsequently
removed with minimum delay; and,
■ Undertaking periodic reviews of the laws governing import restrictions,
licensing, permits, labeling requirements, etc. to ensure they conform to
international standards.
Box 4: New Laboratory and Health Standards in Jordan
During the recent implementation of the Aqaba Special Economic Zone in Jordan, serious cargo delays/costs
resulted from outdated foodstuff inspection requirements of the Ministries of Health and Agriculture. A project
funded by the United States Agency for International Development (USAID) provided assistance to review all reg-
ulatory requirements and ensure their conformity with international standards. A new laboratory was also built
/equipped at Port of Aqaba and appropriate technical assistance provided by an expert from the U.S. Food and
Drug Administration (FDA). This project significantly reduced cargo dwell times associated with other agency
inspections and laboratory testing.
1.4 Role of Government Agencies

(Security, Control, and Regulatory)
Security/control/regulatory agencies, such as the ministry of transport, airport/port author-
ities, public or private cargo handling agencies, police, post offices, border patrol or coast
guard, and immigration departments, also have an important role to play when stream-
lining import/export procedures. Following the events of Sept. 11, 2001, numerous ini-
tiatives have been undertaken to increase security of the international supply chain. Any
of these security agencies or private cargo handling companies can be the cause of bottle-
necks, delays and costs when importing or exporting goods (see Table 2).
Many of these delays/costs are hidden from the trader because they may occur
before the carrier has notified the importer or owner of the goods that his goods have
actually arrived in the country and before the importer/owner can initiate the clear-
ance formalities. It is important that these security agencies’ roles, responsibilities,
requirements, and operational efficiencies be seriously considered when streamlining
import/export procedures to facilitate trade. Airports and ports throughput and cargo
handling efficiency are affected by many variables, especially the port infrastructure
to actually unload and move containers, as well as unstuff and remove cargo. Of
almost equal importance however is the need for airport/ports to utilize modern
information technology and communication systems to allow for more efficient air-
port/port management (see Box 5).
32
Table 2: Common Delays Associated with Security,

Control, and Regulatory Agencies
The most common delays related to the involvement of these agencies in the Customs clearance process include:
■ Inappropriate scheduling of vessels from the anchorage to the quaysides resulting in vessels remaining at
anchorage for long periods of time and running up huge costs21;
■ Inefficiencies at the quayside i.e., average time taken for containers to be off-loaded onto the quayside is often
dependent on factors such as port volumes, size of vessels calling; and port infrastructure (including number
and type of quays and gantry cranes, channel depths and breakwaters, impact of tides/weather, availability of
pilots and tugs; crane operator productivity, availability of trucks/trailers/forklifts to move containers, etc);
■ Inefficiencies in removal of the containers from the quayside to marshalling yards or freight stations inside or
near the port where the goods may be unstuffed from containers under Customs control;
■ Removal of air cargo from the tarmac to air cargo transit sheds where goods can be unstuffed from air contain-
ers awaiting clearance formalities due to lack of proper cargo handling equipment and personnel, and/or lack
of warehouse space;
■ Processing of trucks and rail cars arriving at land borders and moved under Customs control to inland terminals
(‘dry ports’) where cargo can be off-loaded, un-stuffed and cleared. These delays can be caused by inadequate
facilities and staff at frontier land-border crossings, as well as bureaucratic, manual, paper-based
procedures/requirements, including delays/costs associated with Customs escorting of containers;
■ Processing of urgently required postal and express courier consignments arriving at airports and land borders
that need to be moved quickly under Customs control to inland postal or express courier centers where pack-
ages are unstuffed, sorted, inspected and cleared from Customs control. Although specially designed facilities,
reporting requirements and streamlined customs procedures have been agreed at the international level, in
most developing countries this rapidly expanding mode of trade is treated as any other commercial cargo,
resulting in both delays in clearance in such urgently required parcels, while also overwhelming the mainstream
clearance processes used for normal commercial cargo (see section on Express Courier Procedures found later
in this Guide);
■ Increasing security checks prior to arrival and upon arrival, on conveyances, goods, crews and travelers given
heightened risks from terrorists groups, weapons of mass destruction, narcotics and firearms, illegal immigra-
tion, etc;
■ Inefficiencies of the cargo handling company in moving the container/goods for inspection by Customs and/or
another border agency;
■ Inefficiencies and fees in arranging for cargo handling personnel and related forklifts equipment required to un-
stuff the container to allow a cargo inspection to occur;
■ Re-stuffing of inspected containers or loading of loose goods onto trucks for removal from the port after all
clearances have been obtained; and,
■ Bureaucracy and costs associated with payment of all port and cargo handling fees and receipt of the delivery
note authorizing removal of the goods from the airport/port.
1.5 Role of Private Sector Stakeholders

All stakeholders involved with the trade and transport transaction must also be active-
ly involved in the design and implementation of new import/export procedures. As
21 Fixed costs associated with a large container vessel waiting at anchorage can range between US$35,000 to $70,000 per day.
33
Box 5: The NAVIS Port Management System
Considered one of the premier port management software packages, NAVIS is used by many of the largest ports
in the world. This comprehensive suite of software applications allows port authorities to: schedule the arrival
and off-loading of vessels; prepare vessel bay plans (i.e., where each container should be loaded on the vessel
given weight, destination and other considerations); monitor the unloading and loading of containers; track the
physical location of all containers resting in the port; calculate and account for port charges; produce vital man-
agement reports and statistics; etc. Customs and other border agencies can also link to the system to learn the
whereabouts of a particular container.
the main beneficiary of streamlined and simplified trade requirements, the private
sector’s views and suggestions must be taken into consideration to ensure that reforms
produce real and practical benefits and that issues related to implementation activi-
ties can be identified and resolved. For most businesses, speed of delivery of goods,
predictability and transparency throughout the process, as well as security in the sup-
ply chain, are of paramount importance.
The private sector can and should influence politicians and government policy-
makers to ensure that necessary resources are directed to Customs reform projects and
trade facilitation programs. Industry bodies and trade associations22 can play an
important role in generating and sustaining support for such reform projects as shown
in Table 3.
Table 3: Private Sector Participation in the Implementation

of Customs Procedures Reform
Stakeholders should actively participate in implementation activities such as:

■ Finalizing methodologies for collection and analysis of data for cargo dwell time/release time studies;
■ Providing comments on the current procedures and operational feasibility and impacts from proposed new
import/export procedures;
■ Providing data and electronic messages in required standards to Customs and other border authorities to facili-
tate trade;
■ Augmenting donor funding or providing direct funding support for technical assistance through international or
regional associations representing trade and industry;
■ Organizing training and public education campaigns to inform the trade community of changes in procedures;
■ Providing advice through consultation mechanisms on issues such as new or amended legislation, and the loca-
tion, competence and working hours of Customs offices;
■ Undertaking post-implementation evaluations of reforms; and,
■ Establishing community-based information and telecommunication networks systems to facilitate information
and data exchange.
22 For example: Chambers of Commerce; Customs House Brokers Association; Freight Forwarders’ Association; Express Couriers’
Association; Importers’/Exporters’/Manufacturers’ Associations; Shipping Agents’ Association; Truckers’ Association; Airport/Port
Operators/Users’ Councils; Bankers’ Association; Export Processing Zone Operators’ Association; Board of Airlines.
34
Of course, it is important that private sector involvement in such reform efforts not
be, or be seen to be, in the narrow interest of certain firms or industry interests, oth-
erwise broad support for reforms may be jeopardized. As an important element of the
reform program, the private sector should also adopt ethical business standards by set-
ting them out in industry or sector codes of ethics. This is particularly important in
such key sectors as Customs house brokers and clearing agents. Memoranda of under-
standing can also be signed by Customs Service with its stakeholders23 and other bor-
der agencies to clearly set out each party’s roles, responsibilities and liabilities, working
relationships regarding information sharing/exchange, etc.
1.6 Cooperation with Foreign Counterparts

It is very important that Customs and other border agencies hold face-to-face dis-
cussions with their counterparts at juxtaposed border offices to coordinate hours of
service and wherever possible offer joint operation of controls. It can be extremely
efficient if Customs and other border agencies consider building joint or shared bor-
der facilities on land border crossings where there are no natural barriers, e.g., rivers
or other obstacles separating the two countries. Such shared facilities can offer sig-
nificant efficiencies, especially at remote locations, e.g., sharing of utilities, inspec-
tion sheds, X-ray machines, etc. Such joint facilities offer opportunities for agencies
to more effectively share intelligence information, exchange of data between infor-
mation systems, and even perform joint cargo inspections. Such cooperation with
other Customs services and other border agencies should be formalized through
bilateral mutual administrative assistance agreements to ensure controls are more
efficiently and effectively operated. Shared facilities can produce significant efficien-
cies for not only Customs and other border agencies, but also traders and trans-
porters that need to stop only at one location to complete both the export and
import formalities by simply walking between two sets of offices in a ‘one-stop-shop’
border crossing facility.
Unfortunately, concerns of infringement of national sovereignty, security consid-

erations, disputes over precisely where the borderline is, administrative details regard-
ing how to share the initial capital costs, and ongoing operation and maintenance
costs, often hamper the creation of such efficient common border facilities. There are
examples of donors having financed the construction of separate border facilities, fail-
ing to coordinate with other donors or even considering the possibility of building a
single shared facility for the two authorities concerned.
23 The Chilean Customs have established working groups with private sector stakeholder associations representing different indus-
trial sectors including textiles, shoes and leather, information technologies and others, in order to cooperate, exchange informa-
tion and conclude memoranda of understanding.
35
1.7 National Trade Facilitation and Customs Reform Committee

It is important to establish committees to coordinate all trade facilitation and
Customs modernization programs. A representative from the various public and pri-
vate sector stakeholders should be on this committee. The chairperson of this nation-
al trade facilitation committee may be elected from any of the member organizations
or associations. Sometimes, it may be more advisable, at least initially, to have the
national committee chaired by a highly respected and widely experienced senior offi-
cial from the office of the head of state or other executive agency. Appointing such a
chairperson sends a clear signal to all concerned regarding the government’s firm com-
mitment and priority to reforming Customs and facilitating trade. It would also
ensure that during the process, each agency will be more likely to accept its role and
responsibilities to further facilitate trade, ensure that inter-agency cooperation exists,
and resolve any inter-agency conflicts or obstacles that are bound to arise.
Various subcommittees and working groups of this national committee can be

established to focus on particular modes of transport, or particularly problematic
high-volume ports, airports, or border crossings.
2. Capacity-Building Diagnostic Needs Analysis

While Customs services and traders all over the world face similar strategic challenges
and perform similar functions, their operating environments, administrative compe-
tencies, resource availability and development ambitions vary considerably. One of
the most critical steps in implement efficient import/export procedures is undertak-
ing an accurate and comprehensive diagnostic analysis of the existing situation and
benchmarking findings against internationally accepted best practices to identify
capacity-building needs.
The international community has grown increasingly concerned that many trade-
related reform programs have failed because of inaccurate or insufficiently compre-
hensive needs assessments. Some factors causing this situation include: (i) a lack of
quality diagnostic tools that can be used to provide a practical framework for under-
taking capacity-building needs analysis for import/export procedures; (ii) a limited
pool of highly experienced trade facilitation experts to undertake such assessments;
(iii) diagnostic assessment results being driven by the requirements, competencies,
and objectives of donors, or the training and technical assistance providers, rather
than by the recipient countries or agencies; and, (iv) insufficient attention being paid
to mission-critical but non-customs specific issues such as public sector management
and administration competencies, strategic planning, management information and
the collection of baseline statistics.
36
In Customs administration, unlike in many other areas of public administration,

a specialized inter-governmental organization, the World Customs Organization
(WCO)24, has a range of internationally agreed conventions, instruments and best-
practices that provide a blueprint for modern Customs administration. These include
the25:
■ Revised Kyoto Convention on the Simplification and Harmonization of
Customs Procedures26;
■ Harmonized System Convention, which establishes an international com-
modity- coding system for tariff and statistical purposes;
■ Arusha Declaration on Integrity in Customs;
■ Capacity Building Diagnostic Framework, which provides useful check-
lists and tools to support customs reform and capacity-building activi-
ties in various areas27;
■ Time Release Study, which provides a methodology to help identify bot-
tlenecks and difficulties for expediting the movement, release, and
clearance of goods28; and,
■ Trade Facilitation Checklists, which help member Customs services eval-
uate their compliance with the three WTO Articles proposed to be sub-
ject to upcoming WTO Doha Round negotiations on trade facilitation.
Following the events of Sept. 11, 2001, policymakers have recognized the impor-
tant role that their Customs administrations and the trade community must play to
strengthen the security of international supply chains. Many of these important
debates on supply chain security were undertaken through the auspices of the WCO.
The role of the WCO has been further enhanced with the decision to include Trade
Facilitation within the negotiating framework of the WTO Doha Development
Agenda.
24 The WCO currently has a membership of 164 Customs services collectively responsible for processing 98% of all world trade. Its
mission is to enhance the effectiveness and efficiency of Customs administrations and to assist them in contributing to national
development goals, particularly in the area of trade facilitation, revenue collection, community protection and supply chain secu-
rity, thereby contributing to the development of international trade and to the economic and social well-being of a country. To
fulfill its mission, the WCO develops and maintains various instruments and recommendations for the standardization and sim-
plification of Customs systems and procedures governing the cross border movement of goods and travelers.
25 See http://www.wcoomd.org/ie/En/Topics_Issues/FacilitationCustomsProcedures/facil_Initiative.htm
26 The Revised Kyoto Convention on the Simplification and Harmonization of Customs Procedures (1999) has yet to come into
force because there has been to date an insufficient number of signatories to the original convention that have acceded to the
Revised Convention to date to bring it into force. It is expected that with the signing of a few additional countries in the near
future, the Convention will come into force before the end of 2005.
27 The Framework recommends that a diagnostic study should at a minimum cover: leadership and strategic planning; organiza-
tional and institutional frameworks; legal framework; human, financial and physical resources; information technology; external
cooperation and partnership; change management and continuous improvement; good governance; as well as management infor-
mation and statistics. The Framework also has specific sections on: preparing action plans, project proposals and costing sched-
ules; identification of project objectives, input/activities, outputs, performance indicators, assumptions; development of a logical
framework; advice regarding activity sequencing, project management and stakeholder participation; as well as monitoring and
evaluation guidelines.
28 The WCO Time Release Study is now supported by a World Bank sponsored software application designed to assist in measuring
the average time required for each process/step in the clearance process. See http://www.gfptt.org
37
Despite these recent developments, the WCO Secretariat remains understaffed29

and insufficiently equipped to provide adequate capacity-building assistance30. There
continues to be lack of sufficient coordination and cooperation among the various
funding agencies, the private sector, and the WCO Secretariat to bring together the
important inputs of financial funding and technical assistance expertise required to
effectively and efficiently tackle the problem.
The WCO is establishing a new Capacity Building Directorate to meet these

growing demands for undertaking diagnostic needs assessments and providing tech-
nical assistance. The WCO Capacity Building Diagnostic Framework is a useful tool
for undertaking such assessments. The WCO is planning to offer training seminars to
private sector consulting firms on how to effectively use the framework.
3. Financial and Human Resources

3.1 Donor Funding for Customs Procedures Reform
International Organizations and Financial Institutions are increasingly active in formulat-
ing and delivering various aspects of financial and technical assistance related to reform-
ing Customs and streamlining import/export procedures. These include the World
Bank, International Monetary Fund (IMF), WTO, Organization for Economic Co-
operation and Development (OECD), the United Nations Economic Commission for
Europe (UN/ECE), the United Nations Conference on Trade and Development
(UNCTAD), the United Nations Development Program (UNDP), and inter-govern-
mental organizations such as the Commonwealth Secretariat, and non-governmental
organizations such as the World Economic Forum. Indeed, even various private sector
institutions, such as the International Chamber of Commerce, International Maritime
Organization, International Air Transport Association, International Express Courier
Conference, have established industry-specific recommendations and standards, in col-
laboration with the WCO, in an effort to promote the use of more modern and simpli-
fied import/export procedures and related customs requirements.
Regional Organizations and Regional Development Banks, such as the Asia

Development Bank and Inter-American Development Bank, have also been provid-
ing guidance and funding to assist Customs administrations to undertake capacity-
building activities. Frequently, this assistance is provided directly to Customs admin-
29 The WCO Secretariat has a small technical staff of approximately 50 technical officers, supplemented by a limited number of
short term attaches seconded from member customs administrations.
30 The WCO is currently assisting in the delivery of technical assistance on Customs valuation with the support of the WTO and
USAID in sub-Sahara African countries and is in discussions with the Commonwealth Secretariat to deliver capacity building for
Customs in various Commonwealth countries.
38
istrations through bilateral partners, international organizations or private sector con-

sultants. It is designed to complement other regional initiatives. In collaboration with
the WCO, these regional development banks are collaborating with the Asia-Pacific
Economic Cooperation (APEC) Sub-Committee on Customs Procedures and cur-
rently pursuing closer relations with COMESA, the Association of Southeast Asian
Nations (ASEAN) and the Commonwealth Secretariat.
Various bilateral national development assistance agencies are contributing funding

and technical assistance for Customs reform and trade facilitation programs. The fol-
lowing bilateral donors are providing assistance to those countries where there are his-
torical or strategic ties: the U.S. Agency for International Development (USAID);
UK Department for International Development (DFID); the Japan International
Cooperation Agency (JICA); the Agence Française de Development; and, the nation-
al development agencies of Germany, Denmark, Sweden, Korea, Netherlands,
Canada, Australia, and New Zealand. Wherever possible, such national agencies are
undertaking joint projects with international organizations and international finan-
cial lending institutions to ensure that the limited resources available are used effec-
tively and efficiently.
Undertaking Customs reform and trade facilitation programs in developing coun-

tries is an extremely difficult and challenging task. Anecdotal evidence from many
donor programs suggests that most projects are often under-resourced, relative to the
scale of the changes being contemplated. Many successful capacity-building initiatives
often specify the involvement of high quality customs and trade facilitation advisors
to help local officials implement reforms. Placing skilled advisors in developing coun-
tries often represents a significant proportion of the total costs associated with capac-
ity-building projects. As a result, many capacity-building programs deliberately limit
the number and duration of such short- and longer-term advisors.
There are numerous examples where Customs administrations have had a succes-
sion of medium- to longer-term capacity-building projects frequently funded by dif-
ferent donors, one after the other, each designed to address similar institutional needs.
Indeed, one of the perennial problems facing all capacity-building recipients and
providers is poor coordination and communication among national, regional, and
international donors. This leads to duplication of effort, with little or no attention
given to other strategically important areas of Customs administration and trade facil-
itation programs.
While inter-agency coordination has been a challenge in the past, institutions are
increasingly working more closely together through initiatives such as the Integrated
Framework for Trade-Related Technical Assistance to Least-Developed
39
Table 4: Checklist of Cost Areas to Be Considered

in a Customs Reform Program
Cost Area Activities or Cost Elements Source of Funding
Consulting Fees • Initial capacity-building diagnostic needs analysis – • Donors

for Technical Assistance 2 short term experts required for 2-3 months • Private Sector
• Cargo release time study to identify and • Stakeholders
quantify bottlenecks
• Customs reform and trade facilitation implementation
activities such as31:
• Overall project management (long term)
• Specific short/medium term specialized assistance
in areas such as: (i) Customs law and regulatory
reform; (ii) Customs procedures and controls; (iii)
Customs valuation; (iv) Risk assessment techniques;
(v) Audit-based controls; Enforcement and
security techniques (non intrusive inspections);
(vi) Trade facilitation; (vii) Phytosanitary and other
agency requirements; (viii) Design, programming,
testing and implementation of information and
communication technology (ICT), and; (ix) training
and human resource development
Institutional Costs • Provision of counterpart project teams • National

• Provision of appropriate offices for consultants/experts Government
• Establishment of new units such as post-clearance
audit teams, risk management, central enquiry points,
one-stop-shops, IT units, etc
• Mobilization of additional human and financial
resources if needed32
Training Costs33 • Trainers’ fees • Donors

• Preparation and printing of lesson plans and materials • Private Sector
• Preparation and printing of hand-outs and brochures Stakeholders
• Renting of venues and training aids/equipment • National
• Creation of public education program: Web site develop- Government
ment and maintenance, printing of SOP manuals, forms
and brochures
31 The precise number, duration of experts will depends on the specific capacity building needs identified in Diagnostic Needs
Analysis.
32 To mobilize additional human and financial resources, countries can either recruit new staff or re-deploy existing staff. The for-
mer option generally costs more, although the latter option may also entail training costs, expenses for physically relocating staff
and resources devoted to forward planning. Relocation is not uncommon as a general management practice in Customs, so that
redeployment linked to newly introduced trade facilitation measures may be just part of the general relocation practice. However,
relocations can only happen up to a certain scale, in order to avoid service disruptions.
33 Training is an essential cost component of Customs reform/trade facilitation programs. Countries may choose between recruiting
new, expert staff; training existing staff in a training center; on-the-job training; or importing trained staff through personnel
exchange with other ministries/agencies. In addition to training of government officers, training must be provided to the private
sector stakeholders. Associations can offer a valuable service by organizing such training programs for its member firms on a cost-
recovery basis.
40
(Continued) Table 4: Checklist of Cost Areas to Be Considered

in a Customs Reform Program
Cost Area Activities or Cost Elements Source of Funding
Equipment and • Buildings and offices: Building new offices or renovating • Donors
Infrastructure Costs34 existing ones; building shared facilities, establishing ‘one- • National
stop-shops’ with other border agencies; building Common Government
Border facilities; constructing Red/Green channel systems
at airport arrival halls; installing proper lighting, customer
service counters and screens; redressing building security
by installing security doors and access passes; installing
screens and customer service counters; building and office
signage; and setting up open-concept offices
• Procurement of non-intrusive inspection devices such as
X-ray scanners; drug-sniffer dogs and related kennels,
vehicles, supplies
• Procurement of furniture, office supplies and IT equip-
ment: new or upgrading existing PC’s, monitors, printers,
routers, servers, network cabling, electrical services, unin-
terrupted power supplies, installation of cables and tele-
phone lines; document scanning machines; proper docu-
ment storage and retrieval systems; telecommunications
networks and Global Positioning System (GPS) container
tracking devises for controlling transit movements
• Procurement of examination tools such as torches, fork-
lifts, gloves, screwdrivers, uniforms, drug testing kits, con-
tainer seals, customs locks
• Developing or procuring operating and application com-
puter systems software to support Customs and trade
facilitation applications
Countries35 to ensure assistance is tailored and targeted to best meet each country’s
development needs. An example of this is the World Bank’s Global Facilitation
Partnership for Transportation and Trade (GFP), which aims to bring together all
interested parties, public and private, national and international, in undertaking spe-
cific programs to improve transport and trade facilitation.
34 To mobilize additional human and financial resources, countries can either recruit new staff or re-deploy existing staff. The for-
mer option generally costs more, although the latter option may also entail training costs, expenses for physically relocating staff
and resources devoted to forward planning. Relocation is not uncommon as a general management practice in Customs, so that
redeployment linked to newly introduced trade facilitation measures may be just part of the general relocation practice. However,
relocations can only happen up to a certain scale, in order to avoid service disruptions.
35 The World Bank, International Trade Center, UNCTAD, UNDP, WTO and WCO currently participate in this Framework.
41
3.2 Checklist of Cost Areas to Be Considered in a Customs

Reform Program
The following cost areas need to be considered in any Customs reform/trade facilitation
program. The quantum of cost depends on each country’s unique needs assessment.
The costs of the previous table related to equipment and infrastructure can vary
significantly from one project to another. Costs will vary significantly depending on
the infrastructure and priorities of the country. With computer systems and software
for example, costs can range significantly depending on whether the country is devel-
oping a system from scratch or implementing an existing commercially available soft-
ware solution (see Box 6 for examples of Customs/trade facilitation software/solution
providers).
Box 6: Examples of Customs/Trade Facilitation Software Solutions
ACCENTURE Integrated Tax System – www.accenture.com

ASYCUDA WORLD – Geneva – www.asycuda.com
Customs Management System – Mauritius – [email protected]
CRIMSONLOGIC TradeNet/PortNet – Singapore – www.crimsomlogic.com
e-biscus – Bull-France – [email protected]
e-Clearance.dk – Danish Customs/Steria Denmark – [email protected]
GAINDE 2000 – Dakar Senegal – www.gainde2000.sn
IBM Secure Trade Lane – www.ibm.com
ICARUS e-Com – Dublin – www.icarus-e.com
LIMENOS/MISRYA– Cairo – www.misryasys.com
MicroClear – Dubai – www.pwclogistics.com
TATIS – Geneva – www.tatis.comTRIPS – Surrey UK – www.crownagents.com
Costs should be split between one-time and long-term ongoing costs. Some costs
might be transferable to other agencies or stakeholders e.g., cost of procurement and
ongoing maintenance of IT systems and X-ray scanners may be recovered through
processing fees36.
Given the scale and scope of the investments required for infrastructure and capac-
ity building required to implement such reforms, the quantum of financial invest-
ment required to achieve meaningful and sustainable reform can be significant. It is
important that the advantages and disadvantages of each possible source of funding
be considered (see Table 5).
36 In some countries, Customs collects a processing fee on each customs declaration to recover the cost of processing the declaration
and related X-ray inspection if required. U.S. Customs applies such a processing fee on each customs declaration transmitted for
processing. Mauritius Customs has made a provision in its Customs legislation for the collection of a customs processing fee to
cover the cost of periodic replacement and upgrading of Customs IT equipment and the ongoing maintenance of X-ray scanners.
42
Table 5: Benefits and Limitations of Using Different

Sources of Funding
Funding Sources Advantages Disadvantages
Self Funding • High level of local ownership; • Inadequate quantum of

• No conditionality applied by external agencies; support;
• High degree of flexibility in utilization of funding; • Lack of sustainability;
• Limited external monitoring • Vulnerable to policy and
political changes;
Loans from Donors • Continuity of funding; • Debt to repay;

• External monitoring of performance; • Sometimes lengthy negotia-
• Access to external advice and guidance tion process;
• Conditionality applied;
• Limited flexibility in utiliza-
tion of funding
Grants from Donors • No debt incurred • Limited flexibility in the uti-

• Particularly useful for short term projects for lization of funding
infrastructure acquisition • Lack of predictability and
sustainability
Private Sector Contributions • Contributes to shared sense of responsibility and • Potential for conflicts of
potential for partnership approach interest;
• Lack of predictability and
sustainability
User Fees and Charges • Predictable and sustainable funding; • Increased cost to traders;
• Benefits of improved performance channeled • Cost of administration of
directly to beneficiaries scheme;
• Potential for income to be
diverted to national budget.
4. Modern Legal Framework

