2 Consultation at several policy levels: public-private dialogues in the reform of United Kingdom customs procedures

or are embedded in regional European Union legislation, then efforts may be escalated further to the

bilateral or regional policy level. And further efforts

may be made at the international level—for example,

through sharing best practices and developing international recommendations and instruments.

The interplay among policy levels can also contribute to border management reform. For example,

private sector experience in developing countries

might help determine whether a given initiative is

likely to work, helping to establish a best practice

recommendation. And the use of perceived international best practices can help in obtaining funds

and other resources for development aid and capacity building.4

Coordination mechanisms at various policy levels

can contribute to joint reform efforts—for example,

shared standards and the alignment of rules and procedures. Coordination at the regional and bilateral

levels can also include shared reform deliverables. Examples include a shared electronic trade and customs

environment in the European Union’s electronic customs initiative (European Commission 2007) and a

commitment to interoperable single window systems

in the Association of Southeast Asian Nations.5

Managing conflicting stakeholder interests



A key challenge for policymakers trying to evaluate

private sector concerns is the diversity of stakeholders’ concerns, which can conflict with each other

and so hamper reform. Despite the shared interest

of stakeholders in reducing costs, some will stand

to lose from any given reform. Simplified trade and

customs procedures can encourage importers and

exporters to handle customs clearance on their own,

removing business from agents and brokers. Modernization may force firms to invest heavily in new

technology, and while larger traders may soon benefit from the upgrade, smaller traders and occasional

traders may not be able to offset the costs as quickly.

Interests can also conflict between participants in

two different operating environments when reform

initiatives are applied indiscriminately to both. When

the United Kingdom began customs X-ray scanning,

port operators were required to bring goods selected

for scanning to the X-ray facilities. This requirement

created few difficulties at container ports where port

operators owned cargo handling equipment. But at



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roll on–roll off (RORO) ports, which mostly lack

such equipment, it proved more problematic. The

truck drivers who used to drive straight off ships could

no longer do so—nor could haulers,6 who used to pick

up cargo deposited quayside off ships, simply leave the

port. Instead, drivers and haulers whose cargo have

been selected for X-ray scanning are now required

to transport their cargo to the new X-ray scanning

facilities first, causing delays—an issue further compounded by maximum working and driving hours

(Grainger 2008a). Unsurprisingly, container port operators perceived the new scanning policy differently

than the RORO port operators did.

The public sector, too, may foster conflicts of interest that impede border reform. For example, in

many countries—especially those subscribing to the

Revised Kyoto Convention—customs agencies will

acknowledge the important role of the private sector in cross border operations. But other agencies,

always assuming the worst (perhaps in accordance

with a cultural norm), may tend to be more aggressive about enforcement and may resist aligning

themselves closely with private firms. Such aggressiveness is often counterproductive. Even in developed countries traders admit that they have diverted

traffic because of perceived variations in the enforcement of trade procedures (Grainger 2008a). Where

heavyhanded enforcement is not needed, it can lead

in the worst of cases to a loss of trade—or to an exodus of less scrupulous traders from the formal economy to the informal one.

Some stakeholder groups may not be able to participate in a dialogue about private sector reform

requirements. For example, staff members at small

and medium size enterprises, as they focus on daily

operations, may have little time for a policymaking

process—unless they see an immediate effect on operations. Similarly, overseas business interests, even

if they have a vital role in border reform, may not

be able to participate in consultations as regularly

as national organizations do. Consultation methods

that policymakers can use to engage less accessible

stakeholders include conferences, training events,

telephone help lines, and informal exchanges and

open door policies.

A major challenge for reformers is to identify

and pursue a reform program that aims to improve

the economy as a whole—not to further the interests



of particular sectors. In areas where there is considerable consensus among stakeholders, reform recommendations can quickly be agreed on. In contrast,

wherever policymakers lack full knowledge about

stakeholder interests and about the implications

of change, frequent formal and informal meetings

with key stakeholders—often complemented with

substantiated research—are essential to meaningful

border management reform.

Collaboration between the

private and public sectors



Preferential treatment for authorized traders



Under most preferential cross border control

arrangements, traders who meet certain requirements are authorized to receive operational or fiscal

benefits. The requirements can vary but normally

include a good compliance record and an assessment

of the trader’s compliance capabilities and systems.

Operationally, such arrangements allow border

agencies to shift administrative responsibilities onto

authorized traders—usually through an audit based

control regime—rather than require declarations for

every cross border transaction.

