58845 BORDER MANAGEMENT MODERNIZATION Gerard McLinden, Enrique Fanta David Widdowson, Tom Doyle; Editors Border Management Modernization Editors Gerard McLinden Enrique Fanta David Widdowson Tom Doyle Washington, D.C. © 2011 The International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved 1 2 3 4 13 12 11 10 This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. ISBN: 978-0-8213-8596-8 eISBN: 978-0-8213-8597-5 DOI: 10.1596/978-0-8213-8596-8 Library of Congress Cataloging-in-Publication data has been requested. Cover design by Drew Fasick. Text editing, design, and layout by Nick Moschovakis and Elaine Wilson of Communications Development Incorporated, Washington, DC. Foreword Trade is an important driver of economic growth and development: integration into world markets allows producers to specialize and reap the benefits of economies of scale. Trade also gives firms and households the opportunity to buy goods, services, and knowledge produced any- where in the world. Developing countries face many chal- to simplify trade procedures and to use lenges in fully utilizing the opportuni- information technology to implement ties offered by participation in the global risk management systems to facilitate economy. Some of these are associated trade. However, progress has often been with traditional trade barriers: tariffs halting and has yet to make a real dif- and nontariff measures that impede ference in many countries. On average market access. While such barriers con- it still takes three times as many days, tinue to be important for products in nearly twice as many documents, and which many developing countries have six times as many signatures to import a comparative advantage--such as agri- in poor countries as it does in rich ones. cultural goods--the average level of The development community, in- tariffs has fallen significantly in recent cluding the World Bank, has invested decades. Moreover, many of the poorest heavily in the reform and moderniza- countries have duty free access to high tion of customs administrations around income markets. It is increasingly recog- the world, and the results achieved in nized that a key factor determining the terms of reduced clearance times have competitiveness of developing country at times been very impressive. But re- exporters is the national investment cli- cent data compiled in the World Bank's mate and business environment, as this Logistics Performance Indicators sug- Foreword is a major determinant of the costs--and gest that customs authorities are only thus the profitability-- of production. responsible for approximately one third An important part of the agenda to of the delays traders encounter at the lower operating costs is to reduce ad- border. An array of other government ministrative red tape and remove un- institutions are responsible for the ma- necessary regulation. While there is jority of the problems traders face at the nothing countries can do to improve border. It matters little if customs are their geography or resource endow- fully automated if traders still need to ments, they can take action to facilitate carry bundles of paperwork to a multi- trade and to eliminate unnecessary ad- tude of other government agencies that ministrative burdens for traders when continue to process them manually. moving goods across borders. Many Likewise, it matters little if customs developing countries have taken steps employ sophisticated risk management B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N iii techniques to limit the number of time consuming in the book, they have also been selective. Thus, physical inspections they perform if other agencies the book does not focus on subjects that have been continue to require containers to be opened for rou- dealt with in some depth in other publications or on tine inspection. which there is already significant resource material. Focusing exclusively on customs reform is there- For example, customs reform is the subject of a 2005 fore unlikely to realize the sorts of breakthroughs World Bank publication on customs modernization necessary to significantly improve the competitive- and is therefore not addressed in great depth in this ness of traders in developing countries. A wider and book. Instead the focus is on those emerging issues much more comprehensive `whole of government' that present the most perplexing challenges for ef- approach is necessary. While there is no shortage of ficient border management. blueprints and reform tools available to guide the I hope that the advice, guidelines, and general customs reform agenda, this is not the case for the principles outlined in the book will help govern- many other agencies involved in clearing goods. In ment officials, the trade community, and develop- contrast to customs agencies that are linked into the ment practitioners to better understand both the World Customs Organization, most of these agen- importance of effective border management and the cies are not connected through an intergovernmen- challenges of and options for making the border less tal body that acts as a focal point for the develop- of a barrier for traders. Designing and implementing ment of international instruments and the sharing practical initiatives and programs that make a posi- of good practice approaches. tive difference to national competitiveness is con- The objective of this book is to summarize and ditional on governments giving priority to border provide guidance on what constitutes good practices management reform and modernization. There are in border management--looking beyond customs costs associated with launching the kind of compre- clearance. The contributions to the volume make hensive border management modernization agenda clear that there are no simple or universally appli- outlined in this book. Reform in this area can be a cable solutions. Instead, the aim is to provide a range long, complex, and at times frustrating process. But of general guidelines that can be used to better un- the costs and risks associated with ignoring this very derstand the complex border management environ- important dimension of trade competitiveness are ment and the interdependencies and interrelation- significant. ships that collectively need to be addressed to secure meaningful change and improvement. Bernard Hoekman While the editors have tried to be as comprehen- Director, International Trade sive as possible in the choice of the topics addressed Department, The World Bank Foreword iv B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Acknowledgments The chapters included in this handbook are a product of a collaborative effort, involving many World Bank colleagues and border management experts from around the world, that was supported by a grant from the government of the Netherlands through the Bank-Netherlands Partner- ship Program (BNPP). Preparation of the book was led by Department), who provided invaluable Gerard McLinden of the World Bank's advice at several stages of the project, International Trade Department with and to Mona Haddad (Sector Manager), support from a dedicated team of co- who provided strong leadership and en- editors: Enrique Fanta, David Wid- thusiastic encouragement for the team dowson, and Tom Doyle. The editors and ensured the timely completion of are particularly grateful for the assis- the book. tance provided by Patricia Wihongi, The editors would also like to ac- who took on the painstaking task of knowledge the contribution of the chap- coordinating the final editing and pub- ter authors not mentioned above who lication process in a thoroughly profes- showed great patience with the many sional manner. demands and revisions suggested by the The project would not have been editors and reviewers: Stephen Hollo- possible without the support and advice way, Andrew Grainger, Robert Ireland, of many World Bank colleagues, includ- Darryn Jenkins, Erich Kieck, Frank ing Monica Alina Mustra, Jean-François Janssens, Laura Ignacio, and Michaela Arvis, Charles Kunaka, Olivier Cadot, Prokop. Without their valuable exper- Sebastián Sáez, Yue Li, John Wilson, tise and insights on the complex issue Ramesh Sivapathasundram, Munawer of border management, the preparation Acknowledgments Sultan Khwaja, Hamid Alavi, Jean- of this handbook would not have been Christophe Maur, Philip Schuler, Jose possible. In addition, Alan Hall, Johan Eduardo Gutierrez Ossio, Amer Zafar du Plooy, and David Knight prepared Durrani, and Maryla Maliszewska, as chapters that due to size constraints we well as former Bank staff Kees van der were unable to include in the final vol- Meer, Luc De Wulf, and Robin Car- ume, but that will be published at a later ruthers. Another former Bank official, time. Michel Zarnowiecki, not only authored Special appreciation goes to our ex- two chapters but provided valuable perienced team of peer reviewers, which feedback on the overall scope and con- shared its international expertise and tent of the publication. Special acknowl- made significant contributions to the edgment also must go to Bernard Hoek- scope and content of the publication: man (Director, International Trade Kunio Mikuriya (Secretary General of B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N v the World Customs Organization), Graeme Ludlow Tadatsugu (Toni) Matsudaira, who, while joining (Deputy Division Chief, Fiscal Affairs Division, In- the Bank midway through the project, contributed ternational Monetary Fund), and Roger Smith as both an author and a peer reviewer. (Counsellor Customs, New Zealand Embassy, Finally, the project benefited from the patient, Washington, DC). All gave generously of their time professional, and extremely competent support pro- and made a genuine difference to the quality and rel- vided by the administrative team in the Interna- evance of the project. tional Trade Department, including Amelia Yuson, We are also grateful to the many officials in Anita Nyajur, Rebecca Martin, and Cynthia Abidin- various international organizations who provided Saurman. Special thanks also to Charumathi Rama ideas and advice on the scope and content of the Rao, who provided support on the financial aspects book, particularly the staff of the World Customs of the project, and to Stacey Chow, who so effectively Organization's Capacity Building and Facilitation coordinates the International Trade Department's Directorates. Special recognition should also go to publication program. Acknowledgments vi B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Contents Chapter 1 Introduction and summary 1 Gerard McLinden Chapter 2 The future of border management 11 Tom Doyle Chapter 3 Border management modernization and the trade supply chain 23 Monica Alina Mustra Chapter 4 Borders, their design, and their operation 37 Michel Zarnowiecki Chapter 5 Building a convincing business case for border management reform 79 Yue Li, Gerard McLinden, and John S. Wilson Chapter 6 Core border management disciplines: risk based compliance management 95 David Widdowson and Stephen Holloway Contents Chapter 7 Information and communications technology and modern border management 115 Tom Doyle Chapter 8 Developing a national single window: implementation issues and considerations 125 Ramesh Siva Chapter 9 Information and communications technology procurement for border management 147 Tom Doyle B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N vii Chapter 10 The role of the private sector in border management reform 157 Andrew Grainger Chapter 11 Reform instruments, tools, and best practice approaches 175 Robert Ireland and Tadatsugu Matsudaira Chapter 12 Managing organizational change in border management reform 197 Darryn Jenkins and Gerard McLinden Chapter 13 Nontariff measures: impact, regulation, and trade facilitation 215 Olivier Cadot, Maryla Maliszewska, and Sebastián Sáez Chapter 14 Regional integration and customs unions 231 Erich Kieck and Jean-Christophe Maur Chapter 15 Information and communications technology in support of customs unions: a case study of the European Union 251 Tom Doyle and Frank Janssens Chapter 16 Sanitary and phytosanitary measures and border management 263 Kees van der Meer and Laura Ignacio Chapter 17 Transit regimes 279 Jean-François Arvis Chapter 18 The national security environment: strategic context 297 Contents David Widdowson and Stephen Holloway Chapter 19 Border management considerations in fragile states 317 Luc De Wulf Chapter 20 Integrity risk modeling in the border management context 345 Amer Z. Durrani, Michaela A. Prokop, and Michel R. Zarnowiecki Editors and contributing authors 365 viii B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Boxes 3.1 The Logistics Performance Index and Doing Business Indicators 24 3.2 Supporters of trade facilitation activities in developing countries 31 3.3 Re-engineering transit regimes: the case of Central Africa 33 3.4 The World Bank Trade Facilitation Facility 34 4.1 No man's land and border anomalies 38 4.2 Customs: its zone of competence 39 4.3 Signs for border stations 40 4.4 Customs and immigration 41 4.5 The private sector at the border 42 4.6 The case for duty free shops 42 4.7 Where should border stations be opened? 45 4.8 The closed border between Mozambique and South Africa 46 4.9 The Metkovic-Gabela border crossing 48 4.10 Palatial border stations that went wrong 53 4.11 Border parking 55 4.12 Closed circuit television 57 4.13 Green channel failures 62 4.14 Police and customs cooperation centers 65 4.15 Fraud opportunities: misreporting cargo under traditional, manual reporting systems 69 4.16 Examples of joint data collection at border stations 70 5.1 Analyzing border management strengths, weaknesses, opportunities, and threats 86 5.2 Example of a long term vision for border management reform 88 5.3 A sample account of rejected alternatives and past lessons 89 6.1 Case study: risk management in Cambodia 105 6.2 Case study: the Schengen Information System 107 9.1 The World Bank's two stage process for the supply and installation of information systems 151 10.1 Stakeholders in border management reform: the private and public sectors 158 10.2 Trade facilitation concepts derived from traders' frustrations 159 10.3 "The needs of all parties . . . must be identified": extract from Recommendation 4 of the United Nations Centre for Trade Facilitation and Electronic Business 160 10.4 Examples of three models for trade facilitation bodies 161 10.5 A government department's dedicated consultation vehicle: the United Kingdom's Joint Customs Consultative Committee 163 Contents 10.6 Preferential treatment for authorized traders: extract from the Revised Kyoto Convention 168 10.7 Services supplied by private sector businesses to border management agencies 170 11.1 Sponsors of international instruments 177 12.1 Structure of an organizational reform plan 199 12.2 Communications and awareness plan 200 12.3 Human resources development plan 205 12.4 The introduction of a formality service fee by Thai Customs 208 12.5 Cameroon Customs Integrity Initiative 211 12.6 Training master plan 212 13.1 Classification of nontariff measures by the World Trade Organization's Non-Agricultural Market Access 217 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N ix 13.2 Classification of nontariff measures according to the United Nations Conference on Trade and Development in 2009 217 14.1 The five stages of regional integration 232 14.2 Value added tax administration in the European Union: missing traders and carousel fraud 239 14.3 Coordination at the regional level: the implementation of the New Computerised Transit System in Europe 242 17.1 Main messages of this chapter 280 17.2 General requirements in respect of seals, from annex E.1 of the amended International Convention on the Simplification and Harmonization of Customs Procedures (Revised Kyoto Convention) 282 17.3 General provisions applicable to customs transit as codified by international conventions 284 18.1 An example of the complexity of the international supply chain: the Apple iPod nano 302 20.1 What is governance? 345 20.2 Developing a governance accountability action plan (GAAP) for Afghan customs 346 20.3 The first combined and outcome based border management reform approach: the World Bank's Trade and Transport Facilitation in Southeast Europe project 347 20.4 Assessing the financial level of petty corruption: rentseeking at customs in a fragile state 348 20.5 Calculating corruption risk levels for each customs process step and substep 351 Figures 2.1 Public-private partnership approaches 17 2.2 Goods clearance using collaborative border management 19 3.1 Import lead times and clearance times, by region 26 3.2 Clearance times for containers at the Port of Radès, Tunisia, 2006­08 29 3.3 World Bank trade facilitation lending commitments for fiscal 2002­09, by project type 32 3.4 Regional breakdown of World Bank trade facilitation lending commitments for fiscal 2004­09 33 5.1 World Bank­World Customs Organization matrix for setting reform priorities 88 6.1 Facilitation-control matrix 99 6.2 Risk management process framework 101 6.3 Risk based compliance management pyramid 108 Contents 6.4 Enforcement pyramid 111 7.1 Comparing the evolution of business and technology directions at border management agencies, 1980s­2020s 116 7.2 High level border management technical architecture 122 7.3 Deployment plan for a border management agency ICT program 123 8.1 Business to government service: the Indonesia National Single Window 135 8.2 Web service: the Indonesia National Single Window 136 8.3 A typical national single window: The Indonesia National Single Window 138 9.1 Value for money assessment factors: a broader approach 155 10.1 Trade procedure reform cycle 159 10.2 Consultation at several policy levels: public-private dialogues in the reform of United Kingdom customs procedures 165 15.1 European Union customs domain architecture 253 x B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 15.2 Total movements in the New Computerised Transit System from its operation start date, with error rate as a percentage of all electronic messages sent 261 17.1 The sequence of international transit 282 17.2 The sequence of the TIR operation 287 18.1 Simplified compliance management pyramid 299 18.2 Compliance assessment and regulation model 311 20.1 Customs process steps in a landlocked, postconflict, fragile state 350 20.2 Example of overall governance surface diagram, showing corruption risk level by customs process step and category of mitigating action 356 20.3 Example of specific governance surface diagram for border infrastructure, showing corruption risk level by recommended mitigating action and category of mitigating action 357 20.4 Example of overall governance surface diagram 358 20.5 Example of overall governance surface diagram, showing corruption risk level after border infrastructure mitigating actions and related upstream mitigating actions are 40 percent implemented 358 20.6 Example of priorities for reform implementation in customs process steps, set according to corruption risk vulnerability and ease of implementation ("Gartner Magic Quadrant" chart) 360 20.7 Circles of influence: visualizing the governance environment of a reform project 361 20.8 Actions, falling under the direct control of customs and other agencies, that are needed to improve the overall governance situation for border management 361 Tables 2.1 Key aspects of collaborative border management 13 3.1 Average transaction times for cross border trade, by region 25 3.2 Percentages of international freight forwarders reporting an "improved" or "much improved" logistics environment since 2005, by logistics area and by country quintile on the Logistics Performance Index (2010) 28 3.3 Typical kinds and degrees of logistics trade constraints, by country logistics performance group and area of logistics impediment 30 5.1 Estimating potential economic benefits from border management reform 91 6.1 Risk level matrix (risk level determined by likelihood and consequence) 104 7.1 Benefits that might be expected from a border management ICT program 120 7.2 Six aspects of ICT modernization: steps, typical activities, and expected outcomes 121 8.1 General criteria for required national single window functions 139 Contents 8A International single window border management implementation, by country 142 11.1 Attendance at the WCO's Permanent Technical Committee meetings, 2002­06 181 11.2 Attendance at the WCO's HS Committee meetings, 2004­06 181 11A.1 International instruments and tools for border management modernization 183 12.1 Key organizational change management principles 198 14.1 Customs unions notifications to the World Trade Organization by December 15, 2008 233 20.1 Example of corruption risk mapping summary for each substep in a customs process step, with corruption risk levels 351 20.2 Example of corruption risk mapping summary for all customs process steps, with aggregate risk levels and linkages to the customs reform program 352 20.3 Levels of mitigating actions needed to address vulnerabilities, by organizational category and functional dimension 353 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N xi 20.4 Example of comprehensive risk mapping summary for all customs process steps, with mitigating actions, agencies involved, and priorities for each step 354 20.5 Example of impact mapping for recommended mitigating actions in a customs process substep 357 20.6 Example of prioritized results from an analysis of influence, corruption opportunities and risks, and governance risks, by customs process step 359 20.7 Example of figures simulating the results achievable by 10 high priority, indispensable customs mitigating actions 359 20.8 Example of a crosscutting issues summary from a GAAP for border management reform 361 Contents xii B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N CHAPTER 1 Introduction and summary Gerard McLinden This book provides border management policymakers and reformers with a broad survey of key developments in and principles for improving trade facilitation through better border management, including prac- tical advice on particular issues. In contrast to the traditional border management reform agenda, with its focus on improving customs opera- tions, this book addresses both customs reform and areas well beyond customs--a significant broadening of scope. The book thus presents a new, more comprehensive approach to trade facilitation through border management reform: an approach that embraces a much wider, "whole of government" perspective. Facilitating legitimate trade Such costs and delays make a country through better border less competitive--whether by impos- management: the problem ing deadweight inefficiencies that ef- fectively tax imports, or by adding costs In recent years countries have realized, that raise the price of exports. Moreover, perhaps more than ever, the importance inefficient border management deters of trade to achieving sustainable eco- foreign investment and creates oppor- nomic growth. Accordingly, they have tunities for administrative corruption. lowered tariffs, established regimes to While border clearance processes are encourage foreign investment, and pur- among the most troublesome links in the sued opportunities for greater regional global supply chain, they are especially integration. Yet progress in trade facili- so in poor countries, where it frequently Introduction and summary tation is still slow in many countries-- takes three times as many days to import and progress is hampered by high costs goods as it does in rich ones. Imports to and administrative difficulties at the poor countries require nearly twice as border. many documents and six times as many Outdated and overly bureaucratic signatures (World Bank and IFC 2006). border clearance processes imposed by In Africa the difficulties are particularly customs and other agencies are now severe: excessive physical inspections are seen as posing greater barriers to trade a major source of delays, and the time than tariffs do. Cumbersome systems between accepted customs declara- and procedures and poor infrastruc- tion and customs clearance is four days, ture both increase transaction costs while in Organisation for Economic Co- and lengthen delays to the clearance operation and Development countries it of imports, exports, and transit goods. is one (Arvis and others 2007). B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 1 Governments and donors are responding to the How then can governments balance the need to problem of inefficient border management by invest- facilitate legitimate commercial activities by com- ing in border management reform, with measures pliant traders with the need for effective regula- designed to make countries more competitive by tory control--the main aim of traditional border removing unnecessary barriers to legitimate trade. management? This book explores the prospects for Virtually all countries now agree that trade facilita- improvement, in part by shedding new light on the tion reform will bring benefits to all. Recent bilat- problems. With its 20 chapters and associated on- eral and regional trading agreements include many line tools, it can help development professionals and border management provisions to ease trade. And policymakers learn what works, what doesn't, and many countries desire enhanced multilateral rules why. for trade facilitation within the World Trade Orga- To help officials meet their traditional control nization--part of an overhaul of the trade facilita- responsibilities while facilitating legitimate trade, tion provisions in the General Agreement on Tariffs the contributors to this book discuss three broad and Trade, which are now over 50 years old. Trade themes: the need for more investment in border facilitation reform is a key element of the global Aid management reform, the development of a new ap- for Trade initiative. proach to border management, and the implications Even so, customs and other border management of institutional and political-economic factors for agencies in many countries pay no more than lip ser- border management reform. In particular, the chap- vice to trade facilitation. Traditionally the roles of ters in the book propose answers to the following these agencies have focused on the control of goods questions: for revenue collection, industry assistance, and · How can agencies develop and implement cost community protection. Over the last two decades effective, trade friendly clearance processes these traditional roles have widened to include--in and mechanisms while maintaining regulatory principle--the facilitation of legitimate trade. In control? practice, however, this new objective is honored only · How can risk management and selective inter- so far as it does not infringe on the agencies' existing vention techniques, increasingly employed by border control practices. customs authorities, be extended to all agencies Border management agencies in many countries operating at the border? regard trade facilitation as a secondary function. A · How can compliance improvement regimes that Director General of Customs, from a developing appropriately mix incentives with disincentives, country in Africa, explains the problem: and that progressively encourage higher levels of My job relies entirely on my capacity voluntary compliance, be established across bor- 1 to reach revenue collection targets. der agencies? When the minister calls he has never · What hard infrastructure and information and Introduction and summary once asked about clearance times. He communications technology (ICT) can be de- is interested only in revenue collection. signed and deployed to appropriately achieve the That's why I have a big board in my of- most cost effective border clearance processes? fice detailing monthly, weekly, and · Most important, how can policymakers build daily collection results. I don't even and maintain the political will and institutional have reliable information on clear- commitment needed to undertake meaningful ance times. My job doesn't depend on reform; to overcome strong vested interests; and knowing those numbers. to manage change? In developed countries, by contrast, border con- Each chapter can be read in isolation or, prefer- trol regimes may focus more on national security ably, as part of the whole. than on revenue collection. Still, border manage- The book has several intended audiences. First, ment officials in all countries face similar tensions-- it should help development professionals not spe- and apparent contradictions--among the various cializing in border management--especially World objectives they are expected to meet. Bank staff members engaged in customs and trade 2 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N facilitation projects and diagnostic work--to have they do so independently, without the benefit of better informed discussions about policy choices guidelines or good practice examples. As a result, re- with client governments, private sector counterparts, formers' efforts are duplicated, resources are wasted, and public sector officials, notably by providing di- and outcomes are less than ideal. The problem is agnostic tools and performance metrics. Second, it acute in Sub-Saharan Africa, which lags badly be- should help border management officials carry out hind other regions in trade facilitation. For example, reform and modernization initiatives by presenting in one African region several donors are financing sound guidance on designing, running, and moni- separate one stop border programs for regional coun- toring programs, including good practice examples tries. Likewise, several countries are developing sin- and reference tools. Th ird, it should nurture the gle window systems, with minimal sharing of mod- political will and commitment to initiate and sus- els and information and little attention to making tain meaningful border management reform, both the systems regionally uniform and integrated. among the high level government officials who are An opportunity has been created by a broad often called upon to assess and sponsor reform efforts range of initiatives to spur regional trade integra- and among participants engaged in the World Trade tion--but that opportunity is being missed. With Organization negotiations on trade facilitation. Fi- the help of this book, World Bank staff and others nally, it should help policymakers put into prac- will be better equipped to recapture it. tice such regional integration activities as customs unions and regional trade agreements--agreements Border management reform: more that invariably include provisions related to trade than customs modernization facilitation or other measures requiring changes at The new agenda for better border management is the border. The book aims especially to illuminate about more than customs clearance. Driving the new areas of the border management reform agenda that agenda are seven key developments, none of them are not well addressed in other publications, or for exclusively related to customs: which no practical resources already exist. It thus · A rise in global competition for foreign complements, without replacing, earlier reference investment. guides such as the World Bank's Customs Modern- · A growing awareness of the costs created for trad- ization Handbook (De Wulf and Sokol 2005). Other ers by outdated, inefficient border formalities. useful materials and tools are mentioned in the text · An expectation of prompter, more predictable (and are more fully summarized in chapter 11). processing for imports and exports (the result What the book does not do is present off the of increased private sector investment in ad- shelf solutions. Managing borders is a complex task. vanced logistics and just-in-time manufacturing Border management officials are presented with regimes). 1 multiple, sometimes contradictory, objectives. Ex- · A multiplication of policy and procedural re- perience has shown that solutions must be tailored quirements directly related to international Introduction and summary to national circumstances. But while there are no commitments (for example, World Trade Orga- universal prescriptions for reform, many successful nization accession). and promising initiatives are under way around the · A proliferation of regional trading agreements, world. Many examples of good practice can be stud- making customs work more complex. ied, adapted, and replicated elsewhere. · An increased expectation of and respect for in- For the international customs community there tegrity and good governance. is the World Customs Organization, which helps · A heightened awareness of the need for customs to shape that community's reform agenda. In other and other border management agencies to play a areas of border management reform, however, there more central national security role. have been few attempts to identify and document Customs agencies have typically led border man- changing needs and concerns--leaving policymak- agement reform efforts, and improving the perfor- ers and development professionals generally in the mance of customs remains a high priority for many dark. They work to address similar problems, but countries. But customs is only one of the agencies B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 3 involved in border processing, and evidence suggests administrative authority, and crossdesignation it is often responsible for no more than a third of of officials. regulatory delays. Data from the World Bank's Lo- · One stop border posts. Neighboring countries co- gistics Performance Indicators (Arvis and others ordinate import, export, and transit processes, so 2010) suggest that traders are much more satisfied that traders need not duplicate regulatory for- with the performance of customs than with that of malities on both sides of a border. other border management agencies. The data high- · Single window systems. Traders can submit all light the need to reform and modernize border man- import, export, and transit information required agement in areas other than customs, such as health, by regulatory agencies at one time--through a agriculture, quarantine, police, immigration, and single electronic gateway--rather than submit standards. Moreover, in many developing countries, essentially the same information repeatedly to time release studies--using the methodology ad- various government entities. opted by the World Customs Organization (WCO These initiatives, which have some common 2002)--suggest that improvements meant to speed themes, promise significant improvement in border goods through customs are undermined by the com- management and clearance. Yet they face political, parative failure of other border management agen- technical, institutional, and procedural problems cies to reform and modernize using similar mod- that so far have proved extremely difficult to over- ern approaches and risk based selective inspection come. As a result, the conceptual and technological techniques. leaps made elsewhere in the business world have not Border management agencies other than cus- yet transformed border management. Even where toms have not received much attention from the de- progress has been made, most strategies and results velopment community--so progress has been patchy have not been distilled, documented, or shared with at best. There is little knowledge of diagnostic tools, the wider trade facilitation and development com- reform and modernization guidelines, or interna- munity. And the information that has been shared tional best practices. Where such tools are available typically focuses on narrow technical issues. It does they generally are confined to customs; other bor- not address a much greater challenge: that of secur- der agencies lack the internationally agreed instru- ing the political and institutional will and commit- ments and blueprints that have guided much of the ment needed to design and carry out cost effective customs reform agenda (in part because they have border management reform. nothing equivalent to the World Customs Organi- zation). Few practical mechanisms have been devel- The need for leadership, a clear vision, oped to help these agencies cooperate and share in- and strong political commitment 1 formation. And little work has been done to analyze Comprehensive border management reform requires the political-economy factors and dynamics that af- both a very clear vision and strong political will Introduction and summary fect their ability to cooperate meaningfully. and commitment. If either the clear vision or the Because clearance times are largely determined political commitment is lacking, reformers will be by the weakest link in a border processing chain, unlikely to prevail against the strong influence of meaningful trade facilitation presupposes compre- domestic constituencies that benefit from existing hensive reform initiatives across the whole of bor- business process inefficiencies, interdependencies, der management. There must be cooperation and and relationships. In addition, reformers often need information sharing among all agencies involved. knowhow and financial resources that can be hard The keen interest of many developing countries in to access--especially in developing countries, where harmonizing, streamlining, and simplifying border governments face many pressing challenges and management systems and procedures has led to such competing development priorities. initiatives as: · Coordinated border management. Th is can in- Chapter summaries clude information sharing, co-located facilities, The preceding discussion has framed this book's close interagency cooperation, delegation of approach to modern border management reform 4 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N by surveying the complex activities, operations, and Bank's Logistics Performance Indicators (Arvis and interdependencies that occur at borders and that can others 2007 and 2010) and on new insights into be improved through careful reform. The remaining global supply chains and their operations around the 19 chapters of the book, addressing specific reform world, the author identifies factors affecting coun- topics in detail, are summarized below. tries' ability to connect to regional and global mar- Chapter 2 articulates a new strategic vision for kets and identifies the possible locations of binding modern border management and offers a rationale constraints facing countries and regions. The chapter for the new paradigm. Modern initiatives--such as will help reformers and policymakers identify key re- coordinated border management, one stop border form opportunities and set clear priorities for change posts, and single window regimes--are explored, based on national circumstances. and their common themes and advantages are ex- Also surveyed in chapter 3 are the data sources pressed in a unified vision of collaborative border that can help reformers compare their countries' management. Tom Doyle presents this new model border management performance with that of as a fundamental shift from the physical control of neighbors and key competitors. Officials in many goods to the control of information, through a com- developing countries often cite inadequate infra- bination of customer analysis and segmentation and structure--ports, roads, border stations, and the intelligence driven risk management. In this emerg- like--as a major cause of trade bottlenecks and de- ing model, imports, exports, and transit shipments lays in the clearance of goods. Although some such can be processed well before their physical arrival at complaints are accurate, recent data suggest that in the border, with much of the time consuming pro- many cases governments would have done much bet- cessing conducted during transportation. An ap- ter to invest in less costly forms of border manage- propriate mix of incentives and disincentives can ment reform and modernization. For example, a new encourage high trader compliance. port or container handling terminal might not be Collaborative border management challenges needed if containers can be kept in port for just 1 or traditional thinking, suggesting that officials need 2 days, rather than for 13 or 14. not see a tradeoff between securing regulatory com- In chapter 4 Michel Zarnowiecki shows how pliance and facilitating legitimate trade. A new, the modern concept of the border has evolved and more transparent and industry friendly regulatory describes present approaches to border control framework promotes competitiveness and growth, throughout the world, focusing on the design, man- even as it ensures regulatory compliance and pro- agement, and operation of border facilities and re- tects the community. But the model presented here lated infrastructure. Partly because of new security does not require radical change in existing institu- imperatives, and partly because of new approaches to tional structures. Government agencies have their managing border compliance, the concept of a bor- 1 own aims and objectives, and typically they devote der has changed in recent years. The resulting new much time and attention to ensuring their own sur- challenges and opportunities have major implica- Introduction and summary vival. Under the model outlined in chapter 2, col- tions for border management professionals. laboration to meet shared objectives does not presup- Unfortunately, in many countries--despite pose organizational amalgamation, rationalization, the advent of global supply chains, advanced logis- or elimination. Finally, chapter 2 describes how to tics systems, and affordable new technological so- develop and implement a phased transition or trans- lutions--the border crossing experience remains formation plan calibrated to the needs, capabilities, largely as it has been for centuries. Nevertheless, and political realities reformers face. there are good practice models that can guide mean- Chapter 3 puts border management moderniza- ingful reform. Chapter 4 explores their advantages tion in the context of the larger trade supply chain. and disadvantages, identifying key issues for re- Monica Alina Mustra highlights the need to iden- formers. Zarnowiecki highlights how well designed tify bottlenecks by carefully analyzing the entire border posts, related infrastructure, and effective trade and transport logistics network. Drawing on operating modalities can support reform across the recently available data sources such as the World whole of the border and, at the same time, promote B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 5 facilitation and security objectives. Modern tools-- objectives and achieving world class performance. X-ray equipment, cargo tracking systems, informa- New tools make it much easier to do things that, tion technology--can ease trade while boosting only a decade ago, were impossible or out of the reach regulatory compliance. of developing countries. Chapter 5 begins with a summary of the exten- In outlining some of these developments chapter sive research that has been done to put reform in- 7 describes close interdependencies among policies, vestments into an economic development context. processes, implementation strategies, governance Authors Yue Li, Gerard McLinden, and John S. models, organizational structures, development Wilson first highlight the trade and economic gains frameworks, and supporting infrastructures. At that can be achieved through sensible, well targeted present these technological developments and in- investments. They then describe how to present key terdependencies are not sufficiently understood by decisionmakers with a robust business case. How can most policymakers. As a result, ICT is not selected a cost-benefit analysis demonstrate that border man- or deployed as effectively as it should be. agement reform is a sound business investment--not In chapter 8 (closely related to chapter 7), Ra- merely a cost? mesh Siva outlines critical issues facing single win- Competition for resources is intense. To obtain dow systems for trade. Over the past few decades the political support and commitment needed to ini- some countries have undertaken serious, systematic tiate and sustain meaningful reform, reformers need efforts to make trade more efficient by implementing a strong business case. Chapter 5 will help them do national systems of this kind. Where the systems have the needed analysis and present it convincingly. succeeded they have greatly improved countries' pro- Chapter 6 analyzes core border management cessing of import, export, and transit consignments disciplines and competencies that should underpin and have drastically lowered trade transaction and all modernization efforts. In particular, it empha- compliance costs. Other countries, especially in the sizes the need to apply risk management principles developing world, have noted this correlation and to improve inspection-detection ratios and to enable sought to create their own single windows for better border management agencies to more effectively tar- border management. And regional initiatives--such get suspect or high risk shipments while speeding as the Association of Southeast Asian Nations Single the release of low risk ones. David Widdowson and Window--have encouraged the development of na- Stephen Holloway provide practical guidance on tional single windows as a prerequisite to joining the establishing a sound compliance management and regional systems. improvement regime, with an appropriate mix of in- Experience is beginning to identify interlinked centives and disincentives to boost voluntary com- areas that ultimately determine success or failure. 1 pliance by traders. Among customs officials such National single windows can help realize the col- disciplines are in many cases well understood, even laborative border management model outlined in Introduction and summary if they are not always consistently practiced. But ex- chapter 2. perience suggests that among many noncustoms bor- Chapter 9 explores the often difficult process der management officials such disciplines are both of ICT procurement. Tom Doyle stresses how such poorly understood and poorly practiced. Part of technology has been proven to make business pro- chapter 6 accordingly focuses on describing the ap- cesses more effective and, at the same time, increase plication of these disciplines in a wider context that control and transparency in border management. extends across all aspects of border management. Yet its procurement can be complex, time consum- Chapter 7 reviews the critical supporting role ing, and fraught with dangers. of ICT. Tom Doyle offers an overview of recent Th ree types of factors--external, technologi- developments, not as a technology manual, but as cal, and institutional--affect ICT procurement in a nontechnical introduction to the issues that bor- ways that can be critical to the success or failure of der management officials and policymakers must border management reform. To make the procure- consider and the major decisions they must make. ment process more efficient and effective, some of its ICT can play an important part in meeting business features, including its present limitations, must be 6 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N taken into account. Doyle outlines some emerging Chapter 11 also presents a typology of the in- best practices in ICT procurement, and he proposes ternational instruments and discusses how countries a new procurement approach for wider use in border can work toward adopting them. An annex briefly management modernization. describes many of the key international instruments, In chapter 10 Andrew Grainger focuses on the tools, and best practice approaches currently avail- important, but often overlooked, role of the pri- able to reformers. vate sector--as a key stakeholder--in supporting Chapter 12 explores key issues for border man- sustainable border management reform. After out- agement reformers, including how to build and sus- lining some consultation mechanisms available for tain political will and commitment; the importance identifying appropriate reform initiatives, Grainger of managing stakeholder relationships and expecta- considers the private sector as a partner in ensuring tions; the role of institutions (with the advantages that regulatory control objectives are met, discussing and disadvantages of various institutional models management tools and instruments for encouraging and organizational structures); and the critical need compliant behavior by people involved in legitimate for human resource management policies that create trade. What private sector services can be contracted incentives for sustained reform. Discussing the core to underpin the government's activities, augment- components of effective human resource manage- ing its resources and capabilities? Areas addressed ment, Darryn Jenkins and Gerard McLinden iden- include regulation, outsourcing (preshipment in- tify key strategic principles for managing change in spection, destination inspection, and management border management. They highlight the importance contracts), and the assessment of intermediaries of developing a robust communication strategy for and logistics providers (such as customs brokers and internal and external stakeholders, to provide a bal- transporters and freight forwarders) for competency anced and comprehensive consultation and educa- and compliance. tion program. And they examine border manage- Chapter 10 also considers models for securing ment arrangements recently put in place around the genuine business government cooperation, including world, with some of the strategies and philosophies so-called procommittees along with private-public that have guided organizations through transforma- partnerships. Various private sector communities tion. What were the key challenges? How were they have different interests, and those interests may not overcome? The authors focus on several approaches be aligned. Yet dedicated local, national, regional, that have succeeded in practice--and on the reasons and international trade facilitation committees can for their success. convene private sector representatives to explore a Chapter 13 focuses on the proliferation of non- shared vision for reform. Such committees can also tariff measures affecting trade. Such measures can be effective vehicles for soliciting political patronage significantly increase trader transaction costs and 1 and for assigning priorities to reform requirements. make countries less competitive. Often they are seen Chapter 11 discusses the role of international in- as more burdensome and less transparent than tra- Introduction and summary struments in the field of trade facilitation as guides ditional trade barriers applied at the border, such as for multiple stakeholders working together to achieve tariffs, quotas, licensing, and prohibitions. As a re- common goals. Robert Ireland and Tadatsugu Mat- sult, international trade negotiations have developed sudaira survey best practice approaches and inter- new and complex rules for the adoption of nontariff nationally agreed instruments and implementation measures by national governments. Authors Olivier tools for trade facilitation and coordinated border Cadot, Maryla Maliszewska, and Sebastián Sáez de- management, including those developed by the fine the problem of nontariff measures, explain the World Customs Organization. A phased approach international regulations governing them, and pro- is provided suggesting how best to work toward the pose policies for managing them more effectively to adoption of international instruments. The authors ensure that they restrict trade as little as possible. argue that stakeholder engagement and ownership of Chapter 14 maps the main border management the instruments through participation in their design provisions typically included in regional integra- and development is of significant importance. tion agreements and customs unions. Analytically B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 7 comparing the key features of customs unions-- more resources than import control receives. Second, whose member states share a goal of promoting eco- efforts made away from the border can be much nomic integration--Erich Kieck and Jean Chris- larger than efforts at the border. Noting the lack tophe Maur show how such unions present an ideal of cooperation between SPS services and customs springboard for coordinated border management. at present, the authors conclude that SPS agencies On the one hand, the authors recognize that trade should be actively engaged in initiatives designed to facilitation reform efforts within customs unions rationalize and improve the coordination of border so far have adopted a narrow customs perspective. management modernization efforts. On the other hand, common reform has occurred Chapter 17 examines transit cargo management. in some areas, while challenges remain. While often problematic, transit cargo management Discussing how reform provisions can be made is especially problematic for landlocked countries. effective and how regional groupings can be used to Such countries generally suffer a large disadvantage mobilize support for effective border management compared with countries possessing coastlines and reform, chapter 14 explores unionwide approaches to deep sea ports (countries that tend to be linked by risk management, mutual recognition, joint and one the world's most active trade corridors, whether in stop controls, trusted traveler and trader schemes, Europe, North America, or developing regions). Fur- and the real time exchange of information within thermore, landlocked developing countries--many and between countries. All create opportunities for of them in Sub-Saharan Africa--depend on com- a more effective approach to regional integration and paratively inefficient trade corridors. coordinated border management. In chapter 17 author Jean-François Arvis fo- Chapter 15 addresses the role of ICT in sup- cuses on transit regimes: sets of provisions enabling porting regional integration. Tom Doyle and Frank goods not yet cleared by customs for consumption Janssens offer a case study of how the European to reach their international or inland destinations, Union has applied such technology in customs, or, more narrowly, customs regulations and proce- providing other customs unions with guidance for dures for goods in transit. Transit regimes are essen- economic integration. How has the union achieved tial to international trade corridors, since goods are its present technical and functional integration? cleared at the country of destination where duties What issues must be considered by reformers seek- and value added tax are collected. Transit regimes ing ICT solutions to facilitate other regional inte- are also increasingly important for domestic trade gration initiatives? corridors--which may have features very similar to Chapter 16 focuses on the effective manage- those of international corridors--since the regimes ment of sanitary and phytosanitary (SPS) controls allow traders more flexible clearance options. 1 at the border, with special attention to the World Chapter 18 addresses the ramifications of radi- Trade Organization's SPS agreement. All food and cal changes in the national security environment Introduction and summary agricultural and products face SPS controls as part since the September 11, 2001 attacks on the United of the border release process. Such products are often States, discussing how the newer security require- comparatively important for developing countries, ments affect border operations. Authors David while the shipments are fairly small. For both rea- Widdowson and Stephen Holloway consider how sons, a considerable part of trade for developing added security can be seamlessly incorporated into countries faces SPS handling. border operations without sacrificing trade facilita- How SPS controls are managed can significantly tion. Focusing on recent regulatory supply chain se- affect trade facilitation. As authors Kees van der curity initiatives, the authors examine the possible Meer and Laura Ignacio explain, the segmentation impact of such initiatives on regulatory activities at of food and agricultural markets poses special chal- the border, and they assess the consistency of various lenges for safety management and trade promotion. regulatory responses with the objectives of risk man- SPS clearance differs in two major respects from cus- agement and commercial practicality. The authors toms clearance. First, export promotion (market ac- then identify key elements of a modern compliance cess) is a major aim of SPS services, and it can receive management strategy, describing how each can be 8 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N applied to mitigate risk. Based on an analysis of sev- Michel Zarnowiecki present a new and innovative eral specific risks to the security of the international approach to assessing and addressing organizational supply chain--and of the compliance management governance vulnerabilities. The authors examine strategies intended to address them--Widdowson a recently developed integrity risk modeling tool and Holloway recommend policy responses and op- that draws on several different, yet complementary erational strategies to guide policymakers and ad- models to yield a comprehensive understanding of ministrators in formulating regulatory responses to governance dimensions from both bottom up and identified risks. top down perspectives. Although the methodology Chapter 19 examines issues facing fragile states was designed initially for application in customs ad- and postconflict countries--places where traditional ministration, chapter 20 outlines how it could be approaches may be inappropriate for addressing adapted successfully for whole-of-border modern- border management problems. Outlining a typol- ization efforts. ogy of fragile states, and describing lessons learned over the past decade of donor support, Luc De Wulf References discusses experiences carrying out various types of border management improvement, and he suggests Arvis, J.-F., M.A. Mustra, J. Panzer, L. Ojala, and broad strategies and approaches as most appropriate T. Naula. 2007. Connecting to Compete 2007: for each type. The chapter focuses on the responsi- Trade Logistics in the Global Economy--the bilities of customs, particularly in raising revenue: a Logistics Performance Index and Its Indicators. priority for both governments and donors, for which Washington, DC: The World Bank. several well documented initiatives have already -- . -- -- 2010. Connecting to Compete 2010: Trade Lo- been put into practice. Nontraditional approaches gistics in the Global Economy--the Logistics Per- to customs support include management contracts, formance Index and Its Indicators. Washington, foreign technical experts, preshipment inspection DC: The World Bank. and destination inspection services, and reforms De Wulf, L., and J. Sokol, eds. 2005. Customs Mod- driven by ICT. ernization Handbook. Washington, DC: The Chapter 20 focuses on the critical issue of cor- World Bank. ruption at the border. While poor governance sig- WCO (World Customs Organization). 2002. Guide nificantly impairs the revenue generation and trade to Measure the Time Required for the Release of facilitation effectiveness of many countries, it is also Goods. Brussels: WCO. recognized as a major barrier to the implementation World Bank and IFC (International Finance Cor- of many border management reform initiatives. In poration). 2006. Doing Business 2007: How to this chapter Amer Durrani, Michaela Prokop, and Reform. Washington, DC: The World Bank. 1 Introduction and summary B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 9 CHAPTER 2 The future of border management Tom Doyle This chapter explores the central themes of contemporary border man- agement and articulates a new strategic vision for border processing and clearance. The chapter brings several key concepts together into a holistic new approach known as collaborative border management. The foundations of collaborative border entitlements), while targeting the rest management are relationship manage- for intervention. A common source of ment with the trading community and regulatory admissibility and preclear- regulatory authorities and collaborative ance information is made available engagement with transport and supply once and only once to all relevant bor- chain partners. Th rough customer seg- der management agencies, partners, and mentation and intelligence driven risk customers through a single window (see management, the clearance (admissi- chapter 8).1 Collaborative border man- bility processing) of goods and passen- agement benefits governments by: gers can be carried out electronically in · Lowering the overall cost of border advance of physical arrival at the border. management. Customer segmentation enables · Enhancing security. border agencies to tailor information · Improving intelligence and and services to the needs of customer enforcement. groups. This can be done through: · Boosting trader compliance. · Grouping website information · Deploying resources more effec- by customer group--or even by tively and efficiently. individual. · Increasing integrity and transpar- · Offering dedicated information and ency. trade portals. Collaborative border management · Using account managers for large also benefits the private sector by: The future of border management business customers. · Cutting costs through reducing de- · Providing specialist enquiry lays and informal payments. services. · Enabling faster clearance and · Hosting seminars and training release. events, direct mail marketing, and · Explaining rules, making their ap- outreach campaigns. plication more predictable. · Making direct calls to targeted · Allowing the more effective and ef- companies. ficient deployment of resources. Intelligence driven risk manage- · Increasing transparency. ment enables border agencies to accu- Collaborative border management rately carry out prearrival and prede- adds efficiencies in processing goods parture identity assurance for trusted and passengers--even while increasing traders and passengers (with eligibility regulatory compliance--by obtaining B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 11 information directly--connecting with upstream Some countries recently have attempted to fur- supply chain processes and systems at the earliest ther secure their borders by assimilating customs possible time, either through a single window por- agencies into new, more widely focused integrated tal or directly with the customer's or designated border management agencies. One approach to ac- agent's information systems. Within collaborative complishing this is by creating a single border man- border management, trusted clients--such as au- agement authority. Another is through a virtual thorized economic operators--would be entitled to model whereby agencies cooperate without shar- facilitated, streamlined border clearance facilities, ing the same corporate identity (sharing the same and could even be allowed to discharge their regula- vision and goals and using the same electronic tory obligations in a differentiated way (for example, infrastructure). through prearrival clearance processing, postclear- Integrating border management agencies re- ance periodic self assessment, and direct connection quires significant organizational change--yet it has with trader information systems), as recommended not always fully exploited the available efficiencies, by the World Customs Organization.2 in knowledge sharing and in the improved achieve- Policymakers frequently believe they must ment of government objectives, that might be ob- choose between regulatory control and trade facili- tained through collaborative border management. tation. Collaborative border management challenges And it has created its own problems, as various en- this commonly held view (Grainger 2008). Its regu- tities struggle to retain their identities and protect latory framework--more transparent, friendlier to their mandates and resources. industry--promotes growth and competitiveness while ensuring regulatory compliance. The limits and constraints of present border management arrangements The evolution and challenges of present The forces now generally driving the border manage- border management arrangements ment agenda include: · A heightened awareness of costs. Traditionally the role of customs and other border · Rising expectations in the private sector. management agencies has been to keep undesirable · Increased policy and procedural requirements. goods and people out while collecting revenue and · Competition for foreign investment. taxes on goods that are allowed in. Now, however, · The demand for integrity and good governance. there is increased emphasis on facilitating trade.3 A · Political pressure for the agencies to increase new vision for border management was introduced competiveness. in a document presented at the 50th session of the Customs and other border management agencies 2 World Customs Organization Policy Commission are required to respond to these forces and deliver (Gordhan 2007). Some of its key principles were: more varied services more efficiently, often with di- The future of border management · The need to increase the contribution of inter- minished funding. There is a widely acknowledged national trade to economic growth and develop- need to eliminate delays and duplication in interna- ment as much as possible through effective, ef- tional supply chains--problems caused by multiple ficient customs controls. reporting requirements and inspection regimes-- · The need to foster certainty and predictability by and to encourage compliance with standards by establishing clear, precise standards. clearly defi ning the benefits of trade facilitation. · The development of capacity to promote compli- Customs reforms alone will not address the chal- ance in a way that facilitates legitimate interna- lenges (see chapter 1). tional trade. Customs and other border management agen- The current Doha Round of World Trade Orga- cies cannot continue to use an exclusively transac- nization negotiations has also stressed the contribu- tion based approach to controlling the movement tion that improved border management can make of physical goods across borders--one where each to economic development and poverty reduction by shipment received is assessed individually, with lit- reducing red tape for goods moving across borders.4 tle regard for the customer's compliance history or 12 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N for commercially available information that could border agencies in the spotlight, creating opportu- ground admissibility checks and preclearance de- nities for these agencies to demonstrate their will- cisions. Information is still typically collected and ingness and capability to contribute. The European stored individually by each border agency involved Union's target is to cut red tape by 25 percent by in the clearance process. This information is rarely 2012.5 Similarly ambitious targets have been set by shared across agencies. So the burden is on the cus- the Association of Southeast Asian Nations and the tomer to supply similar sets of information to mul- Asia-Pacific Economic Cooperation. To meet the tiple agencies, which then individually process data challenges a holistic approach to border management before regulatory requirements for admissibility reform--rather than a narrow technical focus-- and clearance can be met. To complicate the process is needed. Inevitably, the pace of reform in some further, some government agencies are automated major trading countries and the onerous demands and some not--often requiring traders not only to they make of their trading partners will stretch the supply the same or very similar data to different en- administrative capacity of developing countries. Ca- tities, but to do so using a variety of paper and elec- pacity constraints in developing countries, especially tronic forms. in the least developed countries, often hinder effec- The call for higher rates of export-led economic tive cooperation among customs and other border growth will continue to put customs and other management agencies. Table 2.1 Key aspects of collaborative border management Practice type Common practice Collaborative border management practice Policy · Balance between facilitation and control · Optimization of both facilitation and control · Mistrust of supply chain actors · Trusted collaboration of supply and transport chain partners · Limited customer segmentation · Customer treatment based on differentiation and service culture · Limited incentives for compliance · Strong incentives for compliance · Focus on physical border controls · Focus on virtual border controls · Adversarial relationship with trade · Constructive partnership with trade · Limited cooperation and data exchange · Extensive collaboration and information sharing Processes · Output based functional model · Outcome based process model · Focus on goods and revenue · Focus on information · Single treatment for all clients · Flexible solutions for different clients · Agency specific risk management · Cross-agency, intelligence-driven risk management · High levels of physical inspection · Intervention by exception · Transaction based procedures · Exception based procedures and audit based control People · Physical control at the border · Customer compliance focus through intelligence driven risk management 2 · Limited transparency · Full transparency · Organizational performance measurement · Clear measures of individual and collective performance · Standard training, mainly administrative · Capability modeling, commercial and administrative The future of border management Information and · Black box systems--systems viewed solely through input, · Extensive use of open source software systems (free software communications technology output, and transfer characteristics, without knowledge of whose inner components or logic are available for inspection) (ICT) their internal workings--using proprietary software · Isolated data capture and information processing · Service oriented architecture · National silo based solutions · Regionally integrated common solutions · ICT security limited to intrusion protection · Business continuity assured through security and contingency arrangements · Emphasis on back office transaction processing · Move toward self service, front office solutions and direct · Reliance on outmoded commercial off the shelf or access to trade systems nationalistic solutions · Shared services build of common component solutions Infrastructure and facilities · Agencies operating on a standalone basis · Single window interagency collaboration · Individual trader integration with multiple agencies · One stop shop · Predominance of in-house build and delivery · Value added outsourcing · Output based procurement · Outcome based procurement Source: Author's compilation. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 13 The concept of collaborative Collaborative border management makes pos- border management sible a set of defined business outcomes, including: · Distinctive border management agency opera- Whereas the international community has discussed tions in areas that make a real difference to trade integrated border management and coordinated and industry. border management, this book--to denote more · Objective measures of performance in all key re- than mere coordination, while avoiding the more sult areas. threatening connotations of organizational integra- · Cost savings through the avoidance of unneces- tion--uses the term collaborative border manage- sary duplication of effort. ment. Collaborative border management is based on · A trading environment that is more business the need for agencies and the international commu- friendly and responsive. nity to work together to achieve common aims. The model suggests that border management agencies Key aspects of collaborative can increase control while providing a more efficient border management service, and that they can do so while retaining their own organizational mandates and integrity. Key aspects of collaborative border management-- In collaborative border management a virtual grouped under policy, processes, people, information border encompasses the entire transport and sup- and communications technology, and infrastructure ply chain, assessing goods and passengers for admis- and facilities--are summarized in table 2.1. Although sibility and clearance in advance of arriving at the many collaborative border management practices are physical border (see chapter 4). Border management already being achieved through discrete reform initia- agencies work together, sharing information. As tives, collaborative border management brings these they gather, collate, and share more data, a complete innovations together in a holistic approach. view of risks and opportunities emerges, encourag- ing a knowledge sharing culture and a border man- Policy agement strategy built on proactive decisionmaking. Collaborative border management enables a shift Typically collaborative border management is not in the primary focus of border management agen- achieved through forced organizational change-- cies from a weighted, balanced approach to control which invariably creates conflict--but by creating and facilitation toward a highly facilitated and opti- an overarching governance body charged with es- mized compliance management approach. Collab- tablishing a border management vision and ensuring orative border management is grounded in the effi- that all stakeholders work together to achieve it. This cacy of compliance management but recognizes that 2 requires strong political will and commitment and the vast majority of travel and trade is legitimate. appropriate incentives and disincentives. While col- Trusted partnership arrangements improve both The future of border management laborative border management can be achieved under regulatory control and customer service. More com- a single border management agency, the creation of prehensive compliance management makes agency such an agency is not a precondition for success. Well staff operate more efficiently, targeting only high managed, collaborative border management results risk passengers and consignments for intervention. in reduced documentation, a more appropriate treat- And tangible benefits accrue to compliant custom- ment of traders through more thorough and accurate ers, even as equally visible enforcement sanctions dis- data collection and analysis, and a combination of courage the less compliant. lower costs and greater control for border manage- Collaborative border management demands ment agencies. It can also preserve the independence improved intergovernmental and interagency net- and specific mandates of customs and other agencies working arrangements, allowing agencies to coop- involved in border management. Collaborative bor- erate in accordance with common and agreed stan- der management also benefits the customer, reduc- dards. Information is centrally located and a single ing administrative and compliance costs while saving view of each customer is provided, while customer time and making service more predictable. segmentation allows agencies to deliver enhanced, 14 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N value added services. The consistency of information higher risk customers and shipments. Trusted cus- across border management agencies provides more tomer relationships are developed, and information accurate intelligence, allowing agencies to focus shared across agencies allows greater efficiencies. their resources on risk-driven intervention. By work- ing with neighboring and participating countries, all People partners benefit from the piecing together of previ- Collaborative border management demands that ously disparate information, and the customer expe- border management agency officials be well equipped rience is more efficient and consistent across border with the skills, knowledge, behavior, and experience management agencies and jurisdictions. to manage new processes. The role of skilled, expe- Collaborative border management takes advan- rienced, committed officials is the driving force. A tage of the availability of information at the earli- comprehensive capability assessment of the admin- est point in the transport and supply chain at which istrative capacity of each border management agency border management agencies can become involved. should ensure a focus on delivering quality collabora- Th is could be at a factory while goods are being tive border management while minimizing compli- packaged for shipment, at a port on the point of de- ance and administrative costs. The assessment should parture, or indeed at any time before the physical yield a set of recommended transformation actions, destination border is reached. Ensuring compliance including, for example, organizational change at the virtual border reduces clearance time at the through outsourcing certain functions.6 In addition, physical border, so border management agencies can the assessment could result in a change management focus on the audit and examination of higher risk program enabling border management agency staff shipments and passengers. whose previous responsibilities may have become less essential to discharge their new responsibilities more Processes effectively. Staff should be trained and designated to Collaborative border management requires border perform cross agency tasks where appropriate, elimi- management agencies to define outcome based pro- nating redundancy, reducing duplication, and creat- cesses, such as increased customer compliance and ing customer service efficiencies. greater export competitiveness, rather than output based processes, such as the volume of transactions Information and communications technology processed. Looking at desired outcomes from both Collaborative border management promotes the agencies' and customers' points of view allows pro- technical development and interaction that is needed cesses to be defined that satisfy both sets of needs. In for more effectively sharing information and identi- addition, looking at border management operations fying risks. It implies significantly closer national, as a whole allows certain common outcomes--such regional, and international collaboration for govern- 2 as reduced counterfeiting--to be identified, creating ment agencies and for the international travel and opportunities to boost efficiency and make service transport industries. This can be achieved through The future of border management delivery more cost effective. technology systems that share and link informa- Collaborative border management enables bor- tion. In addition, bilateral, regional, and multilateral der management agencies to concentrate on the in- agreements may be required that facilitate policies telligent treatment of customers. Having a single and strategies for collaborating, information shar- view of the customer enables border management ing, and developing interoperable systems. agencies to cooperatively analyze and assess infor- The aims of timely, effective clearance and bor- mation and to make more informed, rigorous deci- der operation interoperability are difficult to meet sions. Customers benefit from streamlined, simpli- using traditional databases and database queries. A fied interactions with multiple border management vast amount of data must be analyzed and auctioned agencies. And services can be designed to improve in minutes--while data may be erroneous, incom- the customer experience across all interactions. plete, nonspecific, and created without international Intelligent data analysis at the customer level standards (where what is required in one country is also enables agencies to concentrate on auditing not required in another). Fuzzy logic can improve B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 15 identity assurance and compliance management by Collaborative border management enables the helping border agencies make differentiations using creation of a shared services environment where a data that may be absent, imprecise, or wrong. Match- collaborative operating model and facilities could ing with fuzzy logic is particularly useful for finding be created using industry leading-edge practices. information that best fits diverse, complex conditions, Significant economies of scale could be realized such as when it is necessary to access large amounts of through such arrangements. In a regional setting, a data stored in multiple formats (structured and un- shared service environment could save agency spe- structured, image and biometric coding). cific country development costs, interagency coun- Fuzzy logic search and match, as opposed to rela- try development costs, and the country and regional tional database searching, is based on four principles: costs of maintaining support technologies. The key · Some search criteria are more important than features of a shared service approach are: others, so search criteria may be weighted. For · A common vision and orientation toward deliv- example, a description of goods may have less ery and service levels. weight than a country of origin or intelligence · A culture of continuous improvement. on container handling arrangements. · Strong performance metrics. · Some data may be missing from a cargo or pas- The shared services approach would require some senger manifest. consensus on the construction of an efficient, effec- · Some data may be imprecise. For example, dif- tive operating model and an agreement on the com- ferent datasets are collected at different times by mon core processes to be managed. It would allow different parties, as governments have not agreed participating agencies to rapidly reach the capability on dataset standards. level of the most efficient agency and to reduce their · Some data may be inaccurate. For example, textual operating costs, while the leading agency would set data, such as locations, dates, and container and the pace of modernization. Governments and their identity numbers, are all prone to typing errors. border agencies typically are at different stages in Fuzzy logic searching and matching against in- their reform and modernization programs. While teragency risk profi les would greatly increase the modern technologies and facilities have matured to chance of successful identity management and pre- the point where shared service could greatly improve clearance admissibility decisions prior to arrival at operations for border agencies and their customers, the physical border. It would also improve other political will--for this and other new infrastructure compliance management functions, such as surveil- and facilities management approaches--is needed. lance and investigation. Outsourcing also provides specialized services Systems and business processes--across coun- more cost effectively. Soft ware application devel- 2 tries, organizations, and the like--should be interop- opment, maintenance, and operations can be out- erable. Linking both structured and unstructured sourced. Technology infrastructure can also be The future of border management information across border management agencies outsourced--with hardware and associated services prevents redundant processing and averts the inef- contracted out, border management agencies are free ficiencies inherent in standalone, or stovepiped, in- to concentrate on the delivery of core business strat- formation silos. egies. The current trend is toward value added out- sourcing, with the following objectives kept in mind: Infrastructure and facilities · Provision of new technology and expertise. Infrastructures at ports of entry often have designs · Standardization or centralization of operations. that predate today's security, trade, and travel · Improvement in the speed and quality of service. demands and priorities. Facilities at ports of entry · Transformation of the agency or department. often are inadequate. Upgrading these facilities, in · Improvement in the focus of officials. collaboration with both other border management · Improvement in ability to handle demand agencies and neighboring countries, is an important fluctuations. step in cost effective trade facilitation and regulatory · Compensation for the inability to hire suitably control improvements. qualified staff. 16 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N · Improvement in management discipline and Figure 2.1 Public-private partnership approaches transparency. Public-private partnerships (PPP) are contractual agreements, · Substitution of expense spending for capital made between a public agency and a private sector entity, that allow for greater private-sector participation in the delivery of spending. many types of products. · Reduction of costs. · Motivation of organizational change. 1 2 3 4 5 6 · Increase in revenues. The challenges of outsourcing include: · Shaping the relationship to the situation. · Negotiating and contracting effectively. Public responsibility Private responsibility · Managing workforce issues. 1. DESIGN BUILD BID-- 4. BUILD OPERATE TRANSFER (BOT) Traditional approach used --also known as Design · Managing the ongoing relationship. for most 20th century Build Operate Maintain projects. (DBOM)--contract provides · Ensuring strong performance. 