A comprehensive and modern legal framework is the foundation upon which an
effective Customs and trade facilitation regime is built. Any Customs reform program
must include a thorough review and modernization of the Customs (and other bor-
der agency) laws, regulations, administrative guidelines and standard operating pro-
cedures so they fully support the new requirements, procedures, systems, and con-
trols. This legal framework benchmarking should be based on internationally accept-
ed standards and best practices as set out in the Revised Kyoto Convention and allow
for the implementation of related international instruments, agreements, and stan-
43
Table 6: Checklist of Elements That a Modern Customs Legal

Framework Should Include
A modern Customs Legal Framework should:

■ Establish the responsibilities and authorities of the Customs service to administer and enforce Customs laws,
develop administrative regulations, adjudicate and settle cases, and take decisions on Customs administrative
matters;
■ Promote transparency and predictability, e.g., timely dissemination of information, advance rulings, independent
audit, appeals processes;
■ Provide for modern Customs systems and procedures, such as risk management, post-clearance audit based
controls and adequate automation;
■ Include provisions for compliance with international commitments, e.g., WTO agreements;
■ Simplify customs procedures such as simplified customs declarations and advance lodgment of declarations;
■ Allow for release of goods without all clearance formalities having been completed;
■ Have simplified and special procedures for authorized persons;
■ Allow a minimum Customs value of the goods or minimum amount of duties/taxes;
■ Allow for the use of risk management techniques and audit-based controls for the purposes of Customs control
over goods;
■ Support the use of modern information technology and communication, including electronic messaging,
paperless declarations, and electronic signatures;
■ Provide the right of appeal in cases of decisions or omissions by Customs, with initial appeal to Customs, right to a
further appeal to an authority independent of Customs, then finally an appeal to a judicial authority or court37;
■ Establish appropriate provisions for Customs to issue binding rulings, decisions and reasons for decisions in
writing within a specified period;
■ Establish an administrative settlement and penalty regime, with penalties proportional to the gravity of the
offense, i.e., that Customs should not impose substantial penalties for inadvertent errors or errors without
evidence of fraud or gross negligence;
■ Encourage cooperation with other Customs administrations and with other border agencies;
■ Enable the provision of information to interested parties and authorize the disclosure of confidential or
commercially sensitive information in certain cases;
■ Provide for the charging of fees for services rendered and information provided;
■ Provide for cooperation and formal consultations with the private sector;
■ Promote Customs integrity by minimizing discretionary authorities and ensuring requirements are transparent
and predictable; and,
■ Be accessible to the public and all stakeholders.
dards. The WB’s Customs Modernization Handbook contains a more insightful and
detailed description of how to address legal framework issues38.
37 In Chile any decision by Customs related to the determination for payment of tariffs and duties, as well as actions by which those
duties are assessed, is subject to appeal. Claims have to be introduced first to the Regional Customs Director or Administrator
and his decisions can be appealed to the Director of the National Customs Service. Both steps are subject to administrative law
rules and procedures and decisions have to be rendered no later than 15 days after evidence has been submitted. A final recourse
against the decisions of the Director of the National Customs Service is available with the Supreme Court of Justice.
38 See “Customs Modernization Handbook”, Luc de Wulf and Jose B. Sokol, The World Bank, 2005.
44
The Customs framework should consist of such elements as:

■ Customs Act/Code—e.g., Customs Code of the European Community,
which is closely aligned to the WCO Kyoto Convention;
■ Customs tariff—setting out rates of duty/tax to be applied to goods;
■ Excise act;
■ Customs regulations;
■ Laws and regulations administered on behalf of other government agen-
cies e.g., Intellectual Property Rights, Copyright, Trademark, Industrial
Expansion and Investment Acts; etc.; and,
■ Customs Administrative Orders, Standard Operating Procedure manu-
als and instructions.
In addition to the necessary laws or regulations that must be in place, the project
officer working in the creation or revision of the legal framework should take into
account the following elements (see table 6).
5. Transparency and Predictability

Transparency is essential in international trade to allow commercial operators to fully
understand the conditions and constraints for entering and operating in a market.
Timely and accurate trade related information must be made easily accessible and
readily available to all interested persons. Access to such information is essential to
ensure predictability in the application and enforcement of these rules, as well as to
promote voluntary compliance by traders with them. When such information
changes, it should be made available sufficiently in advance of its entry into force of
the new requirements so that interested parties can take account of the changes.
Examples of trade-related information that must be public include:
■ Customs and related laws, regulations, Customs procedures, standard
operating practices, and public notices, document requirements39, secu-
rities and repayment arrangements, exemptions, specific administrative
arrangements including office hours, location and competence;
■ Administrative rulings/opinions, as well as appeal decisions and judicial
decisions pertaining to the tariff classification, valuation or origin of
products for Customs purposes40;
■ Rates of duty, tax, or other charges41;
39 For example, many Customs Web sites now allow traders to download samples of such trade documents, customs declarations,
commercial invoices, permits/certificates, exemption applications, forms for appealing decisions, etc. to facilitate preparation.
40 For example, Mauritius Customs Web site now provides a database containing all nationally issued classification rulings as well as
a summary of the WCO compendium of international HS opinions.
41 It is important to note that any increases in rates of duty/tax or other charges, which impose a new or more burdensome requirement,
restriction or prohibition on imports or transfer of payments related to, should not take effect before such measures have been officially
published. This principle should apply except in instances where advance notice is precluded e.g. budgetary changes in duty/tax rates.
45
■ Requirements, restrictions or prohibitions on imports or exports or on

the transfer of payments affecting their sale, distribution, transporta-
tion, insurance, warehousing, inspection, exhibition, processing, mix-
ing, or other use42;
■ Multilateral, bilateral, and regional trade agreements in force, including
rules of origin for goods and value-added requirements for goods to
qualify for the agreement’s preferential rate of duty/tax; and,
■ Trade statistics, port volumes, dollar exchange rates, Customs perform-
ance standards.
There are many ways to make information publicly available. Such information can
be disseminated through: official gazettes, updated tariff book, compendiums, customs
bulletins and notices, education seminars, handbooks and exhibitions brochures, infor-
mation releases, Customs magazines, news services, press releases and public notices,
trade shows, enquiry offices, client help desks, and toll-free help lines that can include
pre-recorded answers to frequently asked questions. Information should be made avail-
able at local, regional, and headquarters customs offices, as well as foreign embassies,
consulates, trade missions, government buildings, etc. Wherever possible, information
should be made available in electronic format through government Web sites.
Customer service counter-training should be provided to all staff dealing directly

with the public or stakeholders. Where necessary, information should be made avail-
able in more than one language. Normally, information should be provided free of
charge. If charges are applied, they should be limited to recovery of the actual cost of
the service provided. Clear guidelines and conditions should be established for all
information fees and charges.
To ensure that information is provided efficiently and effectively, it is important

that Customs have a unit in its organizational structure dedicated to client informa-
tion services. Transparency goals, objectives, and priorities should be set out in the
department’s strategic plan. Performance standards should be set specifying the time
limits that all requests for information should be attended to. Staff and client/stake-
holder surveys should be undertaken periodically to assess satisfaction.
A unit should also be created in Customs to provide timely written rulings/opin-

ions on tariff classification, valuation, origin, and other Customs purposes to traders.
Such written rulings should be provided in advance of cargo arrival. The ruling
42 Many Customs services have constructed “Integrated Tariffs” which display for each HS Code the applicable rates of duty for
each tariff treatment/tariff preference, along with an indication whether the goods require specific import permit or other certifi-
cate. These integrated tariffs are frequently published in hardcopy, posted on the internet or available to on-line users of the
Customs computer system.
46
processes should be binding on Customs so long as the goods arriving match the tech-
nical literature provided in advance of the cargo’s arrival 43. Access to rulings should
be well publicized, user friendly, provided within specified time limits, available free
of charge, and be applicable across all Customs offices44. The WB’s Customs
Modernization Handbook contains many examples of how to deal with transparency.
6. Balance Between Facilitation and Control

Objectives
Customs controls should be kept to the minimum necessary to ensure compliance
with Customs laws and controls should be carried out selectively, using risk-manage-
ment techniques. Customs must continually strive to facilitate the processing and
clearance of legitimate trade, while ensuring that there is proper enforcement of
Customs laws and regulations. The primary method of maintaining this balance is by
applying risk-management techniques to help identify and focus its limited resources
on those potentially high-risk activities, cargo, conveyances, etc., to limit the level of
Customs intervention at time of clearance of goods. By effectively applying risk-man-
agement techniques, the vast majority of legitimate trade should be able to proceed
across borders with a minimum of Customs intervention.
Risk management involves: (i) intelligence gathering and analysis; (ii) constant re-
evaluation of results achieved and new threats emerging; (iii) use of data mining
against previous trade transactions; (iv) sharing of intelligence information between
national enforcement agencies, other revenue departments, and with other Customs
services; (v) applying automated selectivity applications, profiling, and scientific sam-
pling techniques45; and (vi) using non-intrusive inspection techniques e.g., X-ray
scanners, drug-detection dogs.
Customs administrations in many developing countries face enormous pressures

to maximize revenue collections in an operating environment that is characterized by
poor levels of voluntary compliance. Customs must often rely on burdensome docu-
ment checks and physical inspections of cargo to verify declared values, tariff classifica-
43 There should be clear procedures and responsibilities established for the annulment of binding rulings. Where Customs decides
to withdraw, revoke or amend a ruling which is detrimental to a trader, Customs should take into consideration that such a deci-
sion will place the trader in an unforeseen disadvantage and consequently consider extending the advance ruling provided for a
limited, fixed period of time.
44 It is extremely important that Customs applies tariffs and rulings consistently at all offices to prevent the traders from “Port
Shopping”, that is, clearing their goods at a Customs office which provide the most advantageous rate of duty/tax or other prefer-
ence.
45 Information technology allows Customs to process manifest or Customs declaration data against any number of risk filters con-
taining various combinations of selection criteria. For example, high-risk suppliers, importers, exporters, brokers or carriers; par-
ticularly high-risk goods; high-risk countries of origin. Selection can be made mandatory or be based on a percentage selection
for monitoring purposes. It is critical that the automated system tracks all consignments selected and requires feedback on results
achieved to allow Customs to continually monitor the success of the criteria and periodically revise it.
47
tion, and origin of goods. This approach often results in significant delays in Customs
clearance at border crossings and creates an environment that is highly vulnerable to col-
lusion and corruption. At the same time, Customs administrations are facing increasing
pressure from the private sector and trade related government agencies to expedite the
processing and clearance of goods. This objective can only be achieved by reducing the
level of resource-intensive documentary and physical examination.
To counter these constraints, Customs should apply the following operational

strategies and methods to improve the effectiveness of risk management techniques:
Pre-Arrival Lodgment and Processing of Data. A highly effective tool that Customs
services can employ to improve its risk-management capacity is to encourage the
trade community to electronically submit manifests and Customs declaration docu-
ments in advance of the actual arrival of the goods in the country, e.g., normally up
to 3 days in advance of arrival46. Pre-arrival lodgment of documents and data pro-
vides Customs staff with additional time to carefully scrutinize them, ideally leading
to better selection and enforcement results. Customs law or regulations may need to
be amended to allow for such advance processing. It is important to note that
although Customs may accept this data, it should not inform the trader whether
their goods will be released, with or without inspection, until after the goods have
actually arrived in the country.
Separation of Release from Clearance of Goods Functions. Customs Release refers to

the physical removal of goods at the border from Customs custody. Customs Clearance
means the completion of all official formalities. Separating these two concepts allows
the goods to be released swiftly as possible, even though all customs formalities have
not been completed. For example, goods can be released even though not all data or
documentation is available, or even if there is a dispute on the tariff classification or
valuation of a particular consignment. Once security is posted by the trader to cover
any additional duty/tax or other potential charges owed, the goods under dispute
should be immediately released. Security posted should be returned, refunded, or dis-
charged in a timely manner after the dispute is settled or other obligations are ful-
filled. The idea is to allow goods to be released from Customs controls at the
airport/port or border crossing as quickly as possible, and have the goods move to the
trader’s premises where Customs may exercise other controls if needed, e.g., to under-
take cargo inspections or take samples for laboratory analysis when goods are
unstuffed from the container, or to undertake detailed checks of documents at the
trader’s premises.
46 The U.S. Customs Container Security Initiative requires specified manifest data regarding inbound cargo to be electronically
transmitted by carriers no later than 24 hours prior to departure of a vessel to a U.S. port.
48
Simplified Procedures for Authorized Economic Operators. Another method to help

maintain an appropriate balance between control and facilitation is to implement
simplified, special Customs procedures for certain pre-approved or authorized eco-
nomic operators who have been deemed to be highly compliant and low risk. The
specialized procedures may include:
■ Release upon presentation of minimum data or simplified documenta-
tion requirements at time of arrival;
■ Special processing stream with only simplified compliance checks at
time of release;
■ Cargo inspections conducted at trader’s premises rather than at the port;
■ Presentation and payment using periodic and consolidated Customs
declaration to cover multiple trade transactions over a given period, as
opposed to a single customs declaration presented and paid for each
consignment; and,
■ Self-assessment of duties and taxes by using own commercial records,
and lodgment by entry in the corporate records.
Traders normally have to formally apply for these privileges. Customs must verify
that the trader has attained a satisfactory level of compliance with Customs laws and
regulations and is in fact auditable (i.e., is keeping required books and records in a
manner prescribed by Customs; has automated systems that are auditable) before
granting the privilege. Once approved, authorized parties must agree to allow
Customs to undertake regular periodic audits and surprise audits of their books and
records to confirm compliance.
Normally, a memorandum of understanding, or similar agreement, is signed

between Customs and the authorized party specifying all responsibilities and obliga-
tions. Since such schemes are a privilege and not a right, the privilege may be tem-
porarily or permanently revoked by Customs if a serious offense is detected or if the
trader fails to live up to compliance requirements.
Security for Duties and Taxes. If schemes are introduced to defer the payment of
duty/tax, it is important that Customs require that financial security be posted to
cover such liabilities in the event of a default. Sensible, straightforward, and cost-
effective methods for the provision of required security can play an important part in
trade facilitation. Customs should offer incentives to highly compliant traders pos-
sessing significant assets in the case of a default, to have their goods released without
requiring 100% security for the duty/tax liabilities. Customs should consider accept-
ing from authorized traders a single blanket or general security to cover all of a trad-
er’s operations in a given period, instead of requiring individual securities for import
49
transaction. Offering highly compliant traders a financial cost-saving incentive of not

having to post 100% security with Customs is an excellent way of both promoting
and rewarding trader voluntary compliance.
Audit-based Controls. While checks at the border to compare the actual physical goods
with what is declared on the Customs declaration can never be totally eliminated, it is
clear that exercising Customs control by undertaking post-clearance audits of traders’
records and systems is a much more efficient and effective method of ensuring compli-
ance with laws governing Customs valuation and to a lesser degree tariff classification and
origin. By moving away from transaction-based controls that must be applied at time of
release, Customs is able to audit the entire trade transaction, checking the Customs dec-
laration against purchase orders, manifests, letters of credit and bank transfers, books of
account, sales receipts, technical catalogues, inventories, etc. to verify the accuracy of the
customs declaration. In fact, only through such audits can Customs actually verify that
the declared customs values are accurate and the duty/tax liabilities have been properly
accounted for. Such audits can also be combined with audits conducted by other revenue
departments, e.g., value-added tax (VAT) and income tax.
Post-clearance auditing enables Customs to significantly facilitate trade by simpli-

fying the release of goods at the border, while allowing it to exercise greater compli-
ance verification after clearance through periodic audits of the trader’s records and sys-
tems. Audit techniques however generally entail the availability of specially trained
staff that not only are experienced Customs officers, but must also understand
accounting systems, IT systems, and auditing techniques.
7. Integrity and other Human Resource

Management Weaknesses
7.1 Corruption in Customs
Corruption in Customs is a significant constraint on streamlining import/export proce-
dures to facilitate trade. So long as corruption exists, there will be significant resistance to
measures that are not in the interests of those directly involved in or benefiting from cor-
ruption. If such reforms are to be successfully implemented and sustainable, anti-corrup-
tion or integrity-building activities must be undertaken. The WB’s Customs Modernization
Handbook contains a chapter on integrity to complement this information.
There is no universally agreed definition of corruption in the Customs or trade

field. There are three specific behaviors, or combination of behaviors, that are consid-
ered corrupt: (i) bribery; (ii) nepotism; and, (iii) misappropriation. Some customs
50
administrations have further expanded the concept of corruption to include abuse of

power, or failing to conform to agreed performance standards of customer service per-
formance. It is important to highlight that corruption can only occur if there is both
a ‘giver’ and ‘receiver’. In anti-corruption legislation and criminal codes of most coun-
tries, both parties are equally guilty of the offense and liable to sanctions.
Few public agencies as Customs meet all the classic pre-conditions for institution-
al corruption: administrative monopoly, coupled with the exercise of wide discretion,
being exercised in an environment that too frequently lacks proper systems of control
and accountability. Many aspects of Customs operations are extremely vulnerable to
corruption because legislation authorizes Customs officers significant monopolistic
and discretionary power over certain services, especially over the release or inspection
of cargo. These and other factors make corruption a very common element in any
Customs administration (see Table 7).
Table 7: Common Factors that Contribute to Corruption in Customs
■ Large rents available relative to the low remuneration often paid to Customs officers;
■ Organizational cultures and behavioral norms that fail to recognize bribes and other inducements as unaccept-
able behavior given the costs to society;
■ Extraordinarily high rates of import duty/tax in many developing countries that encourages Customs frauds; a
lack of deference to authority or controls in place to detect and deter corruption;
■ Weak senior management;
■ High level of contact or interface between customs officers and traders;
■ Lack of tools to detect and correct weak systems and controls that allow corruption or malfeasance to occur; and,
■ Ineffective disincentives to deter or penalize corrupt behavior.
Because Customs deals with four key issues—revenue collection, community pro-
tection, trade facilitation and protection of national security—it is essential that a
high level of integrity exist. Corruption can have many negative effects. It can:
■ Undermine public trust and confidence in government institutions;
■ Increase costs to the trade community and distort economic incentives;
■ Reduce revenue collections and the fiscal situation of the country;
■ Reduce the level of voluntary compliance with Customs laws and regu-
lations;
■ Create unnecessary barriers to international trade and economic
growth; and
■ Undermine national security and community protection.
In recent years, international attention has focused increasingly on good governance.

Endemic corruption in the Customs services in many developing countries is often
highlighted as a significant reason for high trade transaction costs, poor revenue collec-
51
tions, and weak fiscal situations, and also as a huge barrier to foreign investment and
economic growth47. While there has been a great deal of discussion at the internation-
al level, regrettably, the situation remains largely unchanged in many developing coun-
tries. Corruption is particularly inherent during the verification of the goods declaration
and physical inspection of the goods. However, there are numerous areas where collu-
sion or complicity between Customs officers and traders can occur (see Box 7).
Box 7: Common Areas of Corruption in Customs

While Customs is frequently criticized publicly as the instigator of corruption in a
Customs valuation fraud – The production and presentation of false commercial invoices to Customs to support
trade transaction,
reduced theupon
Customs values reality
which in many
duty/tax countries
is applied is that
is probably the most it prevalent
is the traders
and costlyor
typetheir
of corrup-
agents (i.e., brokers and clearing agents) who would benefit most from
tion. It is also one of the most difficult to detect and deter. Customs officers can collude with importers the and
reduced
their
dutyagents
or tax liabilities
to accept declared or other
values, frauds
thereby reducingbeing allowed.
their duty/tax In fact, unscrupulous customs
liabilities.
Misclassification
brokers – Similarrents
often collect to under-valuation,
from their traders and importer/trader
client customs officers can colludeunderto accept
the an incomplete
pretext that
goods description on commercial invoices to allow goods to be assessed a reduced rate of duty/tax.
rents have been demanded from Customs officials for a facilitated clearance or other
Origin fraud – Customs officers accept false or fraudulent certificates of origin, conferring a preferential rate of
benefit, when in fact it is the broker or agent that will retain all or most of the rent
duty/tax to which the goods are in fact not eligible.
extorted from thegoods
Smuggling/excess trader.
– Customs officers examining goods conspire with traders to either not examine
goods, or not examine them completely and fail to report excess or smuggled goods. Often, the goods being
7.2smuggled
Howcanto Address
attract Corruption
very high rates of duty/tax e.g., cigarettes, liquors, perfumes, or are subject to prohibitions
or restrictions e.g., weapons, drugs, counterfeit goods.
There are no
Exemption quick
fraud fixesantoexemption
– Granting eliminate corruption
of duty/tax ingoods
for which the Customs and orthe
do not qualify tradesuch
diverting commu-
nity.goods
Only a comprehensive
to other non-approved uses; approach will produce concrete results. The first step is
to undertake
Drawback refundan fraud
integrity diagnostic
– Granting assessment
a refund of duty/tax on goodsthat determines
that were the areas of greatest
not in fact exported.
risk, then prepare an integrity program that sets out priority actionsinstead
Transit fraud – Transit goods not completing the transit movement through the country and neededbeing to
divert-
ed or substituted inside the Customs territory.
achieve results. Any comprehensive Customs integrity program should address:
Regulatory Framework. This involves ensuring that legislation is consistent with

international agreements, standards, and commitments; simplifying regulations, pro-
cedures, and administrative guidelines; eliminating red-tape and cumbersome proce-
dures; minimizing and rationalizing non-tariff regulations, including quotas, import
licenses and permits; introducing ‘one-stop-shops’ for import/export formalities
involving all border agencies; ensuring formal processes for appeals of discretionary
decisions; applying risk-management techniques effectively; and modernizing systems
to eliminate any perceived advantages that might be obtained through circumventing
official requirements.
Transparency. Customs laws, regulations, and requirements should be easily acces-

sible, applied in a uniform and consistent manner to promote certainty and pre-
47 Three major international declarations have resulted: the WCO Arusha Declaration (1993); the Columbus Declaration (1994)
and the Lima Declaration (1997). The WCO has also developed a Model Code of Conduct and Integrity Development Guide.
Additionally, the OECD, Organization of American States, the EU, the UN, the World Bank and Transparency International
have focused their attention on administrative corruption. The WCO has also produced an Integrity Development Guide to
assist Customs administrations in implementing a range of practical strategies to combat corruption. See
http://www.wcoomd.org/ie/en/Topics_Issues/topics_issues.html
52
dictability in trade transactions; increase accountability and maintaining open and

honest relationships with stakeholders; establish appeal and administrative review
decisions; establish client service charters and quality service standards to demonstrate
commitments on providing quality service to clients; and establish customer help
desks and call centers.
Automation. Information and communications technology removes opportunities

for corruption by increasing the level of accountability; provides audit trails for later
monitoring and review of administrative decisions; minimizes face-to-face contact
between Customs personnel and clients; and, minimizes the use of paper-based con-
trols. Automated systems can be programmed to randomly select from a roster of
available Customs officers which declarations must be checked by which officer or
which consignments must be inspected by which officer, thereby minimizing oppor-
tunities for collusion. It must be noted that automated systems are also vulnerable to
attack or manipulation from sources within and external to the organization.
Automated systems are only as secure as those who use them and maintain them.
Unless audit trails and safeguards exist, internal control mechanism can be turned off
or manipulated to hide fraudulent transactions.
Audit and Investigation. Monitoring and control mechanisms must be carried out
effectively by internal check programs, internal and external auditors, and by investi-
gations and prosecution units. Customs personnel, clients, and the general public
should be encouraged to report corrupt, unethical or illegal activities. Where large-
scale investigations are warranted, or in a Customs service or trade community where
corruption is considered widespread, recourse to independent anti-corruption agen-
cies is highly recommended48.
Code of Ethics. A comprehensive code of ethics should set out in very clear, prac-
tical, and unambiguous terms the behavior expected of all Customs personnel, and
provide a guide to solving ethical issues for those working in Customs and those who
have dealings with Customs officers. Memoranda of understanding between Customs
and its stakeholders should include mechanisms by which allegations of corruption or
malfeasance can be confidentially communicated to authorities.49 Penalties for
breaches of the code should be articulated in the code, and calibrated to respond to
the seriousness of the violation and supported by appropriate administrative and leg-
48 In 2001, Mauritius passed legislation creating the Independent Commission Against Corruption (ICAC). This body, modeled
after the highly successful Anti-Corruption agency in Hong Kong, has been given wide-ranging powers to investigate all allega-
tions of corruption in the public and private sectors. It has been working in close partnership with Mauritius Customs to carry
out investigations where allegations or evidence of corruption has been uncovered, as well as to undertake corruption prevention
campaigns including detailed reviews of high-risk areas including Customs duty/tax exemptions. ICAC has also initiated investi-
gations into various stakeholder groups including Customs brokers, clearing agents and customs clerks.
49 The WCO’s Model Code of Ethics and Conduct could serve as a blueprint for the Code.
See http://www.wcoomd.org/ie/En/Topics_Issues/topics_issues.html
53
islative provisions. For serious offenses, penalties should include fines, demotion and
dismissal, while less severe offenses should be dealt with through restrictions, trans-
fers, reduction in autonomy, or discretionary power, loss of professional status, nega-
tive publicity, as well as peer pressure. Appropriate conditions of employment, remu-
neration, and administrative and legislative provisions must support the practical
implementation of the code and be sufficient to provide a positive incentive.
If a general civil service code exists, care should be taken to ensure that the specif-
ic Customs code of ethics is complementary and does not replace the general code50.
Stakeholder associations (e.g. Customs house brokers) should also be encouraged to
develop their own codes of ethics and implement disciplinary procedures to sanction
those members found to be involved in fraudulent or corrupt activities. Codes of
ethics however will remain as mere wallpaper in offices unless there is: an effective
internal/external communication strategy to promote the code; staff consultation and
participation in development of the code; periodic review and updating of the code;
a requirement that staff understand and endorse the code; introductory training that
covers the values of the organization and content of the code; and prompt and effec-
tive action taken to redress any breaches of the code.
Human Resource Management Issues. A key element of any effective integrity pro-
gram is managing the personal integrity of staff. ‘People’ management is just as, or
even more important as, the reforming and streamlining the import/export proce-
dures and supporting systems. Special attention should be paid to:
■ Remuneration—Customs and other government officials must be pro-
vided with sufficient salaries and other remuneration and conditions
that provide a decent standard of living. Official remuneration can
never be at a level that will prevent all corrupt behavior. However, it
must be sufficient so officials are not tempted to accept low-paying gov-
ernment positions on the assumption that they must supplement their
income through illegal rents. Performance-related incentive schemes
may encourage positive behavior. For example, many Customs services
offer reward schemes whereby officers receive a percentage of any penal-
ty levied. Staff may also be rewarded for identifying weaknesses in sys-
tems where corruption can occur. Non-monetary rewards such as trans-
fer, training, travel, praise, and publicity can also be used to encourage
positive behavior.
50 If however the civil service code is ineffective or unduly cumbersome to apply, a separate code of ethics and disciplinary proce-
dures may need to be established for the Customs. Indeed, many of the new revenue authorities created have codes of ethics and
disciplinary procedures that are totally distinct from civil service codes to tackle corruption in Customs.
54
■ Recruitment, Selection, and Promotion—Staff should be recruited,