Commonly employed by customs agencies (especially those subscribing to the Revised Kyoto Convention), conditional authorizations for preferential

treatment let authorized businesses:

• Benefit from simplified import clearance

procedures.

• Clear goods at premises located outside ports

and away from borders.

• Make declarations periodically, rather than for

each consignment.

• Pay duties periodically, using self assessments to

do so (box 10.6).

Customs conducts occasional checks to verify

traders’ compliance with the conditions of their authorization. Breaches lead to sanctions such as fines,

criminal proceedings, and deauthorization. Deauthorization puts traders at a disadvantage, and the

fear of it can be a powerful incentive for traders to

keep compliance capabilities high.

Preferential customs treatment may include not

only simplifications that are largely operational, but

also procedures that confer fiscal benefits—the main

purpose being to ensure that national taxes do not

put businesses operating in export markets at an unfair disadvantage. Such fiscally beneficial procedures

govern areas including (WCO 1999):

• The temporary storage of goods.

• Customs warehouses and free zones.

• Transit and transshipment.

• Processing under customs control.

• Inward processing relief, including suspension

and drawback.

• Outward processing relief.

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The role of the private sector in

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The private sector not only shapes much of the

demand for border management reform—it also

bears the greatest responsibility for meeting regulatory control requirements. Yet efforts by the government to enforce rules and procedures across the

board are costly, and they are also likely to inhibit

trade significantly.

In contrast, a more efficient approach to control

and enforcement encourages traders to internalize

control objectives, making the private sector a collaborator with the public sector in the pursuit of border

management goals. Successful collaboration strategies also make enforcement far more efficient, and

they can reduce trade compliance costs—expanding

revenue while shrinking the shadow economy.

To give one example, the so-called 20:80

principle—whereby 20 percent of the trade population is responsible for 80 percent of customs declarations—often applies. In fact, the ratio can be far

higher in trade intensive economies (published research is scarce, but anecdotal evidence suggests that

ratios of 5:95 or even 3:97 are not unusual). Consequently, a smart collaborative enforcement strategy is to encourage those traders with the highest

volumes to internalize regulatory control objectives,

freeing border agency inspection resources for use

in controlling riskier movements. Commonly applied vehicles for the encouragement of good compliance records include preferential treatment and

risk management, formal partnership agreements,

licensing regimes, and assurance based controls.

Specific incentives might include permission to use

simplified trade and customs procedures as well as

access to operational privileges, express treatment,

exemptions, and fiscal benefits. The World Customs



Organization’s concept of authorized economic operators (WCO 2007) is much discussed at present.



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Box 10.6



Preferential treatment for authorized traders: extract from the Revised Kyoto Convention



3.32. For authorized persons who meet criteria specified by the Customs, including having an appropriate record

of compliance with Customs requirements and a satisfactory system for managing their commercial records, the

Customs shall provide for:

• Release of the goods on the provision of the minimum information necessary to identify the goods and permit

the subsequent completion of the final Goods declaration.

• Clearance of the goods at the declarant’s premises or another place authorized by the Customs.

And, in addition, to the extent possible, other special procedures such as:

• Allowing a single Goods declaration for all imports or exports in a given period where goods are imported or

exported frequently by the same person.

• Use of the authorized persons’ commercial records to self assess their duty and tax liability and, where appropriate, to ensure compliance with other Customs requirements.

• Allowing the lodgement of the Goods declaration by means of an entry in the records of the authorized person

to be supported subsequently by a supplementary Goods declaration.

Source: WCO (1999).



Authorization usually is conditional on maintaining a good compliance record and on meeting set

requirements for systems and administration. Much

of the compliance is monitored through audits held

periodically (for example, every one to three years),

rather than through control of each consignment.

Once control is internalized by the private sector,

traders as well as border agencies benefit. The reason

is that traders can reduce or eliminate customs and

other border agency transaction costs. For example,

the cost of paperwork is reduced when traders are

authorized to declare goods periodically rather than

for each consignment. Similarly, paperwork and its

cost can be reduced by granting authorizations that

allow electronic trade data to be exchanged between

private sector information and communications

technology (ICT) systems and those of the public

sector. Such authorization ensures that data already

captured by electronic systems—for example, the

electronic port inventory systems, express carrier

booking systems, and broker and agent systems—

can be automatically passed on to the regulatory

authorities.

Of course, systems of preferential treatment for

authorized traders can work only where robust recordkeeping requirements are enforceable.



