- Allowing electronic submission and processing
- Linking agencies through an electronic single window
- Using risk-based inspections
- Overcoming geographic barriers through regional cooperation
- Sparking competition by making private participation easier
- Promoting efficiency in product-specific inspections
The economies with the most efficient trading environments share common features. They allow traders to exchange information with customs and other control agencies electronically. They also use risk-based assessments to limit physical inspections to only a small percentage of shipments, reducing customs clearance times. Likewise, these economies tend to trade within customs unions or engage in other forms of bilateral and multilateral trade agreements, making the time and cost for complying with border formalities negligible.
Allowing electronic submission and processing
Electronic systems for filing, transferring, processing and exchanging customs information have become an important tool for managing flows of information, now widely used in complex trading systems. The most advanced web-based systems allow traders to submit relevant documents and to pay duties online from anywhere in the world. The key to success is the ability of an economy to adapt its regulatory framework to the new information technologies.
If implemented effectively, such a system saves precious time and money. It can also limit direct interactions with officials, which reduces opportunities for corruption. However, introducing an electronic system often requires governments to enact legislations on electronic signatures and transactions; without appropriate legislations in place, the implementation of a new system can lead to redundancy and delays, requiring paper submission of signed documents after they have already been filed electronically. Furthermore, for small and low-income economies, the infrastructure and training costs of implementing such systems can be onerous, and meaningful effects for local traders may take time to materialize.
Exchange of customs data and harmonization of customs procedures are important pillars of many regional communities, and electronic data interchange systems can help facilitate the materialization of regional integration initiatives. In Central America, the International Goods in Transit (TIM) system harmonizes previously cumbersome procedures in a single document to manage the movement of goods across 9 economies. At some border locations, this system has reduced clearance times for goods in transit by up to 90% (1). However, linking 2 or more information technology systems through a common interface is not always a simple process. Integrating Kenya’s Simba system with Uganda’s ASYCUDA++ through the development of the Revenue Authorities Digital Data Exchange (RADDEx) system has taken several years and does not yet cover all areas of trade between the 2 countries. Expanding this system to the rest of the East African Community also remains an ongoing challenge.
The full potential of digitalization and electronic data interchange systems is not realized immediately. Implementing the systems takes time and involves change in operational practices, in training and in some cases, in the work habits of staff. On February 2014, Guatemala launched the “Customs without Paper” program to promote the electronic submission of customs documents through a web portal and to eliminate submission of hard-copies. Online submission of customs declarations has been compulsory for Guatemalan traders since January 2015. The program was rolled out gradually: it started at the Puerto Barrios customs office in March 2014 and was implemented in all customs offices by July 2015. Although the system for electronic document submission has been available since 2006, its use was not compulsory and few traders used it in practice. With the compulsory electronic submission system, import declarations and supporting documents are submitted to customs only in electronic format, and consequently, the overall documentary compliance and customs clearance process has become faster.
Across economies, regardless of income level, allowing electronic submission and processing of customs-related documents has been one of the most common and effective ways to reduce delays in the trading process. Today, traders can submit all trade documents electronically in more than half of OECD high-income economies with no need to provide hard copies. In Sub-Saharan Africa and Eastern Europe and Central Asia, by contrast, most economies that have electronic systems still require traders to submit hard copies of documents.
Linking agencies through an electronic single window
Increasingly, economies are taking a step further to virtually link not only traders and customs but all agencies involved in trade and transport through an electronic single-window system. In the best case scenario, the system allows traders to file standard information and documents through a single entry point to fulfill all import, export and transit-related regulatory requirements, then shares relevant information with all parties involved in trade, including private participants such as banks and insurance companies, as well as public agencies such as immigration and vehicle registration authorities.
An increasing number of developing economies are interested in introducing single window systems of varying complexity. For example, Colombia and Senegal have both implemented single-window systems, though achieving complete functionality is an ongoing process. El Salvador set up a single window linking customs, government ministries and tax and social security authorities.
The single-window system is also being embraced at the regional level. The 10 member nations of the Association of Southeast Asian Nations (ASEAN) have set an ambitious goal of establishing an ASEAN-wide single window. Plans call for integrating members’ national single windows so that a single submission of data and information suffices for the entire ASEAN region.
Several economies have reported positive results from the implementation of single-window systems. The Korea Customs Service estimates that the introduction of its single-window system brought $18 million in benefits in 2010, part of the overall economic benefits that year of as much as $3.47 billion from the agency’s trade facilitation efforts (2). Indeed, for Korean-based companies such as Samsung and LG—global leaders in the electronics industry—achieving rapid and predictable turnaround time is an important aspect of their competitiveness strategies.
In Singapore, the implementation of a single window led to large gains in government productivity. The government established the world’s first national single window for trade (TradeNet) in 1989, bringing together more than 35 border agencies. Today TradeNet handles more than 30,000 declarations a day, processes 99% of permits in 10 minutes and receives all collections through interbank deductions (3).