trained, and promoted based on the merit principle and the individual’s
likelihood of maintaining high levels of integrity, rather than systems
based on bias, favoritism, or seniority. Academic, professional, and/or
technical competencies should always be viewed as secondary to an
individual’s honesty, dependability, and high standards of personal
behavior. If selection and promotion are to be based on merit, the
process must be objective and immune from interference. Recruitment
and promotion committees should be composed of independent mem-
bers selected from different work areas of the organization in order to
minimize chances of nepotism and corruption. Analysis of previous
employment records, asset declarations and verifications (both initial
and periodic), as well as background and police checks on references
and qualifications are important.
■ Deployment, Rotation, and Relocation—It is critically important that
Customs staff be regularly rotated or transferred within units and to
various units. This is especially important in units where officers may
be vulnerable to developing familiar relationships with traders over peri-
ods of time. Time spent in particularly vulnerable postings should be
kept to an absolute minimum. Decisions on posting of Customs offi-
cers should be based on established objective criteria with posting deci-
sions properly recorded. Jobs and responsibilities should be appropriate-
ly segregated to ensure that individual officers are unable to exercise dis-
cretionary power without reference to other officials. For example, offi-
cials should not be able to initiate and certify payments; cargo inspec-
tions at importer’s premises should be undertaken by a team of at least
two officers, with mechanisms in place to selectively re-verify inspec-
tions by an independent team of peers.
■ Training and Professional Development—Education and training, both
formal and informal, can play a major role in curbing corruption.
Officers must be provided with adequate training and professional
development throughout their careers to promote and reinforce the
importance of high ethical and professional standards. Reliance on
informal, on-the-job training, where bad habits can be passed down
should be minimized. When they are undertaken, they should be close-
ly monitored and positively structured.
■ Performance Management Systems—These systems allow managers to assess
the performance of staff, identify developmental opportunities, recognize
and reward staff for good work, and contribute to the development of the
organization’s goals. They can provide incentives for model behavior and
they can be used to hold officers responsible and accountable for main-
55
taining high levels of personal and professional integrity. Performance

appraisal systems can be linked to incentive or reward schemes designed to
recognize and reward good performance over the long term.
■ Morale and Organizational Culture—Corruption is more likely to occur
in organizations where morale is low, or where staff does not have pride
in the reputation of its administration. Corruption is less likely to exist
when morale is high, human resource management practices are fair,
and there are reasonable opportunities for career development. To
attack corruption, one must understand the culture and practices of the
administration in order to determine the most appropriate methods to
achieve real and sustainable improvement. The extent and timing of
changes must be realistic and reflect the capacity of the organization to
support and embrace the necessary cultural changes. Changing attitudes
and organizational cultures are extremely difficult, particularly where
corruption is widespread and endemic. Without such changes however,
even if those guilty of corrupt behavior are replaced, corruption will
quickly reoccur in their replacements. Pride and loyalty must be
instilled in new recruits to break the cycle of corruption.
Relationship with the Private Sector. The existence of many forms of administrative
corruption requires the direct and active involvement of private sector partners in the
trade community. Stakeholders should be encouraged to accept an appropriate level
of responsibility and accountability for corruption. Stakeholders must be directly
involved in identifying and implementing practical solutions. Memoranda of under-
standing between border agencies and stakeholders should set out standards of pro-
fessional behavior and establish mechanisms (e.g., hotlines for complaints and com-
pliments) for reporting corrupt officers or suspicious incidents requiring investiga-
tion. Guarantees of confidentiality and anonymity are important to facilitating such
reporting. Stakeholder associations should be encouraged to develop their own codes
of ethics, backed up with appropriate self-regulatory sanctions for misconduct or cor-
rupt behavior by their members to redress the other side of the coin.
Autonomous Revenue Authorities. Faced with the inherent difficulties of trying to

introduce major human resource reforms within Customs while they are still under
the rules and regulations of the civil service, and in an effort to increase revenue col-
lections, reduce the costs of collecting revenue, and minimize political interference in
revenue collection, many developing countries have introduced autonomous revenue
authorities or agencies51. Such revenue authorities combine under one organization-
51 Ghana, Uganda, Zambia, Kenya, South Africa, Tanzania, Rwanda, Ethiopia, Zimbabwe, Lesotho, Malawi, Mauritius Columbia,
Mexico, Peru, Bolivia, and Venezuela
56
al structure all revenue collecting departments, e.g., Customs, VAT and income tax.
In many countries, these autonomous agencies no longer fall under the direct respon-
sibility of the ministry of finance, and instead are managed by a board of directors.
While the ministry of finance is represented on the board, the authority operates
largely autonomous of the ministry of finance. It has the autonomy to develop its own
organizational structure, remuneration, and other terms and conditions of service; the
ability to more easily hire and fire staff; introduce more effective disciplinary proce-
dures and performance appraisal regimes; introduce performance related incentives;
and apply the merit principle when selecting and promoting staff; etc. Management
of the organization can be recruited on fixed term, performance-based contracts. The
authority may be given permission to retain a percentage of revenues collected to fund
its operations. The authority can also be granted streamlined tendering procedures to
speed up the overall procurement process.
In addition to providing an environment whereby human resources weaknesses

can be more effectively redressed, such authorities can also produce efficiencies from
sharing common services. These common services may be combined to produce effi-
ciencies (e.g., instead of each revenue department having its own personnel, finance
and administration, legal, taxpayer services, ICT departments, internal audit; internal
affairs, research and planning). It may be possible to combine various enforcement
units that will increase enforcement effectiveness across the various revenue depart-
ments (e.g., investigations, risk management).
There is extensive literature about the success or failure of the various revenue
authorities. Certainly the more successful ones have been those that have benefited
from: (i) high level political support that has not wavered; (ii) more, rather than less,
autonomy from the ministry of finance, to avoid political interference in day to day
operations; (iii) regular reviews of staff remuneration to ensure that staff salaries are
competitive with those in the private sector, and (iv) realistic revenue target setting.
Management Contracts to Operate Customs. Another approach to reform Customs

has been to contract out the entire management and operation of Customs
Department to a private company. The jury is still out on this bold approach to insti-
tutional reform. While this is an approach that can bear positive results, the objectives
of such reforms must be very well defined and performance based contracts estab-
lished from the beginning. If the design and monitoring is weak, the reforms can have
a very limited impact (see the case of Mozambique, Box 8). Any service provider must
be given clear milestones for completing the reforms, and performance benchmarks
for transferring responsibility back to national customs authorities.
57
Box 8: Management Contracts to Operate Customs.

The Case of Mozambique
This approach was taken in Mozambique52 in 1995 following decades of civil war that had left the country’s
Customs service largely dysfunctional and unable to collect revenue or facilitate trade. Supported by the UK DFID,
the World Bank and IMF, after competitive bidding, Crown Agents were awarded a three year contract to:
• Take over complete management of Customs and place expatriate managers in approximately 60 key
management positions;
• Train national Customs staff to take over by the end of the contract;
• Implement new Customs legislation and exchange regulations;
• Implement proprietary Customs IT systems;
• Maintain Customs assets in good order and prepare an asset inventory; and,
• Procure and maintain equipment allocated to the reform project.
Various evaluations have been conducted, taking into consideration revenue gains and improvements in release
times. It is clear that the initial contract seriously underestimated the complexity of building capacity and handing
over to a new Customs management. After several contract extensions, Crown Agents are still managing the
Customs service in Mozambique, though the number of expatriates has been significantly reduced. Corruption
still plagues the customs operations as officers continue to adhere to the new procedures/controls set out. The
government of Mozambique continues to fully support the project and has very much taken a hands-off
approach.
8. Monitoring and Evaluation:

Measuring Performance
It is essential to measure the results of any reform program. There are three specific
points in time where a measurement of performance indicators should be made
throughout the Customs reform project. The first stage is at the diagnosis phase when
the assessment of Customs procedures and processes is being made. The second meas-
urement should occur when results can or should be expected (e.g., 6 months) fol-
lowing the implementation of the designed, streamlined process. This measurement
is intended to determine whether the changes made have actually resulted in improve-
ments. The third measurement serves an audit function and may occur 12 to 18
months following implementation of the Customs reform process. This audit is
intended to ascertain whether there has been any deterioration in performance since
the completion of the reform initiative.
During the Diagnosis Phase, project teams will need to ensure that performance is
measured from the very inception of the initiative to guarantee that performance tar-
gets are met. Without accurately recording data, project teams will not be able to
determine whether the Customs authority has met its goals. In order to determine
52 Angola has undergone a similar contracting-out, with similar results.
58
whether a reform process has been successful, it is necessary to conduct an evaluation,

essentially taking a “before” and “after” snapshot of performance. To do this, the diag-
nostic phase should include a benchmarking exercise to capture performance indica-
tors prior to the process design.
Intuitively, “faster and more efficient Customs procedures” “more revenue” and
“more transparency” seem obvious candidates. But there are no uniformly defined
performance indicators. Traders will usually measure the effectiveness of Customs
reform in terms of whether the number of “inputs” required has diminished and
whether the total time and cost of completing the process has been reduced. Customs
and other authorities, on the other hand, will consider revenue-generation, increased
economic development, positive client feedback, cost-reduction, efficiency, and more
transparency as key performance indicators. The following table includes some of the
indicators that should be considered at the design stage and that will help when
“measuring” results at the end.
Normally, the reform team should undertake baseline surveys in the design phase to
obtain statistics regarding these indicators. These baseline indicators will be then used to
compare results after the reform process. Of the indicators included in the previous table,
those related to the “Trader’s view” could be linked to the annual trade data included in
the Doing Business report updated annually. This would make a good monitoring tool
that would save the project team additional expenses in creating other tracking tools.
Table 8: Measuring Results Through Performance Indicators

Customs’ view Traders’ view
• Revenues collected • Clearance time (number of days)

• Trade volume • Transaction costs
• Efficiency of inspections • Inspections to consignments/goods
• Number of goods declarations • Time spent by traders (importers or brokers) dealing
• Customer satisfaction with red tape
• Staff satisfaction
• Number of corruption cases
• Percentage of compliance in goods declaration
The second point in time where measurement of performance indicators is impor-

tant and when the evaluation process takes shape is shortly after the reform process is
completed. This evaluation phase begins with a post-initiative assessment report, which
examines and documents the initiative’s outcomes, whether the original objectives
were met and how effective the management practices were in keeping the project on
track. A timely and comprehensive report will identify ongoing issues to monitor as
59
well as provide some “lessons learned” to assist customs officials in planning and man-
aging future reform processes or simple adjustments. Consideration should be given
to using an objective third party to prepare the report.
The preparation of this report should occur within an appropriate period of time fol-
lowing the implementation of the reforms (e.g., six months). Again, in keeping with
extending acceptance of the initiative as broadly as possible, stakeholders— inside and
outside the Customs authority—should be consulted as to their experience in estab-
lishing and using the revised process. Interviews and client surveys are two tools to
consider when gauging views on the revised process.
In addition to formal reviews, the project team should observe the implementa-
tion of the initiative daily to determine whether any fine-tuning of the process may
be required. Managers may notice that minor adjustments are required in the per-
formance of day-to-day operations. If, however, structural issues arise that were not
anticipated in the planning stage, then a formal review of the initiative should be con-
ducted at the earliest possible time to address and resolve the issues.
The post-initiative assessment report should focus on two key aspects:

■ A “gap analysis” examining the differences between the planned
requirements, schedule, and budget, and what actually resulted when
it occurred and the degree of deviation from the plan; and
■ A “lessons learned” exercise.
A “lessons learned” exercise is the collection and analysis of feedback on events

that happened during the initiative. It provides an opportunity for the reform team
and stakeholders to discuss things that happened during or because of the initiative:
successes, unanticipated or unintended outcomes, and possible alternatives (i.e., how
things might have been done differently). A major source of such information should
be ultimate beneficiaries of these reforms—entrepreneurs.
The third measurement phase serves an audit function and may occur 12 to 18
months following implementation of the Customs reform process. This audit is
intended to ascertain whether there has been any deterioration in performance since
the completion of the reform initiative. Obviously the indicators used in the design
phase will be compared with what the indicators show 1 or 2 years after the reform
was completed. This evaluation should be undertaken every year as a form of keeping
track of the impact of reform over time.
60
Box 9: Preparing a Post-Initiative Assessment Report: A Checklist
■ Allow sufficient time to pass for an effective post-initiative assessment report to be prepared (e.g., 6 months
after launching the simplified procedures);
■ Consider retention of independent evaluator;
■ Conduct gap analysis: (i) reviewing original objectives; (ii) documenting current performance indicators;
(iii) comparing original objectives to results; and, (iv) comparing original pre-simplification performance to
current performance;
■ Solicit feedback from internal and external stakeholders;
■ Schedule and conduct a “lessons learned” exercise;
■ Document positive and negative results from stakeholder feedback and lessons learned in post-initiative
assessment report;
■ Draft recommendations for possible changes/improvements; and
■ Disseminate evaluation results to key stakeholders.
61
CHAPTER 4
STREAMLINING CUSTOMS
PROCEDURES: IMPORTS
It is extremely important that when setting out to reform and modernize Customs
procedures, and to implement a broader trade facilitation program involving other
border agencies, every effort must be made to:
■ Minimize the incidence of Customs interventions;
■ Simplify and streamline the complexity of data and document require-
ments, work and paper-flows, procedures, processes, and controls;
■ Ensure that the proposed reforms are in full conformity with interna-
tional Customs conventions, related recommended best practices and
agreed standards; and, only once this has been completed;
■ Apply information and telecommunications solutions (ICT) to support
these Customs reform and trade facilitation efforts.
The World Customs Organization’s Revised Kyoto Convention on the Simplification

and Harmonization of Customs Procedures sets out the internationally accepted best
practices, recommendations and standards governing Customs import/export proce-
dures and controls. Unfortunately, setting out such recommended practices, having
the vast majority of Customs services accede to these conventions, and then actually
having a Customs administration put such best practices into their operations, are
often three different things.
It is important to note that there can be many variations of the above process
around the world. For example, some Customs services with electronic filing of goods
declarations may require payment of duties/taxes declared at the beginning of the
process, as opposed to this occurring only after final assessment and physical inspec-
62
STREAMLINING CUSTOMS PROCEDURES: IMPORTS
Box 10: Typical Customs Import Clearance Process
The Customs import clearance process normally consists of various distinct steps:
1) Cargo declaration by carrier to Customs

2) Temporary storage of arriving goods
3) Customs import goods declaration
a) Preparation and submission of the goods declaration by importer/broker
b) Validation and acceptance of the goods declaration
c) Automated risk management/channeling
d) Checking the goods declaration and supporting documents
e) Assessment of the goods declaration by specialized customs officer (optional)
4) Physical inspection of the goods (optional)
5) Collection of duties/taxes by Customs (optional, by commercial banks)
6) Release of the goods by Customs
7) Delivery of the goods to the importer
8) Post-clearance auditing of importer by Customs (optional)
9) Pre-shipment inspection regimes
tion of the goods. In many developing countries, the services of Pre-shipment

Inspection or Surveyor firms are used to support various aspects of the import clear-
ance process.
The following sections describe in detail each of the steps commonly found in the
import clearance process with international best practices on how to streamline each
of these procedures to achieve an efficient Customs import process. For an overview
of the whole import process and the information exchange between stakeholders,
please see Annex 3.
1. Cargo Declaration by Carrier to Customs

National Customs legislation should place a regulatory requirement upon all carriers
(e.g., trucking companies, airlines, shipping agents, express couriers) to only bring
goods into a country using specified or approved routes, then to immediately and
fully report to Customs at the nearest designated border office the conveyance arriv-
ing in the country and all goods carried in that conveyance. It is critical from both a
Customs control and trade facilitation perspective that communication between the
carrier and Customs cause the minimum inconvenience, cost, and delay to interna-
tional carriers.
Depending on geography, available infrastructures, volume, and frequency of

transport, goods may enter a Customs territory by different modes of transport (i.e.,
air, land or sea). Customs must ensure that all goods arriving are properly reported,
so that Customs can control both the conveyance carrying the goods, and the goods
63
themselves e.g. sealing the container until the container is delivered to its final desti-
nation. Only if Customs knows what conveyance or goods have arrived, can it make
sure that proper controls are applied to such goods for protecting society, collecting
revenue, etc.
The carrier’s cargo declaration to Customs should:

■ Include minimum data or document requirements normally found on
the carrier’s manifest (i.e., the ship’s bill of lading, truck’s highway man-
ifest, airline’s air waybill);
■ Set the maximum time limit either prior to or after arrival of the con-
veyance for the carrier to report to Customs the cargo’s arrival; and,
■ Allow the carrier to make the cargo declaration to Customs on a pre-
arrival basis, that is, in advance of the conveyance’s arrival at the bor-
der (i.e., prior to the aircraft, ship or truck arriving in the country of
import). In fact, in the aftermath of the Sept. 11, 2001, terrorist attack
on the United States, certain Customs services are now requiring all
shipping lines to electronically send to Customs s the required mani-
fest data no later than 96 hours prior to the vessel’s arrival in territorial
waters. Shorter pre-arrival reporting timeframes are required for cargo
arriving by air and highway. A 24-hour advance reporting rule has also
been applied for containers being placed aboard ships destined to the
United States (see Box 11 for a summary of various Cargo Security
Initiatives).
Customs ICT systems should be able to capture the carrier’s manifest data to cre-
ate an inventory of all goods arriving in an efficient and timely manner, minimizing
the costs and delays associated with carriers and their agents having to comply with
this legal Customs requirement. If the manifest data cannot be sent electronically, it
must be provided manually in the form of a hardcopy manifest to Customs at time
of arrival of the conveyance. If the hardcopy manifest is presented, the data must be
processed manually by Customs, i.e., officers manually matching and acquitting man-
ifest lines against the declaration, which can be extremely burdensome. If an automat-
ed system exists at Customs, the manifest data is manually keyed into the Customs
computer by the carrier’s agent or by Customs officers. From a trade facilitation and
control perspective, it is the ideal for manifest data to be transmitted using electron-
ic data interchange (EDI) messages that conform to internationally agreed standards
in terms of content, structure, and format, to the Customs computer in the country
of importation prior to arrival of the conveyance.
64
Table 9: Benefits of Electronic, Pre-Arrival Carrier Reporting
■ Allows Customs to use ICT to automatically screen the manifest data against risk criteria (e.g., those high-risk
vessels, importers/consignees, goods, conveyance routings) in order to decide whether a conveyance or a partic-
ular consignment should be loaded on a vessel or aircraft before inspection, or should be allowed to enter into
territorial waters or airspace. Where such a high risk consignment is arriving, it may be met upon arrival and an
immediate rummage or inspection undertaken. It is clear that pre-arrival reporting and automated screening of
cargo declarations allows Customs services to better detect and intercept contraband (e.g., drugs, weapons, ille-
gal aliens);
■ Eliminates the need for Customs or carrier representatives to manually capture the manifest data into the
Customs system only after the ship, truck or aircraft has arrived, thereby reducing documentary requirements
and related delays which otherwise occur after the goods arrive;
■ Facilitates the use of Customs computers to automatically ‘write-off or acquit’ each item line declared by the
carrier on a cargo declaration against each item subsequently declared on the import goods declaration by the
importer/agent in order to identify any cargo which has arrived but not been declared to Customs within pre-
scribed timeframes. This permits Customs to more effectively identify any unclaimed or undeclared cargo;
■ Facilitates the shipping agent in the country of import to notify electronically and send a hardcopy notice of
cargo arrival to the importer or his Customs broker indicating that the consignment will arrive soon or has
already arrived. This can reduce the time required for the importer/broker to: start preparation of the required
import goods declaration to Customs, obtain any required import permits or other certificates from other
authorities, minimize delays associated with the preparation and presentation of the declaration package to
Customs, and;
■ Should be available, and apply equally without regard to the country of origin of the goods or the country from
which they arrived.
The WCO, in partnership with international associations representing carriers for

each mode of transport (e.g., International Air Transport Association representing the
airlines; International Maritime Organization representing the shipping lines;
International Express Courier Conference for the express courier industry), have
agreed upon the data requirements for such reporting to Customs, including the for-
mat for the carrier reporting electronic message i.e., UN/EDIFACT CUStoms
CARgo Report message. To facilitate trade, where a CUSCAR electronic message is
used, Customs should no longer require the hardcopy paper manifest, and Customs
administrations should not impose additional data requirements on carriers than
what has been already agreed at the international level.
Once the manifest data is in the Customs computer, the system should be capa-
ble of automatically matching each manifest item against each item on the Customs
goods declaration that is subsequently submitted by the importer or his agent. This
system should also automatically compare all manifest data against the Customs dec-
laration data in order to identify discrepancies in quantities, weights, etc., requiring
follow-up by Customs and amendment by the carrier. The application will also auto-
matically ‘acquit, jerk, write-off ’ each line of the manifest against each goods item
65
declared on the Customs declaration, in order to identify any cargo that has been
reported as arrived by the carrier but not declared to customs by the importer/broker
using a import goods declaration within the prescribed maximum timeframe (nor-
mally within 30 days after arrival of the goods). The system should identify all dis-
crepancies as well as any ‘unclaimed or undeclared’ cargo (i.e. cargo reported arrived
but not cleared by Customs) so it can be removed to the Customs warehouse and auc-
tioned under Customs control.
Inefficient carrier reporting procedures can be characterized by:

■ Being totally paper-based (i.e., Customs not equipped to accept elec-
tronic carrier manifest reporting). Consequently, upon arrival of the
conveyance, carriers must print multiple hardcopies of manifests for
Customs and other border agencies. This prevents the importer/broker
from preparing the Customs goods declaration and can cause serious,
needless delays in submitting the goods declaration to Customs and
ultimately Customs clearance of the goods;
■ No advance electronic cargo declaration reporting. For example, hard-
copy manifests only being delivered to Customs days after the arrival of
the conveyance. Even if electronic reporting exists, the data, structure,
or format requirements of the messages may not conform to interna-
tional standards, resulting in extra costs for carriers to comply with dif-
ferent reporting requirements of each different Customs service.
Customs still requiring hardcopy printouts to be printed and handed
over, even though manifest data has been sent electronically, leading to
unnecessary costs and delays, as well as possible discrepancies between
the electronic messages and the hardcopy manifests;
■ Having significant numbers of amendments to manifests by carriers
after arrival of the goods due to poor quality data from source. Note:
This may be an indication that fraud is occurring (e.g., the importer, in
complicity with the carrier’s agent may be amending the weights, quan-
tities, goods descriptions so there is no discrepancy between the carrier’s
report and the Customs declaration from the importer); and,
■ No automated risk management capability within the Customs com-
puter for processing carrier reports, undermining Customs ability to
pre-select high risk conveyances. Consequently, there can be delays by
carriers in providing manifests to Customs; delays in Customs screening
them, and ineffectiveness in rummaging conveyances or inspecting
cargo immediately upon arrival to detect drugs, etc.
66
Box 11: Customs Cargo Security Initiatives
In response to the terrorist attacks of 9/11, Customs administrations around the world have been called upon to
design and implement measures to effectively detect high risk cargo arriving at seaports, airports, and land bor-
ders. Improving security in the supply chain has required that Customs can no longer simply wait for cargo to
arrive and be reported to Customs before assessing the risk. Given the risk of weapons of mass destruction,
effective risk-management requires Customs to assess the risk before the cargo arrives, and ideally before the
cargo is even placed aboard the conveyance destined to the country of import. The key is the receipt of advance
cargo information directly from the businesses manufacturing, exporting or transporting the goods. This requires
Customs and the trade community to cooperate to ensure that information required for assessing the risk of
each trade transaction is accurate and provided to Customs services in the country of export and the country of
import as early as possible. Some of the security initiatives currently underway to enhance cargo security include:
WCO Framework of Standards—A task force on Security and Facilitation of the International Supply Chain has
developed, in conjunction with other international organizations and international trade and transport organiza-
tions, a comprehensive package of guidelines and standards that includes: lists containing the mandatory data
elements required to be presented by carriers to Customs; a new multilateral administrative assistance
Convention for Customs administrations to facilitate the sharing of information on a bilateral, regional and multi-
lateral basis; guidelines for the purchase and operation of container scanning equipment, as well as databanks
of modern technological devices. At the 2005 Council Sessions, Director Generals from over 35 Customs services
signified their intention to implement the new Cargo Security Framework of Standards53.
International Maritime Organization’s ISPS Code—The IMO has amended its International Convention for the
Safety of Life at Sea and established an International Ship and Port Facility Security Code (ISPS) in 2002. The ISPS
code requires ships on international voyages and port facilities that serve them to conduct security assessments,
implement a security plan, appoint security officers, perform training and drills, take appropriate measures
against security incidents, improve fencing, install Close Circuit Television (CCTV) systems, etc. Contracting parties
to the ISPS code must bring their national legislations into line and report progress to the IMO, with non-compli-
ant ships and ports being decertified or blacklisted if they have not complied with the ISPS Code’s requirements
by July 2004.
U.S. Cargo Security Initiatives—Customs-Trade Partnership Against Terrorism (C-TPAT) is a cooperative initia-
tive with the private sector whereby companies complete a questionnaire regarding their security related assets
and procedures, and are subsequently audited to verify that their supply chain security measures are being prop-
erly applied. A Container Security Device (CSD) initiative is also being implemented to introduce sophisticated,
tamper-proof container seals in an effort to enhance container security over goods in transit. A 24 hour Advance
Manifest Rule was also implemented on February 2003 whereby carriers must report specific information to
Customs regarding the shipper, consignee and goods 24 hours before the container can be loaded aboard a ves-
sel destined for a US port. A Container Security Initiative (CSI) was also launched in early 2002 by which bilateral
agreements between the United States. and foreign countries can be signed to allow U.S. Customs officers to be
posted at the 20 largest high volume ports to pre-screen containers destined for the United States in conjunction
with local Customs officials. This can be a reciprocal program whereby countries can post their personnel in U.S.
ports as well. It should be noted that the EU is currently implementing a similar program to CSI.
53 For further details on the Framework see: http://www.wcoomd.org.homepage
67
2. Temporary Storage of Arriving Goods