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Assurance based controls



The principle of audit based control is often extended

to ensure product safety and compliance with product standards. For example, since it is not feasible to

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test every imported electrical appliance for safety,

most countries appoint special agencies or private

sector inspection bodies (sometimes called notified bodies) to ensure that goods comply with product standards. Such standards usually are based on

international norms, while variation from those

norms and the use of recertification requirements

are treated as nontariff barriers.

Assurance usually requires companies to use

management systems—often embedded in the quality control systems of manufacturers—to ensure

that final products comply with standards. Compliant companies with good manufacturing practices

receive a certificate, and they may also mark their

goods with required kite marks (for example, electrical consumer goods brought into the European

Union may be marked CE). Authorities need not test

or intercept goods, but can quickly assure themselves

that goods are safe by referring to the kite mark and

accompanying documentation. Similar control practices exist in many areas where border checks are not

feasible. Assurance regimes range from safety standards for toys to strict hygiene requirements for the

handling of food.

By making private firms fully responsible for

managing compliance, assurance based controls free

companies to manage compliance in ways that suit

their own operations. They also lighten the operational burden on border agencies. Finally, they allow

the free movement of goods that carry proper kite

marks and documentation.



Partnerships



Risk management for border agencies sets control

levels according to perceived degrees of risk. It distinguishes between trusted and less trusted traders,

and among shipments with higher and lower compliance risk, rather than enforcing blanket controls at

set quotas (for example, 100, 50, or 5 percent of all

traffic). Reducing inspections for traders with good

compliance records, and giving businesses a strong

incentive to boost compliance capabilities, risk

management—like audit based control—can free

up government resources. It also can cut the indirect transaction costs that traders incur because of

delays at the border and the resulting loss of business.

(Risk management is discussed further in chapter 6.)



Partnerships in border management usually arise

when border agencies seek to extend control beyond

their authority or competence. Well designed voluntary partnerships—being less expensive than more

prescriptive, legislative enforcement—can benefit

traders and border agencies alike.

For example, voluntary partnerships are common in supply chain security, where agencies seek

to identify security risks before goods are shipped.

Countries adopt supply chain security programs

that impose conditions on firms seeking certification—in practice also imposing conditions on firms

that seek to do business with certified companies.

Such partnerships seek to extend security and control across the supply chain in exchange for operational or commercial incentives—for example, in

simplified procedures, fast track border clearance,

and reduced operational interference at the border.

Examples of security driven partnership programs include the United States Customs-Trade

Partnership Against Terrorism (US CBP 2004) and

the European Union’s security amendment introducing the authorized economic operator concept

into its customs code (European Parliament and

Council of the European Union 2005). The underlying principles of these programs are echoed in the

World Customs Organization’s Framework of Standards to Secure and Facilitate Global Trade (the

SAFE Framework; see WCO 2007) and are partly

captured in the International Organization for Standardization’s specifications for supply chain security

management systems (ISO 28000).7

A less formal partnership vehicle, the memorandum of understanding, gives some structure to

business-government arrangements while avoiding

the expense of writing and defining laws. It also allows greater operational flexibility than narrowly

defined legislation does. Memorandums of understanding between border agencies and key private

sector actors—such as carriers and port operators—

can govern issues as diverse as safety procedures (for

example, when inspection staff must wear hard hats

and high visibility jackets), codes of conduct (for example, agencies will inspect vehicles where they will

disrupt operations as little as possible), and information sharing for criminal investigations (for example,

businesses will give customs officers necessary access



Licensing trade in restricted goods



Restricted goods may be highly sensitive (military

equipment, national treasures). They may require

special control to prevent diversion for unregulated

use (medicines, ingredients in illegal drugs). Or they

may be prohibited entirely, with the exception of certain legal uses (narcotics, waste). By licensing trade

in restricted goods, government agencies can set

strict conditions on traders—and can hold traders

accountable for meeting them.

Licensed traders normally are required to invest

heavily in their control and compliance capabilities.

A well managed licensing regime also allows regulators to access sensitive control information as early as

possible. And licensing that is supported by formal

or informal partnership arrangements gives regulators access to further information about parties up

or down the supply chain from the licensed trader—

effectively extending control beyond the border.

Licensing conditions normally are specific to the

type of goods and trade. For example, licenses for

firms trading in medicines could include very stringent requirements that the distribution of the goods

be controlled by medical professionals. Companies

supplying military equipment, or equipment with

military applications, could be compelled to seek

special permission from the defense or trade ministry and provide assurances that goods do not fall

into the wrong hands. And companies dealing in

waste could be required to conduct checks verifying

that the recipients of the waste are suitably qualified

to dispose of it safely and ethically.



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Risk management



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