2. PRIVATE CONTRACT FEE operation and maintenance · Institutionalizing flexibility and innovation. SERVICE--Expanded private while the public sector sector role allowing public retains surplus operating The risks of outsourcing include: sector to benefit from revenue and associated risks. private sector expertise. 5. DESIGN BUILD FINANCE · Economic espionage. 3. DESIGN BUILD--Consolidates OPERATE--Bundled contract the design and build to private company. · Access to valuable or sensitive code. services contract to one Ownership retained by · Data privacy. private sector entity. public entity. Fee based operation and maintenance · Business continuity. by private company. 6. BUILD OWN OPERATE--Private As with shared services, the principal barriers sector partner owns the to outsourcing are a lack of understanding at border project outright, retaining operating revenue risk and agencies about savings from the approach and their surplus operating revenue. agencies' unwillingness to change their procurement Source: Adapted from U.S. Department of Transportation, Federal Highway Administration, "Private-Public Partnerships," http://www.fhwa.dot.gov/ipd/p3/index.htm. policies. A public-private partnership, or contractual agreement between a public agency and a private sec- tor entity, can allow greater private sector participa- Step 6. Planning for transformation. tion in many types of projects (figure 2.1). A single window can benefit from a public pri- Creating a vision. Creating a clear vision, with asso- vate partnership (see chapter 8). Core functions are ciated outcomes, is vital. The vision needs to be converged and streamlined to benefit all border developed jointly with all stakeholders and must be management agencies using the available services. owned by all. It needs to be simple and easily under- For example, a shared document management func- stood, but it must contain sufficient detail to pro- 2 tion could reduce the rate of growth of documenta- vide clear direction. It needs to be seen as a win for tion stored at each agency. all participants, or it is unlikely to be democratically The future of border management accepted or implemented. Transformation considerations for collaborative border management Establishing leadership and governance. The leader- Transformation to collaborative border manage- ship at each border management agency must agree ment requires a detailed understanding and articu- to the vision and commit to delivering the agreed lation of the work to be carried out, with six steps to business outcomes. Critically, to make this commit- successful transformation: ment the leadership needs a mandate from govern- Step 1. Creating a vision. ment. Even so--since a wide stakeholder group from Step 2. Establishing leadership and governance. the public and private sectors needs to be engaged Step 3. Making the business case. and actively involved--policymakers must under- Step 4. Conducting a diagnostic assessment. stand that the change likely will take longer than Step 5. Defining processes and determining the tenure of any government, and bipartisan sup- capabilities. port for the effort is required. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 17 A governance structure is needed to direct and with a diagnostic framework established to under- monitor performance. Each border management stand the current or baseline position. Lessons from agency must secure the political and financial com- within and outside the country should be incorpo- mitment to tailor collaborative border management rated. There should be a method for each agency concept to its own requirements, assess its adminis- to follow in determining its required collaborative trative capacity, develop its transformation program, border management capabilities, the solutions it select the right partners to support the program, and requires, the impact of any resulting changes, and evolve and align its business models and technical its roadmap to transformation. strategies in ways that demonstrate the value of col- laborative border management to both governments Defining processes and determining capabilities. and citizens. A common mission must be created for Establishing a process catalog--mapping all the participating border management agencies. The gov- key processes associated with collaborative border ernance structure must have the authority to define management--promotes seamless integration, with and coordinate implementation, operations, and re- all border management agencies mandated to sup- source management. port trade facilitation and regulatory control. Use- ful for re-engineering individual processes, process Making the business case. Since various stakeholders groups, and end-to-end processes, the process cata- must buy into collaborative border management, the log can quickly reveal duplication and redundancy case for change needs to be proved. A clear vision in business operations, identify best practices, and with associated business outcomes can start this distinguish between core and noncore processes. process. But for achieving sponsorship, leadership, A capability assessment provides a basis for and stakeholder commitment, a business case is also determining where each agency needs improved critical. administrative capacity. A well designed capabil- Governments, and all the stakeholders in the ity assessment should focus on operations effi- supply chain that interact in any way with border ciency and having a knowledgeable, skilled, and management agencies, need to understand the ben- motivated workforce in the right place at the right efits that collaborative border management can time. It should lead to greater flexibility and speed bring them. Among the central benefits are more of execution, increasing partner effectiveness and predictable goods clearance and reduced compliance satisfaction. costs. In analyzing resourcing decisions it is critical to understand and map the relationship between Planning for transformation. The previous steps effective investments and their impact on overall focus on design issues for reform and moderniza- 2 business outcomes. It should be carefully ensured tion. In transformation itself, the rigorous plan- that positive actions for one area or agency (such as ning of development, testing, and operational readi- The future of border management adding cost efficiencies to its information and com- ness is extremely important. Critical requirements munications technology management) do not harm for a plan--best articulated as a transformation efforts in another area or agency. Increased informa- roadmap--include socializing and documenting tion and communications technology investments, the transformation approach (development and though often cited as a principal means to business implementation considerations) and examining outcomes, can be of limited value if considered with- the nature, scale, and impact of collaborative bor- out attention to other variables such as overall pro- der management transformation management. The ductivity and staff deployment levels. transformation roadmap should include: · The roadmap itself, preferably a graphic show- Conducting a diagnostic assessment. For border man- ing key milestones representing new services or agement agencies setting out on a transformation capabilities. journey, business operations need to continue unin- · A business process direction plan defining major terrupted. To begin the journey, an agency's current business processes, organizational roles, required position must be assessed against its target position, legislation, and required policy changes. 18 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N · An information and communications tech- experience gained at reference sites and the out- nology plan describing the future reference comes achieved. architecture. · The strength of the vendor's proposed program · A communication plan for both internal and ex- management and delivery team. ternal audiences. · The scale and track record of the vendor in the · A testing and conversion plan for adapting ref- local market. This is required to ensure that an erence data to the new operating environment. international candidate will operate effectively. · A training performance and support plan. · The vendor's financial ability to support a pro- The fi nal element in transformation planning gram of this scale. is the selection of contracting partners and delivery suppliers. There are numerous examples of public An example of the goods clearance process agencies pursuing public-private partnership en- under collaborative border management gagement arrangements--in some cases requiring The following example outlines a core border the private sector to fund the entire program-- process--goods clearance--within collaborative that, at the time of contracting, revert to traditional border management. A single window is best used and adversarial contract negotiations. At the time in conjunction with a back office processing sys- of negotiation it is critical that the client and ven- tem (chapter 8). This provides border management dor teams understand the type of relationship that agency staff, customers, and other supply chain part- is being contracted and that they have experience ners with a single view of the customer and a single in it. Without such understanding and experience way to input and read customer and transaction the long term relationship will be jeopardized and information, examination results, and the like. The the form of the contract will not be ideal for either processing work, such as risk analysis or document party. validation, is done by the border management agen- Criteria that the tender should seek to evidence cies either collaboratively or individually, as appro- should include: priate, with the results available to view through the · The vendor's relevant experience in a transfor- single window. For example, common single window mation program of this type and scale. Th is may services could allow customers to register new autho- include a minimum number of completed pro- rizations or customs clearance documents. grams or a minimum number of years of experi- A high level process model for goods clearance ence in such programs. is outlined in figure 2.2. In a full process model · The strength of the vendor's relevant reference the subtasks in each process step would need to be sites. Th is would consider the relevance of the defined. 2 Figure 2.2 Goods clearance using collaborative border management The future of border management Virtual border Physical border Trade initiation Vessel and carrier clearance Cargo clearance Postclearance Trade Vessel Intelligence Surveillance Post- Trade order authorization Transport Goods or carrier and risk and Audit clearance processing document logistics clearance clearance screening inspection follow up application Single window Back office systems B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 19 Trade initiation consignments and related importers and ex- The trade initiation component includes the estab- porters are matched against the watch list and lishment of new trader licenses and authorizations the target list stored in the risk analysis system. and the initial declaration of planned goods trans- Preliminary identity approval codes are assigned port. It can be further broken down as follows: to trusted customers, to allow express movement · Trade order processing. Traders negotiate con- of their consignments to their premises imme- tracts and prepare for the application of a trade diately on vessel discharge without regard to authorization document, such as a permit or followup regulatory control. Special constraint license. codes are issued for consignments that require · Trade authorization document application. Trade additional manual checking by border manage- authorization documents, such as licenses, per- ment agencies, so that there is a single and con- mits, authorizations, and certifications, are ap- sistent approach to cargo clearance. plied for and issued. · Surveillance and inspection. Th is follows the · Transport logistics. Traders organize the logistics screening of manifests. Officers are directed of goods transport, from the point of supply to to perform cargo surveillance and inspection the point of demand, notifying regulatory author- at designated locations. Th is could be at the ities of the location of relevant trade documents trusted customers' premises for designated con- (licenses, authorization, customs clearance) to fa- signments or at the terminal operator inspection cilitate the loading or unloading of goods. bays for other customers. The record of customer authorizations and surveillance and inspection Vessel and carrier clearance actions is reconciled with the goods declaration This component involves the submission of port for- as required. mality documents, applications for the clearance of · Goods clearance. Customers submit their declara- vessels, flights, and crews, and port health formali- tions through the single window. This can then ties. It occurs before the arrival or departure of the be used to track and update the declaration-- shipment. Carriers submit their manifests electroni- from registration to assessment, payment, in- cally through the single window as soon as the infor- spection, and release. mation is commercially available or, in any event, · Trusted customers receiving their goods automati- prior to the arrival and discharge of the vessel. cally on vessel discharge. The inspection officers For each cargo a unique consignment reference is perform the physical inspection where required, created. The unique consignment reference can then at their premises, within a designated time. The be used as a single tracking reference for all consign- trusted trader can also be authorized to make 2 ments through to clearance and postclearance audit. a periodic (for example, monthly) declaration Port operators also have access to manifest submis- of all goods received--subsequent to their dis- The future of border management sions, and part of the supporting documentation charge--and to settle outstanding fiscal liabili- should include an application for the loading and ties at that time. unloading of the goods. Upon approval of loading · Standard customers being required to have their and unloading, the port operators can compare un- goods and documentation checked before clearance loaded goods against the lodged manifest and use to the customers' premises. Goods will be released this to produce outturn reports of landed goods. after examination and after payment or guaran- tee of fiscal liabilities. Cargo clearance Occurring when the goods actually arrive or depart, Postclearance activities this component involves: Following examination and inspection, each bor- · Intelligence and risk screening. Consignments der management agency will have sufficient data to are identified for surveillance and inspection. evaluate trends in contraventions, and, depending A cargo search and match of selected cargo on the audit team's resources and capacity, to decide intelligence data is completed. Details of the which audits will be conducted and when. New rules 20 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N for risk analysis can be defined as data and contra- functions, the policies to support the strategy, and ventions are examined. New information, as it is a governance and leadership structure that pro- received, can be shared across agencies to ensure con- vides continual, clear direction. To put the strategy sistent treatment of customers. into effect, a comprehensive collaborative business The postclearance process can also be used to architecture--one that defines the best capabilities, identify common mistakes and educational out- organization structures, processes, competencies, reach opportunities--helping to improve compli- technology, and infrastructure--is required. ance standards among customers and supply chain Collaborative border management can trans- partners--or to periodically review the trusted sta- form how border management agencies do their tus of customers to ensure it is warranted. business in two ways: through intergovernmen- tal and interagency networking arrangements and Conclusion through partnerships with customers. Networking Collaborative border management, if prop- arrangements allow border management agencies to erly designed and implemented and adequately cooperate effectively in accordance with common, resourced, can deliver benefits to government and agreed standards. Customer segmentation allows to the private sector including: border management agencies to deliver enhanced · An increased public awareness of the need services to compliant customers and focus its scarce for integrity and good governance in border resources on more value added intelligence and risk- management. driven interventions. Countries will receive security · A clear articulation of policy and procedural re- and compliance management benefits from such ar- quirements and commitments directly related to rangements--while the more developed countries regional and international agreements. will be able to share facilities and knowledge with · Prompt and predictable clearance processing for the less developed, helping build their capacity. Fi- compliant traders and passengers. nally, the developed nations will benefit from the · Transparency about the costs--to the business increased sophistication and performance of their community and the traveling public--of ineffi- previously less developed partners. Unlike in the cient, outdated, and redundant border manage- business or military world, where actors strive to ment formalities. gain a competitive advantage against their rivals, col- · Increased attractiveness to foreign investment. laborative border management is win-win: strength- · A more responsive border management opera- ening a partner's capacity reduces pressure on one's tion, playing a central role in protecting society own. from a range of threats to national security (see chapter 18). Notes 2 For collaborative border management to be ef- fective, border management agencies should develop 1. Recommendation 33 from the United Na- The future of border management a common vision and an interagency approach. Even tions Centre for Trade Facilitation and if particular regulatory control and trade facilitation Electronic Business (UN/CEFACT 2005) activities are distributed across multiple agencies, defi nes a single window as "a facility that all functions and organizations should be aligned allows parties involved in trade and trans- around the same mission, should work together to port to lodge standardized information and achieve the same goals, and should integrate their documents with a single entry point to ful- information seamlessly (within data protection and fi ll all import, export, and transit-related privacy legislation requirements). regulatory requirements." The recommen- Grouping agencies into a single border agency dation emphasizes that: "If information is may create the impetus for collaborative border electronic, then individual data elements management--but underlying coordination barri- should only be submitted once." See http:// ers will still need to be addressed. Success requires www.unece.org/cefact/recommendations/ a clearly defined strategy across border management rec_index.htm. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 21 2. See the World Customs Organization's tCustoms_Outsourcing _Strategic_Ser- SAFE Framework of Standards to Secure vice_Delivery_032009.pdf . and Facilitate Global Trade (WCO 2007) and its International Convention on the Sim- References plification and Harmonisation of Customs Procedures (As Amended), or Revised Kyoto Gordhan, P. 2007. "Customs in the 21st Century." Convention, which was adopted in 1999 and World Customs Journal 1 (1): 49­54. came into force in 2006 (WCO 1999). Grainger, A. 2008. "Trade Facilitation and Import- 3. See "Customs 2020: A Business and Technol- Export Procedures in the EU: Striking the Right ogy Point of View," Accenture, http://www. Balance for International Trade." Briefing Paper, accenture.com/NR/rdonlyres/DF096E3D European Parliament's Committee on Interna- -A1B9-44D6-91C3-340935DD4B74/0/ tional Trade, European Parliament, Brussels. Accent u re _Cu stom s _ 2 0 2 0 _ E ng l i sh UN/CEFACT (United Nations Centre for Trade Fa- _032009.pdf. cilitation and Electronic Business). 2005. "Rec- 4. See "Doha Development Agenda: Negotia- ommendation and Guidelines on Establishing tions, implementation and development," a Single Window to Enhance the Efficient Ex- World Trade Organization, www.wto.org/ change of Information between Trade and Gov- english/tratop_e/dda_e/dda_e.htm. ernment: Recommendation No. 33." United 5. See "Enterprise and industry: better regu- Nations Publication ECE/TRADE/352, lation," European Commission, http:// United Nations Economic Commission for Eu- ec.europa.eu/enterprise/admin-burdens rope (UNECE), Geneva. -reduction/action_program_en.htm. WCO (World Customs Organization). 1999. In- 6. See "Outsourcing as a Strategic Delivery ternational Convention on the Simplification Option for Customs Administrations," and Harmonisation of Customs Procedures (As Accenture, http://www.accenture.com/ Amended). Brussels: WCO. NR/rdonlyres/2FAB0A39-34B8-49BC ------. 2007. SAFE Framework of Standards to Se- -B9B5-294DC3715503/0/Accenture_ cure and Facilitate Global Trade. Brussels: WCO. 2 The future of border management 22 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N CHAPTER 3 Border management modernization and the trade supply chain Monica Alina Mustra Trade facilitation helps countries achieve national development objec- tives. It makes them more competitive, allowing goods and services to be traded on time and at low transaction cost. But many developing coun- tries will be unable to take advantage of international trade opportuni- ties unless they can go beyond the traditional reform agenda--almost exclusively dedicated to customs reform and hard infrastructure--and invest in areas where trade is most constrained. Trade facilitation, development, perspective on the supply chain, fo- and competitiveness cusing not simply on trade procedures but also on import and export supply Facilitating trade may require reform- chains and the physical movement of ing and modernizing border manage- goods. Hence, a more comprehensive ment institutions, changing transport definition of trade facilitation would be regulation policy, and investing in infra- "identifying and addressing bottlenecks structure. A trade supply chain is only that are imposed by weaknesses in trade as strong as its weakest link.1 Locating related logistics and regulatory regimes the weakest links and addressing them and that prevent the timely, cost effec- through targeted development interven- tive movement of goods." Th is wider tions has therefore become a major ele- definition implies that trade facilitation ment of the new trade facilitation and concerns logistics, transport facilitation, logistics agenda. and trade related infrastructure, with the simplification and rationalization of A practical focus for regulatory and commercial procedures trade facilitation and the elimination of unnecessary red Trade facilitation has no universally tape. accepted definition. A narrow, yet Adopting a wider supply chain consistent defi nition used by many perspective is more beneficial for com- facilitation bodies in developed mercial competitiveness, since firms de- economies--and the one informing pend on the entire chain to connect to current trade facilitation reforms--is regional and international markets in "the simplification, standardization, a manner that is timely, cost effective, and harmonization of procedures and and--above all--reliable and predict- associated information flows to move able. The performance of trade supply goods from seller to buyer and to make chains--especially their reliability--is payment." determined by a complex set of factors However, trade facilitation practi- organized under three broad categories tioners recently have adopted a broader (discussed in more detail in the next B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 23 section of this chapter): the quality of trade related logistics costs often have a greater impact on trade infrastructure, the efficiency of trade procedures and than tariffs do. Recent empirical literature has pro- regulations, and the quality and availability of pri- vided evidence on the cost of inefficiencies and the vate sector services. potentially large returns on investments that can The supply chain perspective is also reflected in be obtained through targeted reforms (Wilson, the operational focus of trade facilitation, as sup- Mann, and Otsuki 2004). To remain competitive, ported by the World Bank and other development countries will need to reduce trading costs, bolster partners. The main focus areas are: export competitiveness, and pursue trade support- · Investing in infrastructure. ive policies. All these factors are important, but · Modernizing customs and improving the border trade facilitation reform should be emphasized, as crossing environment. it plays a major role in improving national competi- · Streamlining documentary requirements and tiveness. The World Bank's Logistics Performance information flows. Index (LPI; box 3.1) indicates that trade logistics · Ensuring efficiency in gateways, such as ports performance is directly linked with important eco- and airports. nomic outcomes such as growth, trade expansion, · Regulating logistics and transport services and and export diversification (Arvis and others 2010). making them competitive. Countries with better logistics can grow faster, be- · Facilitating corridors and transit trade, espe- come more competitive, and increase their trade in- cially in landlocked countries. vestments. Research shows that increasing logistics · Promoting multimodal freight transport performance in low income countries to the middle (railroads). income average could boost trade by around 15 per- · Ensuring transport security. cent and benefit all firms and consumers through lower prices and better services (Hoekman and A growing awareness of the Nicita 2008). need for trade facilitation Similar evidence emerges from the past four Practical trade and transport facilitation reform has years of cross country comparable performance indi- become a key development priority in recent years. cator sets, which previously were only partially avail- Several factors contribute to the growing impor- able. The newly available indicators--including the tance of this agenda for policymakers and develop- LPI, the World Bank's Doing Business Initiative (see ment agencies. box 3.1), and the World Economic Forum's Global First, the economic benefits of trade facilitation Enabling Trade Index--have sounded an urgent call are now widely acknowledged, especially given that to reform in countries with unexpectedly low index 3 Box 3.1 The Logistics Performance Index and Doing Business Indicators Border management modernization and the trade supply chain The Logistics Performance Index (LPI) is the first international benchmarking tool focused on measuring the ease of trade and transport logistics by country (online at http://www.worldbank.org/lpi). Based on a world survey that the World Bank conducts every two years--covering 155 countries, and completed by nearly 1,000 logistics professionals at international freight forwarders and express carriers (Arvis and others 2010)--each LPI report contains a comprehensive cross country assessment to help countries identify their challenges and opportuni- ties in trade and transport logistics performance. Disaggregated data in six categories highlight problem areas. Jointly maintained by the International Finance Corporation and the World Bank, the Doing Business data- base is a major initiative providing objective measures of business regulations and enforcement (online at www. doingbusiness.org). Doing Business 2010 presents quantitative indicators on business regulations and property rights protection that can be compared across 183 economies and over time. The dataset also includes indica- tors on trade regulations. Even though the LPI and the Doing Business Indicators have different purposes and measure different dimen- sions of performance, the relative rankings of countries on both indices are broadly similar. 24 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Table 3.1 Average transaction times for cross border trade, by region (Logistics Performance Index data, 2010) Customs clearance time (days) Physical inspection Region or income Without physical With physical (percentage of Time to export Time to import classification inspection inspection shipments) (days) (days) Region East Asia and Pacific 1.55 3.36 25 3.58 4.93 Europe and Central Asia 1.48 1.89 26 2.77 3.00 Latin America and Caribbean 1.62 3.41 23 3.84 5.50 Middle East and North Africa 1.78 2.91 45 2.75 7.22 South Asia 2.17 3.20 35 1.88 3.30 Sub-Saharan Africa 2.83 4.94 36 7.79 7.05 Income classification High income 0.83 1.83 2.49 2.53 3.86 Note: Time to export (days) is the median export lead time for the port and airport supply chains. Time to import (days) is the median import lead time for the port and airport supply chains. The Logistics Performance Index methodology uses the World Bank classification of countries (for detailed information, visit http://worldbank.org/data). Source: Logistics Performance Index 2010 (http://www.worldbank.org/lpi). ratings, especially when neighboring and competitor Logistics and trade competitiveness countries scored higher on key indices. The evidence highlights the wide gap in per- Effective connections with international markets formance between low and high income countries, depend on supply chain reliability. A key message but it also indicates significant differences between of the LPI is that, while costs and timeliness are countries at similar development levels. A useful out- important, traders are primarily concerned with come measure of logistics performance is the time overall reliability and predictability, which can heav- taken to complete trade transactions (table 3.1). ily affect their cost competitiveness and are thus the Clearance times for imported goods, as measured by most important aspects of logistics performance. the LPI, differ greatly by region: in the East Asia and Supply chain unreliability takes many forms. Pacific region they are approximately 1.5 days, but in Long delays and unpredictable goods clearance times Sub-Saharan Africa they can be twice as long. Clear- result from poor infrastructure, inadequate services, ance times as a percentage of total lead times also and excessively bureaucratic border processing sys- differ considerably across regions. For example, in tems and procedures. Excessive physical inspection the Middle East and North Africa region clearance and overreliance on inspector discretion cause large without physical inspection represents 25 percent of variations in clearance times, with multiple inspec- the total lead time, compared with 50­60 percent in tions frequent. Also, increasingly strict safety and 3 the Europe and Central Asia and South Asia regions. security measures impair service in all but the top and the trade supply chain These data suggest that logistics performance is not ranked countries. Border management modernization simply an issue of national income or development High degrees of unpredictability prompt op- but depends heavily on national governments' policy erators to adopt costly hedging strategies, such as and investment choices. maintaining large inventories or switching to more The growing awareness of the need for trade fa- reliable--and expensive--transportation modes cilitation also appears in the many provisions of bi- (Guasch and Kogan 2003). Recent research suggests lateral and regional trade agreements that concern that these induced costs on the supply chain can it. The Doha Round of multilateral trade negotia- be even higher than direct freight costs (Arvis, Ra- tions includes efforts to overhaul and modernize the balland, and Marteau 2007). So unreliability makes World Trade Organization trade facilitation rules, firms less competitive. At the same time, it makes now more than 50 years old (Eglin 2008). The nego- it difficult for developing countries to diversify into tiations have expanded beyond their initial mandate more time sensitive commodities. to include issues outside the fairly narrow domain of Exporters in Malawi and Mozambique, for exam- customs procedures. ple, face tradeoffs between direct transportation costs B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 25 Figure 3.1 Import lead times and clearance times (number of days), by region 8 Import lead time Clearance time without physical inspection Clearance time with physical inspection 6 4 2 0 East Asia Europe & Latin America Middle East & South Sub-Saharan & Pacific Central Asia & Caribbean North Africa Asia Africa Source: Logistics Performance Index 2010 (http://www.worldbank.org/lpi). and induced costs. Exporters of sugar--a commod- Delivery delays may be more important to logis- ity that is inexpensive and not time sensitive--save tics performance than import and export lead times money by sending their product by an unreliable rail- are. Surprisingly, lead times are relatively lower--at way to a small and fairly unproductive port (Nacala in least in developing countries--than was previously northern Mozambique) for intermediate storage. In thought (Arvis and others 2010). Usually they are contrast, garment manufacturers participating in the much lower than typical ocean shipping times to preferential African Growth and Opportunity Act distant markets. program with the United States pay to truck goods to 3 the more distant, but efficient, South African ports The first generation of reform projects: of Durban and the Cape (World Bank forthcoming). infrastructure and customs Border management modernization and the trade supply chain Delays tend to rise steeply with lower logistics per- Trade facilitation requires a commitment to invest- formance, as illustrated by a stark difference in reli- ment and reform in three main areas: trade related ability between countries at the bottom and top of the infrastructure, border processing and clearance sys- LPI (Arvis, Mustra, and others 2007; Arvis and oth- tems and procedures, and logistics services. Unlike ers 2010). In the highest performing countries import multilateral trade liberalization, which requires and export shipments nearly always arrive on sched- international coordination, trade facilitation often ule. In low performing countries they do not, accord- consists primarily of initiatives carried out for just ing to about half of survey respondents. In the fourth one country or region. It can require bilateral or through second quintiles there is also a considerable regional cooperation in some cases--for example, in gap in performance between exports and imports: the trade facilitation for land border trade and for land- export supply chain appears substantially more reli- locked country transit trade. able. Curbing unreliability in inland transit, clearance During the last two decades trade facilita- processes, and other services is therefore crucial to lo- tion projects in developing countries have focused gistics upgrading in low performance countries. mainly on trade related infrastructure (port, road, 26 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N and rail) and on systems and procedures for cus- clearance and the quality of domestic trucking and toms processing and clearance. Such eff orts to customs brokerage services. make the flow of trade cheaper, faster, and more Customs accounts for about a third of total reliable have achieved much progress--though clearance time (Arvis, Mustra, and others 2007)--a more work is needed. The 2007 and 2010 LPIs fact that underlines the continued importance of fa- (Arvis, Mustra, and others 2007; Arvis and oth- cilitation efforts to further integrate border agencies. ers 2010) show encouraging trends, reflecting suc- In some regions additional coordination efforts are cessful trade facilitation projects. For example, in needed to reduce multiple inspections of shipments. port management, the separation of commercial For instance, while in South Asia only 3 percent of activities from statutory and regulatory missions shipments are inspected on more than one occasion, of the port authority is now the norm in develop- the rate is up to four times as high in other regions ing countries, with many examples of successful (East Asia and Pacific, Europe and Central Asia, private sector participation in container terminal Sub-Saharan Africa). Accordingly, discussions on operations. Automated customs procedures are improving border agency cooperation and the de- now commonplace--few countries lack them. A veloping single window regimes remain crucial. study by the World Bank, the International Mon- Clearance times vary greatly by region (fig- etary Fund, and the World Customs Organiza- ure 3.1). While the clearance of imported goods tion found that each developing country customs takes about 1.5 days in the East Asia and Pacific re- agency included in the study had an automated gion, it takes as long as 3 days in Sub-Saharan Af- declaration processing system, some sort of for- rica. Moreover, clearance time as a percentage of malized risk management, a formalized process for total lead time also differs substantially by region. private sector consultation, an active dialogue with For example, clearance without physical inspection the customs administrations in neighboring coun- represents 25 percent of total lead time in the Middle tries, and a general understanding of the need to East and North Africa, but 50­60 percent in Europe balance control and revenue collection with trade and Central Asia and in South Asia. facilitation (World Bank 2006). None of these Nearly every country uses some information and were found in any of the other border manage- communications technology for customs. But most ment agencies engaged in processing and clearing countries need to upgrade information technology import, export, and transit consignments. for other border management agencies--to ratio- Offering grounds for hope, the latest LPI (Arvis nalize and simplify agency procedures, and to bet- and others 2010) reveals modest but positive trends ter exchange information with other trade related in key areas such as customs, investment in private agencies and with trading community members (for services, and the use of information and communi- example, freight forwarders). 3 cations technology for trade. Customs are still ahead In the most recent LPI (Arvis and others 2010), and the trade supply chain of other border agencies across all performance lev- a large percentage of survey respondents describe Border management modernization els, though the gap remains wider for countries with certain areas of the logistics environment in each low index rankings. Customs procedures in all re- LPI quintile "improved" or "much improved" since gions--including high income Organisation for 2005. Progress for some areas is more noticeable in Economic Co-operation and Development (OECD) the higher LPI quintiles (table 3.2). Yet even in the countries--are converging and, with wide use of pre- fi ft h (bottom) quintile, marked improvement was arrival clearance, online submission, and postclear- seen for information and communications technol- ance audit, have improved much more than have ogy (ICT) infrastructure, private logistics services, procedures at other border agencies. Logistics over- and logistics regulations. Progress for border agen- performers (countries higher on the LPI than their cies other than customs--and for transport infra- incomes would predict) have consistently invested structure and corruption--seems less widespread in in reforms and improvements. Highlighted in the the fi fth quintile. LPI are new areas that need more attention, such Ports and corridors in Central and Eastern Af- as the coordination of agencies involved in border rica face the most severe trade facilitation challenges. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 27 Table 3.2 Percentages of international freight forwarders reporting an "improved" or "much improved" logistics environment since 2005, by logistics area and by country quintile on the Logistics Performance Index (2010) Country's quintile on the Logistics Performance Index (2010) Logistics area First (top) quintile Second quintile Third quintile Fourth quintile Fifth (bottom) quintile Customs 66 56 53 54 48 Border agencies other than customs 57 37 33 40 38 ICT infrastructure 77 78 63 56 66 Private logistics services 70 78 66 62 63 Source: Logistics Performance Index 2010 (http://www.worldbank.org/lpi). Evidence suggests that, thanks to various trade fa- · Increasing competition in trade related services, cilitation initiatives, the time taken for containers such as trucking, forwarding, and railways. to clear the port has been reduced in some of the · Improving collaboration among agencies in- poorer countries. Thus Douala, Cameroon has im- volved in border processing and the private sector. proved import processing with a single window-- In addition, more attention will be demanded by and Mombasa, Kenya has done so with a similar problems that are best addressed regionally. port community initiative. Container dwell times The expanding scope of trade facilitation and in both ports have been halved over the last decade, logistics reform is demonstrated in various develop- though the average still exceeds 10 days (Arvis and ment projects being carried out around the world, as others 2010). well as in the trade facilitation negotiations taking Trade corridor infrastructure is critical, espe- place in the World Trade Organization (where the cially for landlocked developing countries. The re- focus has been on extending the coverage of General habilitation of that infrastructure and the provi- Agreement on Tariffs and Trade articles V, VIII and sion of sustainable resources for its maintenance X to areas not previously covered comprehensively are given high priority by development agencies. in the first generation of reforms described above). Governments, therefore, have been upgrading and Work to facilitate trade through transit corridors expanding road networks with help from the devel- for the benefit of landlocked developing countries is opment community. Most road corridors in Africa the special focus of another international initiative: are now fairly good, or at least passable, and conse- the Almaty Programme of Action, launched in 2003 quently poor roads have become less likely to cause under United Nations auspices.2 3 major costs and delays (Arvis, Raballand, and Mar- teau 2007; World Bank 2008b). Even in landlocked Reducing clearance times through collaboration. Border management modernization and the trade supply chain developing countries, major commercial centers are Key to the new border management agenda is a now generally connected by allweather routes. more holistic approach to goods clearance. Such an approach requires better collaboration among all Shifting priorities and needs: improving border management agencies--such as standards, transit, improving services, and reforming sanitary, phytosanitary, transport, and veterinary border management generally agencies--and it requires a modern regulatory com- The emphasis of border management reform is now pliance strategy. Little is achieved when a customs shifting from customs reform, and from first genera- agency adds automation, or when it adopts risk man- tion investments in port and road infrastructure, to agement principles allowing the selective examina- new areas. Trade constraints in these new areas are tion of imports, so long as other agencies are not crosscutting and more institutionally complex. The automated and continue to routinely inspect goods new reform agenda will need to address issues such as: regardless of the level of risk involved. · Improving transport policies and regulations to Clearance times have been reduced by a trade strengthen market structure. facilitation project for border management in the 28 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Figure 3.2 Clearance times for containers at the Port of Radès, Tunisia, 2006­08 Days 12 Preclearance post operations Clearance customs and others Postclearance 9 6 3 0 First half Second half First half Second half First half Second half 2006 2007 2008 Source: World Bank project data. Note: Postclearance is the time taken by the consignee to remove the container from the port once formal clearance has been issued. Port of Radès, Tunisia (figure 3.2). The project, sup- II, allow seamless door-to-door operation across ported by the World Bank, has focused on integrat- several borders. But overregulation and a focus on ing the clearance procedures of various agencies. As costly, inefficient controls prevail in many regions, a result, procedures that previously accounted for a resulting in transit times that can amount to sev- third of dwell time have been significantly reduced. eral weeks (World Bank 2008). In most of Africa Further gains are expected once electronic manifest regional treaties provide for regional systems sim- transmission--and an e-payment system--are in ilar to the European mode--but a lack of sound place. implementation mechanisms and poor cooperation among countries have made the systems less effec- 3 Making transit regimes more effi cient. The new tive than they should be. and the trade supply chain agenda will also need to make control more effi- The international trade community now accepts Border management modernization cient for goods that must cross more than one bor- that improving transit is a top priority, especially for der to reach their final destination. A cost effective landlocked developing countries. Infrastructure in- transit regime that reliably guards against leakage vestments are unlikely to facilitate trade unless ac- into transit country markets requires bilateral and companied by transit regime improvements. regional cooperation. Such a transit regime is most critical to the economies of landlocked developing Improving logistics and related services. Finally, countries, whose access to foreign markets is often another essential part of the new agenda is the constrained. Yet transit regimes along important improvement of logistics and other services that sup- corridors in the developing world are often inef- port trade. Freight cost differentials among countries fective. True, there are some exceptions: efficient often result from inefficiencies in the market struc- regional transit systems, such as the Transports ture for transport providers--and from regulations Internationaux Routiers (TIR) and common tran- that prevent open competition (Raballand and Tera- sit systems, developed in Europe after World War vaninthorn 2008). Trucking in Western and Central B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 29 African corridors suffers from strict market regula- countries to four broad groups in which logistics per- tion that depresses transport quality and limits vehi- formance is largely correlated with country income: cle use: a truck may go as little as 2,000 kilometers a · Logistics friendly (top quintile): high performers, month (compare the United States, where trucks go and for the most part high income countries. almost 10 times as far). As a result, fi xed costs (gross · Consistent logistics performers (second quintile): margin) and transportation costs for these corridors typically emerging economies with a strong lo- are excessive--up to three times higher than for com- gistics constituency. petitive corridors in Southern Africa, where competi- · Partial logistics performers (third and fourth tion makes transport services better and less expen- quintile): typically low or middle income coun- sive and their market more efficient. tries that have not yet consistently addressed all Although the problem is recognized, govern- the factors in their poor logistics performance. ments and the international development community · Logistics unfr iendly (bottom quintile): severely have limited experience with reforms to improve pri- logistically constrained, typically the least de- vate logistics services. So the new agenda must focus veloped countries. on providing meaningful incentives for reliable, high Using these four groups, and based on the analy- quality services--notably by eliminating entry barri- sis of various performance factors, one can build a ers. Yet this mission presents new challenges: in par- rough intuitive typology of typical constraints faced ticular, reformers will face political-economic oppo- by countries in each group (table 3.3). sition to departures from existing business practices and to changes that limit rentseeking. For example, Stepping up implementation retired customs officers in many developing countries enjoy customs broker licenses as an unofficial privi- Although the priorities may be set and the initiatives lege. And informal, fragmented trucking regimes are are in place, implementation must still be empha- often maintained in such countries to meet social sized if serious progress is to be made. Progress can goals, even when economic harm results in the long be ensured in three ways: by focusing on collective term. Even in the least efficient environments, some aspects of reform, by considering a large portfolio of stakeholders stand to lose from reforms. development assistance programs, and by obtaining technical assistance. Countries and constraints A supply chain is only as strong as its weakest link. The Promoting trade facilitation benefits of progress in one area may not be realized is a collective effort until impediments in other areas are removed.3 Illus- Many entities are working to help developing coun- 3 trating this interdependence, a recent typology assigns try policymakers and stakeholders carry out trade Border management modernization and the trade supply chain Table 3.3 Typical kinds and degrees of logistics trade constraints, by country logistics performance group and area of logistics impediment Area of logistics impediment Country logistics Trade related Quality and supply Core customs Integration of border Regional facilitation performance group infrastructure of logistics services modernization management and transit Logistics friendly Few bottlenecks, Industry leaders Best practice Lesser problem Streamlined except rail Consistent logistics Capacity bottlenecks to Emergence of a No longer a constraint Typically the final Depends on the region performer support trade expansion diversified supply of binding constraint logistics services Partial logistics Major constraint Weak market Potentially a major Major constraint Problematic performer constraint Logistics unfriendly Serious constraint Low development Often still a major Major constraint Main problem for constraint landlocked least developed countries Source: Logistics performance survey data, 2009. 30 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N facilitation reform and modernization (box 3.2). International Road Transport Union (IRU). Also Their activities include projects on the ground--but helping to put reforms in place are regional organi- they also include the promotion of international zations, such as United Nations commissions and standards and practices to guide reform. regional development banks. Bilateral agencies are Key participants at the global level include the main donors of technical assistance.4 Finally, the the World Bank, the United Nations Conference reference forum in trade and transport facilitation is on Trade and Development (UNCTAD), the the Global Facilitation Partnership for Transporta- United Nations Economic Commission for Eu- tion and Trade, a network of 250 public and private rope (UNECE), the World Customs Organization partners launched in 1999. Its participants work (WCO), the World Trade Organization, the Or- together to design and carry out programs, create ganisation for Economic Co-operation and Devel- knowledge, and support training opportunities. opment (OECD), and the International Monetary Several ongoing initiatives have created these Fund (IMF). Private global groups also help to set partnerships and stimulated implementation in de- priorities, and sometimes are involved in implemen- veloping countries. Launched in 2005, the World tation: such groups include the International Cham- Bank's Trade Facilitation Negotiations Support ber of Commerce (ICC), the International Federa- Project (TFNSP) helps developing countries to tion of Freight Forwarders Associations (FIATA), the negotiate new trade facilitation agreements in the Global Express Association (GEA), the Interna- World Trade Organization and to understand their tional Air Transport Association (IATA), and the related capacity deficits. Box 3.2 Supporters of trade facilitation activities in developing countries International organizations Regional and bilateral entities and agreements · World Trade Organization (WTO) · Regional and subregional economic unions · World Customs Organization (WCO) · Association of Southeast Asian Nations (ASEAN) · United Nations Economic Commission for Europe · Common Market for Eastern and Southern Africa (UNECE) (COMESA) · United Nations Centre for Trade Facilitation and · East African Community (EAC) Electronic Business (UN/CEFACT) · Southern African Development Community · United Nations Conference on Trade and Develop- (SADC) ment (UNCTAD) · Mercado Común del Sur (Southern Common · International Civil Aviation Organization (ICAO) Market; Mercosur) · International Maritime Organization (IMO) · And others (185 regional agreements were regis- · The World Bank tered with the WTO as being in force at the end 3 · International Monetary Fund (IMF) of 2005) and the trade supply chain Border management modernization · Organisation for Economic Co-operation and De- · Corridor authorities velopment (OECD) · Regional United Nations agencies · Regional international financial institutions · Regional international financial institutions · Organization for Security and Co-operation in Eu- Global business, nongovernmental organizations rope (OSCE) and institutions, and forums · International Road Transport Union (IRU) National entities · International Chamber of Commerce (ICC) · Trade and transport facilitation and coordina- · International Federation of Freight Forwarders As- tion committees and task forces, along with trade sociations (FIATA) procedures committees (UNECE currently has 48 · International Air Transport Association (IATA) registered) · World Economic Forum (WEF) · Customs and other border agencies · Global Express Association (GEA) · Transport agencies and operators · Global Facilitation Partnership for Transportation · Private sector associations (forwarders, shippers, and Trade (GFPTT) truckers, and so on) B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 31 A growing portfolio of development many countries, the projects increasingly support assistance: the example of The World Bank the modernization of other agencies with border Over the last five years the World Bank and other responsibilities--for example, agencies concerned agencies have increased their stake in trade and with health, police, quarantine, agriculture, immi- transport facilitation. Responding to changing gration, and product standards. demands and priorities, World Bank projects have Corridor projects are increasingly important to grown and diversified--investments and reforms the World Bank's trade facilitation work program. are now complemented by technical assistance and Each covers several countries along a single trade knowledge sharing. corridor, addressing gaps in areas such as infrastruc- The World Bank's projects in support of trade fa- ture, border management, and trade transit systems. cilitation totaled about $2.3 billion in commitments Recent examples include projects in Central Africa for fiscal year 2009, representing approximately 70 (box 3.3) as well as in Eastern and Western Africa, percent of the World Bank's total trade related lend- Central America, and Pakistan and Afghanistan. ing (figure 3.3). The most significant projects are for The share of trade facilitation lending commitments modernizing customs, improving gateway infra- to each World Bank region over fiscal 2004­09 is structure (for example, at ports and airports), mod- shown in figure 3.4. ernizing trade corridors, improving export promo- The World Bank continues to support infra- tion, improving trade facilitation and logistics, and structure projects related to trade, with an em- modernizing multimodal transport. phasis on ports and airports. The most challeng- The World Bank has made customs modern- ing sector has proved to be multimodal transport ization a major part of its portfolio, financing over (railways). Although reform in this sector can re- 120 related projects over the past two decades. Such duce freight costs and carbon footprints, its pres- projects at present total $409 million, with an addi- ent state makes it marginal to logistics in less devel- tional $150 million under development. Although oped countries--and even in many middle income improving customs remains a high priority for countries. Figure 3.3 World Bank trade facilitation lending commitments for fiscal 2002­09, by project type US dollars (millions) 2,500 Trade facilitation Development policy lending 3 2,000 Border management modernization and the trade supply chain 1,500 1,000 500 0 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal year Source: World Bank project data. 32 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Box 3.3 Re-engineering transit regimes: the case of Central Africa It is now accepted that regional transit trade arrangements in Asia and Africa should be re-engineered along the lines of systems already working in Europe.1 For example, both Chad and the Central African Republic are served primarily by a road and rail corridor running through the port of Douala in Cameroon. Goods transit used to take up to six weeks or even more. Seven documents were required, all to be cleared by three separate offices. And there were several checkpoints and controls on the roads to both landlocked countries. Thanks mainly to strong leadership from Cameroonian customs, and as part of a World Bank regional corridor project, agreement was reached on a revised transit system. The main elements of the agreement are: · The introduction of one common document (modeled on the European Union Single Administrative Document). · The removal of intermediate checkpoints. · The use of ICT based on UNCTAD's Automated System for Customs Data (ASYCUDA) system. · The addition of a bar code to each transit document and container, with optical reading at borders. · A new bonds system. Note 1. One such system is the the Transports Internationaux Routiers (TIR), an arrangement now 60 years old that was instrumental in the development of trade across European borders (discussed in chapter 17; see also http://www.iru.org/index/en_iru_about_tir). Figure 3.4 Regional breakdown of World Bank The World Bank and other organizations pro- trade facilitation lending commitments vide technical assistance to developing countries in for fiscal 2004­09 four ways: · Making reform toolkits (customs moderniza- South Asia Middle East and 3% tion handbooks, port reforms) available. North Africa 4% · Providing data on trade facilitation (such as the LPI and Doing Business Indicators). Sub-Saharan Africa · Diagnosing weaknesses, for example through Latin America 23% Trade and Transport Facilitation Assessments and Caribbean 20% (TTFAs), which are especially important for East Asia and Pacific project preparation in least developed countries 9% (see World Bank 2010; Raven 2001, 2005). · Helping domestic or regional institutions to de- Europe and Central Asia 41% sign and carry out reforms. The recently established Trade Facilitation Fa- 3 cility (TFF; box 3.4) will further expand technical and the trade supply chain Source: World Bank project data. assistance. Border management modernization Further increasing impact: technical assistance Conclusion There is growing demand from developing country governments, not just for reform project investments, The recent economic downturn has made trade but also for advice, knowledge, and technical assis- facilitation even more relevant than before, while tance (with which lending is increasingly linked). it gives reformers an opportunity to prevail against Most supply chain reliability gains and logistics cost opposing constituencies. As international ship- reductions are likely to result from inexpensive mea- ping costs have dropped dramatically, so the cost sures such as organizational change and regulatory of domestic obstacles to trade--as a share of total reform. Still, in many client countries--and espe- trade costs--has risen. Changes in demand and cially least developed countries--trade facilitation in cost structures have led international buy- measures are easier to carry out as parts of larger ers to favor leaner, shorter, more reliable supply financial packages than as standalone activities. chains (McKinsey & Company 2008a, 2008b). B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 33 2. For information on the Almaty Programme Box 3.4 The World Bank Trade Facilitation Facility of Action: Addressing the Special Needs of Landlocked Developing Countries within a A program launched in April 2009, the World Bank New Global Framework for Transit Trans- Trade Facilitation Facility (TFF) helps countries carry port Cooperation for Landlocked and Tran- out practical initiatives in five key areas: border sit Developing Countries, see the United management improvement, institutional develop- Nations Office of the High Representative ment, transit and regional facilitation, logistics ser- for the Least Developed Countries, Land- vices markets, and gateway infrastructure. locked Developing Countries and Small The TFF delivers assistance through technical Island Developing States (UN-OHRLLS), advisory services and capacity building. There are four forms of assistance: http://www.un.org/special-rep/ohrlls/lldc/ · Long term technical advisers support policy and default.htm#ALMATY. For the document, regulatory reforms related to trade and transport see www.un.org/special-rep/ohrlls/lldc/ facilitation. Almaty_PoA.pdf. · Short term advisory services support the design 3. Th is is especially true for investments in and improvement of regional trade facilitation ICT, which are unlikely to deliver results if and transit regimes. they are limited to customs and do not in- · Technical support helps to improve border man- volve other agencies. Investments in corridor agement, clearance, technical controls, and standards systems. infrastructure will not reduce trade costs if · Capacity building promotes better design, in- they are not complemented by measures to vestment, and management for infrastructure improve the transit systems and the quality that is critical to support trade. of services delivered by truck or multimodal At present the TFF is supported by the govern- transportation. Likewise, the adoption of ments of Sweden, the United Kingdom, and the modern approaches to risk management by Netherlands. customs simply will not deliver rapid clear- ance if standards and quarantine agencies So countries with poor logistics performance, and continue to require the physical inspection countries that depend chiefly on land transport for of all imports that fall into any of a large exporting, are at an even greater disadvantage dur- range of tariff headings. ing the crisis. 4. For statistics from the World Trade Orga- Meanwhile, the economic crisis constitutes an nization Doha Development Agenda Trade opportunity to rethink priorities--even as it leads Capacity Building Database (established 3 to the first decline in international trade in 25 years, jointly by the World Trade Organization pushing millions of people back into crippling pov- and the Organisation for Economic Co- Border management modernization and the trade supply chain erty throughout the developing world. Governments operation and Development's Development are boosting public investment to counter falling de- Assistance Committee), see http://tcbdb. mand. In doing so they should target projects with wto.org. large economic payoffs, including trade facilitation projects. Similarly, development agencies should References counter the impact of the crisis by supporting re- forms to reduce trade costs. Large benefits can re- Arvis, J., M. Mustra, L. Ojala, B. Shepherd, and D. sult for developing countries that depend heavily on Saslavsky. 2010. Connecting to Compete: Trade trade. Logistics in the Global Economy. Washington, DC: The World Bank. Notes Arvis, J., M. Mustra, J. Panzer, L. Ojala, and T. Naula. 2007. Connecting to Compete: Trade Logistics 1. A key message of the World Bank's Logistics in the Global Economy. Washington, DC: The Performance Index (see box 3.1). World Bank. 34 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Arvis, J., G. Raballand, and J. Marteau. 2007. "The Raven, J. 2001. Trade and Transport Facilitation: A Cost of Being Landlocked: Logistics Costs Toolkit for Audit, Analysis and Remedial Action. and Supply Chain Reliability." Policy Research Washington, DC: The World Bank. Working Paper 4258, World Bank, Washington, ------. 2005. A Trade and Transport Facilitation DC. Toolkit: Audit, Analysis and Remedial Action. Eglin, R. 2008. "The Doha Round Negotiations on Washington, DC: The World Bank. Trade Facilitation." The Global Enabling Trade Wilson, J. S., C. L. Mann, and T. Otsuki. 2004. "As- Report 2008. Geneva: World Economic Forum. sessing the Potential Benefit of Trade Facilitation: 35­9. A Global Perspective." Policy Research Working Guasch, J., and J.L. Kogan. 2003. "Just in Case In- Paper 3224, World Bank, Washington, DC. ventories: A Cross Country Analysis." Policy World Bank. 2006. "Needs, Priorities and Costs As- Research Working Paper 3012, World Bank, sociated with Technical Assistance and Capacity Washington, DC. Building for Implementation of a WTO Trade Hoekman, B., and A. Nicita. 2008. "Trade Policy, Facilitation Agreement: A Comparative Study Trade Costs, and Developing Country Trade." Based on Six Developing Countries." Working Policy Research Working Paper 4797, World Paper, International Trade Department, World Bank, Washington, DC. Bank, Washington, DC. McKinsey & Company, Inc. 2008a. "How Compa- ------. 2008. "Improving Trade and Transport for nies Act on Global Trends: A McKinsey Global Landlocked Developing Countries: World Survey." McKinsey Quarterly. April. http:// Bank Contributions to Implementing the Al- www.mckinseyquarterly.com. maty Program of Action: A Report for the Mid- ------. 2008b. "Managing Global Supply Chains: A Term Review." October. Washington, DC: The McKinsey Global Survey." McKinsey Quarterly. World Bank. June. http://www.mckinseyquarterly.com. ------. 2010. Trade and Transport Facilitation As- Raballand, G., and S. Teravaninthorn. 2008. Trans- sessment: A Practical Toolkit for Implementation. port Prices and Costs in Africa: A Review of the Washington, DC: The World Bank. International Corridors. Directions in Devel- ------. Forthcoming. Malawi Country Economic opment Series. Washington, DC: The World Memorandum 2009. Washington, DC: The Bank. World Bank. 3 and the trade supply chain Border management modernization B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 35 CHAPTER 4 Borders, their design, and their operation Michel Zarnowiecki Governments and the development community have invested signifi- cantly in border management reform and modernization. A notable part of that investment has gone to improve border station infrastructure. But experience shows that land border station infrastructure improvement-- whatever its architectural or engineering merit--rarely contributes to better border management outcomes unless it is supported by the adop- tion of modern approaches to managing passenger and cargo flows. Every border infrastructure invest- · Users are encouraged to comply. ment should follow a comprehensive Compliant users are offered facili- re-engineering of systems and proce- tated service. dures, and it should be designed specifi- · Offenders are identified and cally to support the adoption of modern stopped. border management. Only then can it To do these three things without dis- help to reconcile the two objectives of rupting legitimate trade or causing unac- effective control and trade facilitation. ceptable queues, delays at the border, or This chapter explores key issues for new bottlenecks in the adjacent country (or investments in border station modern- within the country itself), infrastructure ization as part of a wider trade facilita- and equipment must be adequate to sup- tion program. port modern procedures. Even so, proce- dures are only as good as the legislation Definitions and core concepts governing them. To ensure streamlined operations, every agency at the border Border management means the pro- must be involved and must cooperate, cedures applied to persons and objects with appropriate upstream and down- Borders, their design, and their operation crossing the border to ensure they com- stream processes in place. ply with laws. It also means how differ- ent agencies are organized and how they Borders fit into a unified concept of border man- What is a border? Where is it? Often agement. Finally, it means how the phys- these questions can cause confusion, ical infrastructure that accommodates both because of special anomalies (box the agencies is designed and managed. 4.1) and for other reasons. The concept Effective border management means of a border has changed in recent years: ensuring that: borders need not be at a country's geo- · Everyone and everything that graphic periphery, are not holistic, and crosses the border is compliant with can even be outside a country. the laws, regulations, and proce- Traditionally a border is the limit dures of the country. of two countries' sovereignties--or the B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 37 Box 4.1 No man's land and border anomalies There is no such thing as no man's land (except perhaps the sea beyond territorial waters). A land border is an imaginary line, agreed between two countries and usually defined by geographic features (such as a river, water separation line, or mountain range). Someone moving across the border is always on the territory of one or the other country. The reason why "no man's land" is a popular expression is that there is sometimes a blank between two border stations. For technical or other reasons, stations are not always erected on the line, so once outgoing travelers have cleared formalities they may still have to travel to the borderline and from the borderline to the adjacent coun- try's border station. Nevertheless, having cleared outgoing formalities, they are still on the country of exit's terri- tory--and subject to that country's sovereignty. Similarly, when they cross into the other country they are instantly under the jurisdiction of that country, even though they have not yet reached the administrative point of entry. Border anomalies exist. One is the enclave system, where a portion of sovereign territory is surrounded by another country's territory. Territorial continuity may then be ensured by a customs road (as in France between the Spanish enclave of Llivia and mainland Spain, or between the Swiss enclave on French territory at Mulhouse Airport and Switzerland). In other cases the enclave may be totally isolated and its inhabitants may need to cross foreign territory to reach their mainland (a frequent occurrence in Central Asia). There are even enclaves within enclaves. An Uzbek road, for example, crosses a Kazakh enclave located on Uzbek territory. In these cases the enclaves are secured by border stations at points of entry and exit, usually creating difficulties for local popula- tions seeking to travel to their home country. Another apparent anomaly is the status of juxtaposed or shared border facilities, when two countries oper- ate their border crossing procedures at the same location--which may be well inside the territory of one country. In such cases an international agreement is necessary to define the status of the road to the borderline, to avoid legal and jurisdictional difficulties over incidents involving travelers who have cleared entry formalities but still must travel on the exit country's road to arrive at the country of entry. limit beyond which the sovereignty of one no longer free zones, export processing zones, bonded indus- applies. The border, if on land, separates two coun- trial estates, and the like--where goods are deemed tries. Crossing the border means that persons, ve- outside national territory and must pass through hicles, and goods must comply with the laws of the customs control before entering the main territory. exit country and--if immediately contiguous--the The point of exit from the zone--and its perime- entry country. At sea the border is the limit of ter- ter--is, in practice, a border. 4 ritorial waters. Borders usually, but not always, cor- A new tendency is to clear goods on the prem- respond to geographical separation. They may also ises of importers. Among other requirements, the Borders, their design, and their operation be drawn or redrawn along ethnic lines or zones of importers must allocate space in their warehouse for economic influence. The principle of border delinea- uncleared goods. Such space must be materially sepa- tion notably affects border operations. rated from the rest of the building by what amounts A border is not necessarily at the geographical to a border fence or wall. periphery of a country. International gateways can Borders are not holistic. Different processes can be well inside national territory. Airports, railway take place at different places. For example, a truck's stations, and river ports on international waterways driver may be cleared by immigration at the bor- are treated as border stations, even though air trav- der, but the goods transported in the truck may be elers may have been over national territory for hun- cleared at an inland location. Borders then essen- dreds of miles. tially become institution-based and are no longer Inland clearance facilities are areas where goods geographic. are kept before duties and taxes are paid, or before the The borders between the Soviet Union and its goods are released for consumption on the domestic noncommunist neighbors were often doubled. There market. Similarly, economic zones exist--known as was not only a borderline, but also a border zone 38 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N extending far inland. Entry into that zone--whose Crossing a Schengen border means a traveler is purpose was to further control cross border move- cleared for onward travel in other Schengen coun- ments and possible infi ltration by foreign agents-- tries at the first point of entry into the Schengen was restricted to its inhabitants and permit holders, space. However, entry clearance may not be valid for and was controlled through checkpoints. Clearance all countries: Austria admits United Nations Lais- can also be segmented: preclearance may take place sez Passer holders with no visa, whereas they need a in the exit country and final clearance in the entry visa for other Schengen countries. If such a traveler country. For example, immigration checks on both wants to visit a Schengen country that does not ac- the French and British sides of the English Chan- cept United Nations Laissez Passer, he is not consid- nel take place at the ferry ports of embarkation, ered cleared for entrance into that country. but fi nal immigration clearance is granted when disembarking. The customs territory Borders can be outside a country. Some border The customs territory usually coincides with stations operate on foreign soil using agreed co-lo- national territory--but it does not always perfectly cation arrangements. When a station is at a distance coincide. The customs territory is where customs and from the borderline, travelers cleared for entry must other control measures are applicable to goods enter- still travel to the geographical border on a road under ing or leaving the country. Some parts of a national the sovereignty of the exit country. Entry country territory may not be customs territory (free zones, authorities cannot act against such travelers should for example), and some parts of a customs territory the travelers commit offenses before crossing the may be outside the boundaries of the state (as when borderline. parts of co-located border facilities are on foreign At some Canadian airports, United States Cus- territory). Customs and its powers are discussed in toms clears passengers for entry. The passengers are box 4.2. technically under United States jurisdiction and can then disembark at domestic terminals. Should Border crossings a violation be detected, however, the United States Although a border crossing is any point along authorities cannot prosecute them but must hand the borderline where a country can be physically over the offenders to their Canadian counterparts. entered, usually it is a specially established road, Box 4.2 Customs: its zone of competence Although customs is traditionally associated with borders--and in some countries is restricted to border sta- tions--customs has a more general mandate to prevent smuggling. Smuggling can happen at a border station or 4 across a border outside the station precinct. Smugglers usually reduce their risk (in case they should be caught with large quantities of smuggled items) by storing goods in the vicinity of the borderline, managing their opera- Borders, their design, and their operation tions from there, and gradually removing the goods onto the domestic market. For this reason western countries and countries traditionally under their influence have often used two notions: · The customs territory is the part of the national territory where customs laws and procedures are applicable. · A customs border intervention area can be at the border station, along the borderline, or inside a specifically designated zone extending inward from the borderline (usually a 20 to 50 kilometer strip of territory). Customs has comprehensive powers of enforcement throughout the customs territory. However, it has ex- tended powers of control, investigation, search, and arrest within the customs border intervention area. The border station is only an administrative facility for apparently compliant users. Other countries that have modernized their customs legislation--for example, after transition, in order to align to western standards--often refer (redundantly) to a customs territory totally coinciding with their national territory. Nevertheless, these countries usually restrict normal customs operations to parts of approved border crossings designated customs control zones, and to a few inland locations such as inland clearance stations or bonded warehouses. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 39 bridge, tunnel, or building. There are three kinds of crossing the borderline (sometimes with associated border crossings: procedures).1 · Any point of access to the national territory, whether authorized to the public or not. Main functions performed · An unguarded border crossing used by certain at border stations inhabitants--usually local residents, whose property might straddle the border, or other A border station should accommodate customs, people (preapproved or not) who comply with immigration, and other control agencies. all the rules for it. · A guarded border crossing, either restricted to Customs some categories of users and traffic or open to The role of customs is to ensure that goods and pas- all traffic. sengers entering the country are accounted for and that they meet national requirements. Yet in west- Border stations ern countries, where customs for a long time was Border stations are official points of entry into a the only institution to operate at borders, customs is country, where its national sovereignty is officially often used as shorthand for all border management and administratively established and where traffic is functions and agencies. In many countries customs controlled to ensure compliance with its laws. More is still the only administration with a permanent narrowly defined than a border crossing, a border presence at the border. station may serve two countries, and--under inter- national best practice--action taken by officials on Immigration one side of the border may have legal value in the Immigration (box 4.4) verifies the identities of peo- adjacent country. ple entering or leaving the country and confi rms Depending on the mode of transport, border sta- their legal authority to do so, largely by checking tions may have different designs. Rail crossings are passports and visas. Immigration is carried out usually placed at major junctions or marshalling yards, either by a special department or by customs or not necessarily on the border. International airports another police or military authority (border police, and seaports have designs of their own. River landing border guards, or border troops). 