Using risk-based inspections
Requiring imports and exports to undergo inspections—for tax, security, environmental, border control, and health and safety reasons—is often necessary. How these inspections are carried out, including how cargo is selected for inspection, however, varies across economies. Done with a heavy hand, inspections can be a serious obstacle to efficient and predictable trade. Over the years, customs administrations around the world, working in tandem with other border control agencies, have developed systems for establishing risk profiles that allow them to apply physical inspections corresponding to the potential risk of consignments. Investing in equipment is another way to help expedite the processing of cargo. Many economies have adopted the use of scanners to limit the need to physically open containers. In some economies, however, inefficient use of scanners has led to additional burden on traders, as customs agents scan all containers, creating delays and incurring mandatory scanning fees on traders. Efficient use of scanners in conjunction with risk-based profiling can strike the right balance in inspection, contributing to the efficiency of the trading process.
Risk-based inspections are the norm in OECD high-income economies, and they are becoming increasingly common elsewhere as well. Traders in Kosovo are among those who are benefiting from the improvements in the inspection process through the adoption of a risk-based system. Since July 2015, the customs authority in Kosovo has gradually introduced a new customs clearance procedure for export and now only red channel exports are selected for examination at the terminals of internal customs offices. Kosovo has also completed the implementation a green channel and an increased utilization of a blue channel (cargo subjected to post-import control only). As a result inspections, and therefore the process of export customs clearance, have become faster.
Overcoming geographic barriers through regional cooperation
Many economies face special challenges in competing globally because of the greater inland distances and multiple border crossings involved in their trade. These economies can accelerate trade through efforts to increase border cooperation agreements and reduce the number of checkpoints so that cargo can move freely—without being stopped for customs or other inspections—until it reaches its destination.
One example of regional cooperation is the creation of customs unions. Forty-seven years ago, while the rest of the international community was negotiating the levels of tariffs and quotas, the European Union embarked on a grand experiment—the launch of a customs union. There would be no customs duties at internal borders between the EU member states; there would be common customs duties on imports from outside the European Union as well as common rules of origin for products from outside; and there would be a common definition of customs value.
While the EU customs union remains one of the best examples of trade facilitation between disparate nations, it is far from alone. More than half the 190 economies covered by Doing Business are in a customs union today. Moreover, 33 economies are in a customs union with their case study export partner, and 39 are in a customs union with their case study import partner. For these economies the time for documentary and border compliance is substantially lower on average than for others. However, not all customs unions are equal. Customs unions among OECD high-income economies (essentially the EU customs union) perform substantially better than others, followed by customs unions in Europe and Central Asia and then by those in Sub-Saharan Africa.
Sparking competition by making private participation easier
Beyond the customs formalities, private providers of trade services—such as customs brokers, transport companies and port service providers—all have important effects on the time and cost of trading across borders. Greater competition among trade service providers can lead to lower fees and higher quality of service, as can better infrastructure.
Not all trade facilitation reforms require heavy spending. Initiatives such as providing training, clarifying and publicizing the rules, holding regular meetings with exporters on the clearance process and removing certain requirements or making them more efficient can make a difference. For example, in November 2015 the government of Antigua and Barbuda repealed Section 24 of the Customs Control and Management Act, which required importers to obtain a certificate of good standing (tax compliance certificate) before customs clearance. Following the repeal, importers are no longer required to obtain this document from the Commissioner of Inland Revenue before clearing goods. As a result, Antigua and Barbuda reduced documentary compliance time to import by 61 hours (4).
Promoting efficiency in product-specific inspections
In economies whose top export is an agricultural product, border compliance takes 70% more time (35 more hours) on average than in other economies, while documentary compliance takes twice as much time. The main reason for these differences is that 81% of economies whose top export is an agricultural product require product specific inspections and procedures (such as fumigation or phytosanitary inspections) to export that product.
Yet even among economies whose top export is an agricultural product, documentary and border compliance times vary widely. Border compliance times for agricultural products subject to product specific inspections range from 11 hours to 210. This variation suggests that it is possible to protect consumers and businesses while still facilitating (or at least not impeding) trade.
Economies exporting agricultural products span all regions and income groups, from Norway among OECD high-income economies to Guinea-Bissau in Sub-Saharan Africa. Both Namibia and Australia, for example, require sanitary inspections and certificates for their top export product. Yet completing border compliance procedures takes 120 hours for an exporter of fish in Namibia, while it takes only 36 hours for an exporter of meat in Australia. And completing documentary compliance takes 13 times as many hours for the exporter in Namibia (90) as it does for the exporter in Australia (7). The exporter in Namibia must wait to obtain and submit hard copies of documents from various government agencies. In Australia, by contrast, quarantine authorities work closely with both producers and customs authorities throughout the process and most documents can be submitted electronically. What matters is not whether enhanced inspections and procedures are required but whether they are carried out efficiently.
1. Sarmiento, Alvaro, Krista Lucenti and Aurelio Garcia. 2010. "Automating the Control of Goods in International Transit in Goods: Implementing the TIM in Central America."IFC Smart Lessons, World Bank Group, Washington, DC.
2. Korea Customs Service. 2011. The Embodiment of Business-Friendly Environment by KCS Challenges. Seoul.
3. Singapore Customs Service. 2007. Annual Report 2006/07. Singapore. http://www.customs.gov.sg/.
4. Doing Business database.