Temporary storage is an especially important facilitation measure because it may take
hours or even days after arrival of the goods for the importer/broker to be notified by
the carrier. Delays in notification of the arrival of the goods may subsequently delay
the importer/broker in preparing and submitting the import goods declaration to
Customs to start the clearance formalities.
Goods arriving in the Customs territory should be unloaded as soon as possible

and stored temporarily in Customs-approved buildings, Customs warehouses or free
zones, pending the completion of Customs formalities. Temporary storage allows the
ship, truck, aircraft, or container that has been used to convey the goods to the coun-
try to be emptied and released for other commercial activity. Since such temporary
storage areas are under Customs control, they must meet physical security require-
ments and be approved by Customs. Normally, authorized persons operating such
temporarily storage facilities are required to post financial security with Customs to
cover any losses in duty/tax that may result if goods are lost or stolen. Temporary stor-
age should be allowed for all goods irrespective of quantity, country of origin, or
country from which they arrived. Hazardous goods, however, should be only admit-
ted into those temporary stores specifically equipped with special installations to
properly handle or store such goods. Customs should not require any special docu-
ment for putting goods into temporary storage, i.e., only the manifest or any other
commercial document submitted by the carrier to report the goods arrival to Customs
should be sufficient.
While the goods are in temporary storage, the importer should be allowed access
to the goods to check whether they conform to contract conditions. Customs may
allow goods entered into temporary storage to undergo certain authorized operations
necessary to preserve the goods in their unaltered state, e.g., cleaning, beating,
removal of dust, sorting, or repair or change of faulty packaging, or to undergo nor-
mal operations necessary to facilitate their removal from the temporary store in order
to continue their transport (e.g., sorting, piling, weighing, marking, labeling, consol-
idation of different consignments). Normally, Customs should not allow repackaging
of goods in a manner that may alter the essential character of the goods or conceal
their origin.
If the goods are not removed from the temporary store within the prescribed peri-
od (normally within 45 days), Customs can either grant an extension, allow the goods
to be placed in a customs warehouse or transferred to a free zone, or be exported. If
goods are not removed, Customs should be legally authorized to auction or otherwise
dispose of the goods.
68
When assessing the effectiveness of Customs temporary storage facilities, we can

determine the need for reform by looking at the weaknesses. Inefficient temporary
storage facilities can be characterized by:
■ A lack of storage facilities, resulting in the conveyance being held up for
days and not being released for other commercial activities;
■ Insecure storage facilities, resulting in pilferage and damage claims;
■ Customs requiring a separate form to be filled and security posted to
enter goods into temporary store resulting in unnecessary administra-
tive costs and delays;
■ A lack of equipment or personnel to unload the goods from the con-
veyance into the temporary store, leading to delays, breakage, and theft;
■ Customs not allowing goods to remain in store for a sufficient period of
time to allow release formalities to be completed, leading to demurrage
charges, and;
■ Customs not allowing the trader to have access to his goods in tempo-
rary storage, resulting in the importer/broker clearing the goods, possi-
bly having to face a Customs offense if the goods declared are not the
same as those arrived, then having the cost and delay associated with
submitting amending customs declaration if the goods ultimately
received do not match the contract of sale.
3. Customs Import Goods Declaration

Imported and exported goods crossing borders have to be declared to Customs to
ensure compliance with national laws. This is done by way of a self-assessment Customs
goods declaration (also known in many countries as a Customs entry). The goods dec-
laration is the importer’s or exporter’s legal declaration to Customs regarding the
goods and includes:
■ The parties involved in the transaction (e.g., the supplier, consignee, or
importer details);
■ Detailed commercial description of goods, including Harmonized
System (HS) classification code by which duty/tax rates are determined;
■ The Customs value and currency;
■ The country of origin; and
■ Calculations of total duty/tax to be paid; etc.
While in most countries the owner/importer of the goods may be legally author-
ized to prepare and submit his own customs declaration (and is ultimately responsi-
ble for such declarations), licensed Customs brokers (in some countries referred to as
clearing agents) may act as a third party agents or declarants on behalf of the
69
owner/importer of the goods. In many countries, a formal power of attorney agree-

ment must exist authorizing such declarants to act on behalf of the owner/importer
in preparing and submitting the customs declaration. This power of attorney sets out
the responsibilities and limited liabilities of the declarant.
To reduce transaction costs and cargo dwell times associated with the Customs
clearance of goods, every attempt should be made to:
■ Minimize reporting and clearance processes by eliminating or combin-
ing procedural steps and creating ‘one-window’ or ‘one-stop-shop’ cus-
tomer service centers where all relevant authorities can provide required
services to traders54;
■ Streamline work/paper-flows;
■ Remove discretionary decision-making that can lead to deliberate
administrative delays for rent-seeking purposes;
■ Minimize document requirements (both the Customs declaration and
supporting documents) and related data requirements;
■ Utilize a single, standardized document format and content for multiple
agency reporting purposes and customs regimes to facilitate and simpli-
fy preparation and minimize opportunities for errors during transcrip-
tion55;
■ Harmonize and standardize border authority requirements and, to the
extent possible, ensure these are consistent and compatible with inter-
nationally-accepted trade documents and practices;
■ Minimize the number of approval authorities’ signatures or stamps,
and;
■ Maximize the use of ICT systems, whereby data requirements can be
exchanged electronically using standardized electronic message struc-
tures, data elements and codes wherever possible in advance of the
cargo arrival.
53 For further details on the Framework see: http://www.wcoomd.org.homepage

54 For further information on the ‘Single Window Concept’ refer to the ECE/UNCEFACT publication “Recommendation and
Guidelines on Establishing a Single Window to enhance the efficient exchange of information between trade and government
(Recommendation 33) February 2005 ECE/TRADE 352 ISBN 92-1-116924-0 and/or see the following web-sites: www.unece.org/
; http://unece.org/cefact/ ; http://tullverket.se/TargetGroups/General_English/frameset.htm (Swedish Customs);
http://www.itds.treas.gov (US) ; http://www.tradenet.gov.sg/ (Singapore);
http://ncb.intnet.mu/mof/department/customs/services.htm
55 One of the most successful examples of this is the Single Administrative Document (SAD), which is the documentary basis for
Customs declarations in the EU, and in Switzerland, Norway and Iceland. Introduced in 1988, SAD legislation needed to take
full account of today's environment and adapt with the evolution that occurred since its inception. Regulation 2286/2003 does
just that by introducing a radical modernization of data collection on EU Customs declarations. These legislative changes trans-
late into an overall reduction of data requirements by 26% and by 43% of the elements that Member States can decide to require
on a national basis ("optional" elements). These amount to 28% and 45% for export and to 24 and 4 % for release for free circu-
lation respectively. The amount of data non-coded at EU level has dropped by 60% to 75% according to the procedure con-
cerned. See http://europa.eu.int/comm/taxation_customs/customs/procedural_aspects/general/sad/index_en.htm
70
Through the excellent work of the WCO and its member Customs administra-
tions, the Revised Kyoto Convention on Simplification and Harmonization of
Customs Procedures56 sets out those best practices and standards applicable for each
Customs regime (see also Box 12). With respect to the formalities of the Customs
goods declaration, the Kyoto Convention requires both hardcopy and electronic dec-
larations to be aligned with the pertinent international standards, including:
■ UN/ECE Layout Key format57, which can be conveniently applied to
purchase orders, commercial invoices, certificates of origin,
import/export Customs declarations, bill of lading, air waybill, etc.;
■ International Organization for Standardization (ISO) data elements and
codes and UN/ECE recommendations (e.g.; currency codes, country
codes, Customs procedure codes, airport and port codes, dates);
■ WCO Data Model58, which provides a comprehensive framework for
standard and harmonized sets of data and standard electronic messages
to be submitted by carriers and traders for Customs and other regulato-
ry purposes to accomplish formalities for arrival, departure, transit and
clearance of goods in international cross-border trade.
Box 12: Good Customs Practices Regarding Import Goods Declaration
To minimize unnecessary delays and cumbersome practices, Customs should:
• Limit the data element requirements on the goods declaration;

• Reduce the number of copies of the hardcopy Customs declaration (e.g., 3 or 4 maximum);
• Minimize the data requirements and number of copies of required supporting documents (e.g. commer-
cial invoices) for the declaration to only such particulars as are deemed absolutely necessary; and,
• Accept ‘paperless’ Customs declarations (i.e., electronic goods declarations with electronic signatures,
electronic commercial invoices, electronic certificates of origin, and import permits).59
3.1 Preparation and Submission of the Customs Goods

Declaration by Importer/Broker
When goods are introduced into a Customs territory, the importer must decide what
procedure the goods should enter. Goods can be either declared for:
(i) Clearance into home use or home consumption (i.e., being entered per-
manently into the Customs territory for sale or consumption on the
56 See http://www.wcoomd.org/ie/En/Conventions/conventions.html
57 See http://www.unece.org/cefact/recommendations/rec_index.htm. For further information on all UN Layout Key Trade
Documents, refer to the Economic Commission for Europe/UN Center for Trade Facilitation and Electronic Business (UNCE-
FACT) publication entitled UN Layout Key for Trade Documents: Guidelines for Application, Informative Annex to
Recommendation 1, Geneva 2002, ECE/Trade 270.
58 See http://www.wcoomd.org/ie/En/Topics_Issues/topics_issues.html
59 This may require amendment of the Customs law and laws governing Rules of Evidence.
71
domestic market, however may be re-exported at a later point should

the importer decide); or,
(ii) Another Customs procedure where the goods are not being entered into
home use or consumption (e.g. warehousing, temporary admission,
inward processing or transit).
Information and telecommunication technology (ICT) has totally transformed the

means and methods by which both border agencies and the international trade and
transport communities conduct business. In response to the trade and transport com-
munities’ interests in exploiting ICT to reduce their trade transaction costs, Customs
controls are gradually shifting away from manual checking of hardcopy paper docu-
ments, physical inspections of cargos, and cashier offices handling cash payments for
duties or taxes. Customs is now relying more on automated verification of electronic
data transmitted by carriers and traders. It is also subjecting transmitted data to intel-
ligent checks and comparisons against risk management criteria maintained in
Customs databases. The aim is to identify those transactions requiring more scrutiny,
or electronic funds transfer.
To allow automation to be applied to Customs formalities, the procedures, work-

flows, and documentation have to be first standardized and streamlined to the extent
possible. It was not until the early 1990’s that the EU standardized all member state’s
Customs declarations into a Single Administrative Document (SAD) in an effort to
facilitate inter-EU trade. Following this innovative approach, the WCO further elab-
orated on this design to create an internationally recognized Single Goods
Declaration (SGD). Instead of multiple forms to be used for different Customs
regimes e.g. home consumption, warehousing, export, one internationally accepted
form, using different internationally agreed Customs Procedures Codes (CPC’s)
could be codified and used by the international trade community.
ICT has allowed Customs to respond to and facilitate a range of commercial inno-
vations including: express couriers, multi-modal delivery services and global intra-
company supply, production and distribution systems fed by just-in-time logistical
networks. Carriers and traders now simply send Electronic Data Interchange (EDI)
messages instead of handing over standardized hardcopy paper cargo manifests or cus-
toms declaration forms. The ultimate aim is to have traders only transmit EDI mes-
sages to Customs and other border authorities, instead of handing over paper customs
goods declarations and other supporting documents.
Customs administrations in all developed countries have already implemented

EDI solutions using standard message formats, with most now using UN/EDIFACT
message standards. The introduction of certain types of ICT solutions requires traders
72
to invest resources in the development of the necessary interface software in their own
in-house systems and the payment of additional ongoing costs for network traffic
charges. Some small and medium trading partners have been reluctant to adopt EDI
because of the perceived complexity and potentially high set-up costs. Various other
electronic commerce technology solutions are now appearing using electronic forms
through the Internet, which could offer cost-effective solutions.60
Most Customs services in the developed world are now exchanging EDI mes-
sages as a matter of course, with many Customs services countries claiming that
over 95% of their import/export declarations are now being electronically transmit-
ted. But the situation in the developing world is drastically different. A large num-
ber of developing countries still require hardcopy Customs declarations to be pre-
sented to Customs with data manually keyed by Customs officers, and only rudi-
mentary processing being performed. There is a very serious and growing ICT
divide between the developed and developing world, which unless corrected, will
continue to lead to increasingly uncompetitive trade transaction costs as well as
risks related to fraud and security.
ICT solutions can bring significant benefits to Customs and the trade community
in terms of:
■ More effective Customs controls—By using automated risk assessment and
selectivity criteria, any combination of coded data declared on Customs
declarations can be used as selectivity criteria by Customs or other bor-
der agencies, including high-risk suppliers, importers, declarants, carri-
ers, goods, country of origin, unit prices to check the reasonableness of
declared values, etc. ICT allows Customs to focus better on the minori-
ty of high-risk consignments requiring data scrutiny and physical
inspection while allowing the vast majority of consignments of compli-
ant traders to move without any Customs intervention.
■ More efficient Customs clearance—By more efficiently preparing, submit-
ting and processing Customs declarations, both Customs and trading
partners achieve increased productivity, better use of resources, a reduc-
tion of costs through expedited release of goods, more accurate infor-
mation, and better enforcement capabilities. EDI enables pre-arrival
processing of manifest and Customs declaration data whereby Customs
has more time to pre-select which consignments it wants to check upon
their arrival and thereby allowing the vast majority of consignments to
60 For example, UNCTAD UNeDOC program, is planning to pilot test electronic commercial invoices with Mauritius Customs
whereby foreign suppliers will be able to create and send electronic commercial invoices to their customers in Mauritius and copy
Mauritius Customs to allow ‘paperless’ Customs declarations envisaged for the new Cargo Fast Track Initiative.
73
be cleared immediately upon arrival.61 See also Annex 1 for information

about Express Courier Procedures and quick release of low risk consign-
ments.
■ Uniform application of Customs law—Computer systems’ automated
edits and verification of data declared against tables and databases,
application of a multiplicity of tariff preferences, and precise calculation
of duty/tax, ensure all trade transactions are processed in a consistent
and equitable manner in line with national laws. This increases pre-
dictability and consistency in trade transactions, which are critically
important ingredients in business planning and reducing costs.
■ More efficient revenue collection—Automation allows for efficient and
timely collection and accounting for Customs revenues that are so vital
to the national economies of many developing countries. Automation
allows outstanding or bad debts to be more easily identified and dealt
with, and reporting to central authorities performed with little or no
manual intervention. Electronic funds transfer systems allows traders to
pay duties/taxes electronically thereby reducing transaction costs, speed-
ing clearance formalities, and providing greater certainty, transparency,
and audit trails.
■ More efficient trade data analysis—Automation checks and identifies
errors and suspected inaccuracies in data, allowing immediate correc-
tion and thereby improve the quality of trade data. Since Customs dec-
larations are the primary source for trade statistics, ICT allows govern-
ment agencies to extract and quickly analyze trends in trade and rev-
enue collections.
Once notified of the cargo’s arrival by a carrier, the importer/broker must prepare
the Customs goods declaration. This declaration normally consists of the signed legal
Customs declaration, with various supporting documents also attached, e.g., com-
mercial invoice; packing list; manifest; permits, licenses, and certificates required by
other authorities, such as phytosanitary certificates and import licenses; and certifi-
cates of origin in order to obtain a preference or reduced rate of duty/tax. Some of
these certificates may have been sent from the exporter to the importer (e.g. the cer-
tificate of origin issued by the Customs service or chamber of commerce in the coun-
61 Pre-arrival processing is used extensively in the express courier industry whereby Customs officers stationed on a full cost-recovery
basis at the major courier hubs in the U.S., Canada, and Europe receive advance data on all arriving packages before the arrival of
the aircraft carrying the parcels. This data is automatically processed against selection criteria, with messages sent back to the
courier company’s computer system identifying each parcel that must be examined upon arrival. As bar-codes on parcels are read
for tracking purposes upon arrival in the country of import, those parcels requiring Customs inspection are identified, rolled-off
conveyor belts and taken to special Customs examination areas where X-ray scanning, drug-detector dogs, and physical inspec-
tion may occur. Those parcels that have not been identified for inspection may be immediately delivered. Without ICT, and a
close collaborative working relationship with Customs, express couriers would not be able to meet the public’s demand and
expectation for delivery of the vast majority of consignments within 24 hours of their arrival in the country.
74
try of export; proof of fumigation or other agricultural certificates issued by the

authorities in the exporting country). Other certificates or import licenses may have
had to be applied for and approved by various competent authorities in the country
of import (e.g., import licenses issued by the designated competent authority in the
country of import for certain restricted goods such as foodstuffs, pharmaceuticals).
It is important to note that the application for and approval/issuance of licenses,

permits, and certificates from various competent authorities can be extremely time
consuming and bureaucratic. It is also important to note that the issuance of a per-
mit may not be sufficient for release of the goods, and that the goods may also have
to be inspected, samples taken, and possibly laboratory analysis undertaken, before
the competent authority may inform Customs that the goods may be released. Serious
delays can occur at time of release if required permits and certificates have not been
obtained prior to arrival of the goods.
Table 10: Information that Customs Must Provide to Brokers/Importers

to Speed Up the Clearance Process
It is extremely important that Customs provide importers/brokers timely, complete and up-to-date access to all the
information necessary to comply with all Customs and other border agency requirements to prepare the goods
declaration and meet all the documentary requirements to obtain clearance of goods. This includes access to:
• Customs law and regulations;

• Laws and regulations of other border agencies e.g. permits, certificates;
• Customs tariff (i.e. a book stating for each HS tariff code, the applicable rate of duty/tax for each tariff
treatment and regime);
• Tariff classification opinions in existence;
• Information on Customs valuation and origin of goods;
• Instructions on how to complete the goods declaration;
• Requirements for supporting documents;
• Hours of operation of Customs offices; and,
• Applicable charges and fees.
Information provided either over the Customs department’s Web site, automated system, or in hardcopy
brochures and instructions is critical for promoting voluntary compliance by traders and reducing clearance time.
In many countries, Customs offers, importers/brokers have access to an Integrated Tariff Reference Database. This
reference provides for each HS code, the applicable rate of duty/tax for each tariff treatment, along with com-
plete listings of all permit or certificate requirements. This database effectively ‘integrates’ all the Customs and
other border agency requirements into one complete and concise reference.
Electronic Customs Goods Declaration. In the most efficient systems, importers/bro-

kers are able to complete their goods declaration using a computer in their own office
and linked to the Customs computer via a dedicated network or through the Internet.
Through this connection, importers/brokers are able to prepare and then transmit the
goods declaration to Customs even before the goods arrive in the country. In some
75
developing countries, where such networks do not exist, importers/brokers may be

offered access to data entry rooms/terminals provided in or near the Customs office
to allow importers/brokers to input their data directly into the Customs computer
system (as opposed to Customs having to accept the hardcopy declarations and key
the data themselves).
As the data is entered into the Customs computer, the system normally performs
basic edits and verification checks on the data declared, so that simple errors can be
corrected immediately. Once the entire declaration is sent to Customs, a complete
validation of the data can be undertaken and messages returned to the sender. The
Customs system checks the declared data’s accuracy against various control files, e.g.,
that the HS classification code declared actually exists; the importer/taxpayer identi-
fication number is valid and matches the name; and the currency and country codes
are valid. If an error is detected, a warning or error message will be sent back to the
importer/broker requiring a correction. This error can be printed out and attached to
the hardcopy declaration that is returned to the importer for correction, or it can be
sent back electronically to the importer. If a response is sent electronically, it is inter-
nationally recommended that a CUStoms RESponse message (i.e. UN/EDIFACT
CUSRES) be used for this purpose.
Paper-based Customs Goods Declaration. In inefficient manual Customs clearance

systems, the Customs goods declaration data must be typed onto multiple copies of
forms, with the hardcopy goods declaration manually submitted to Customs where it
must then be keyed by clerical personnel into the Customs system. Such manual,
paper-based systems can lead to needless clerical and keying errors that delay the pro-
cessing of the declaration. In many developing countries, serious inefficiencies and
delays are caused due to poor quality of Customs declarations being presented. This
can be due to many factors, including:
■ Declaration form cannot be processed by a computer and does not con-
form to international standards, i.e., is not in the UN Layout Key such
as the Single Administrative Document, or Single Goods Declaration;
does not use WCO and UNECE data elements and codes;
■ Too many copies of the declaration are required to be submitted to
Customs (should be a maximum of 4 copies);
■ There are no clear and consistent documentary requirements regarding
the other supporting documents that have to accompany the declara-
tion; and,
■ Requirements for multiple signatures and stamps by different Customs
officers and other competent authorities.
76
The lack of training and professionalism by the Customs broker/clearing agent

can frequently be a source of serious clearance delays in the preparation of the
Customs goods declaration. Lack of knowledge regarding the clearance process, its
document requirements, where and how to obtain necessary certificates, insufficient
technical knowledge on how to determine the classification of goods, can all con-
tribute to unnecessary errors and significant delays in preparing an error-free goods
declaration for Customs and having it accepted as correct. It is critical that any
Customs reform/ modernization and trade facilitation develop a strategy to improve
the professionalism and conduct of the customs brokers and clearing agents. This can
be addressed through professional training and licensing programs (possibly even
requiring retraining and relicensing of existing brokers/agents), and the application of
sanctions, temporary suspension or permanent revocation of licenses when
brokers/agents are deemed to be unprofessional, non-performing, or involved in a
customs fraud or other corrupt practice.
3.2 Validation and Acceptance of the Goods Declaration

Only when the goods declaration data is acceptable to the Customs computer will the
customs system send a message to the importer/broker requesting submission of the
signed hardcopy declaration. In those countries where payment is required at the
beginning of the process, the system may require that the importer/broker pay the
duty/tax as calculated automatically by the system before submitting the signed hard-
copy declaration and supporting documents to Customs.
In EDI systems, the goods declaration data is transmitted, processed, and accept-
ed before the hardcopy goods declaration can be printed out in the importer’s/bro-
ker’s office, and submitted along with the supporting documents to a Customs recep-
tion desk62. At the reception desk, Customs officers should normally be allowed to
undertake a very cursory check of the completeness of the declaration package and
send a receipt to the importer/agent as acceptance of the goods declaration package.
Once the signed hardcopy declaration is presented at the reception desk, the physical
movement of the goods declaration through the document checking and physical
inspection of cargo should be undertaken under Customs control, i.e., documents
should not be returned to or moved by the importer/broker/agent through the
remainder of the process Having Customs control the movement of the declaration
through the document checking and any cargo inspection is critically important
because it prevents the possible substitution of documents or collusion with Customs
62 In the vast majority of EDI systems operating around the world, a signed hardcopy declaration and hardcopy supporting docu-
ments (i.e., commercial invoice, manifest, packing list, certificates/permits required by other government agencies) are still
required. Few Customs services are currently accepting ‘paperless’ Customs declarations, though many pilot tests are being con-
ducted on a limited scale with authorized economic operators (i.e., importers that have undergone compliance audits and been
certified as being compliant and auditable).
77
officers. Once the declaration is given a very cursory check by the Customs officer, a
receipt is given to the importer/broker from accepting the hardcopy declaration. This
receipt will have a declaration number printed on it, a date and time, and perhaps a
tracking number.
ITC avoids declarations being somehow assigned to a specific Customs officer of

the importer’s/broker’s choosing, many automated customs systems will assign the
declaration to a Customs officer. If the declaration is also to be physically inspected,
it is important that the computer system also randomly assign the Customs officer to
be responsible for conducting the physical inspection. It is important that the
Customs officer checking the goods declaration not also undertake the physical
inspection of the cargo, if that is required. Random assignment of the declaration to
a Customs officer is an excellent method of minimizing opportunities for
collusion/corruption.
To further minimize opportunities for corruption/collusion between importers/

brokers and Customs officers, it is critically important that ‘face-to-face’ contact be
kept to an absolute minimum. Customer service counters and soundproof screens
should be installed behind reception desks to block contact. Since contact may be
required where a query is raised, consideration should be given to installing CCTV
video and audio recording devices in interview rooms at Customs. Mobile telephone
jamming devices can also be installed inside Customs offices to prevent
importers/brokers from contacting Customs officers checking the goods declaration,
thereby circumventing the physical barriers installed to minimize direct interface.
A facility should be given to importers/brokers to allow them to track/monitor the

status of their goods declaration in the clearance process. This can be accomplished
by placing monitors in strategically located public areas of the Customs office. These
monitors can indicate the status of each goods declaration number and/or whether
there has been any query raised by Customs. Status messages can also be automatical-
ly sent to the importer/broker’s computer system. See Box 13 for example of status
monitors utilized by Jordanian Customs offices in Jordan.
Box 13: Declaration Status Monitors Used by Customs in Jordan
Jordanian Customs
Box 13:have been utilizing the
Declaration ASYCUDA
Status computer system
Monitors Usedforby a number
Customsof years.in
Monitors
Jordan linked to
the system have been installed in public areas of their main Customs houses where goods declarations are
processed to inform waiting importers/brokers the status of their declarations through the clearance process. The
Jordanian Customs have been utilizing the ASYCUDA computer system for a
monitors are similar to those found in airport terminals. They have a rolling display indicating for each declaration
number its status, i.e.,Monitors
number of years. linked
the channel (Red, toorthe
Yellow system
Green), whetherhave
a querybeen installed
has been raised andinwho
public areas of
to contact,
theiretc.main
Traders Customs
can follow thehouses where
progression of theirgoods declarations
declaration are processed
through the clearance to interfacing
process without inform waiting
with
importers/brokers the instatus
Customs officers and react a timelyof theirif and
manner declarations
when a query isthrough
raised. the clearance process. The
78
monitors are similar to those found in airport terminals. They have a rolling display
indicating for each declaration number its status, i.e., the channel (Red, Yellow or
Green), whether a query has been raised and who to contact, etc. Traders can follow
the progression of their declaration through the clearance process without interfacing
with Customs officers and react in a timely manner if and when a query is raised.
3.3 Automated Risk Management/Channeling