2 Usually immi- stations are often placed inside cities or close to them. gration also makes a record of cross border move- Border stations are marked by standard signs (box 4.3). ments. Typically it is not concerned with commer- A border station is often served by a customs cial freight, but only with the legality of the people approved road, a compulsory itinerary for reach- bringing it. Often immigration follows the blanket 4 ing the border station of the country of entry after control concept, under which increased checking is held to increase security and longer waiting times Borders, their design, and their operation are considered acceptable. Box 4.3 Signs for border stations In this chapter border police, border guards, and The international road sign marking border stations border troops are terms used interchangeably to is a red circle around a white disk with a central black describe the agency that carries out immigration horizontal bar. The word customs usually appears in checks (unless there is a specific immigration ser- two languages above and below the bar. Sometimes vice) and that ensures general policing of the border the word police appears instead. Still, people gener- station and borderline (unless this function is also ally refer to a border station as customs--thus blur- exercised by customs). ring the distinction between border management, which is not always only a customs role, and several Other control agencies other functions. Immigration control, for example, may now be separate, though in western countries Control agencies often present at border stations it used to be performed by customs and in many include: cases it still is. · Transport. Transport ministry officials are in charge of weighing trucks, collecting road taxes, 40 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Box 4.4 Customs and immigration In some countries customs handles immigration functions, which is quite logical. Identifying vehicles and individu- als is part of customs risk assessment, and customs officials read passports. In other countries immigration officials replicate customs checks, for various reasons. The police may consider that their primary function is to fight smuggling (sometimes defined as a criminal, not customs, offense). They consider customs prone to corruption, so they want to double check. They look for illegal immigrants, so they will search every commercial vehicle. And in former communist countries, sometimes backed by pretransition legis- lation, they consider that they should run the border, believe that they are responsible for security, and therefore should know everything that is going on--even if they do not have the tools to analyze the information and com- mercial data available. The chosen approach is the prerogative of the country. Yet it should be kept in mind that making customs replicate immigration checks can be expensive and ineffective, can generate conflict, and can be time consum- ing for cross border traffic, which may be checked twice, sometimes with inconsistent procedures and results. and enforcing transport permit and licensing a distinction should be made between the customs requirements. border (wherever goods are cleared) and the physical · Quarantine. Th is includes preventing infec- border station. Most of the other agencies would be tious diseases, disinfecting vehicles, monitoring present at the customs border and not at the physi- health regulations, checking health carnets, and cal station. the like. · Sanitary and phytosanitary. Their purpose is to The private sector at the border ensure that consumers in a country are supplied Private operators at border stations offer various ser- with food that is safe to eat. Control is based on vices related to border processing (box 4.5). Such ser- documentary evidence (certificates) and occa- vices fall into four main categories: sional sampling and testing. · Commercial services include customs clearing · Standards and consumer protection. Industrial brokers (useful in establishing transit docu- products are subject to verification of their con- mentation, though not necessary when goods formity with international, regional, and na- are cleared inland), bank offices (where duties tional standards. and taxes collected by customs and all other · Radiology. Detectors at border stations prevent agencies are often paid), and exchange offices the entry or exit of radioactive material. Atomic (one or several). Differing insurance regula- energy control bodies intervene when a suspicious tions, or the absence of an international stan- 4 consignment is detected, and cooperation with dard (such as the green card for motor vehicle them for risk management is encouraged. insurance), can also require the presence of in- Borders, their design, and their operation · Ecological. In some countries an environmental surance brokers. officer is on duty at the border. · Personal services include parking lots, fuel sta- · Ministry of foreign affairs. In some countries tions and mechanical repair shops, catering fa- visas may be issued at the border and a consular cilities (restaurants, bars, and sometimes hotels), officer is on duty.3 and occasionally tourist offices. · Ministry of commerce. In countries where the · Duty free shops are licensed and bonded ware- commerce ministry used to play a major role in houses outside the country's fiscal territory, of- international trade, it may retain its leading po- fering goods on which domestic taxes are not sition for cargo reporting and issuing and veri- collected (box 4.6). fying import and export permits (which is the · Illegitimate services are inevitably attracted by fundamental element of customs control). crowds staying for long periods at border sta- Many other agencies--up to 40 in some tions. At some border crossings prostitution is countries--may also operate at the border. However, a problem, with its accompaniments (criminals; B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 41 Box 4.5 The private sector at the border There are four reasons why the private sector may want to be present at the border, often supported by the agency that builds or operates the border facility. First, a service is to be provided to travelers. Second, when delays are long, a captive public is good business for restaurants and cafeterias. Third, the agency that runs the border sta- tion usually collects a fee for leasing commercial facilities. Fourth, access to the border zone can facilitate informal cross border activities. However, there is no practical reason why people should be kept waiting at a border station except in cases of fraud or irregularity. Ideally nobody should be kept waiting. Allowing commercial activity at border stations can motivate commercial operators to encourage officials to delay traffic as much as possible, promoting patronage of local facilities. Moreover, commercial activity can cause other problems including: · Uncontrolled movement across the borderline by people offering and facilitating services. · Difficulties in controlling people working at the station who use, and sometimes abuse, the commercial facilities. · Leakages in duty free shops. · Fiscal difficulties with value added tax (VAT) collection and refunds. · Criminal gang activity. · Prostitution. · Corruption. Finally, when there are too many catering facilities border officials tend to use them rather than do their work-- and the size of the border station can also become unmanageable. Box 4.6 The case for duty free shops Travelers are entitled to buy in duty free shops without paying tax. However, when entering the adjacent country they must comply with allowances and pay duty on any excess. Since duty free shops are not for the convenience of officials or local residents who are not genuine travelers, many countries impose a rule such as that the benefit applies only to travelers who remain outside the country for more than 24 hours. Local residents usually have a limited allowance. Duty free shops can take many forms, from floating supermarkets on car ferries (where they bring revenue to the ferry operators) to large scale village markets (common in Central Asia and the Caucasus). In all cases duty free shops should be kept under control. Otherwise they may open an avenue for smuggling, revenue evasion, and money laundering. Shops must be licensed, preferably by the finance ministry acting on a proposal from customs. Licenses must be revocable in cases of fraud or repeated negligence. The design and layout of shops should be approved by customs. Operators should provide a bond or guarantee. Shops should be placed between the last control post of the exit country and the first of the entry country. 4 They normally should report to the country on whose geographic territory they are located. Fencing or separators should limit access to traffic entitled to use the shops. Visible, intelligible notices in several languages should ex- Borders, their design, and their operation plain who is so entitled and what regulations are applicable in both countries. Shopkeepers may be required to ask customers for their passport and note the passport numbers and travelers' names or vehicle registration numbers. Shop operators should keep the same accounting and inventory books as in bonded warehouses. Customs should carry out regular, unannounced, inventory checks. Border staff and employees should be barred from using the shops, especially when on duty and in uniform. Severe penalties should be instituted for violations. The legality of duty free shops at land borders has been disputed. Unlike sea travel--where duty free pur- chases are consumed (in principle) at sea, and can therefore be considered as exported--goods purchased at a land border inevitably will be consumed on another customs territory. They should be taxed on entry--because tourist allowances are based on duty paid items. HIV and other communicable diseases). Simi- Security: new threats and challenges larly, moneychangers and other runners or in- termediaries have been known to extort money With border threats mounting in recent years, from travelers. border stations must provide high security. How 42 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N stations are designed, organized, and operated First, the focus on terrorism ignores other fac- directly affects their security performance. ets of security. Border security is not restricted to Modern border management bases security on preventing the risk of physical attacks on people or intervention by exception. Its efficient procedures property. It also includes revenue collection, con- can meet facilitation objectives while ensuring good sumer protection, and preventing the violation of a security. It does not produce zero risk or blanket country's policies through illicit cross border move- security. ment. Compliance is broadly part of the security agenda--as illustrated by various national, regional, Border stations should protect and international supply chain security efforts. An- Dramatic increases in border traffic over the past other aim of border security is to prevent human and 50 years--and, more recently, fears of terrorism-- animal health risks. Epidemics spread rapidly with have forced governments to design new methods modern transport. The effort to prevent their infi l- of border control and processing, reducing conges- tration at borders includes disinfection and, more tion and waiting times. These new methods, widely recently, scanning travelers on arrival for high tem- adapted in market economy countries, were gradu- perature and other symptoms of infectious disease.4 ally expanded when security became a major issue. Second, focusing on terrorism often leads to an Four of the new methods are: institution by institution approach--which is not · Moving customs clearance away from the physi- the best approach to the risks involved. When secu- cal border and nearer to where the goods are rity is associated with violence there is a tendency to stored or consumed (with an effective internal put the police in charge of protecting the country. transit control scheme). Trade facilitation then risks becoming an unafford- · Establishing an inland safety net, allowing un- able luxury. Yet types of irregularity other than il- detected border fraud and smuggling to be cap- licit movement by terrorists and their weapons may tured inside the country. be highly relevant to security. For example, inconsis- · Developing international cooperation to reduce tent trade patterns--which can be detected through data discrepancy as much as possible. customs document control--may conceal terrorist · Introducing accreditation and voluntary compli- activities, but could be overlooked by police. ance schemes for both travelers and importers, Recent experience suggests that trade facilita- with expedited formalities for those eligible. tion does not increase the risk of terrorism. On the Under this control model the objective is to contrary, it is designed to identify low risk individu- maintain reasonable security without disrupting als and businesses. Interagency cooperation, with cross border movements. The model requires tech- intelligence sharing, joint task forces, and a team nological solutions (X-ray scanners, other detection approach to security, is essential to modern border 4 equipment, information and communications tech- management. nology infrastructure). It also requires major inno- Borders, their design, and their operation vations in postrelease control and adequate auditing Zero risk is an illusory objective capacity--along with enforcement, interagency co- There is a clear distinction between risks that can be operation, and an environment that provides a reli- tolerated, as the consequences of failure are not cata- able audit trail. These are not all available to some strophic (for example, a loss of revenue), and risks countries, and in some countries they have not been that cannot be tolerated, as the consequences of fail- fully internalized. ure may indeed be catastrophic (such as the entry of a terrorist weapon or a highly infectious disease). Security becomes the essential concern The fear of such catastrophic consequences often Security is now seen as the main border threat. But motivates blanket controls and 100 percent physi- the focus is often on terrorism, represented by dan- cal inspection regimes, irrespective of time and cost. gerous individuals or the smuggling of weapons Yet eliminating all risk is an unattainable objec- and other dangerous or prohibited goods leading to tive. An example is the attention to improved airport attacks. This approach has two broad shortcomings. security in recent years. Although air travelers are B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 43 submitted to repeated, intrusive, and time consum- Croatian customs agency, with hundreds of border ing checks, audits have identified massive failures stations that it could not staff permanently, handed in the screening process. In 2007 officials from the the stations over to an inexperienced border police United States Government Accountability Office force. For a long time this hindered the evolution of audited security procedures at 19 United States air- Croatia's customs into a modern border agency com- ports by conducting covert tests at security check- patible with European Union practices. The obvi- points. In all cases they passed through undetected ous solution would have been a hierarchy for bor- with the materials for making improvised explosive der facilities: some would be open to local residents, and incendiary devices (while bottled shampoo, some unguarded--with traffic subject to occasional which they carried as a decoy, was confiscated). Such mobile, inland, and targeted compliance checks-- results support the contention that search methods and a few operated as full border stations. But that based on 100 percent inspection are generally inef- did not happen, as customs was allowed by law to fective in eliminating risk, though they may create a operate only at approved crossings, with no mobile deterrent (an effect unlikely to discourage hardened or inland capability. Changing the law was very dif- terrorists). Blanket screening of all subjects is inef- ficult, largely because of strong objections from the fective, and results can be better with risk based tar- interior ministry and its border police force. geting through effective intelligence. Second, the opening of a border station has a social dimension. For example, borders in Central Asia were Deciding to establish a border station carved under the Soviet Union to cut across ethnic settlements and unify republics in the larger nation. As borders shift, new borders appear, and new coun- After dissolution, borders that had once been eas- tries emerge. With diplomatic redrawing of border- ily crossed--because they were mere administrative lines cutting across communities, where should new divisions--suddenly became closed borders. Opening border crossings open (box 4.7)? How should bor- new border stations was a way for populations divided derlines be treated? How should enclaves be dealt by such borders to reestablish communication. with? Decisions to open border stations occasion- Third, establishing a border station is based on ally have been made without much consideration economic considerations. The traffic determines the for the economic benefit to a region or district--and need, and the evolution of traffic patterns is what have sometimes resulted literally in dead ends, with makes the case for a new station. New border sta- roads that stop at the border or are no longer easily tions are part of infrastructure development, like passable. new motorways, bridges, or tunnels. Opening a new station redirects traffic, but it need not have much 4 The need for a border station local economic impact, as under normal circum- Establishing a border station is a political decision stances most goods and travelers are cleared away Borders, their design, and their operation based on a range of considerations. First, it is a pledge from the border. Yet closing a border station can made as part of a diplomatic arrangement. One of the have dramatic effects. When the European Union first moves made by adjacent states to establish nor- became a single market in 1993 and then expanded mal relations is to open a symbolic border crossing. the Schengen scheme, customs agencies revisited Economic usefulness aside, such a station is a politi- their border infrastructure policies and the rule be- cal gesture--how traffic is handled is irrelevant, came that there should be very few, if any, border the crossing being a showcase for both countries. controls. Thousands of border officials and their Yet a symbolic station can also have wider conse- families had to be relocated, in some cases severely quences. When the Bosnian war ended the Dayton affecting local economies that had relied heavily on agreements provided that practically every blocked, the government's presence. obstructed, or destroyed road leading from the new state of Bosnia and Herzegovina into the neighbor- Should the border be open or closed? ing new state of Croatia should be reopened as a func- Under modern border management, borders are tioning border crossing point. The newly established considered globally and as bridges connecting 44 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Box 4.7 Where should border stations be opened? Before settling on a location for a new border station, decisionmakers need basic information that--surprisingly--is not always readily available. Such information includes: · Traffic numbers and--when these are significant--information on any traffic requiring specialized infrastructure (refrigerated cargo, dangerous goods, live animals). · The shares of travelers that walk across, that drive, and that use taxis. · The shares of travelers that are seasonal workers, that are local residents, and that are foreigners to both countries. · Volumes of goods cleared at the border, inland, and in transit. · The ratio of traffic volumes at peak and off peak periods. · The average time spent at the border--if possible, broken down by queuing time, agency processing time, clearing agent time (if applicable), and unaccounted time (such as time spent in restaurants and parking lots). · Present and required staffing (some agencies are reluctant to provide this figure, as it may be classified). Second, policies needing clarification include: · The clearance policy of customs (inland or border clearance, use of nearby inland facilities, transit system type). · The methods used by customs to deal with traveler allowances (limits, special procedures, or outright com- mercial clearance). · The powers and responsibilities of customs. (For example, is control exclusively static, or can customs oper- ate downstream?) · Relations between agencies, and whether there is a possibility of coordinating or of delegating. · Major risks at the proposed location (border markets, smuggling routes, cross border criminality, political sensitivity in the adjacent country). Third, access infrastructure must be evaluated: · Are there cross border highways or motorways? Are any planned? · What infrastructure exists on the other side of the border? (In some cases one country has wanted to open a border station, but there was no road on the other side.) · What are the width and capacity of access roads? (An overloaded road can cause upstream bottlenecks, with new procedures and infrastructure needed to prevent long backups.) Fourth, social behavior must be considered, for three reasons: · The size of nearby cities may generate new traffic. · When the border cuts across a single community, there may be numerous back and forth movements, while commuter traffic needs special control and management. · The degree of compliance within the society affects the control infrastructure. 4 regions and countries--not as walls separating Schengen border scheme: nationals of participat- Borders, their design, and their operation them. To avoid conflicts between security and facil- ing countries simply cross the border without any itation, policymakers must reassess border control routine check. Another example was Switzerland and surveillance models. There are two main mod- before it joined the Schengen space: travelers with els, open and closed. Each implies different stra- no more than the tourist allowance in goods, and no tegic choices. In addition, there are intermediate need for formalities, could enter or leave the coun- models. try on unguarded roads. Similarly, farmers with land on both sides of an open border, or pasturing herds Open borders. Open borders can be crossed and along it, can cross it unimpeded (as can their cattle).5 border stations walked through without checks. Open borders would have proved useful in Dal- Of course conditions vary with circumstances and matia following the breakup of Yugoslavia, when immediate priorities. Basically a Western European new borders separated Croatia from Bosnia. Farmers approach, but also practiced in North America, still had land on both sides, but they could no lon- the open border is most fully represented by the ger move basic supplies--such as fertilizer or cattle B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 45 fodder--without making detours to lodge export Box 4.8 The closed border between Mozambique and South Africa and import declarations at customs houses. Although open borders mean that some traf- The Mozambique­South Africa border has its own fic may not need to pass through a border station, iron curtain: cleared land and a tall barbed wire such borders do not eliminate control. Rather, fence, which was once electrified. Yet aerial pho- open borders presuppose that most border station tography shows well trodden footpaths to the fence, which is regularly cut. Not only smugglers and ille- users--generally people crossing the border--will gal immigrants, but also local villagers find it more be compliant, in the first place because compliance convenient to cross illicitly than to endure a lengthy is proved to be high throughout the society, and border process. in the second place because people expect the cost of noncompliance to far exceed the benefits from minor fraud. Random or targeted checks, immedi- A closed border usually can be crossed only at ap- ate or downstream, are not systematic and do not proved stations. Borderline patrolling is done by the delay other vehicles. army or border police. As anything carried across the Where borders are kept open, control over the border is deemed smuggled, the border patrol need borderline between two border stations becomes not have any expertise in identifying goods or assess- as important as control at the border station. Cus- ing their value, but is expected simply to hand over toms, immigration, and other control agencies have to customs whatever was confiscated. (Th is does not the ability to operate downstream inside a country always work well.) Feeder roads, usually fenced off and to investigate, detect, and prosecute violations or otherwise secured, funnel all traffic into the bor- related to illegal border crossing. der station. An additional feature is sometimes the Although the open border cannot be introduced compulsory transloading of goods from one truck at once at every border and in every country, it ide- to another. ally exemplifies modern border management. All closed borders have detailed entry procedures--some of which are replicated, in many Closed borders. Closed borders are usually, but not cases, at the inland clearance customs facility. The always, the legacy system of countries that have made closed border guarantees, in theory, that a country a transition from a centrally planned economy. In does due diligence for border security. It also can the previous period borders were closed by default create an opportunity--unfortunately, one that is and everyone and everything crossing the border- seldom used--to clear goods at the point of entry, line was treated with suspicion.6 The syndrome still where transloading can facilitate customs inspec- exists, with an often overwhelming police or mili- tion (provided it does not mean that everything is 4 tary presence (the border troops or guards) and a inspected). heavy focus on screening every person or transaction Borders, their design, and their operation against potential criminality or irregularity. Intermediate options. When an entirely open bor- Today's security focus has in some ways re- der system is not the desirable solution, parts of the inforced the closed border approach. Countries model can be adopted. One is self assessment, which aim to achieve 100 percent compliance and se- allows cars to follow a red or green channel. Intro- curity through systematic controls. They oft en duced by customs many decades ago, this system are not concerned by time lost or by high trans- could also apply to some travelers for immigration action costs--two eff ects of closed borders. In- control. Selecting the green channel would imply deed, closed borders encourage bribery and other that the driver and passengers do not exceed cus- illegality (box 4.8). Despite these drawbacks the toms allowances, that they all have valid documen- closed border approach is gaining ground even in tation, and that their vehicle is roadworthy. Driving some countries that used to favor open borders, as through the green channel could be accompanied formal immigration control becomes increasingly by affi xing a special windshield sticker. Occasional zealous and, at airports, security checks become random checks are normally a sufficient deterrent dubiously fussy. to violators. The system can also be reinforced by 46 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N preauthorization. It is in place at many Western known as one stop border posts, and is contributing European borders and at parts of the Canada­ to streamlined procedures. United States border. However, opening a border station is usually a Border area residents can be issued special per- decision by the finance ministry or another minis- mits allowing them to cross with expedited immi- try responsible for customs. Often customs is fur- gration checks. Armenia introduced a semiannual ther consulted--because it is normally considered import allowance scheme at a border crossing with the lead border agency, and because its knowledge of Georgia where a duty free market operated across the traffic flows, fraud patterns, and regional economic border. Use of the scheme was documented, as pass- trends is essential in designing an expensive facility ports were scanned by customs and matched against that may affect the country's economy. previous movements. Used properly, the scheme en- In some countries the decision is made by the in- abled genuine travelers to take advantage of the al- terior ministry, on the ground that borders are a na- lowance while avoiding long checks. tional security matter. This approach is effective--if Preclearance has various scenarios. Many car fer- all the administrations involved in border process- ries in the Mediterranean have an on-board immi- ing are adequately consulted. Finally, there are cases gration officer who preclears incoming passengers. where the whole process--from initial design to con- English Channel seaports in both France and the struction--is handled by the public works ministry, United Kingdom have immigration officials on the with no consultation of border agencies. This often opposite side of the channel. In all cases spot checks happened in Central and Eastern Europe, where cus- may be carried out when disembarking. Neverthe- toms and immigration authorities had to establish less, entering the country is greatly accelerated. their presence in a facility on short notice without South Africa and Mozambique operate a relief providing any design inputs--and sometimes with- system on peak days (more than 50,000 passengers out time to anticipate staffing needs. daily at Christmas and Easter) at the Lebombo­Res- sano Garcia border station. When the station is con- International or bilateral agreement gested all traffic is diverted to a nearby disused air- Establishing a border station normally requires field on South African territory, where travelers are international coordination. There can be a formal processed by the customs and immigration authori- international treaty with additional protocols (like ties of both countries and trucks cleared for export the Canterbury Channel Tunnel treaty between and import. Cleared traffic then moves in batches, France and Great Britain), an exchange of diplo- under supervision, to the borderline. matic notes (like those exchanged between West- Security concerns encourage tightened border ern European countries for establishing juxtaposed controls. The European Union's external borders are border facilities), or, occasionally, a memorandum 4 now much like closed borders, with new difficulties of understanding (when the border infrastructure for people who used to cross over with few or no for- needs simple adjustments). Borders, their design, and their operation malities. Romania's accession to the Schengen space means that Moldovan nationals who used to visit or Deciding on a site: in the city study in the Romanian province of Moldova now or on the highway? need visas and meet with extensive checks. Border stations are placed where they serve a purpose and, sometimes, where they have historical value (as Responsible authority with the barrier gate between Macao SAR, China The decision to establish a border station can be and mainland China). The placement of a modern made by various authorities. In western countries border station is subject to three major constraints: the initiative often comes from the private sector · It should bring traffic but not generate (chambers of commerce or business associations) or congestion. from regional or semipublic authorities. In south- · It should be conveniently located. ern Africa the Maputo Corridor Logistics Initia- · It should serve communities and business inter- tive is promoting juxtaposed border facilities, also ests on both sides of the border. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 47 Meeting all these criteria is sometimes difficult. Box 4.9 The Metkovic-Gabela border crossing In cities. Examples of border stations in densely popu- The only convenient road between Sarajevo and the lated urban areas include those between Macao SAR, Bosnian seaport of Neum, on the Adriatic Sea, now China and Hong Kong SAR, China and mainland cuts across Croatian territory as a result of new bor- China. These border stations either have existed for a der delineation after the war. The small Croatian city of Metkovic (next to the Bosnian town of Gabela) has long time, or were erected in a hurry because of politi- become a major border station. Hundreds of trucks cal tensions. In 1962 France had a fiscal disagreement crossing every day generated major traffic jams, with Monaco. Overnight, the French resuscitated a pollution, and border management issues, for which long forgotten border between the two states--plac- the city and local road network were not equipped. ing customs control posts on all major streets into the Although Metkovic had been a border city in Ot- Principality of Monaco, with a borderline that often toman times, it could not cope with modern traffic cut across buildings. The chaos then created helped conditions. Different options were proposed as tem- motivate the countries to solve the crisis. porary measures, including a joint border facility on Bosnian territory and separating commercial from In principle urban border stations should im- tourist traffic. Yet the only long term solution was to prove communication for many people, mainly pe- drill a tunnel for a bypass road. destrians. But such stations can cause major traffic disruption. City border stations were erected along the Bosnia-Croatia border (box 4.9) to maintain his- centers, creating housing and communication dif- torical links between adjoining populations. Geogra- ficulties for border staff. (However, highway service phy or longstanding infrastructure can dictate a city area staff face similar problems elsewhere.) route for cross border connections, as in the Detroit- Windsor crossing, which is the busiest commercial Deciding on a function: should each entry point from Canada into the United States. station be specialized by traffic type? The modern principle is generally to bypass cit- Border stations can be specialized. For example, ies and erect border stations outside them, often re- border crossings between Poland and Belarus in quiring new road infrastructure. Nevertheless, pe- the Brest area are specialized for commercial traf- destrian border crossings remain relevant. fic (Kozlovichi­Biala Podlaska) and for passenger checks (Terespol-Brest). While this requires double On highways and major roads between cities. High- infrastructure, it avoids congestion from dual use of ways are ideal for border stations, especially newly access roads and from heavy traffic in built up areas. built stations. Generally the highway is fenced, so a It also allows the use of specialized equipment and 4 new station can be built at a distance from the bor- buildings (warehouses, loading docks) and can apply derline (assuming there is no exit between it and the to most transport modes. Borders, their design, and their operation border). The station can be part of a layby or inte- grated with an interchange. In the European Union, Road and pedestrian border stations. These handle when new highways are built across single market traffic that is unpredictable by nature. (Even though or Schengen borders, there is usually a contingency traffic statistics provide more or less reliable infor- infrastructure that allows customs or immigra- mation on peak and off peak periods, vehicles arrive tion authorities to establish temporary checkpoints irregularly and trucks sometimes travel in convoys.) as needed (with electronic signs diverting traffic Advance warning schemes--in place in Finland, on to specially equipped lanes and inspection areas). roads from Helsinki to the Russian border--let bor- Older highways always have border areas, retained der authorities open new lanes and reinforce shifts even where border station infrastructure was partly ahead of massive vehicle arrivals. Land border opera- dismantled after the emergence of new European tions are based on linear processing, with a tendency Union rules for border control. to use a first in, first out approach. The major issue with highway border stations When traffic moves on different sides of the road is that they occasionally are distant from major in the two countries, the switchover--which implies 48 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N enforcement of different highway codes--normally place at the first scheduled stop in the destination should take place between the two border stations. country. Yet this can prove inconvenient. On the Mekong The traditional control method is to ask pas- Friendship Bridge between the Lao People's Demo- sengers to get out with their luggage, walk through cratic Republic (PDR) and Thailand, the switcho- a customs and immigration shed (while the train ver takes place on the Lao PDR side before the en- moves along the platform across a symbolic bor- trance to the bridge--meaning that the Lao PDR derline), and reboard. In gauge or train changes the must apply the Thai Highway Code on its territory. new train waits on the opposite track along the same And at border crossings between Afghanistan (right platform. hand) and Pakistan (left hand) the switchover takes Many sleeping car trains, and some interna- place informally between the border stations of the tional high speed trains, use on-board control.7 In two countries--where, to be sure, only a single lane such cases, the train must not stop in the country of exists. origin after control operations start or in the desti- Road border stations may be open to all nation- nation country before they end. On-board control is alities or restricted to residents of the adjacent coun- best adapted to air conditioned trains with automat- tries. Restriction to residents--the approach often ically locked doors and windows that cannot open used in former Soviet Union countries--is supposed during the control. It has proved generally effective, to facilitate control, as special permit or visa exemp- especially when supported with handheld electronic tion systems are often in place. But it is unclear why devices for scanning passports or accessing computer immigration authorities would have difficulty pro- records. When an irregularity is detected the con- cessing citizens of other countries. Perhaps process- trol officials always have the right to disembark pas- ing third country nationals can require special com- sengers at the next stop. An international agreement puter links that do not exist at all major crossing should define the conditions of arrest on foreign ter- points in these countries. However, road border sta- ritory and the adjudication process. (Some interna- tions do serve local border markets--either in two tional high speed trains in Europe are equipped for countries (Bagratashen-Sadakhlo between Armenia on-board detention.) Border control formalities may and Georgia) or one (Kjustendil in Bulgaria, close also be carried out at the stations of departure and to the border with Macedonia; Andorra, between arrival, as for air travel. France and Spain; and throughout Central Asia)-- A major issue on trains is that carriages offer so the stations may require special infrastructure for numerous opportunities for concealing smuggled controlling large numbers of shoppers. goods, particularly drugs, which customs officials often detect without being able to identify their Rail transport. Railway border stations have, in prin- owner (who may not even be on board). Illegal im- 4 ciple, two major features. First, they are located at migrants also try to stow away on passenger and major railway stations, junctions, or marshalling freight trains. Borders, their design, and their operation yards, not necessarily on the borderline. Second, Generally border control must fit in a train's traffic is normally cleared during a scheduled border scheduled stopping time, though in exceptional stop, which includes technical operations (locomo- cases there can be additional delays. Experience tive change, shunting, maintenance, transboarding, shows that, in most countries, customs and immi- gauge change). gration checks take less time than other railway tech- However, some countries impose a first stop at nical operations do. the point of entry, where a first inspection of goods trains takes place pending further inspection at the Air traffic. Crossing a border by airplane has four clearance point (usually the first major stop inside stages: the first at the departure airport, the second the country). An example is Ukraine. Th is system when leaving the departure country's airspace, the duplicates control operations for uncertain benefits, third when entering the destination country's air- as all the technical operations have either already space, and the fourth at the arrival airport. Even pas- taken place in the country of origin or will take sengers cleared for exit remain under the jurisdiction B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 49 of the departure country until the moment the plane waterways (such as the Rhine, Danube, or Mekong lands, when they become subject to the laws of the rivers). Traffic usually lands within cities at landing destination country (as for road travel when border piers, but commercial traffic may land outside the stations are at a distance from the physical border- cities at river ports (as was the case at the Savanna- line). This complex process particularly affects duty khet landing pier, outside Vientiane, for traffic com- free shops and other facilities at airports--in some ing from Thailand to the Lao PDR before the open- cases duty free purchases are, quite justifiably, deliv- ing of the Mekong Friendship Bridge). ered to passengers at the boarding gate.8 At times an airplane must make an unscheduled Seaports. Seaport border operations differ depend- landing in a third country. Passengers usually have ing on the mode of transport. Car and truck ferry no visa for that country and may be held, sometimes ports normally resemble land border stations, but for long periods in uncomfortable transit facilities.9 containerized traffic and shipments requiring Occasionally travelers have been arrested in the reloading demand storage space and major facilities. course of such unscheduled landings, often for po- Either way, a much larger volume of cargo is cleared litical reasons. at the seaport than at a road facility. Procedures for Some airports serve two countries. For example, removal in bond to an inland location are rapidly at the Geneva airport arriving passengers choose to expanding--but they require a reliable, convenient enter either France or Switzerland. transit system that may not exist in every country. Airports support joint customs and immigra- tion operations. Some of the immigration controls Deciding on placement details: at the border, can take place at the departure airport and are del- away from the border, in several places egated to airline staff. In this case airlines must en- for several agencies, or nowhere at all? sure that passengers have valid entry documents.10 The location of a border station depends on both Advance entry clearance may take place before geography and politics. Some countries want to boarding; for example, United States customs of- assert their sovereignty by placing, if not a border ficials preclear passengers at some Canadian de- station, then at least a checkpoint on the physical parture airports. Th is practice can raise serious ex- border. For example, when entering Poland from traterritoriality and administrative issues when an Belarus at Kozlovichi­Biala Podlaska, one meets offense is detected. with a border police checkpoint in the middle of the The Basel-Mulhouse airport is probably the bridge over the River Bug. only truly binational airport in the world. Built on Border stations can be located in four ways: at French territory, it has a Swiss sector entirely under the physical border, at a distance from the border, in 4 Swiss jurisdiction and connected to the nearby Swiss several places for several agencies, and nowhere at all. city of Basel by a secured three kilometer customs Borders, their design, and their operation road (though the French highway code applies on At the physical border. Locating a station at the physi- that road). There is an international pedestrian bor- cal border clearly establishes sovereignty and partly der crossing point between the two sectors inside the simplifies border control, allowing few opportuni- airport. ties to unload goods or travelers before reaching Secondary airports at times serve as border cross- customs and immigration control. But such place- ing points, subject to the fi ling of flight plans and ment requires space, which is not always available in their screening by customs.11 But the possibility of mountain areas. And the stations can be expensive to using light aircraft for smuggling drugs has led in build and maintain, physical borders usually being recent years to the restriction of international light distant from cities. Major telecommunication links aircraft traffic to approved customs airfields. may be lacking. Even a simple checkpoint, if established on the River. River border stations may be cross river ferry physical border, can generate severe difficulties. operations, or they may involve international trans- Queues can build up in the country of origin, con- port of passengers (mostly) along international gesting the departure station. If the border is on a 50 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N river, incoming trucks must wait on the bridge be- For example, the border police may be at the physi- fore the checkpoint, threatening to overload the cal border and customs away from it--the case in structure--or they must wait at the bridgehead, some Baltic states and Central Europe and at sev- swelling the queue. eral Afghan border stations. Th is is not a recom- Stations on mountainous borderlines pose simi- mended solution, for several reasons. First, when lar problems. Access is difficult for staff. Waiting customs is away from the borderline it inevitably trucks must start up every time they move a few loses contact with the movement of goods across dozen meters. And, if inspection is long and takes the border. Cargo reporting, often delegated to place in the open, travelers on foot may endure dif- another agency, becomes less reliable. Second, the ficult winter conditions.12 system can work fairly well only when there is no When border stations of both countries are opportunity for trucks and goods to avoid customs. co-located, a combined facility can straddle the (At Biala Podlaska, on the border between Poland borderline--each country having a station on its and Belarus, trucks travel seven kilometers along national territory--or it can be entirely on the terri- an entirely fenced and controlled road, and compli- tory of one country. The facility can be asymmetric, ance is high.) Third, in countries where noncustoms with all functions on one side. Or checks in one di- agencies have little understanding of (or interest in) rection can take place in one country, checks in the customs constraints, there is a significant risk that opposite direction in the other. In many bridge and cargo will not be properly reported. In Afghani- tunnel crossings all controls take place in the coun- stan, where both the commerce ministry and bor- try of origin, enabling faster exit at the other end and der police still resist a real customs presence at the preventing congestion on the bridge or in the tunnel. border, stations have been designed for all agencies except customs, and new infrastructure often has At a distance from the border. Western Europe has tended to relegate customs to a distant location. In long tended to place border stations away from such cases fenced roads are not a sufficient deter- borderlines, usually before roads leading to moun- rent--and they are expensive. The longer they are, tain passes. Sometimes the road must be secured or the more difficult to control they become, and video restricted from there to the border, but often cus- surveillance devices are only as good as enforcement toms relies on road patrols to prevent traffic from response times. bypassing the border station. Borderline patrols are another deterrent. For road bridges and tunnels, bor- Nowhere. The creation of a customs union, then a der stations usually are at the entrance and exit of the single market, in the European Union did not abol- bridge or tunnel. ish national borders as such--but border stations Even when geography does not dictate station have disappeared or been downscaled. Occasionally 4 placement at a distance from the border, such place- they are known as international observatories with ment may be preferred, as the distance between the random or targeted customs or immigration checks. Borders, their design, and their operation two border stations can be used as a buffer zone or However, in most cases the border has become barely parking area to reduce congestion at the entrance of noticeable. While national authorities may still stop the destination country's border facility. The prob- traffic within the territory, most commercial control lem with such zones is that there is little control over takes place at the point of clearance or destination. them unless the border is very precisely delineated. In some countries (as formerly at the border between Designing border stations Benin and Togo) goods, documentation, and license plates may be illegally switched from one truck to Since border stations are perceived as a country's another. Shanty settlements may also appear, in- windows, their layout ideally should allow free flows creasing the risk of smuggling and other crimes. of traffic. They should act as control points only when there are reasons to stop someone or some- In several places for several agencies. At some borders thing. While every border station will have unique various control agencies have various placements. characteristics--based on traffic, local mentalities, B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 51 government priorities, and so on--seven principles Some border stations started as containers to which need to be followed. They are: new modules were added as traffic grew. · Flexibility. Too little research has been devoted to special- · Modularity. ized border infrastructure modules (control booths, · Adaptability to different control methods. passenger control and search cubicles, staff accom- · Process integration. modation and housing, telecommunications and · Control by exception and in the lanes. information and communications technology) that · Appropriate size. could be interconnected and serve as temporary · Communication of identity. infrastructure. Such modules could be installed in an emergency after a natural or other catastrophic Flexibility event. War zones, and areas prone to flooding, earth- Designers should keep in mind the need to change quakes, and the like, would benefit from rapidly de- configurations easily to accommodate shifting cir- ployable contingency facilities providing immediate cumstances. For example, though the total num- continuity in border control--as well as offering a ber of lanes is fi xed, their designation as entry and cheap alternative in emergencies that require mas- exit lanes should be allowed to change depending sive foreign aid. on traffic. Similarly, administrative buildings with changing rooms for men and for women should use Adaptability to new control methods mobile partitioning, to adjust to a shifting male- Border stations should be designed bearing future female ratio. control operations in mind. If joint cross border Not all the equipment and infrastructure at very operations are envisioned, the station should des- large border stations may be needed at smaller fa- ignate what will eventually be joint and exclusive cilities. Initially installing everything that a state of control areas, should include lane switches for redi- the art facility would require--even when its use- rected traffic (for example, green traffic redirected in fulness is not apparent--is often rhetorically justi- one country to red control), and should strategically fied on the grounds that the border infrastructure place specialized control buildings (such as scan- is funded by a foreign donor and it would seem irre- ners) that will be jointly used. If future fast lane pro- sponsible not to make the most of the opportunity. cessing for some user types is expected, some lanes But, as experience has repeatedly shown, it can be should bypass the main control infrastructure. far better simply to acquire space for a possible fu- ture expansion. Integration of processes For modern single windows and one stop op- Control methods are still often based on agency spe- 4 erations it may be worthwhile to plan a joint or cific procedures even though each agency requires co-located facility, even if it cannot be built imme- more or less the same infrastructure (at least for Borders, their design, and their operation diately. The border station between Afghanistan booths or windows). Designers should consider and Pakistan at Towr Kham is ideally placed for single larger booths, housing, for example, customs joint use by the Afghan and Pakistan authorities and immigration officials. Even with a partition in (and there is no available space for expansion on the middle, such booths would better prepare for the Pakistan side of the border). Co-location can- an integration of processes and possible delegation not be envisioned at present, but the new Afghan between administrations--and would immediately facility was designed to enable conversion to bina- reduce vehicle stops. tional operations. Control by exception and in the lanes Modularity All traffic should be initially controlled in the traffic Flexibility is best with modular design. While the lanes, on the ground that cross border movements station space and basic infrastructure (power, drain- should be considered legitimate unless there are rea- age, stabilized platform for buildings) should exist sons for doubt. The compliant majority should not from the beginning, construction can be gradual. be asked to leave their vehicles at border stations. 52 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Those who are should not block the passage of has often resulted in grandiose stations that be- vehicles waiting behind. These rules apply to pri- come run down because they are ill placed, poorly vate traffic and also to many commercial vehicles, adapted, impossible to maintain, and ineffective those that are required to show only basic transit from the start (box 4.10). documentation. Communication of identity Appropriate size Although a border station is not an airport, it is The size of a planned border station is always a prob- expected to convey a sense of the country one is lem. How many lanes? How much car and truck entering. The message may be as direct as an arch parking space? What about administrative build- on the borderline--as at some Greek and Turkish ings? Designers tend to plan for the highest possible border stations--or, more simply, a flag.13 Or the traffic volume (which may never occur), the largest message may be implicit: some Asian countries erect desired staff (which never occurs), and extensive con- skyscrapers on their side of the border, contrasting trol of all traffic by every agency. with a desert on the other side. The situation is the same whether the design- There have been recent efforts at creating a spe- ers are from a public works administration or from cific identity for border stations, especially when field administrations. Public works engineers and they are jointly operated by the two countries. At architects usually want to outdo earlier buildings the planned Chirundu one stop crossing between for prestige, but they also have limited discretion Zambia and Zimbabwe a special logo, font, and in arbitrating between user agencies. Officials color scheme will be used for all signs, fostering a from border agencies may be more realistic con- team spirit between the administrations of both cerning their real needs, but they tend to be com- countries. In other countries there is a marked dif- prehensive, showing that they have envisaged every ference at the borderline: motorway signs are green remote possibility--wanting at all costs to avoid in Switzerland, blue in France and Germany. Some being blamed for an undersized border station. countries, such as France, have removed most formal Government officials may want pharaonic designs indications that the border is being crossed (to rein- to which they hope their names will be attached. force the notion of European unity),14 whereas Italy And foreign donors are happy to fund a magnifi- maintains signs showing the distance to the border cent station, even if it is a white elephant. All this and a special sign at the borderline. Box 4.10 Palatial border stations that went wrong The Giurgiu border station, on the Romanian side of the Danube (across from Bulgaria), was designed as a grand 4 gateway into the country shortly after the Ceausescu era. It was built on acres of floodable marshland, with a remarkably complex traffic plan and each control station as remote as could be from the other administrations. Borders, their design, and their operation Large and windy as an airport, the station was nearly impossible to patrol or properly fence and rapidly became a congregation point for runners, moneychangers, and other dubious service providers. The concrete roads being impossible to maintain, weeds grew between the slabs, with the Danube overspill spurting through the potholes. The relevant agencies never cooperated--for a variety of reasons--nor could they staff all the workstations. The situation improved in the early 2000s when an international donor, approached to provide fiberoptic communica- tion across the area suggested instead--to the dismay of the designers--that all control functions be consolidated in one small area. Another famous example, in Albania, was a border station that customs wanted to look like a motorway res- taurant spanning the border road. It looked good, if slightly out of place in the Albanian countryside. But it was difficult to operate. Every driver had to walk up the stairs to complete formalities on the administrative level, which was high above the road and crowded. There was no communication with the road booths. And management was reluctant to leave the comfort of the upper level to see what was going on at ground level. Wind would sweep under the building, which was impossible to heat in winter. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 53 Traffic management for border stations from border procedures is serious, the solutions considered are to open new border stations (with The plague of border stations is congestion. Not only little attention to the need for more feeder roads), is it costly and frustrating, it also has a spillover effect to increase the number of lanes (which does not re- of congesting domestic traffic. duce road congestion), or to increase staffing. Little consideration is given to improving operations at Access roads and corridors the border, by, for example, recognizing that border Roads leading to the border can be congested stations are not the place where in depth procedural because of exit processing, entry processing in the control should occur. destination country, or both. In western countries exit control on tourists is practically nonexistent Parking lots for customs--with the occasional value added tax Official parking lots at border stations can partly refund formality and fairly rare targeted checks-- solve traffic management problems. Such lots pro- and it is very short for immigration. Customs for- vide a buffer: trucks waiting to enter a border station malities on exported goods are expedited with a park upstream, removing traffic from the road. The brief transit discharge (and, in the European Union, lots also provide a holding area: trucks park while a computerized exit certification). But entry proce- waiting for their customs formalities to be com- dures in some western countries are much longer. pleted. Finally, the lots provide exit parking: trucks Even if they are only slightly longer, the difference that have been cleared, but whose drivers do not wish causes an inevitable vehicle backlog in the departure to leave the border area or parking area in which they country's border station or, worse, along its roads.15 have been waiting, can use the station as a safe and In Finland the entire road from Helsinki to Vaa- usually free nighttime parking lot. limaa or Nuijamaa (the two most important entry In the Balkans, Turkish truck drivers wait for points into Russia) used to be severely overloaded at their entire convoys to be released before leaving sta- times for nearly 200 kilometers, raising serious envi- tions. Countries that mandate convoys for transit ronmental concerns. A comprehensive traffic man- control keep trucks waiting for their convoys in exit agement scheme was put in place, with close coop- areas. eration between border authorities and road police. Official border parking lots can have unin- When a queue is reported at the border heavy goods tended consequences (box 4.11). One solution is traffic is halted on the main roads from Helsinki and incremental parking fees, which discourage cleared trucks are made to park. Similarly, the police inform drivers from staying too long at border stations-- border agencies of impending congestion with ris- but such fees have trade disadvantages. A stay may 4 ing numbers of trucks, allowing customs and border be prolonged, not because a driver or client wants guards to adjust staffing, open new lanes, and effect to prolong it, but because of administrative bot- Borders, their design, and their operation contingency plans. Mobile or temporary signs direct tlenecks. Charging high parking fees is then un- vehicles to holding areas or alternative routes. fair and adds to import transaction costs. When Similar arrangements exist in other parts of the the parking lot is run by a private concessionaire world. Trans Africa Concessions built and main- there is a risk that he will, in one way or another, tains a toll road between Pretoria (South Africa) encourage customs to delay clearance. Some pub- and Maputo (Mozambique), crossing the border at lic works administrations have built unnecessarily Lebombo­Ressano Garcia. It uses a radio, email, large parking lots at border stations simply to raise and internet alert system when traffic becomes bad. revenue. Together with the border authorities of South Af- Unofficial parking lots often can be found be- rica, it opens a relief facility at Kommatipoort dur- tween two border stations. They are used as buffer ing peak periods to decongest the main road and zones, but also to evade control. Trucks used to park border station. between the Greek and Bulgarian border stations of Unfortunately these approaches are the excep- Kulata, waiting for the change of shift to occur in tion. In many countries where traffic congestion Bulgarian customs so their cargo would be checked 54 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Box 4.11 Border parking Drivers crossing from Slovenia into Croatia at Bregana used to park at the border on Friday evenings, when com- mercial customs operations had ended for the weekend. Drivers would then call taxis, spend the weekend in the nearby capital of Zagreb, and pick up their trucks on Monday morning for clearance. This jammed the parking facility and increased time at the border. Customs eventually was blamed. At Chirundu, in Zambia, drivers would take a quick swim in the Zambezi river while import documentation was prepared by their clearing agents. Unfortunately the station layout meant that the abandoned truck could block all other traffic, sometimes for a long period. The authorities tried to solve the problem by introducing private guards. by officials with whom prior arrangements had been Greece and Macedonia, Macedonian customs negotiated. officers wanted to walk up the queues of waiting Service and staff parking lots are necessary, but cars and preselect some to inspect thoroughly. need to be of a reasonable size and sensibly located. The Macedonian border police objected, claim- One poorly placed service parking lot was in front ing that customs had no business being outside of the passenger control building, forcing drivers to customs' own (limited) control zone. park at a distance. · It amplifies bottlenecks. Queues normally fi rst reach the immigration checkpoint, where, de- Queue management pending on the country, checks can be quite long. Inside the station large numbers of vehicles must During that time customs waits for vehicles to be be managed. How queues are treated has a major processed and its officers are not working. Con- impact on border performance. versely, when vehicles reach the customs booths The first principle is that queues should never be the resulting queue may extend all the way to the allowed to build up. All customs officers in western immigration booth, stopping traffic that immi- countries know that when a queue reaches a certain gration might have cleared rapidly otherwise. length the officers must either accelerate control or · It results in an irresponsible attitude by bor- let traffic through uncontrolled. Th is occurs more der officials. Customs and immigration officers with light vehicles but can also happen with com- assume that, as long as they do all their work, mercial traffic. Overlooking procedures is better they cannot be blamed for whatever they have than unnecessarily harassing hundreds of compliant overlooked if it is spotted further down the drivers. Harassment quickly generates complaints road. They deliberately ignore overall waiting and news coverage, and the psychological pressure times, focusing simply on their own processing 4 of an upstream queue depresses control quality.16 times, which they consider reasonable. At the same time they are unlikely to do any serious Borders, their design, and their operation First in, first out--unfair. Queues often result from targeting because their expected turnover rate the first in, first out system, to which officials in precludes--except in rare circumstances--a de- many countries still seem attracted if only by its tailed inspection. apparent fairness. In reality, first in, first out is very Alternatives to the fi rst in, fi rst out system unfair because: include: · It unnecessarily delays all traffic, matching over- · Off lane check. When a targeting officer decides all waiting time to the longest process. If the that a vehicle needs detailed control, that vehicle detailed checking of one vehicle takes 20 min- should be taken out of the main traffic lane to utes, vehicles waiting behind that will not be an inspection bay where it can be kept as long as inspected must wait more than 20 minutes for necessary without creating a queue. no reason. · The United States system of primary and second- · It is not sufficiently used to do advance target- ary control is an example of good practice. The ing. At the Bogorodica border station, between frontline officer in the booth, who is performing B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 55 both customs and immigration checks, has under Administrative buildings a minute (and normally uses less than that) to de- Like the border station as a whole, administrative cide if he or she is going to let the vehicle through buildings should not be too large. They are to sup- or redirect it to a secondary control bay. This port operations, not to provide lavish accommoda- keeps traffic moving at a reasonable pace. tion for staff members--who will work mostly in the · Bypass loops and escape lanes should always be lanes, not in offices. Requests from any administra- built throughout the control lanes, especially tion therefore should be considered cautiously (offi- between customs and immigration positions, cials tend to ask for as much office space as possible). enabling arriving vehicles to switch lanes when Administrative buildings typically should in- there is congestion. clude offices for management and supporting staff, a · Designing border stations lengthwise, with clearance area, a violations section, a control room, a spurs leading off the main road for secondary services area, dormitories, and technical buildings.17 checks or voluntary formalities. The traditional design--with a normal access road fanning out Offices for management and supporting staff. The into a sometimes excessive number of lanes-- number of deskbound officials should not be high. usually creates bottlenecks because drivers must Even intermediate managers, such as teams and select a lane without knowing how long it will shift leaders, should spend most of their time out- take. After waiting a long time they may decide side supervising operations. to change lanes, but other drivers may not let Many countries limit office space to around 7­10 them, and the resulting confusion wastes further square meters per officer. Yet border stations else- time and frays tempers. where can have lavish managerial quarters. In at least · Identifying local, priority, preauthorized, and one Caucasus border station the local customs man- any other accepted low risk traffic as early as ager has a suite with direct access to the duty free possible upstream and diverting it to a fast track shop. Such quarters project the wrong image. Spe- circuit. This gets as many vehicles as possible out cial amenities, such as a VIP or diplomatic lounge, of the waiting area. should be discouraged. · Keeping an emergency access lane free at all Management and support buildings typically times is important. should house customs and border police--or any These alternatives to the first in, first out sys- other agency in charge of immigration. Buildings tem are well proven, and the busiest crossings in must allow convenient communication between the Europe rely on them. The Franco-Swiss border has two entities, or at least between their local manag- 500,000 commuters crossing every day, yet border ers.18 Support services normally would exist for each 4 stations seldom have more than four lanes for both major agency (armory, secretariat, telecommunica- directions--and queues are extremely rare. tions, duty officers, and legal and judicial affairs, Borders, their design, and their operation Placing immigration booths farther from cus- with a roll call hall for assembling shifts; major sta- toms checkpoints may absorb part of the queue-- tions would also have a personnel and administra- but it also prevents any meaningful cooperation tion office). between customs and immigration, so it should be avoided (unless interagency cooperation is consid- Clearance area. Depending on the clearance model, a ered irrelevant). border station may need a full scale goods clearance facility or only a transit processing area. As goods Building requirements are increasingly cleared at their destinations, clear- for border stations ance offices at borders should gradually disappear. Some countries that clear goods inland still insist on Border stations should be envisioned as traffic detailed processing when trucks enter the country-- schemes rather than merely as buildings. Neverthe- in some cases justifying extensive checking by cit- less, a careful design of administrative and other ing the advance notification rule introduced in buildings can greatly improve station performance. the European Union. But these countries' advance 56 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N notification is totally different from the European necessary for properly housing illegal immigrants Union's, adding bureaucracy, delays, and a need for and refugees pending their transfer to a specialized more space. Advance notification could easily be facility inside the country. handled in freight lanes or, as in Finland, at a single point of contact between drivers and customs. Control room. Modern border stations often are reg- The clearance area normally requires an inspec- ulated from central control locations, with closed tors' office, a document lodging position, possibly circuit television monitors allowing perimeter and offices for control agencies other than customs--to parking lot surveillance by displaying control point eliminate duplicate lodging and control of irrelevant activity and traffic conditions in and around the sta- documents19--and a cashier's office. tion (box 4.12). Depending on conditions, control Single windows simplify clearance when they are room dispatchers can open new lanes, control gates efficiently applied. They started in Eastern Europe in and traffic lights, and call in reinforcements. If the the early 2000s. Moldova introduced the Frontiera control room is connected to a regional traffic center system, locating all goods control agencies under it can also anticipate traffic surges and request that a single roof with a consolidated payment system. traffic police regulate arriving vehicles. Macedonia had interagency cooperation schemes The control room, to some extent like an air- amounting to a single transport agency for all road port control tower, is typically manned by specially related issues (insurance, transport licenses, and so trained border police and customs officers.21 It is ab- forth). Bulgaria significantly refined the system at its solutely essential that both agencies co-manage this Lesovo border station with an electronic control slip control facility, as smooth border operations depend and a consolidated payment at the end of the bor- on close cooperation between the two--and as it der process. A single cross border payment window would be unacceptable for customs to be subordi- is also envisioned for the Lebombo­Ressano Garcia nated to border police in the organization of customs co-located border facility between South Africa and control. Control room activity should be reviewed at Mozambique, where all sums due to the administra- periodic interagency coordination meetings. tions of both countries would be paid in one cur- rency and then split among various budget accounts. Services area. The best practice is to keep commercial Unfortunately single windows have remained services at border stations as limited as possible. Still, tied to unique locations rather than being designed as some activities may be indispensable. First, clearing process streamlining approaches. In many countries agents are required when border clearance is prac- all control agencies are located in one room, but their ticed--and they also may be called in to guarantee representatives still inspect every document submit- inward transit, to discharge or process documents, ted by incoming drivers, with little time saved. and to deal with passengers needing commercial 4 clearance for imports in excess of tourist allowances. Violations section. Law enforcement agencies should Clearing agents' offices can be either inside the clear- Borders, their design, and their operation have specific facilities for interviewing suspects ance area, or on the immediate periphery of the sta- and detaining offenders.20 Special quarters may be tion, depending on station layout. Box 4.12 Closed circuit television With closed circuit television a control room can monitor operations and traffic flows, opening new lanes and redirecting traffic accordingly. However, at many border stations monitor screens are placed in the office of a sta- tion manager, who claims a need to supervise the work of his staff--and who then does not feel obliged to carry out inspections on the ground. In some countries the screens are even installed in a headquarters office, on the dubious ground that it allows a director general of customs to call and instruct the local manager when there is a traffic jam. Apart from its inefficiency and unnecessary expense, this big brother attitude reduces motivation by discharging local management from the obligation to take any initiative. It also reinforces the silo effect--agencies ignoring one another. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 57 Second, bank offices may be needed (usually one first measures should be to ensure communication is sufficient) when all duties and taxes must be paid within the building, so that at least managerial staff into a state bank account and no agency is allowed of both customs and the border police can meet for- to handle cash. The bank office also includes an ex- mally and informally. Pooling some facilities also change office. Automated teller machines also are contributes to economies of scale while encouraging useful, ideally to dispense cash in the currencies of contacts between officials. A common cafeteria and both countries. recreation area is more sensible than having two dif- Third, catering services may be necessary when ferent mess halls. Management of the cafeteria can be travelers and drivers are likely to be held at the bor- outsourced and jointly funded by the two agencies. der for long times. They can be limited to vending Finally, at least the larger conference rooms should be machines or can include food kiosks--but kiosks shared--without ignoring the need for confidential- should never encourage long meals (as vehicles will ity. Conference rooms are seldom fully used, and it is then jam the facility) and should not be located in- rare that both customs and the border police would side the administrative building. need them at the same time. Having just one large Fourth, sanitary facilities are necessary--but hall does not preclude the existence of private meet- possibly not as many as were proposed in one coun- ing rooms for each agency, but it limits costs.22 try, where the public works ministry wanted to es- tablish hundreds of paying toilets (more than the Specialized border station anticipated total number of travelers daily). infrastructure Dormitories. Remote border stations, and shift Border stations require specific infrastructure. Some structures in certain countries, create a need for must be installed in all cases and some is optional. staff housing. Such housing is not recommended. A border station is not a hotel, and staff ideally should Control booths leave the station at the end of each shift. Unfortu- Booths should be in the traffic lanes, avoiding the nately staff housing cannot be avoided if there are need to park and walk to a control facility. Special- no staff barracks nearby or if staff are on duty for ized control booths for customs and for immigra- long periods (in some countries shifts can last from tion, if the distance between the two is well calcu- 24 to 36 hours). lated, need not cause the accordion effect that results from varying times for control at each agency. But Technical buildings. Large border stations have tech- specialized booths do not encourage interagency nical facilities, for example to house communica- synergy. The alternative, shared booths--possibly 4 tions equipment or power generators and transform- divided into two sections--allow officials of both ers. The location and management of such buildings administrations to perform their separate duties but Borders, their design, and their operation is crucial. In one Balkan country, local customs offi- also to inform each other when diverting vehicles to cials at one time insisted on keeping control over the secondary control. Th is preserves the autonomy of power station so they could shut off power when- each administration yet avoids lane blockage. ever they did not want a truck or declaration to be Where operations are co-located with an adja- entered into the system. This arrangement was iden- cent country, booths could be designed to accommo- tified as a major source of smuggling and corruption. date the officials of both countries. That would add the benefit of one time data capture for passports, Joint use of some facilities number plates, and other commercial documents The complete isolation of agencies from each other such as transit forms. does not make much sense operationally. Yet it is common. Whenever this silo mentality is broken, Facilities for dangerous goods operations drastically improve. Erecting a new bor- and oversize vehicles der station is an excellent opportunity to create syn- Usually subject to an advance request by the opera- ergy through architecture and design. One of the tor, dangerous goods and oversize vehicles may be 58 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N channeled through specially equipped border facili- Passenger hall. A separate passenger hall may be ties. Not all border stations may accept this traffic, available for travelers with formalities to complete, but it is likely that border stations on major inter- such as claiming a value added tax refund on exports national corridors may need special installations. or spontaneously declaring excess goods. Persons Such installations should have either special lanes directed to the hall for secondary control may have or a lane gauge that allows oversize vehicles to drive to pay duties and a fine. Border visas, in countries without hampering other traffic. Trucks carrying where they are issued, would be processed in the pas- explosives or other dangerous material should be senger hall, which is normally adjacent to or part of directed as early as possible when entering the facil- the administrative building. ity to an isolated, protected, secure area--generally with embankments, drainage, and abundant water Inspection benches. The days are now gone, fortu- and decontamination products. nately, when customs would unpack and inspect per- In some border stations serving the copper belt sonal belongings on the pavement of a border station in Zambia, oversized vehicles are allowed only at cer- beneath a cold winter sky. Examination benches are tain hours of the night when there is no other traffic. now often placed in inspection bays under a canopy. These benches should be used only for initial con- Specialized buildings and control equipment trol. Should a fraud be detected, passengers, vehicle, Specialized buildings and control equipment are not and goods should be taken to an isolated specialized found at every border station, and their installation facility. depends on traffic. The most frequent specialized buildings and equipment are discussed below. Body search cubicles. Offering privacy, yet also allow- ing for immediate intervention, body search cubicles Coach control building. Long passenger coaches, car- should be adjacent to specialized analysis equipment. rying up to 50 passengers, cannot be processed in Often they are fitted with panic buttons. the same lanes as ordinary cars as they present spe- cial risks. It is better to have a separate facility for X-ray shed. X-ray scanning facilities, when consid- them. Processing can take place on board: immi- ered necessary, should be placed in such a way that gration officers, followed by customs officers, board they can be shared between the different control the coach and carry out a brief passport and visual agencies and even with authorities in the adjacent check. Or processing can take place inside the build- country. The equipment is expensive, and there is no ing when it is decided that more thorough control need to duplicate it. Libya and Tunisia have plans to is needed: the coach parks alongside the building, install a shared scanner facility on their joint border, then passengers alight and walk through a long hall, with display consoles in both countries, so that when 4 starting with the immigration cubicle and proceed- one country's authorities do a scan their opposites ing to the examination bench where unloaded lug- also see the image. Borders, their design, and their operation gage will have been placed. Each passenger identifies his or her luggage, walks past a customs officer, and Detailed vehicle inspection sheds. These would nor- reboards at the end of the hall. Meanwhile customs mally be adjacent to X-ray sheds, if any. may search the coach, possibly with dogs, to detect prohibited items.23 Inspection pits. Inspection pits were often placed in the In some countries (including in Africa) passen- middle of the traffic lanes in Eastern Europe and the gers often transport commercial quantities of goods former Soviet Union--a dangerous arrangement for in trailers attached to the coach. The passenger hall both vehicles and pedestrians, but one that followed should have the capacity to organize commercial from the system of examining every vehicle thor- clearance for these without delaying the departure oughly. Inspection pits are now better placed in the of the coach, as coaches usually operate on a time- detailed vehicle inspection shed. Chassis underside table. Both a duty clearing agent and a specialized examinations in the traffic lane, if warranted, can be customs inspector could be on call. conducted with a mirror mounted on a long handle. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 59 Inspection gantries. Inspection gantries, necessary to collect much higher bribes. The abuses also for rapidly inspecting the roofs of trucks and trail- disappeared where weights were displayed on ers, should be placed above commercial traffic lanes. large screens and machine printed tickets auto- matically distributed to drivers. Disinfection pits or sprays. Depending on epidemic risk, disinfection equipment is installed either per- Laboratories. Both customs and police often insist manently or as needed (spraying equipment for vehi- on having state of the art laboratories at every bor- cles and foot mats for pedestrians). Disinfection pits, der crossing. Expensive to install and maintain, they once favored in Central and Southeast Europe, were usually are unnecessary. Small detection devices and sometimes only pretext for health authorities to col- kits are normally sufficient to identify drugs or point lect a disinfection fee (occasionally levied even when to ingestion by smugglers. In case of doubt samples there was no disinfectant in the pit). The pits were can be sent to a nearby regional laboratory and sus- often awkwardly designed, with a steep ramp causing pected smugglers referred to hospitals for an X-ray. the car chassis to scrape on the concrete, and most All equipment available at the border should be drivers resented driving through a hole fi lled with shared between agencies. Food security laboratories murky water. For obvious reasons pits are generally are rarely needed at the border when all food imports as close as possible to the borderline. Occasionally are canned since canned food can be checked at lei- they are also used for exiting traffic. They often are sure at its final destination). replicated in the adjacent country. Kennels. In some countries dog teams operating at Weighbridges. Standard at many border crossings, borders live with their handlers, going home with the weighbridges raise three questions: handlers at the end of each shift. In other countries · Where should they be located? Some countries they stay in kennels.25 Kennels come with running and install weighbridges at station entrances, inevi- training grounds. In all cases these are better placed tably jamming access roads--in particular where on the outskirts of the border station than inside it. commercial traffic is mixed with private vehicles. Weighbridges should be placed well inside sta- Animal pen. When live animals are imported, border tions, in dedicated truck lanes. authorities need to ensure compliance with veteri- · Who should operate them? Different agencies nary and health rules, and--in many countries--to operate different weighbridges, and they tend to ensure that cattle have been properly fed and allowed weigh--and charge a fee for--each truck, some- to drink.26 This may require an animal enclosure. times even including departing traffic. Thus a 4 truck can be weighed four times, by customs and Traffic layout by road administrations in both countries.24 The Border stations traditionally used to have an island Borders, their design, and their operation regional weight certificate introduced in Europe design, with directional traffic lanes on both sides is being put in place only very slowly (UNECE of a combined administrative and passenger build- Inland Transport Committee 1982, annex 8). ing. Light vehicles would be processed in the inner Still, border agencies are increasingly relying-- lanes, with booths for each lane. Farther out were the albeit informally--on their foreign counter- coach control lane and hall, and still farther out were parts' weight slips. the commercial traffic lanes with their clearance area · How should they be managed and how should and facilities. Fast track commercial traffic would be their results be used? Weighing has been identi- on the very outside of the arrangement. fied as one of the worst border rentseeking po- That traditional island design is less relevant now, sitions. Road officials used to extort bribes for after the introduction of inland clearance. Moreover, providing weight tickets that might be falsified. the island design may not be suited to any other than a Most such abuses disappeared where customs wide site. Increasingly, lengthwise plans are adopted-- took over weighing, if only because--in the even though they may force officials to walk farther worst cases--customs had other opportunities from one section to another. When there is enough 60 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N space, a roundabout design may be envisioned, with authorities, who need to examine and possibly the commercial freight building in the middle. stamp every passport. However, full "green" treat- Return loops and escape lanes at strategic lo- ment could be tested for travelers not requiring an cations within the station, and guarded by remote entry stamp (for example, nationals of the country of controlled barriers or traffic lights, are necessary for entry) and for preauthorized individuals. This type service traffic and for rejected vehicles or those tar- of fast track does not in any circumstances preclude geted for secondary control. Before the borderline authorities from doing spot checks to verify green there should always be a layby, where enforcement channel legitimacy. authorities may carry out final checks or intercept When immigration cannot or will not establish previously cleared vehicles. a fast track, the customs green channel should be carefully planned. Border station operation Control sequencing: which agency Improved border station operation yields improved should intervene first? design, in turn facilitating streamlined processing as Possible sequences for a single country are: described above. · First immigration, then customs. · First customs, then immigration. Segmentation by traffic category Either sequence can occur on exit or on entry. In a multipurpose border station various traffic cate- Possible sequences for juxtaposed or co-located joint gories are subject to different inspection and control operations are: methods. Traffic should be separated as early as pos- · Back to back immigration: fi rst customs exit, sible when reaching the station. Heavy goods vehi- then immigration exit, then borderline, then cles should be taken out of car lanes at some distance immigration entry, then customs entry. from the station and driven or parked on dedicated · Back to back customs: fi rst immigration exit, roads, as width is often a problem for border stations then customs exit, then borderline, then customs (in mountains or in narrow valleys along rivers). This entry, then immigration entry. allows at least light traffic to reach the border nor- · Asymmetrical and separated by country: fi rst mally. If it is not feasible a holding area should be customs exit, then immigration exit, then bor- established before the border. derline, then customs entry, then immigra- For the rare cases when light vehicles and their tion entry (both entry-exit sequences may be trailers carry commercial goods, a policy should be reversed). made. Will they be processed under tourist or com- · Asymmetrical and binationally integrated: first mercial rules? In which part of the facility? customs exit, then customs entry, then immigra- 4 International transit trucks require much less tion exit, then immigration entry, then border- processing than other trucks, and should be offered line (customs-immigration and borderline-bor- Borders, their design, and their operation special lanes. Likewise, empty trucks should be di- der control sequences may be reversed). verted from main commercial lanes. When two bor- Each model has benefits and weaknesses. der stations are within a short distance--and if the borderline crossing is wide enough--traffic requir- Back to back immigration. Going through immigra- ing clearance in the country to be entered could be tion as the last checkpoint in one country and the directed to special lanes in the departure country. first in the next--clearly establishes which country Coaches should have a dedicated lane, which can has jurisdiction over a traveler at any time (as indi- be next to the car lanes, as car and coach passengers cated by the passport stamp). Th is is a simple and can be processed by the same staff. effective model when illegal immigration is a prob- lem: an illegal immigrant can be deported immedi- Self assessment by red and green channels ately, which is not so simple if the person has already Widely used by customs, red and green channel been cleared for entry). The model works best at jux- self assessment is not as much used by immigration taposed facilities (where exit and entry immigration B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 61 officials may share a booth cut by a fictitious border- lanes. Coordination between customs and immigra- line). It promotes integration between immigration tion is essential. And the fast track green lane must authorities of both countries, as they work closely offer a significant benefit to users (box 4.13). together. Such integration is often more difficult to achieve than customs integration. However, back to Self selection within the station back immigration prevents full green channel opera- With self selection within the station, drivers cleared tions. Immigration may want to pull traffic cleared by immigration choose red or green before reaching for the green channel by customs back into the main customs. Some distance is required for traffic to lanes. Furthermore, traffic already cleared for exit switch over. That prevents routine joint processing by customs with export rebates or refunds, that is by customs and immigration. refused entry into the other country must be repro- cessed and the money reimbursed. Off lane control With off lane control examination bays are at an Back to back customs. Making customs the last exit angle from the lane, so that traffic not selected for post allows customs green channel operations-- examination can move straight to the exit of the as long as customs in the other country adheres to facility. Each bay accommodates only one vehicle. A the system and uses similar targeting or selectivity targeting officer at the entrance directs some green methods. lane traffic to the bay, the other vehicles proceed- ing unchecked to the exit. The system works well Asymmetrical methods. Whether separated by coun- if customs accept that, once all examination bays try or binational, asymmetrical methods allow pre- are fi lled, traffic waiting behind should not be held clearance before crossing the borderline. Offences except under very special circumstances.28 may be awkward to prosecute because of territorial- An Eastern European country introduced a simi- ity, unless there is an international agreement. lar design that integrated customs and immigration A combination of all these sequencing models booths in the inspection bays, which were designed can be used for categories of traffic that require spe- to hold three vehicles at a time. Apparently the sys- cial processing, or to meet other needs depending on tem was not well explained to users, because all traffic the local environment. chose the bays. As drivers had to leave their vehicles for passport control, theirs blocked those waiting be- Upstream selection hind. The system brought no noticeable benefit. Upstream selection means that each arriving vehicle must select a red or green lane before reaching the Field operations and staffing issues 4 facility27--reducing congestion, but also requiring that all vehicles drive through immigration. Immigra- Th is section mainly concerns border stations that Borders, their design, and their operation tion authorities must staff all the booths in open green operate 24 hours a day. In cases where border stations Box 4.13 Green channel failures One director general of customs, eager to follow an international advisor's recommendation for red and green channel operations, introduced the system at a major road border station with little or no preparation. The follow- ing day the green channel was completely jammed. Why? First, because border police did not participate in the scheme. Second, because every vehicle in the green lane was stopped by customs. When drivers selected the red channel, which was empty, they were turned back if they said they had nothing to declare. In another country the red and green channel system was introduced at an airport. Passengers with goods to declare who selected the red channel were told simply to walk down the green channel and talk to the first avail- able customs officer (there were dozens of them). But before they could, customs would pounce on them, search them, and confiscate goods the travelers had intended to declare. In both cases the situation eventually improved. 62 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N close at night, control staff from customs and the Switching staff among lanes border police should remain on site to ensure that Moving staff from one lane or position to another is no unreported traffic passes through. easier than shift rotation. Staff in truck lanes should regularly be switched with those in passenger vehicle Changes in shift lanes. Shift changes can bring borders to a standstill. The situation is aggravated when agencies have different Shift flexibility shift patterns--and, even more, when shift changes Even the best designed border station will be con- happen more or less at the same time on both sides gested under peak traffic conditions if not enough of a border.29 staff are on duty. So each shift structure should be The situation is bad in countries where a formal adapted to the time of day, with fewer staff usually change in shift takes place only between outgoing on duty at night than during the day. But this may and incoming shift leaders. Shift cashiers sign off the not always be possible. Many countries have stan- account sheet and tally it with the cash box. No out- dards for shift composition that cannot be easily going officer will ever leave his position without his altered.30 Also, there should be more temporary replacement being there. And control staff members staff posted during busy periods. But with resources are always eager to finish up. Instructions to staff are limited, plugging one leak may merely open a new distributed throughout the shift or during breaks, one. The best solution is to have cross trained offi- rather than during shift changes. cials from customs and immigration, able to stand in for one another. (The attitude of some countries, Shift duration that an officer assigned to a specific booth or lane Border staff members often remain on duty for too cannot be moved somewhere else within the station, long. A normal shift is often 24 hours, with an 8 is wrong.) hour break in the middle. No control official can remain alert for so long, especially when bedrooms Handling noncompliance: why detected cases and a cafeteria are available throughout the shift. of fraud and irregularity must be monitored The reason for such long periods is financial. Shorter Usually the number of travelers selected for control shift s are more expensive because of greater staff far exceeds the number of detected cases of fraud rotation, and some officials are paid more for night and irregularity. On the one hand, customs officials hours--even when they sleep on site. There has been claim that practically all import transactions are strong resistance to installing more realistic shifts, irregular in some way or other. On the other hand, even though they would lead immediately to better that claim is not reflected in annual statistics. The results. reason is that local case logs are not kept--allegedly 4 because most irregularities are simply overlooked by Shift rotation customs when considered too minor to initiate a case Borders, their design, and their operation With shift rotation, an entire shift reporting for duty report. If true, this reveals a serious error, as the fail- is unexpectedly taken to another border station-- ure to report encourages secretive behavior, distorts which in turn sends its staff to the first station. Every activity reports, and prevents an effective analysis of time this measure has been applied it has had consid- noncompliance and its causes. erable success. First, the routine was broken, prompt- ing a fresh approach to a new environment. Second, Paper immigration and customs prior arrangements between corrupt officers and forms: why both are archaic importers were disrupted and exposed. Th ird, truck and should be replaced drivers who routinely would bribe known road, cus- toms, or immigration officials were unpleasantly A majority of countries still insist that arriving-- surprised. The problems with rotation are that it is and sometimes departing--travelers should fill expensive, it takes a long time to organize, and it is paper immigration forms. Such forms require pas- difficult to keep secret for long. sengers to enter data already in their passports (and, B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 63 in most cases, machine readable from the passports). paper. Nevertheless, several countries still use both In addition, passengers must identify: paper customs declaration forms and customs chan- · Their flight or vehicle (data already available to nel selection--passengers hand their forms to a duty immigration officers, or capturable automati- officer in the green channel. cally by scanning a boarding pass or vehicle num- ber plate). The future of juxtaposed border facilities · Their entry date (obviously known to the immi- gration officer). Juxtaposed border facilities--also known as joint, · The purpose of their visit (essentially statisti- co-located, or one stop--are becoming increasingly cal data, and unreliable when travelers mean to popular. They have high visibility, denote a strong break labor laws). will to cooperate across borders, and--at least · The place of their stay during their visit (useless in principle--facilitate cross border movement. data, unless to control visitors, for which hotel Although they are difficult to put into practice-- registration is enough). many conditions are required to achieve well inte- · The duration of their visit (data that may be use- grated functions--they could revolutionize border ful, but could be obtained simply by asking). control. The immigration forms are then fi led and-- sometimes--entered into a computer (which is not Background always online). When the forms are occasionally re- Co-located border facilities first appeared in the trieved and audited many are found to have unread- 1920s, in a farm straddling the French-Belgian able or misrepresented data--hardly a surprise, since border--the borderline actually crossed the dining most are completed in queues, on cramped airplanes, room. Both countries found it more convenient to in crowded immigration halls, or in cars while the let interviews occur informally across the dining writer is driving. room table than to use lengthy judicial procedures. Some countries also ask for a customs declara- That was the first modern infrastructure for cross tion form on entry. border cooperation. From a modern border management perspective, Every border station needs to consult with the both paper immigration forms and paper customs other side. Sometimes a white flag is hoisted to declaration forms are archaic. request a formal meeting, especially when going through national headquarters seems unnecessary. Replacing paper immigration forms with other meth- Cross border coordination also occurs at the clos- ods. Methods that can and should replace paper ing of the border, when both stations stop operat- 4 immigration forms include: ing. Th is can be simple, with border guards from · A passport scan. both countries closing a gate and locking it with Borders, their design, and their operation · A very brief interview with the traveler, if two keys (one for each country), or it can be color- necessary. ful, as at the Wagga border crossing between Paki- · When in doubt, a more thorough secondary stan and India. control. However anecdotal, these examples of cross bor- der relations show the need for regular consultation Replacing paper customs forms with passenger chan- and cooperation. To further integrate the work of nels. With passenger channels, the traveler's selec- agencies on both sides of the border, juxtaposed fa- tion of a customs channel is the same as a goods cilities are invaluable. declaration. Travelers with no goods to declare, apart from those included in the allowance, select The case for juxtaposed facilities the green channel. Those with dutiable items--or in Juxtaposed facilities are of two types. In the first, doubt--select the red one. two separate border stations are located side by side Making a majority of travelers fi ll a form stating and treated as one geographical entity. In the second, they have nothing to declare is a waste of time and the border stations of both countries are merged into 64 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N one station and the full integration of processes is Understanding what a juxtaposed station means. In promoted. some cases heads of state or government become over- Juxtaposed facilities allow economies of scale, enthusiastic about a joint station, thinking it will better cooperation, simplified formalities, improved solve all border issues at a particularly difficult cross- control over fraud, and informal data and intelli- ing, so they require queues to be drastically reduced gence exchanges. Moreover, the increasingly appar- by a deadline.31 In other cases, when opening a jux- ent economic consequences of long border waiting taposed facility is meant to demonstrate friendship times argue for joint infrastructure and operations. between two countries, politics and ribbon cutting Well established in western countries for 60 years, can matter more than operations. If ministers and and successfully tested in some Central and Eastern heads of state know little about interagency proto- European countries before transition, juxtaposed cols and international operating procedures, still they stations have evolved over time. They started as di- should be aware of the strong commitment implicit in vided stations straddling the border, with each coun- opening juxtaposed border stations--not only to an try remaining on its own side. Then they evolved into architectural design, but also to clarified procedures single stations more on one country's territory. Later and streamlined laws and systems of organization. still, they embraced the operational integration of border law enforcement agencies. One example is the Binational or international agreement on juxtaposed Schengen Joint Police Stations. Another is the police border facilities. Most international agreements and customs cooperation centers, or joint Schengen signed now reflect an emerging international stan- patrols, between the customs administrations and dard for juxtaposed border facilities, usually consist- police forces of adjacent countries at some internal ing of: borders within the European Union (box 4.14). · Placement in the immediate vicinity of the bor- Such integration, though probably far in the fu- derline whenever possible. ture for many countries, indicates the possibility and · Symmetrical arrangement, with one way facili- efficiency of cross border integration and coordina- ties in each country. tion. It also reveals the conditions necessary for ef- · All checks in the destination country. fective cooperation. · A so called common control area--where offi- cials of both countries carry out their checks-- Conditions necessary for juxtaposed complemented by exclusive control areas for each or coordinated border operations country. The conditions for success are simple, but experience This template, which has the advantage of sim- shows that they are sometimes difficult to fulfill. The plicity, establishes an apparently novel joint control main problem at juxtaposed stations is how to detect arrangement. Yet it can have limitations. First, the 4 frauds, arrest offenders, and prosecute cases without geography--or the existing infrastructure, when this violating either country's laws. is to be upgraded--may not be suitable. An example Borders, their design, and their operation Box 4.14 Police and customs cooperation centers (Schengen patrols) Police and customs cooperation centers bring together officials from two adjacent countries who have access to their agencies' databases and intelligence networks. Each official is free to share or not share sensitive or confidential data. Centers collect and exchange intelligence, deal with asylum seekers, establish cross border cooperation against illegal immigration (notably through the management of denial of admission procedures and expulsions of illegal aliens), and coordinate the fight against smuggling (drugs in particular). The centers also coordinate joint surveillance in the border area. Joint patrols consist of officials of both countries whose area of operation is limited to a certain distance from both sides of the border. Law enforcement officials of each country may conduct surveillance and hot pursuit in the opposite country, and may in some cases request a suspect's arrest by its national authorities. Required to operate in uniform, the officials are allowed to carry weapons in the opposite country but to use them only for self defense. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 65 is the Chirundu border station between Zambia and other than that of the country on whose geographi- Zimbabwe. The Zambian side is cramped, and the cal territory a person or object is currently located. symmetrical arrangement creates traffic difficulties Extraterritorial persons become liable for their acts there--whereas the Zimbabwe facility offers large according to the jurisdiction of one country while unused spaces that could have been shared by both on the territory of another, which cannot impose its countries. In other examples juxtaposition has pre- laws on them. This raises diplomatic problems that cluded placement of a station at a more convenient binational agreements address in three ways. location further inside one country. First, the border may be redrawn to exclude A second limitation of the emerging interna- from the border station's host country all the station tional standard is that it subjects all types of traf- areas that fall under the other country's jurisdiction. fic to the same rule. In practice heavy traffic might However, border delineation is a long and compli- more readily be processed on arriving in a country cated process. It implies compensatory retrocession and on departing the same country, both times in of territory, and it needs to be ratified by both coun- that country--even as light vehicles follow the sym- tries. Nor does it allow future flexibility. Finally, the metrical arrangement described above. redrawing can create an enclave when a station is too A third limitation is the likelihood of traffic far inland to allow large border modifications. buildup. On the one hand, performing all control Second, the border can become a functional and functions in the destination country seems logical-- chronological concept, determined by the national- exit checks are far less stringent, since it is unlikely that ity of the official performing a control. Most such departure country authorities will need to prosecute a agreements specify the sequence of checks, stipulat- traveler on foreign territory.32 At the same time, queues ing that control by the destination country can start building up in the destination country may spill over only once the departure country has completed its into the departure country, jamming cross border in- own checks or indicated its intention not to perform frastructure (such as a bridge). European countries them. Travelers and consignments then come under usually perform all checks in the departure country, the control of the destination country. For passen- thus smooth traffic flows in tunnels and on bridges. gers it is fairly easy to establish a well marked turn- International agreements, therefore, should be stile, border gate, or equivalent symbol. flexible enough to allow future adjustment to local Third, sovereignty can be limited. The authori- conditions and circumstances, without the need for ties of one country operating on the other side of new agreements. the station are allowed to apply only certain laws, regulations, or parts thereof. The border station's Internalizing the agreement for juxtaposed border host country retains power over incidents unrelated 4 facilities. International agreements need to be trans- to the crossing (such as robberies). It is essential to lated into national legislation. Th is requires often precisely define such cases and the conditions of any Borders, their design, and their operation extensive changes to existing texts (unless a provision intervention. Past issues have led to serious diplo- in the agreement states that it overrides the national matic incidents.33 legislation of both countries--which is legally possi- Fourth, the powers of station staff--particularly ble, but technically unworkable). The needed adjust- to use firearms--should be very clearly defined. ments can be innumerable, and the process can be Even while under the jurisdiction of the adja- delayed by national officials or misinterpreted (lead- cent country, people can claim the application of ing to inadequate provisions or to a radically differ- the host country's legislation--as when one coun- ent approach in each country). The drafting of sup- try but not the other enforces the death penalty. At porting laws, regulations, and standard operating Canadian airports, United States customs officers procedures--while a national concern--should be who detect drug smugglers have no powers of arrest coordinated binationally by a technical commission. and must either persuade the smugglers to fly across the border or hand them over to Canadian law en- Extraterritoriality. Extraterritoriality, in border sta- forcement. Similarly, at a juxtaposed border station tion operations, means subjection to a sovereignty on Canadian territory a Canadian national has a 66 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N constitutional right to return home until the official it to his foreign colleague without the driver or borderline is crossed--even though the Canadian import agent having to lodge it at a new position. may already be in the United States area. Second, the interface between the two customs computer systems can be used to send messages The powers of control staff. Enforcement agency offi- closing export fi les (certifying that goods have left cials at juxtaposed border stations are allowed to a country), entering reliable and standardized data work in uniform within their areas of competence. into the declaration processing system of the destina- In principle, firearms can be carried, but their use is tion country (with no need to recapture these data), usually limited to self defense.34 Officers are other- and logging the transaction (establishing the precise wise allowed to perform all the duties within their time when the virtual border was crossed and the official mandate. They may, for example, search trav- goods handed over from one country to the other-- elers and consignments (customs), check documents necessary in case of subsequent legal action). (customs and immigration), document and initiate Third, in a back to back arrangement, immigra- prosecution (customs and immigration), and arrest tion officers could sit in the same booth, and process offenders (customs, immigration, and police when the same passport information consecutively and applicable). They are not subject to border control seamlessly. For example, passports would be scanned formalities when crossing into the other country to only once when reaching the immigration booth, perform their duties. and the data would be displayed on the computers of immigration officials of both countries--who would Cooperation. To make the most of a juxtaposed bor- then add whatever additional information they re- der facility, equipment and data should be shared quired and check the traveler's status against their and exchanged as much as possible, for example by: agency's specific system. · Using scanners jointly or sharing them. Legal Fourth, customs officers of both countries can difficulties over territorial competence can arise jointly process all fast track commercial traffic, such if scanners are not operated by officials of the as empty trucks, in a single booth (since these checks country making the detection--but this is nor- are similar in both countries). mally solved by following a positive scan with a Fifth, when road administrations are present at physical search, during which the detection is of- the border, they could also carry out some controls ficially made. jointly (weighing, for example). · Making the results of controls carried out by one country's officials acceptable in the opposite Joint examinations country. Some checks need not be duplicated: Recent initiatives promote joint customs customs may accept weight tickets issued in the inspections--inspections carried out simultaneously 4 other country, possibly at a shared weighbridge. by two countries' customs agencies. The aims are to Both countries should use the same control pro- save time, to avoid fraud, to create synergy between Borders, their design, and their operation tocols, and the calibration and maintenance of the two agencies, to reduce parking space require- control equipment (such as scales for weighing) ments, and possibly to store temporarily unloaded should be mutually recognized. goods under verification (saving handling costs). · Exchanging computer data on transit procedures This approach appears unrealistic at this stage, and customs declarations, and possibly immigra- and it is seldom applied. There are four main reasons. tion (or at least passport) data in real time. First, import and export checks are different. Most data usually verified for imports are not relevant Joint operations. Officials of both countries can be for the majority of exports. Customs agents seldom encouraged in five ways. First, documents for cus- check export values (never mind whether physical toms declarations may be processed by customs offi- examinations help to ascertain real values), nor are cials of both countries working side by side. When the agents interested in export classification. On one country has finished processing an international rare occasions a risk based targeted control may take document, such as a transit form, its officer can pass place on exported goods--but this is not enough to B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 67 justify systematic participation by both countries in Customs computer systems were first designed a control. to automate duty assessment, so they centered on Second, joint examinations may increase the rate declaration processing, tariff fi les, and duty calcu- of physical examination for no purpose. In a control lation algorithms. Only later were additional func- organization based on risk management, differ- tions added, such as risk management and transit ent risk profi les would normally be applied by each control. The systems were essentially intended for country. But joint control encourages each country inland clearance operations, but were sometimes to participate in physical examinations for declara- deployed for clearance at border stations. A recent tions that would not normally have been queried by emphasis on border computerization has led to the that country. If risk management is a good principle, introduction, in the European Union, of the New then joint control is a waste of resources. Computerised Transit System (NCTS) and the Ex- Th ird, joint controls--however integrated-- port Control System (ECS). But in developing coun- take more time. Two sides inspecting together may tries the existing telecommunications infrastructure delay each other, as they do not have the same objec- may not allow computer connections (nor may the tives and interests. power grid), so computer use may lag behind. Fourth, managing violations can be problem- Solving these technical problems entails setting atic. Binational agreements for juxtaposed border priorities. The speed of customs border processes, or stations usually stipulate that one country can start their efficiency, is linked closely to the adequacy of checks only once the other country has released the cargo control over entering shipments. Adequacy goods. But during a joint examination this moment implies ensuring that all consignments crossing the of release is never clearly established. In case of fraud border are officially reported to customs and that the transporter may validly claim that the control transit control--a mechanism to ensure a true rep- was not carried out in the proper sequence. resentation of goods at their destination--is in place. Customs also must often enforce additional noncus- Technology at border stations toms regulations on entering goods. The best way to prevent fraud (box 4.15) is to rely Borders were efficiently managed long before on data created when a shipment leaves the country sophisticated technology appeared. Yet computers, of origin--at the very beginning of the transport and nonintrusive examination techniques, have chain--and to continue using the original transit doc- revolutionized border controls. Whereas chapter 7 umentation, or virtual documentation where there is examines information and communications tech- no regional transit system. Computers should be used nology in border management reform, this section for capturing upstream data and for transmitting 4 addresses technology only as it is used at border those data to customs points along the route, where stations. the data are matched against vehicles, shipments, and Borders, their design, and their operation documents. The data should then be fed directly into Information and communications technology: the destination country's customs computer system. why the time has come for data sharing Customs officers at the border thus can conveniently Both customs and immigration can use information access prereported data using simple access informa- and communications technology, including to share tion, such as transit document numbers or vehicle and data across borders. container registration numbers. For further simplifi- cation, scanners can be used to read bar coded data on Customs. Border delays and inefficiencies are usually documents and vehicle license plates. blamed on outmoded customs procedures. However, The Common Market for Eastern and Southern a great majority of customs administrations have Africa (COMESA), like some other entities, has in- now computerized their clearance operations. The troduced a regional transit database--the first step chief remaining issues for them are two: installing towards regional connectivity between customs sys- computer terminals at border stations and develop- tems. However, to streamline border processing it will ing modules adapted to specific border processes. also be necessary to provide customs officials in border 68 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Box 4.15 Fraud opportunities: misreporting cargo under traditional, manual reporting systems At a land border traditional reporting is visual. A customs officer, seeing a vehicle entering the country, notes its registration number. This system lends itself to abuse unless properly audited. First, customs officials can be bribed not to enter a vehicle number in their log, or to enter the wrong number. Second, errors can be made in manually registering vehicles. Third, systems breakdowns--such as power failures (accidental or deliberate)--can prevent proper registration. Traditional auditing tools are also weak. In their original, manual form they were prone to errors and omission. Customs would manually re-enter in its logs the information in transit documents presented by drivers (assum- ing an international transit scheme was in operation). The border police would register every commercial vehicle, would sometimes copy the transit documents--about which they had little knowledge, leading to further mis- understanding and errors--and would make occasional reconciliations with customs log books. Down the road checks would then match the documentation presented by drivers with what had been recorded at the border. Improvements came when the International Road Transport Union (IRU) introduced the Safe TIR arrange- ment--matching TIR carnets (described in chapter 17) with regular discharge messages sent by customs head- quarters to the IRU. Another improvement came when customs introduced inland road patrols, a second level of control independent from border customs authorities. At seaports problems with the traditional system are less acute. All incoming cargo has a trail of commercial or shipping documentation, which can be tallied against unloading records kept by customs. Similarly, rail transport companies proved reliable partners and had document trails that complemented customs records. booths with a convenient interface between the na- (France). These systems rely on preregistering volun- tional systems and the COMESA database. At pres- teers, and they may be out of reach for most travel- ent they have none.35 European Union procedures ers in many parts of the world. Other technologies, have made marked progress, with the integration of including face recognition (Australia's Smartgate NCTS and ECS into national customs systems allow- project) and biometric data on passports and iden- ing nearly instant discharge of transit shipments. tification cards, can accept more passengers without Another solution, easier to implement, is to requiring preregistration.36 connect customs systems across the border. Th is In any computer immigration system qualifying first step toward more elaborate regional integra- travelers should be offered a fast track procedure. tion is feasible, especially when both countries use Regular border station users, such as truck drivers ASYCUDA soft ware. Compatibility issues arising and local taxi drivers licensed to cross the border, when two different versions are used (such as the ought to be among the first beneficiaries of elec- ASYCUDA++ and ASYCUDA World versions) tronic identification. 4 do not appear insurmountable. The connection can Technically, nothing prevents immigration au- start with messages that a truck or consignment has thorities in one country from sharing data with col- Borders, their design, and their operation been released for exit on one side, and it can gradu- leagues on the other side. In the booths, data capture ally be extended to complete transit data sharing. is independent from control so if immigration offi- Ultimately there can be automatic data input to the cers of two countries use a joint boot (box 4.16) they destination country's declaration processing system. can capture data just once, followed by separate pro- cessing in national immigration databases. Wholly Immigration. Computerization is less widespread automatic control booths, using sophisticated iris for immigration checks than for customs control. and fingerprint scans, can even be programmed to Rather than keying in all passport data at a control send separate messages to the two countries' systems booth, passport scanning (for countries that issue and release a passenger only after receiving a positive machine readable passports) should be preferred response. as more reliable. Countries are increasingly testing new electronic gate solutions, such as iris identifica- Challenges in establishing data sharing arrange- tion (United Kingdom) and digitized fingerprints ments. The main challenge is to convince agencies B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 69 that some data can be shared internationally with- Ensuring data confidentiality implies setting out jeopardizing confidentiality. Passport and bio- limits on the period for which personal data may be metric data are well known to travelers, who now kept and on the ways data may be disclosed. When have no objection to manual data capture. No data are shared across borders, the stricter of the agency secret is revealed if these data are shared two countries' data confidentiality laws should be across the border. Transit has been shared across enforced. Personal data should be disclosed only to borders manually for decades, so there is no harm those authorized to ask for it. in sharing it electronically. What is important is to ensure that each agency Transit monitoring retains full control over its systems and databases. Any joint systems should be designed to insulate Computer systems can ensure that a transit opera- agency specific data from shared identification in- tion has been initiated and properly discharged and formation. A passport can be scanned once and the that documentary requirements are met. That cov- scan stored in a local community network, and the ers operations at administrative processing points, personal identification data can then be distributed but gives no information on what happens between to interested agencies that then check it against their those points (other than the time consumed by tran- own risk management databases and lookout lists. sit). Real time monitoring--or at least a record of all Similarly, advance transit information can be used transport incidents--can help identify fraud risks for partly generating entry declarations or onward such as partial unloading or load substitution. Vari- transit documentation.37 ous solutions for this problem exist, both after the It is crucial to break the silo mentality. Immi- fact and in real time. gration authorities tend to consider passport control First, tachygraphs or other similar driving re- their business and to feel that nobody else should ac- corders can be fitted to trucks and used by the road cess passport data. But passenger and driver identity administration to check on driving and rest times. is also central to customs risk management (goods The recorders also provide customs with valuable and vehicles do not move on their own). information on where a truck has been: a flat line Box 4.16 Examples of joint data collection at border stations In 2006 Bulgaria introduced an experimental tracking system at the Lesovo border station, with smartcards up- dated at each workstation during a crossing. Similar systems exist at some Polish border stations. The approach could be expanded through further binational integration, collecting and maintaining a single transaction record 4 for two countries. On one side of the facility a camera with an optical recognition function would read entering license plates and create a unique, date stamped record. At the immigration booth driver and passenger pass- port data would be scanned and appended to the record. For commercial freight, customs would scan the transit Borders, their design, and their operation document and the transaction record would be updated when a declaration is lodged. The same would occur at each control position, including automatic weighbridges and the cashier's window. The transaction record would be circulated to all agency systems. When the vehicles leave the facility their transaction records would be auto- matically discharged by another camera reading. The approach described above would provide for: · Reliable capture of identification and procedural data. · Less fraud and fewer capture errors. · Detailed records of time spent inside the facility and at each procedural desk, allowing more finely grained performance assessment. · Precise indications of when vehicles cross the physical or virtual border at juxtaposed border stations. · Transaction records allow some joint risk management: for example, alerting a particular agency that a vehicle or person it wants to control is inside the border station, or enabling advance consultation of a database. The records can also communicate information or intelligence throughout the border station--or to selected administrations. 70 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N indicates long periods of driving at a sustained speed, drivers are offered fast track treatment when they broken lines denote driving in built up areas, and so reach the border. Drivers therefore are willing to forth. Records inconsistent with normal transit itin- pay for the transponders--apparently a more cost eraries or driving patterns call for a detailed check.38 effective system. Second, the new generation of customs seals in- cludes chips that keep a record of every manipula- Scanners tion or attempt to break them. True, it is said that no seal, however sophisticated, can resist an experi- Border agencies use X-ray scanners for compliance, enced smuggler for more than a few minutes. But security, and investigative controls. For best results, so called smart seals--connected to transmitters the objectives of X-ray scanning policies should be that issue alerts when unauthorized manipulations clarified. The way scanners are used can limit their take place--can validly guarantee that a consign- efficiency. ment has not been tampered with. The security pro- vided by such seals is as good as the authorities' speed The benefits of scanners are exaggerated in responding to the alert. Some countries, such as When scanners are planned at a border station, Kazakhstan, have introduced automatic seal reading authorities (usually in customs) raise expectations gantries at entry and exit points. Each entry reading for the equipment and declare an intention to carry is automatically sent by satellite link to the exit bor- out checks for many purposes. Each of the claimed der station, and when the truck arrives there the seal benefits from X-ray scans is discussed in turn below. is scanned again. If the tow records match the transit operation is discharged. "Scanners improve security." They reveal undeclared Th ird, cargo tracking monitors transit trucks prohibited and high value goods, including weapons, fitted with transponders--or radio wave reflective drugs, cigarettes, and even motor vehicles, that usu- devices--in real time. Available technologies use ei- ally are part of wider criminal or terrorist activities. ther satellite tracking or detection loops built into At airports scanners are used for passenger and lug- roads at strategic points and major junctions. At- gage security. When detection is rare or nonexistent tempts have been made to use this system to control the scanners are said to have a deterrent effect. every single truck in transit inside a country--an approach known as active tracking, as every truck "Scanners raise revenue." Many customs adminis- automatically sends messages at regular points along trations claim that scanners help them detect mis- its route. A spectacular control center in customs declared items, and reassess revenue on them. How- headquarters, showing the progress of thousands of ever, statistics from before and after the introduction trucks daily, is the pride of senior customs manag- of scanners show that revenue reassessment is rare. 4 ers. However, this is an expensive method of control: it requires many operators to monitor each truck, "Scanners have a deterrent effect." Customs admin- Borders, their design, and their operation it uses expensive transponders or smart seals (and istrations also invoke the deterrent effect to justify transport companies may be reluctant to hire these comprehensive scanning at border stations. But from customs), and it is vulnerable to fraud (tran- there are many ways to smuggle contraband other sponders are known to have been neutralized with than to place it in containers that may be scanned. tinfoil or taken off trucks and reinstalled on decoy Weapons are taped to truck bodies, drugs are diluted vehicles). Moreover, customs must send out a patrol in innocuous chemicals, and experienced criminals to investigate each anomaly--a resource intensive use different densities to shield smuggled goods. approach and one that may be ineffective in a very Scanning merely encourages smugglers to be more large country. innovative--or to make more bribes to corrupt Passive tracking operates differently: a few vol- officials. Finally, although positive scanning results unteer trucks are equipped with transponders at the can be spectacular, the worldwide rate of detection drivers' expense. Customs pings the transponders through scanners is very low: fraud is revealed by less whenever a routine check is desired. In exchange, than one percent of all scans, on average. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 71 How scanners are used · A flat fee is collected--either on scanned vehi- The ways in which scanners are managed and oper- cles only or on every vehicle, whether scanned ated also directly affects their efficiency. or not. This resembles funding airport security through airport taxes. Outsourcing. When scanning is outsourced to a pri- · A fee is collected only when a fraud is detected. vate company that charges a fee for every scanned If the fee is made proportional to the value of the vehicle or container, there is a strong incentive to detected goods, it becomes part of the penalty. scan everything that crosses the border. Scanning · The fee is based on the type of vehicle or goods. becomes a routine revenue raiser, with the excuse It becomes a form of customs tariff. that it encourages revenue compliance. And fees · No fee is collected. can be high, hindering trade facilitation. (The only The last solution, fee free scanning, is by far the exception is when scanning is mandatory for every best. A fee can encourage drivers to pay higher bribes container at a seaport, as under the Container Secu- not to be scanned. Fees also add to the cost of trans- rity Initiative.) port. Proponents say they are used for maintaining equipment--but the cost of scanning equipment Number of scans. The tendency to scan all trucks should be included in that of border stations, with- and containers is sometimes defended with the out the need for an extra fee. claim that a scan is not a physical examination. Such claims reflect resistance to the recent pressure Scanner sharing. Scanning equipment should be on customs administrations to replace 100 percent shared among agencies. The equipment is expensive, physical examination policies with a more targeted and there is no need to duplicate it except when traf- approach. In fact, scans are physical examinations. fic volumes are extremely high.40 Agencies have dif- Although goods are inspected without unload- ferent objectives: for example, the border police may ing, the time taken to direct vehicles to a scanning want to check if there are illegal immigrants in a con- facility--especially if queue management is poor-- tainer, when customs are interested only in revenue. often lengthens border processing without improv- Joint use creates synergy and promotes the sharing of ing results. Like manual inspections, routine scans intelligence and risk management methods. rapidly lead operators and analysts to lose their Scanners usually are operated by customs. Shar- focus.39 ing scanners with the border police can add to cus- Systematic scanning is sometimes used for tran- toms' relative clout among border agencies. How- sit control. The scanned image of an entering truck ever, this should not mean granting requests by is attached to the transit documentation and trans- border police to scan all vehicles. 4 mitted to the point of exit, where a new scan should Scanner sharing may raise questions about reveal if a shipment has been tampered with. Here maintenance, check reliability, and the legal valid- Borders, their design, and their operation scanning performs the same function as seals do, ity of findings when the operator is not the request- and the scan does not necessarily increase transit ing agency. Usually such questions can be resolved security. through memorandums of understanding and by Modern stations use targeted scans based on risk having analysts from both agencies present during management and some random selection. In Euro- the scan (a policy that also promotes cross-training). pean countries, an increasing number of scans are Scanners can also be shared across the border. carried out by mobile or relocatable equipment away One country may request another to carry out a scan from the border on main roads. These downstream on its behalf--preferably at juxtaposed border sta- checks, which have proved highly effective, are based tions, which are governed by agreements on extra- on prior targeting by mobile inland customs patrols. territorial controls--or monitors can be installed in both countries' offices, reducing costs. Scanning fees. Even when scans are not outsourced, Scanners, however promising for detection, are customs may collect a scanning fee. There are four only as good as their operators. The best analysts are possible fee structures: usually experienced examining officers, who know 72 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N what to look for and where. With risk based vehi- powers, they can temporarily arrest offenders until cle and container selection, scanners become an ex- able to hand the offenders over to the appropriate tremely powerful law enforcement tool. agency. Immigration officers have similar powers. This independent enforcement model supposes Control equipment in some countries that officers are armed. It is not transposable to all border control agencies: it does Technology for the control of people, vehicles, and not work for phytosanitary, standards, and transport goods is constantly being developed and has boosted agencies, for which specific security arrangements the efficiency of border agencies, allowing fewer offi- must be made if necessary. A temporary or perma- cials to do better work and to do it more rapidly. But nent general police assignment may also be neces- technology cannot replace well trained officers. Effi- sary when large numbers of people are present at, or ciency also requires a motivated staff, suitable work- travelling through, the border station--to manage ing principles, adjustments to the environment, and crowds, to guide traffic reaching the border, or sim- usually new control standards. In many cases, expen- ply to ensure a uniformed presence. Certain non- sive equipment provided by donors--who sometimes criminal issues such as fire and medical emergencies did not have it installed on such a scale in their own are the responsibility of emergency services, which countries--was rapidly shelved when results did not can be placed at the border or in a nearby center. meet exaggerated expectations. Future technological improvements cannot be Security is provided by the police or armed forces. In anticipated. When designing a border station it is saf- this model, whenever a violation is committed the est to leave space for traffic flow redesign and addi- agency that made the detection reports it to the tional control areas tailored to new control methods. police. The police are then responsible for pursuing the case. The police are also in charge of general law Station management and order at the border station. Under these circum- stances immigration may be merged into the border A border station can be a large working place, with police. But that is a dubious approach, since law and a large staff, thousands of users crossing every day, order and immigration control require different and private employees working inside and around forms of organization. Countries that put the police the facility. How can security and maintenance best or armed forces in charge of all border station secu- be ensured? rity often are countries with closed borders. Security in the station and at its perimeter Intermediate options. Afghanistan, which could Special security needs at border stations concern, not arm its customs officers, introduced a customs 4 fi rst, issues specific to border crossing, and, sec- police--a police officer corps assigned to customs to ond, general matters of law and order. Two broad provide security at border and inland facilities, but Borders, their design, and their operation approaches to both concerns are discussed below. reporting and taking orders only from the interior ministry. The arrangement does not work well. The Each major control agency is responsible for its own customs police has no loyalty or responsibility to security and for enforcing laws in its purview. Cus- customs, lacks basic skills in customs matters, and toms guards and protects its staff and premises, pre- occasionally interferes with customs work. Provid- vents smuggling and related violations, and arrests, ing adequate customs training to these officers would detains and charges such violators--in some cases turn them into a parallel and duplicate customs presenting them directly to the appropriate court or organization working for the interior ministry.41 prosecutor. (An exception occurs when an offense Other countries have outsourced some border can be terminated in an administrative or transac- station policing functions to the private sector. For tional manner.) Customs officers who witness other example, at the Chirundu border station in Zam- criminality in the course of duty can act to pre- bia, private guards marshal trucks and control gates vent it--and, under their general law enforcement into the country to ensure that all trucks have been B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 73 released for exit. This additional layer of control-- enforce them. A traveler or vehicle leaving the and possible corruption--has no use other than to access road for the country on which the road is relieve existing state agencies (which may have lim- located is considered as having crossed the bor- ited resources) of general policing duties. der illegally. In Israel border station security is handled by the agency in charge of airport security. While techni- Ethics cally viable, this solution has led to the fragmenta- Corruption is regularly associated with border opera- tion of border station work and to the duplication tions. Examples of petty corruption include payments of work by security and customs. to a policeman to move up in a long queue, or to a con- trol officer to avoid physical examination or speed a International access roads process--not to mention routine goodwill payments International access roads pose a problem at juxta- to border officials. Other forms of corruption involve posed border stations distant from the borderline. more serious criminal activities. Customs is the bor- Vehicles cleared out of such stations by destination der agency most vulnerable to corruption allegations. country officials must still drive on roads located in That is not because other agencies are blameless, but the territory of the departure country. During that because payments to customs appear higher on aver- period the vehicles technically remain in the country age than payments to any other agency. out of which they have been cleared. Difficulties may The purpose of this section is not to discuss cor- arise in accidents, highway code violations, and cases ruption generally, but simply to envision how it can of customs fraud: which country has judicial respon- be dealt with in border infrastructure design. What sibility for these cases? Three solutions are possible: control mechanisms should be put in place? · The road can be extraterritorialized. The access road is considered part of the destination coun- Border station design can discourage petty corruption. try, whose law exclusively applies from the exit Shorter queues mean fewer reasons for bribing offi- of the border station to the borderline. The road cials. Green lanes and fast tracks should allow some, should be fenced off to prevent unlawful re-entry ideally most, drivers to pass through without even into the territory of the departure country. speaking to an official. Isolated control areas--where · The road can be internationalized. The access there are no witnesses to corruption--should be road, though fenced off or otherwise controlled, avoided in planning border stations. Strict monitor- is under the jurisdiction of the country on which ing of access roads prevents trucks from waiting for it is located. If the departure country decides to a change of shift before entering stations. Juxtaposed intercept a person or vehicle that has already stations allow countries to ensure that similar data 4 cleared exit and destination formalities, there are reported on both sides. And hotlines, if well man- could be an international issue: all earlier mea- aged, enable drivers who are harassed by control offi- Borders, their design, and their operation sures regarding exit and entry procedures would cials to alert customs or another agency immediately. need to be annulled, including penalties already addressed. The traveler could argue that, even Corruption cases should not be investigated by the local though the laws of the departure country were border police. The border police agency's mandate violated, there was no violation of the destina- should not include fighting corruption in customs. tion country's laws--and, further, that destina- Why? Because border police officers may be corrupt. tion country authorities knew of the violation Internal control and investigation, followed eventu- yet allowed the traveler to proceed. ally by judicial investigation, usually is a more effec- · The road can be functionally extraterritorial. To tive approach--and it avoids stigmatizing customs simplify control, the access road is fenced off and by subjecting it to the agency next door. destination country border authorities will un- dertake no control action along it--but all other Administration of the facility national laws apply right up to the borderline, New border stations are expensive to build, equip, and purely national authorities are competent to and maintain. In modern, coordinated border 74 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N management, new and possibly more effective solu- operations. Agency specific operations are outside tions are needed. the mandate of the commission except when they significantly affect the overall efficiency of the sta- Each agency for itself. Traditionally there were a lim- tion. The commission may appoint an independent ited number of agencies at a border station, each station manager to run day to day support services responsible for its own housing and equipment. In (cleaning, power supply, bill payment, and so on). many cases various budgeting and institutional man- agement rules created disparities between the agen- Monitoring border station performance cies. At juxtaposed border stations such differences Governments and other stakeholders need to know can be even more acute: in one example an agency how border stations are performing. In the case of had no budget for telephone calls, or even to heat a new border station they need to know the invest- its buildings in winter. (Conversely, air conditioners ment returns for trade facilitation (reduced times), in another station's computer room were not turned for control (fraud detection, additional revenue col- on, as the management could not afford fuel for the lection), and for traffic volumes (how much is gen- power generator.) Self management and self mainte- erated by the facility?). Performance measurement, nance at each agency can work well only with coher- and often quantified targets, do the job. ent resource allocation for all--and the more agen- cies there are, the more difficult it becomes. Performance measurement. Agencies' internal sys- tems for monitoring processing times are, too often, Single management. Having a single manage- based on indicators interpreted in isolation. The sys- ment authority usually results in customs (that is, tems may not be consistent methodologically. And the finance ministry) taking responsibility for all frequently they ignore what happens before and after expenses beyond agency specific running costs. But the agency's particular control position. For exam- the border police often has ambitions to run border ple, immigration officers contend that a passport stations. Single management can work, but only with control takes only 75 seconds--but when there is a good interagency understanding and coordination. queue of over a hundred passengers, the last person in the queue may wait an hour. Management contracts with the private sector. A few A holistic approach to performance measure- African countries have considered private sector ment has therefore been introduced by various do- management. It would grant the operator a conces- nors and international organizations. It measures sion to run the station much as an airport author- average times spent at the border, first overall and ity runs an airport. Th is system has three disad- then broken down by agency and private operator. vantages. First, the operator may increase profits by In a computerized and integrated work environ- 4 placing concessions at commercial facilities, with ment, data on these indicators could be collected on the unwanted result of keeping a captive public in a permanent basis and regularly analyzed, prompt- Borders, their design, and their operation the station even longer than necessary. Second, the ing new processes to be envisioned when necessary operator may collect user fees, limiting freedom of and enabling new local experimental approaches to movement (nationals returning penniless may not be validated. be allowed to come home). Third, a private operator User satisfaction is measurable through user sur- may gain direct or indirect control over the activities veys, but also through less formal feedback. The Chi- of state agencies. nese immigration service introduced a simple and highly effective way of measuring passenger satisfac- Local integrated management between agencies. This tion before the Beijing Olympics: each immigration approach has been tried successfully, in particular booth was fitted with three smiley buttons, which at juxtaposed stations. A local management com- travelers were invited to push depending on how mission, with a rotating presidency, is in charge of they felt they had been treated by the official. The all local maintenance issues and reports to a bina- immediate feedback to management encouraged of- tional committee that supervises the juxtaposed ficers to be professional and courteous. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 75 Performance targets. Many countries give customs 4. However, animals can cross borders out- revenue targets, which can then determine a border side approved border stations, and not all station collection objective. Though useful for moni- infected travelers are spotted with thermal toring assessed revenue, revenue targets also have five cameras. Trying to stop an epidemic at the perverse effects: borderline is impossible. Checking the ori- · Staff may care only about transactions with high gin of people or animals and their likelihood revenue potential, to the detriment of other con- of being contaminated--assuming that they trol activities. can be tracked once inside the country--is · Once a monthly target has been met, customs probably as effective as turning them away may stop clearing cargo and hold containers at the border. until the next month. 5. Such preauthorized border crossing origi- · When there is a shortfall in revenue, local cus- nated in Europe in the 18th century, in toms directors may call importers and ask them the mountains between Spain and France: for a down payment on future operations (exam- farmers who registered their cattle with ples are found in some Asian countries). customs in both nations obtained free · Customs directors may encourage importers grazing rights. Th is regime survived until to clear cargo at their stations by offering dis- the European Union single market made it counted duty rates. irrelevant. · Customs officials may routinely divide the 6. The same attitude characterizes some island monthly revenue target by the daily number of countries, where control is easier to achieve trucks and containers and charge the result as a along the coastline (and where customs has flat duty rate. never made great efforts to capture what Revenue targets, therefore--though a useful evades coastal control). Although one island broad performance indicator--should not be used country, the United Kingdom, now has open as a sole performance criterion for staff. borders, some of its former colonies in Africa still have closed borders. Notes 7. On the nonstop high speed service between Brussels and London, which goes through 1. Some countries with older border manage- Belgian, French, and British territories, pas- ment systems may also have restricted ap- sengers are controlled successively by Bel- proved outgoing roads, to prevent access gian, French (occasionally), and British cus- from persons who have no legitimate busi- toms and immigration officials, irrespective 4 ness at a border station. of the territory on which the train is running 2. A recent trend is to demilitarize border con- at the time of the control. Borders, their design, and their operation trol and replace border troops with a civil- 8. Th is system also weakens the case for ar- ian border police force--though this has rival duty free shops, since it means that not much changed the organization or the such shops charge no tax for items that-- approach to border control. typically--will be consumed in the country 3. The role of that officer is to issue visas, to which tax would otherwise be due. whereas the control of passports and visas 9. One notable exception was Serbia, which is usually done by an immigration or border in the 1990s--when visas were required to police official. It would be possible to merge enter the country--issued special visas al- the two functions, as the issuing of visas at lowing passengers to continue their journey the border can be questioned on security using any alternative method of transport. grounds (as well as from a facilitation per- 10. Airlines are additionally encouraged to per- spective). The immigration officer might just form these checks, as they may have to repa- as well stamp the passport once satisfied that triate at their own expense passengers denied the traveler is legitimate. entry on arrival. 76 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 11. In the 1970s French customs introduced an 20. As a rule, people should not be detained for inland air preventive wing, in charge of the more than a few hours at the border, and any- control of secondary airports. one held longer should be transferred as soon 12. The Macedonian-Bulgarian border cross- as possible to a detention facility inside the ing of Deve Bair­Gyueshevo is high in the country. mountains separating the two countries. As 21. Such officers need not need be highly placed, it serves the Bulgarian market city of Kjust- as they will report to their managers. But endil, many Macedonians used to shop there they should have a common understanding and walk through the border facilities. Large of control and traffic flow priorities. numbers of people returning from Kjust- 22. In one country in Southeast Europe, when endil had to wait for customs inspection for the World Bank funded a building for bor- long periods--sometimes several hours-- der police, there was a request for a lecture without any shelter. hall to accommodate the entire regional 13. Greece also has traditionally dressed Evzone staff. It was pointed out that the requested soldiers mounting guard on its northern and room would never be full--as it was un- eastern borders. likely the entire border police force would 14. With the exception of the country name in- be simultaneously taken off operational side the European Union stars symbol. duty. 15. In Finland the average processing time for 23. As luggage on coaches is seldom tagged, exit to Russia is under 5 minutes. According there may be a problem when unidentified to performance data the average entry time luggage is not claimed. into Russia, at corresponding border stations, 24. In addition, equipment calibration differ- is 4­21 minutes for customs processing--but ences can mean that up to four different this does not include waiting times, which weights are indicated for the same truck. were estimated a few years ago at six hours, nor 25. Dogs are used for detecting drugs and does it include processing by other agencies. explosives--principally by customs and bor- 16. For example, a customs officer checking one der police, but sometimes also by immigra- car may become distracted by another wait- tion administrations to detect illegal im- ing car and so hastily dismiss the first. Worse migrants hidden in containers or trucks. In still, by the time the second car reaches the addition, dogs have recently been trained to inspection area, the officer may have forgot- detect large amounts of money, belying the ten why it seemed suspicious. myth that money has no odor. 17. This list assumes that a border station is not 26. An international standard for preventing 4 the regional headquarters and has only an cruelty to animals. operational role. (Regional headquarters are 27. Cars may also have a windshield sticker stat- Borders, their design, and their operation very seldom located at the border.) ing that they are part of an accredited driver 18. In earlier plans for a border station in Af- scheme. ghanistan, the customs manager had to 28. Red lane users select an entirely different come out of the building and walk around it route, which takes them to the administra- to visit border police counterparts because a tive building or a simplified formalities desk wall cut the building in two. or booth. 19. So-called single windows are sometimes in 29. Albania would close its border with Monte- operation in Eastern European countries, negro for the lunch break, but Montenegro where all documents are submitted in turn kept its stations open. to several officials--who may not be inter- 30. In addition, trade unions usually object to ested, but who justify their presence by scru- reductions in shift size. tinizing all forms and manually entering 31. For example, the 2010 deadline for the particulars in a register. Lebombo­Ressano Garcia border station, B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 77 due to open before the football World Cup trucks that had stopped at a motorway layby in South Africa. five kilometers from the port--an unrea- 32. A possible exception is immigration exit sonable effort, considering that the trucks checks, which can lead to the arrest of had to wait for boarding at the port anyway. wanted criminals. Drivers often would pull up at the layby to 33. In the 1970s Spanish police arrested Basque fi ll their inner wheels with drugs--and a tire separatists in the French part of a juxtaposed thus fi lled cannot be driven at more than a border station in Spain--that is, while the low speed for more than a short distance be- police technically were on French territory. fore bursting. Drivers who made it through And in the 1980s Swiss security services ar- French customs were similarly quizzed, after rested French customs officers for espionage reaching Dover, by British customs, who in the French part of the international train also waited in ambush at the first layby on station in Basel. the road to London. 34. There are exceptions. Canada has objected 39. Analysts operating eight hour scanner shifts to United States Customs officers carrying have been seen sleeping at their posts. firearms while on Canada's territory. French 40. At one border station in the Caucasus cus- police and customs officers on the British toms used donor funding to install a scan- side of the channel tunnel juxtaposed facility ner. Several months later the local border have a special, nominative gun permit issued guards were not aware of its existence. Such by the British authorities, within a specified outcomes should be avoided. limit per shift. 41. Customs police is an oxymoron. Customs are 35. In Zambia it is necessary to log out of the not police, nor are police customs--though ASYCUDA system, log in to the COMESA each agency has its own policing role. The database, retrieve the data regarding a transit enforcement role of customs typically is consignment, copy it manually, log back into performed by a specialized preventive ser- ASYCUDA, and then enter the data manu- vice, which, though it may have powers and ally. The transaction time, being too long to training resembling those of police, consists support fast operations from a booth, pre- of customs officers and reports to customs vents the introduction of an effective fast management (for example, the Swiss Border track mechanism. Guard Service is a directorate of the Federal 36. Apart from the initial collection of biomet- Customs Administration). ric data when the passport or identification 4 card is issued. References 37. On the other hand, some of the full declara- Borders, their design, and their operation tion data is confidential and should not be UNECE (United Nations Economic Commis- shared with another country, except when sion for Europe) Inland Transport Committee. provided for under a mutual assistance 1982. "International Convention on the Har- agreement. monization of Frontier Controls of Goods." UN 38. French customs officers used tachygraph document ECE/TRANS/55/Rev.1, United readings at car ferry ports to identify exiting Nations, Geneva. 78 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N CHAPTER 5 Building a convincing business case for border management reform Yue Li, Gerard McLinden, and John S. Wilson Governments, particularly in developing countries, face many challeng- es. Competition for limited resources being intense, priorities must be established and difficult decisions made. Gaining genuine commitment to border management reform therefore presents significant hurdles. To secure the necessary political and administrative support for major modernization, a well considered and carefully argued business case-- including a robust cost-benefit analysis--must be prepared and sold to key stakeholders. The business case must appeal to all key high on the agenda of the development stakeholders, and it must include both community and governments through- qualitative (soft) and quantitative (hard) out the world, the history of interna- arguments supporting reform. The tional collective efforts to facilitate trade case must demonstrate that allocating can be traced back at least to the end of resources to reform is a genuine invest- World War I. In 1920 the International ment rather than merely a cost. For cus- Chamber of Commerce was founded, toms reform alone, a business case and and it has since played a major role in fiscal rationale are relatively easy to pre- promoting the harmonization and sim- pare. But for the more holistic, compre- plification of customs procedures. These hensive reform agenda promoted in this were the earliest international endeavors book, the business case is more complex to reduce border related trade barriers and harder to prepare. Yet it is essential if (Staples 1998). strong internal constituencies supporting The end of World War II marked the status quo are to be overcome and gen- a new era of multilateral effort, and uine commitment to reform established new international coordination initia- and maintained over the long term. tives to facilitate trade soon emerged. Th is chapter outlines some of the The General Agreement on Tariffs and strong economic evidence in support of Trade (GATT), created in 1947, con- border management reform, and it pro- tained three articles related to border vides practical advice on how to prepare management (articles V, VIII, and X). a convincing business case. Those articles, now more than 50 years old, are at the core of the present Doha A long history of collective negotiations on trade facilitation. Sig- trade facilitation initiatives natories to the treaty are still far from full implementation of articles V (on While trade facilitation and border transit issues), VIII (on fees and for- management modernization are now malities), and X (on the publication and B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 79 administration of trade regulations). Later GATT Potentially large welfare gains articles on customs valuation, rules of origin, licens- from reduced trade costs ing, preshipment inspection, sanitary and phyto- sanitary controls, and technical barriers to trade The gains from reduced trade costs are best under- (TBTs)--as well as commitments regarding services stood by analyzing gains from trade. The analysis ancillary to trade, including transport and interna- here draws on modern trade theories: classic trade tional finance--further complement articles V, VIII, theory, factor proportions trade theory, new trade and X. Collectively these documents represent the theory, and a new extension from new trade theory World Trade Organization (WTO) disciplines re- that incorporates firm heterogeneities. lated to trade facilitation. In classic trade theory and factor proportions Other international organizations quickly fol- trade theory, gains from trade are rooted in produc- lowed suit. The United Nations Economic Com- tion efficiency achieved through realizing compara- mission for Europe, created in 1947, set up a Work- tive advantage.3 Both the classic theory, based on ing Party on Facilitation of International Trade technology differences, and the factor proportions Procedures. And the World Customs Organization theory, relying on endowment differences, predict (WCO) has been a key driver of trade facilitation that international trade allows countries to con- related reform since its founding in 1953. In 1973 centrate more on what they can produce at lower it established the International Convention on the cost--and, at the same time, to consume the same Simplification and Harmonization of Customs Pro- goods at lower prices. The welfare of all will then cedures (the Kyoto Convention ),1 which was heavily rise. But because these trade models treat transac- revised in 1999 to reflect major changes in interna- tion costs somewhat marginally, it is hard to draw tional trade. The WCO's suite of trade facilitation direct conclusions from them about how trade costs related instruments was further strengthened by its affect trade patterns. Nevertheless, one essential im- adoption in 2008 of the Framework of Standards to plication of these theories is that enhancing trade Secure and Facilitate Global Trade (SAFE Frame- improves welfare internationally through produc- work). The Customs Convention on the Interna- tion concentration and greater efficiency. Reduc- tional Transport of Goods Under Cover of TIR ing trade costs can thus potentially help developing Carnets (the TIR Convention) was also created in economies. 1959.2 These initiatives largely defined the concept New trade theory, and the closely related new of modern trade facilitation. economic geography theory (both pioneered by Paul In the mid-1990s nontariff barriers were recog- R. Krugman), expand the category of gains from nized as a major obstacle to efficient international trade to include efficiency realized through scale 5 trade transactions and, ultimately, a drag on na- economies and greater varieties of welfare improve- tional competitiveness. In 2004 trade facilitation ment. Before new trade theory it was hard to explain Building a convincing business case for border management reform was incorporated into the Doha round of multi- why two countries with similar technology, endow- lateral trade negotiations, underlining a strong in- ment, and tastes would trade with each other in the ternational consensus on the importance of trade same type of product. Labeled intra-industry trade, facilitation to economic development and national this phenomenon had long been observed and ac- competitiveness. counted for a large portion of international trade. Both developed and developing countries in the New trade theory successfully solved the puzzle. WTO recognize that trade facilitation represents In its seminal works (Krugman 1980, Brander and a win-win for all parties. The present negotiations Krugman 1983), new trade theory incorporated the on trade facilitation aim "to clarify and improve factors of scale economies, product differentiation, relevant aspects of Articles V, VIII, and X of the and imperfect competition, and demonstrated that GATT 1994 [General Agreement on Tariffs and two additional types of gains are associated with Trade 1994] with a view to further expediting the intra-industry exchanges: production efficiency due movement, release and clearance of goods, including to increasing returns to scale, and consumer satisfac- goods in transit" (WTO 2004, annex D). tion associated with additional varieties from abroad. 