Only after the declaration has been processed and found acceptable (and the signed
hardcopy is presented to Customs reception) will the Customs computer system
undertake risk management processing, i.e., automatically processing the declaration
data against pre-determined risk criteria or profiles for the purpose of identifying to
Customs any consignment that needs either a detailed document review and/or phys-
ical examination of the goods. The risk criteria loaded into the risk management
application within the Customs computer must be carefully monitored and regularly
updated. Selection criteria can be related to any single or combination of data ele-
ments found on the goods declarations, e.g., a specific ‘blacklisted’ high risk importer,
declarant, HS commodity classification code, country of origin, value threshold, etc.
Consignments can also be selected by the system on a purely random selection basis63.
Customs should establish and publish for the trade community Customs declara-
tion processing time targets for each channel, e.g., maximum 1 hour for Green; 4
hours for Yellow; 8 hours for Red. These targets should be adhered to unless docu-
ments are not in order and additional information is requested by Customs. The
physical inspection may take longer given the fact that containers requiring physical
inspection may need to be moved to an inspection area, its cargo unstuffed and
restuffed in the container.
Physical inspections of the cargo can be a major cause of delays in the import
process. That is why risk management systems are so important and can considerably
reduce delays and speed up the process. According to the Doing Business in 2006
report, 70% of the cargo containers in Africa and South Asia, and 60% in the Middle
East are opened for inspection before clearing customs. In Burkina Faso, Malawi,
Mali, Pakistan, and Sri Lanka, every container is opened and inspected before clear-
ing customs. High-income countries, however, undertake considerably fewer inspec-
tions than developing countries, since only 5% of consignments are inspected (see
Figure 2).64
63 For more information, see “Customs Modernizations Handbook”, The World Bank, 2005.
64 See Doing Business in 2006
79
Box 14: Color-Coded Channeling and Risk Channeling Flows
It is highly recommended that Customs institute color-coded channeling65 to identify how a particular consign-
ment has been selected. Color-coded channeling works the following way:
• Green Channel means no selection criteria have been hit and the goods can be immediately released without
Customs intervention. It should ideally be the default channel. It should be noted that Customs may decide
not to perform cursory checking of the completeness of such Green channeled declarations by the system
before the importer/broker is actually informed that the declaration is being released without detailed docu-
ment verification or physical inspection. If such a check is undertaken, it must be undertaken very quickly to
ensure that Green Channel declarations are released quickly, within the performance standards set. If through
the cursory check it is noticed that something requires further scrutiny, the Customs officer has the discretion
to change the channel from Green to Yellow (or even Red, with concurrence of his supervisor).
• Yellow Channel means that the declaration requires detailed document verification. The officer would care-
fully scrutinize the entire declaration package, especially if the goods require a specific permit, certificate, or
inspection by another border agency such as agriculture or health. Once this document verification has
been completed and requirements have been met, the declaration may be turned to Green Channel with
customs release granted. Alternatively, the Customs officer, upon reviewing the documentation, may deter-
mine that something suspicious exists, and decide (normally with concurrence of his supervisor) to change
the declaration to Red Channel.
• Red Channel means that the goods must be subjected to both detailed document verification, followed by
a mandatory physical inspection. Declarations assigned Red Channel should not be changed arbitrarily by a
Customs officer to either Yellow or Green before the document verification and physical inspection are
completed. The goods must be both examined and the examination findings results recorded into the com-
puter system, before the declaration can be channeled Green (i.e., customs release approved).
Customs should establish and publish for the trade community Customs declaration processing time targets for
each channel, e.g., maximum 1 hour for Green; 4 hours for Yellow; 8 hours for Red. These targets should be
adhered to unless documents are not in order and additional information is requested by Customs. The physical
inspection may take longer given the fact that containers requiring physical inspection may need to be moved to
an inspection area, its cargo unstuffed and restuffed in the container.
65 It is important to note that in addition to the normal Green, Yellow and Red Channels, other processing channels may also exist e.g.
Blue channel may be used to denote declarations of specially authorized importers which are subject to post-clearance audits and
therefore are not subjected to any document verification before release and only subject to random cargo inspection at time of release,
with any consignments selected for inspection being inspected at the importer’s premises. A White channel can also be used to process
declarations that have only met the selection criteria of other border agencies e.g. Health or Agriculture permit and/or inspection
requirements and therefore do not require Customs documentation verification or physical inspection by Customs.
80
Figure 2: Cargo Inspections

Source: Doing Business in 2006
3.4 Checking the Goods Declaration and Supporting

Documents by Customs
Customs officers working on the clearance of Customs goods declarations (especially
Yellow and Red Channeled declarations) should ensure that:
■ All required supporting documents have been presented;
■ The description of the goods is clear, accurate, and matches that on the
commercial invoice and manifest;
■ The quantities, weights, and volumes are consistent;
■ Any additions or discounts related to the value of the goods have been
properly included;
■ Freight has been properly declared;
■ The proper tariff classification of the goods has been correctly indicated
and proper rate of duty/tax applied;
■ The proper origin of the goods, and an authentic certificate of origin,
has been attached if there is a claim for a concessionary rate of duty/tax;
■ Goods are eligible for any exemption claimed;
■ A reasonable customs value has been declared, including all related cost,
e.g., royalties, commissions, additions, etc.;
■ The proper currency has been declared and the proper exchange rate
applied;
■ Any import licenses, permits, or certificates required from other author-
ities for clearance are present;
■ Any other discrepancies between the various documents are identified;
and,
■ Any suspicions exist that necessitate an inspection of the goods.
81
When checking the goods declaration documents, the officer must decide whether
to query the importer/declarant for additional information. This is normally done
through the computer system, requesting the importer/declarant to present additional
information or documents to support the declaration, make a correction to the declara-
tion, etc. The officer may also decide to send the declaration to a specialized unit to
check the classification, Customs values, or origin. The officer may also decide that a
physical inspection of the cargo is required. If an inspection is required, the officer
should record in the Customs system the specific reason for inspecting the goods and
the specific information that should be gathered by the Customs officer assigned
responsibility for inspecting the goods. For example, the officer checking the documen-
tation may request: digital photographs be taken; a sample be taken and sent to the offi-
cer; the goods to be checked for marking, origin or Intellectual Property Rights infringe-
ments (i.e., counterfeit); specific information to assist in verifying how the goods should
be either classified or valued. It is strongly recommended that the officer checking the
declaration not be the officer inspecting the goods, since this may leave too much dis-
cretion in the hands of a single officer, leading to fraud and corruption.
3.5 Assessment of the Goods Declaration by Specialist Customs

Officers (Optional)66
In many Customs departments, a specialized assessment unit is created when a poten-
tial problem is discovered with the value, tariff classification, or origin declared on the
goods declaration. Such an assessment unit is normally located outside the normal
clearance processing flow to ensure that declarations with problems or requiring
detailed scrutiny, receive the specialized attention they deserve and do not hold up the
clearance processing of other traders’ declarations.
In these units, specially trained officers can invest the extra time and effort
required to ensure that the goods are properly classified, a reasonable customs value
declared, the goods are eligible for an exemption of duty/tax, and that the origin of
the goods is confirmed before granting a preferential rate of duty/tax.
Alternatively, many developing countries have been forced, often with pressure
from international donor/lending institutions, to contract out these primary Customs
functions (checking the reasonableness of the declared values, the correctness of the
tariff classification, properly inspecting the quality and quantity of the goods, etc) to
private surveying companies, commonly known as Pre-Shipment Inspection firms67.
For more details about Pre-Shipment Inspection (PSI) procedures, see Annex 2.
66 The World Bank’s “Customs Modernization Handbook” offers a very insightful and complete view of valuation systems, rules of
origin and tariff classification.
67 Such as SGS; BIVAC, Intertek, Cotecna, BSI-Inspectorate, OMIC.
82
Assessment of Customs Valuation

The WTO Agreement on Customs Valuation (ACV) establishes that the Customs
value of imported goods should, to the greatest extent possible, be the transaction
value, i.e., the price actually paid or payable for the goods subject to certain adjust-
ments. If the transaction value cannot be used because there is no transaction value
or the price has been influenced by certain conditions or restrictions, the ACV pro-
vides for five alternative methods to be applied in descending order: (i) transaction
value of identical goods; (ii) transaction value of similar goods; (iii) deductive
method; (iv) computed value method; and, (v) fallback method. It is the importer’s
responsibility to declare the import value on the goods declaration in accordance with
the ACV. Ideally, Customs should establish Advance Valuation Rulings for traders.
Customs officers checking goods declarations before release are normally required
to check the ‘reasonableness’ of the declared value. Such checks of reasonableness
should however be limited and selective so as not to cause undue delays in the release
of goods. Where Customs has suspicions regarding the declared value, after referring
to any valuation reference database (see Box 15) for like or similar goods from the
same country of export, the officer may ask the importer/broker to provide addition-
al documents to support the declared value, e.g., letters of credit; bank transfers, cat-
alogues and price lists.
Box 15: Customs Valuation Reference Databases
Given the significant problems in checking the reasonableness of the Customs values declared for specific goods,
many Customs services have developed valuation reference price databases containing unit prices for problem
commodities. These reference prices should be quickly accessible by Customs officers using commodity keywords
or HS codes, organized by the country of export. The databases normally will provide detailed information such as
model number, size, make or model, along the unit prices. For example, if the Customs officer was suspicious
about the declared unit price of US$500 for a 36-inch SONY Plasma TV imported from Singapore, the officer could
check the reference prices for like or similar consignments of such TVs from Singapore and decide whether to
query the importer/broker for more information to support the declared value, e.g., request the importer/broker to
provide copies of the purchase order, letters of credit/bank transfers, price lists and catalogues, contracts of sale,
etc. to support the declared value. The unit prices in the database must be regularly updated by a research team in
Customs responsible for examining invoices presented, gathering catalogues and price lists, searching the Internet
for prices, attending trade shows, soliciting values from competitor firms, etc.
If the importer is not able to provide the additional information requested quick-
ly, and if responding to such a query is going to unduly delay the release of the
importer’s goods, Customs should offer the importer ‘terms of release’, whereby the
consignment in question can be released so long as the importer posts a security
equivalent to the additional duty/tax payable based on the Customs reassessment of
what a ‘reasonable value’ is or pays the additional duty/tax owing under protest. If
83
Customs offers terms of release, the importer should be given at least 30 days to pres-
ent the additional information to Customs to justify the reasonableness of the origi-
nal value declared. If after 30 days the importer fails to provide information, or the
information provided is not considered to be satisfactory, Customs should retain the
security or keep the duty/tax collected under protest. If the importer, however, is able
to provide the requested information and it is accepted by Customs, then the securi-
ty posted is returned or the duty/tax collected under protest is refunded.
It is important to note that the most effective way for Customs to verify the accu-
racy of customs values declared is not at time of release of the goods, but through peri-
odic post-clearance audits of importers’ books and records. This requires Customs to
establish a post-clearance audit unit, comprised of officers who are experienced and
knowledgeable regarding the ACV and have received specialized training in auditing
techniques. It also requires that the trade community is legally required to keep prop-
er books and record keeping systems so they are in fact auditable by Customs.
While the ACV works reasonably well in developed countries where all the pre-
requisites to administer the ACV exist, Customs services in many developing coun-
tries have experienced serious difficulties in effectively operating the ACV due to:
■ National Customs legislations not amended to effectively incorporate the
ACV provisions. The ACV itself and interpretative notes need to be
incorporated in the Customs law and regulations, along with articles for
exchange of rate conversions, rights of appeal, release of goods before
final determination, treatment of transport, and insurance costs, etc.;
■ Lack of ownership and poorly internalized process by Customs services in
developing countries. Many developing countries view the ACV as
something that was imposed on them by the WTO and developed
countries without understanding the realities and constraints faced in
developing countries, i.e., a large informal sector that has never been
required to keep books and records; having no fixed business address or
frequent changes in address; inventive use of scanning equipment to fal-
sify invoices; difficulties experienced in the public sector in recruiting
and retaining professional auditors to check importers’ books and
records due to skill shortages and limited remuneration by government;
■ Serious concerns about loss of revenue given the importance of Customs
duties/taxes to the state’s fiscal situation. High tariff rates in many
developing countries create huge incentives for traders to under-invoice.
The high prevalence of false invoices being presented by unscrupulous
traders, combined with a recognition that Customs services in many
developing countries are ill-equipped to effectively check the reason-
84
ableness of values before release, raises serious concerns for policymak-

ers in applying the transaction value;
■ Ill-managed Customs computer systems and the lack of systems to create
and maintain valuation reference price data bases to assist officers in
checking the reasonableness of declared values;
■ Corruption between Customs officers and traders. Customs officers
accepting bribes to simply agree on a declared transaction value, with
often no check and balance system in place to monitor the decision; and,
■ Failure to consistently apply severe penalties for presentation of false
invoices or for valuation fraud.
Accuracy of Tariff Classification

In addition to valuation checks, Customs normally has specialized officers to check
the accuracy of the Harmonized System (HS) commodity classification code of the
goods. The WCO HS classification system is used by almost all countries at least to
the six digit level. The WCO issues HS opinions on goods in dispute, referred to
them by a Customs service. Customs services can also issue national rulings on how
specific goods should be classified. Every Customs service should have a tariff unit
where importers/brokers are encouraged to obtain pre-arrival classification rulings
(binding) or opinions (non-binding) on their imports.
By presenting technical information regarding the good to be imported, Customs

should issue to the requesting importer a written ruling or opinion, which can then
be used by the importer when the goods declaration is prepared. This tariff unit rul-
ing or opinion service can be provided either free of charge or subject to a fee to
traders. Many countries offer this service over their Web site. Obtaining a written HS
classification ruling/opinion can eliminate any surprises in classification (i.e. any
unexpected increase in duty/tax payable) and minimize the chances of delays in releas-
ing the goods while Customs disputes the classification declared68.
Rulings/opinions issued should ideally be made public, for reference by other

importers/brokers when preparing their goods declaration. The WCO offers for sale
a Compendium of Classification Opinion on CD-ROM, which is updated annually.
Many Customs services are now also offering on their Web site or over their comput-
er systems a database containing national HS rulings. Unfortunately, even where such
services are provided, many importers fail to obtain such pre-arrival rulings or opin-
ions from Customs, resulting in unnecessary disputes and delays at time of clearance.
68 It should be noted that some Customs services may only issue an opinion/non-binding ruling prior to arrival of the goods.
Others will issue a binding ruling with the caveat that it is based on the technical information presented by the importer/broker
and if the goods turn out to be different in some respect than the documentation presented upon which the ruling was issued,
then Customs is not bound to abide by the ruling issued.
85
If there is a dispute between Customs and the trader regarding how goods declared
should be classified and consequently the rate of duty/tax to be applied, Customs
should offer the importer/broker ‘terms of release’ (as described earlier in the case of
valuation disputes to allow the goods to be released against security posted by the
importer/declarant until such time as the dispute can be settled. If the Customs serv-
ice and trader cannot agree on the classification, an appeal process should be in place
to allow a decision to be taken, e.g., an appeals committee within Customs, followed
by an appeal to a tribunal outside Customs, and finally to the court system. The
Customs administration may also seek a formal written opinion of the WCO by
sending the technical literature related to the good, a sample if required, etc. with the
WCO normally able to respond to such opinion requests from a Customs within 6-
8 weeks.
Authentication of Certificate of Origin

Specialized Customs officers may carefully scrutinize those goods declarations where
the importer/broker has claimed a preferential rate of duty/tax because the goods orig-
inate from a particular country of origin or regional trade block. Specifically, Customs
may wish to check that the supporting certificate of origin is authentic, that is, that
the certificate has been issued by the competent authority in the country of origin of
the goods, e.g., Customs Department, Ministry of Trade/Commerce or Chamber of
Commerce. Customs may check that the signature found on the certificate matches
specimen signatures of authorized persons sent to Customs by the competent author-
ity in the country of supply.
If Customs has suspicions regarding the authenticity of the certificate or the goods
do not meet the origin criteria specified in the trade agreement (e.g., 30% value-
added requirement in the country of origin), Customs may contact the competent
authority issuing the certificate for assistance in verifying that the goods qualify. If this
follow-up is likely to take days or weeks, as in the case with classification or valuation
disputes, customs again should offer the importer ‘terms of release’ whereby the
importer/declarant agrees to pay the additional duty/tax assessed by Customs under
protest or posts security based on duty/tax liabilities as if the goods do not qualify for
the concession. If it is subsequently determined that the goods do qualify for the pref-
erence conferred by the origin of the goods, the duty/tax paid under protest or the
security posted would be refunded/returned to the importer.
Exemptions
When an importer has claimed a full or partial exemption of duty/tax, the goods dec-
laration should include an exemption authorization number, and supporting docu-
mentation, e.g., an approval letter from the competent authority in the country of
86
import issuing the exemption. In many countries, there can be a myriad of other min-
istries or authorities allowed to legally grant duty/tax exemptions.
It is Customs’ responsibility to ensure that the exemption claimed is properly

authorized and authentic and to also monitor that the goods exempted are in fact
delivered for the intended purpose. Ideally, all exemptions granted should be sent to
Customs directly by the authorizing agency (as opposed to exemption approvals only
being given to the importer/broker), and these approvals stored in an exemption data-
base inside the Customs computer. This database would allow Customs officers to
verify whether a trader and his consignment have in fact been approved for a duty/tax
exemption. To speed up the application and approval process for exemptions, and
minimize opportunities for fraud, importers/brokers should be allowed to apply
online to the appropriate granting authority for an exemption. The exemption-grant-
ing authority would then determine whether the exemption is to be granted, then
electronically send the approval directly to Customs. At time of processing the decla-
ration, Customs officers can check to see if the exemption has been approved. Such
databases can also be extremely useful to Customs and the governments as a whole in
monitoring the exemptions being granted, the revenue foregone.
It is very important that exemption granting authorities have clear, and to the
extent possible, non-discretionary criteria for granting duty/tax exemptions, and that
the ministry of finance closely monitor all exemptions granted to ensure that the costs
of the exemption (i.e., the revenue foregone) do not exceed the intended benefits (i.e.,
economic development or investment incentive). Conducting rigorous end use audits
for goods imported under exemption or concession regimes is critical to the legisla-
tion on duty/tax exemptions. Unfortunately, this is frequently not the case in many
developing countries with huge amounts of revenue foregone through discretionary
exemptions granted by a myriad of agencies or officials without proper criteria or
checks and balances in place to ensure that discretion is minimized. Indeed, in at least
one country in Africa, a former Minister of Finance and DG of Customs are current-
ly serving prison terms related to discretionary exemptions.
4. Physical Inspection of Goods by Customs

Officer (Optional)
When a physical inspection of the cargo is required, it is important that the inspec-
tion be undertaken as quickly as possible to avoid clearance delays. Ideally the inspec-
tion should occur within one working day of the goods being selected for inspection.
However when the inspection occurs outside of Customs control (since it is the
87
importer/declarant that normally must arrange for the goods to be brought forward
for inspection) there can be many reasons for a delay in the inspection being under-
taken.
In the case of containerized cargo, this will normally involve the importer/broker
having to arrange with the cargo handling company for the container to be moved to
the designated Customs inspection area.69 Costs associated to shift, unstuff, and if
necessary, reload goods from the container to permit Customs and other border
agency to undertake an inspection is the financial responsibility of the importer. It is
normally the importer/broker’s responsibility to schedule the inspection of the goods
with Customs and to coordinate where necessary with any other border agency that
must be present for the inspection. In most countries, a Customs officer is required
to be present when the seal on the container is broken, and it is a Customs offense to
open the doors without a Customs officer present. Where more than one agency is
involved in an inspection, it is important that there is coordination between such
agencies so as to avoid duplicative inspections. Unfortunately, in many countries
there is no mechanism for ensuring coordination between the various government
inspectors, leading to unnecessary delays.
In some countries, the absence of any system to schedule cargo inspections caus-
es unnecessary queuing and delays, with all traders demanding their inspection being
undertaken during peak working hours. To avoid queues and delays with cargo
inspection, it is highly recommended that the Customs automated system be
enhanced to allow the trader to schedule any physical inspection with Customs and
other border agencies needing to be present for the examination. Such an inspection
scheduling facility reduces queuing, allows Customs to better spread out its workload
over the entire workday, and reduces undue pressure being applied to officers. It is
very important that Customs hours of operation coincide with those of the cargo han-
dling company and other border agencies. Again, unfortunately in many developing
countries this is not the case, with hours of operation of the various agencies not har-
monized to maximize service to the trader.
Many Customs administrations have already, or are currently, investing in sophis-

ticated container scanning systems allowing officers to peer deep inside a closed con-
tainer or truck to determine whether and if so which contents need to be removed
and examined closely. X-ray or gamma ray container scanners are a powerful, non-
intrusive tools that can facilitate trade (i.e., reducing the necessity to unstuff and
inspect cargo), while allowing Customs to more effectively detect and inspect only
69 In some countries, Customs may also inform the cargo handling company of the need to move specific containers for inspection
and when the movement is required.
88
those suspicious items hidden inside a consignment. It is very important that

Customs and the cargo handling company develop procedures and traffic movement
flows to ensure that scanning machines do not become a bottleneck to container
movement to and from the port (since most container scanners can only effectively
scan a maximum of 15-20 containers per hour).70 It is also very important that digi-
tal images of the scanned cargo are interpreted by more than one officer and that these
images are stored and digitally linked to the goods declaration document. This allows
close monitoring of the officers operating the scanner, which if not carefully man-
aged, can be used to extort money from traders to have images misinterpreted or con-
tainers simply not scanned by Customs.
Given the high volume of import, export, and transshipment containers in most
country’s ports, there is insufficient time and it is not cost effective to move all con-
tainers through the scanner. Intelligence and profiling techniques are key to selecting
which containers to scan and consignments to inspect. Automated risk management
applications applied to the import/export goods declaration data, supplemented by
enforcement intelligence databases can be used effectively to allow Customs officers
to decide whether a particular importer, exporter, or supplier has had any Customs
offenses in the past, whether there are any look-outs or intelligence reports about the
parties involved with the trade transaction, and whether there are any unusual modus
operandi for concealing contraband that the inspection officer should be aware of (see
Box 16 for more information on intelligence databases).
When Customs officers physically inspect a consignment, it is very important to

closely monitor and supervise the officer to minimize opportunities for collusion/cor-
ruption with the importer/broker at this critical juncture of the clearance process. It
is the internationally recommended best practice that the presence of the
importer/broker is not required when Customs undertakes a cargo inspection, and
that the importer/broker should not be present unless the importer/broker specifical-
ly requests to be present and Customs agrees to this request. That being said, in most
developing countries, the importer/broker is normally present during the inspection
of the cargo, with traders reluctant to allow Customs officers to open boxes without
their presence for fear of theft or entrapment and Customs officers stating that they
want the trader there to accept responsibility if an offense is detected.
Unfortunately, the inspection of cargo is a source of serious corruption in many

developing countries, with Customs officers and traders colluding so Customs does
not report offenses, e.g., excess goods, smuggled goods, contraband, or the Customs
70 A note of caution here is necessary as many Customs administrations using scanners are returning to 100% inspection levels.
This has to be avoided at all cost and a stronger regime for selective inspection (regardless of the type of inspection conducted)
would prevent this from happening.
89
officer simply being paid to expedite the inspection or jump the queue so the trader
can receive his goods quicker and avoid delays and demurrage charges. For these rea-
sons, it is important that Customs inspections be undertaken in a specifically desig-
nated area of the airport or port that can be under close monitoring by management.
It is also highly recommended that the computer randomly selects which Customs
officer(s) to undertake the inspection. It is also ideal if two Customs officers are
assigned to undertake the inspection, though human resource constraints frequently
prevent this from occurring. Lastly, it is important that there be some mechanism
whereby an independent unit of Customs officers can randomly re-inspect containers
that have already been inspected by as a quality verification measure and deterrent
against corrupt behavior.
The examining officer should be required to clearly and fully document the
inspection findings on the goods declaration and in the automated Customs comput-
er system before Customs release of the consignment is allowed. This ensures that the
Customs officer can be held accountable for the inspection results should Customs
management decide to subsequently re-inspect the goods as a counter-verification
quality assurance measure. The installation of CCTV cameras in areas where inspec-
tions are being undertaken is a recommended control initiative, since such measures
can deter and detect acts of pilferage and collusion. If samples of the goods are
removed by Customs, it is important that the sample size be kept to the absolute min-
imum, that a receipt for all samples taken be given to the importer/broker, and that
all samples be returned to the importer/agent. Unless this is done, samples taken by
Customs (and other border agencies) may become a form of legitimized theft. With
the advent of inexpensive digital cameras, such technology should be used to record
images of the goods inspected, as opposed to samples of the goods being taken.
Where Customs detects that an offense has been committed (e.g., smuggled
goods, goods wrongly described, misclassified or under-valued), it is important that a
transparent and fair system for dealing with such offenses be put in place. Less seri-
ous offenses should be dealt with through a system of administrative fines. In many
countries, the DG of Customs is often granted discretionary authority to ‘compound
cases’, i.e., to apply progressive administrative fines or penalties that are less than the
penalties set out in the Customs law which are applied by the courts if an offender is
found guilty of a Customs offense. If such a system of compounding exists, there
should be clear guidelines given to the DG of Customs setting out the progressive
penalties, thereby minimizing discretion in the application of these fines or penalties.
When the importer/broker disagrees that an offense has been committed or with
the amount of penalty or fine to be applied, there should be a way to allow the
importer/broker to pay the fine or post security under protest to obtain release of his
90
goods while the dispute is being appealed. The first avenue of appeal should be to
Customs itself, and thereafter to an independent administrative appeals tribunal out-
side Customs and finally to the court system. In some countries, specialized revenue
courts have been established, presided by specially trained magistrates knowledgeable
in Customs and tax law, to hear revenue cases. Such courts can significantly reduce
the backlog and time required to hear customs/tax cases.
Box 16: Enforcement Intelligence Databases
This database can contain intelligence information and lookouts; past enforcement records; modus operandi from
previous Customs offenses; prohibited goods seizures e.g., drugs, weapons, etc. for use by Customs officers when
checking goods declarations or inspecting cargo. Such intelligence information can greatly assist customs officers
in detecting suspicious transactions or high-risk goods, while allowing the vast majority of consignments to be
released with a minimum of intervention. Customs needs to work closely with stakeholders, other border agencies
and Customs services in other countries to build trust and confidence. Memoranda of understanding with stake-
holders and mutual administrative assistance agreements with other Customs services provide an excellent plat-
form for the exchange of vital intelligence to more effectively combat customs offenses.
5. Collection of Duties/Taxes
Automated Customs systems normally calculate the duty/tax payable on each declara-
tion, reconcile the total payable on the declaration against the actual amount collected,
account for revenue collected or refunded, provide a mechanism to control the deferment
of duty payments for a specified period71, and produce fast and accurate revenue
accounts. Some Customs administrations may also charge user or processing fees72 (i.e.,
a fee charged on each Customs goods declaration to offset the processing costs; mainte-
nance and replacement of computer equipment; and/or cost of container scanning).
Customs cashiers must be able to accept cash, checks, bank drafts, and credit cards
from importers/brokers and accept payment on a real-time basis using electronic
funds transfer systems. Such EFT systems must link the Customs computer system to
the systems of commercial banks, Society for Worldwide Interbank Financial
Telecommunication (SWIFT) to allow traders to transfer funds from their bank
accounts to a Customs account, with electronic messages sent to all parties confirm-
ing the transfer details.73 International standard EDI messages exist for the transmis-
sion of payment information.
71 Deferred payment regimes require the setting up of controls and financial securities to cover the duty/tax deferred. The automat-
ed system can monitor that the security posted is always sufficient to cover the amount of revenue being deferred.
72 For example, U.S. Customs charges a processing fee on each goods declaration transmitted by Customs brokers for clearance pro-
cessing.
73 It should be noted that some EFT systems are insufficiently utilized because of mistrust by importers to authorize their broker to
have access to their account and be able to transfer funds on their behalf. This problem can be tackled by setting up systems that
allow importers to transfer funds into a broker’s account, where it can in turn be transferred to Customs account for electronic
payment of the Customs declaration.
91
Depending on the country, the payment of the duty/tax can occur either at the
beginning (i.e., before the signed hardcopy declaration is presented to Customs at the
reception) or at the very end of the process (i.e., after the declaration has been
checked, reassessed, examined and approved for release—pending payment). In some
countries, Customs prefers for the payment to be at the very beginning of the clear-
ance process, as a way of formally committing the importer/broker to the declaration
presented. In an EDI environment, many countries prefer that the importer pay any
duty/tax calculated by the system at the time of lodging the hardcopy goods declara-
tion to Customs. The payment up-front, based on the declaration transmitted/accept-
ed by Customs, is a financial commitment by the trader regarding the accuracy of the
data transmitted. Should the document verification or cargo inspection establish that
additional duty/tax is payable, the declaration must then be amended by the
importer/broker and any additional duty/tax paid.
Alternatively, in other countries, the payment of final Customs assessed duty/tax

is only required after all document verification and cargo inspection is completed.
This can be an efficient approach where the level of compliance by traders, and the
percentage of amendments necessary, is small. However, such a system can support
corrupt practices as the importer may be able to negotiate reductions in his liabilities
during the process, then only pay what has been finally negotiated at the very end of
the clearance process.
What is important is that duty/tax assessed is paid prior to Customs release being
authorized. That being said, some Customs services may offer periodic payment priv-
ileges to approved importers. In such periodic entry or deferred payment regimes, the
importer is granted release of his goods upon presentation of some form of a simpli-
fied declaration or other commercial documents, with the full, consolidated goods
declaration presented within a specific number of days after release covering all
importations during a particular period. Such a periodic declaration and payment
regimes are normally limited to certain high-volume importers of low-risk goods,
where there may be little revenue involved, e.g., ores, chemicals, or other manufactur-
ing inputs. Frequently, such importers approved for periodic entry payment may have
to post financial security with Customs to cover the duty/tax deferred, as well as be
subjected to regular, periodic compliance verification audits to ensure compliance.
Failure to submit the periodic/consolidated entry and make the periodic payment
may result in the importer being removed from the scheme.
92
6. Release of Goods by Customs