80 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Although the new trade theory explicitly incor- trade. Enhancing trade through reducing trade porated trade costs, its policy lessons regarding trade costs thus promises to enhance welfare. In lowering facilitation were somewhat ambiguous.4 The general fi xed and sunk trading costs one unleashes dynamic lesson was that developing economies can capitalize gains of comparative advantage, economies of scale, various gains from trade through further reduc- and productivity improvement through resource tions in trade costs along with their own economic reallocation. development. The World Bank offers the following assessment: "The main insight from research is that Trade costs in areas related the relationships between transport costs, produc- to border management tion locations, and trade patterns are nonlinear. Falling transport costs first led to countries trading Empirical work on barriers to trade has investigated more with countries that were distant but dissimi- some of the new claims of the new trade theory and lar. When they fell further, they led to more trade assessed the role of constraints not caused by tradi- with neighboring countries. Similarly, when trans- tional trade policies (such as tariffs and quantitative port costs fell from moderate levels, production con- restrictions). Th is section will highlight the signif- centrated in and around large markets. When they icance of trade costs and the effectiveness of trade fell further, some producers could produce more facilitation in areas specifically related to border cheaply in smaller markets but still serve large mar- management. kets" (World Bank 2008). A recent expansion of new trade theory (repre- Trade costs compared with tariff rates sented by Melitz 2003) highlights the importance of Transport costs, as an important part of transac- trade costs in firm selection and productivity growth. tion costs, can impede trade as severely as high tar- This expansion incorporates firm heterogeneity into iff rates can (Finger and Yeats 1976).6 As tariff rates the new trade theory framework (Bernard and others have declined substantially over the past 20 years, 2003; Melitz 2003; Yeaple 2005; Bernard, Redding, trade costs not related to traditional trade policy and Schott 2007). As many empirical studies have have become more visible. One recent study defines shown, only a small portion of firms in each coun- trade costs broadly as "all costs incurred in getting a try actually export. Those that do export tend to be good to a final user other than the marginal cost of larger, more productive, and more skill and capital producing the good itself " (Anderson and van Win- intensive. Th is tendency results from self selection coop 2004). driven by cross border trade costs.5 The expansion of Trade costs consist of transportation costs-- new trade theory incorporates firm level heterogene- freight costs, time costs, and policy barriers--plus ity to account for the new firm level observations, tariffs and nontariff costs, information costs, con- 5 predicting that only the most productive firms can tract enforcement costs, costs associated with the for border management reform cover the additional cost of exporting and so reap use of different currencies, legal and regulatory Building a convincing business case the benefits of a larger market. Less productive ones, costs, and local distribution costs. Trade costs are which cannot do so, produce only for the domestic large, and a significant portion of them results from market. So falling trade costs affect important firm economic policies. More important, the study ar- level decisions: entry and exit decisions, decisions on gues that indirect policies such as transport policy whether or not to export, decisions on how much and regulatory policy--rather than direct tariff s to export, technology decisions, and employment and other trade policy instruments--are most im- decisions. portant in trade costs. The authors estimate the ad In essence, the research suggests that reduced valorem tax equivalent of trade costs for industrial- trade costs will induce more firms to become ex- ized countries at 170 percent, of which 21 percent porters while stimulating the growth of existing falls under transportation costs (including 9 percent exporters. These interfirm reallocations may lead to for time value in transit), 44 percent under border re- an increase in overall productivity levels and, hence, lated barriers, and 55 percent under retail and whole- to overall welfare gains--a new form of gains from sale distribution costs. They assert that trade barriers B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 81 in developing countries are higher than those esti- the volume of any such exports. Another study mated for industrial countries. Furthermore, the (Djankov, Freund, and Pham forthcoming) uses the same authors argue that the current policy related days it takes to move standard cargo for export in costs are often worth more than 10 percent of na- 126 countries to analyze how time delays affect trade tional income (Anderson and van Wincoop 2002). volumes.7 Breaking down the time for export into Other policy interventions also affect transac- four components--document preparation, customs tion costs. One study (Kee, Nicita, and Olarreaga clearance, ports and terminal handling, and inland 2009) estimates the magnitude of tariffs and a sub- transportation and handling--the study points out category of nontariff barriers in ad valorem terms for that about two-thirds of delays in the sample can be 91 countries. The results show that nontariff barri- attributed to document preparation and customs ers add 70 percent, on average, to the restrictiveness clearance. The study also finds remarkable variation imposed by tariffs alone. In 21 countries nontariff in time for export across countries. It takes 116 days barriers are more restrictive than tariffs. to move an export container from Bangui, Central African Republic, to the nearest port and to fulfi ll The time dimension of trade costs the customs, administrative, and port requirements Trade barriers involve both direct financial outlays for loading the cargo onto a ship, whereas the same and costs associated with time delays and uncer- process takes only 5 days from Copenhagen and 6 tainty. The delays and uncertainty encountered in from Berlin. A delay of one day reduces trade by at moving goods across borders are among the most least 1 percent--the equivalent of distancing a coun- vexing impediments for traders in many countries. try from its partners by an additional 70 kilometers. The first study to argue the time dimension of With global integration and segmented produc- trade barriers (Hummels 2001) distinguished two tion, many industries depend increasingly on pro- classes of costs: goods depreciation and increased duction and supply chain networks. Thus the time- inventory-carrying costs. Each class of costs affects liness and reliability of trade becomes increasingly traders in two ways: it affects whether or not a firm important. Sectors relying on international supply will enter foreign markets, and it influences the vol- chain networks are more sensitive to distance, mak- ume of trade. United States import data was used ing clusters appealing as a way to avoid time delays to show that for each additional day spent in trans- (Harrigan and Venables 2004). The United States port, the probability that a country will export to increasingly imports apparel products from nearby the United States declines by 1­1.5 percent, while countries, as timeliness matters more for these prod- the advent of fast transportation between 1950 and ucts because importers and retailers must respond 1998 was equivalent to reducing tariffs on manufac- rapidly to fashion and seasonal changes (Evans and 5 tured goods from 32 percent to 9 percent. More re- Harrigan 2005). cently, an ad valorem cost estimate of the time taken It follows that time delays may also affect the Building a convincing business case for border management reform to ship goods (Hummels and Schaur 2009) argued composition of trade, disproportionately reducing that each day saved in shipping time for manufac- trade in time sensitive goods, such as perishable ag- tured goods is worth 0.8 percent of the goods' total ricultural products (Djankov, Freund, and Pham value. forthcoming). One day's delay reduces a country's The estimates above are based on transport time. relative exports of time sensitive to time insensitive Yet time is lost not only because of transport and dis- goods by 6 percent. Investigating the validity of these tance, but also because of inefficient administrative propositions using firm level data for 64 developing procedures. Using control of corruption as an instru- countries, one study finds that, in countries where ment for delays in export time, one study (Nordas, more time is needed to export, firms in time sensitive Pinali, and Grosso 2006) shows that delays will re- industries are less likely to become exporters--and duce the probability that a country will export to those firms that do export have lower export inten- Australia, Japan and the United Kingdom in indus- sities (Li and Wilson 2009). 8 As an example, if two tries including intermediate inputs, fashion clothing, industries in a country have the same export prob- and electronics--and also that the delays will reduce ability and intensity--but differ in time sensitivity 82 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N by one standard deviation--then cutting time to ex- technical standards, sanitary and phytosanitary reg- port by 50 percent opens a 6 percentage point differ- ulations, electronic commerce regulations, services ence between the export probabilities of the two in- trade, and foreign investment rules. Using the ex- dustries, and it increases the difference between their ample of the Singapore-Japan Free Trade Agreement export intensities by 1.9 percentage points. These (FTA) and a modified version of the dynamic Global findings highlight the importance of transaction ef- Trade Analysis Project (GTAP) model, the study ficiency in determining comparative advantage. estimates the potential gains from automated cus- toms procedures, uniform standards for electronic The effectiveness of trade facilitation commerce, and bilateral tariff cuts. The results show Much recent empirical research on the links between that the FTA will substantially increase merchan- trade and trade costs has thus sought to learn what dise trade and boost rates of return in both Japan policies create unnecessary costs and what policies and Singapore--increasing foreign and domestic in- ease those costs. How effective is trade facilita- vestment, as well as gross domestic product, for esti- tion, and where is it most effective? This subsection mated global gains of more than $9 billion annually. reviews recent research on the overall effectiveness of trade facilitation--and, more specifically, of Trade administration and institutional quality. improvements in trade administration, institutional Empirical work on reforms to customs and other quality, and infrastructure--with some of the find- border agencies is scarce--because hard data are ings discussed at firm level. The section also reviews lacking, but also because border management issues recent evidence on the costs and benefits of aid for are intertwined with broader institutional qual- trade, which has gained new attention from the ity issues. One study shows (Wilson, Mann, and international development community. Otsuki 2005) that if the least efficient countries could improve their customs environment halfway Overall trade facilitation. A study estimating the toward the group average, matching global trade trade gains from reforms to reduce trade transac- gains of $33 billion could be achieved, while a simi- tion costs--that is, from trade facilitation--defines lar improvement in the regulatory environment such facilitation broadly to include four factors: port could bring an additional $83 billion of gains. From efficiency, the customs environment, the regulatory those results it can also be concluded that automat- environment, and the infrastructure for electronic ing customs is the most important factor in increas- business (Wilson, Mann, and Otsuki 2005). Port ing merchandise trade (Hertel, Walmsley, and Ika- efficiency covers port facilities, inland waterways, tura 2001). Another study, based on data from 126 and air transport. The customs environment includes countries, shows that reducing both the number of hidden import barriers and irregular extra payments business registration procedures and the number of 5 and bribes. The regulatory environment consists signatures required for exporting will lead to trade for border management reform of transparency in government policy and success gains (Sadikov 2007). Each signature eliminated Building a convincing business case in controlling corruption. The electronic business reduces aggregate exports by 4.2 percent--the equiv- infrastructure, finally, measures the speed and cost alent of raising import tariffs by 5 percentage points. of internet access and the effect of internet on busi- A study of transparency in trade, focusing on the ness as a proxy for information and communication Asia-Pacific region (Helble, Shepherd, and Wilson services development. Using data from 75 countries 2007), uses composed measures on transparency over 2000­01, the study shows that improvements that extend beyond border agencies and behind- in all four areas enhance trade. If the least efficient the-border agencies. Nonetheless, it sheds light on countries could increase efficiency halfway toward the importance of border reforms and behind-the- matching the group average, global gains from trades border reforms. The study's transparency indicators, could amount to $377 billion. both "objective" and based on perception, include Another study (Hertel, Walmsley, and Ikatura uncertainty about import times, the number of 2001) looks at free trade agreements for the stream- agencies an importer must deal with, administra- lining of customs procedures, the harmonization of tive favoritism, and the prevalence of trade related B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 83 corruption--indicators that tend to capture the sim- network for 42 Sub-Saharan African countries in plicity of administrative procedures and the quality 2003. A study finds significant overland trade gains of institutions. The results indicate that transpar- from such a network (Buys, Deichmann, and Wheeler ency, particularly related to the import regime, can 2006)--about $250 billion over 15 years (whereas be a significant factor in promoting bilateral trade. total expenditure is estimated at $47 billion). Increasing import transparency in Asia-Pacific Eco- The development of information and communi- nomic Cooperation member economies to the re- cation infrastructure can also stimulate trade flows gional average could have a larger impact than re- by reducing initial search costs between interna- ducing tariffs or nontariff barriers to the same level. tional traders and, later, by lowering communication The inhibiting effects of corruption and institu- expenses. A study directly investigating communi- tional weakness on trade are well documented. Over- cation costs finds (Fink, Mattoo, and Neagu 2005) all increases in transparency and declines in corrup- that cutting the cost of communication between tion will spill over to improve border agencies. Weak two countries significantly improves bilateral trade institutions act as significant barriers to international flows: a 10 percent drop in bilateral calling prices trade, highlighting the importance of institutional could lead to 5­9 percent increase in trade between reforms (Anderson and Marcouiller 2002). The in- two countries in 1999. Trade in differentiated prod- security of international exchange in low income ucts responds more to these costs than trade in ho- countries, arising from corrupt customs practices, mogenous products does. Other studies look at spe- unenforceable contracts, and organized crime--all cific aspects of information and communications potentially linked to trade facilitation--can be mea- technology development. For instance, expanding sured rather broadly with indicators of the govern- telecommunications traffic is associated with greater ment's transparency and impartiality and the en- trade volume (Portes and Rey 2005), and diff using forceability of commercial contracts. The result: a 10 internet use stimulates both merchandise and ser- percent increase in a country's transparency and im- vices trade (Freund and Weinhold 2002, 2004). partiality index leads to a 5 percent increase in its im- port volumes. It is also argued that cross country vari- Firm level evidence. The firm is the major player in ation in institutional effectiveness offers an alternative all international transactions. What enables firms to explanation for why high income, capital abundant participate in international trade? Recent develop- countries trade disproportionately with each other. ments in trade theory and new available data allow researchers to address this question. The responsive- Infrastructure development. Deficient transport ness of firm export performance to comprehensive infrastructure and poor information and commu- trade facilitation reform is highlighted in a study 5 nication services can isolate countries, impeding (Dollar, Hallward-Driemeier, and Mengistae 2006) trade. The issue has received adequate attention using data from the World Bank Enterprise Surveys, Building a convincing business case for border management reform only recently. One study links infrastructure devel- which aim to identify policy constraints on business opment with trade, using a measure that covers the operation and effectiveness. Covering eight fairly quality of both transport and communication infra- large emerging economies in different continents, structure (Limão and Venables 2001). The study the study follows a model (Melitz 2003) in which shows that 40 percent of transport costs in coastal exporters and nonexporters self select because of countries, and up to 60 percent in landlocked coun- fi xed export costs. The findings: firms are more likely tries, can be attributed to infrastructure deficiency. to export where customs clearance is quick, power If landlocked countries and their transit countries losses are low, government services are efficient, and can improve infrastructure from the 25th percentile the availability of overdraft facilities is high. And to the 75th, they can reduce the trade volume dis- customs clearance, an important part of trade facili- advantage associated with being landlocked by an tation, is one of the most significant determinants of estimated one-half. whether firms export. Motivated by the empirical evidence, the African A similar model applied to African countries Development Bank proposed a transcontinental road (Clarke 2005) shows that addressing policy related 84 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N constraints can improve firms' export performance. every $1 of assistance is associated with about $647 After controlling for firm characteristics, manufac- in additional trade. That is more than 10 percent turing firms are more likely to export where trade higher than the comparable rate of return to aver- and customs regulation is less restrictive and cus- age aid for trade, $583 (Helble, Mann, and Wilson toms administration more efficient. Another study 2009). of African countries, again using the Enterprise Surveys (Yoshino 2008), also finds that exporters Developing a sound business case in countries with more efficient customs agencies send more products abroad. If export intensity (ex- How can the economic arguments supporting bor- ports as a share of total sales) and export market di- der management reform be cast into a form that will versification (number of export destination regions) capture the imagination and support of key policy- are used as measures of firms' export performance, makers and decisionmakers? Though dense, eco- then, in addition to firm characteristics, policy re- nomic research is useful both in setting the context lated variables including power services and customs for reform and in objectively calculating the benefits administration have an intermediate impact on re- from new investments. What is most needed is to gional export intensity (Yoshino 2008). A more effi- contextualize the evidence and demonstrate its con- cient customs administration is also associated with crete relevance to a particular country. greater export market diversification. Preparing a business case should start with iden- tifying the key stakeholders and analyzing their Aid for trade. Because of the foregoing research, aid needs and ambitions. The case will need to be made for trade--or trade related aid--has drawn new in terms that correspond closely to the stakeholders' attention from policymakers recently. But the ongo- individual needs. ing debate over aid effectiveness points to the com- Special care must be taken to ensure that the ini- plexity of the relations among aid, trade, and growth. tial assumptions made about stakeholders' interests Aid could be tied to trade--or induced by an exist- and motivations are correct. Border management ing trade relationship. Aid could adversely affect the reform projects often assume that private sector economic growth of recipient countries, in particular stakeholders will universally benefit from improved through aid induced "Dutch disease." While strong systems and procedures, and that therefore they will evidence supports the causal relationship from aid to all share a positive attitude to the changes proposed. trade--and suggests that well designed aid for trade This is frequently incorrect, as all meaningful change can mitigate perverse effects on growth--there are creates some winners and some losers. Poor systems few direct cost-benefit analyses of aid for trade. and procedures often suit certain stakeholders, who One study (Helble, Mann, and Wilson 2009) benefit from existing arrangements. For example, 5 takes a step toward fi lling this gap by illustrating complex, opaque, and time consuming border man- for border management reform the cost effectiveness of aid that targets policy and agement procedures are an incentive for importers Building a convincing business case regulatory reform. Using data on aid flows, the re- and exporters to use customs brokers and clearing sponsiveness of trade flows to specific types of aid is agents. The procedures can create and sustain the estimated. The results confirm that aid targeted to need for such services. So customs brokers may not promote trade improves trade performance. Among automatically support reform. The degree to which three types of targeted aid--for trade policy and each stakeholder must be involved needs to be de- regulatory reform, for trade development, and for termined in advance. Some stakeholders will take a economic infrastructure--aid targeting trade policy keen interest in the proposed project, while others and regulatory reform has the highest rate of return: with a less direct stake may need only to be informed every $1 yields about $697 in additional trade. and consulted. Another study, focusing on aid for information A clear picture of present performance, high- technology (del Angel, Li, and Wilson 2009) finds lighting both positives and negatives, must be de- that such aid enhances trade, especially between de- veloped and articulated. A comprehensive analysis veloping countries. The rate of return is fairly high: of strengths, weaknesses, opportunities, and threats B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 85 can help focus attention on key reform issues and And for the private sector: challenges while ensuring that attention is not un- · Reduced overall costs from delays and informal necessarily focused on areas that are performing payments. well. Such an analysis can also help reformers iden- · Faster clearance and release. tify likely winners--and losers--and calibrate their · Consistent, predictable application and explana- business case accordingly. An example is in box 5.1. tion of rules. In some cases reformers might do well to prepare · More effective and efficient resource deployment. such an analysis, not only for the project as a whole, · Improved transparency. but for each key stakeholder. That way the incentives · Reduced numbers of steps in processing. and disincentives for each stakeholder can be bet- Once the preliminary analysis has been com- ter understood--and the project's scope and content pleted, the business case can be prepared using presented to appeal to the interests of all. Where various templates and formats, many of which are stakeholder resistance is likely, the business case can available online. No single template will fit all cir- include measures to address particular concerns. cumstances, though many countries have established The benefits generally likely to flow from border a common format or agreed approach. management reform may include, for government: The business case must capture the key argu- · More effective and efficient resource deployment. ments for a project or activity, its value to key stake- · Accurate and improved revenue yield, with less holders, and the human and financial resources nec- leakage. essary for completing it. A sound business case will · Increased trader compliance. typically include: · Enhanced supply chain security. · A clear, concise summary of key issues and any · Improved integrity and transparency. key decisions required. Box 5.1 Analyzing border management strengths, weaknesses, opportunities, and threats Possible strengths: · Technically skilled and competent workforce. · Strong legislative framework. · Strong political support. · Some degree of effective cooperation among various border management agencies. · Good working relationship with traders. · Clear and comprehensive diagnosis of key problems already undertaken. 5 Possible weaknesses: · High rates of smuggling. Building a convincing business case for border management reform · Alleged corruption. · Falling revenue. · Lack of information technology in agencies other than customs. · Poor customs clearance times compared with neighboring countries. · Competition and rivalry among border management agencies. Possible opportunities: · Regional and international commitments in place, with implementation deadlines established. · Donor support likely. · Performance indicators available that clearly identify problems and reform priorities. · Political pressure already being applied to improve border clearance times and revenue collection. Possible threats: · Loss of export opportunities to regional competitors. · Loss of foreign investment due to poor international reputation. · Exacerbated revenue loss due to regional integration. · Huge port infrastructure investments required unless goods clearance can be sped up. 86 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N · A clear account of the problems to be solved, Business Trading Across Borders dataset9 and vari- with a clear long term vision (the situation ex- ous World Economic Forum rankings. These data- pected to be reached if a project goes ahead). sets allow simple comparisons between countries · A clear link between the issues and problems with similar incomes or from the same region--and identified and any activities to be agreed on and nothing motivates policymakers more than poor financed under a project, including possible al- performance rankings compared with those of sim- ternatives and the reasons for their rejection. ilar or neighboring countries (or of key competitors). · A strong justification for the likely expense, Early on, the business case should describe exist- weighing costs against benefits. ing problems in very clear, unambiguous terms. In · Clear evidence of the proposer's technical capac- addition, it should detail the expected costs or con- ity to achieve objectives. sequences of letting those problems continue--the · A careful, realistic identification of threats to the aim being to make it clear that doing nothing is not success of a project. a viable option. Where possible, underlying causes · Accurate estimates of required resources. should be identified to avoid focusing on secondary · Objective performance measures to allow accu- symptoms. Also, trends and changes in performance rate progress monitoring. over time should be illustrated. Almost all countries · Appropriate governance and supervision are undertaking some trade facilitation reform. So mechanisms. the business case must demonstrate, empirically if The following sections focus only on those parts possible (using data sources such as those described of the business case that are most challenging to pre- above), that reform needs to be faster and deeper to pare. Cost estimates, other resource requirements, prevent a country's performance from falling--in implementation plans, and the like are not examined. spite of existing reform efforts--compared with that of neighbors or competitors. Describing and contextualizing To the statement of issues and problems must problems, issues, and consequences be added a close linkage between effects and causes. Also needed is an equally clear long term vision--an In preparing a clear statement of key issues and prob- account of the situation expected to be reached if the lems, care must be taken to put the case in a context project is endorsed. Often it is useful to specify this understandable to all decisionmakers. Where pos- situation in a short account of expected outcomes sible, objective performance indicators--indicators (box 5.2). that quantify the scale of problems to be addressed-- should be employed. While such information can Description of proposed have various sources, external sources often are con- solutions--and their capacity to 5 sidered most credible. For example, in identifying address issues and problems for border management reform opportunities for improvement in border manage- Building a convincing business case ment it is helpful to draw on external reports and How will the proposed project solve the problems diagnoses by international organizations such as the identified in the fi rst part of the business case? World Bank, International Monetary Fund, WCO, Because resources are always finite, the second part WTO, United Nations Conference on Trade and of the case should demonstrate that priorities for Development, and so forth. (Examples include the project inputs and activities have been set carefully, Diagnostic Trade Integrations Studies conducted as that the prioritization is based on sensible criteria, part of the Integrated Framework for Trade Related and that alternatives to the proposed solutions were Technical Assistance and the WCO's Columbus considered and were rejected for good reasons. The Program diagnostic studies.) Likewise, externally method used to assess proposed solutions needs to be collected performance data--where available--can clearly stated, and all the options explored need to be strengthen the case for reform. In border manage- assessed against each criterion. ment, the World Bank's Logistics Performance To help reformers set priorities for possible Indicators are particularly helpful, as are the Doing reforms in relation to WTO trade facilitation B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 87 Box 5.2 Example of a long term vision for border management reform The following long term vision was articulated by one East Asian country's border management reform team: · A paperless trading environment in which 90­100 percent of documentary requirements and approvals are transmitted to regulatory agencies electronically, where agencies share information and rationalize processes to eliminate duplication and overlapping mandates, and using a system compliant with all regionally and in- ternationally agreed standards. · A clear, concise, transparent legal framework in which traders know their rights and obligations and have ap- propriate administrative and legal means to challenge decisions. · A single window system, allowing traders to discharge all regulatory requirements through one central contact point, adopted in tandem with a review and rationalization of all existing border management agency require- ments and mandates. · A comprehensive risk management and compliance improvement approach, leading to more focused targeting of high risk shipments and to a radically reduced need for routine physical cargo inspections. · A close cooperation and partnership between government agencies and the private sector in matters related to border management. · A single, World Trade Organization­compliant service fee, replacing the range of fees previously required by regulatory authorities. · Organizational structures and human resource management approaches that rationalize and streamline opera- tions and that ensure officials are well trained, appropriately compensated, and well regarded by the public. commitments, the World Bank and the WCO pre- Figure 5.1 World Bank­World Customs pared a simple matrix (figure 5.1). Reformers could Organization matrix for setting reform priorities agree on criteria for rating each possible activity against two key matrix elements: the benefits to gov- High ernment and traders; and the cost and difficulty of implementation. The stakeholder analysis described above--and the previously construed matrix of Second order Low priority priority strengths, weaknesses, opportunities and threats difficulty and cost (see box 5.1)--can be used to inform this process. Implementation The examination in the business case of alterna- tives to the proposed project need not be exhaustive. What is important is to explain why the alternatives 5 have not been proposed. Also important is to de- Potential High priority scribe how lessons learned from previous reform ef- quick win Building a convincing business case for border management reform forts have been incorporated into the project design. A simple account of what worked, what didn't, and Low why, will be useful. Lessons based on international Benefits for Low High experience can add strength and rigor. Here the government and traders work of the WCO is particularly helpful. A sample account of rejected alternatives and past lessons (pre- costs, institutional costs, training costs, and equip- pared in support of a World Bank border manage- ment and infrastructure requirements. In contrast, ment reform project) is provided in box 5.3. it frequently proves difficult to quantify the likely benefits of a reform program and so produce an accu- Justifying the project through rate figure for the expected return on the investment. cost-benefit analysis Many of the benefits are not easy to state accurately in money or value amounts. An information technol- Information on costs often is readily available--or ogy program may deliver increased trader compliance, can be estimated fairly easily from regulatory change improved staff performance management, increased 88 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Box 5.3 A sample account of rejected alternatives and past lessons A business case for one World Bank border management reform began with the following paragraphs. In preparing the reform and modernization project, special attention was paid to examining previous border management reform efforts, both in the country and elsewhere in the world. The lessons learned during this research have been incorporated in the project design and are reflected in the selection of proposed project activities. First, while the in house development of a new border management information technology system was initially considered, previous experience in the country suggests that such an approach may be be- yond the technical competence of the border management agencies at this time. The project will therefore fund the procurement and implementation of an existing commercial off the shelf system customized to fit the specific requirements of the country. Second, to ensure the long term sustainability of improvements obtained through the project, sig- nificant resources will be allocated to developing the capacity of part and full time trainers at the national training academy rather than outsourcing delivery of much of the required technical and administrative training to external providers. This will be accomplished by establishing a training agreement with a suit- able international vocational education provider. Third, a more comprehensive project was considered, but rejected due to a need to obtain immediate results for trade facilitation and revenue collection and prepare for future reform activities by increasing implementation and change absorption capacity of the customs department and other key border man- agement agencies. Limited experience in the management of major change programs precludes a larger scale reform project at this time. Discrete, selected incremental changes will thus have more chance of success and be instrumental in laying the foundations for further and more far reaching future reforms. The more limited project selected provides the largest potential benefit for the resources invested and builds upon and complements work being carried out by a number of donors. It avoids the fate of larger overambitious strengthening projects and profits from the lessons learned in a number of very similar projects being implemented in neighboring countries. Last, research suggests that one of the most critical success factors associated with the conduct of effective border management projects is the accurate diagnosis of developmental requirements. As such, the project design was based on a comprehensive diagnostic assessment undertaken by a team of World Bank Specialists. To ensure the approach taken during the diagnostic process was robust and comprehensive the World Customs Organization's comprehensive customs Capacity Building Diagnos- tic Framework was employed. The framework provides a comprehensive template for addressing all key operational and support functions of customs and is based on the application of agreed international standards and best practice approaches. 5 transparency and accountability, and better collabora- section of project documentation--necessary for for border management reform tion with other agencies and stakeholders. But these project approval--summarizes the project's net Building a convincing business case are difficult to quantify objectively. Rarely can an benefit quantitative to society. Often it is based on a investment decision for border management reform comparison between scenarios with and without the be made solely from a traditional cost-benefit or return project. Preparing such forecasts in measurable mon- on investment analysis. So a suitable business case etary terms, based on calculating the economic rate should combine an analysis of the investment with a of return (or net present value) and including sensi- wider view of both quantitative and qualitative ben- tivity analysis, can be a complex and sophisticated efits. The following points will be useful for reformers exercise--but if robustly undertaken it can greatly attempting to describe and calculate the likely ben- strengthen the case for reform. According to a com- efits from border management modernization.10 prehensive review of financial and economic analy- ses in a number of World Bank­fi nanced border Financial and economic analysis management reform projects, several of the business Cost-benefit analyses are a key element of all World cases shared one major shortcoming: authors stated Bank project appraisal and approval processes. This that projects would be financially and economically B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 89 feasible, but they did not attempt to quantify the To quantify the likely economic benefits from proj- benefits (De Wulf, Le, and Pham 2007). ects related to border management, only basic data on In revenue management modernization trade volumes and customs clearance times usually are projects--including many border management needed. Reductions in administrative and compliance projects involving customs--financial benefits are costs from border management projects will depend reflected in likely budget revenue increases, espe- on local circumstances, but economic research offers cially through enhanced control over smuggling and a starting point: a reasonable and fairly conservative administrative corruption and through more effec- estimate is a reduction of from 0.1­0.5 percent of cargo tive administration of special import regimes. Skill value. To calculate the benefits from lower clearance development for officials, if a key program element, times, the data that can be used include: is also likely to contribute to enhanced management · Clearance times. of valuation and tariff classification and reduced rev- · The share of imports and exports that enter and enue leakage. Reformers can use finance ministry leave the country through ports of entry. data and published economic growth projections to · A projection of such imports and exports over construct a future revenue collection scenario based the project period. on these assumptions. Such a scenario will not in- · A target for reducing the clearance time at each clude productivity or collection efficiency dividends, port of entry. so it will constitute the "without project" scenario. The economic benefits from reduced clearance times Having completed and tested it, reformers then can can be estimated at 0.5 percent of cargo value for construct one or two "with project" scenarios based each day by which clearance time is lowered. on various assumptions about efficiency improve- Survey data for one East Asian country identi- ment. In most cases the revenue increases alone-- fied clearance delays that were the responsibility of even calculated using very conservative estimates-- customs and those that were the responsibility of will be sufficient to demonstrate a strong return on other agencies at the border. Such data can be used to investment and justify resource requirements. estimate the benefits both from improved customs More difficult is to estimate the likely economic operations and from other agencies' reduced clear- benefits. Many border management projects include ance delays, justifying extensions of border manage- predictions of reduced costs for traders preparing ment reform beyond customs. Numbers of required customs documents and other clearance documents documents and signatures can be used as proxies for for border management agencies, together with re- determining likely efficiency gains. duced facilitation payments. Many projects also Clearance times should be not only lowered, but predict that cargo will be cleared faster and more also made more predictable. Predictability allows 5 predictably--allowing traders to maintain smaller traders to keep only the inventory needed to meet inventories--and that international trade will ex- demand. Halving the standard deviation in clear- Building a convincing business case for border management reform pand as the economy becomes more competitive. ance times is estimated to provide benefits equal Little research has been done on the cost of pre- to an additional 0.2 percent of cargo value. Where paring clearance documentation, but an Organisa- the variability is lower, lower benefits should be as- tion for Economic Co-operation and Development sumed. Even when objective data on the variability study (2003)--mentioning survey data from Japan of clearance times are not available, this likely benefit and the European Union--suggests that clearance should be pointed out to policymakers. costs range from 3.5­15 percent of the value of im- Research clearly indicates that better border clear- ported cargo. Benefits from faster and more predict- ance lowers traders' costs--and that reduced costs in able customs clearance include reduced business turn enhance external competitiveness, improving ex- opportunity loss, lower inventory cost, and lower port growth. Using conservative estimates, it would depreciation of goods delayed in transport. (For be reasonable to add one percentage point to the ex- savings from reduced shipping time see Hummels port growth previously projected for the course of the 2001.) Improving external competitiveness also ex- project. Ranges for such reasonable estimates of ben- pands trade. efits, in several categories, are illustrated in table 5.1. 90 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Table 5.1 Estimating potential economic benefits from border management reform Type of improvement at border Benefits to government, to Reasonable range for management agencies traders, and to the country estimated benefits Reducing administrative costs Reduced costs for government and traders ­0.1­0.5 percent of cargo value Reducing clearance times Reduced traders' costs ­0.5­0.8 percent of cargo value Reducing the variability of clearance time Reduced inventory levels for traders, leading to For each 50 percent reduction in the standard reduced traders' costs deviation, ­0.2 percent of cargo value Increasing competitiveness Increased export growth +1 percentage point Demonstrating a capacity to succeed to overcome resistance in government agencies, the agencies should be represented in the governing or Many business cases presented to decisionmakers advisory group overseeing the project. A realistic as- are based on overly optimistic assessments of the sessment of likely winners and losers will identify reformers' capacity to carry out development proj- likely sources of resistance in advance. ects and achieve meaningful outcomes. Implemen- Likewise, the project could include a strong tation risks are rarely identified and acknowledged, consultation and communication strategy. If and adequate risk mitigation measures are rarely pro- decisionmakers are likely to be concerned about posed. Research by the World Bank suggests that it deadlines, the project may also include strong proj- is critical to establish realistic achievable develop- ect implementation and performance metrics. In ment objectives and to manage expectations based one recent border management project, progress on probable--rather than possible--capacities. was periodically assessed through client surveys and Equally important is factoring in likely challenges, objective measures of clearance times at major ports including: and land border crossings. Such objective indicators · Existing rivalries, competition, and conflicts of and monitoring mechanisms facilitate supervision interest among ministries and agencies. and establish confidence in the reform team. They · Inadequacies in competence. also can help reformers to sustain the momentum · Inadequacies in official remuneration and other toward reform among policymakers throughout the incentives. project. If resistance to change is anticipated from · Insufficient physical, technical and fi nancial the private sector, a formal process for consultation, resources. cooperation, and partnership with private sector rep- · Lack of experience in alternative regulatory en- resentatives can be established. vironments among senior managers. In sum, anticipated risks and challenges should · Lack of implementation capacity, in government be identified and included in the business case. If 5 agencies or in the private sector. they are not, they likely will be identified by the for border management reform · Lack of effective regulatory and nonregulatory decisionmakers assessing the business case and will Building a convincing business case frameworks governing customs brokers and harm the reformers' credibility. Understanding the other trade related service providers and incentives of key players, again, is a must--both in intermediaries. developing the rationale for reform and in learning · Resistance to change, arising from the threat- where resistance is likely to arise. ened removal of unofficial incentives such as bribes. Conclusion · Outdated, inadequate organizational structures. · Lack of public awareness and willingness to sup- The business case for trade facilitation through bor- port the long term effort needed for meaningful der management reform must be focused on present- improvement. ing practical solutions to clearly defined problems. It To build decisionmakers' confidence that re- must appeal to all key stakeholders and demonstrate formers can deliver, it is vital to identify challenges, likely benefits, with a cost-benefit analysis to justify risks, and risk mitigation strategies. For example, the scale of requested investments. To be credible to B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 91 policymakers it must identify likely barriers to suc- indicator on export time from the "Doing cess and appropriate mitigating strategies. Equally Business Database," The World Bank, http:// important, reformers must demonstrate their capac- www.doingbusiness.org. ity to manage the project and meet development 9. See "Doing Business: Trading Across objectives. Borders," The World Bank, http:// Economic research overwhelmingly concludes www.doingbusiness.org/ExploreTopics/ that trade facilitation lowers trade costs, makes TradingAcrossBorders/. countries more competitive, and increases trade. 10. Much of the following is based on De Wulf, The challenge to reformers seeking support for bor- Le, and Pham (2007). der management modernization is how to translate that research into a strong, convincing business case. References The information and advice in this chapter should help such reformers succeed. 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The World Bank, Washington, DC. 5 Building a convincing business case for border management reform 94 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Core border management CHAPTER 6 disciplines: risk based compliance management David Widdowson and Stephen Holloway Contemporary border management reflects a complex interplay be- tween a variety of actors in international trade, both across government through its public sector agencies and between government and the pri- vate sector. The border in many cases is the physical manifestation of the intersection of regulation and commerce. Its proper management is critical to the cost effectiveness of international trade transactions and the smooth flow of legitimate goods and people from both public and private sector perspectives. Any shortcomings in border management tend to highlight weaknesses in a country's regulation of trade and im- migration, and their impact is felt in issues such as supply chain security, health, and safety. The reality of increased trade volumes blurred, or even virtual, borders while-- and passenger traffic--a consequence at the same time--meeting the gov- of globalization and advances in trans- ernment's mandate to maintain the portation and electronic commerce-- integrity of the border, to protect the poses particular challenges for border community, and to prevent the unlaw- agencies, especially as public sector ful or unauthorized movement of peo- resources have remained relatively sta- ple and goods. ble over the same period. Furthermore, The reference to blurred or vir- in most countries a number of agencies tual borders acknowledges that, for have some form of regulatory responsi- security and other reasons, a number bility at the border. Each of these agen- of countries are pushing their borders Core border management disciplines cies has its own specific mandate from outward in a virtual sense through the government, and taken together they mandating of advance information cover issues as diverse as health, product prior to departure of the goods (or per- safety, quarantine, immigration con- son). In this context the United States trols, and security, as well as revenue and Department of Homeland Security other customs concerns. refers to the global security envelope, Notwithstanding that there may be a regulatory approach that seeks to several agencies with border manage- establish a chain of trust throughout ment responsibilities, the fundamental the supply chain--from manufacture nature of the challenge that each con- through transport to its ultimate re- fronts is the same. The challenge is to ceipt by the consumer. Th is concept is facilitate the legitimate movement of physically manifested through regula- people and goods across increasingly tory initiatives such as the Container B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 95 Security Initiative and the Advanced Manifest approach to one that is now grounded firmly in risk Rule. management. That evolution has taken place as a Similarly, at a multilateral level the World Cus- necessary consequence of the increased volume and toms Organization (WCO) Framework of Stan- complexity of international trade and transport. dards to Secure and Facilitate Trade (SAFE Frame- In relation to goods, the United Nations Confer- work) provides a policy framework for pushing ence on Trade and Development (UNCTAD) has borders outward by undertaking export inspections estimated that (2006, p. 3): at the point of departure if requested by the country of destination. A trade transaction may easily involve 30 The consequence of such policy initiatives has parties, 40 documents, 200 data elements, been to highlight a shift in focus on the part of bor- and require re-coding of 60 to 70 percent of der agencies from one that is essentially transac- all data at least once. For example, within a tional, treating the movement of goods and people port community where the two main actors, as a series of individual steps from departure to ar- namely, the forwarding and the ship's agents, rival, to one that is more holistic, using an integrated must communicate and coordinate informa- and interdependent process from the inception of tion flows, the exchange of information can the transaction to its completion and with multiple amount to about 10 percent of the commer- players intervening at different times and assuming cial value of the traded goods. Sources of in- different responsibilities. The broader focus on up- formation that could be involved include the stream and downstream elements of the supply chain port authority, shippers, banks, insurers, car- has the potential to increase trade friction, that is, riers, Customs, etc. impede the flow of trade and increase its costs. These considerations increase the complexity of the task UNCTAD further concluded that about one- confronting modern border agencies and bring is- third of international trade in goods involves trade sues of control, intervention, and facilitation into in unfinished goods and components that form part stark relief--a point discussed in more detail below of a global supply chain, and that a similar percent- when the chapter examines the philosophy of effec- age represents trade within the same company. It is tive border management. likely that those percentages have increased since The agreement at the 2001 Doha Ministerial the UNCTAD report was prepared, and indeed the Conference to consider trade facilitation for a World WCO estimates that the percentage of intracom- Trade Organization (WTO) rules-based agreement pany trade is now closer to 50 percent (WCO 2008). represents another significant input into the equa- Most of that trade is moved within an integrated 6 tion, highlighting border management as a major global logistics system in diminishing timeframes, component of achieving trade efficiency. The agree- to meet global sourcing and just-in-time business Core border management disciplines: risk based compliance management ment recognizes that an efficient and effective border models that emphasize low inventory. management regime is critical to the achievement of A recent SITPRO1 study estimated that the sustainable growth and development, as is evident United Kingdom's import perishable food supply in the World Bank's Logistics Performance Index chain generates one billion pieces of paper annually; (Arvis and others 2007) and the World Economic duplicate consignment data are keyed in at least 189 Forum's Global Enabling Trade Report (WEF 2008). million times per annum; the cost of document re- This chapter examines the core border manage- lated administration is estimated to be around 11 ment disciplines that underpin efficient and effective percent of the supply chain value per annum; the border management, whether in respect of goods, cost of delayed, incorrect, or missing paperwork is a people, or modes of transport. First, however, the little over £1 billion per annum for the sectors stud- chapter sets the scene for these core border man- ied; and the total cost of generating paper documen- agement disciplines by considering why regulatory tation for the perishable sectors studied (4.5 million compliance management has evolved in the way document sets) is estimated at £126 million per that it has--from what was essentially a gatekeeper annum (SITPRO 2008). 96 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N The magnitude of the task for border agencies A country could have the most efficient and ef- can be further demonstrated through recent statis- fective customs administration in the world, but if tics in relation to the movement of people. the clearance of goods is also subject to checks and The International Organization for Migration approvals from other regulatory authorities that re- has indicated that "there are more than 200 mil- sult in delays in getting the goods to market, it hasn't lion estimated international migrants in the world altered the bottom line for businesses adversely af- today," which is about 3 percent of the global popu- fected by the loss of opportunity and increased costs lation and, in fact, would constitute the fi fth most that result from that delay. Consequently, unless reg- populous country in the world (IOM 2005, 2008). ulatory authorities with border responsibilities co- Furthermore, there are roughly 20 to 30 million un- ordinate their activities, there is the real danger that authorized migrants worldwide, comprising around such delays will be realized on a regular basis along 10 to 15 percent of the world's immigrants, and by with unnecessary compliance costs and the associ- 2007 the global number of refugees reached an esti- ated administrative cost of operation. There is also mated 11.4 million persons (Ratha and others 2008). potential for the unlawful entry of goods or people It is also interesting to note that international if border agencies fail to share intelligence, thereby tourism is ranked fourth in terms of export income providing a complete risk profi le of a particular con- after fuels, chemicals, and automotive products. signment or individual. From 1950 to 2007 international tourist arrivals As the World Economic Forum has stated in its grew from 25 million to 903 million, with export Global Enabling Trade Report 2008 (WEF 2008, receipts of almost $3 billion per day, and in 2008 chapter 1.5, p. 69): international tourist arrivals reached 924 million ac- cording to the United Nations World Tourism Or- Even in developed countries such as the ganization, with long term growth estimated at an United Kingdom, there are close to 60 or average of 4 percent a year.2 even more distinct regulatory procedures These figures demonstrate the challenges that and regimes that affect cross-border opera- border agencies confront in fulfilling the objective of tions. These operations fall into the wider facilitating legitimate trade and travel while seeking categories of revenue collection and fiscal to identify unlawful transactions and movements. protection, public safety and security, envi- The volumes alone lead to the realization that physi- ronment and health, consumer protection, cally checking every consignment and every person and trade policy. Procedures, documentary that crosses the border is impossible and that a more requirements, inspections, visas, and vehicle sophisticated approach is needed based on intelli- regulations, as well as general security issues gence led risk management. can all severely hamper the movement of 6 There is another aspect of this that needs to goods across borders. risk based compliance management be considered. When most people think of border Core border management disciplines: management or border control they automatically In the same report there is a telling observation think of uniformed customs officers. However, the from the perspective of business that highlights the fact is that the effective regulation of international issue of lack of coordination particularly well (WEF trade and travel involves a diverse range of controls 2008, p. 70): that go well beyond frontline customs procedures. If the objective of trade and passenger facilitation is The private sector can often do no more than to improve the efficiency of movement of goods and comply with the requirements and bear the people across borders in order to reduce costs while costs that are associated not only with col- maintaining national security and ensuring compli- lecting, producing, transmitting, and pro- ance with national policy requirements, then the sat- cessing required information and docu- isfaction of that objective requires the involvement ments, but also with the expenses of setting of a number of government agencies with responsi- up and financing guarantees, laboratory test- bilities at the border. ing, inspection fees, stamp charges, service B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 97 fees levied by shipping lines and banks, la- overarching responsibility to maintain control over bour and handling charges to deliver goods the cross border movement of goods, people, and to inspection facilities and to present goods, conveyances. That is a given. Systems and procedures storage charges, and possible out-of-hours to achieve control include a range of interventions, surcharges . . . Typically such unpredictable including nonintrusive activities such as documen- circumstances are the result of multiple and tary and physical monitoring, screening, and audit- contradictory documentation requirements ing. They also include more intrusive activities such or lengthy inspection procedures by agencies as documentary checks, physical examinations, that include customs, immigration, health scanning, sampling, and testing. Note that the com- and sanitary authorities, police and other se- monly used term nonintrusive intervention can be curity agencies, and standardization or con- quite confusing, as it suggests a hands off approach formity assessment agencies. to examining goods (such as scanning) but often ignores the fact that such regulatory activities are Similar observations are made in the World often highly intrusive in terms of the resultant time Bank's Logistics Performance Index 2007 and are delays. reiterated in its Logistics Performance Index 2010, Second, border agencies also have a mandate to where the authors conclude (Arvis and others 2010, provide an appropriate level of facilitation to trade p. 16): and travel, and consequently they need to maintain regulatory control in a way that reduces the impact Customs is not the only agency involved in of interventionist strategies as much as possible. This border management; collaboration among implies keeping the amount of intervention or in- all border management agencies--including terference to the minimum necessary to achieve the standards, sanitary, phytosanitary, trans- policy outcome and also ensuring that regulatory port, and veterinary agencies--and the in- requirements (red tape) are not unduly onerous or troduction of modern approaches to regu- overly prescriptive. In seeking to achieve this bal- latory compliance are especially important. ance, border agencies must simultaneously manage two risks--the potential for noncompliance with It is also interesting to note an earlier study (Wil- relevant laws and the potential failure to provide the son, Mann, and Otsuki 2005) that examined port level of facilitation expected by their government efficiency, customs, regulatory transparency, and ser- (Widdowson 2006). vices sector infrastructure and then quantified the Third, some observers take exception to the con- outcomes. It concluded that increasing global ca- cept of achieving a balance between intervention and 6 pacity in trade facilitation by half, when compared facilitation, claiming that an increase in one neces- with the global average, would increase world trade sarily implies a decrease in the other. What is at issue Core border management disciplines: risk based compliance management by $377 billion, amounting to a 9.7 percent rise in here, however, is not a set of scales with intervention global trade. The study estimated that about $107 on one side and facilitation on the other. Rather it billion of the total gains would come from improve- is akin to the need to achieve a balanced lifestyle in ments in port efficiency, about $33 billion from im- terms of one's work and personal life. In this context provements in the customs environment, and $83 it is widely accepted that striking the right balance billion from improvements in the regulatory environ- can produce a more productive and rewarding life- ment. In other words, there is significant scope for style both at work and at home. Similarly, it is pos- improvement outside of customs regulation alone. sible to achieve optimal levels of both intervention and active facilitation. Regulatory control, facilitation, Last, it is important to understand that control and intervention and facilitation are not mutually exclusive. It is often assumed that as the level of facilitation increases, so At this point it is worthwhile to clarify a few con- the level of control decreases. Similarly, where regula- cepts. First, border management agencies have an tory controls are tightened, it is commonly assumed 98 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N that facilitation must suffer as a result. However, as Figure 6.1 Facilitation-control matrix discussed later in this chapter, this should not be the case, as they are equally important contributors to High the achievement of a country's policy objectives. As noted above, maintaining cross border con- Red tape Balanced trol is nonnegotiable, but the way in which it is approach approach achieved should not ignore the need to provide ap- propriate levels of facilitation. Inevitably, however, Control policy objectives such as tourism, labor immigra- tion, and economic competitiveness may encourage a more facilitative approach, while other policy ob- jectives such as national security and public health Crisis Laissez-faire management approach will encourage a more interventionist approach. Bor- der agencies must therefore analyze all such policy Low objectives to create an effective and efficient system of regulatory control that facilitates legitimate trade Low Facilitation High and travel while providing a barrier and disincentive Source: Widdowson (2003). to the entry of illegal goods and travelers. Consequently, while border agencies have a fun- damental responsibility to ensure that legal require- expectations of the business community that regu- ments are met, the manner in which this is achieved latory intervention should be kept to a minimum. is often quite flexible. For example, the law may re- The bottom left quadrant (low control, low fa- quire that certain goods may only be imported under cilitation) depicts the approach of an administration license or that travelers must meet specific criteria in that exercises little control and achieves equally little order to be granted an entry visa. However, the man- in the way of facilitation. They use copious quantities ner in which these requirements are implemented by of red tape, but achieve little in the process. This cri- the relevant agency is often open to administrative sis management approach is one that benefits neither discretion. A particular law may be administered government nor the business community. prescriptively in a one size fits all fashion, or it may The bottom right quadrant (low control, high be administered with a degree of flexibility that facilitation) represents an approach in which facili- takes account of varying circumstances. tation is the order of the day, but with little in the To visualize the various approaches often ad- way of control. This is the easiest situation to achieve opted by border agencies to fulfill their mandate, it is for a border agency, as it represents a do nothing ap- 6 possible to represent the concepts of facilitation and proach--but it results in chaos. Such organizations risk based compliance management control as two distinct variables within a broader have streamlined their processes to the highest de- Core border management disciplines: regulatory matrix (figure 6.1). gree; they may have no backlogs, but error rates tend The top left quadrant in the matrix (high con- to be very high. This laissez faire approach would be trol, low facilitation) represents a high control re- an appropriate method for managing compliance in gime in which regulatory requirements are very a perfect world--one in which the business com- stringent, but to the detriment of facilitation. This munity voluntarily complies without any threat or can be described as a red tape approach and is often inducement from government. Such an environ- representative of a risk averse management style. ment would present no risk of noncompliance. But Administrations that fall into this category pride it doesn't bear much resemblance to reality. themselves on the fact that everything is done by the Finally, the top right quadrant (high control, book, although their legislative base may not be rele- high facilitation) represents a balanced approach to vant to today's environment. In most modern societ- both control and facilitation, resulting in high lev- ies such an approach is likely to attract a great deal of els of both. Th is approach to compliance manage- public criticism and complaint due to the increasing ment brings the greatest possible benefits to both the B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 99 border agency and the international trading commu- In recent times border agencies around the world nity. It is this approach that border agencies should have seen a dramatic increase in workload across all be seeking to achieve. areas of activity, fueled by the technological ad- vances that have revolutionized trade, transport, and The application of risk management transmission of information. At the same time, there is a universal trend toward ensuring that public sec- Effective application of the principles of risk man- tor responsibilities are carried out as effectively and agement is the key to achieving high levels of both efficiently as possible. This often means that border control and facilitation, and border agencies that management agencies are required to operate in an are able to achieve this state (the balanced approach environment of static or even decreasing resources in figure 6.1) do so through the effective use of risk (Holloway 2009, p. 14), and it is in this context that management. In contrast, agencies in a state of total agencies have been exploring more structured meth- crisis management (zero facilitation, zero control) ods of managing risk. are adopting a compliance management strategy that Risk management is a technique that facilitates is devoid of risk management. the effective allocation of resources. Risk manage- So what is the risk in the term risk manage- ment as a concept is nothing new, and there is no ment? From the perspective of a border agency it is doubt that the vast majority of border agencies have best defined as the chance of something happening in place some form of risk management procedures that will have an impact on organizational objectives or guidelines, either formal or informal. For ex- (see below, where the concept of risk is further dis- ample, as noted above, no border agency is going to cussed). A border management strategy that includes check each and every single passenger, consignment, some element of control, however small, essentially carrier, or crew member. Nor is it likely to have the represents a method of treating potential noncom- resources to do so. So-called nonintrusive detection pliance with border requirements. Equally, a border technologies have improved levels of intervention management strategy that achieves some degree of but still rely on risk management to make their ef- facilitation essentially represents a method of treat- fectiveness as high as possible. In other words, risk ing the potential failure to facilitate trade. management is at the heart of border management As noted previously, border agencies around the efficiency and effectiveness. world are responsible for managing a broad range of Th rough the use of a variety of risk manage- risks as they seek to fulfi ll their responsibilities in ment techniques, which vary considerably in levels areas such as revenue collection, sanitary and phyto- of sophistication and effectiveness, border agencies sanitary standards, community protection, and the worldwide seek to identify the risks associated with 6 facilitation of trade and travel--and there are the cross border transactions and activities and to focus interagency coordination issues implicit in such a their resources where they are likely to achieve the Core border management disciplines: risk based compliance management multifaceted environment. best results. Sustaining the effectiveness of that risk Customs often is the lead, or the agency with del- based approach to resource allocation involves the egated authority required to manage risks on behalf of creation of an evaluation and continuous improve- other government departments and agencies such as ment cycle. Such a cycle allows border agencies to health, immigration, agriculture, trade, environment, learn from the results of the application of particu- and statistics. This is generally achieved through the lar strategies and to predict future risks, rather than administration and enforcement of a diverse range of simply react to such risks as they emerge. agreed control regimes pursuant to service level agree- ments between the respective agencies (Widdowson Risk as a concept 2007). Risk management activities might include the The concept of risk has two elements: analysis of internal risks, such as those impacting on · The likelihood of something happening. public confidence, and external risks, such as declines · The consequences if it happens. in economic outlook (a global financial crisis or health The level of risk is the product of the likelihood risks associated with swine or bird flu). of a risk occurring and the consequences if it does 100 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N occur. Action taken to manage a risk needs to ad- The management of risk is integral to any dress the likelihood of an event occurring, the con- management process and, as such, should not be sequences if it does, or both. Further action is then regarded as something that is done in isolation from required to ensure that activities designed to miti- an organization's management framework. Indeed, gate risk (often referred to as risk treatments) achieve many organizations make the mistake of treating their planned objectives. As previously discussed, risk management as a separate activity that is carried ongoing monitoring or evaluation is required in out in ignorance of other functions. By doing this, case changes in internal and external factors cause a management and staff of the organization come to change in the level of risk. view risk management as a necessary but mechanical The next step is to explore how risk is identified task that consumes both time and resources. and managed in practice by border agencies. The an- The ideal way to avoid that mindset is to integrate swer is that they do so by following a structured pro- the management of risk into the agency's everyday cess that is integrated with broader strategic plan- management practices so that it becomes second ning activities. nature. A major part of any management framework is the planning process, and this is the ideal place A process framework for risk management for the formal and systematic management of risk The management of risk is recognized as an inte- to begin. gral part of effective border management practice. It is important to understand the overall goals It involves an iterative process consisting of six steps and objectives of the border agency or function that, when undertaken in sequence, provide a very when considering potential risks because, as stated effective decisionmaking framework. previously, the risks to be considered--both positive Risk management, in a technical sense, is the and negative--are those that may hinder the term applied to the logical and systematic process achievement of organizational objectives. Therefore, of establishing the context, identifying the risk, the central element of any risk management analyzing the risk, evaluating the risk, treating the framework should be a clear statement of the risk, monitoring the risk, and communicating risks and outcomes. It may be applied to any activity, Figure 6.2 Risk management process framework function, or process in a way that will enable border agencies to reduce losses as much as possible and increase opportunities as much as possible. In fact, Establish Monitor and review; measure compliance risk management is as much about identifying the context opportunities as it is about avoiding or mitigating 6 Communicate and consult undesirable consequences of risks. Identify Several generic risk management processes risks risk based compliance management developed around the world provide a systematic Core border management disciplines: method of managing risks to achieve organizational Analyze objectives. These processes are iterative because risks risks are not static--they are continually changing. The diagram set out below in figure 6.2 outlines the risk Assess and management process quite clearly. prioritize risks Risk assessment Integrating risk management Treat with border management risks While risk management is practiced in some form or another by all border agencies, very few address risks Source: Adapted from the WCO's guidelines to its Revised Kyoto Convention (International in a systematic way. This is generally because risks Convention on the Simplification and Harmonization of Customs Procedures, as amended, tend to be dealt with at an operational or tactical general annex, chapter 6; available at http://www.wcoomd.org/Kyoto_New/Content/content.html) and the Australian and New Zealand Standard on Risk Management (AZ/NZS 4360: 2004). level, rarely at a strategic level. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 101 agency's objectives, together with an identification Consideration of the internal environment of risks to be managed. should include such things as: The actual design of the particular border man- · Demographics of the organization, including the agement system that implements the risk manage- number and levels of staff. ment framework should be based on proper consid- · Staff competencies and knowledge base. eration of the variables that can affect its ongoing · Organizational structure. implementation. For example, some variables are · Hours of operation and location of offices. the physical characteristics of the border, the rela- · Responsibilities and accountabilities. tionship with neighboring countries (as relevant), · Communication and reporting mechanisms. the infrastructure and technology available, and the · Operating procedures. volume and characteristics of goods and passengers, · Systems and technology. to name a few. · Reference to relevant documents, such as the stra- A very important aspect of any risk manage- tegic plan, action plans, operational instructions, ment framework is the need to document the pro- codes of conduct, and other policy documents. cess. Adopting a formal process for managing risk In examining the external environment, it will be ensures that a border agency is accountable for its necessary to consider issues such as: decisions and facilitates transparency in decision- · Relevant treaties and international obligations. making processes. The various components of the · Government legislation and policy. risk management process as illustrated in figure 6.2 · Interagency agreements. are as follows. · The nature and volume of international trade and transport flows. Establishing the context. Th is is probably the most · Socioeconomic issues. vital step in the risk management cycle because it A useful technique to adopt in relation to estab- provides the foundation on which the remainder lishing the context for risk management purposes is of the risk management process is based. It should what is called an environmental scan, in which the therefore be as comprehensive as possible. following (nonexhaustive) aspects of both the inter- As previously discussed, a risk may be defined as nal and external environment are examined: any factor that may adversely impact an organiza- · Organizational. tion's objectives. It is therefore critical to review and · Operational. refine the agency's objectives until they are clearly · Policy. established. They then become the reference point · Legislative. for the other risk management processes. · Political. 6 Having established and clearly articulated the · Geographic. agency's objectives, it is important to consider the · Economic. Core border management disciplines: risk based compliance management environmental factors that could have an impact · Commercial. on the area of concern, since any decisions about · Technological. risk need to be made in the context of the environ- Capturing relevant issues under these headings ment in which they occur. It is therefore impor- helps an agency obtain an overall perspective on fac- tant to look at the big picture and identify relevant tors that may adversely impact the achievement of aspects of both the internal and external environ- its objectives. ment associated with the process or activity being examined. Risk identification. Risk identification is a matter of An important part of establishing that context asking (and answering) two questions: is to understand the interdependencies of the orga- · What can happen (that will have an impact on nization, key capabilities, and decisions made. What the agency's objectives)? impact do those decisions have on the organization · How and why could it happen? as a whole, other agencies, or the movement of goods The first question identifies the risks and the sec- and persons across the border? ond question provides valuable information about 102 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N potential causes. This exercise is further assisted by It is common practice to assess the potential con- asking some additional questions: sequences and likelihood by using a sliding scale. · What can happen? How an agency defi nes such a scale and its attri- · What are the key drivers? butes will partly be influenced by the kind of risks · What are the existing controls or treatments? the particular agency is dealing with, its legal and · What is the likely impact? policy context, and the mechanisms it already has in · What are the operational influences? place to deal with those risks. · What might be the causal factors (such as inad- By way of illustration, the most basic form of equacy in existing controls)? risk assessment scale utilizes three defi nitions of · Who is involved? likelihood and three defi nitions of consequence. · Who is affected? When represented in a matrix format, this enables · How does the risk occur (for example, as a result the level of risk to be identified. A risk assessment of system failures or poor planning)? scale matrix then enables the level of a risk to be de- · Is it likely that the risk will occur immediately, termined from its factors. in the short term, or in the longer term? The definitions used for likelihood, consequence, There can be many sources of risk, some reason- and level should reflect the agency's particular con- ably capable of being managed by a border agency text and parameters. Generally, however, likelihood and some less susceptible to management. However, is best understood as answering the question: "What it is important to consider all such risks as part of an is the probability that the event will happen?" The effective risk management process. meaning of each answer is as follows: · High likelihood means the event is expected. Risk analysis. The principal purpose of the risk anal- · Medium likelihood means the event could be ysis stage is to establish the significance of each risk expected. previously identified, so that informed decisions · Low likelihood means the event may occur, but can be taken with respect to the strategies to adopt only infrequently. and the resources that will be needed to manage Similarly, consequence is best understood as an- them. This is achieved by analyzing the relationship swering the question: "If it happens, then what ad- between the likelihood of the risk occurring and the verse effects will result?"The meaning of each answer consequences if the risk does occur. The combina- is as follows: tion of these factors provides a level of risk for each · High consequence means significant adverse effects. identified risk, allowing an agency to compare and · Medium consequence means moderate adverse prioritize those risks. effects. There are essentially three methods that can be · Low consequence means a minimum of adverse 6 used to analyze risk--quantitative, semiquantitative, effects. risk based compliance management and qualitative. In situations where risks can be ex- With the levels of likelihood and consequence Core border management disciplines: pressed in quantitative terms with a reasonable de- assessed for each identified risk, the level of each risk gree of accuracy, quantitative methods can be used. can be determined using the matrix (table 6.1). To These generally require access to reliable data as well use the matrix: as technical input from a statistics specialist, who · Determine the likelihood and consequence for provides an accurate determination of probability. each risk--for example, high consequence and The approach most commonly used by organiza- medium likelihood (lightly shaded in table 6.1). tions, particularly at the more strategic level, is the · Plot the intersection--for example, that of high qualitative approach, where managers use experi- consequence and medium likelihood (more ence, intuition, and judgment to make decisions. heavily shaded in table 6.1). It should be noted, however, that there will al- To interpret the resulting level of risk, refer to ways be a degree of subjectivity when using quali- the definitions: tative risk analysis methods, and some margin of · High risk means highly likely to cause serious uncertainty should therefore be taken into account. disruption. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 103 · Medium risk means likely to cause some Risk assessment and prioritizing. Risk assessment disruption. and prioritizing involves determining whether each · Low risk means unlikely to cause any disruption. risk in question is acceptable or unacceptable, and, In the example in table 6.1, the level of risk is among those risks deemed unacceptable, which of medium (the more heavily shaded cell), meaning them are the most important to manage. that the risk event is likely to cause some disruption As mentioned at the beginning of this chapter, to the agency objective. border agencies are confronted with a multiplicity While a three by three matrix is often used to of risks and responsibilities but only have limited re- measure the scale of risk, it should be recognized sources to acquit those responsibilities. In the con- that three levels of risk represents a fairly simplistic text of the present discussion, it is axiomatic that scale. If a more precise measurement of risk is re- border agencies will not be able to control all the quired, more levels can be used. For example, a five risks that confront them. For this reason, an agency level matrix examines likelihood as almost certain, will need to decide which risks it is willing (and likely, moderate, unlikely, and rare and uses a mea- able) to accept, and which risks it will elect to de- surement of consequence with descriptions such as vote resources toward treating. In this way a border catastrophic, major, moderate, minor, and insig- agency is able to allocate valuable resources towards nificant. Of course there are even more complex those issues that are going to have the greatest con- models--suffice to say that the concept itself is rela- sequences if left unmanaged, that have the potential tively straightforward. for the greatest results, or that have the best cost- It may be that many of the risks identified by a benefit ratio. border agency will already have controls in place to Any identified risks deemed as unacceptable by address them. Some controls might be designed to the agency should be managed through a formal decrease the likelihood of the risk occurring; others treatment plan, but even risks that are considered will be intended to reduce the consequences of the acceptable should be monitored and reviewed peri- event if it does occur. In either case it is important odically to ensure that the assumptions about their to ensure that the assessment of existing controls in- acceptability remain valid. Over time a risk initially cludes some level of verification that those controls regarded as acceptable may, for any number of rea- are, in fact, in place and operating as intended. In sons, become unacceptable and require a treatment most cases this will require some form of audit or plan. testing. Such an evaluation enables the agency to The reasons why a risk may be regarded as accept- determine whether the controls are sufficient to ad- able by an agency may include: dress the identified risks or whether they need to be · The threat posed by the risk in question is so low 6 strengthened or supplemented in some way. It is also that its treatment is not warranted in the context possible that the evaluation highlights the fact that of available resources. Core border management disciplines: risk based compliance management some controls are excessive for the risks identified · The cost of treating that risk may be so high that and, therefore, are consuming resources that would there is no option but to accept it. be better allocated to a different area of risk within · The opportunity cost of accepting the risk may or outside the organization. outweigh the threats posed by that risk. · Controlling the risk is beyond the capabilities or Table 6.1 Risk level matrix (risk level determined resources of the organization. by likelihood and consequence) In terms of the risk matrix approach discussed Likelihood above, in most cases, risks that have a moderate or Consequence High Medium Low higher risk rating would normally be regarded as High High risk Medium risk Medium risk unacceptable, although that need not always be the Medium Medium risk Medium risk Low risk case. It will always depend on the particular objec- Low Medium risk Low risk Low risk tives and circumstances of the agency in question-- Source: Authors' depiction. and this statement applies equally to the opposite sit- uation of a low risk that would normally be regarded 104 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N as acceptable but, in certain cases, will have a risk Improving border efficiency: prearrival treatment applied to it notwithstanding its lower clearance and postclearance audit ranking. Once an agency has conducted its risk assess- As an adjunct to national security, border agen- ment process and decided which risks it must man- cies are increasingly requiring the submission of age, the next question is which of the unacceptable advance information in respect to goods and pas- risks should have higher priority given limited re- sengers entering the country. Th is is about adopting sources. Generally speaking, the priority ranking of a more sophisticated approach to risk management a specific risk will reflect its rating within the risk and pushing the borders further out, to create time matrix. However, it is not uncommon for two risks and space within which to make a risk based deci- to be rated equally. If the agency has insufficient re- sion in relation to the goods or person in question sources to address all the unacceptable risks, a deci- (as previously discussed). sion must be made as to which of the equally rated Prearrival clearance is a process that allows a risks is of relatively higher priority and should be ad- trader to submit data to a border agency early in the dressed first. transport of goods, for advance processing by the The application of risk management to cross bor- border agency and immediate release of the goods der issues addresses many of the concerns outlined once they arrive at the destination port. This release in this chapter, but it can be further leveraged to im- can even take place prior to the arrival of the goods prove border efficiency and achieve facilitation and if such an action is deemed appropriate by the bor- security objectives. That is what the chapter will der agency. The prearrival clearance process is par- now discuss, before it concludes with a discussion ticularly important for certain types of goods that on how the concepts are integrated into a compli- are highly perishable or in some other way require ance approach. prompt handling upon arrival. A case study of risk management appears in Prearrival clearance is not just about facilita- box 6.1. tion, however; it is also particularly useful for the Box 6.1 Case study: risk management in Cambodia Cambodian importers of raw materials for garment manufacture and subsequent export "are subjected to as many as 64 documentary inspections, physical goods inspections . . . [and] a requirement for over 70 signatures and 12 separate payments . . . . [and] exporters who are exporting ready-made garments . . . have to fulfil as many as 90 documentary inspections, possibly 100 signatures and 17 different formal payments, in addition to informal payments they have to make in order to get the thing done."1 6 The Royal Government of Cambodia has since introduced a comprehensive risk management approach to border management. The approach has consolidated and rationalized the requirements of government agencies risk based compliance management Core border management disciplines: involved in the inspection and clearance of goods at the border through:2 · Raising the level of understanding of all stakeholders--particularly the implementing agencies involved in inspection and audit--of the principles of risk management, compliance management, and information man- agement, and assisting them in the achievement of a strategic approach to risk management and compliance management. · Providing a framework for risk management whereby the inspection of import and export consignments is focused on high risk shipments and maintains a balance between facilitation and control. · Developing an understanding of specific risks. Notes 1. Penn Sovicheat, Cambodia Ministry of Commerce, speaking at the Consultative Meeting on Trade Facilitation and Regional Integration, Bangkok, August 17­18, 2006. 2. Adapted from the Inter-ministerial Prakas No. 995 on Implementation of Trade Facilitation through Risk Management, dated November 6, 2009 (legislation can be ordered through the BNGLaw Web site, http://www.bnglaw.net). B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 105 early identification of goods or persons that may Since the basis of prearrival clearance is early pose a health or security risk to the country. Bor- provision of information for immediate clearance, der agencies use risk profi les to aid them in assessing prearrival clearance must be combined with a capac- and analyzing the risk posed by goods or persons. A ity for the border agency to undertake more detailed risk profi le consists of a set of risk indicators, such analysis of the information and supporting docu- as the type of goods, the value of goods, the origin mentation after the goods have arrived in the coun- of the goods or person, whether there has been any try. This is where the concept of postclearance audit third country transit or transhipment, the mode of comes into play. Audits undertaken by specialists transportation, the payment type, and so on. Risk within the relevant border agency can take a variety profi les are developed from data and intelligence ob- of forms--from random audits, for verifying com- tained by the border agency and other law enforce- pliance with regulatory requirements, to planned or ment agencies and build on information obtained leverage exercises targeting individuals or industry from previous unlawful consignments (or passen- sectors. What they all have in common is a legisla- gers). From a resource perspective, border agencies tive base that provides border officers with powers to are establishing cargo analysis units or passenger enter premises and inspect documents (physically or analysis units to undertake this activity on an on- electronically) in relation to the border transaction, going basis. and with trained auditors to undertake those tasks. If these risk profi les can be applied to informa- Such audits provide border agencies with a clear tion obtained by the border agency at an early point picture of the transactions in question and an indi- in the movement of the goods or person to the des- cation of the overall compliance rate within an in- tination country, an assessment of the risk posed dustry sector. They also highlight or confirm areas by the goods or person can be made earlier and an of risk where additional compliance or enforcement intervention strategy devised accordingly. In other activity may need to take place, and therefore they words, there is a benefit to government and business complete the risk management loop by producing from the use of prearrival information, and conse- data that can be fed back into the risk management quently there is a more efficient overall border clear- process (including the updating of risk profi les). ance process. The results of postclearance audits also allow for The effectiveness of this screening process is of industry segmentation; in other words, they allow a course dependent on the receipt of advance informa- border agency not only to identify potential unlaw- tion. In relation to goods, the emphasis is on obtain- ful conduct but also to identify highly compliant-- ing the information as far back in the supply chain and therefore low risk--traders and travelers. Such as possible in the circumstances, as noted in the dis- entities can then be granted fast track permissions or 6 cussion on some of the current supply chain security simplified procedures (or both) that contribute to fa- initiatives that have been implemented and the refer- cilitation outcomes while reducing the costs to gov- Core border management disciplines: risk based compliance management ence to the WCO SAFE Framework. In relation to ernment that are associated with border congestion. passengers, the same intention applies with respect This concept has been given the label of authorized to visa processes. trader programs with respect to goods, and in rela- The advance information process is generally tion to passenger traffic it is reflected in initiatives supported by sophisticated database technology (such as Smartgate in Australia) that allow expedited that makes it possible for agencies to link informa- clearance at airports linked to biometric passports. tion from a variety of sources for subsequent analy- A case study of information sharing for border sis, and for the identification of risk flags or alerts in security and law enforcement is in box 6.2. those data. This further speeds the risk assessment and clearance process, provided that the data quality Implementing risk based and data management issues are managed effectively. compliance management Further discussion of border technology is beyond the scope of this chapter but appears in other chap- As discussed, a risk management approach to bor- ters of this book. der management is characterized by the early 106 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N identification of potential risks, with resources a country's borders and the way in which border being directed towards high risk areas and as little controls can be implemented with respect to that intervention as possible in similarly identified low movement. risk areas. Such an approach permits immediate This chapter has already discussed risk manage- clearance or even prearrival clearance of goods and ment frameworks at some length, and other chapters the rapid movement of goods and people through discuss the issue of border technology, so this chap- ports and airports, thereby providing an effectively ter does not propose to deal with those areas. Yet it controlled environment that supports an appro- is important to discuss some of the issues that arise priate balance between facilitation and regulatory with respect to legal and administrative frameworks intervention. underpinning a risk based compliance approach to The integration of these core border manage- border management. ment disciplines into a broader risk based compli- The risk based compliance management pyramid ance framework, however, requires an understand- (figure 6.3) illustrates a structured approach to the ing and application of several other components management of compliance at the border. It provides additional to risk management. These components a logical framework for demonstrating the way in (including risk management) can be broadly grouped which various types of risk based strategies, includ- as follows (Widdowson 2003): ing nonenforcement strategies such as self assess- · Legislative framework. ment, can be used to effectively manage compliance. · Administrative framework. · Risk management framework. Legislative framework · Technology framework. The charter of any border agency is to ensure com- Collectively the four components represent key pliance with the law. Consequently, the foundation determinants of the manner in which the move- for any effective border management regime must ment of goods and people may be expedited across be the establishment of an appropriate legislative framework. This framework must provide the nec- essary basis in law for the achievement of the range of Box 6.2 Case study: the Schengen Information System administrative and risk management strategies that the border agency has chosen to adopt. For example, The Schengen Information System is a secure gov- an appropriate basis in law must exist to enable the ernment database that contains information related agency to allow an importer to self assess its compli- to border security and law enforcement. The infor- ance with border regulations. mation is shared among the participating countries: A transparent and predictable legal framework France, Belgium, Germany, the Netherlands, Lux- is essential to ensure that those who are the subject 6 embourg, Spain, Portugal, Italy, Austria, Greece, of regulation know what the rules are. If they don't Finland, Sweden, Switzerland, Denmark, Iceland, risk based compliance management know what the rules are, how can they be expected Core border management disciplines: Norway, Estonia, the Czech Republic, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slo- to comply? While ignorance of the law may be no venia. Ireland and the United Kingdom also have excuse, poorly drafted or unpublicized laws explain access for law enforcement purposes despite not many instances of noncompliance, and therefore var- being signatories to the Schengen Agreement Ap- ious regulatory authorities, including border agen- plication Convention, which underpins the system. cies, are increasingly realizing the need to provide Information is stored in the database in accor- meaningful advice to those who are being regulated. dance with the legislation of each country and is The result, often referred to as a policy of informed legally recognized by each participant country. It is compliance, involves the use of a range of client ser- permanently connected to the various national da- tabases to facilitate real time updating. vice initiatives that are designed to ensure that regu- latory requirements are properly understood by the Source: Adapted from "Schengen Information System II," European Union, http://europa.eu/legislation_summaries/ regulated community. other/l33183_en.htm. Most theories of compliance, particularly those that can be described as normative theories, adopt a B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 107 Figure 6.3 Risk based compliance management pyramid Modification of Ayres Penalty and Braithwaite (1992) enforcement pyramid Formal warning Risk based procedures: Enforcement and recognition Compliance assessment Client service Legislative base Source: Widdowson (2003). 6 philosophy of appropriateness: that is, the subjects · Formal rulings. Core border management disciplines: risk based compliance management of regulation are assumed to act in good faith and to · Education and awareness. want to obey the law. Such theories will state as their · Technical assistance and advice. assumption that compliance or noncompliance is af- · Appeal mechanisms. fected principally by the capacity of the entity being In contrast, a more rationalist theory of com- regulated, in terms of its knowledge of the laws and pliance tends to encourage more prescriptive ap- its financial and technological ability to comply. For proaches to issues of compliance and noncompliance, that reason, the best approach is a cooperative one. with the greater focus being on noncompliance and Strategies that follow that theory will provide the imposition of penalties as the key mechanism members of the public with the means to achieve cer- for deterrence. The two competing approaches are tainty and clarity, identify their rights and responsi- discussed in greater detail below with respect to the bilities, and assess their liabilities and entitlements. administrative frameworks for border compliance. Such strategies include: In practice the approach adopted by most mod- · Consultation and cooperation. ern border agencies is a mix of both normative and · Clear administrative guidelines. rationalist approaches; in other words, it is the 108 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N implementation of a compliance management sys- As highlighted above, the best practice in com- tem that encourages voluntary compliance while pliance assessment is to use advance information maintaining a foundation or fallback position of coupled with a postclearance audit. The options enforcement. touched on earlier can now be discussed in a little more detail. There are a number of different audit Administrative framework approaches available to a border agency. They include There are various options available to border agencies desk audits, transaction based audits, and system to enable them to determine whether laws are being based audits. The nature of the potential risk identi- complied with. Those agencies that adopt the recom- fied by the agency when the agency selects an indi- mended risk based approach to compliance manage- vidual or company for audit generally will dictate the ment will be selective in their use of the broad range specific approach that is adopted. of controls available to them, depending on the cir- Desk audits are generally used to further exam- cumstances and operational objectives. In exercising ine an unusual transaction, which may fall outside this selectivity the border agency is recognizing that established parameters or normal patterns for a par- members of the regulated community present vary- ticular type of company or transaction. The desk ing levels of risk in terms of potential noncompliance audit approach may simply involve contacting the with relevant laws. For example, those with a good company concerned and asking them to provide ad- record of compliance are unlikely to require the same ditional information to support the data declared in level of scrutiny as those with a history of poor com- the transaction. For example, the auditor may call pliance, as was discussed previously in the context for any commercial documentation--such as in- of risk profi ling. voices, contracts, and trade catalogs--to support a Consequently, where an individual or company declared description of goods and their value. is judged by the agency to represent a relatively low Transaction based auditing involves testing risk, the level of regulatory scrutiny may be reduced, transactions that have been identified as a potential with greater reliance being placed on that person's risk. This audit approach is often suitable for use in self assessment of his or her obligations. Th is is a relation to individuals or small and medium size commonly used method of recognition (the right enterprises (SMEs), where a large proportion of the half of the peak of the compliance management pyr- company's transactions are often considered to be amid in figure 6.3). high risk because of the lack of volume and lack of In contrast, companies and individuals consid- experience in relation to border regulation of inter- ered to represent a high risk and transactions or en- national trade. Such entities often lack the resources tities for which no risk assessment has been under- to maintain a dedicated compliance group to oversee taken are more likely to be selected for higher levels border transactions and are therefore more suscep- 6 of intervention and control. Such intervention can tible to documentary errors and misunderstandings risk based compliance management take a variety of forms, but it commonly includes of the regulatory requirements. This susceptibility to Core border management disciplines: such activities as: errors and misunderstandings should be recognized · Documentary checks. by a border agency contemplating its approach to · Physical examinations. noncompliance, because education and outreach · Audit activity. programs are often more effective and less costly for · Investigations. both regulators and the regulated than the auto- In a high risk situation this intervention will matic imposition of a penalty is. take place at the destination border, but--as dis- There are of course situations where the volume cussed--it is increasingly the case that such inter- of transactions undertaken by an individual or SME vention is pushed out to the departure border. How- justifies a different approach, and the same can be ever, it is important to appreciate that in all cases the said with respect to larger companies depending on level and type of intervention should be based on the their transaction profi le. level of identified risk. As the saying goes, you don't Transaction based auditing is also justified in use a sledgehammer to crack a walnut. circumstances where a specific risk area has been B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 109 identified, either as part of a company's or individ- highly compliant, the consequence of potential non- ual's transactions or as a specific industry or goods compliance will reduce significantly. That is why segment, and therefore a detailed focus on transac- some administrations focus their compliance assess- tions is required to address the risk in question. ment efforts on their top 100 companies (in terms System based audits are a step up from transac- of duty payment or volume of trade) in order to get tion testing. They are used to gauge compliance levels a clearer picture of compliance levels and, in turn, of by seeking assurance with respect to the underlying the potential impact of noncompliance. systems that are used to create those transactions. The The best practice in compliance management in systems based audit involves understanding an en- the border context, or any other regulatory context, tity's business systems and, more important, testing requires (in the oft quoted metaphor) both carrots the internal controls in those systems that have been and sticks. The enforcement and recognition strate- developed to manage compliance. Compliance man- gies (the peak of the risk based compliance manage- agement systems are a modern inclusion in many en- ment pyramid in figure 6.3) are designed to address terprise systems run by larger companies, and can be identified noncompliance and good compliance. quite sophisticated but are less common in SMEs-- Strategies for noncompliance may include a range a fact that emphasizes the previous point that the of enforcement strategies including criminal and particular audit or compliance approach adopted by civil penalties or name and shame lists, while those border agencies should be tailored to the nature and for recognized compliers include such things as in- circumstances of the company being audited. creased levels of self assessment, reduced regulatory As discussed previously, a corollary of modern scrutiny, less onerous reporting requirements, peri- compliance management is the importance of iden- odic payment arrangements, simplified procedures, tifying compliant companies as well as noncompli- and increased levels of facilitation. ant companies. In the past agencies have tended to This approach is reflective of what is described as ignore compliant entities or acknowledge them only a compliance improvement approach, the principal in a peripheral fashion, preferring an enforcement focus of which is the achievement of future compli- focus on noncompliance. They have regarded num- ance and ensuring that an appropriate balance exists bers of prosecutions or of investigations as the only between incentives for compliance and sanctions for significant performance statistics, rather than ask- noncompliance. ing and seeking to answer the more substantive ques- As previously stated, in the process of assessing tion: "Have we improved the overall level of com- the level of compliance, border agencies are going pliance?" In other words, the focus was on outputs to encounter two situations--either compliance or rather than outcomes. While some border agencies noncompliance. In relation to noncompliance the 6 still pursue that approach, most recognize that it is instances of noncompliance will range from entirely shortsighted and does not provide an effective mea- innocent mistakes to blatant fraud or other inten- Core border management disciplines: risk based compliance management sure for the government for the success of a particu- tional illegality. For those persons that are intent lar policy objective. on breaking or circumventing the law, some form of This issue can be considered in a very practical sanction will need to apply, such as administrative way as follows: For every instance of good compli- penalties or, in the more severe cases, criminal pros- ance that is identified, the population of noncompli- ecution and fines or imprisonment. ance necessarily declines by one. When extrapolated, Th is sliding scale should be recognized in the this principle will provide a very useful picture of tools that are used by a border agency in the manage- where scarce resources should be concentrated and ment of noncompliance. In 1992 Ayres and Braith- what areas can be left to their own devices (such as waite illustrated a range of compliance management self assessment or coregulation programs). If the options by presenting them in an enforcement pyra- risk matrix discussed above is applied to this sce- mid model (Widdowson 2003, p. 45). A copy of this nario, the conclusion can be drawn that if a signifi- pyramid, on which the upper left hand triangle of cant company (such as a major importer with high the compliance pyramid in figure 6.3 is based, is transaction volumes and values) is identified as being shown in figure 6.4 below. 110 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Figure 6.4 Enforcement pyramid certain, and appropriate sanctions upon detection; and a perception among those who are being regu- License revocation lated that these detection and sanction elements are present in the applicable compliance regime. Again, it must be emphasized that the strategy Penalty adopted to deal with noncompliance and to encour- age future compliance should depend on the particu- Formal warning lar circumstances pertaining to that noncompliance and the associated risks. For example, unless an error in a declaration is found to be intentional, it may be Informal warning more appropriate and cost effective to address the error as systemic; to provide the individual, com- Source: Adapted from Ayres and Braithwaite (1992); Widdowson (2003). pany, or industry sector with advice and assistance on compliance issues; or to provide formal clarifica- Ayres and Braithwaite contended that the softer tion of the law through government notices, bind- style at the base of the pyramid was likely to be used ing rulings, or some other means. This acknowledges most frequently by regulatory authorities, with the that a different treatment will be needed to deal with incidence of usage higher in the pyramid decreasing honest mistakes on the one hand and deliberate cases as the sanction increases in severity. It should be of noncompliance on the other. Industry familiar- noted that Braithwaite developed this model in the ization seminars and information brochures may context of mine safety and its occupational health adequately address errors that result from a lack of and safety concerns. He found that in many of the understanding of the relevant regulatory provisions. serious coal mine accidents the law had been broken, However, if someone is actively seeking to commit either causing the accident or making the accident fraud, seminars and information brochures will have worse. He saw that improving compliance was an absolutely no impact on their activities. Indeed, such effective method of reducing the risk of accidents members of the trading community are likely to have (Sparrow 2000, p. 41). a very good understanding of their obligations and There are many border agencies that do not entitlements. To treat the risks posed by such indi- follow this noncompliance treatment model. They viduals (or organizations for that matter), a rigor- rarely use persuasion or warning letters as a means ous enforcement approach is likely to be required, of dealing with noncompliance, and they focus on as stated above. more substantial sanctions. Some agencies use civil or From a border agency perspective, deciding on administrative penalties--such as goods seizures or the right mix of compliance assistance and enforce- 6 infringement notices--for supposedly inadvertent ment strategies is one of the major challenges in a risk based compliance management errors, but this is by no means a universal practice. rapidly evolving trade and travel environment that Core border management disciplines: Those who are tempted to engage in noncom- represents varied industry sectors and demographics. pliance on an intentional basis will temper their How much financial and human resource should be behaviors according to the probability of detection invested in particular strategies, and what will be the and the severity of punishment if detected and con- most cost effective means of ensuring compliance? victed. Therefore, deterrence of noncompliance can Once again, this is where risk management provides be increased by either raising sanctions (increasing significant value added, allowing border agencies to the quantum of penalties or adding imprisonment see what are the greatest risks and consequences. as a possible sanction) or increasing monitoring ac- tivities (postclearance audits) to raise the likelihood Future trends and conclusions that noncompliance will be detected and the of- fender caught and prosecuted. Theories of deterrence Contemporary border agencies have now evolved postulate that deterrence is successful where there is well beyond their historical image as gatekeep- a credible likelihood of detecting violations; swift , ers, becoming organizations that are versatile and B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 111 focused on outcomes (Widdowson 2006). They are body focused on the removal of barriers to rapidly moving away from an approach that man- international trade through the simplifica- ages transactions to one that takes a customer based tion and harmonization of trade procedures. (account management) view and extends that view See "About SITPRO: The Premier Trade Fa- as far upstream and downstream in the transport cilitation Agency," SITPRO, http://www. and supply chain as is possible with available data. sitpro.org.uk/about/index.html. Th rough better understanding of customer seg- 2. See "World Tourism Barometer," United Na- ments and the risks they represent to effective bor- tions World Tourism Organization, http:// der management, agencies can be more transparent www.unwto.org/facts/eng/barometer.htm. and predictable in their decisionmaking and in turn 3. As an example, albeit in relation to environ- can make the best and most productive use of their mental policy, the Minnesota Environmen- scarce resources by allocating them to high risk issues tal Improvement Act 1995 encourages SMEs while facilitating low risk transactions through the to self inspect and report results to the state adoption of authorized trader programs and equiv- regulator by offering (limited) statutory pro- alent value added services. Risk management, sup- tection from enforcement action. Similar ported by advances in information and communica- voluntary disclosure approaches have been tions technology, is the mechanism by which border adopted by some border agencies and are a agencies are able to have this broader perspective characteristic of United States export con- concerning their customers, whether the customers trol laws. are individuals or companies. The authors predict that there will continue to References be a shift away from more direct regulation to a cata- log of alternative strategies, and that these alterna- Arvis, J., M. Mustra, J. Panzer, L. Ojala, and T. Naula. tive strategies, as far as possible, will emphasize vol- 2007. Connecting to Compete 2007: Trade Lo- untary compliance and self assessment and working gistics in the Global Economy. Washington, DC: with other border agencies and the private sector to The World Bank. achieve border regulation objectives--collaborative Arvis, J., M. Mustra, L. Ojala, B. Shepherd, and D. border management--while underpinning these Saslavsky. 2010. Connecting to Compete 2010: strategies with robust enforcement mechanisms.3 In Trade Logistics in the Global Economy. Wash- this context it is worth noting findings in OECD ington, DC: The World Bank. studies that indicate that many tax administra- Ayres, I., and J. Braithwaite. 1992. Responsive Regu- tions allocate more than 40 percent of their staffing lation: Transcending the Deregulation Debate. 6 budgets to enforcement activities (OECD 2008)-- New York: Oxford University Press. meaning that direct and prescriptive regulation Holloway, S. 2009. "The Transition from eCustoms Core border management disciplines: risk based compliance management comes at a considerable cost, as opposed to achiev- to eBorder Management." World Customs Jour- ing voluntary compliance. nal 3 (1): 13­25. At the end of the day, border agencies and the IOM (International Organization for Migration). trading and traveling communities are seeking 2005. World Migration 2005: Costs and Benefits greater certainty when it comes to risk and compli- of International Migration. Washington, DC: ance management, and approaches that can produce IOM. such an outcome will garner broad support from gov- ------. 2008. World Migration Report 2008: Man- ernments, the private sector, and the public at large. aging Labour Mobility in the Evolving Global Economy. Washington, DC: IOM. Notes OECD (Organisation for Economic Co-operation and Development). 2008. "Management-based 1. SITPRO Limited (its initials derived initially Regulation: Implications for Public Policy." from Simpler Trade Procedures Board) is a Document GOV/PGC/REG(2008)5, OECD, United Kingdom nondepartmental public Paris. 112 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Ratha, D., S. Mohapatra, K.M. Vijayalakshmi, and WCO (World Customs Organization). 2008. Cus- Z. Xu. 2008. "Revisions to Remittance Trends toms in the 21st Century: Enhancing Growth and 2007." Migration and Development Brief 5, Mi- Development through Trade Facilitation and Bor- gration and Remittances Team, Development der Security. Brussels: WCO. Prospects Group, The World Bank, Washington, WEF (World Economic Forum). 2008. The Global DC, July 10. Available at http://siteresources. Enabling Trade Report. Davos: WEF. worldbank.org/INTPROSPECTS/ Widdowson, D. 2003. "Intervention by Excep- Resources/334934-1110315015165/MD_ tion: A Study of the Use of Risk Management Brief5.pdf. by Customs Authorities in the International SITPRO. 2008. "The Cost of Paper in the Supply Trading Environment." University of Canberra, Chain: `Project Hermes' Perishable Goods Sec- Canberra. tor Research." London: SITPRO. ------. 2006. "Raising the Portcullis." Paper pre- Sparrow, M.K. 2000. The Regulatory Craft: Con- sented at the WCO Conference on Developing trolling Risks, Solving Problems, and Managing the Relationship between WCO, Universities Compliance. Washington, DC: Brookings Insti- and Research Establishments, Brussels, March. tution Press. ------. 2007. "The Changing Role of Customs: Evo- UNCTAD (United Nations Conference on Trade lution or Revolution?" World Customs Journal 1 and Development). 2006. "ICT Solutions to Fa- (1): 31­37. cilitate Trade at Border Crossings and in Ports." Wilson, J.S., C.L. Mann, and T. Otsuki. 2005. "Assess- Document TD/B/COM.3/EM.27/2, UNC- ing the Benefits of Trade Facilitation: A Global TAD, Geneva. Perspective." The World Economy 28 (6): 841­71. 6 risk based compliance management Core border management disciplines: B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 113 Information and communications CHAPTER 7 technology and modern border management Tom Doyle Effective information and communications technology (ICT) can help achieve business objectives and drive world class border agency perfor- mance. However, ICT alone offers no magic modernization solutions. Successful ICT merely enables modernization and improved perfor- mance. The most effective modernization programs address policy, pro- cess, and people issues--and then use ICT as an enabler to achieve the agency's mission and vision. Th is chapter, focusing on the impor- that border management agencies do tance of ICT to modern border manage- not disrupt those chains. Likewise, ment, is not a technical manual for ICT governments look to border manage- professionals. Rather, it presents: ment agencies to lower the cost of doing · An overview of the role of ICT in business and to enable firms to compete border management reform and globally. In an environment where low- modernization. ering trader costs can make the differ- · A discussion of lessons learned and ence between success and failure, even critical success factors. the smallest process driven ICT im- · An outline of five steps to successful provement can give traders a competi- implementation. tive edge over firms in other countries. The focus of border management Background reform is almost always on enabling border management agencies to fulfi ll Border management agencies have long their regulatory roles and responsibili- been seen as the collective stewards of ties in ways that are more transparent the nations' trade and borders. Today, and friendly to business. Agencies look however, these agencies are experiencing to ICT for tools to maximize perfor- unprecedented pressure, with a simul- mance and to provide the high assur- taneous impact on many fronts. Bor- ance demanded by private and public der management agencies are required stakeholders. to perform at the highest levels of effi- To put new ICT in place success- ciency and effectiveness--to collect fully, a border management agency revenues due to the state, to protect the must: safety of the community, to facilitate · Secure the political and fi nancial legitimate trade, and to encourage eco- commitment to develop its vision nomic development. and transformation program. Today the trading community uses · Realistically assess its adminis- just-in-time supply chains to maximize trative capacity for delivering the competitive advantage, and it demands vision. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 115 · Select the right partners to support change. This chapter should be read in conjunction with · Continue to evolve and align business and tech- chapter 8 on national single window systems, chap- nical strategies in a way that demonstrates the ter 9 on ICT procurement, and chapter 15 on the value of collaborative border management to evolution of customs ICT regionally (with the Eu- their stakeholders. ropean Union as a case study). The good news is that border management agen- cies in both the developed and developing world can Information and communications take advantage of existing and emerging strategies technology for border and can access and share experience and good prac- agencies: past and future tice approaches. There should be few incentives to re- invent the ICT wheel when information is available The following section overviews the ICT used by bor- about what works, what doesn't, and why. The chal- der management agencies since the 1980s and con- lenge is to learn from current best practice and create siders its likely evolution through 2020. Agencies solutions that are innovative, flexible, and scalable. can use this information to assess their ICT matu- All reformers and policymakers need to understand rity against past developments and probable future what these terms mean and how they affect a choice trends. Concomitant changes in the direction of bor- of ICT solutions. der management agencies are shown in figure 7.1.1 Figure 7.1 Comparing the evolution of business and technology directions at border management agencies, 1980s­2020s Customs as a Advent of integrated Recognition of the Need for flexibility for Interoperability with revenue collector and customs and revenue role of customs in customs to rapidly other revenue and enforcement agent agencies supply chain security adapt to changing border management global political and agencies in the Attempt to check Role of customs not functional challenges management of Business direction every transaction well defined in the virtual borders context of customs Global recognition of and border the role of customs Interoperability with management as a driver of commercial entities competitiveness and Paperless customs in growth Focus on goods ICT finally becomes a commodity the more advanced which are not tagged countries Integration of but which through an customs and border overall surveillance management in the architecture allow for identity management interoperation of a of passengers and virtual border cargo 1980s 1990s 2000s 2010s 2020s 7 Centralized Distributed systems Web/Internet-- Adoption of service Galileo (European mainframe based to regional and local advent of online oriented architecture Union satellite radio offices transactions and web based navigation program) Information and communications technology and modern border management or services between fully operational Client server Advanced systems agencies and across globally with the manual system technical architecture with limited borders benefit of security Technology direction interoperability and assurance and Electronic data redundancy Systems organized accuracy over Global interchange around identity Positioning System (EDIFACT) management (GPS) for public use assurance and available as a alternative for GPS All legitimate goods users are tagged and as a result can be easily Predominant tracked and traced operation of mobile (bar code and RFID) communications through satellite Usage of intelligent technology devices such as integrated PDA, GSM, microchip biometric enablement of all systems Source: Reproduced from the author's "Customs 2020: A Business and Technology Point of View," Accenture, http://www.accenture.com/NR/rdonlyres/DF096E3D-A1B9-44D6-91C3 -340935DD4B74/0/Accenture_Customs_2020_English_032009.pdf. 116 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N In the 1980s business ICT systems--including Intelligent and mobile devices, such as integrated many used by border management agencies--were personal digital assistants, global systems for mo- primarily silo based, running on centralized main- bile communications (GSM), and global position- frames and with business applications and databases ing services (GPS) will further new applications. housed in a central data center. The hardware and Business system processes, supporting services, and programming skills required were beyond the reach ICT applications will be more responsive to changes of many developing countries, so smaller border in the global economy. State of the art ICT will be management systems were developed for standalone key to achieving required growth and competitive- personal computers. In the 1990s an improved abil- ness nationally, regionally, and internationally. Also ity to link systems and applications allowed capabili- noteworthy will be the emerging ICT and systems ties originally available only on mainframe applica- requirements for dangerous goods and supply chain tions to be made available over faster networks in security initiatives. regional and local offices--a considerable step for- Thanks to the latest technological evolutions, ward. There were improvements to technical archi- such as service orientation architectures,3 services tectures and significant improvements in electronic orchestration within a coordinated process map has data interchange, allowing information sharing, become more accessible. Improved services and new which sped up the processing of people and cargo. ones have become faster and easier to deliver. Collab- In the 2000s further developments in electronic oration across departments has become technically data interchange--and the Internet--allowed cus- more feasible. In summary, sharing of effort across toms and border agencies to move more transac- different agencies, countries, regions, and around tions online. Web technologies improved informa- the world on common processes is now constrained tion sharing, typically within agencies, easing data only by the need for prior agreement and genuine access. Agencies could now more effectively gather goodwill. and share intelligence. However, many of the sys- One of the key lessons learned over 1980­2010 tems developed were agency specific and not often concerns the decision whether to develop a bespoke interoperable with other agencies' systems. In addi- or custom build solution or to adopt a commercial tion, though systems allowed for the collection of off the shelf solution. (Hybrid approaches also exist.) huge amounts of data, agencies' ability to manage The choice depends mainly on the business context and analyze this data for better border management and on an agency's confidence and competence in was limited, in part because of their silo based men- ICT systems management. tality. Collaborative border management (chapter 2) · A bespoke (custom build) solution is more likely requires a radically different approach. for a nonstandard or highly specialized business The 2010s will bring an increasing amount of environment, or for an agency with confidence in 7 activity online. Equally important, developments its ICT capacity--or, all too often, because of na- and modern border management in technology will allow system interoperability, tional pride or national security considerations. Information and communications technology promoting greater sharing of information and intel- · A commercial off the shelf solution--modeled ligence not just within agencies, but across a wide after other similar systems and based on widely range of stakeholders (for example, other national agreed standard procedural models--is likely government departments, border management for a standard business environment or for an agencies in other countries, and traders and their agency with less confidence in its ICT capacity. agents). Border management agencies will adopt A standard business environment allows more web based services and service oriented architecture2 reuse of ICT solutions, offers greater fit, and it to make services interoperable for various business favors the application of ICT standards and in- domains. Identity management, remaining a key ternational agreed procedures. Commercial off common component, will include biometric identi- the shelf solutions are more likely if confidence fication and identity verification. Barcode and radio in the agency's ICT capacity is low, if its in-house frequency identification (RFID) tags will be fur- ICT competence is limited, or if its history with ther developed to track and trace legitimate goods. ICT is thin. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 117 In the end the choice is likely to be governed by the regulators and technologists during this process agency's procurement policy--and by the availabil- is desirable (though in practice uncommon). ity of proven commercial off the shelf solutions. · Clarity about business outcomes. Business out- Other considerations in the choice between be- comes are not always well described before or spoke and commercial off the shelf solutions include, during ICT program design, which can result first, the difficulty and complexity of interface de- in poor service delivery. Service level agreements velopment, and, second, commercial considerations with key dependent partners and stakehold- (such as a license fee) for commercial off the shelf ers should be defined and agreed on as early as products. A determining factor may be the presence possible in ICT program planning. It is impor- of development constraints, such as local demands tant to align the envisioned business outcomes to comply with existing operating systems, current with overall outcomes in the agency's vision and applications, development methods, or vendors. A strategy. proper application of standards and interoperability · Effective governance. A governance model, principles can help to overcome such technical con- setting out the roles and responsibilities of cerns, which are becoming less valid with time. stakeholders, must be established. If the deci- Often a strong belief in the uniqueness of na- sionmaking process and procedures for issue es- tional border management operations gives rise to calation are not established and rigorously fol- the view that a commercial off the shelf solution lowed, a loss of direction can ensue--wasting cannot fit a country's border environment. Border time, raising costs, and delaying the delivery of management agencies may be unwilling to make required benefits. the procedural adjustments required by a commer- · Specific ICT policy issues. Further ICT policy is- cial off the shelf product. Such objections may be sues arise with newer border management sys- weighed against the benefits to international op- tems because the systems often involve more erators: without commercial off the shelf solutions, than one government agency, each silo based operators must adjust their documentation to many and each with different policies (if any) for such countries' needs. Ultimately the choice of solution, things as security and identity management. however critical, is primarily a decision about pro- Policies might need to be mutually agreed on for curement (see chapter 9) and not deployment. issues including: · Privacy. Making information and communications · Identity management. technology work for border · Security. management: critical success factors · Accessibility and digital inclusion. 7 · Intellectual property rights. The experiences of border agencies with ICT pro- · Standards and interoperability. Information and communications technology and modern border management grams since the 1980s reveal 12 critical success fac- · Governance, architecture, and procurement. tors. They are: · Green computing. · An aligned legal and regulatory framework. A · Social networking. modern legal and regulatory basis needs to be · A robust business case. A robust business case in place before any ICT design or implementa- is often essential to securing the necessary po- tion. The time needed for regulatory or legisla- litical backing, investment, and resources for tive change can easily exceed the time needed to an ICT development. Business cases for ICT develop new systems, so it is important make the investments often have relied on a traditional two overlap: for example, time used to prepare cost-benefit analysis (see chapter 5). Informa- amendments to laws may also be used for pro- tion on cost is often readily available. More dif- totyping and testing ICT prior to system design ficult is to quantify the benefits and project an or even procurement. Because regulatory change accurate return on the investment--many ben- may have unforeseen outcomes that then require efits are not quantifiable in monetary terms. An new processes, a close relationship between ICT program may increase trader education and 118 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N compliance, improve performance management the program in place have the right information for staff, and enhance collaboration with other to make decisions on intervention. agencies and stakeholders. A suitable business · Interoperability. As effective border manage- case will combine an analysis of the investment ment increasingly relies on sharing informa- required with a wider view of both quantitative tion and intelligence among varied stakehold- and qualitative benefits. ers (including those based outside the home · Operational aspects. Who does what? How is it nation), interoperability is increasingly re- financed? Though critical, the answers to these quired. Developments such as systems oriented questions are not always well articulated and architecture improve the ability to link exist- agreed on before a program starts. If the lead ing systems. Future ICT systems must allow se- time necessary for a complete analysis of delivery cure links to other national and international model and procurement options is not allowed, systems. unplanned financial and time constraints can re- · Data privacy and protection. Privacy and protec- sult, making deployment, operation, and the cost tion become even more important as the demand of delivery problematic. grows for more data sharing, data reuse, and ad- · Business process efficiency. An important factor herence to national and international data pro- in the most successful ICT programs is the link tection legislation. to business process efficiency. Experience sug- · Standards and frameworks. Success requires the gests that any program lacking a complemen- application of standards to ICT system design, tary project to review and align the processes development, and implementation approach and in an organization will generally fail, requir- methodology. All too often ICT developments, ing users to work around incompatibilities to particularly when custom built, result in poor operate a shadow or backup system. Without service and high costs because process, data and exception, an initial review of existing business interchange standards were not applied. processes should inform the design of required business processes, so that the new ICT sys- Expected benefits tem will in turn be designed to enable the new processes. The benefits from border management ICT are · Change management. A retrospective view of achieved over time, as features are introduced and ICT program deployment reveals that most as the agency and its partners adapt to the change. project managers, if they were starting their pro- Developing nations especially need to keep a close gram again, would have invested more in change eye on benefits' realization. Foreseen benefits should management. A change management program be reviewed at set intervals. 7 should consider required changes in behavior, Typically the expected benefits for a nation mov- and modern border management support the required training and learning, and ing toward collaborative border management (chap- Information and communications technology help with role and job design and restructuring. ter 2) are, first, increased efficiency from increased · Organization performance. The design and im- control, and, second, improved administration of plementation of any new ICT program requires the border management value chain. Benefits need competent and skilled support resources. Orga- to be understood quantitatively and qualitatively-- nization and human resource management are the qualitative ones being most essential. critical. Success metrics (generally referred to as The key goals of the agency must be aligned key performance indicators), which measure op- to the ICT strategy design principles and desired erational efficiencies and improvements, need to end state. The ICT initiative must tie into the be determined at the start of a program and then agency's modernization objectives--for example, gathered and monitored during implementation national community and economy protection and and operation. Regular progress reporting, using the facilitation of legitimate trade. The categories concise and accurate measures, must ensure that of people, process, and technology can be used to both the client management and those who put classify some of the main benefits that a border B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 119 management ICT program might be expected to Those steps are set out in table 7.2, with a summary bring (table 7.1). of typical activities at each step and a set of the out- Not all benefits realized from an implementation comes expected from each. will be tangible or measurable. Agency leadership must buy into the intangible benefits and understand Step 1. Vision, mandate, and that they will not hurt the traditionally paramount desired outcomes bottom line. Particularly relevant to customs, these The starting point for any border management ICT intangible benefits will be felt on both small and large program should be a definition of how the program economic scales (for example, through a decrease in contributes to the future vision of the agency. Policy the smuggling of scarce natural resources). While the documents explain how the government understands intangible benefits are not as easily classified as the user needs and requirements and how it proposes to tangible ones are (see table 7.1), they can be glimpsed address them. A multiannual strategic plan (3­5 in the following list (which is not exhaustive): years) explains how the vision can be achieved over · Improved confidence in the agency's border con- one or several successive plans. These documents, trol and safety. agreed at the board level within agencies, provide the · Improved consumer safety and protection. program direction and mandate. The strategic plan · Increased foreign direct investment. should be reviewed annually (or at the discretion of · Reduced circulation of narcotics, dangerous, the executive committee), and it should be further counterfeit, contraband, and prohibited goods. developed in annual work programs--programs that Clearly the benefits will vary from agency to proposed an approach to putting common building agency and with national priorities. Developing na- blocks, common services, or specific service delivery tions typically will aim to achieve process stability capabilities in place. and efficiency, whereas organizations with mature The definition of desired outcomes, also impor- ICT will fine tune their solutions to further realize tant at the beginning, should align to the agency's the intangible benefits. However, the expected ben- desired overall outcomes, including: efits should not drive system design, but should flow · Efficiency. Making the best use of agency re- naturally from it as its end product. sources and continually ensuring that people, processes, and technology are aligned to provide Steps to modernization cost effective services to customers and citizens. · Transparency. Being trusted by all agency stake- An ICT modernization program has six key aspects. holders, adopting processes and technology to To deliver on all six, high level steps are required. eliminate corruption, instilling transparency 7 Table 7.1 Benefits that might be expected from a border management ICT program Information and communications technology and modern border management Category Qualitative benefits Quantitative benefits People · Ability to cope with increasing trade volumes · Percentage increase in redeployment opportunities · Improved performance management capability · Percentage increase in trusted traders · Increased capacity to partake in value adding work functions · Buy-in to a realizable career model · Increased trader trust and education Process · Reduction in manual administration and non value adding · Percentage of automated activities activities · Monetary benefit realized through implementation of more · Faster transaction turnaround times efficient methodologies · Reduction in compliance control activities and processes that are not intelligence based · Decreased fraud inherent to the incumbent systems Technology · Ability to build on a scalable border management solution · Reduced cost for future development, thanks to consolidated · Accurate performance metrics and reporting development platform · Improved collaboration and interoperability with other border · Return on investment due to benefits attributed to technology agencies and related organizations Source: Author's construction. 120 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Table 7.2 Six aspects of ICT modernization: steps, typical activities, and expected outcomes Aspect of modernization (high level step) Typical activities Expected outcomes 1. Vision, mandate, and · Construct a robust business case · Communication of vision and mission desired outcomes · Define green paper · Buy-in · Conduct information technology diagnostic · Policy documents 2. Blueprint · Analyze challenges and constraints faced by the program · Business process, training, application, and technology · Produce a high level, functional solution design blueprint · Draft an overall roadmap for the program 3. Operating model · Agree on the business areas to be affected · Logical operating model · Define the key business capabilities required for the solution · Define and set out the required operating model 4. Business architecture · Produce the business process design · Logical business process model · Do a capability assessment · Conduct change management 5. Technical architecture · Define the key technical areas linked to the business · ICT diagnostic of current baseline processes and system requirements · Business and system requirements · Business and system processes · Organization design 6. Deployment · Deploy the program in phases · On time delivery of program, with required outcomes achieved · Functional design documents · System interface design · Technical specification documentation (such as an application service oriented architecture definition) · Technical architecture · Systems implementation blueprint · Testing approach Source: Author's construction. and integrity in staff through a world class · Confi rming high level business requirements human capital program. with business stakeholders. · Accuracy. Supporting a culture of getting things · Mapping the present organizational structure. right the first time--with processes and tech- · Confirming the present technology infrastructure. nologies that enable precise decisions related to · Documenting the present situation, including examination, tariff, investigation, payments, and business capabilities, the high level technology 7 so forth. architecture, the high level technology infra- and modern border management · Integration. Working effectively with internal structure, and organization model requirements. Information and communications technology and external agencies to deliver efficient, trans- · Developing a model of the future state, defining parent, and accurate services to customers and the high level business capabilities to be supported, citizens, with a focus on interoperability, part- a support service delivery model, an organization nering, and joint outcomes. and resource model, and the high level technol- ogy development, architecture, and infrastructure. Step 2. Blueprint The blueprint step includes most diagnostic work, Step 3. Operating model planning (including milestone planning), and An operating model schematizes the relationship resource scoping. Typically used to determine the between all program areas, showing how the program inefficiencies in the present state and the value added is organized and how it operates across both business future state, a blueprint ordinarily involves: and technology aspects. An effective operating model · Obtaining a high level understanding of present enables an ICT program to deliver the required and future business and ICT needs. benefits--ensuring the ICT components are working B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 121 effectively with the rest of the organization--and it for example, the relationship that trader management shows the interfaces with external stakeholders. The (a horizontal process across areas) would have on risk clear link from the operating model to the process assessment at the border (a vertical area process). Pro- flows used to run and deliver the program is discussed cess models can be further detailed and strengthened further under step 4. through close collaboration with the consulting and An important mechanism for dialogue between software industries, which also have process models business and ICT, the operating model is critical in based on many clients' specific experiences. creating the basis for ICT projects that support the Required roles, responsibilities, and capabilities can overall goals of the organization. be represented partially in a diagram of principal players. The business architecture also must specify ca- Step 4. Business architecture pabilities and business processes required to give the The business (or enterprise) architecture must include program the highest possible value and impact. detailed processes--captured in an overall process model--and a clear view of required roles, responsi- Step 5. Technical architecture bilities, and capabilities. The process model is key to A first layer of system functional rollout represents business communication. A clear understanding of the logical order in which functionalities will be all processes in the proposed architecture is critical to introduced. Technical preparation includes analysis, identifying independencies among processes and data system design, and system build or configuration. requirements, and it can provide a strong basis for ratio- Every technical delivery should be tested according nalizing particular business processes and data require- to a solid testing methodology, from component test- ments. A process model can be further detailed as a ing to product testing, integration testing, perfor- matrix, with a column for each area process and a row mance testing, and finally user acceptance testing. A for each process across areas. Such a matrix displays, technical architecture is mapped in figure 7.2. Figure 7.2 High level border management technical architecture Insurers Carriers and Customs agents brokers Importers Customs Secure information Integrated customs Reliable and secured data and service portal and cargo exchange using ebMX specifications management Trade community 7 Web content management Cargo processing Single sign-on e-release Persons and G2C Government Information and communications technology and modern border management Single window entry e-tracking organizations G2G agencies Exporters e-licensing Banks e-CO Private sector Private sector bodies G2B bodies Account management G2B (trade community) Account profile Risk analysis Government agencies G2G Sensitivity management Port authorities ebXML-based registry and repository companies Web base Message Trading Public key infrastructure base Terminal or Forwarders Consolidators depot operators G2C is government to client. G2B is government to business. G2G is government to government. Source: Author's construction. 122 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Step 6. Deployment emphasized that ICT is not in itself a solution but Deployment is planned in phases, one for each func- an enabler for wider agency modernization. tional group and activity area defined on the trans- Effective governance, organization, and align- formation roadmap (chapter 2). Principles for the ment of ICT programs must be ensured. Effective phased plan are: implementation does not start with system or vendor · Each phase of deployment must deliver value to selection, but with a view of how ICT can enable the operational environment as well as to trade. an agency to better achieve its vision and required · Operational deployment need not be tied or outcomes. The end of effective implementation is linked to system functional rollout. not pressing the button to go live, but being able to · Organizational change capacity and capability ensure that the program is consistently working to are key success factors for a large, complex col- meet agency goals. laborative system. A typical deployment plan used in ICT programs Notes for border management agencies is set out in figure 7.3. 1. It should be noted, however, that the table Conclusion reflects customs experience rather than that of other agencies, based on the fact that in Th is chapter, in discussing successful ICT mod- most countries customs agencies were the ernization for border management agencies, has first to automate. Figure 7.3 Deployment plan for a border management agency ICT program System functional rollout Plan Cargo State Declarations Integration control warehouse Excise Analyze Risk Rule Transit Bonded management management control warehousing Design Traveler Duty Tariff Valuation Bonded calculator management control manufacturing Build 9­12 months 18 months 24 months Beyond Technical preparation Component testing User acceptance testing Integrated platform Deployment 1 Deployment 2 Deployment 3 7 Solution configuration Risk management Cargo control Bonded management and modern border management Information and communications technology Functional interfaces Declaration processing Transit control Bonded warehousing Reference data for pilot Financials Enforcement Excise Technology due diligence Trader management Traveler Platform enhancement Deployment Implementation dashboard Process management Deployment principles: Change management Stakeholder engagement effort Legal and policy Program governance 9­12 months 18­24 months Beyond Source: Author's construction. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 123 2. For more information see "Web Services and 3. For more information see "The Four Tenets of Service-Oriented Architectures," Barry and Service Orientation," John Evdemon, http:// Associates, http://www.service-architecture. www.bpminstitute.org/articles/article/article/ com/. the-four-tenets-of-service-orientation.html. 7 Information and communications technology and modern border management 124 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Developing a national single CHAPTER 8 window: implementation issues and considerations Ramesh Siva At present there are no known implementations of comprehensive col- laborative border management. Therefore, careful attention should be paid to the broad similarities between features of the collaborative model--its actors, processes, stakeholders, incentives, and disincen- tives--and those of national single window systems for trade. Such a comparison will indicate close parallels in a number of areas. Countries in recent decades have made procedures, and information and com- serious, systematic efforts to add effi- munications technology (ICT). Such ciencies to trade by creating national systems focus on paperless trading--for single windows. Those that have suc- customs clearance, for license and per- ceeded have greatly improved their abil- mit approval by government agencies, ity to compete for foreign direct invest- and (in a few cases) for transport and ment. Other countries, especially in the logistics activities associated with cargo developing world, have noted this cor- import, export, transit, transshipment, relation and have sought single windows and border management. of their own. And regional initiatives National single windows have been have encouraged the development of mandated by the Association of South- national single windows as a prerequi- east Asian Nations, as a first step toward site to joining the regional systems (the a regional single window to be used by Association of Southeast Asian Nations all 10 of the association's member coun- Single Window is an example). tries. The European Union plans to Emerging knowledge and experi- open its single window for all member ence are beginning to identify inter- countries by 2012. And the Asia-Pacific linked areas that ultimately determine Economic Cooperation--which shares the success or failure of national single many members with the Association windows. Those same areas are critical of Southeast Asian Nations--plans to for any effort to extend the single win- open its single window for all coun- dow concept to that of collaborative try members around 2012­13. Other, border management. similar intraregional (but not yet inter- regional) initiatives are at the planning What is a national stage. single window? Each of the single windows has a slightly different emphasis. The As- The term national single window is sociation of Southeast Asian Nations increasingly used to denote coordi- is adopting a "your export is my im- nated national electronic information port" philosophy. Europe is aiming for exchanges with a focus on legislation, improved movement of goods across B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 125 national borders. And the Asia-Pacific Economic agencies. This starts with customs and with govern- Cooperation is now concentrating chiefly on sup- ment licensing, inspection, and approval agencies, ply chain security. No doubt the objectives of all such as the ministries of trade, industry, econom- these single windows--and of various followup ics, agriculture, health, defense, and finance--and initiatives--will converge in time. with the subsidiary permit issuing agencies--such The single window concept has broad implica- as those for animals, plants, and drugs. In some tions for electronic government. The trade single countries the number of separate agencies exercising windows mentioned above are essentially govern- inspection and approval responsibilities may exceed ment to government, government to business, and 20. These agencies may be considered the front of- business to business exchanges. Other single win- fice, or formalities process for trade. dows are aimed at a wider constituent set. For ex- The organizations involved in the physical ample, vehicle licensing initiatives enable citizens to movement of goods may then be considered the renew and pay for vehicle licenses online. The major back office. These include airports, maritime ports, players in this type of single window may include container terminals, road and rail terminals, and central government agencies, commercial organiza- transport, logistics, and storage for goods moved tions, and local, state, or provincial organizations by air, road, rail, and shipping (maritime, river, and and companies--ministries of transport, police, in- waterway). Also in the back office are trade profes- surance companies, banks and finance companies, sionals, such as freight forwarders, customs brokers motor dealers, and citizens--covering the business and shipping agents, together with the amorphous to government, business to business and business to category of messengers. consumer categories. Another common type of sin- Other major agencies and organizations in a gle window is the tax lodgment initiative, involving national single window community include postal (for example) citizens, tax accountants, tax authori- authorities, messenger and courier companies, non- ties, ministries of finance and treasury, and a range of government organizations, statistics organizations, social service, pension, and health authorities. trade promotion bodies, consolidators, container Each of these types of single window shares the owners, bulk and liquid terminal and storage opera- collaborative features (interagency and organiza- tors, pilots, stevedores, and, finally, importers and tional) of multiparty initiatives, linked together for exporters. a single set of objectives and covered by common With this scope, a single window must focus policies, regulation, and legislation. on organization, governance, regulation and legis- Published definitions of single windows so far lation, project management, process reengineering, have been rather vague. The most commonly quoted and change management, funding, and planning. 