Customs is the final authority to grant release of goods. Although a consignment may
have met all the Customs requirements, it may not have complied with all the certifi-
cates or analysis of other competent border agencies. Without approval for release
granted from these other border authorities, Customs cannot authorize release of the
goods. While Customs may be withholding the release of the goods, and takes the
brunt of the criticism from the importer/broker for doing so, in many cases the delay
in release may be due to non-compliance with the requirements of other competent
border authorities. It is extremely important that there be close coordination between
Customs and other border agencies. In a computerized electronic message environ-
ment, it is important that the trader be aware precisely why his consignment has not
been released, and which agency, i.e., Customs or another border agency, has placed
a hold on the consignment.
Once Customs has decided to release the goods (and the duty/tax has been paid),
the importer/broker must be notified and receive some sort of hardcopy authority for
physical removal of the goods from the airport or port. In many developing countries
operating in a manual environment, the Customs goods declaration form may be
duly dry stamped or signed by a Customs officer as proof of Customs release. In an
electronic message environment, a CUStoms RESponse Message (UN EDIFACT
CUSRES) is transmitted from the Customs computer to the importer/broker, and
may also be copied to the airport or port cargo handling company.
7. Delivery of Goods
Sometimes, Customs release notification messages (CUSRES) may not be sufficient
to remove the consignment from the exit gates at the airport or port. Normally, the
port authority or cargo handling company will not allow the goods to be delivered
until any demurrage and all port-handling charges have been paid. Only once this is
done will a delivery note be issued to the importer/broker allowing the goods to be
delivered from the airport or port. Needless to say, there is some risk of fraud occur-
ring when an agency, other than Customs, is allowed to issue delivery notes allowing
goods to be delivered. Close monitoring of delivery notes must be undertaken by
Customs or other audit agencies to prevent fraud.
Significant cargo delays may also occur after the delivery note is issued and until
the goods are actually loaded onto a truck and delivered. This is normally caused by
the trader himself. There may be delays by the importer in hiring a truck to pick up
the goods, as well as delays by the cargo handling company actually loading the goods
93
onto the truck. In some cases, especially where the importer lacks adequate or secure
storage at his premises, and where airport or port storage charges are free or very low,
importers/brokers may deliberately not take delivery of their goods even though
release and delivery has been granted by Customs.
In an electronic message environment, customs officers are normally stationed at

the exit gate(s) of the airport or port to receive the delivery note and check the
Customs system to see if the goods or containers have been released. In highly auto-
mated environments, container number scanning technologies can be applied where-
by the truck delivering the container has its license plate scanned, the container num-
ber on the outside of the container scanned, and perhaps even image of the driver and
identification card scanned. Such exit gate systems can record this information auto-
matically and compare it against databases remotely and without a customs officer
being physically present at the gate. The system can then automatically lift the exit
gates with the whole process monitored by CCTV cameras. Such sophisticated sys-
tems are currently operational in Singapore.
8. Post-Clearance Auditing of Importer (Optional)

In most developed countries, goods declarations are selectively re-verified within a few
days after release of the goods. This is especially the case for those goods declarations
that have been granted immediate Green Channel release and not been checked prior
to release. Automation is used to process goods declaration data against specific selec-
tion criteria maintained by post-clearance audit teams. Declarations matching selec-
tion criteria are retrieved for post-clearance review by a team of specialized Customs
auditors. The audit teams may also retrieve and examine previous goods declarations
of a particular importer to prepare for post-clearance verification audits of importer’s
books and records.
In Canada and the United States, Customs declarations are selectively scrutinized
by specialized officers (referred to as Import Specialists or Commodity Specialists)
located in regional offices. These specially trained officers are able to re-verify decla-
rations already granted release from a classification, valuation, or origin perspective
and decide whether a post-clearance query or audit is required. Such specialist units
can be extremely effective in examining all imports by a particular trader or a period
of time, and identifying errors, or making reassessments of duty/tax owed by an
importer that the Customs officer at time of clearance would simply not have the
time to detect. Unfortunately, in many developing countries, such post-clearance con-
trol units do not exist, with Customs placing great importance on the officers check-
ing the declaration at time of release, as opposed to relying on the more careful and
94
unhurried examination of declarations after the goods have been released in order to
identify short-payments of duty/tax or even Customs offenses.
95
CHAPTER 5
STREAMLINING CUSTOMS
PROCEDURES: EXPORTS AND
DUTY-RELIEF REGIMES
Various duty-relief regimes enable export-oriented manufacturers to import their
manufacturing inputs without paying the applicable duty/tax. In such cases, the
duty/tax is suspended or relieved pending the re-exportation of these inputs incorpo-
rated in the finished goods being exported. Examples of such regimes include: inward
processing; manufacturing under bond; export processing zones; temporary admis-
sion for re-exportation in the same state; and Customs warehousing.
A drawback regime requires duties/taxes to be paid at time of importation, then

refunded after the finished goods are re-exported. An exemption regime allows full or
partial exemption of duty/tax at time of importation, without any requirement for re-
exportation, for the purpose of investment incentives, imports for government use,
foreign financed projects, imports for diplomatic representations, imports of relief
goods, and imports for charitable, cultural, educational or religious institutions.
These regimes are designed to remove or reduce the tariff burden to give exporters
access to their industrial inputs at world prices and thereby make exports more com-
petitive. By exempting duty/tax on inputs at time of import, or refunding duty paid
when the inputs are incorporated into the finished goods and exported, capital costs
can be reduced. The principle of not levying import duty/tax on goods that are not
remaining in the Customs territory is fully consistent with WTO rules, provided the
amount refunded does not exceed the duty/tax payable (in which case it would be an
export subsidy and be prohibited under WTO rules).
96
STREAMLING CUSTOMS PROCEDURES: EXPORTS AND DUTY-RELIEF REGIMES
Given the fact that duty/tax is being temporarily deferred, it is very important that
Customs services exercise effective controls to ensure that there is no leakage of such
raw materials into the domestic market.
1. Duty/Tax Exemptions
To obtain duty/tax exemptions, export-oriented firms must apply to Customs or
another competent authority for a full or partial exemption of duty/tax on specific
imported raw materials to be integrated into finished goods to be exported. This
application should:
■ Describe the entire manufacturing process;
■ Specify the number of inputs required over what period;
■ Specify the quantity of finished exports anticipated; and
■ Propose the manufacturing input/output coefficients and wastage
factors applicable, and the exemption validity period74.
Before approving the application, the competent authorities may decide to visit
the applicant to verify the manufacturing premises, the proposed coefficients and
wastage factors, etc., before issuing an exemption approval and number to be quoted
on each of the import declarations. Normally such exemptions are only granted to
firms that are primarily export oriented75, with firms having to maintain a very high
percentage of their finished production for export (normally at least 80% of produc-
tion must be exported).
Customs should ideally have a software application in its automated import dec-
laration system to: record all exemptions granted; verify at time of clearance of the
imported raw materials that the goods qualify for the exemption granted; and to
monitor the import against export quantities, and local sale quantities, taking into
consideration approved coefficients and wastage factors. The computer application
should alert Customs if exports are not sufficient, given the amount of inputs import-
ed over a period of time and consequently raising suspicions that inputs may be
diverted into the local market.
74 International standards exist in various sectors, e.g., X meters of fabric, X buttons, X amount of thread is required to produce one
long sleeve dress shirt. Korea and Taiwan publish an industry average fixed rate input/output coefficient schedule every six
months that is not related to the specific performance of the manufacturer. In many other countries, coefficients are largely self-
assessed by each manufacturer and audited by Customs to verify the yields and conversion rates. The application may also
include other inputs including machinery, spare parts, lighting, and other approved inputs to the manufacturing process.
75 Firms receiving such duty/tax exemptions should be required to keep books, automated inventories which track all inputs and
exports, as well as file periodic reports to Customs showing imports, exports and balances to permit Customs to undertake peri-
odic verification audits at the manufacturer’s premises to verify compliance.
97
The advantage of an exemption regime to export-oriented firms is that it does not

tie up the firms’ capital by requiring them to pay duty/tax on raw materials at time of
import. Exemptions should be, at least theoretically, relatively easy for Customs to
administer. That being said, exemption regimes can represent a significant revenue
risk if effective customs audit systems are not in place to ensure that exempted inputs
are not being diverted into the local market. Diversion of local inputs and finished
goods into the local market can cause significant economic distortions. Products such
as spare parts, fuel, and other consumables are especially difficult to control given that
these products can be easily diverted to home consumption.
In some countries, other conditions are imposed on firms receiving such exemp-
tions. For example, in the United States, Canada, India, Nepal, Tanzania, export-ori-
ented manufacturers are allowed to import raw materials without duty payment. Such
‘manufacturing under bond’ regimes may require the manufacturer to operate within
a specific bonded factory or warehouse that must be licensed by Customs and covered
by financial security posted representing the duty/tax liabilities related to the raw
materials imported. However, such regimes are often very cumbersome due to the
annual licensing and bonding requirements as well as the requirement that the raw
materials remain locked up in bonded stores requiring joint Customs firm removal of
goods from the warehouse into production.
2. Drawback
As opposed to duty/tax exemptions, drawback procedures do not necessarily require
firms to submit any application and pre-approval by Customs. In certain countries there
are restrictions on what goods can be eligible for drawback76. Drawback is more suited
to firms that are only occasionally or exceptionally exporting a minority of their finished
products. In many countries, Customs requires an indication on the import and export
goods declaration whether or not a drawback is to be claimed. This gives Customs an
opportunity to verify and take samples of the goods if it deems this appropriate.
Once the goods are exported, the firm will submit a drawback claim form that
effectively shows what was imported and what was exported and requests a specific
amount of drawback refund of duty/tax. Normally photocopies of the import and
export declarations are required to support the drawback claim77. Upon receipt of a
76 Some countries may restrict the types of goods eligible for drawback to encourage the use of domestically produced equivalents
of the imported raw materials; however this may handicap the competitiveness of the exporters. In India, there are limits on the
amount of relief or refund to a certain percentage of what was paid, as well as refund allowed only on a specific list of goods.
77 Some Customs services have extremely onerous documentary requirements to support drawback claims which can significant
delay the submission of such claims e.g. copies of the stamped export declaration, bills of lading, landing certificates, proof of
export proceeds and import declarations.
98
drawback claim (form or electronic application), covering a single consignment or a

specific periodic (e.g. quarterly), Customs will check the claim and refund the
duty/tax. Issuing the refund check or paying the refund through Electronic Funds
Transfer (EFT)78 should not be delayed, even if Customs wishes to undertake further
checking of claims submitted through post-audit verification of the firm’s books and
records. In certain countries, Customs charge a processing or service fee to process the
refund claim79. This practice often undermines the competitiveness of exports.
Inefficient procedures and burdensome document requirements in many coun-

tries, frequently results in exporters incurring extremely high costs. In the end the
firm simply gives up on receiving a refund or the refund received has been drastical-
ly reduced in value due to inflation. It is important to note that in many countries
there has been massive drawback refund fraud when Customs does not exercise prop-
er controls when goods are exported or does not perform post-audit checks. This
problem can be especially acute in developing countries where the fiscal situation of
the country is such that the government may at time not have sufficient budget to pay
drawback refunds, and is instead obliged to provide credits against duty/tax payable
on future imports (a scenario that can cause further administrative burden on the
Customs Department).
These are some of the elements that can help establish efficient and effective draw-
back regimes:
■ Creation of high-level committees comprising representatives of
finance, customs, industry, trade, and stakeholders to develop the pro-
cedures, document requirements and to set time limits for processing of
refund claims (e.g., refund issued within 10 days after claim is submit-
ted to Customs).
■ Drawback should normally cover 100% of the duties/taxes paid on
imported inputs, as well as raw materials and intermediate goods used
for the production of the final export, including imported packaging.
They should also cover indirect exporters, i.e., the refund should
include imported materials paid for by other exporters80.
■ The procedures should be simple and easy to administer, timely, and easily
understood by manufactures. The export declaration should be sufficient
proof of exportation and no other documentation should be required.
78 Customs may also refund through a credit certificate or voucher which can be applied against future duty/tax owing on future
imports, however such schemes can be very complicated to administer and open to malfeasance unless Customs has a highly
developed revenue accounting system.
79 Tanzanian Customs was charging a processing fee equal to 4% of the refund to be granted, a practice that was undermining the
competitiveness of exports.
80 Refund of duty/tax paid to indirect exporters is allowed in Chile, Korea and Colombia. Indeed, it is highly recommended that a
VAT/sales tax refund system also be in place to allow refund of any domestic tax paid on locally produced products that are exported.
99
■ It is important that the ministry of finance put in place a mechanism

for periodic replenishment of the budget required to issue refund
checks.
Various developing countries have attempted to modify and simplify their draw-
back regimes in an attempt to reduce administrative costs (see Box 17).
Box 17: Abbreviated Drawback Systems in Nepal and Bangladesh
Bangladesh operates a Special Bonded Warehouse Facility to support the manufacture of ready-made-garments.
Over 3,400 of such facilities are operating in the Dhaka region. Each warehouse facility must be approved by
Customs, with a financial bond posted with Customs to cover the duty/tax liabilities of the raw materials kept in
the facilities. A passport/ledger system is used to control the amount of imports and exports in/out of the ware-
house. Raw materials valued up to 75% of the anticipated value of the finished exports can be imported duty/tax
free. Despite the security posted and ledgers in place, there have been significant revenue losses associated with
unauthorized diversion of finished goods into the local market.
Nepal has operated a ‘Passport’ system since 2001. It allows export manufacturers to defer payment of duty/tax
on raw materials used for export where there is at least 20% value-added to the raw materials before export or
sale onto the local market for foreign currency. Customs control is exercised through a passport (ledger) controlled
by a specific Customs office located closest to the firm. A cash deposit is required to cover the duty/tax suspended.
On proof of export of the finished goods, Customs will release the appropriate percentage of the deposit accord-
ing to the quantity actually exported. There is no refund of the deposit since it must be re-applied against the next
quantity of inputs to be imported. Failure to export within 12 months requires the firm to pay to Customs the
duty/tax plus a penalty of 10%. Overall, firms have been more satisfied with the passport system than the previ-
ous drawback system.
3. Bonded Warehousing
Bonded warehouse regimes allow specified imported goods into customs approved
and bonded warehouses without payment of import duty/tax for a limited period of
time (normally until such goods are either re-exported or entered into home use at
which time duty/tax becomes payable). The Customs law must set out the require-
ments and conditions by which a bonded warehouse may be approved and licensed
to operate. This normally involves the operator submitting an application to Customs
containing detailed drawings of the proposed building, its security features, location,
proposed inventory control systems, etc. Customs will review the application and
undertake an on-site visit to verify that the applicant has met all requirements before
licensing the operator of the warehouse81. The operator must post security to cover
all the total duty/tax to be deferred on the goods resting in the warehouse82.
81 Customs must be very cautious that the areas of the warehouse containing non-duty paid goods are kept under a double-lock sys-
tem (one Customs lock and one lock held by the operator).
82 The amount of security required by the operator should depend on the type of goods normally stored in the warehouse, the
duty/tax liabilities, the security and inventory control systems in place, and the level of compliance. Compliant operators should
be rewarded for their compliance by reducing the amount of security to be posted.
100
Goods must be under transit control from the point of arrival until entry into the
bonded warehouse (see transit control). Goods entering bond must be declared to
Customs on an import goods declaration using in-warehouse customs procedure
code. As with any import declaration, the duties and taxes will be calculated, but pay-
ment is suspended pending the submission of an ex-bond declaration to remove the
goods from the warehouse or an export declaration to remove the goods from the
Customs territory or into another suspense regime (e.g., Freeport). If the goods are to
be entered into home consumption, the duties and taxes are then payable on the
whole or part of the consignment removed.
Bonded warehouse systems require extensive physical customs controls over the
movement of the container to the warehouse, the unstuffing and entry of the goods
into the bond (performing a goods inspection where appropriate), maintaining the
inventory balance of goods kept in the bond, any authorized operations while in the
bond (e.g., sorting, repacking or packaging, conditioning); and inspection of goods
being removed from bond. Depending on the size of the bond and level of activity,
Customs officers may need to be permanently posted to these warehouses. It is impor-
tant that officers posted to bonded warehouses be regularly rotated to ensure that they
do not become too familiar with the operator.
Unfortunately, in many developing countries, Customs controls over bonded

warehouses have been extremely poor, with such warehouses being exploited by
fraudsters to smuggle goods into the country. For example, fraudsters can exploit the
transit of goods from the airport or port to the bonded warehouse, removing or sub-
stituting undeclared goods during the transit movement. Lack of proper inspections
at the airport or port and upon arrival and entry of the goods into the bond can lead
to serious cases of smuggling and associated revenue loss. In some countries, security
considerations regarding bonded warehouses were not being effectively enforced, with
bonded warehouses often attached to wholesale or retail establishments and goods
being allowed to move freely between the warehouse and the shop floor without
Customs control. In many developing countries, there is no automated inventory
control over bonded warehouses, with Customs instead relying on cumbersome man-
ual ledgers that can be easily manipulated in collusion with customs officers posted
almost permanently at these warehouses. While the situation is gradually improving,
in one East African country in the recent past, under pressure of the donor commu-
nity, all bonded warehouses in the country were required to be closed down due to
rampant smuggling and total absence of Customs control.
In modern Customs administrations, the computer system should maintain an

overall balance of inventories in each bonded warehouse utilizing the details from the
in- and ex-warehouse Customs declarations processed through the Customs comput-
101
er system. Customs should also have online access to the operator’s inventory system
to supplement and compare this data with that in the Customs inventory e.g., the
exact location of the goods in the warehouse. These inventory systems should also
report any goods overlying in the bond (i.e., goods not removed from the bond with-
in the prescribed maximum timeframe of normally 12 months). Normally it is the
responsibility of the bond operator to deliver such overlying goods to the customs
warehouse for auctioning or disposal.
As security systems and inventory systems become more sophisticated, Customs

services in most developed countries have moved away from permanent presence of cus-
toms officers in bonds and instead are applying an ‘open-bond’ concept. Under such an
approach, Customs control is exercised through providing Customs online access to
CCTV systems; the operator’s inventory system; and by performing unannounced and
selective periodic inventory stock-takes, spot-checks, and audits of inventory systems to
ensure that no goods are missing or substituted. This movement from physical control
to audit control has significantly reduced the human resource costs to both Customs
and related fees charged to operators for special service, while increasing Customs
enforcement effectiveness, as well as reducing opportunities for corruption.
4. Free Zones
These regimes have become increasingly popular during the last decade, with many
countries attempting to promote exports of non-traditional manufactured goods,
strengthen the competitiveness of exporters, attract investors, diversify the economy,
create employment, transfer technology, expand trade and transport linkages to the
country as a whole, promote tourism, encourage foreign direct investment (FDI), and
achieve development and growth. A number of operations may be undertaken inside
the zone, from simply break-bulk and shifting of goods from one container to anoth-
er, sorting/repackaging/re-labeling, further assembly or manufacturing, etc.
Frequently the success of a free zone is directly linked to lack of political stability and
inefficiency of ports and customs services in the region. (See examples in Box 18).
Sometimes referred to as Free Trade Zones, Duty Free Zones, Tax Free Zones, Free
Export Zones, Special Economic Zones, Export Processing Zones, by whatever name,
such zones are considered legally outside the Customs territory of the country and
thereby subject to an entirely different Customs tariff and income tax regime. They
are also eligible for various other tax and investment incentives not found in the
Customs territory to attract and encourage growth and investment83. That being said,
83 Incentives may include exemption from: sales tax, excise duties, profit taxes, income tax; industrial and labor regulations applied
elsewhere in the country; foreign exchange controls. Firms may also be provided with special rates applicable to infrastructure and
other services.
102
such zones are physically located within the national boundaries and are part of the
national economy. Free Zones can encompass an entire area of a country or entire city,
all or part of an air/port, all or part of an industrial park, or be even limited to an
individual factory. Free zones however normally have a secure perimeter that is under
Customs control.
Box 18: Examples of Free Zones
Jebel Ali Free Zone in Dubai, UAE, is probably the most successful zone in the world. Created in 1985, this free
zone has no taxation. The restrictions are minimal, and there is no obligation to have a local partner. Staff can be
recruited from anywhere. There are excellent port facilities, warehouses, office space, and factories already built
and ready for lease. The port is the busiest in the Middle East and now the 10th busiest in the world.
Aqaba Special Economic Zone in Jordan is another recent bold initiative to turn the entire port city area of Aqaba
to the Saudi border into a duty/tax free zone in an attempt to attract economic development and FDI. What is
interesting with the Aqaba Special Economic Zone Authority (ASEZA) is the authorities’ decision to create a sepa-
rate Customs service to operate inside ASEZA. ASEZA Customs is autonomous from the national Jordanian
Customs administration, in an attempt to provide a focused, specialized, and better level of service to firms operat-
ing inside the Zone. Lack of trust and cooperation between the two Customs services has contributed to various
administrative difficulties, lack of coordination, and obstacles in effectively controlling the smuggling of goods from
the Zone into the Customs territory. But the ASEZA has been very successful in a very short period of time at
attracting several billion USD of FDI since its creation in what was otherwise a seriously economically depressed
region of southern Jordan. ASEZA constitutes a pilot/catalyst for nationwide Customs reform.
Subic Bay Freeport Development in the Philippines, however, has had limited success in attracting and retaining
investment, despite the significant existing air/port infrastructure left behind after the departure of the U.S. Navy
and technical assistance from international donors.
Colon Free Zone in Panama operates almost exclusively as an entrepot/warehousing hub, focusing on commercial
warehousing and repacking operations for firms that export finished goods to the Caribbean and Central America.
The national Customs service normally should only operate at the perimeter to
the zone. Its role is to control goods entering the zone from the Customs territory or
from a third country; being imported from the zone into the Customs territory for
home consumption; or being entered into another duty deferral regime. This can
involve controlling the transit movement of goods to and from the zone. If goods are
entered into home consumption, an import goods declaration must be presented to
Customs and applicable duty/taxes paid as would apply to goods from any third
country. In many free zones, quantitative restrictions apply on how much of an oper-
ator’s production can be allowed into the domestic market (e.g., 20%) and it is
Customs responsibility to ensure that this limit is not exceeded.
Customs is required to monitor all activities undertaken inside the zone through
audits of the zone operators’ books, records, and systems. Customs must ensure that
no illegal trade is occurring inside the zone. Normally, the zone authority and zone
103
operators are legally obligated to create and maintain an inventory of all goods enter-
ing, exiting, and the balance remaining inside the zone. Reports regarding all opera-
tions are to be submitted to Customs for auditing purposes. In many zones, Customs
is provided with online access to inventories.
Licensed operators in the zone are required to submit a simplified Customs decla-
ration to for approval to admit or remove goods from the zone. Normally no duty/tax
is payable on goods entering or being exported from the zone to third countries.
However, certain administrative fees may be collected to finance the zone authority’s
administrative operations, and to maintain or improve the zone’s infrastructure facil-
ities that it rents or leases to operators.
5. Temporary Admission
Temporary admission provides a full or partial relief from import duties/taxes on
goods imported for specific purposes, under the condition that the goods will be re-
exported in the same state. The norm is that a full relief is provided if the goods are
re-exported within the prescribed period. Temporary admission is a simple procedure
whereby security is posted to cover the duty/tax liability. It is commonly applied to:
vehicles of experts temporarily working in a country; equipment being used tem-
porarily for construction purposes; goods for display on exhibitions, fairs, meetings
or similar events; commercial samples; containers used in international transport; and
travelers’ personal effects.
Normally a simplified goods declaration needs to be presented to Customs. The

goods must be identifiable so Customs can be assured that the same goods imported
are being exported. Security must be posted and may be furnished by an internation-
al guarantee such as the internationally recognized ATA Carnet, which has a guaran-
tee issued by the International Chamber of Commerce. A reasonable time limit for
re-export should be set. At time of re-export, a re-export declaration should refer to
the initial temporary admission declaration. Once exported, the security posted
should be released immediately.
6. Transit
ICT can be effectively used to assist Customs in streamlining procedures and controls
over the physical movement of goods during their transit through the Customs terri-
tory. The customs transit procedures and computer application should ideally include
the following steps:
104
1) Authorized transit agent prepares the transit goods declaration (with