8 definition for a trade process single window, Recom- Clearly ICT is important--but it is subsidiary to mendation 33 from the United Nations Centre for many of these other aspects. Success can take years, Developing a national single window: implementation issues and considerations Trade Facilitation and Electronic Business (UN/ and change often outpaces progress. Nevertheless, CEFACT 2005), is skewed toward developed coun- putting the single window in place is an unavoidable tries and is considered by many practitioners to be national imperative. To try and fail is better than to somewhat Eurocentric. For example, it calls for the fail to try. single window to be the vehicle for collecting all fees It should now be apparent that the ideal ap- and charges levied by government agencies. Since proach to ICT for single windows is not through a many developing countries fund individual agencies single computer or closely coupled central host con- through their trade process revenue collection man- figuration. A centralized facility of some type is, of dates, the agencies' loss of control over the source course, required. But the philosophy of a particular of their income is unwelcome, to say the least. To single window needs to be well thought out before succeed, collaborative systems need incentives--not any procurement is even considered. A detailed pro- disincentives. cess flow analysis is needed, leading to an under- A broadly conceived single window will cover the standing of all major and minor trade related agen- activities of all trade processing organizations and cies, organizations, and processes. Then, an approach 126 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N to re-engineering and change management is needed collects through customs will gradually decline as that embraces simplification, standardization, and a proportion of its gross domestic product. More- single entry of data along with data reusability. The over, traditional roles of customs agencies are now application of ICT to this re-engineered design will becoming subsumed by their growing border pro- match the notional architecture, which evolves from tection duties. And government agencies' responsi- the business process and the objectives of the single bilities are becoming ever more onerous, a result of window designers. the proliferation of trade and free trade agreements The window design must use existing ICT assets, (some generated by the World Trade Organization, databases, programs, and systems as much as possi- others regionally). ble. The best designs are the most flexible--designs These developments are causing the ownership, that limit touchpoints between the single window governance, and management of single windows to and other trade processing systems to the exchange move gradually toward location in a collaborative, of required data elements, with no redundancy in neutral body--not under the sway of a single major any information delivered or received. trade community player. This is a controversial ten- An emerging debate in the design of ICT for dency. But recent stakeholder debates about single single windows concerns the central facility: should window governance lead inescapably to the conclu- it be a portal, a data switch, or a data repository? If a sion that a successful, fully functional single window repository, does it have added functionality such as a needs an autonomous, neutral, objective body to rep- customer relationship management (CRM) tool for resent and to mediate among government agencies trading partner communications? Or does it have a and other public and private organizations. structured query language, or data base management The ultimate objectives of a single window are: system, which facilitates data mining--and if it has · To increase efficiency. data mining capabilities, does it allow retrospective · To provide an infrastructure for handling in- investigations into specific clearances and approvals creasing trade flows. (enabling a sort of cold case squad)? It has even been · To support modern supply chain management suggested that every single window needs a data or techniques. information ombudsman, so that systems users can · To reduce the costs involved in international become self regulating. trade. Design philosophy dictates governance. Sin- The single window aims to provide all trade re- gle window operations traditionally have been led lated parties in a country--government agencies, by customs authorities, since they are--at an early commercial actors, and individuals either directly stage--the only ones to have the funds, the reposi- or indirectly concerned in an import or export pro- tory, and the data capture ability needed to estab- cess--with an increasingly paperless environment 8 lish a single window. And such efforts have normally that reduces processing costs, improves revenue col- implementation issues and considerations been limited in practice to data capture by customs, lection, and boosts compliance with regulations and Developing a national single window: for customs purposes. They have been aimed only at laws. At the same time, the window aims to facilitate obtaining clean declarations. Government agency li- trade by keeping delays in goods receipt and delivery censing and approval details normally comprise very as low as possible. few data elements--in some cases resulting from ex- The ability to pre-enter and preclear goods before haustive processes and inspections. the arrival of the ship or aircraft carrying them--in- Many government agencies have broader na- cluding the finalization of all licensing requirements tional objectives: to protect the health and welfare and the payment of all government fees and duties-- of the nation, to prevent the spread of dangerous is merely the first step in more efficient commercial diseases, to ensure the protection of national cul- cargo handling. The second and more crucial step is ture and wealth. To be sure, the major objective of often described as value added services, or, as men- customs--protecting the government's trade rev- tioned earlier, the back office function. Value added enues--is extremely important. Nevertheless, as services are provided by linking or integrating the a nation becomes more developed, the revenue it government's computerized processing system with B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 127 the commercial cargo handling, storage, and trans- in international trade must regularly submit large port systems. No environment can be absolutely volumes of information and documents to govern- paperless--there will always be a need for original ment authorities to comply with import, export, documents. Still, paper documents should represent and transit regulations. Often this information and a rare exception. For example, the personal effects documentation must be submitted to several agen- of a ship's crew need to be declared on arrival in cies, each with its own manual or automated system port, and the declarations are usually presented as and its own paper forms. These requirements, with paper documents. It would be too cumbersome to associated compliance costs, burden both govern- create a wholly automated system for this exception ments and businesses. They can be a major barrier (even though, someday, a web based system is sure to the growth of international trade, particularly in to emerge). developing countries. In addition to centralized computer processing A single window can make information more and goods pre-entry and preclearance, another in- available, improve its handling, and simplify and ex- novation that improves enforcement through better, pedite information flows between trade and govern- more focused targeting is the risk based selection of ment. It can lead to more harmonizing and sharing imports and exports for document examination of data across government systems, bringing great and physical cargo examination. Postclearance au- gains to all parties involved in cross border trade. Fi- dits conducted at an importer's premises--where nally, it can make official controls more efficient and not only the standard documentation required by effective, reducing costs for both governments and government agencies, but also all other commercial traders through better resource use. information, including banking details, should be available--can confirm the integrity of the system. Single windows for trade In some more advanced countries such postclear- ance audits are carried out as close as possible to the As specified by UN/CEFACT (2005) in its Rec- point of sale, especially for food items. Since one ommendation 33, a single window allows parties of the main goals of inspection is consumer safety, involved in trade and transport to lodge standard- postclearance audits can even be delegated to local ized information and documents through a single consumer protection agencies. entry point to fulfi ll all import, export, and tran- Centralized computer processing and, more sit related regulatory requirements. For electronic broadly, an electronic processing environment information, each individual datum should be sub- brings savings to government agencies, reducing the mitted only once. However, a single window need staff required to handle and fi le every transaction not necessarily use advanced ICT--even though 8 and store of documentation. It also brings savings such technology often can greatly enhance a single to commercial operators, eliminating--to a great ex- window. Developing a national single window: implementation issues and considerations tent--multiple handling of goods and documents. For single windows that emphasize ICT, two That is not to say that government agencies simply complementary models are emerging.1 One, here reduce staff; some officers can be assigned to new termed single window lite, limits itself to formali- functions, such as postclearance audits. ties or front office functions. The other, with fuller functionality, is here termed a trade facilitation single Why a single window? window. Whereas a single window lite facilitates the lodging of standardized information once to fulfi ll Already adopted in varying degrees around the all import, export, and transit related regulatory re- world, the single window concept is essential to quirements, a trade facilitation single window does modernizing import and export processes, increas- so for all import, export, and transit related regula- ing compliance with laws, more closely harmonizing tory and commercial logistics requirements. Thus a the governmental and business interests in import- trade facilitation single window is a more general- ing and exporting, and breaking down international ized data and information interchange facility, sup- trade barriers. In most countries companies engaged porting not just business to government transactions 128 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N but also business to business logistics related trans- recommendations for corrective actions--including actions. In practice such single window applications new amendments to laws and regulations, or new often have been called trade nets (for example, Sin- regulations--should be prepared, in consultation gapore's TradeNet) or trade exchanges. Also useful with government and other stakeholders as needed. in implementation is a distinction between trade The legal framework for processing shipments processes and regulatory processes. into and out of any country is large and complex. Alas, the creation of either type of national sin- The rules that guide or constrain different agencies gle window inevitably meets with policy obstacles are often interlinked--at times they have even been and bureaucratic turf challenges that often compro- proven contradictory. Here more than in any other mise the window's chances of success. area, a complex and possibly confused legal and regu- latory environment is the perfect cover for bureau- Critical areas, typical impediments, crats and reticent government agencies unwilling to and key factors in success reform or modernize. In addition, approaches to interpreting legal National single windows face many challenges frameworks for agencies vary situationally. Such in- beyond those typical of large and costly ICT sys- terpretations may be used at times as levers for agen- tems. Eight critical areas for such windows can be cies getting their way. Incorporating business rules distinguished:2 into a system is likely to show that interpretations of · The national legal and regulatory framework for rules can vary regionally as well, as they do in most trade. countries. · The governance model for the national single A common characteristic with the experience of window. modern public services is that a given agency will · The operational model for the national single closely guard its mandate, not to execute govern- window. ment policy, but to preserve procedure and artifacts · The fee structure for the national single window. of procedure. The procedures' correct execution can · Service level agreements for the national single loom large in the value system of government em- window. ployees, leading them to resist change. The policy · Business process re-engineering and continuous purposes of a given procedure, regulation, or law change management. may be obscure, with desired outcomes not ex- · Organizational and human resource ICT man- pressed or the link between outputs and outcomes agement in border management agencies. unclear. Is the link between import processing de- · Functional and technical architecture for the na- lays and national economic performance appar- tional single window. ent to all? Officials may cling to procedure. Such 8 resistance is often found in moving from reliance implementation issues and considerations The national legal and regulatory on high rates of physical cargo examination to risk Developing a national single window: framework for trade based selection for examination. A review and analysis of the current national legal The import of goods ideally should be a single and regulatory framework for trade, and of related process. So should their export. The trader at pres- areas that will govern the functions and operations ent must pass through a number of agencies, each of the electronic national service window, is the first with a narrow and vertical focus resembling a stove- critical area. The legal basis for accepting electronic pipe. Each agency may require complete documen- transactions, the legal admissibility of these trans- tation of all the steps already taken. In principle, actions, and the legal ability of agencies to accept recognizing that all prerequisites will be completed and process electronic transactions should be clearly before the shipment is released--or simply acquir- established. The analysis should then focus on iden- ing the ability to verify completion of each step tifying gaps and impediments in laws, as well as online--should allow all agencies to work in paral- regulations that would hamper the national single lel, avoiding the need for a sequential progression window. If gaps or other impediments are identified, through each stovepipe. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 129 The governance model for the The operational model for the national single window national single window An operational national single window presents The implementation of a national single window many public service delivery challenges. Foremost is requires typically unprecedented cooperation and the need to safeguard the government's ongoing pol- collaboration by multiple government ministries, icy interests in trade. Operationally, the national sin- agencies, and other statutory bodies. Every bureau- gle window presents a highly visible, public collabo- crat's instinct is to control this new beast. ration by multiple government agencies to deliver a The government should define potential opera- critical government service and so enable efficient tional models for the national single window in dis- trade. A clear governance mechanism is needed to: cussions, both internally and also with other identified · Oversee the operating entity for the national stakeholders (including those in the private sector). single window. The operational model should include everything · Provide policy oversight for the national single from obtaining and establishing technology and in- window operating entity. frastructure platforms to the management, operation, · Protect the government's policy interests in the and provision of services through the national single national single window. window. Options, such as establishing public-private · Oversee the success of the national single win- partnerships, state owned enterprises, or a specialized dow in meeting government policy objectives. government agency--as well as other arrangements or In addition, this governance mechanism needs to combinations of arrangements--should be explored. handle the following coordinating functions: International experience in such operational models, · Providing a common framework of agency regu- as well as comparable experiences from other sectors in lations to achieve key needs for efficient and ef- the country, should be taken into account. A roster of fective border processing of goods declared using these options should be prepared for decisionmakers' the national single window. consideration. The strengths, weaknesses, and risks of · Coordinating an ongoing interagency review of each option, specifically within the national environ- regulations to ensure effectiveness, consistency, ment, should be identified. and support for modernized procedures. International experience illustrates various ap- · Coordinating the promulgation of agency regu- proaches to introducing a national single window, lations to put the framework into practice and and it is difficult to distill the best. However, strong conduct the review. messages emerge from the critical success factors and · Ensuring adequate stakeholder consultation, greatest hurdles that are presented for eight single including in agencies and in the national single windows in annex 8A. The success factors include 8 window operating entity. commitment by all stakeholders, cooperation be- · Developing a framework for monitoring new tween agencies, government support, and informa- Developing a national single window: implementation issues and considerations regulations to ensure consistent application of tion sharing. Changes in procedures and processes the regulatory framework and review results. are also highlighted. For the service provider there · Funding expert assistance for the regulatory are government ownership, private ownership, and review. public-private partnerships. The deciding factor is · Guiding agencies unable to resolve disagreements what works best with a country's local laws, inter- related to processing cross border shipments. governmental relationships, and within a given trad- Ideally, all agencies involved in the national sin- ing environment. gle window should have some representation in the governance mechanism. Similarly, various key user Fee structure for the national single window stakeholders (traders, shipping companies, customs The government must define an appropriate user fee brokers, freight forwarders and other private sector structure in consultation with individual government entities) should have some representation or advisory agencies and other stakeholders, including private sec- capability in the governance of the national single tor stakeholders. International experience should be window. taken into account along with existing World Trade 130 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Organization rules and disciplines (for example, technical knowledge--then, in too many cases, ob- under the General Agreement on Tariffs and Trade) solete procedures are automated; international best and others that are likely to emerge. The user fee is practices are ignored; and little or no attention is expected to cover at least the costs of operation and paid to management, control, human resources, and maintenance, plus any incremental costs to govern- training. To avoid that outcome, business experts ment agencies participating in the national single must first identify their requirements and desired window. Determining and gaining agreement on a outcomes through a diagnostic exercise, producing a revenue sharing model--to ensure that all participat- scoping document that takes into account best prac- ing stakeholders are reimbursed for administrative tices. Such a document helps ICT experts design a expenses incurred through participation--is key. solution, and it helps suppliers propose a delivery ap- proach and outcomes. Service level agreements for the The business change approach should: national single window · Describe the main change phases and activities Critical to efficient functioning are agreed service lev- for the modernization program. els. To meet the timeliness and predictability objec- · Identify key performance indicators to measure tive, a generalized framework of service levels and the impact of reforms. overall service level for the national single window · Outline times for each phase, including key de- need to be prepared in consultation with the window liverables and milestones. operator, participating government agencies, and · Identify dependencies among modernization other stakeholders (including in the private sector). program tasks. The service level agreements developed should take · Estimate resources required. into account international practices in other national · Continually communicate--to agency staff and single windows as well as any other interagency ser- to external stakeholders--the reform program's vice level agreements for similar activities. management expectations, present status, and Service level agreements have most value when successful outcomes to date. they can be monitored. A monitoring framework The resulting business change management plan and methodology, to ensure that service levels are should mirror timescales, milestones, and deliver- kept and bottlenecks identified, should be simulta- ables in the technology plan. It should be revised, neously developed and implemented. Monitoring at intervals, to reflect business process defi nition and enforcement of service level agreements are criti- changes and ongoing impact assessments. cal to national single window governance. Organizational and human resource Business process re-engineering and management for ICT in border 8 continual change management management agencies implementation issues and considerations One should not think of automation projects. One Border agencies will continue to need more techni- Developing a national single window: should think instead of modernization projects. cally proficient ICT staff, but the nature and level of Automation is often a given--but calling any par- needed skills will change. As technology becomes ticular improvement automation wrongly signals more complex and agencies more dependent on its that the driving force will be technology and that its various types, it will no longer make sense to group all drivers will be the technology people. The real issue technical people under one organizational umbrella. is a business issue: what needs to be done, not how. For traditional ICT management, two groups So the driving force should be business process effi- remain critical: ciency. And the drivers should be business experts · A strategy, planning, and contracts management with a keen awareness of the possibilities of automa- group--intensely business oriented and deter- tion for end users. mining policy, strategy, planning, and project If the leaders of business process automation design--residing in the agency's planning de- are technical experts with some knowledge of the partment or reporting to the agency head (not business--instead of business experts with some the ICT department). B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 131 · A training and operational support group of will keep spreading into all aspects of border man- systems analysts and programmers, supporting agement processes: and maintaining the agencies' ICT infrastruc- · Governments are increasingly promoting paper- ture (soft ware and hardware operational support less offices. may be outsourced). · Computers are increasingly powerful. The career paths of these two groups are differ- · Internet based technology is increasing, greatly ent. The first shares the career path of high manage- facilitating communication. ment. The second includes a subset of ICT experts, · Soft ware and hardware are becoming commod- properly speaking, who are continually poached by itized. the private sector. Unless government offers com- · Public expectations for efficient government are parable salaries (an unlikely occurrence), the ICT increasing. unit must expect high rotation and offer ongoing On the one hand, ICT can greatly boost the ef- training for new staff. Not all technical staff mem- fectiveness of business processes, increase control over bers will depart to the private sector. Some, such as operations, make operations more transparent, and systems analysts, project managers, and knowledge help to block decision leakages and improve efficiency. workers, will be poached by business units within On the other hand, ICT can discourage corruption-- the agency because working in ICT has made them by reducing face to face interaction between users and understand how a business process works. government officials, by reducing arbitrary decision- Increasingly, as ICT becomes more deeply em- making, and by increasing accountability. bedded within the agency and core business func- What ICT cannot do is compensate for a lack tions are enabled for it, the agency will need to adjust of discipline, management, or control. By itself, ICT its staffing profi les for it, with innovative recruiting, cannot improve the business process. It must be ac- retention, and reinvigoration and training. Human companied by appropriate delivery services. resources management will need to grow to support National single window implementation re- full career personnel development across the orga- quires an ICT platform to function seamlessly and nization while also recruiting and retaining special- efficiently. A clear, functional blueprint should first ized experts, such as forensic computer specialists, be developed that takes into account the needs and internal auditors, website managers, security special- requirements of all stakeholders, and that becomes ists, and ICT people with customs expertise (rather the primary basis for the technical architecture and than generalists). system specifications. Additionally to be taken into account (as appropriate) are: Functional and technical architecture · International practices in other national single 8 for the national single window windows. For efficiency and effectiveness in border manage- · Regional (such as the Association of Southeast Developing a national single window: implementation issues and considerations ment reform, ICT is critical. Border management Asian Nations') single window requirements. agencies are challenged to ensure national security · Industry trends in technology and infrastruc- and safety, revenue collection, and trade facilita- ture platforms. tion with increasing efficiency. ICT does this by · Technology and infrastructure environments reducing as much as possible the cost, number, in participating government agencies and in the and duration of operations and transactions. Some country more generally. border management agencies are joining forces, A generalized functional specification and tech- integrating processes, and improving the processes nical architecture are further detailed later in this through automation. It is imperative that the integ- chapter. rity and security of the process not be sacrificed to efficiency. Good practice models Governments and their border management agencies are information consumers and informa- Which existing single windows present good prac- tion factories. There are at least five reasons why ICT tice models? Here the benchmark is whether a model 132 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N comes close to meeting the definition of a single win- customs and the agriculture and forestry ministry. dow adopted by most countries--the one proposed A business analysis has been completed and possible by UN/CEFACT (2005) and the Association of functional and operating models evaluated. Pre- Southeast Asian Nations. It has three pillars: ferred options, with a business case, were submitted · Single submission of data and information. to the government in October 2009. Further action · Single and synchronous processing of data and depends on government funding and approval for information. the selected model. · Single decisionmaking for customs release and cargo clearance. Other models While a number of countries claim to have a na- Most of the countries said to have introduced, or tional single window, very few have one as defined to be introducing, a single window are well docu- above--though many have programs to attain it. mented in case studies (UN/CEFACT 2006). But In many cases, especially in more advanced econo- the term single window is loosely used to describe mies, the process involves building integration layers varying degrees of electronic data interchange, rang- among agencies' existing legacy systems, which have ing from direct trader input to a single portal--one provided electronic submission facilities to the trad- giving access to different subsystems--to simple ing community for some time. In some cases this in- download from a portal of forms that are then fi lled tegration involves creating seamless interfaces among in and presented manually. A number of electronic existing trading and port community networks. facilities are still backed up by paper document sub- Thus, countries are moving toward common ob- mission. In most of the usually cited examples, the jectives, but in different ways dictated by their leg- single window is still a goal to be attained and a work acy systems and constraints. In the following brief in progress. summary two models have been singled out as best The following brief case studies represent work representing the accepted definition of a single win- in other countries by comparison with the two mod- dow. Singapore's is well established. New Zealand's, els above, which come closest to best practice as de- which has been conceived and is being submitted fined in World Customs Organization and United for government approval, illustrates the analysis and Nations recommendations (UN/CEFACT 2005). consultation required to build the business case for The examples show the incremental process of build- a national single window. ing on earlier legacy systems. The best model now in operation: United Kingdom. The United Kingdom Interna- Singapore TradeNet tional Trade Single Window, launched in Novem- Singapore's TradeNet 4.0, the current version, has ber 2007 to provide a single submission point for 8 become more simple, with fewer fields required to importers and exporters, does not yet do so. Customs implementation issues and considerations submit a permit application. Other new features submissions are still through the customs agency sys- Developing a national single window: include integration with TradeXchange, an elec- tem, Customs Handling of Import/Export Freight tronic platform for information exchange between (CHIEF). At present the International Trade Sin- traders and logistics operators both in the country gle Window gives traders a separate portal for help and internationally. TradeNet and TradeXchange with import and export processes and regulations, are operated by CrimsonLogic PTE through a pub- and it contains an online tariff to assist with clas- lic-private partnership. sification. The first online processing facility will be Automatic License Verification, allowing electronic A good practice model with a business case: applications for export and import licenses issued by New Zealand's Trade Single Window project the Department of Business, Enterprise and Regula- UN/CEFACT (2005) Recommendation No. 33 tory Reform. The license will be sent electronically guides New Zealand's Trade Single Window proj- to CHIEF and the need to submit paper documents ect, now merged with the Joint Border Management to customs will vanish. Future work will aim at sin- Project involving government agencies including gle submission. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 133 United States. The United States single window Canada. The Canada Border Service Agency has initiative is being coordinated by the International been exchanging data electronically with other gov- Trade Data System project, aimed at helping par- ernment departments since the late 1990s, when ticipating government agencies integrate with the proofs of several model concepts were implemented. Automated Commercial Environment (the new During 2006­07 consultations with government trade system of Customs and Border Protection). departments and analyses of business processes led About 30 agencies are now involved. The Auto- to the development and design of harmonized data- mated Commercial Environment provides a single sets and interface options. These interfaces, in place entry access portal for both trade and the partici- since 2007­08, are subject to ongoing monitoring. pating agencies. The ultimate aim is single sub- mission but implemented at present are account Ghana. The Ghana Community Network, a public- management, online report requests (tracking), private partnership enterprise, reflects the desire periodic monthly statements, and electronic mani- of the government to modernize customs through fest submission. physical infrastructure work, communication net- works, upgraded customs facilities, and electric Australia. Australia's TradeGate provides an envi- generators in remote border stations. A joint ven- ronment for trade and logistics operator message ture company was formed with a 10 year mandate exchange. Importers and exporters can submit cus- to operate customs, using customs staff. Customs toms declarations through TradeGate's ImportNet has a 20 percent share, while the total public share and ExportNet modules. is 35 percent (including two other public sharehold- In 2005 Australia implemented the Integrated ers) and two private shareholders hold the remaining Cargo System, which replaced a number of legacy 65 percent. The main private shareholder, a Geneva systems for reporting all cargo movements to cus- based inspection company, holds a 60 percent share. toms, expanded and strengthened automated data Operation is funded, and dividends to shareholders feeds between customs and other agencies, and now paid, through a levy on imports of 0.4 percent of the performs some verification of other government free on board (FOB) price. The underlying technol- agencies' permits. A Customs Connect Facility, de- ogies are provided by CrimsonLogic, the company veloped to provide a secure gateway to customs ap- that operates Singapore's TradeNet. plications, performs customs public key infrastruc- The Ghana Community Network started as a ture functions such as validation and authentication value added network (VAN) service for electronic dec- of digital certificates, and it houses an engine that laration submission and clearance. It was expanded to transforms incoming messages from the United Na- provide online access for other modules, such as elec- 8 tions Electronic Data Interchange for Administra- tronic manifest submission, final customs valuation tion, Commerce, and Transport (UN/EDIFACT) reporting e-Permits, e-Exemptions, electronic valua- Developing a national single window: implementation issues and considerations into XML. The electronic data interchange (EDI) tion of used vehicles, and e-tracking. Access to these messages used by customs in the Customs Connect facilities is through a single portal, but the processes Facility and Integrated Cargo System are developed are not consolidated through single submission, and from the UN/EDIFACT 99b Message Implemen- customs declarations are submitted electronically tation Guidelines produced by UN/CEFACT. Data through the Ghana Customs Management System. in the messages are aligned to the United Nations Trade Data Element Directory (UNTDED). Generalized functional and technical Australia, as part of a commitment to the Asia- architectures for a national single window Pacific Economic Cooperation, is moving toward an integrated cargo processing and single window envi- Functional requirements in any sector are primarily ronment. It has created an international trade single driven by system users. In developing the functional window project led by customs, which has produced and technical requirements and specification for a a strategic plan. national single window system, all stakeholders need to be taken into account. 134 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Targeting functional requirements · Track the progress of lodgments they are autho- to users and their needs rized to view. A national single window has a broad array of users, · Receive electronic responses to their lodgments, from traders to oversight agencies. either as government to business messages or by web based lookup. Trade users. The main targeted users of the national · Rely on the electronic responses to the lodg- single window are importers, exporters, brokers, ments to clear goods for import or export, ei- and the like--trade users--throughout the country ther requiring no further interaction with gov- at ports involved in import, export, transshipment, ernment or--if the goods are selected under transit, and other customs regimes within the country risk management principles--involving further (either directly using their own facilities or through document or physical inspections. their brokers and agents). Their anticipated uses are: These uses are illustrated in figures 8.1 and 8.2. · Lodging each trade submission securely as a sin- In many countries the trade user is also re- gle electronic message. quired to retain all original documents related · Using business to government messaging, where to a trade submission in an identifiable, locat- the trader's (or broker's) in-house system directly able, collated folder. The folder may be physical, permits this without further re-entry; or using electronic, or a combination. All such folders a business to government client; or using a web are to be held securely and be readily available based interface to be provided by the national for audit by government agencies. Severe penal- single window. ties may be applied for breaches of security and For payments of taxes, nontax revenues, and irretrievability. other fees, trade users could either authorize direct A registration process is required, usually using debit (under a standing order) or pay separately and a national taxpayer identification number or the provide receipt details (of business to business bank- equivalent. Generally the national single window ing instructions, internet banking, over the counter does not perform registration alone, but relies on the payments, and the like). Through their single sub- registration processes of government agencies where mission they can: trade users substantiate their credentials. Figure 8.1 Business to government service: the Indonesia National Single Window BPOM INSW Permit request workflow manager and response BPOM ICT assisted procedures Automated clerical procedures and 8 selectivity (through risk assessment) and regime specific procedures implementation issues and considerations B2G Developing a national single window: trade Permit request One touch submission and response Quarantine INSW trade packet workflow manager submission B2G Trade Trade trade Quarantine ICT assisted submission procedures logistics in-house response Automated clerical procedures clerk ERP Indonesia National Workflow and selectivity (through risk Single Window distribution assessment) and regime manager PIB/PEB (INSW) service SPPB/PE specific procedures E-payment E-receipt Customs INSW workflow manager Customs ICT assisted procedures Automated clerical procedures Commercial and selectivity (through risk bank assessment) and regime specific procedures Source: Indonesia National Single Window Preparatory Team. Note: BPOM is Badan POM, or the Indonesia National Agency of Drug and Food Control (NA-DFC). ERP is enterprise resource planning. B2G is business to government. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 135 Figure 8.2 Web service: the Indonesia National Single Window BPOM INSW Permit request workflow manager Trade and response in-house ERP BPOM ICT assisted procedures Data from Automated clerical procedures and commercial selectivity (through risk assessment) documents and regime specific procedures B2G trade Permit request submission and response Quarantine INSW Trade packet workflow manager submission entry B2G INSWTB trade Quarantine ICT assisted Trade submission procedures logistics web response Automated clerical procedures service Indonesia National Workflow clerk Single Window distribution and selectivity (through risk PIB/PEB assessment) and regime (INSW) service manager specific procedures Receipt through SPPB/PE Payment through online banking, online banking, internet banking, internet banking, or over the counter Customs INSW or over the counter banking workflow manager banking Customs ICT assisted procedures Automated clerical procedures and selectivity (through risk Commercial assessment) and regime specific bank procedures Source: Indonesia National Single Window Preparatory Team. Note: ERP is enterprise resource planning. BPOM is Badan POM, or the Indonesia National Agency of Drug and Food Control (NA-DFC). B2G is business to government. Commercial banks. The anticipated uses for trade · Processing permit applications according to submissions at commercial banks are: agencies' internal business processes and within · Accepting and processing instructions for elec- agreed service levels. tronic transfer: from trade users' accounts to · Responding electronically to the trade users. government accounts as payment (for taxes, · Using national single window audit trails and nontax revenues, and other fees under standing message logs for postentry control. orders for direct debit, as well as for business to · Using national single window metering for in- business banking arrangements, internet bank- ternal auditing, including service level monitor- ing, and over the counter payments). For fi xed ing and analyses and continual business process and regulated payments the trade user can cal- improvement. 8 culate and pay in advance at the time of the trade submission. For payments depending on Port operators and agencies. The anticipated uses at Developing a national single window: implementation issues and considerations particular services--such as quarantine services ports are: involving laboratory inspections and, occasion- · Giving notice of vessel arrivals and departures. ally, classification services for customs--the fees · Receiving master and house manifests. are determined after the service is provided and · Receiving goods clearance permits electronically would entail a second direct debit. and accepting them as gate passes. · Forwarding reports of electronic and nonelec- tronic payments as e-receipts. National single window regulator or oversight body. · Providing information for any investigations The anticipated uses by the regulating or oversight concerning payments. body are: · Using national single window audit trails and Government agencies, including permit issuing agen- message logs for postentry control. cies. The anticipated uses at government agencies are: · Using national single window metering internal au- · Receiving electronic data from trade submissions diting, including service level monitoring and anal- according to agency regulations and procedures. yses and continual business process improvement. 136 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N National statistics body and central bank. The antici- application integration, business process manage- pated use by national statistics bodies and banks is to ment and message handling, session and transac- receive periodic trade related statistics based on trade tion management). By nature the national single sanitized transactional data. window is generally a highly centralized system that links and communicates with systems owned and Commercial auditors. The national single window operated by many entities. Such implementations operator would be subject to normal requirements need to be highly scalable and fully redundant. The for tax administration reporting and for the company national single window central data center should registrar. It would also be required to provide com- have a fully redundant disaster recovery center in a mercial access, in confidence, to all records within geographically remote location. Network commu- the national single window for commercial auditing. nications channels, similarly, should be established with redundancy in mind. For example, in connect- Law enforcement agencies. Law enforcement agencies, ing with its public telecommunications carrier, each such as the national police, need unrestricted access channel should be connected to a distinct exchange to the national single window--and to the oversight or switch--and that exchange or switch, in a net, to body's internal records, detailing audit trails of trans- at least two other switches. actions and other data on traders--for national secu- rity matters and for criminal investigations. Topology and features A typical national single window, diagrammed in Business process functional requirements figure 8.3, has architecture that anticipates facilities Th ree main business processes flow through the for: national single window: · Access and usage security architecture (identifi- · Registration. Th is process assigns an importer, cation, authorization, encryption, nonrepudia- exporter, or customs agent a unique and secure tion, audit trails). identification that will grant access to facilities · Physical security architecture (transaction log- within the national single window as authorized. ging, restart journals, backup sets, restart meth- · Submission and clearance (all customs regimes). ods, recovery methods). All information for permits, licenses, declara- · Performance monitoring model (data logging tions, and the like--to clear goods for import, and analysis). export and other customs regimes--is submitted · Infrastructure resilience features (data storage, only once, preferably in a single message. data access controllers, servers, processors, com- · Customer service. Traders retrieve account sta- munications channels) and identification of sin- tus information, track submissions, obtain sup- gle points of failure. 8 port for inquiries (on tariffs, regulations, permit · Scalability policy, plans, and features. implementation issues and considerations requirements, and the like), and access help desk · Soft ware architecture. Developing a national single window: facilities. · Data quality controls (field validation, referen- tial integrity). Other related requirements · Data standards (United Nations electronic While some criteria are not strictly functional Trade Documents [UNeDocs], national trade requirements, they need to be taken fully into data element dictionary, World Trade Organi- account in system design and development (a list zation reference tables). appears in table 8.1 at the end of the chapter). · Message standards (XML, other standards). · Internationalization (language requirements in Technical architecture messages, all traded currencies for World Trade The technical infrastructure for the national single Organization members). window required at various locations will typically · Harmonized Commodity Description and comprise server equipment, network equipment, Coding System codes (may require agency data and system soft ware (operating system, database, set harmonization). B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 137 Figure 8.3 A typical national single window: The Indonesia National Single Window National single window network B2G trader INSWTB information web pages Public circuit TCP-IP/XML/ Connection UNeDOCS ERP VPN Public internet INSWTB ASEAN SW messages Permanent or dial-up Public circuit Non-B2G trader private or public circuit INSWTB Internet CUG trade INSWTB messages submission Public circuit to and from InaPortnet ERP or response Access security Message (identity, authority) routing Services INSWTB messages Message security Message Public circuit to and from air or NSW (encryption, confirmed delivery) tracking Commercial Bank's private or public circuit Nonrepudiation Message bank E-payment consolidation message or e-receipt message it cu cir it Pe Ba cu ate rm ck cir riv up an ate tp en cir riv en tp cu ircuit ircuit tp an riv it ate en rm an Pe ate c ate c cir rm cu Pe Respond it INSWTB t priv t priv trade INSW anen anen submission web server Perm or response Perm GA workflow manager Process Submission INSW site #1 tracking workflow INSW distribution web server Government Government HS code manager agency agency in house Receive permit map TB regional office INSW would offer three workflow ICT assisted types of distributed manager procedures INSW site #2 workflow for government Submission workflow agencies tracking distribution manager Type 1: Type 2: Type 3: HS-code Simple three step workflow Simple three step workflow INSWTB project provides a permit map Receive--process--respond with Receive--process--respond with distributed workflow to the GA managed in-tray/out-tray and roles managed in-tray/out-tray and roles tailored to the GA's processes Note: The INSW services does not retain the database of e-documents and e-permits. These are to be held in secure storage by the traders and GAs as Access would be via INSWTB web Access would be via G2G Access would be via G2G appropriate. A virtual warehouse of e-documents may be accessible through interface messaging messaging NSW, assuming physical, logical, and authorized connection to GA system. For a GA with a manual system or For a GA with an in house system For any target GA that accepts an in house system not connected capable of connection (receive and the option or not capable of connection to a respond to messages) to a distributed workflow in a SOA distributed workflow in a SOA Source: Indonesia National Single Window Preparatory Team. Note: B2G is business to government. ERP is enterprise resource planning. VPN is virtual private network. CUG is closed user group. INSW is the Indonesia National Single Window. GA is government agency. G2G is government to government. HS is harmonized system. SOA is service oriented architecture. · Implementation support (usage manuals, train- and after the creation of a national single window. ing, help desk). Clearly a national single window, with its many · Commercial infrastructure (server equipment stakeholders in government and the trade commu- providers, communications equipment providers, nity, is probably one of the most complex public sec- 8 other hardware providers, infrastructure software tor reform and modernization initiatives. providers, support and maintenance providers). Information and communications technol- Developing a national single window: implementation issues and considerations · Soft ware development toolset. ogy (ICT) is not a solution--it enables solutions. · Soft ware development method. Developments since the 1980s have helped border · Soft ware development artifacts (requirements management agencies learn lessons that need to be specification, design specifications, source code, considered for future programs. In particular, ICT configuration tables, testing plans and results). programs need effective governance, organization, · Version control and configuration control and alignment. methods. The key steps in creating a national single win- · Development plans (anticipated rollout, func- dow do not begin and end with system and vendor tional expansion, ongoing work and time scales). selection. A view of how ICT can enable agencies to better achieve a collective vision--and required Conclusion outcomes--is indispensable. The end of effective ICT implementation is not pressing the button to Th is chapter has discussed the critical areas that go live, but ensuring that the program is consistently need to be taken into consideration before, during, working to meet agencies' goals. 138 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Table 8.1 General criteria for required national single window functions Requirement General criteria Presentation language · All languages that need to be supported by the system should be identified. · For printed media, multiple language types may be required. The design would include markers on client records to indicate language preference, with the language used on notices selected accordingly. Message languages XML, UNeDocs components, or other international standards. Field validation For all defined messages--whether originating from a terminal operator as data input or another system--fields are required to undergo the field type validation consistent with the field and, where appropriate, referential checks. Currency support · The software is required to support amounts in all trading currencies. · The length of fields for accounts must support decimal numbers with integer parts of at least 12 digits and decimal parts of 2 digits. De minimis amounts The system should have the capability of recording and handling de minimis amounts if applicable. Print and display Throughout the functional requirements the term print may be used to describe subfunctions that may result in hard copy output. For low volume output the term print should be taken to mean having the corresponding output either printed to hardcopy or displayed to the terminal device. Printing on paper · Paper documentation from the system is expected to be minimal. · Where required, stationery types to be supported must include cutsheet A4 stationery and cutsheet letter. The stationery may be preprinted. The minimum technical infrastructure specifications must include printers with characteristics that match the stationery characteristics proposed. Reference tables maintenance Online maintenance of reference tables is required to implement a table driven system. The ability to create, edit, delete, and inquire upon reference tables is required. Configuration table maintenance Screen maintenance of configuration table is used for setting software switches and environment settings. User menu · Web style, hierarchical menu access to functions will be provided. · User permissions will allow only available options to be accessed. · Administration messages will be broadcast through the menu. Access security · Provide a secure means of controlling access to each function and subfunction for authorized users. · Allow specific user to access specified functions, including change password. · Provide username and password check to link to default first webpage after login. · Store password using one way encryption. · Provide mandatory renewal of password after a definable number of days, tracking passwords so that previous passwords cannot be reused. · Prohibit users from accessing the underlying server and client operating system other than through function calls controlled by the application software. · Provide message security though public key infrastructure, verifiable digital certificates, and encryption. · Provide database security through encryption, with administrator functions limited to very few personnel. · Administer confidentiality requirements for all administration personnel. Audit · The system should provide a trail of interactions--message originating, users or officer originating, and system generated--and of all changes to data, with date and time stamps, message contents, and before and after 8 images. · This should include login logs and function-access logging. implementation issues and considerations · A scheme for data access tracking is also required, for functions that do not modify. Developing a national single window: · Audit trails must be searchable by date and time range, message origin, accessed data type, and identifier. Metering · The business processes will be implemented through a workflow based architecture. · Each workflow will be triggered by a business event and accordingly date and time stamped, with the stamp also recorded in a metering database. · Each subsequent process step through the various workflows will likewise be date and time stamped. For real world processes, date and time stamps will also be kept for the arrival of the workflow item at the step, the commencement of real world actions (observation of a workflow item's arrival), and the final response to the workflow item. · The meters are used in the service level agreement reporting and the dashboard. Service level agreement reporting · Reports may be prepared for any meters and at any level within the workflow, with selection by data and time range, workflow subset or element ranges, trader, government agency, government agency role, government agency user, and other ranges to be defined. · Such reports are to be available to authorized users at the national single window operator, national single window oversight body, government agencies (restricted to meters pertinent to them), and traders (restricted to workflows initiated by them). (continued) B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 139 Table 8.1 General criteria for required national single window functions (continued) Requirement General criteria Business process dashboard · A near real time display will provide the performance status of key indicators drawn from the workflow meters, including at least the arrival rate of trade submissions, average time to handle message routing of trade submission within the national single window, queue length at each government agency, average process time within each government agency, and average overall process time until the clearance response to the trader. · The users of the dashboard are the national single window operator and national single window oversight body. · From the dashboard indicators the user can drill down to other meters. Transactional integrity Message based integrity requires that the designed effects of a single message are either entirely retained or entirely discarded, with the status clearly identifiable by the message originator. Database integrity checks The database storage must check for the logical internal consistency of the database. Data relationship integrity check Purpose built checks ensure that referential integrity is built by design knowledge rather than database constraints. Online help Online help facility is context sensitive, at least to the page and field level. Data retention Data and all audit logs are to be retained and accessible in a practical manner for at least 5 years in primary storage, 10 years in archival storage. Data archiving Data can be moved from highly available disk storage to less accessible storage or, after 10 years, purged entirely. Operational simplicity The system must exhibit simplicity of use, operation and maintenance, features most readily demonstrated by describing the operating and support environment (including the number of user, operating, and support staff at installed sites). Ad hoc inquiry In addition to the inquiry and report features described throughout, the system should support and facilitate other inquiries by authorized, trained officers from the client terminal. Data export The system should support, and there should be no impediment to, the selective extraction of data by statistical modeling and reporting tools. Design constraints--server operating Operating system is desired for servers (Windows server, UNIX, or the like). system Design constraints--server database Recognized, fully functional, ANSI SQL compliant product, with commercial warranty and widely installed customer base, and which supports the scalability, transactional integrity, and resilience requirements. Design constraints--client operating Not constrained. Need to allow for a broad range of users. system Design constraints-- Not constrained. service oriented architecture (SOA) toolset Design constraints--framework product A framework product approach, based on an operated service for UN/CEFACT style single windows with customization by modification by reference tables and configuration tables preferred, but customization by software development permissible. The delivery approach needs to be specified comprehensively. Design constraints--workflow toolset Commercially available workflow management toolset, with commercial warranty and widely installed user base. Provides definition and management facilities for: 8 · Workflow definition (creating and editing): · Graphically defined and modified, with version control and configuration control. · Event driven. Developing a national single window: implementation issues and considerations · Hierarchy of workflow subsets and steps. · Automated and manual steps. · Automated logical processing including database interaction through service requests. · Role based manual steps with acknowledgment (automatic when observed in role's in-tray) and response actions. · Showing sequence, logical branching, repetition, and parallelism. · Workflow instance persistence. · Workflow manager: · Accepts and responds to business events (initiating messages). · Utilizes workflow definitions to administer the status of any workflow instance and route the steps in any active workflow instance over any length of time, through to completion of the workflow. · Maintains workflow integrity and transaction integrity (including database integrity) for any and all workflow instances. · Automatically captures and records date and time data pertaining to the start, stop, and idle periods of a workflow and its workflow steps. · Enforces access control. · Provides facilities for workflow instance monitoring, diagnosis, and repair. 140 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Table 8.1 General criteria for required national single window functions (continued) Requirement General criteria Design constraints--client application No constraints other than compatibility with technical infrastructure. languages Design constraints--system · The implemented products for the national single window must be underpinned by a published architecture engineering encompassing requirements specification, high level design specification, detailed design specification, technical infrastructure specifications, and implementation specification including message schema, database schema, service schema, source code, and presentation layer definitions. · A widely used, commercially available and supported system engineering tool must be the repository for the published architecture. Design constraints--system · The implemented products for the national single window will be administered through a widely used, commercially management configuration, version available, and supported system management toolset for the configuration tables and reference tables of control the software application at various versions, plus the configuration and installation definitions for technical infrastructure components, also at various versions. · The system management approach and toolsets will support at least environments for live service at dual redundant sites, a transition-to-live environment for pre-live acceptance testing, system test environment, development environment, and training environment. · The architecture will be based on message dissemination and distributed workflows, with the scheduling of any system changes to be negotiated with affected users. Design constraints--escrow All system engineering definitions and all system management definitions for all products placed in any environment other than development will also be placed in escrow. Service requirements--training · Training of traders and government agencies will be necessary. · Training would be performed as an initial burst and then periodically. · Seminar style and small group hands on training would be provided on dedicated training configurations. · Web based tutorials would be provided. Service requirements--support · Short term on site support for government agencies is required for initial implementation of any distributed workflow systems. · On call support is required for government agencies when any new versions of the services are planned--possibly including changes for type 1 or type 3 distributed workflows, as shown in the technical architecture or assistance, with any necessary changes in type 2 workflows where the government agency has a connected in house system. Service requirements--data conversion · An initial conversion of registered traders and other control information will be required. · A switchover plan from the current operational system or systems to the national single window is required (so that no declarations or requests for permits are lost). Conversion is a computerized process for extracting records from an electronic database, manipulating that data as required, and loading it into the national single window data structures. Service requirements--data take-on The solution may require data take-on for proper service operation. Take-on is a computerized process for capturing data from various sources, manipulating the data as required, and loading the data into national single window data structures. Service requirements--warranty, · Help desk, customer service, fix on fail and preventative maintenance for application software and technical support, and maintenance infrastructure, and technical advisory services for all users are required. 8 Source: Indonesia National Single Window Preparatory Team. implementation issues and considerations Developing a national single window: Notes 1. Th is discussion draws on presentations by the author and Gerard McLinden in 2007. 2. The content of this chapter draws from tech- nical assistance work for the Indonesia Na- tional Single Window. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 141 Annex 8A International single window border management implementation, by country United States Details · The International Trade Data System (ITDS), established in 1996 for import and export and integrated government oversight of international trade, is owned and operated by the United States government with customs as the lead agency. · The United States Department of Homeland Security Customs and Border Protection (CBP) is redesigning its system and developing the new Automated Commercial Environment (ACE). The main clients are international trade agencies and government agencies involved in imports and exports. Besides federal trade agencies, trade community participants include exporters, carriers, importers, customs brokers, freight forwarders, and so on. Operational model A facility for integrated government oversight of overseas trade. Funding The ITDS is funded through appropriations as part of the development of the ACE and the new CBP system. The United States government has no profit motivation. A cost-benefit analysis reveals savings, not profits, through ACE. User fees No user fees are collected to finance the ITDS or ACE. Critical success factors · Leadership--commitment at the highest level. · Budget--commitment to long term funding. · Technical--must respond to the needs of participating agencies and the trade community. · Operational--buy-in, cooperation, operational vision. Greatest hurdles The critical success factors are also the greatest hurdles. Malaysia Details In 2002 Malaysia started developing its system, now about halfway through development. Electronic logistics and electronic permits are running. A cross border exchange service is in the pilot stage. Other upstream and downstream data and processes will continue to be developed. System development was initiated by Dagang Net--a private company--with the establishment of a single point where data from one application to an authority or recipient can be reused for other applications to subsequent authorities and recipients. Operational model The current model allows the user to file an application and reuse the information for submission to other authorities. Funding The cost to Dagang Net when it revamped its operation in 2004 was US$3.5 million. User fees The cost of operating the electronic logistics service is borne by the government. There is a fixed price for each electronic permit. Under the cross border exchange service there will be a fixed price for each message received. Critical success factors · Support from the government and policymakers. · Government agencies' involvement. · Demonstrated user benefits. · Standardization and harmonization of information parameters among government agencies including customs. Greatest hurdles · Making users willing to change. · Harmonizing information. · Citing paper documents. · Changing procedures and processes. 8 Finland Developing a national single window: implementation issues and considerations Details The first electronic system, set up in 1993­94, was replaced in 2000 by the PortNet system--likewise replaced in 2007 by PortNet 2. Operated by the Finnish Maritime Administration, PortNet encompasses all maritime requirements, customs processes, and terminal notifications regarding containers. Operational model A national maritime traffic database, accessed with username and password. User access is restricted to users' own information, but government agencies have access to all information. Funding The system is financed at present by the Maritime Administration, the customs office, and the 21 largest ports, some privately owned. Thus, it could be called a public-private partnership. But with the recent emphasis on security it is thought the system should be state owned. User fees There have been no user charges so far. It has been considered inappropriate to charge for the mandatory supply of information. But a charge on users who still provide information on paper--a paper handling charge--has been discussed. Critical success factors · Cooperation between the parties responsible for maritime safety, maritime security, cargo logistics and environmental issues. · A system that generally works well. Greatest hurdles · Difficulty of establishing cooperation between authorities. · Reluctance to share information. · Need for active authority--who will take the lead? · Dispersal of authorities under different ministries and uncertainty about responsibility for an application covering a large jurisdictional area. 142 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Sweden Details Swedish Customs--the only public service at Sweden's borders--performs several tasks for other public services, such as the National Board of Trade and the Swedish Board of Agriculture. All such partner agencies were involved in the design and development of information and communications technology (ICT) supporting foreign trade. The first true single window, established in 1989 and focusing solely on the export system, was later enhanced to cover transit and (later still) imports. The single window now includes electronic funds transfer and functions for some agencies not related to imports or exports (for example, hunters and gun registration). Operational model Customer submits information to Swedish Customs. Information required for a specific procedure (for example, issuing a license) is forwarded to the public service responsible. For other information, a customs declaration is submitted electronically and selected information extracted and forwarded to the public service responsible (for example, trade statistics are forwarded to Statistics Sweden). Funding The system initially was financed with dedicated funds from the Swedish government. New services, designed and implemented today, are financed under existing budgets allocated to each government agency. Automated processes allow Swedish Customs to allocate resources with special emphasis on enforcement or more complex matters. Some initiatives are ongoing, and consideration is being given to using public-private partnerships for developing new systems of greater complexity. User fees Free of charge, except for more advanced services such as submitting electronic customs declarations using the United Nations Electronic Data Interchange For Administration, Commerce, and Transport (UN/EDIFACT). With no revenue, costs are not covered. Critical success factors · Identifying and offering efficient solutions for processes and procedures used by several customers, creating critical mass. · Listening to end users' requirements and demands. Greatest hurdles The challenge of providing a technical framework suitable for the electronic submission of information by small and medium- size enterprises. The solution: web technology (whereas major companies that submit numerous customs declarations are offered solutions enabling them to use existing business systems). Hong Kong SAR, China Details The single window for Hong Kong SAR, China began operations in 1997, operated by Tradelink Electronic Commerce Limited (appointed by the Hong Kong SAR, China government). Processes government trade documents, including trade declarations, dutiable commodities permits, certificates of origin, production notifications, restrained textile export licenses, and electronic manifests. In 2004 an expanded single window initiative was introduced, called the Digital Trade and Transportation Network (DTTN), with Tradelink again the successful bidder for development and operation. DTTN is seen as the vehicle for Hong Kong SAR, China's aspiration to become the preferred international and regional transportation and logistics hub. Operational model DTTN is an information platform interconnecting the trade, logistics and finance industries to enhance efficiency, facilitate the business process interconnect requirements of industry, and promote new business opportunity development. A common and shared user platform with defined standards and protocols, it will attract existing suppliers and foster new businesses--such as logistics software development--as well as value added services that will contribute to economic development. Funding DTTN Limited is a private entity jointly owned by Tradelink, the Hong Kong SAR, China government, and industry associations. 8 User fees There is a DTTN document fee of no more than HK$2.50 (US$0.32) for each document successfully delivered. There are also implementation issues and considerations an initial connectivity fee, a training fee, an annual fee, and customization fees for specific document transformations and the Developing a national single window: like. Any value added services from application service providers may be charged by the providers separately and additionally. Critical success factors · Neutrality--DTTN provides a level playing field for all stakeholders without undue bias toward particular players or industry sectors. · Nonexclusivity--fair access to all industry stakeholders. · Transparent, accountable, and responsible operations--DTTN will be strictly scrutinized, while confidential or mission critical information will not be misused. · Least possible interference with internal business processes--DTTN will only provide data interchange facilities, not require organizations to change their own processes. · Respect for market forces--DTTN is designed to complement businesses, not compete with private initiatives (except when a need for value added services is not being met in the private sector). · Ease of access and use--DTTN is user friendly, intuitive, and centered on the participant. Greatest hurdles · None reported. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 143 Singapore Details The first national electronic trade document processing system, introduced in Singapore in 1989, involved several government agencies. Today Singapore's TradeNet allows the trading community to submit trade documentation to all relevant government authorities through a single electronic window. TradeNet's key objectives are to: · Reduce the cost of trade documentation. · Reduce turnaround times for trade documentation. · Provide authorities with more efficient streamlined processing. · Attract foreign direct investment through efficiency and transparency. Recognized for its large contribution to Singapore's probusiness environment, TradeNet has increased efficiency and lowered business costs for the Singapore trading community. Operational model A member of the shipping and trade community submits trade declaration using any TradeNet front end software from an approved provider, with data submission methods including web applications, client based input, and host-to-host connections. The front end system sends trade declarations using the TradeNet single electronic window for automated processing by various authorities. A permit processing submodule uses an intelligent routing agent to determine work required for each permit application and route it to relevant authorities for processing according to specific rules for each controlling agency involved. With automated processing, 90 percent of declarations do not require manual intervention, and users can receive and print cargo clearance permits within 10 minutes. Options also exist for declarants to transmit data directly using their host systems in any format. A Web portal lets traders process their permits, check transaction status, make billing enquiries, and download code tables (port, country, harmonized system, and the like). The portal also lets authorities process the declarations and make inquiries. Funding Initial S$24M (about US$14.3 million) in shareholder capital invested in CrimsonLogic, a private company (formerly known as Singapore Network Services). Thus, the government need not pay for the network. Instead, the beneficiaries--trading companies--pay for services, without incurring development or maintenance costs. User fees CrimsonLogic charges declarant fees on a pay per use model. A use fee is charged for each permit processed. Users also pay one time registration and subscription fees, plus monthly fees to maintain system accounts. Critical success factors · Government's foresight in identifying problems, finding a solution, and championing implementation. · Cohesiveness of all stakeholders. · Systematic planning, with phased implementation strategy. · Adoption and use of appropriate technology. Greatest hurdles Difficulty of the initial change. Senegal Details Senegal's ORBUS, started in 1996 by the Ministry of Commerce and fully operative in March 2005 under the Ministry of Finance, is now managed by the Customs Department. Stakeholders who previously had their own systems (banks, insurance companies, inspection, customs) were provided with an open interface that they could use either on its own--manually feeding data into their systems--or by creating a 100 percent electronic link from their systems. Other stakeholders were provided with ORBUS as their new system (hardware and software supplied to public stakeholders, software alone to private stakeholders). ORBUS is connected to banks, insurance companies, the Livestock Department, Plant Protection Office, and the Currency and Credit Department (in charge of controlling exchange permits). Operational model Designed to facilitate foreign trade procedures through electronic exchanges among stakeholders, ORBUS 2000 has as its key point a Facilitation Centre that coordinates operations and monitors system performance. 8 Funding Government mainly financed the pilot. After the project's transfer to customs it was financed by a committee, including private sector and government, that collects US$10 per customs declaration to maintain and improve the system. User fees · There is a one time US$200 subscription fee. Developing a national single window: implementation issues and considerations · There is a fixed US$10 price per transaction, with an additional US$2 price per document. · Stakeholders who are not connected pay no subscription fees but must pay an additional US$10 service charge for each transaction. · The single window was self sustaining after one year, with fees determined to cover all operating costs plus research and development. Since the central servers are hosted by customs, ORBUS and the customs system (Trade X) share the same central infrastructure, with maintenance supported by customs. Critical success factors · Strong government involvement. · Customs leadership. · Public-private partnership. · Creation of an autonomous entity to develop and operate the single window. · Regular information meetings with stakeholders. Greatest hurdles · Resistance to change. · Power migration or reduction with the introduction of ICT. 144 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Mauritius Details Mauritius, a small island economy, is extremely open and highly dependent on the outside world for consumables and equipment. Phase 1 of its TradeNet single window system began in July 1994, and the system was fully operative in December 2000. Designed from scratch by Singapore Network Services Limited and Mauritius Network Services Limited,it is the first electronic data interchange network on the island and is modeled on Singapore's TradeNet (with local needs taken into account). Mauritius Customs adopted its single goods declaration form following a World Customs Organization recommendation. In 2001 the system integrated a program for electronic declarations submission by operators of bonded warehouses in the port area (for goods in transit). It is now providing for the electronic payment of customs duties and taxes. Operational model A value added network system, based on mailboxes, with no integrated participant systems. The network operator allows transmission of electronic documents between various parties. Operated as a public-private partnership. Funding Equipment, software, and staff costs were incurred in establishing a company as the value added network operator. There were also equipment purchasing expenses for customs. User fees One time user costs include registration fees and the price of software. Further pricing is set for each transaction element and applied on a current basis. Critical success factors · Commitment from all stakeholders, with participation by both government and the private sector in the operating company. · Implementation in phases, making the project more manageable and acceptable. Greatest hurdles · Difficulty replacing the existing system of the United Nations Conference on Trade and Development (UNCTAD)--ASYCUDA--at Mauritius Customs. Without any possibility of getting a new version of ASYCUDA that could link to TradeNet, the need to develop a local customs management system with the help of international consultants set back the launch of phase 3 by almost two years. References No. 33." United Nations Publication ECE/ UN/CEFACT (United Nations Centre for Trade TRADE/352, United Nations Economic Com- Facilitation and Electronic Business). 2005. mission for Europe (UNECE), Geneva. "Recommendation and Guidelines on Es- ------. 2006. "Case Studies on Implementing a Sin- tablishing a Single Window to Enhance the gle Window to Enhance the Efficient Exchange Efficient Exchange of Information between of Information Between Trade and Govern- Trade and Government: Recommendation ment." UNECE, Geneva. 8 implementation issues and considerations Developing a national single window: B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 145 Information and communications CHAPTER 9 technology procurement for border management Tom Doyle Information and communications technology (ICT) is central to all aspects of border management reform and modernization. And its im- portance will grow--for several reasons: · The public increasingly expects more efficient, effective government. · Governments are striving to improve the overall regulatory control and trade facilitation environment through increased transparency and partnership. · Governments and the business community increasingly emphasize paperless transactions using digitized information. · Border management agencies are seeking to expedite merchandise release and delivery timeframes and to improve the interchange of information within and among agencies and private sector operators. · Computers are increasing in power and functionality, becoming easier to use for more complex business processes. · Internet based technology is becoming ubiquitous, greatly facilitat- ing communication. · Soft ware and hardware are becoming commoditized. Well designed, built, tested and ICT alone cannot improve border deployed ICT solutions have been management. proven to make business processes more effective and improve both control and The role of ICT procurement transparency in border management. in border management Such solutions help block decision leak- reform and modernization ages and improve efficiency, effectively discourage corruption (by reducing As is highlighted in chapter 8, busi- face to face interaction between users ness process automation has all too and government officials), and help to often been led by technical ICT experts reduce arbitrary decisionmaking and with some knowledge of the business. increase accountability. It should instead be led by business But ICT is only a facilitator, an experts with some knowledge of techni- enabler, an efficiency booster. It can- cal ICT issues. When technical rather not compensate for lack of discipline, than business experts have led, the management, and control. Accordingly, result frequently has been that obsolete B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 147 procedures are automated and best business prac- harness the data for improved control and trade tices ignored, with little or no attention to manage- facilitation. ment, control, human resources, and training. · Rising public expectations. The demand for speed, Th is chapter's underlying assumption is that safety, and security are the main drivers of public business experts must first identify their require- expectations. Border management agencies will ments and desired outcomes. They should do so be further pressed to increase efficiency while re- by using a diagnostic exercise to produce a scoping maining effective. More complex and intelligent document that takes into account best practices in ICT support for business processes will be de- domain experience. Such a document helps ICT ex- manded. Transparency and governance will con- perts design a solution and helps suppliers propose tinue to be public priorities. So will improved, an appropriate delivery approach and outcomes. but less intrusive, border security. The key factors affecting ICT modernization · Sophisticated international crime. Increased at border management agencies are of three main data sharing, improved international coopera- types: external, technological, and institutional. tion, and more extensive computer power and Each is discussed in turn below. elaborate applications are needed to fight crime. Border management agencies will continue to External factors become more involved with offshore fraud and Four external factors affect the use of ICT for border cybercrime investigations, and they will need management modernization. All four increasingly to develop electronic forensic skills for inves- demand attention. They are: tigating and presenting electronic evidence in · Population growth and increasing development. courts. These drive trade and passenger traffic volumes and patterns to become more complex, creat- Technological factors ing more work for border agencies and reducing The continuing rapid evolution of technology is both their ability to focus on individual and transac- an opportunity and a threat for border management tion based merchandise and passenger process- agencies and the trading community. Key consider- ing. More attention must then be focused on ations include: preclearance programs and intelligent risk man- · Computers and devices. Computational devices agement--approaches that require enhanced are constantly becoming smarter, smaller, and data exchange, both within and among trading more complex--leading not only to increased and neighboring countries, and better manage- computer use, but also to an increased use of mo- ment of border crossings and ports of entry. bile phones and other handheld devices, all using 9 · Trade agreements and international cooperation. ever larger bandwidths and ever more powerful These drive, and will continue to drive, an in- wireless technology. Information and communications technology procurement for border management creasing demand for more and better exchanges · Paperlessness. More and more information will of regulatory and trade facilitation information. be digitized, with consequences for security, Such improvements require increased computer legal admissibility, certification, and archiving. power and more complex applications, such as · Open standards. Standards will continue to higher security and multilingual data transla- emerge and be agreed internationally for data, tion. The business communities involved in soft ware, and hardware. Such standards will international trade (trucking companies, air allow for modular, scalable application develop- cargo, forwarders, traders, and so forth) will ment and will enable seamless data exchange be- continue to want ICT at the basis of business tween connected systems. transactions, including regulatory control and · Flexibility in packaged soft ware. Commercial off logistics processing systems that use electronic the shelf soft ware provides options for modern- documentation. The increased sophistication izing business processes without commissioning of port community systems represents an op- custom built soft ware-- speeding up and reduc- portunity for border management agencies to ing the cost of ICT implementation. 