required supporting documents, including commercial invoices and the
transit document from the neighboring country from where the transit
has just arrived).
2) Authorized transit agent presents the hardcopy declaration and trans-
mits (using the UN EDIFACT Customs Declaration (CUSDEC) mes-
sage standard) to the customs office of transit commencement. The
documents are ideally sent prior to arrival of the transit conveyance to
avoid delays when the transit cargo actually arrives at the border.
3) Customs accepts the signed hardcopy of the transit declaration (and
retrieves a corresponding electronic message that has already been subject
to edits and validation checks to ensure completeness and correctness).
Officer checks for completeness and accepts the calculated amount of
transit security bond required to cover the duty/tax liability84.
4) The Customs officer must decide whether a physical inspection of the
conveyance and cargo is required. Customs should not normally inspect
transit containers unless it has received intelligence information or has
other suspicions regarding the transit consignment. Ideally, high-risk
transit containers should be X-rayed at the office of transit commence-
ment, with the images recorded and sent to the office of termination
for re-verification to ensure that goods have not been removed or sub-
stituted during transit85;
5) If the conveyance is approved for transit, the Customs officer must
physically place a tamper-proof customs seal (which has a unique iden-
tification number on the seal itself ) on the container’s doors86.
6) The Customs officer records the seal number into the computer as well
as ensures that the vehicle registration number, driver name, and con-
tainer number have been correctly recorded into the automated system.
84 It is important that Customs require blanket security bonds from authorized agents, as opposed to individual bonds that can be
extremely costly, burdensome to administer and open to fraud. It is also critically important that such bonds are controlled and
canceled automatically to minimize the costs incurred by the trade community. For example, in Tanzania, transit bonds were
required to be posted by carriers transporting containers to other landlocked countries. An audit to check the verification of the
authenticity of these security bonds apparently issued by banks a few years ago revealed that most if not all were forgeries. This
resulted in the interdiction of numerous Customs officers implicated in the scheme.
85 Scanning of containers in transit can be expensive in terms of the cost of procuring and operating X-Ray scanners at border cross-
ings. However, the huge revenue losses and distortions to the local economy from smuggling of transit goods, as well as the secu-
rity risks, have pushed countries to introduce this technology. For example, the South African Revenue Service (SARS) is current-
ly tendering for 18 container X-Ray scanners to be made operational at all its seaports and land border crossings. This Build-
Operate-Transfer (BOT) tender is seeking bids from private firms to procure, operate, maintain and then transfer the equipment
to Customs after a number of years of operation.
86 The customs seal is an indicative seal and is not designed to prevent entry into the container. It is critically important that the
customs seal is tamper-proof, i.e., cannot be removed then reapplied without showing indications of tampering. Seal technology
is constantly changing and it is important that Customs services utilize the latest types of seals and that seal types are periodically
upgraded. Bolt seals, aircraft cable seals or plastic strip seals can be purchased at very reasonable prices and are difficult to tamper
with or counterfeit. Customs services should never use the old cable and lead seals that can be easily replicated or tampered with
by unscrupulous traders.
105
7) Once the Customs officer has approved the transit movement, the auto-
mated system should automatically draw-down the appropriate amount
of the blanket security bond that the authorized agent has posted with
the department.
8) Transit documents are stamped and signed by the officer, with a copy
returned to the driver (in a completely manual system, the documents
must be mailed or faxed to the office of transit destination). It is
extremely important that Customs establish specific transit routes and
maximum time frames that trucks are allowed to complete the transit
movement. Drivers should be informed of the route, the maximum
time to complete the movement and be aware that they are required to
immediately report to Customs any incident occurring during the tran-
sit that would prevent completion of the transit within prescribed time
frames.
9) Transit data from transit declaration, including the date and time of
departure of the transit truck from the office of transit commencement,
are then transmitted to the office of transit termination to allow the
receiving customs office to be aware of what transit truck to expect and
when.
10) Customs and border security police should selectively monitor the
physical movement of the transit across the Customs territory to ensure
that no diversion or substitution of cargo occurs during transit. This
can be done by undertaking selective surveillance on high-risk transit
conveyances or requiring the transit conveyance to stop and report at
various checkpoints along the transit route in order to monitor
progress. GPS technology is now also being used very effectively applied
to monitor transit movements (see Box 19 for a description of the new
Turkish Customs Transit Control System).
11) Upon reaching the office of transit termination, Customs officers
should check that the customs seal remains intact on the container’s
doors and that maximum time frame to complete the transit has not
been exceeded. If seals are found tampered with or broken, and if maxi-
mum time frames have not been complied with, Customs should
inspect the transit cargo against the description and quantities appear-
ing on the transit documents. If appropriate, Customs should recover
any short payment of duty/tax applying administrative fines if applica-
ble for breakage of seals or other transit fraud offense as prescribed
under the law.
12) If the transit has been successfully completed, customs officer should
input into the system that the transit has been successfully completed,
and release the authorized agent’s transit security bond.
106
Customs services with adjoining borders should consider developing a common

or linked transit control system to cover transits moving across a corridor that cross-
es a number of countries. There are obvious efficiencies in terms of development and
operating costs if a single system can be developed and utilized by a number of cus-
toms services. Such a system would also allow authorized transit operators to utilize a
single transit document and post a single transit security to cover the entire transit
movement. It would also allow Customs to accept a seal placed on the container from
the Customs service from whence the transit commenced. Such a cooperative transit
system would also reduce the inherent costs and dwell times associated with having
to stop at each country’s border to present the transit goods declaration, post securi-
ty, have seals affixed, etc. Such a common transit system have been contemplated for
use on various transit corridors e.g., Northern Corridor from Mombassa, Kenya to
Kampala, Uganda and more recently on the Kalahari Corridor between Namibia and
South Africa.
Box 19: Turkish Customs Transit Control System
Turkish Customs has recently implemented a sophisticated automated transit control system on its main road tran-
sit corridors. This system not only controls the transit details and security posted, but also uses a GPS tracking
device that must be attached to the roof of each transit container. The device tracks the movement of each con-
tainer as it moves along the entire transit corridor. A special sensor is also placed on the Customs seal on the con-
tainer doors. Removing or tampering with the transmitter device on the roof of the container will also result in the
transmitter sending an alarm message to the GPS transmitter. A central command and control center has been set
up to track the position of all transit movements and to react to alarms. Mobile Customs response teams are sta-
tioned at various points along the transit corridor to react quickly to any diverted, missing, or late container. The
system has proven highly effective in curbing transit fraud in Turkey.
107
ANNEX 1
EXPRESS COURIER
PROCEDURES
Given the significant growth experienced in low-value express courier parcels and
documents, simplified import goods declarations and highly facilitated clearance pro-
cedures have been implemented in many developed countries to ensure quick release
of these low-risk consignments. Following a guideline developed by the WCO and
the International Express Courier Conference, express couriers are recommended to
physically segregate consignments into four categories:
■ Documents—no Customs declaration is required;
■ De-minimus value—packets valued below a threshold value (e.g.,
US$40) where no customs declaration is required and duty/tax is not
collected;
■ Low value—packages valued above the de-minimus and valued up to a
threshold limit (e.g., US$150) can be cleared using a simplified goods
declaration; and,
■ High value—goods requiring a standard import goods declaration.
In many developing countries, couriers are transmitting required goods declara-

tion data to customs prior to arrival of the goods using EDI messages i.e. using the
UNEDIFACT CUStoms EXPress message (CUSEXP). This allows Customs suffi-
cient time to process this data against risk selection criteria and notify the courier’s
computer system of which parcels must be inspected upon arrival (i.e., parcels are
identified when the courier scans upon arrival).
Customs services in many developed countries provide express courier firms with
dedicated customs service on a full cost-recovery basis at their courier hubs. In return,
the couriers must reimburse Customs for the cost of these services, and also provide
them with proper facilities and equipment (e.g., X-ray scanners and other facilities)
to undertake their inspections quickly and efficiently). These couriers may also be
108
EXPRESS COURIER PROCEDURES
allowed other expedited release facilities including periodic, consolidated Customs

declarations and deferred payment.
Unfortunately in many developing countries, express courier consignments are

not being cleared through special clearance streams, and instead are cleared as normal
air cargo. This causes significant delays in clearance as well as extra workload that
tends to delay the clearance of all other air cargo consignments.
109
ANNEX 2
PRE-SHIPMENT INSPECTION
PROCEDURES (PSI)
It is important to note that while the foregoing import clearance processes are the
ideal, many developing countries are not in a position to efficiently or effectively
implement all or part of these processes. This is especially the case with checking the
reasonableness of the declared values, the correctness of the tariff classification, prop-
erly inspecting the quality and quantity of the goods, and collecting the proper
amount of Customs revenues.
Faced with serious fiscal problems, policymakers in many developing countries

have been forced, often with pressure from international donor/lending institutions,
to contract out these primary Customs functions to private surveying companies,
commonly known as Pre-Shipment Inspection firms87.
PSI originally started in the mid-1970s to redress capital flight resulting from
over-invoicing of imports. The role of PSI has gradually shifted to: controlling
over/under-invoicing of imports; improving the quality of information on goods dec-
larations; ensuring the proper amount of duty/tax is assessed and paid; and in some
countries controlling misappropriation of donor funds provided for import support.
PSI is currently in use in approximately 40 countries, with a PSI firm(s) contracted
by the government of the importing country to perform such inspections on behalf
of their importers.
A law or regulation is normally enacted requiring importers to utilize PSI, and set-
ting out what goods must be inspected, how the regime will operate, fees payable,
rights of traders, appeal procedures, and penalties, etc. In a traditional PSI scheme,
87 Such as SGS, BIVAC, Intertek, Cotecna, BSI-Inspectorate, OMIC.
110
PRE-SHIPMENT INSPECTION PROCEDURES
the PSI firm is contracted to inspect the goods88 in the exporting country before the
goods are shipped to the importing country (e.g., at the exporter’s premises when the
goods are being stuffed in the container, or at the port of shipping). The importer
informs the PSI office in the country of import of its intention to import and pro-
vides all relevant details, e.g., purchase order; invoice, etc. Normally, the importer is
required to pay the PSI firm the inspection fee (fees normally range from .5% to 3%
of the Free On Board (FOB) value depending on the contract). The PSI office in the
country of import then transmits a request for inspection to its office in the country
of export. The PSI firm in the country of export will contact the exporter to arrange
a convenient time for the inspection.
Normally, the PSI firm is required to be physically present during the entire stuff-
ing of the goods into the container in order to check the quality, quantity, and
description of the goods, and to take digital photographs on the stuffing process, then
to place a tamper-proof seal on the container doors. After the inspection, the declared
price and tariff classification are checked at the PSI office against databases of refer-
ence prices. In some countries the PSI firm is also required to calculate the
duties/taxes due and display this on the Clean Report of Findings (CRF). The PSI
firm is required to finalize the CRF document and transmit it to the PSI office in the
country of import within a maximum of 2-3 days. In some contracts, the PSI firm
must also transmit the CRF data directly to the Customs service in the country of
import. Upon receipt of the CRF in the PSI firm’s office in the country of import,
the CRF is printed on security paper and the importer is informed that the CRF is
ready for pick up. The importer/broker must pick up the CRF and attach it as a sup-
porting document when preparing the import goods declaration (i.e., the importer is
to use the Customs value, HS code, and quantity as determined by the PSI firm). The
CRF data should also be transmitted to the Customs service in the country of import
to allow automated reconciliation of the CRF data against that declared on the goods
declaration to ensure that the CRF is actually presented to Customs and the findings
used to prepare the goods declaration89. In some cases, the CRF data can be directly
transmitted into the Customs computer and in effect replace the import goods dec-
laration.
88 A PSI contract may be limited to one or several PSI firms. Each PSI contract lists which goods must be inspected. Normally only
goods having a value above a certain FOB threshold is required to be inspected by the PSI firm, e.g. above an FOB value of
US$5,000. There may also be types of goods exempt from inspection because of the low risk on revenues.
89 In many countries using PSI regimes, there has been no automated reconciliation between the CRF and the goods declaration.
Consequently, the effectiveness of the PSI regime to increase revenue collections is severely undermined by the fact that CRF
findings are in the end not used by traders/Customs services. Many countries have tried to redress this situation by implementing
post-clearance reconciliation mechanism whereby Customs and/or the PSI firm must reconcile declarations against CRFs post-
facto, however few of these systems/post audits proved effective. The most effective way is to have an automated reconciliation
between the CRF and goods declaration data before the goods are cleared. Despite all such checks and balances, however,
unscrupulous traders will endeavor to circumvent the PSI regime by splitting their consignments so each part has a value of less
than the threshold required for inspection to occur. Customs must be vigilant that such attempts are detected, and penalties
applied including the delays and costs associated with having a destination inspection performed.
111
Unfortunately, in many countries where PSI firms operate, frequently the CRF
produced by the PSI firm is never picked up or utilized by the importer to clear his
goods and pay the correct amount of duty/tax. Audits undertaken by the PSI firm,
donors and outside consultants in many developing countries using PSI regimes have
amply illustrated that unless there is a formal system to reconcile the CRF data pro-
vided by the PSI firm against the goods declaration data used to clear the goods, many
CRF documents remain unused or ignored with huge amounts of revenue foregone.
To correct this situation, various mechanisms have been implemented in develop-

ing countries to reconcile the CRFs and goods declarations. In some cases, special
software applications have been developed to perform this reconciliation automatical-
ly. In other countries, private firms have been hired to perform selective audits of
CRFs and declarations to identify revenue foregone. In other cases, it is the responsi-
bility of the PSI firm to perform the reconciliation against the goods declaration data
and identify declarations that should be audited and revenue shortfalls recovered.
Unfortunately, Customs frequently does not have the human resources, or indeed the
motivation to perform such reconciliation and recovery of revenue that is often need-
ed. The lack of proper reconciliation systems is a serious handicap on most PSI
regimes. It has even been recommended in some countries that the CRF become the
Customs declaration to avoid this problem, however legal and other constraints fre-
quently prevent this final solution from being implemented to avoid circumvention
of the PSI regime.
Upon arrival of the sealed container in the country of import, Customs may be
allowed to selectively break the seal placed on the container by the PSI inspector in the
country of supply and re-inspect the goods only on a selective basis to verify that the
PSI firm has undertaken the inspection correctly90. Normally the PSI firm’s represen-
tative must be present when this selective re-inspection is performed. If errors are
found, the PSI firm can be held financially accountable by the government contract-
ing them. Normally, if the importer has used the CRF correctly to complete the goods
declaration, the shipment will be released expeditiously without Customs undertaking
detailed verification and/or physical inspection. Exporters and importers disagreeing
with the findings of the CRF must also have appeal mechanisms available to them91.
90 Normally the PSI contract will lay out the specific conditions that must be met for Customs in the country of import to perform
a re-inspection of the container e.g., intelligence information received; liquids coming from the container; a cap on the percent-
age of containers that can be re-inspected during the period; procedures for notifying the PSI firm in advance of opening the
container so a PSI firm representative can be present; fines that can be imposed if the PSI firm has been found to have commit-
ted an error.
91 A WTO Agreement on PSI was negotiated as part of the Uruguay Round. This agreement sets out principles designed to ensure
that unnecessary delays and unequal treatment are kept to an absolute minimum. This agreement sets out rights and obligations
of both user and exporting countries, including speedy, effective and equitable resolution of disputes between exporters,
importers and PSI firms.
112
PRE-SHIPMENT INSPECTION PROCEDURES
PSI regimes have been heavily criticized by the WCO and customs services in
many developing countries because the contracting out of such basic Customs func-
tions as customs valuation, classification, and inspection to a third party is seen to be
expensive and an infringement of national sovereignty. There is, however, general
agreement that such regimes can play a useful short-term role in countries that have
suffered war, natural disasters, or economic turmoil that has lead to the national
Customs service being ill-prepared to effectively perform such functions. It is also
clear that PSI should be seen as a short- to medium-term solution, which is designed
to protect the revenue until the Customs service has been reformed and modernized
to reassume its full responsibilities.
Unfortunately, there are many cases where PSI systems have been operating in
developing countries for decades, with little done to reform and modernize Customs.
This lack of capacity building and reform is symptomatic that governments in many
developing countries are not giving adequate attention or priority to Customs reform,
or that for various reasons what has been attempted has failed to be sustainable.
Consequently, the national Customs service has not been allowed to reassume its nor-
mal responsibilities.
While PSI regimes have normally been introduced to assist customs organizations
in improving revenue collection and streamlining procedures while other capacity
building and reform is undertaken, unfortunately in many developing countries there
has been insufficient capacity building or reform provided by either the PSI firm92 or
other donors. In many countries, PSI contracts have been operating for years without
effective performance measurement criteria in place to hold either the PSI firm or the
Customs administration accountable. Given the failure of governments to seriously
implement reform and modernize Customs, PSI contracts are frequently automatical-
ly renewed without serious analysis of the costs/benefits93 or indeed the alternatives.
While data published by PSI firms indicate that they have significantly improved
revenue collections, reduced dwell times, facilitated trade, and created a more consis-
tent and transparent environment for traders in many countries, the IMF and World
Bank have increasingly recognized that these regimes should be progressively phased-
out in parallel with Customs reform and modernization programs.
92 Normally the PSI contract includes a nominal amount of training of Customs officers, with much of this training occurring over-
seas, and limited to only a few officers thereby building little capacity in the Customs service. It is clear that PSI firms have little
incentive to build capacity or reform Customs service, which could shorten or eliminate a PSI contract renewal.
93 In some countries, the cost of PSI can be extremely high e.g. in 1991, the fees paid to the PSI firm in Indonesia were in excess of
US$400 million. At the same time the government was investing little on reforming or modernizing its Customs service.
113
With this strategy in mind, along with the need to reduce costs, some PSI con-
tracts have been revised from Pre-shipment Inspection in the country of export to
‘Destination Inspection’ in the country of import. In these regimes, the inspection firm
is contracted to assist Customs using risk-management techniques in selecting which
import consignments should be physically inspected upon arrival, providing and
operating the container-scanning machines to facilitate inspections, be present when
the inspection is conducted, and to provide Customs valuation advice (e.g., a valua-
tion reference database).
Some Destination Inspection regimes include phasing-out plans whereby the PSI
firm must gradually reduce the type and percentage of consignments inspected in the
country of export, while at the same time setting up a destination inspection regime
in the country of import along with an extensive training and capacity-building
regime to be provided by the PSI firm.
If a PSI or Destination Inspection regime is being contemplated, it is important

that it be viewed as a short-term solution (e.g., 5 years maximum) to be run parallel
with a comprehensive Customs reform and modernization program. The program
must include specific benchmarks that Customs must achieve to exercise greater con-
trol over customs valuation, classification, and inspection functions, then show that
it can attain or improve upon revenue collections under the PSI regime.
It is recommended that only one PSI firm be contracted at any one time, since
there are no efficiencies involved with having more than one firm. The difficulties of
interfacing with several PSI firms’ computers can become a true nightmare, prevent-
ing proper monitoring and evaluation of the scheme.
If such an approach were taken, PSI firms can play a very useful, supporting role
during the reform program in terms of protecting revenue, assisting with risk man-
agement and inspections, providing valuation reference database information, provid-
ing some of the technical training, etc. Given the inherent conflict of interest, PSI
firms should not however be called upon to lead or undertake Customs reform and
modernization programs. There should be a clear exit strategy built into any contract
tied directly to deliverables of the reform program. This will act as an incentive for
Customs management to take greater ownership to complete the necessary institu-
tional reforms.
114
MAURITUS CUSTOMS REFORM AND TRADE FACILITATION PROGRAM
ANNEX 3
CASE STUDY: MAURITIUS
CUSTOMS REFORM
AND TRADE FACILITATION
PROGRAM
1. Background
Mauritius has experienced tremendous development during the past 30 years. It has
diversified its economy from primarily sugar production, to include niche market
high quality garment manufacturing, year around tourism, and increasingly as off-
shore financial service center, ICT call center and a trade/transportation hub. It is
currently however facing significant challenges as it will soon lose its highly preferen-
tial sugar protocol with the EU and must compete directly against other world pro-
ducers around the world (likely a 35% reduction in the price in sugar exports);
increasing competition from China in the garment sector; possible volatility in the
tourism sector due to high oil prices.
In 2002, following a series of fraud/corruption scandals in Customs, internal

resistance to implement necessary institutional reforms, and increasing pressure from
the stakeholder associations demanding a ‘clean-up of corruption’ at Customs, the
Government decided to recruit a foreigner (i.e. someone that did not have any con-
nections to all of the various vested commercial and communal interests on the
island, to Head the Customs Department in order to implement the necessary insti-
tutional reforms. A foreign expatriate customs/trade facilitation consultant was
recruited by the Government of Mauritius and assumed the post of Comptroller of
Customs in October 2002. Before outlining some of the important customs and trade
facilitation reforms being undertaken, it is appropriate to first provide a status report
on the implementation of the Mauritius Revenue Authority.
115
Upon arrival of the new Comptroller of Customs in the country, the Customs
Union went on an immediate illegal, wildcat strike, closing the international airport
and port for two consecutive days. The Government stayed firm on the recruitment
of a foreigner however agreed to create the post of Associate Comptroller and appoint
the most senior Deputy Comptroller to it to assist the Comptroller in carrying-out
these reforms. This individual was the de-facto head of the Customs Union, as all offi-
cers and managers in the Customs Department (excluding the Comptroller) are card-
carrying members of the Customs Union.
The Customs reform program proposed by the new Comptroller had several pil-
lars, including:
1. Information and Communications Technology: Enhancement and

Redevelopment of the Customs Management System
2. Modernizing and Streamlining Procedures and Controls
3. Strengthening Enforcement
4. Redressing Human Resource Constraints
5. Upgrading Infrastructure
This program has enjoyed significant support from the Government and was
being undertaken without any donor financing or technical support. The only exter-
nal assistance has been from the expatriate Comptroller, and small amounts of short
term external experts funded by the Customs Department, or technical training
offered free of charge by the WCO or bilateral donors.
Further details regarding the reform program can be found on the Mauritius
Customs Website, including its magazine titled CARNET.
2. ICT: Enhancement and Redevelopment of

the Customs Management System
2.1 Introduction of the Customs Management System and
Issues Encountered
In the early 1990’s, the Customs Department implemented the ASYCUDA comput-
er system which was heralded as a model implementation by UNCTAD. However, in
1997, largely in response to the lack of flexibility to implement in a timely manner
various needed enhancements to the system (because the source code remained with
UNCTAD in Geneva), the Government of Mauritius decided to replace ASYCUDA
with the TradeNet system which was operating very successfully in Singapore by
Singapore Network Services (since purchased by Crimsomlogic). A joint public-pri-
116
vate sector consortium was formed to finance the implementation of the TradeNet
Community System, known as the Customs Management System (CMS), with a
local firm established (Mauritius Network Services, owned by the Chamber of
Commerce, Port Louis Fund, Cargo Handling Corporation, Mauritius Port
Authority and Mauritius Telecom) to program , maintain and enhance the front-end
system messaging handling software and telecommunication network, while the
Customs-related application software remained owned by the Customs Department,
though maintained/enhanced by MNS upon instruction of Customs.
This community network allows electronic messages to be efficiently exchanged

between key parties involved in the trade transaction e.g. allows shipping lines to
transmit paperless manifest data to Customs; importers/brokers/clearing agents to
prepare and file their import/export goods declarations to Customs, apply for import
permits, and pay duty/tax owing electronically, and to be informed electronically the
status of their consignments; and, Customs to inform Cargo Handling Corporation
when a container had been released by customs or control goods moved to/from the
Freeport or Freight Stations or Bonded Warehouses. The system has been recently
enhanced to allow electronic receipt of air waybills. CMS was very successful in facil-
itating trade by linking electronically all the parties involved in the trade and trans-
port chain (see Box 1).
Box 1: Trade Net CMS
117
Current front-end users linked to the CMS/TradeNet network include:

■ 53 Customs offices/units
■ 68 Customs Brokers
■ 63 Clearing/Forwarding Agents
■ 19 Shipping Agents
■ 13 Commercial Banks
■ 10 Government Agencies
■ 24 Freight Stations
■ 77 EPZ companies
CMS currently processes:

■ 100% air/sea manifests using the EDIFACT CUSCAR message
■ 100% import/export customs declarations using the CUSDEC message
■ Offers Electronic Payment/Electronic Funds Transfer
■ 100% Electronic Import/Export Permits
■ 100% Electronic Release Notification using the CUSRES message
See Boxes 2 and 3 for a simplified schematic of the community users and message
flows.
Box 2: Mauritius Customs Management System:

Community Users and Message Flows
118
While the CMS/TradeNet is a tremendous tool to facilitate trade while improving

Customs control, like any tool, its effectiveness depends largely on the skill (and
indeed integrity) of those persons managing/operating the tool. Upon careful study
of the CMS system in early 2003, it was realized that many very serious deficiencies
existed in the manner in which the system was being managed and the customs pro-
cedures/controls in operation. Indeed, the system, as designed and operated, left
many doors wide open for rampant fraud and corruption to flourish, despite the elec-
tronic messaging and sophisticated appearance of the system at first glance. A com-
plete re-design of the system’s clearance process and document flows had to be under-
taken as a matter of urgency, as well as other upgrades to the system’s servers, unin-
terruptible power supply (UPS) and network to improve system response times, reli-
ability and security.
During 2003, over 40 % of the CMS software code had to be re-programmed,

tested and implemented in order to support the new import clearance process. The
Customs IT unit had to be given proper offices, with additional handpicked staff
deployed to assist with the reform.
For example, prior to the reform of the clearance process, importers/brokers

linked to the CMS could prepare and transmit their goods declarations to Customs.
The system would process the data and return a message indicating whether or not
the goods would be given Green (cleared without verification) or Red Channel (must
be inspected). If the trader obtained a Red Channel, many simply never presented the
hardcopy declaration to Customs and simply left the declaration on the system, and
filed another declaration until the system granted Green Channel. Tens of thousands
of declarations remained ‘idle’ or abandoned on the computer system, with Customs
not following up on them or investigating these transactions.
At the Customs house there was no reception counters for importers/brokers to

submit their declarations. Instead, importers/brokers could carry his goods declara-
tion through the entire import clearance process, i.e. walk through a maze of corri-
dors and small offices in the Customs House until he could find his preferred
Customs officer who would check his declaration and declared values and allow clear-
ance or examine the goods if necessary. Needless to say, in the absence of checks and
balances, the vast majority of goods declarations were cleared without proper docu-
ment verification or selective physical verification of any type, so long as there were
proper rents paid. Customs officers had no automated support to assist them with the
critically important check on the reasonableness of the declared Customs value on the
goods declaration. Instead, every officer had his own files containing old commercial
invoices for past consignment that he may/or may not refer to. Those traders refus-
ing to pay rents were subjected to aggressive checking of documents, declared values
119
Box 3: Schematic of UN/EDIFACT Electronic Message Flows
and physical inspections that could delay clearance of their goods for days with the
resulting demurrage and other costs incurred. The risk management application of
the system was effectively turned off. Even if goods were subjected to inspection, the
officer examining the goods was not required to enter into the computer system any
examination findings for days after the container had been actually removed from the
airport/port, effectively removing any chance of counter-verification checks or hold-
ing him accountable for any inspection undertaken.
Needless to say, the entire clearance system encouraged the payment of bribes at
the various stages, both as ‘tea money’ to have your declaration dealt with in a time-
ly manner or goods inspected quickly, and serious ‘rents’ associated with accepting
incorrect tariff classifications, false values or ignoring contraband found during the
physical inspection. There were no ‘checks and balances’ in the system, with certain
units (such as the Customs Investigation Unit made up of some of the highest rank-
ing corrupt staff ) in a position to use features in the system to place electronic ‘holds’
on a particular goods declaration/container so only these officers would be able to
check the declarations and conduct the physical inspection of the goods with no other
unit being allowed to provide any counter-verification checking. The Customs
Investigation Unit, did not bother itself with undertaking commercial fraud investi-
gations and instead spent all of its time on the inspection and clearance of goods,
facilitating the clearance of those clients willing to pay large rents.
120
Established traders, with established contacts within the Department, and willing to
pay speed money or other more significant rents, had their goods cleared immediate-
ly though a very efficient electronic system. However, established honest traders that
refused to pay bribes, and new importers attempting to enter the import market,
faced an import clearance system rigged to prevent a level playing field.
2.2 Solutions Proposed to Make the New System Work

Faced with this situation the following changes were brought to the CMS system and
its supporting procedures, controls and document flows:
1) The system was changed so the importer/broker was not notified elec-
tronically in advance of presenting his hardcopy goods declaration what
the Channel (green or red) would be i.e. whether the declaration would
be cleared with or without verification. This largely eliminated the
problem of ‘idle bills’;
2) Customer service counters were installed at Customs to accept the
hardcopy declaration and supporting documents from the
importer/broker. Only once the documents were handed over to
Customs was the importer/broker informed of the Channel assigned by
the computer system. Computer terminals were installed in the
Customs House were traders could monitor the status of their declara-
tions, or alternatively they could return to their offices and receive elec-
tronic messages. Once handed over to Customs, the goods declaration
was moved through the entire process under Customs control (not by
the importer/broker);
3) Direct interface between the importer/broker and Customs officers
checking the declaration was eliminated through the installation of
counters/screens, with interview rooms provided under surveillance of
audio/video recording devices;
4) The Risk management application already existing in the CMS com-
puter system was reactivated, with new selection criteria input and care-
fully monitored by a new Risk Management Unit made up of hand-
picked officers having high integrity;
5) RED (must be physically inspected), GREEN (no document check
required) and YELLOW (detailed document check required) channel-
ing/declaration processing was added, with officers not being allowed to
change a declaration from Red or Yellow to Green without approval of
the senior manager;
6) If a declaration is assigned Yellow or Red, the computer randomly
selects the officer assigned to undertake the document check and the
121
officer responsible for the physical check from rosters of officers main-
tained on the system. In this way, the trader cannot select which officer
he will deal with at either important step;
7) A valuation reference price database was programmed in the system,
and currently contains over 18,000 reference prices for use by Customs
officers when checking the reasonableness of the declared values;
8) A tariff rulings database was programmed in CMS to assist officers in
checking the declared tariff classification;
9) Examination findings had to be entered in the computer system before
a customs clearance can be granted in the system (to allow counter-veri-
fication opportunities); and,
10) Three flexible Anti-Smuggling Teams were established to randomly re-
check declarations and re-inspect containers either just prior to delivery
or once the goods are being un-stuffed from the container at the
importer’s premises. This offers a final check and balance on the entire
clearance process so as to detect any fraud or corruption occurring.
The significant changes to the import clearance process were not implemented with-
out major resistance from within Customs and the customs brokers/clearing agents. On
the day of implementation, despite a significant training/education campaign, a gener-
al strike was organized by the Customs Union. Over 300 Customs officers and Customs
brokers/clearing agents demonstrated inside the newly created secure area where
Customs declarations would be processed i.e. inside the counters and screens set up to
minimize direct interface between officers and brokers. After 2 days of no goods being
cleared, the Government threatened with the de-registration of the Customs Union if
work did not resume with brokers/clearing agents on the outside of the counters. Facing
de-registration, and given the obvious display of collusion that by this time the media
and general public had come to witness between corrupt elements in the Customs
Union and many of the customs broker/clearing agent sector, the Union relented and
the new import clearance process was allowed to operate effectively.
The new import clearance system has resulted in:

■ Significant revenue gains;
■ Reduction in corruption;
■ Improved enforcement effectiveness;
■ A leveler playing field for the importing community;
■ Greater transparency and certainty;
■ Improved cargo clearance times; and,
■ Human resource savings for importers/brokers, since they no longer have
clerks present during the entire clearance process to move documents.
122
2.3 Enhancements to the Customs Management System

The CMS system was further enhanced with the introduction of the following new
software applications by the end of 2005:
e-Certificate of Origin - This application will allow exporters to apply on-line for
their export certificate of origin. At time of export, the exporter will submit his export
declaration to Customs and Customs will check that the goods are eligible for the cer-
tificate (e.g. EUR1 or IOC certificate), adjust quantities and weights originally
declared on the application so the final certificate matches the export declaration, and
then Customs will print the hardcopy certificate on high security paper and return a
copy to the exporter for forwarding to the importer. A database containing select data
on each certificate of origin issued by Mauritius Customs will be available to EU
Customs services wishing to verify the authenticity of all certificates issued. This new
application will eliminate possibilities of fraud related to certificates issued by
Mauritius Customs.
e-Exemption - This application will allow importers to apply on-line for a duty/tax
exemption. The importer will complete the required data and then transmit it to the
Ministry/agency responsible for granting the exemption. Once approved, the
importer will receive the exemption approval, and Customs will be copied on this
message. The exemption issued will then be automatically matched against the import
goods declaration quoting the exemption approval number. This application will
eliminate possibilities of fraud related to duty/tax exemptions issued by various
Ministries/agencies. In addition to this ICT solution, all Ministries/agencies issuing
exemptions will be able to track all exemptions issued, and have been requested to
ensure that clear criteria is in place so as to eliminate discretionary decision-making.
White and Blue Channel Clearance Processing - In addition to the Green, Yellow
and Red channels, a white channel will be added for those consignments that have
not triggered any Customs selection criteria (i.e. the consignment must be subjected
to detailed document verification and/or physical inspection by Customs), but have
triggered selection criteria maintained by other border agencies (e.g. Health,
Agriculture or Fisheries permit and/or physical inspections and laboratory analysis
requirements). Such White Channel goods declarations will be granted Customs
clearance (i.e. no objection to release). However, they will be referred to the other bor-
der agency to ensure their clearance formalities are complied with prior to release and
delivery of the consignment. This new White Channel process will allow the
importer/agent to follow-up directly with the other border agency concerned and not
hold Customs accountable for any delay clearance of the consignment, should the
delay be caused by the requirements of other border agencies.
123
A Blue channel is also being programmed into CMS for low risk, high volume
importers (i.e. authorized economic operators) pre-approved for the FAST TRACK
CARGO initiative being implemented by Mauritius Customs. Under the FAST
TRACM initiative See Box 4), authorized economic operators will be controlled by
Customs primarily through post-clearance auditing, with such importers authorized
to submit paperless declarations to obtain clearance of their goods, and with such low
risk operators subjected to low rates of random inspection with any physical inspec-
tion undertaken at the importer’s premises during the un-stuffing of the container.
Such authorized economic operators who are not only compliant but can guarantee
security in the international supply chain will be rewarded with simplified and expe-
dited customs clearance formalities at both import and export.
Box 4: Authorized Economic Operation

CARGO FAST TRACK INITIATIVE
In-line with the WCO Framework of Standards that recommends the concept
of ‘Authorized Economic Operator’, Mauritius Customs is moving quickly to
implement its FAST TRACK CARGO initiative for large, compliant, and ver-
ifiable low security risk traders. Approved firms will be controlled primarily
through post-clearance compliance audits. Authorized operators will receive
benefits related to paperless declarations, simplified clearance, a low rate of
random physical inspection by Customs, with inspections undertaken at the
importer’s premises. Customs control will be exercised primarily on a post-
clearance audit basis.
This initiative will be initially offered to the top 50 importers (by value of
imports currently representing approximately 30 % of the import declaration
volume), and will be extended to other importers in due course. Importers
must complete an application and submit it to Customs. Customs will check
the compliance record of the importer and undertake a pre-approval audit of
the importer’s record keeping systems, etc. If meeting the various conditions
for approval, the importer will be required to sign a legal agreement with
Customs that will include various provisions related to electronic signatures
related to the paperless declaration, requirement to pay electronically, cargo
security requirements, Customs access to books, records and systems without
notice, etc. It is important to note that even once an operator is approved for
the initiative, it will be a privilege not a right, with Customs retaining the
authority to revoke the privilege if full compliance is not maintained.
124
New Cargo Inspection Messaging - In an effort to expedite the inspection of cargo,

this application will allow Customs to send electronic messages to Cargo Handling
Corporation in the port, that differentiate between containers which need to be
inspected by Customs and containers which need to be inspected by other border
agencies. Separate inspection areas for Customs and other border agencies are being
established in the port. The application will allow importers/brokers to schedule on-
line their cargo inspection with Customs, with slots for inspections available over a
12 hour period each day, as opposed to the current practice where importers/brokers
simply arrive at the inspection facility normally between the hours of 11 am and 2
pm wanting their goods to be inspected. The current practice leads to many inspec-
tions not being undertaken thoroughly given time constraints and other corrupt prac-
tices (e.g. speed money to have containers placed at the top of the queue and other
bribes being offered). This new application will spread the workload over a longer
working day, thereby contributing to less queuing and delays for traders.
Single Window - Mauritius is well on its way to implementing the UN ECE ‘single win-
dow’ recommendation of the UN ECE developed by the UN/CEFACT International
Trade Procedures Working Group (ITPWBG). See Box 5 for definition of Single Window.
Box 5: Single Window
The ‘single window’ concept environment aims to expedite and simplify informa-
tion flows between trades and governments and bring meaningful gains to all par-
ties involved in cross-border trade. In a theoretical sense, a ‘single window’ is a sys-
tem that allows traders to lodge information with a single body to fulfill all import
or export-related regulatory requirements. It is an environment that provides ‘one
entrance’, either physical or electronic, for the submission and handling of all data
and documents related to the release and clearance of an international transaction.
This system is managed by one agency, which informs the appropriate agencies,
and/or directs combined controls (see the illustration of before and after).
125
It is important to note that the CMS TradeNet system not only provides the ICT
solution for the ‘single window’, the new Customs House being constructed for
Mauritius Customs in Mer Rouge of Port Louis (adjacent to the New Container
Terminal) will house offices of other border agencies on the ground floor. In this way,
traders can contact officers of the Ministry of Health, Agriculture and Fisheries, as
well as Police and Immigration in the same building where they complete their cus-
toms import/export formalities.
Re-development of the Customs Management System into CSM II – Going forward,

the current CMS system will be frozen and all efforts will be directed towards re-
development. The CMS II system will involve reprogramming of all existing appli-
cations onto the latest Oracle platform (10g), which will use cluster technology.
CMS II will be brought into full conformity with the WCO Data Model and
WCO Framework of Standards. In addition to this technical upgrade, the CMS II
will include various new applications, including:
■ Express Courier Application – a simplified combined manifest/goods

declaration and electronic messages (UNEDIFACT CUSEXP) and best
practices based on the WCO-International Express Courier Guideline.
■ Enhanced Risk Management/Automated Selectivity – additional selec-
tivity capability required by the WCO Framework of Standards to allow
pre-screening of manifest details and messaging with other Customs
services as envisaged in the WCO Framework of Standards e.g. EU and
US Customs Border Protection Agency.
■ Linkage, storage and retrieval of X-Ray scanner images with the cus-
toms goods declaration – to allow Customs management to perform
real-time auditing of X-Ray scanner images to allow post-verification
units to ensure high risk containers are inspected properly before clear-
ance.
■ Automated exit gate controls at the Container Terminal – integrated
use of Optical Character Recognition (OCR) technology and automat-
ed exit gates to read/verify container numbers and vehicle registration
numbers against those allowed release by customs. This automation
will eliminate the cost for Customs to post officers at the exit gates.
■ Transit Control – improvements to the current application which con-
trol the movement of consignments between the port and airport, to
freight stations and bonded warehouses.
126
3. Modernizing and Streamlining Procedures

and Controls
This part of the reform focused on three main areas:
Strengthening controls over duty exemption regimes
Export Processing Zones - Mauritius currently operates an exemption regime for

approximately 500 export-oriented firms (known as Export Processing Zone firms)
spread around the island. These firms are granted exemption of duty/tax on manu-
facturing inputs intended for manufacturing into finished products for export by
the Board of Investment under the Ministry of Finance, and upon recommenda-
tion of the Ministry of Industry. For years, Mauritius Customs has been responsible
for administering/controlling those duty/tax exemptions granted by these Ministry’s.
Unfortunately many of these exemption letters were issued years ago, with many
exemption authorizations not specifying any quantity limitations, input/output
manufacturing coefficients or wastage factors to allow Customs to effective monitor
that inputs are not diverted onto the domestic market. To facilitate timely clearance
of such manufacturing inputs, Customs carried out few physical examinations on
containers destined to EPZ firms.
As part of the reform and modernization program, an automated database to

assist Customs in controlling all such EPZ exemptions has been programmed
recently in CMS. EPZ firms have been requested to reapply to the Board of
Investment for renewal of their exemptions for manufacturing inputs. The Ministry
of Finance/BOI have recently zero-rated customs tariffs on many raw materials used
by these firms in an effort to simplify administrative control through eliminating
the need for exemption applications and Customs controls related to such raw
materials/industrial inputs. A specialized team has been formed at Customs to selec-
tively inspect the contents of containers as they are un-stuffed at EPZ firm’s premis-
es, and progressive penalties are now being applied on firms failing to submit
monthly returns to Customs or for selling on the local market without submitting
to Customs a goods declaration and paying the applicable VAT. Proposals to further
simplify the reporting requirement by requiring quarterly (as opposed to monthly)
returns from EPZ firms e-mailed directly to Customs is currently under discussion
with the stakeholder association representing the majority of EPZ firms.
Bonded Warehouses – There are currently over 70 bonded warehouses scattered

around Mauritius. Controlling the transfer of goods from the airport/port to these
warehouses to prevent smuggling/substitution has been a challenge for Customs.
With the recent Government decision to significantly cut Customs duties and move
127
to a Duty Free Island, the rationale for bonded warehousing has been questioned.
Policy discussions are currently underway to restrict what goods may be allowed
entry into bonded warehouse e.g. only goods with a duty rate of 40% and above, as
well as introducing shorter time limitations on how long goods may remain in bond
e.g. maximum 12 months with a maximum 5 months extension allowed only if
security is posted to cover the full duty/tax outstanding. The creation of a central
bonded warehouse adjacent to the New Container Terminal and Free Zone is also
under consideration.
4. Strengthening Human Resources

The following activities were undertaken to strengthen this area:
Technical Training - A significant amount of technical training has been provided

to all levels of the Department as part of the reform program. All staff have under-
gone CMS computer refresher training. Specialized technical training courses have
been designed and offered in Customs valuation, HS classification, Cargo
Examination Techniques, Passenger Profiling, Questioning and Baggage Inspection
Techniques; Risk management; Investigation Techniques; Post-Clearance Audit
techniques.
Management Training - All senior and middle managers have undergone Project
Management Techniques training. This university credit course, offered by profes-
sors from the University of Technology, has been customized to meet the require-
ments of Customs Department using actual case studies and ICT scenarios.
New Induction Training Program - Approximately 150 new recruit customs offi-
cers have been hired and undergone 12 weeks of intensive training in all aspects of
Customs. This induction training included speakers from other border agencies, as
well as self-defense training. Recruits had to undergo a series of written tests
throughout the program as well as pass a 3 hour final examination before being
offered a position in the Department.
5. Upgrading Infrastructure
Renovation of all existing offices - Approximately 20 years ago, the historic Customs
House in Port Louis was destroyed by fire. Customs was ‘temporarily’ moved into
two separate commercial office buildings, without any provision made for proper
customer counters, offices, IT infrastructure, security, etc. In 2002, when the
128
Government recruited an expatriate to Head the Customs Department, it was

quickly realized that unless a reasonably proper and secure working environment
was created, other procedural/control/ICT reforms would be next to impossible to
implement. It was therefore decided that all Customs offices should undergo basic
renovations to bring them up to a reasonable standard, until such time as a new
Customs House could be constructed.
With that objective in mind, an interior designer was hired to create ‘open-con-
cept’ office space, as well as install customer service counters wherever necessary to
ensure a complete separation between Customs officers and traders. These renova-
tions recovered almost 40% of the floor area of existing buildings, allowing reforms
to be implemented while improving the work environment of staff considerably. Air
conditions were fixed or replaced, additional lighting installed, workstations pro-
cured, proper ergonomic chairs purchased, filing cabinets repaired or replaced, secu-
rity doors and CCTV cameras installed, walls and filing cabinets given a coat of
fresh paint, occupational health and fire safety standards met, electrical and com-
puter cabling installed in conduit, proper signage installed, etc. A major campaign
was launched to remove all surplus and unserviceable furniture, old ledgers, outdat-
ed files, etc. In the main Customs building alone over 25 dump truck loads of such
garbage was removed and taken to landfills. With a relatively modest capital invest-
ment and some effort (much of it undertaken by existing staff ), all existing customs
offices were transformed into a pleasant and professional work environment for
both Customs staff and stakeholders.
Construction of New Customs House - A new twin tower 7/8 story Customs
House is being constructed at Mer Rouge adjacent to the New Container Terminal.
This RS 500 million investment will provide a ‘single window’ for not only all
headquarters and port staff, but also service counters for many of the border agen-
cies e.g. Police, Health, Fisheries, Agriculture. The new Customs house has one
floor dedicated to IT, including computer training rooms. A Tax Training School
for all revenue departments, capable of handling 200 students, will also be incorpo-
rated into the building. The building will contain at least one commercial bank and
ATM’s for other banks. The building has been sited on the property in such a way
to allow the eventual construction of another building that could house commercial
offices of the private sector stakeholders e.g. brokers, forwarders, shipping agents,
etc. The building is due to be completed in 2007.
Procurement of new X-Ray Scanners - A pallet-sized Nuctech scanner is currently

being installed at Mauritius SSR airport cargo center, and a relocateable scanner
being installed at the New Container Terminal. Both scanners are to be tested and
commissioned at a cost of approximately US$ 5 million. These scanners are viewed
129
as essential for Mauritius to meet its international obligations associated with the
WCO Framework of Standards for securing the international supply chain. To sup-
port these new scanners, the Customs cargo inspection shed at the new container
terminal is being renovated, with CCTV cameras and a forklift truck capable of lift-
ing palletized cargo from containers being procured.
Vehicle and Patrol Boat Fleets - The Department’s vehicle fleet consisting of over
70 vehicles (with over two thirds of vehicles out of service at the beginning of the
reform program) has been repaired and brought into service, sold if unserviceable,
or replaced with seized or abandoned vehicles. Similarly, the customs patrol boats
have been either taken out of service or refitted so they comply with sea safety,
communication and customs patrol/surveillance requirements.
Computer hardware and telecommunication networks - CMS servers have been

upgraded or replaced, along with the network, to improve system reliability and
response times given the growth in the number of on-line users of the system. In
addition, a computer training room with server and 18 PCs has been established to
provide CMS user training as well as training to all staff in office tools. This com-
puter training room, along with satellite computer training rooms located in each
Customs office is now hooked to high speed internet through which Customs offi-
cers can access the WCO e-learning program. This program provides officers with
computer based training in various technical subjects, including Customs valuation,
HS tariff classification, customs controls, etc. Over 20 computer modules will be
available to those officers registering with the WCO, with customs officers able to
take self-assessment tests at the completion of each module for inclusion in their
personnel file.
Uniforms and Access Cards - New, purpose-built Customs uniforms for general
staff and specialized units have been designed. High frequency/radio equipment
worn by officers has also been procured. New employee identification cards have
been issued, along with access cards to all registered stakeholders.
6. Remaining Challenges:
Mauritius Revenue Authority
Successive Governments in Mauritius have recognized the importance of increasing
the effectiveness and efficiency of tax administration. In 2001, the Government
commissioned Price Waterhouse Coopers (PWC) to undertake a major feasibility
study into implementing a Revenue Authority. All revenue departments were diag-
nosed and recommendations on how to increase the efficiency and effectiveness of
tax administration in each Department was offered. A plan to implement a semi-
130
autonomous Revenue Authority was also prepared. It was the conclusion that a
Revenue Authority offered the best solution to redress the many serious human
resource problems which were the underlying cause for ineffective or inefficient tax
administration. Specifically, it was thought that a semi-autonomous revenue author-
ity which would no longer be constrained by outdated and inefficient Civil Service
regulations would be able to:
■ Recruit more highly qualified staff more quickly based on merit (as
opposed to extremely cumbersome recruitment processes where it can
take 2-3 years to have schemes of service approved and staff recruited);
■ Offer remuneration packages competitive to the private sector, as well
as introduce other performance related incentives;
■ Retire in the public interest non-performing and corrupt staff (through
the use of asset declarations/verification and competitive selection
processes);
■ Implement effective performance appraisal and performance manage-
ment processes (which do not exist within the current civil service);
■ Implement a new code of ethics and effective disciplinary procedures
which would be applied in an efficient, effectively and timely manner
when corruption is uncovered;
■ Ensure greater autonomy from political intervention in the daily opera-
tion of the various revenue departments;
■ Facilitate the implementation of modern organization structures in the
various line revenue departments, under the overall umbrella of the
Revenue Authority i.e. produce efficiencies from having single common
staff services for Personnel, Finance and Administration, ICT, Legal,
Taxpayer Education, Internal Audit, etc.;
■ Create an environment where necessary customs and tax reforms could
be undertaken efficiently and effectively, given the significant resistance
likely to be encountered by public sector labor unions in general and
specifically the Union of Customs and Excise Employees which had a
long history of linkages to corrupt elements in the Department and
within the trade/transport community.
Recognizing the difficulties it would entail to redress underlying human resource

weaknesses in Customs within the context of reforming the entire civil service in
Mauritius, i.e. to increase remuneration of Customs officers relative to other public
servants; move away from seniority based promotions to the merit principle; intro-
ducing effective performance management and employee appraisal systems; stream-
lining the staff hiring process; introducing more effective and efficient disciplinary
processes, the Government of Mauritius decided to enact legislation to create the
131
Mauritius Revenue Authority. The MRA would be a semi-autonomous agency, out-

side the civil service that would be managed by a Board of Directors and be able to
develop its own unique human resource policies. The objective was to create a new
institutional environment which would operate much like a new private company,
able to retain/hire the best staff and not recruit unqualified, non-performing or staff
having questionable integrity, offer remuneration packages and incentive schemes
equivalent to the private sector, implement modern performance management/per-
formance appraisal schemes, and introduce effective disciplinary processes and codes
of ethics.
Unfortunately, while the MRA Act was being debated in Parliament prior to a
national general election, and facing stiff trade union pressure, the Government
conceded to Union pressure to allow all rank and file officers automatic transfer to
the MRA.
The Government however maintained its position that all managers would be
subject to competitive selection and all staff hired by MRA would have to undergo
an asset declaration/verification. The concession whereby 90% of existing staff of
the Revenue Departments will be allowed automatic transfer to MRA has brought
into serious question whether the creation of MRA will in fact redress the serious
human resource weaknesses present in the various revenue departments during the
short to medium term. Only time will tell whether the performance management
and disciplinary procedures to be implemented by MRA will be effective in routing
out non-performing and corrupt staff.
While the reform program in Customs has been very successful to date, similar
urgently required reforms in the VAT and Income Tax Departments have yet to
commence. Needless to say, the sustainability of the reforms/gains made in
Customs, and the ability to undertake similar sustainable reforms in the other rev-
enue departments, will be largely determined by the effectiveness of the MRA man-
agement in the coming 2-3 years. Given the constraints now imposed on the MRA
management, there is a high likelihood that high public expectations for this new
Authority will not be met in at least the short to medium term.
132
ANNEX 4
INFORMATION EXCHANGE
FOR AIRPORT/PORT DELIVERY
SYSTEMS
133
ANNEX 5
BIBLIOGRAPHY
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Commonwealth Secretariat, 2001, Frequently Asked Questions on Customs Valuation,
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De Wulf, L; Sokol, J.(editors); 2004, Customs Modernization Initiatives—Case
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Inter-American Development Bank, 2001, Customs Best Practices in East Asia and
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BIBLIOGRAPHY
OECD, 2003, Trade Facilitation Reforms in the Service of Development, Trade

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136

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CHAPTER 1—RATIONALE FOR REFORMING TRADE PROCEDURES . . . 17

CHAPTER 2—PIVOTAL ROLE OF CUSTOMS. . . . . . . . . . . . . . . . . . . . . . . . . . 21

CHAPTER 3—GUIDING PRINCIPLES FOR SUCCESSFUL REFORM OF

CHAPTER 4—STREAMLINING CUSTOMS PROCEDURES: IMPORTS. . . . 62

CHAPTER 5—STREAMLINING CUSTOMS PROCEDURES:

ANNEX 1—Express Courier Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

ANNEX 2—Pre-shipment Inspection Procedures (PSI). . . . . . . . . . . . . . . . . . . . . . 110

ANNEX 3—Case Study: Mauritius Customs Reform and Trade Facilitation

ANNEX 4—Information Exchange for Airport/Port Delivery Systems . . . . . . . . . . 133

ACV Agreement on Customs Valuation

Efficient import/export procedures are critical to facilitating trade and creating an

This guide has been written from a non-technical perspective to be as practical as

Examples of how some developing countries have successfully implemented par-

■ Whether a country’s import/export procedures are inefficient;

Customs reform/modernization and trade facilitation programs are critically

When reforming Customs and introducing trade facilitation measures, it is essen-

It is critically important that capacity-building assistance to reform import/

4. The supporting legal framework must be modernized.

■ Drawback—The importance of having an effective system whereby

RATIONALE FOR REFORMING

Customs reform and modernization initiatives, when combined with improve-

Source: Doing Business in 2006

Figure 1: Delays Encountered in Different Phases of the Import Process

Table 1: Days to Complete Each Stage of the Import Process

OECD high income 8 2 2 2 14

East Asia & Pacific 18 3 4 3 28

Latin America & Caribbean 24 4 5 3 36

Middle East & North Africa 25 5 9 4 43

Europe & Central Asia 25 4 7 7 43

Source: Doing Business Report 2006

PIVOTAL ROLE OF CUSTOMS

2. Source of National Trade Data

3. Guarantor of a ‘level playing field’ for Trade and Commerce

4. Front Line Protector of Society

5. Facilitator of Legitimate Trade

6. Cornerstone for Civil Society and Good Governance

It is clear that if governments around the world are to be successful in protecting

GUIDING PRINCIPLES FOR

Box 1: Guiding Principles to Implement Customs Procedures Reforms

It is critically important that capacity-building assistance to reform import/export procedures be structured

1. Political Will, Commitment, Ownership,

Another reason Customs reform/trade facilitation capacity-building programs fail

Governments in least-developed and newly industrialized countries rarely place

1.2 Role of Customs

In response to the lack of progress in implementing essential institutional and proce-

While such an approach may be necessary under certain circumstances, it is essential

In constructing program proposals and plans, Customs consultants, technical spe-

A communication strategy involving local Customs personnel and senior manage-

The establishment of a capacity-building unit in customs headquarters is vitally

Unfortunately, in many developing countries, Customs officers working in oper-

1.3 Role of Other Government Ministries

Box 2: Usual Ministries Involved in the Process of

• Ministry of Finance: responsible for revenue mobilization and tax issues