148 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N · Ease of data exchange. The wide use of a small management and human resource capacity of number of formats for holding and transmit- border management agencies? Or should the ting data (for example, XML) has made data adoption of an ICT solution dictate what capac- exchanges between government agencies very ity is needed? simple, leading to increased demand for more · Outsourcing and third party support. Govern- data exchange. ments and their border management agencies · Compatibility. Soft ware and internet compat- traditionally have not been very good at main- ibility among different devices will continue to taining and updating systems and equipment improve. or at hiring and retaining sufficiently capable ICT staff. Border management agencies will Institutional factors turn increasingly to outsourcing and third party Relationships among stakeholders inside and out- support for application soft ware development side of border management agencies are increasing and for technological infrastructure provision. the demand for overarching, national and interna- Agencies will rely more on the private sector for tional standards and guidelines. Such partnerships their infrastructure--their computer power and are creating a greater need for local and interna- telecommunications--and thus will not need to tional cooperation and an increasing necessity for buy and maintain expensive equipment. easily modifiable, scalable systems such as national As border management agencies continue to and regional single windows. Particular institutional evolve and innovate in response to growing interna- considerations include: tional external pressures, changing technology, and · Collaboration among agencies. Interagency coor- increased demand for institutional cooperation, dination and collaboration will allow faster ICT public sector procurement processes will need to do development, implementation, and operation. the same. · Modernization and efficiency. The need for greater efficiency will require the development Public sector ICT procurement processes of front office systems, such as single windows, and the modernization of back office processing In public sector procurement, government organi- systems. Enterprise resource management sys- zations engage with third parties (typically from tems will be increasingly adopted. the private sector, but sometimes from other pub- · Out of port processing. Out of port processing, lic sector areas) to procure goods and services. Such en route or inland, will continue to expand, re- procurement ranges from simple purchases, such ducing agencies' home based work. This expan- as office stationery, to complex transactions, such sion will require agencies to network more and as major state investments in construction and 9 more--politically as well as technologically-- major modernization initiatives. Increasingly, how- procurement for border management with national and international organizations. ever, public services are also provided by private Information and communications technology · Data collection, storage, and analysis. Border companies. management agencies will continue to collect, Procurement is one of the largest costs in store, analyze, and report on trade import and business--it can be 60 percent of total costs for the export data, along with other data. Such data average private company. However, few people or will need to be validated and certified before businesses have a grasp of the true cost of procure- transmission to businesses and other govern- ment beyond the price at which a product or service ment agencies. Agencies will need to introduce is purchased (Degraeve and Roodhooft 2001). Public quality assurance mechanisms, performance sector procurement processes tend to be systematic audits, and other integrity mechanisms--and, yet bureaucratic, methodical yet lengthy, detailed eventually, performance based management and yet vague, objective yet difficult to navigate. They incentive systems. focus heavily on inputs and processes rather than on · Internal ICT and human resource capacity. outcomes. Today most public sector entities have a Should ICT solutions be tailored to the ICT procurement strategy, standard contract formats, B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 149 and financial rules that govern how they procure. by the European Union Procurement Directives3-- Though necessary and prudent, such constraints though they also are affected by European case law, often limit the creativity of public sector procure- based on decisions made by the European Court of ment decisionmakers, including at border manage- Justice. In a developing country procurement is gov- ment agencies. erned by national law, but is also to be applied strictly according to any donor agency requirements. Typical ICT procurement processes Typical procurement approaches include public for the public sector tendering, competitive dialogue, selective tendering, Today's public sector ICT procurement processes and tendering by invitation. Each is described below: have limitations and constraints.1 But new best prac- · Public tendering. Notices sent through national tices are emerging. The choice and application of a or international media announce that any inter- procurement approach will need to be aligned with ested party can respond to the public sector enti- legislation and with agencies' existing procurement ty's tender request. Public tendering is equitable policies, strategies, and organizational capabilities. in that it imposes no prerequisites. Most suitable A typical procurement process approach com- for smaller, less complex projects for which it is prises the following steps:2 difficult to ascertain the availability of suppliers · Define the purchasing process and procedure to with the required expertise, public tenders often be used. result in lengthy procurement cycles--because · Ensure that the process complies with all rele- of the vast array of respondents, the varied so- vant legislation. lutions they propose, and the work of assessing · Ensure that accepted tendering organizations: their responses. · Are compliant with relevant corporate · Competitive dialogue. Relatively new and legislation. innovative--and now being adopted across the · Are financially sound. European Union--this variation on public tender- · Represent minimal business risk. ing allows altering the tender during the process · Contract for procurement. based on respondent feedback. Respondents may Every country, region, and worldwide institution have one on one discussions with the prospective broadly follows the approach above. For example, client during the procurement cycle, benefiting here is the European Union tendering process: both sides through a better mutual understanding · Advertisement. An expression of interest is made of client requirements and supplier solutions. Suc- and tender documents are issued to respondents. cess is highly dependent on the ability of clients · Selection. Prequalification questionnaires are and suppliers to interact in a workshop format and 9 submitted and scored. to avoid drawing out the procurement cycle. · Award. The award takes place in four steps: · Selective tendering. A form of tendering simi- Information and communications technology procurement for border management · Prequalified applicants (based on the ques- lar to public tendering, but with prequalifica- tionnaire) are notified. tion criteria to limit respondents to those who · Invitations to tender are made. meet minimum requirements. Often the re- · Tender documents, probably including quirements are based on fi nancial soundness, method statements, are submitted. insurance requirements, and quality standards. · Tender documents are scored. Because entrepreneurial startup companies (nor- · Contract. Either the contract is awarded, or mally indigenous) are likely to be eliminated shortlisted applicants are invited to make a pre- for not meeting prerequisites, selective tender- sentation and then the contract is awarded. ing restricts innovation and discourages fresh Another example of ICT procurement is de- responses. scribed in box 9.1. · Tendering by invitation. In a drawdown, a short- Typically the approach adopted is governed by a list of companies is prequalified by a framework procurement policy or set of regulations. Thus, Eu- or panel. An example was the CataList frame- ropean Union procurement processes are governed work adopted in the United Kingdom.4 Once 150 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Box 9.1 The World Bank's two stage process for the supply and installation of information systems Recognizing the complexity inherent in the procurement of information systems, The World Bank introduced its two stage procurement process for the supply and installation of information systems in March 2003. In the first stage the purchaser solicits nonpriced technical proposals to address functional requirements. In a direct and structured dialogue (the clarification process), the purchaser and each competent bidder reach a clear and docu- mented understanding of aspects of the bid that meet the purchaser's requirements, aspects that do not meet the requirements, and aspects that are missing. Based on this bidder specific, documented understanding (and additionally based on possible amendments to the bidding documents), each bidder with a sufficiently responsive first stage bid is then requested by the purchaser to submit a second stage bid that is complete, final, and priced. These second stage bids are then handled and evaluated in essentially the same manner as a single stage bid is. The two stage process maintains openness in technological and implementation approaches. It permits interaction between the purchaser and bidders during the first bidding stage. It can save the purchaser time in formally translating its business and functional requirements into detailed technical specifications. Such time savings, however, are somewhat offset by the additional time required to conduct the first stage bid. The two stage process also requires the purchaser to be fully prepared to undertake a detailed technical dialogue with bidders, which likely will be necessary--and it will also require the purchaser to diligently record individual re- sults from the first stage. Two stage bidding has been used extensively in World Bank financed projects for complex information sys- tems procurement. While it often has been used very successfully, in a troubling number of instances it has gone completely awry. Anecdotal evidence suggests that the main cause of problems is the purchaser's misunderstand- ing of the principles of the process. Too often the first stage is treated, for example, as a short-listing process, with the objective of eliminating as many bidders as possible--rather than as an exercise in leveling the floor by ensuring that as many bidders as possible can provide at minimum a technically acceptable solution. Typical World Bank borrower countries have no equivalent in public sector procurement to the two stage procurement process, further aggravating the situation. Two stage bidding is an extremely flexible and powerful tool, both for the traditional purpose of procuring hardware, software, and integration services, and also for pursuing newer approaches such as outcome based procurement. Standard bidding documents for the two stage supply and installation of information systems al- ready incorporate total cost of ownership into the evaluation methodology. Greater care must be taken, however, to ensure that the underlying philosophy and principles of the process are well understood by the purchaser. --Ramesh Siva companies are on the framework--from which and extending timelines. The loss of overall ac- public sector entities are not obliged to choose-- countability reduces the likelihood of an inno- the companies must then tender again, case by vative outcome. 9 case, with no guarantee that they will get any · High sale cost. The duration of the procurement procurement for border management contracts. stage for complex solutions can be more than 24 Information and communications technology months, increasing the sale cost to the private Limitations of the typical public sector sector. The increase can mean that the public procurement processes described above sector is less strategically important to service Six constraints and limitations are inherent in all the providers. It can also result in a higher price to public procurement process types described above: the client. · Separation of design and build. Preventing the · Radio silence. Strict procedures governing client company that designed a project from partici- contact during public procurement processes pating in the project build restricts procurement. often mean that potential suppliers cannot gar- Although the separation adds transparency and ner all the information they need to respond competition, accountability is lost--no one precisely. party is responsible for the overall solution-- · Poor uptake of e-tendering. More and more gov- and skill is lost as the design supplier is replaced ernment entities are adding e-tendering, but by the delivery supplier, increasing overall costs many e-tendering sites have limited functionality, B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 151 acting as little more than message boards for an- expectations by all stakeholders, and increased col- nouncing new tenders. In many cases the failure laboration among all parties. to use sites more results from the complexity of Some best practices now being adopted--but the tenders and the need for significant manual not yet as widely practiced within the public sector intervention. Nevertheless e-tendering should be as they could be--are the following: harnessed more, to streamline procurement re- · Cooperative supplier relations. Strategic suppli- gardless of the content of tender responses. ers offer value that is not available in the procur- · Low personnel retention. The length of procure- ing entity, so such suppliers should be integrated ment processes adds significantly to public and into procurement strategies and frameworks. private sector costs. One reason is that it hinders The procuring entity must understand that the both the public sector and private sector suppli- supplier needs to make an adequate profit. ers from ensuring that skilled staff are retained · A culture of continuous improvement. Do not throughout a procurement. In particular, the stand still, even when procurement procedures availability of skilled public sector staff is often are yielding the required outcomes. Continually key to procurement decisions. The government collaborate with other procurement entities. The must ensure that personnel are trained in the market's responses to tenders change, and what it latest ICT service concepts--and must then be can offer changes--so the procurement process able to earn a return on its investment in those must also continually improve. personnel. · A cross functional approach. Procurement should · Lowest cost wins. The key driver or award crite- not be the sole responsibility of the procurement rion in most public sector procurement processes or supplier management function. Collaboration emphasizes value for money--a term widely used among all stakeholders ensures a smooth and re- and understood by suppliers to mean the lower sponsive procurement body (Fitzgerald 2002). the cost, the better. So public procurements start · Evaluation expertise. It is critical that the procur- a race to the bottom for suppliers, resulting in ing entity exploit all available market informa- tender responses riddled with caveats and as- tion and intelligence. The evaluation committee sumptions. The government's reason for making should have the competencies necessary to evalu- value for money the central criterion is to assure ate technical, operational, economic, and social taxpayers that their money is prudently spent. criteria. The standard practice is to entrust this Other tendering processes include design con- evaluation to a multidisciplinary team that rep- tests, precommercial procurement, forward com- resents all stakeholders (Fraunhofer ISI 2005). mitment procurement, alternative procurement · The senior buy-in. Success for many ICT projects 9 practices, standing offers, strategic sourcing, and will depend on a buy-in by senior client stake- processes to deal with unsolicited proposals.5 The holders. Critical at all stages of delivery, this buy- Information and communications technology procurement for border management choice of a procurement process depends on the in is just as critical during procurement. requirements and abilities of the procuring entity · Change management. Far more than just a de- (United Kingdom Office of Government Com- sign, a build, and a run, ICT projects can also merce 2007). involve changes to working practices, changes to communications, changes in responsibility, Best practices in ICT procurement and changes in interactions with the outside for the public sector world. The system end user must be involved at Developing and realizing best practices in ICT all stages of procurement--a key feature of care- procurement is not easy. It involves breaking down fully structured change management. barriers between internal groups, and it demands a · Technology evolutions. The use of e-tendering new supplier approach. It also requires significant sites can streamline the entire procurement investments in people, training, analysis, measure- process--and can make it easier to access tender- ment, and technology. Yet it offers benefits includ- ing materials, ensure security of sensitive infor- ing improved third party responses, more realistic mation, provide governments with consistency 152 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N in tendering, and allows searches of relevant assurance of the business process design and tenders by prospective providers (Kajewski and technology directions. The program outcomes Weippert 2004). and measured definitions, strategies, manage- ment, and development approaches and re- Case study in ICT procurement sulting contracts were examined and adjusted. Notably, in assessing the achievability of the This section describes one example of an innovative original three-year program, a key issue was public sector ICT procurement process--that of the the availability of skilled resources. On analy- Australian Taxation Office, illustrating outcomes sis, it became clear that the concentration of based procurement. (Other examples that could skills required could not be sustained for the have been included include the State of California, duration of the program. By extending the illustrating benefits based procurement.) program to four years, and rescheduling some deliverables, a more achievable skill base and Outcomes based procurement: demand profile was achieved. the Australian Taxation Office The Australian Taxation Office (ATO) reformed The significance of the procurement activi- and modernized procurement by making it out- ties required the establishment of a full time comes based. According to the office commissioner procurement unit seconded to the program (Carmody 2005): backed up by legal advisors, an independent probity advisor, and a probity auditor. After an initial strategy work, the ATO con- tracted an international consulting and tech- The procurement strategy--based on "using nology company to carry out the design and commercial soft ware, a transfer solution based on planning of the modernization program in- systems deployed from other revenue agencies for cluding the procurement of new enterprise- core processing systems and working with a prime wide systems. This involved the development contractor and program integrator"--provided "a of a more detailed solution blueprint and basis for driving the business outcomes and manag- transition plan, revised business case, pro- ing the risks." gram plan for implementation, and project The same prime contractor was retained during definitions, including requirements and de- the program implementation, where "the nature of sign. A variety of other program deliverables the partnership" was "fundamentally grounded in were created during the high level program the achievement of eight critical program outcomes:" design including stakeholder management, 9 project and risk management, and program 1. "An integrated processing system procurement for border management and functional specifications. Overall pro- (people/process/technology) for all Information and communications technology gram costs, benefits and business outcomes [ATO] products." measures, and other benchmarks were clari- 2. "An effective active compliance and ad- fied. Key program risks and mitigation strat- vice capability." egies were identified in assessing the pro- 3. "Effective, improved client service." posed replacement systems release plan and 4. "Improved enterprise-wide outcome contingencies. In parallel with this work, the management of work." procurement of commercial soft ware and the 5. "Uninterrupted delivery of [ATO] contracting of program implementation was business." prepared. 6. "A system with integrity and perfor- mance." Two independent international consultancy 7. "Productivity and sustainability benefits." companies were engaged during the design 8. "The program delivered effectively and and planning phase to carry out a quality professionally." B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 153 The program implementation contract contained taxpayers' money allocated through procurement three key features of outcomes based procurement: processes. In short, a new mindset is needed within government institutions. Outlined below are six sug- · "A mutual focus on delivery of solutions gested features of such a new mindset. They are not that achieve outcomes rather than the meant to be prescriptive, but to open a debate on the delivery of a system that has highly de- most appropriate procurement process given the par- tailed pre-determined specifications." ticular mission of the public sector entity: The prime contractor's remuneration "is · Treating procurement as a demand measure. In tied to the delivery of these outcomes some developed countries public sector require- progressively through the program," ments can drive the private sector to innovate. In with additional contract fees possible if the United Kingdom, for example, it is believed the agreed outcomes are achieved and "that Government should act as a lead user of in- reduced fees if the agreed outcomes are novation demonstrating new technologies and not. providing innovative solutions to public services · "Price certainty for the ATO" through and societal challenges . . . and giving the public a fi xed price contract. Within this fi xed long term value for money" (United Kingdom price, the prime contractor has: Department for Innovation, Universities and · "Fixed the fees it will receive, con- Skills 2008). Because governments have consid- tingent on the delivery of the agreed erations that transcend the private sector prin- outcomes." ciples of profit and market share, governments · "With appropriate contingencies, should collaborate more in specific areas (such underwritten significant elements of as border management) to develop common un- other costs, such as ATO work effort, derstandings of their needs--creating an incen- and hardware and soft ware costs, tive for private sector companies to continually which [the prime contractor] will innovate to meet those needs. have a significant role in managing." · Orienting procurement toward outcomes. Bor- · A single point of accountability for out- der management, like other government activi- comes. "The roles and responsibilities of ties, must be oriented toward outcomes--social client and supplier are clearly defi ned, outcomes, economic outcomes, and the like. with staff from both sides working to- Government makes policies to promote the out- gether in joint teams, and with the over- comes. But it should engage the private sector to all effective management and delivery of deliver solutions and, in some cases, to operate 9 the program being the responsibility of them (United Kingdom Office of Government the prime contractor." Commerce 2008). Information and communications technology procurement for border management · Demanding ethical standards. Given recent cor- A proposed approach to public porate scandals, governments need to increase sector ICT procurement incentives for service providers to meet the high- While the systematic approach and egalitarian prin- est ethical standards, including for antibribery ciples of public procurement must be followed, the compliance, export compliance, data protection, process should not be constrained by overregulation. accounting (as in the United States' Generally Processes should be allowed to evolve in response Accepted Accounting Principles), 6 employee to the ever changing services offered by the private protection, and so forth. sector. Innovation is best developed through best · Adopting a broader value for money approach. practice sharing among public sector bodies. Gen- Buy cheap, buy twice. Often the cheapest so- erally ICT procurement needs to become more lution does not succeed, being only minimally than an operational activity with operational de- compliant with requirements--and then be- cision criteria--it must be a part in the strategy of comes expensive as its scope (initially narrow) re- the procuring entity, especially given the amount of quires broadening after the contract is awarded. 154 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N (This necessity tends to come to light in the de- outset of a procurement process is critical. And ex- tailed design of the solution.) A broader value for ternalities--such as budget allocations and the po- money approach should be defined and agreed, litical impacts of elections--should be prevented, one that considers total cost of ownership, risk as much as possible, from affecting the process. and reward, social considerations, and overall benefits--not just purchase price. Cultural fit Conclusion between the two working partners should be a key criterion, as should flexibility and expand- Collaborative border management aims to trans- ability, especially for ICT solutions (figure 9.1). form the way border agencies do their business, · Allowing flexibility and evolution. Procurement through intergovernmental and interagency net- procedures and conditions often are rigid and working arrangements and through partnerships bureaucratic. While it is necessary to ensure with customers (chapter 2). The ICT procurement fair competition and compliance with the law, process is central to these aims. The principle of it is also important not to prevent the procur- ICT procurement for border management mod- ing entity from finding the best solution--and ernization should be that strengthening a partner's not to prevent providers (such as systems integra- capacity reduces pressure on a border management tors) from generating it. In a collaborative pro- agency's own capacity. curement process each provider can continually To make ICT procurement processes more effi- probe client requirements, allowing the client to cient and effective, public sector entities should de- modify the requirements while giving all parties velop more outcome based procurement processes. a clear understanding of them. The procuring The government entity should define its end state entity would be sure of comparing apples with outcomes--not a series of inputs that private sec- apples, and competition would be fairer as as- tor providers must interpret. Border management sumptions would be clarified for all. solutions come with especially sensitive and strin- · Managing expectations. When public sector ICT gent social, political, economic, and technological procurement processes are lengthy and delayed, prerequisites, all of which must be assessed with market expectations are not met. Delays can cause care and precision to arrive at successful solutions. the solutions proposed to become invalid, as tech- Also, better understanding of private sector drivers nology quickly changes. Managing expectations can allow public sector entities to enter into pro- for timelines and decisionmaking criteria at the curement processes with their eyes open. And the procurement process should no longer be a barrier Figure 9.1 Value for money assessment factors: to coordination. Collaborative border management a broader approach creates a basis for collaborative procurement, where 9 Maintenance and several agencies join forces to seek a single solution-- running costs procurement for border management avoiding the procurement of separate solutions that Information and communications technology Fitness for Wider benefits purpose to the state overlap or conflict and are not interoperable. Quality Risks Outcome based procurement creates a client- assurance supplier partnership with a common focus and Advantages shared risk. Its principles are: Value for of buying locally money Warranty · Strategic partnerships. · Business driven solutions. Creating · Best value evaluation. Capacity strategic of supplier partnerships · Performance based payments. Energy Environmental Business risk management can be significantly conservation considerations Disposal value improved through risk sharing, alleviating an agen- Source: Adapted from "Purchasing Principles," Tasmania [Australia] Department of cy's fiscal constraints. Treasury and Finance, Procurement and Property Branch, http://147.109.254.182/ winninggovernmentbusiness/getpage.jsp?uid=C528898C7747AF92CA2574AA0018DC02. Crisis situations can make the argument for a change of procurement approach easier to B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 155 justify--but continuous improvement should be Standards Advisory Board, http://www. attempted in ICT procurement processes, what- fasab.gov/accepted.html. ever an agency's situation. As a result, all stakehold- ers--especially citizens and members of the trading References community--will benefit through improved services and reduced compliance and administrative costs. Carmody, M. 2005. "Revitalising the Tax Admin- It is additionally important to marry the style istration System: The Australian Experience." and experience of the contracting team to the de- Australian Taxation Office, Canberra, Aus- sired contract approach. Many public agencies have tralia. http://ato.gov.au/content/downloads/ pursued public-private partnership arrangements-- oecd.pdf. in some cases requiring the private sector to fund Degraeve, Z., and F. Roodhooft. 2001. "A Smarter an entire program--only to revert to traditional, Way to Buy." Harvard Business Review 79(6): adversarial negotiations at the time of contracting. 22­23. At that time it is critical that the client and vendor Fitzgerald, K.R. 2002. "Best Practices in Procure- teams understand the relationship being contracted ment." ASCET--Achieving Supply Chain Excel- and have experience in the corresponding form of lence through Technology 4. Available at http:// negotiation. Otherwise the long term relationship is www.ascet.com/chapters.asp?chapterID=7732 jeopardized and the form of the resulting contract is &n=2&t=Procurement. not ideal for either party. Fraunhofer ISI (Fraunhofer Institute Systems and Innovation Research). 2005. "Innovation Notes and Public Procurement: Review of Issues at Stake." Study for the European Commission 1. See "Overview of the Agreement on Gov- ENTR/03/24, Fraunhofer-Institut für Sys- ernment Procurement," World Trade Or- tem- und Innovationsforschung, Karlsruhe, ganization, http://www.wto.org/english/ Germany. tratop_E/gproc_e/gpa_overview_e.htm. Kajewski, S., and A. Weippert. 2004. "E-tendering: 2. See "Procurement and Tendering: Processes Benefits, Challenges and Recommendations and Regulation," Finance Hub, http://www. for Practice." Proceedings CRCCI International financehub.org.uk/selling _goods_and_ Conference: Clients Driving Innovation. http:// services/default.aspa. eprints.qut.edu.au/4056/1/4056_1.pdf. 3. See "Public Procurement Legislation," Eu- United Kingdom Department for Innovation, Uni- ropean Commission, http://ec.europa. versities and Skills. 2008. Innovation Nation. 9 eu/internal_market/publicprocurement/ Norwich, United Kingdom: Information Policy legislation_en.htm. Division. Information and communications technology procurement for border management 4. See now "Buying Solutions: The National United Kingdom Office of Government Commerce. Procurement Partner for UK Public Ser- 2007. "Finding and Procuring Innovative Solu- vices," Buying Solutions, http://www. tions: Evidence-Based Practical Approaches." buyingsolutions.gov.uk/. Norwich, United Kingdom: Office of Govern- 5. See "Province of Nova Scotia Sustainable ment Commerce. Available at http://www.ogc. Procurement Policy," Nova Scotia Procure- gov.uk/documents/Finding_and_Procuring_ ment Services, https://www.gov.ns.ca/ten- Innovative_Solutions_%283%29.pdf. ders/policy/pdf_files/procurementpolicy. ------. 2008. "An Introduction to Public Procure- pdf. ment." Norwich, United Kingdom: Office of 6. See "Generally Accepted Accounting Prin- Government Commerce. Available at http:// ciples," United States Federal Accounting www.ogc.gov.uk/documents/Introduction_to_ Public_Procurement.pdf. 156 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 10 CHAPTER The role of the private sector in border management reform Andrew Grainger International trade is an activity largely conducted by private sector busi- nesses. Consequently, private sector concerns are a key feature in any border management reform initiative. An important role of border agencies--es- pecially where trade is important to a country's economy--should be to en- sure that trade controls and procedures are applied in such a manner as not to needlessly disrupt business operations. Where well administered, trade facilitation can be achieved without any compromise on the level of control. The private sector plays a major role in frustration of private sector stakehold- border management reform: as stake- ers--buyers, sellers, and the various holder, as partner, and as service provider. intermediaries and service providers In particular, private sector involvement who enable the movement of goods. All can benefit border agencies through: these business stakeholders are directly · Consultation. Border management affected by how the public sector stake- agencies can develop tools and holders--all the administrative and mechanisms to consult with private regulatory agencies with border man- sector stakeholders about reform agement responsibilities--apply and needs and initiatives. enforce their controls (box 10.1). · Collaboration. Border manage- The potential list of private sector ment agencies can partner with the concerns can be long. Such concerns private sector to encourage com- often refer to the complexity of rules pliance with trade controls and and procedures and to the lack of accu- procedures, through collaborative rate, up to date information on require- arrangements that motivate traders ments. Frustration can also arise from to internalize--and take responsi- poorly drafted rules and procedures Developinganationalsinglewindow:implementationissuesandconsiderations bility for meeting--border control that clash with operational practices. objectives. The numbers of forms and approvals · Contracting. Border management required for particular operations can agencies can (and increasingly do) be another source of frustration. Trad- rely on private sector services to ers may also find themselves caught out complement or augment govern- by changes in rules and procedures, ment resources and capabilities. such as new document requirements and new control measures introduced Private sector concerns--and without sufficient publicity. Another possible contributions to reform issue might be a lack of information and guidance material, forcing traders to Much of the demand for border man- rely on the advice of professionals such agement reform has its roots in the as lawyers and customs brokers--or to B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 157 Box 10.1 Stakeholders in border management reform: the private and public sectors Private sector stakeholders: · Inland container ports · Traders · Port operators and stevedores · Small and medium size enterprises · Cargo handlers and handling agents · Large and multinational enterprises · Warehouse operators · Foreign firms and investors · Transit shed operators · Exporters and importers: operating within · Port community system providers one industry · Information and communications · Exporters and importers: operating across technology (ICT) service providers industries · ICT systems developers · Distributors and retailers · Buyers' and sellers' agents Public sector stakeholders: · Importing foreign companies from · Revenue and customs developed countries · Port health authorities · Importing foreign companies from less · Food standards agency developed countries · Marketing boards · Transport and related services · Trading standards bodies · Shipping lines · Department for trade and industry · Ferry operators · Civil aviation authority · Airlines · Health and safety executive · Trucking and haulage companies · Border and immigration service · Railway companies: operating international · Treasury routes · Maritime coastguard agency · Logistics service providers · Home office · Freight forwarders · Quarantine inspection service · Customs brokers · Plant health inspectorate · Banks and finance companies · Police · Insurance companies · Highway agency · Facilities and infrastructure · Third country representatives from the executive · Seaports (customs officers, for example) and from · Ferry ports consulates (to authenticate documents) · Airports · International rail terminals Source: Adapted from SITPRO and Grainger (2008). 10 identify current requirements through costly trial controls and procedures and those that companies The role of the private sector in border management reform and error. maintain for commercial purposes. For example, Traders may also find procedures applied differ- many companies with brands and reputations to ently from one location to the next, with inconsis- protect operate quality control systems that are con- tencies ranging from different document formats to siderably more stringent than any procedures speci- divergent interpretations of control requirements fied by regulators. and objectives. Such variations in the enforcement Businesses may also find that regulatory require- of controls and procedures can easily lead traders ments conflict with established commercial prac- to make inadvertent errors. They can also result in tices. For example, the electronic systems used by market distortions, as businesses redirect their traffic regulatory agencies may fail to adequately accommo- along otherwise inferior transport routes. date the prevailing industry standards for the shar- The considerable overlap and duplication of ing of electronic data. A further example is the reluc- control--for example, between customs and other tance of some businesses to disclose information that border agencies and licensing authorities--is yet an- enables customers or competitors to estimate profit other concern. So is the overlap between regulators' margins or learn details about cheap supply sources. 158 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N As a consequence of this reluctance, even in devel- Figure 10.1 Trade procedure reform cycle oped countries, businesses often forgo preferential or Implementation of simplified customs procedures for fear of disclosing improved trade Gives rise to procedures such commercially sensitive information. Another Operational frustrations in the demand for improvements cross border in governing example is the fact that many countries allow prac- operations trade procedures tices favoring narrow private sector interest groups at the possible cost of creating wider implications Trade for the supply chain. For example, some countries procedure reform cycle Governing regulatory mandate that traders must employ publicly licensed institutions customs brokers whenever the traders deal with cus- Customs toms. Similarly, in some countries trade may only be and trade procedures permitted if conducted through the agency of an of- Negotiated outcome sets ficially licensed trading company. scope for improvements in governing trade procedures Important to note is that many trader frustra- tions about cross border trade are shared by border Source: Grainger (2007). agencies. Inefficient procedures not only inflate business costs, they also inhibit a border agency's ability to meet its control objectives. For example, Box 10.2 Trade facilitation concepts derived a country's inspection efforts are severely impeded from traders' frustrations if its laws make it difficult for government officials to use risk management principles (chapter 6). And The following 18 trade facilitation concepts are de- onerous regulations encourage traders to illegally rived directly from traders' accounts of their opera- circumvent costly, time consuming procedures by tional frustrations. finding ways to shortcut regulatory requirements or by entering the shadow economy. Concepts for improving regulation · Simple rules and procedures Good border management reform practice takes · Avoidance of duplication into account the frustrations experienced by traders. · Memorandums of understanding Ongoing review of controls and procedures as well as · Alignment of procedures and adherence to the frustrations experienced by private sector stake- international conventions holders ensures that optimal trade facilitation solu- · Trade consultation tions are found and adequately implemented (figure · Transparent and operable rules and procedures 10.1). In fact, many concerns first expressed and · Accommodation of business practices remedied at the country level have been used by in- · Operational flexibility 10 · Customer service provisions for government ternational organizations--such as the United Na- administrations border management reform tions Centre for Trade Facilitation and Electronic The role of the private sector in · Mechanisms for corrections and appeals Business and the United Nations Conference on · Fair and consistent enforcement Trade and Development--as a basis for trade facili- · Proportionality of legislation and control to risk tation recommendations.1 For background, some of · Time release measures the trade facilitation concepts and ideas associated · Risk management and trader authorizations with border management reform--and echoed in wider trade facilitation discussions such as those at Concepts for improving the use of information and communications technology (ICT) the World Trade Organization (WTO 2009)--are · Standardization of documents and electronic listed in box 10.2. data requirements Dialogue between the private and public sec- · Automation tors can identify opportunities for reform, but it · International electronic exchange of trade data also brings other benefits. It encourages a climate · Single window of shared responsibility and ownership. It helps to Source: Grainger (2008b). set reform priorities, leading to initiatives that focus B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 159 on the most desired outcomes. Finally, a structured committees). Driving the creation of such national approach to interactions among private and public consultation vehicles is the recognition that all sector stakeholders can be used to gain a systemwide the groups directly involved in trade and border understanding of complex international trade opera- reform--government agencies, trade and transport tions extending beyond individual organizations. service users, and trade and transport service pro- Regular public-private exchange can also yield viders--must be represented on any committee for a collective vision for reform. Such a vision may be border reform or other trade facilitation reform (box formally specified (in a published vision statement, 10.3). for example), or it may be implicit in the dialogue. National trade facilitation bodies--listed on Finally, the alliances forged through dialogue--if the UNECE-UN/CEFACT Web site2--can be or- suitable--can lead to joint lobbying for political pa- ganized in various ways. For example, the guidelines tronage, and to a consequent investment in sustain- for UN/CEFACT Recommendation 4 propose a able, long term border reform. model including a committee, a permanent com- mission, and a secretariat. The committee, repre- Consultation senting the various stakeholder groups, meets three or four times each year. The commission, consisting Consultation with private sector stakeholders is one of a small number of representatives elected by the of the main methods for governments to identify committee, meets more often to follow up on actions operational issues, untangle operational complexi- specified by the committee. The committee and its ties, agree on remedies, and carry out reform. One permanent commission are supported by a full time approach is for private and public sector represen- secretariat with suitable technical experience, and tatives to share their concerns in national, depart- by consultants when required. It is acknowledged, mental, and local collaborative forums, where they however, that arrangements and funding can differ can then jointly explore border reform options greatly with each country's national administrative and approaches. Other mechanisms include arm's conditions (UNECE 2000). length approaches, such as open consultation let- Among other models for trade facilitation bod- ters inviting interested parties to express views on ies, the following three are common: a given issue, and approaches driven by assessment · National bodies, funded by governments but op- and research, such as the investigation of private erating independently. sector trade facilitation reform requirements using surveys, toolkits, and commissioned studies. Such Box 10.3 "The needs of all parties . . . private-public consultation often escalates from the must be identified": extract from 10 local and national policy levels to the regional and Recommendation 4 of the United Nations Centre for Trade Facilitation international. and Electronic Business (2001) The role of the private sector in border management reform Collaborative consultation 22. Facilitation activities must be approached in a Vehicles for collaborative consultation vary with the coordinated manner to ensure that problems are focus, objectives, and requirements of their sponsors not created in one part of the transaction chain by and members. Some are national, others specific to introducing solutions to another part. The needs of departments and to localities. all parties, both private and public sectors, must be identified before solutions can be found and those best placed to explain their needs are those directly National trade facilitation bodies. A common model involved in the transaction chain. This requires an for collaborative consultation follows Recommen- effective forum where private-sector managers, dation 4 of the United Nations Centre for Trade public-sector administrators and policy makers can Facilitation and Electronic Business (UNECE work together towards the effective implementation 2001), which proposed national trade facilitation of jointly-agreed facilitation measures. bodies often called transport and trade facilitation Source: UNECE (2001). committees or trade procedures committees (PRO 160 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N · National committees, funded by governments environment. Accordingly, in establishing a vehicle and under government departments. for collaborative consultation, the pragmatic course · Private sector organizations, independent from is to consider how power, resources, authority, and governments. legitimacy can best be mobilized. Examples of the How well each model will work--for various three models listed above are described in box 10.4. purposes--can depend on a country's institutional Box 10.4 Examples of three models for trade facilitation bodies Models for trade facilitation bodies vary. Because the ICC Sweden, the Swedish International Freight Associa- results of each depend on the institutional environ- tion, Swedish Association of Local Authorities and Re- ment, each should be recommended only with caution. gions, Swedish Customs, and the Swedish Ministry for Examples of three common models appear below. Foreign Affairs. The full forum meets four times annually. The forum may also decide to form project related work- SITPRO (United Kingdom) ing groups, which, depending on issue, participation, Originally known as The Simpler Trade Procedures and scope, will meet more frequently. Board, SITPRO was set up in 1970 as the United King- The SWEPRO secretariat is administered by the Na- dom's trade facilitation agency. It was reconstituted as tional Board of Trade and participates actively in inter- a company limited by guarantee in April 2001. SITPRO is national work on trade facilitation, as well as initiating its a Non-Departmental Public Body and primarily funded own projects and providing the government with analy- by the Department for Business, Enterprise and Regu- sis and reports about Sweden's national trade facilita- latory Reform (BERR). SITPRO's mission is to "simplify tion work in all areas (EU, UN, WTO, OECD, and so forth). international trade" and to actively participate at the do- The secretariat has three staff members who are also mestic, European, and international policy levels. trade facilitation analysts at the National Board of Trade. SITPRO's work is guided by a Board of five Direc- tors plus two Ex-Officio Board Members representing ODASCE (France--Offi ce de Développement par UK Customs and BERR, an Advisory Council, and a l'Automatisation et la Simplification du Commerce large network of Strategic Advisory Groups. At any time Extérieur) there are about 100 executives and specialists taking ODASCE, the French International Trade Facilitation and part in the work of Advisory Groups. These groups help Simplification Body, was created in 1972 by executives identify trade barriers, make recommendations for im- from private industries with the backing of the French Di- provement, and define the Executive's work program. rectorate General for Customs and Excise. It is funded Advisory Groups include representatives from a cross by membership subscriptions plus income generated section of United Kingdom business and government. through training activities. 120 companies, ranging from Meetings for most groups take place several times per multinational organizations to one man operations, sub- 10 year. The Executive has nine fulltime staff members scribe to ODASCE membership. Over 1,500 companies and is headed by a fulltime Chief Executive. take part in ODASCE training courses. The Board (Conseil border management reform d'Administration) is made up of up to twenty members, The role of the private sector in SWEPRO (Sweden) elected by the annual General Assembly. Appointments SWEPRO (the Swedish Trade Procedures Council) is the are unremunerated and rotate every four years. The Swedish forum for trade facilitation, where Sweden's cen- Board also appoints the Bureau--which includes a Presi- tral stakeholders gather to discuss and exchange views dent, two Vice-Presidents, Treasurer, and Secretary--to on national and international work. Its roots date back support the day to day operations and to give policy di- to the mid-1950s. SWEPRO's mission is also to spread rection to the three permanent staff based in Paris. knowledge about the benefits of trade facilitation and to ODASCE regularly produces trade facilitation re- participate actively in international processes in the area. lated position papers, organizes a range of seminars SWEPRO is fully financed by the Swedish government and conferences, and makes direct representations to SWEPRO includes representatives of business and the French Administrations on behalf of its members. public authorities through the Swedish Bankers' Associ- Source: Personal communication from SITPRO, SWEPRO, ation, The Swedish Network for Electronic Affairs (NEA), and ODASCE (see further the ODASCE Web site, http://www. the National Board of Trade, Swedish Trade Federation, odasce.asso.fr; the SWEPRO Web site, http://www.swepro. org; and the SITPRO Web site, http://www.sitpro.org.uk). B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 161 Department specific consultation vehicles. Often a bor- consultation approach seeks contributions from der reform issue will pertain to just one government the wider business population, including individ- border agency (such as customs). Nevertheless, a pru- ual firms, experts, and professionals who may dis- dent government department will recognize the sig- agree with their own professional bodies or trade nificance of private sector stakeholders in any border associations. An open letter or consultation call is management initiative and will consult widely when published, outlining a project or issue and inviting initiating reform. It may set up a dedicated consulta- interested parties to respond. The written responses tion vehicle--a pragmatic and efficient approach to are collated and summarized in a report, which often enable face to face discussion with key representa- includes a catalog of respondents' recommendations. tives (an example appears in box 10.5). Such a vehicle A good practice is to give respondents enough time should complement national trade facilitation rather to prepare their responses--especially important for than compete with it. In countries with active pri- business interest associations, which may take time vate sector consultation, the national trade facilita- to identify the views common to their members. tion body may refer some matters to the dedicated Another good practice is to publish an interim draft consultation vehicles of particular departments. report, allowing respondents to confirm whether their views and recommendations have been cap- Local consultation vehicles. Many border manage- tured accurately. ment improvements can be made apart from national Although the arm's length approach to consulta- initiatives. For example, larger port operators con- tion is not face to face, it ensures that anyone with cerned about border management issues often host an opinion can offer it. It also can show whether par- regular meetings between private and public sec- ticipants at national trade facilitation committees or tor stakeholders to raise local issues--issues that in departmental consultation vehicles are expressing are often operational and independent from pro- their constituents' views. cedures defi ned by regulation. Topics of concern Since consultation calls usually are published might include operating hours at customs stations, in newspapers, government gazettes, or public Web local submission procedures for paper documents, sites, critics point out that the calls can easily escape technical specifications for the port's electronic the notice of interested parties and possible contrib- infrastructure and customs interfaces, the coordina- utors. Some progressive administrations use a central tion of inspection with the port's stevedore, queu- consultation database to register interested parties, ing procedures at the port gate, staff identification who are notified of all published consultation calls. checks and port access, health and safety awareness, Some consultation calls may seek information and coordination mechanisms among government that is commercially sensitive, such as data on costs. 10 executives within the port. And responses can be sensitive for other reasons--as Similar to the national or department specific when views are expressed that could upset relation- The role of the private sector in border management reform level, local consultation initiatives also enable repre- ships with staff, unions, or government officials. The sentatives to recommend practical reform measures. confidentiality of responses must be assured when in- Pragmatic improvements at the local level need not dividuals or business interest associations request it. be expensive. Seemingly simple actions can achieve meaningful gains: examples include providing a no- Consultation approaches based tice board, posting estimated ship and aircraft arrival on assessment and research times on a Web site, updating contact details for staff Policymakers concerned about private sector views members in a handbook or database, and enabling increasingly apply standardized assessment methods joint inspections by notifying noncustoms agencies and tools to gather and assess information on private whenever customs opens a consignment. sector reform needs. For example, tools available to examine trade facilitation include the Trade Facilita- Arm's length consultation approaches tion Framework from the United Nations Economic Unlike face to face collaborative efforts among rep- and Social Commission for Asia and the Pacific (UN resentatives of specific interests, an arm's length ESCAP 2004), the Trade and Transport Facilitation 162 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Box 10.5 A government department's dedicated consultation vehicle: the United Kingdom's Joint Customs Consultative Committee (JCCC) The JCCC was established in 1969 to exchange views and to achieve the highest standards of interests from on and discuss proposed changes to Customs pro- them. To achieve this, the following criteria for mem- cedures and documentation relating to the entry and bership are applied. A trade body must: clearance of goods. It gives the opportunity for HMRC · Be a national organisation with a primary interest in to consider representations from over 20 member the movement of goods and/or people. organisations on a face to face basis. There are four · Not represent particular (air)ports. scheduled meetings per year, chaired by the Director · Not solely represent individual company business of Customs and International Directorate. A number of interests. smaller subgroups are used to discuss in-depth tech- nical issues. These groups are set up if required and JCCC subgroups active in 2008 include: disbanded once their purpose is achieved. · Customs Civil Penalties Subgroup · National Clearance Hub (NCH) Subgroup Private sector representatives: · International Trade Operating Systems Working · Airline Operators Committee Cargo United King- Group dom (AOCC UK) · New Community Transit System (NCTS) Subgroup · Association of International Courier and Express · Impex [Import-Export] Subgroup (AICES) · Export Control System/Import Control System · Automated Customs and International Trade As- (ECS/ICS) Subgroup sociation (ACITA) · Customs Procedures with Economic Impact, End · British Chambers of Commerce (BCC) Use and Free Zones Subgroup · British International Freight Association (BIFA) · British Ports Association (BPA) Staffing: · British Retails Consortium (BRC) · Secretariat support from the HMRC communica- · Chamber of Shipping (COS) tion team. They also arrange the meetings, min- · Chartered Institute of Logistics and Transport (CILT) utes, and agenda. · Community System Providers (CSPs) · All subgroups are chaired by a senior policy officer · Confederation of British Industry (CBI) from customs · Customs Air Transport Consultative Group (CATICG) · Depending on the topic of discussion other policy · Customs Practitioners Group (CPG) officers from across HMRC are likely to be invited · Food and Drink Federation (FDF) to the JCCC and its subgroups as required. · Freight Transport Association (FTA) · Minutes and record are produced by customs staff. · Institute of Chartered Shipbrokers (ICSB) Private sector members are given the opportunity · Railway Industry to correct or amend minutes before publication. 10 · Road Haulage Association (RHA) · Royal Mail All JCCC and subgroup activities are published at border management reform The role of the private sector in · SITPRO http://www.hmrc.gov.uk/consultations/jccc.htm and · United Kingdom Aerospace Industry Customs include: Group (UKAICG) · Information Papers. · United Kingdom Major Ports Group (UKMPG) · Minutes for the main JCCC. · United Kingdom Warehousing Association (UKWA) · Minutes for the JCCC subgroups. · Newsletters. Membership: Source: Personal communication with HM Revenue and Cus- The aim of the JCCC and its subgroups is to consult toms (see further "Joint Customs Consultative Committee," with the widest possible spectrum of trade interests http://www.hmrc.gov.uk/consultations/jccc.htm). Assessment (World Bank 2010; see also Raven 2001, Similarly reliant on data provided by private 2005), and a self assessment guide on articles V, VIII, sector stakeholders are robust cost-benefit analyses, and X of the General Agreement on Tariffs and regulatory impact assessments, and postimplemen- Trade (World Bank and Widdowson 2007). tation reviews--all key components of good project B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 163 management practice (for example, Prince2; see Informal consultation OGC 2005). The data gathered may be quantitative Informal consultation--also common in border or qualitative. Quantitative data may include border management reform--can help policymakers main- clearance times, estimates of the cost for a particu- tain a good relationship with the private sector. Fre- lar type of compliance operation, and reports on the quent policymaker meetings with key stakeholder numbers of documents and data transactions re- groups can ensure that concerns are identified as quired for a particular declaration. Qualitative data early as possible, before problems escalate. One may include the perceived impact of operational possibility is regular breakfast or lunch meetings. requirements, the outcomes expected from reform Roundtables and workshops can be useful for larger programs, and perspectives on matters of ongoing numbers of participants. concern. Should meetings be formally documented? Poli- Surveys and questionnaires are commonly used cymakers should consider this question carefully. to gather data from large numbers of respondents On the one hand, taking minutes can ensure that the in the private sector. Low in cost, they are easily meetings are transparent. On the other hand, using attached to consultation calls. Web based survey the Chatham House Rule usually results in freer and tools can also be efficient in distributing surveys less inhibited discussions.3 Both administrators and and collecting data. But any qualified analysis of private sector representatives may fear to have their survey and questionnaire data must consider the words quoted publicly. In cases where past meetings survey respondents. For example, views of the have produced conflict, it may be a good idea to ask cross border environment among shippers may dif- an independent outsider to chair the meeting and fer from those of freight forwarders, and both may keep it focused on shared objectives. differ from the views of transport and infrastruc- ture service providers. The views of occasional trad- Consultation at multiple policy levels ers, who deal with an issue only intermittently, may Because many procedures applied to cross border differ from the views of traders who deal with it trade are embedded in wider international regula- every day. Also, when surveys are attached to con- tory regimes, reforms in one country often must be sultation calls there is a risk that respondents may coordinated with reforms in others. Such coordina- deliberately misreport data to promote a desired tion takes place at the bilateral, regional, and inter- outcome. national policy levels, but it often is initiated by spe- Because of the diversity of private sector orga- cific operational concerns raised at local or national nizations and the range of their interests, the de- policy levels. sign of surveys and questionnaires presents meth- For example, the private-public interactions 10 odological difficulties. Data must be interpreted that affect the reform of United Kingdom customs in the context within which the data were given. procedures are outlined in figure 10.2. Traders are The role of the private sector in border management reform So it is good practice to use additional, alternative likely to seek change first at the local level, then at data gathering methods. Such alternative methods the national level when local actions cannot resolve include: the problem--perhaps because the procedures that · Querying national trade facilitation committee hamper the traders' operations are based on national representatives (a quick way to obtain indicative laws. Th is escalation from local to national efforts data). may take place through the agency of the local cus- · Observations and site visits. toms office, through local trade associations, or · Case studies. through both (for example, in a coordinated lobby- · Visibility studies. ing campaign launched after a local port user group · Interview series. meeting). At the national level the issue is likely to be · Pilot studies. aired in the United Kingdom Joint Customs Con- · Structured research--for example, conducted by sultative Committee (JCCC) or in SITPRO (see box universities or consultants--to address specific 10.5). But if reforms are dependent partly on third border management problems. country trading partners, such as the United States, 164 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Figure 10.2 Consultation at several policy levels: public-private dialogues in the reform of United Kingdom customs procedures (for example as NGOs) Other International level international consultation institutions Develop Other international international WCO instruments institutions (for example as NGOs) International Develop associations and consultation Other international international interest groups instruments Develop institutions international instruments Develop international instruments Escalate issues where EU level Develop they cannot be (regional) international resolved in the EU instruments European Cooperation Commission agreements DG TAXUD (for example through the TCG) US Customs Third country and Border consultations level (US) Protection Negotiate European preferred associations and position Cooperation interest groups Negotiate agreements Seek to influence UK position Develop through agency of international members instruments Customs Develop Escalate issues where in other EU international they cannot be member states instruments resolved in the UK Coordinate UK UK level (national) position with other EU members UK trade associations and HMRC interest groups consultation (national level) Escalate issues where they cannot be Operate resolved locally C-TPAT regime Escalate issues where UK level (local) they cannot be resolved locally HMRC Operate CSI regime 10 (local level) border management reform The role of the private sector in Apply UK and EU procedures Advise on Share concerns concerns Local port Local trade associations and groupings Local port Send Advise on goods Individual concerns Local port businesses Public sector Private sector Demarcation of policy levels Advise on concerns NGO is nongovernmental organization. WCO is the World Customs Organization. EU is the European Union. US is the United States of America. UK is the United Kingdom. DG TAXUD is the Directorate-General of the EU Taxation and Customs Union. TCG is the TAXUD Trade Contact Group. HMRC is HM Revenue and Customs (the UK customs agency). C-TPAT is US Customs and Border Protection's Customs-Trade Partnership Against Terrorism. CSI is US Customs and Border Protection's Container Security Initiative. Source: Author's construction. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 165 or are embedded in regional European Union legis- roll on­roll off (RORO) ports, which mostly lack lation, then efforts may be escalated further to the such equipment, it proved more problematic. The bilateral or regional policy level. And further efforts truck drivers who used to drive straight off ships could may be made at the international level--for example, no longer do so--nor could haulers,6 who used to pick through sharing best practices and developing inter- up cargo deposited quayside off ships, simply leave the national recommendations and instruments. port. Instead, drivers and haulers whose cargo have The interplay among policy levels can also con- been selected for X-ray scanning are now required tribute to border management reform. For example, to transport their cargo to the new X-ray scanning private sector experience in developing countries facilities first, causing delays--an issue further com- might help determine whether a given initiative is pounded by maximum working and driving hours likely to work, helping to establish a best practice (Grainger 2008a). Unsurprisingly, container port op- recommendation. And the use of perceived inter- erators perceived the new scanning policy differently national best practices can help in obtaining funds than the RORO port operators did. and other resources for development aid and capac- The public sector, too, may foster conflicts of in- ity building.4 terest that impede border reform. For example, in Coordination mechanisms at various policy levels many countries--especially those subscribing to the can contribute to joint reform efforts--for example, Revised Kyoto Convention--customs agencies will shared standards and the alignment of rules and pro- acknowledge the important role of the private sec- cedures. Coordination at the regional and bilateral tor in cross border operations. But other agencies, levels can also include shared reform deliverables. Ex- always assuming the worst (perhaps in accordance amples include a shared electronic trade and customs with a cultural norm), may tend to be more ag- environment in the European Union's electronic cus- gressive about enforcement and may resist aligning toms initiative (European Commission 2007) and a themselves closely with private firms. Such aggres- commitment to interoperable single window systems siveness is often counterproductive. Even in devel- in the Association of Southeast Asian Nations.5 oped countries traders admit that they have diverted traffic because of perceived variations in the enforce- Managing conflicting stakeholder interests ment of trade procedures (Grainger 2008a). Where A key challenge for policymakers trying to evaluate heavyhanded enforcement is not needed, it can lead private sector concerns is the diversity of stakehold- in the worst of cases to a loss of trade--or to an exo- ers' concerns, which can conflict with each other dus of less scrupulous traders from the formal econ- and so hamper reform. Despite the shared interest omy to the informal one. of stakeholders in reducing costs, some will stand Some stakeholder groups may not be able to par- 10 to lose from any given reform. Simplified trade and ticipate in a dialogue about private sector reform customs procedures can encourage importers and requirements. For example, staff members at small The role of the private sector in border management reform exporters to handle customs clearance on their own, and medium size enterprises, as they focus on daily removing business from agents and brokers. Mod- operations, may have little time for a policymaking ernization may force firms to invest heavily in new process--unless they see an immediate effect on op- technology, and while larger traders may soon ben- erations. Similarly, overseas business interests, even efit from the upgrade, smaller traders and occasional if they have a vital role in border reform, may not traders may not be able to offset the costs as quickly. be able to participate in consultations as regularly Interests can also conflict between participants in as national organizations do. Consultation methods two different operating environments when reform that policymakers can use to engage less accessible initiatives are applied indiscriminately to both. When stakeholders include conferences, training events, the United Kingdom began customs X-ray scanning, telephone help lines, and informal exchanges and port operators were required to bring goods selected open door policies. for scanning to the X-ray facilities. This requirement A major challenge for reformers is to identify created few difficulties at container ports where port and pursue a reform program that aims to improve operators owned cargo handling equipment. But at the economy as a whole--not to further the interests 166 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N of particular sectors. In areas where there is consider- Organization's concept of authorized economic op- able consensus among stakeholders, reform recom- erators (WCO 2007) is much discussed at present. mendations can quickly be agreed on. In contrast, wherever policymakers lack full knowledge about Preferential treatment for authorized traders stakeholder interests and about the implications Under most preferential cross border control of change, frequent formal and informal meetings arrangements, traders who meet certain require- with key stakeholders--often complemented with ments are authorized to receive operational or fiscal substantiated research--are essential to meaningful benefits. The requirements can vary but normally border management reform. include a good compliance record and an assessment of the trader's compliance capabilities and systems. Collaboration between the Operationally, such arrangements allow border private and public sectors agencies to shift administrative responsibilities onto authorized traders--usually through an audit based The private sector not only shapes much of the control regime--rather than require declarations for demand for border management reform--it also every cross border transaction. bears the greatest responsibility for meeting regu- Commonly employed by customs agencies (espe- latory control requirements. Yet efforts by the gov- cially those subscribing to the Revised Kyoto Con- ernment to enforce rules and procedures across the vention), conditional authorizations for preferential board are costly, and they are also likely to inhibit treatment let authorized businesses: trade significantly. · Benefit from simplified import clearance In contrast, a more efficient approach to control procedures. and enforcement encourages traders to internalize · Clear goods at premises located outside ports control objectives, making the private sector a collab- and away from borders. orator with the public sector in the pursuit of border · Make declarations periodically, rather than for management goals. Successful collaboration strate- each consignment. gies also make enforcement far more efficient, and · Pay duties periodically, using self assessments to they can reduce trade compliance costs--expanding do so (box 10.6). revenue while shrinking the shadow economy. Customs conducts occasional checks to verify To give one example, the so-called 20:80 traders' compliance with the conditions of their au- principle--whereby 20 percent of the trade popula- thorization. Breaches lead to sanctions such as fines, tion is responsible for 80 percent of customs decla- criminal proceedings, and deauthorization. Deau- rations--often applies. In fact, the ratio can be far thorization puts traders at a disadvantage, and the higher in trade intensive economies (published re- fear of it can be a powerful incentive for traders to 10 search is scarce, but anecdotal evidence suggests that keep compliance capabilities high. border management reform ratios of 5:95 or even 3:97 are not unusual). Con- Preferential customs treatment may include not The role of the private sector in sequently, a smart collaborative enforcement strat- only simplifications that are largely operational, but egy is to encourage those traders with the highest also procedures that confer fiscal benefits--the main volumes to internalize regulatory control objectives, purpose being to ensure that national taxes do not freeing border agency inspection resources for use put businesses operating in export markets at an un- in controlling riskier movements. Commonly ap- fair disadvantage. Such fiscally beneficial procedures plied vehicles for the encouragement of good com- govern areas including (WCO 1999): pliance records include preferential treatment and · The temporary storage of goods. risk management, formal partnership agreements, · Customs warehouses and free zones. licensing regimes, and assurance based controls. · Transit and transshipment. Specific incentives might include permission to use · Processing under customs control. simplified trade and customs procedures as well as · Inward processing relief, including suspension access to operational privileges, express treatment, and drawback. exemptions, and fiscal benefits. The World Customs · Outward processing relief. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 167 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 ap- propriate, 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 main- test every imported electrical appliance for safety, taining a good compliance record and on meeting set most countries appoint special agencies or private requirements for systems and administration. Much sector inspection bodies (sometimes called noti- of the compliance is monitored through audits held fied bodies) to ensure that goods comply with prod- periodically (for example, every one to three years), uct standards. Such standards usually are based on rather than through control of each consignment. international norms, while variation from those Once control is internalized by the private sector, norms and the use of recertification requirements traders as well as border agencies benefit. The reason are treated as nontariff barriers. is that traders can reduce or eliminate customs and Assurance usually requires companies to use other border agency transaction costs. For example, management systems--often embedded in the qual- the cost of paperwork is reduced when traders are ity control systems of manufacturers--to ensure authorized to declare goods periodically rather than that final products comply with standards. Compli- for each consignment. Similarly, paperwork and its ant companies with good manufacturing practices cost can be reduced by granting authorizations that receive a certificate, and they may also mark their allow electronic trade data to be exchanged between goods with required kite marks (for example, elec- 10 private sector information and communications trical consumer goods brought into the European technology (ICT) systems and those of the public Union may be marked CE). Authorities need not test The role of the private sector in border management reform sector. Such authorization ensures that data already or intercept goods, but can quickly assure themselves captured by electronic systems--for example, the that goods are safe by referring to the kite mark and electronic port inventory systems, express carrier accompanying documentation. Similar control prac- booking systems, and broker and agent systems-- tices exist in many areas where border checks are not can be automatically passed on to the regulatory feasible. Assurance regimes range from safety stan- authorities. dards for toys to strict hygiene requirements for the Of course, systems of preferential treatment for handling of food. authorized traders can work only where robust re- By making private firms fully responsible for cordkeeping requirements are enforceable. managing compliance, assurance based controls free companies to manage compliance in ways that suit Assurance based controls their own operations. They also lighten the opera- The principle of audit based control is often extended tional burden on border agencies. Finally, they allow to ensure product safety and compliance with prod- the free movement of goods that carry proper kite uct standards. For example, since it is not feasible to marks and documentation. 168 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Risk management Partnerships Risk management for border agencies sets control Partnerships in border management usually arise levels according to perceived degrees of risk. It dis- when border agencies seek to extend control beyond tinguishes between trusted and less trusted traders, their authority or competence. Well designed volun- and among shipments with higher and lower compli- tary partnerships--being less expensive than more ance risk, rather than enforcing blanket controls at prescriptive, legislative enforcement--can benefit set quotas (for example, 100, 50, or 5 percent of all traders and border agencies alike. traffic). Reducing inspections for traders with good For example, voluntary partnerships are com- compliance records, and giving businesses a strong mon in supply chain security, where agencies seek incentive to boost compliance capabilities, risk to identify security risks before goods are shipped. management--like audit based control--can free Countries adopt supply chain security programs up government resources. It also can cut the indi- that impose conditions on firms seeking certifica- rect transaction costs that traders incur because of tion--in practice also imposing conditions on firms delays at the border and the resulting loss of business. that seek to do business with certified companies. (Risk management is discussed further in chapter 6.) Such partnerships seek to extend security and con- trol across the supply chain in exchange for opera- Licensing trade in restricted goods tional or commercial incentives--for example, in Restricted goods may be highly sensitive (military simplified procedures, fast track border clearance, equipment, national treasures). They may require and reduced operational interference at the border. special control to prevent diversion for unregulated Examples of security driven partnership pro- use (medicines, ingredients in illegal drugs). Or they grams include the United States Customs-Trade may be prohibited entirely, with the exception of cer- Partnership Against Terrorism (US CBP 2004) and tain legal uses (narcotics, waste). By licensing trade the European Union's security amendment intro- in restricted goods, government agencies can set ducing the authorized economic operator concept strict conditions on traders--and can hold traders into its customs code (European Parliament and accountable for meeting them. Council of the European Union 2005). The under- Licensed traders normally are required to invest lying principles of these programs are echoed in the heavily in their control and compliance capabilities. World Customs Organization's Framework of Stan- A well managed licensing regime also allows regula- dards to Secure and Facilitate Global Trade (the tors to access sensitive control information as early as SAFE Framework; see WCO 2007) and are partly possible. And licensing that is supported by formal captured in the International Organization for Stan- or informal partnership arrangements gives regula- dardization's specifications for supply chain security tors access to further information about parties up management systems (ISO 28000).7 10 or down the supply chain from the licensed trader-- A less formal partnership vehicle, the memo- border management reform effectively extending control beyond the border. randum of understanding, gives some structure to The role of the private sector in Licensing conditions normally are specific to the business-government arrangements while avoiding type of goods and trade. For example, licenses for the expense of writing and defining laws. It also al- firms trading in medicines could include very strin- lows greater operational flexibility than narrowly gent requirements that the distribution of the goods defined legislation does. Memorandums of under- be controlled by medical professionals. Companies standing between border agencies and key private supplying military equipment, or equipment with sector actors--such as carriers and port operators-- military applications, could be compelled to seek can govern issues as diverse as safety procedures (for special permission from the defense or trade min- example, when inspection staff must wear hard hats istry and provide assurances that goods do not fall and high visibility jackets), codes of conduct (for ex- into the wrong hands. And companies dealing in ample, agencies will inspect vehicles where they will waste could be required to conduct checks verifying disrupt operations as little as possible), and informa- that the recipients of the waste are suitably qualified tion sharing for criminal investigations (for example, to dispose of it safely and ethically. businesses will give customs officers necessary access B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 169 to computer systems). Memorandums of understand- areas in which synergies between private sector prac- ing also can be used to engage trade associations--for tice and regulatory requirements can be found in- example, to provide tipoff procedures in campaigns clude quality standards, security seals, commercial against crime, ensuring that whistleblowers can contracts (such as the Incoterms; see ICC 1999), and speak anonymously through such associations and electronic data standards (such as XML and Elec- that their information reaches the right people. tronic Data Interchange [EDI]). Private sector organizations often choose to self regulate or to develop their own standardized proce- Contracting dures. The public sector, rather than developing new controls and procedures, can aim to draw on syner- The private sector is not merely a stakeholder with an gies. For example, security measures developed with interest in operational efficiency. Some private sector the insurance industry or with a sector specific trade companies specialize in supplying their services to association often reflect the same motives that have border agencies. For example, private sector compa- driven officially developed controls and procedures nies may be used to run offices and facilities, support to prevent crime. Similarly, commercial document operational tasks, and cater to an agency's need for standards developed to help share information be- more specialist tasks (box 10.7). The extent to which tween contracting businesses--such as for transport they are so used will vary by country and by agency. and shipping documents--can also be used to col- Private companies that are stimulated by com- late information for official control purposes. Other petition and by innovations in technology and Box 10.7 Services supplied by private sector businesses to border management agencies Types of service that the private sector can supply to border agencies include the provision of offices and facilities, the completion of operational tasks, and the supply of specialist services. Examples of each type are listed below. Providing offices and facilities: · Land, buildings, inspection facilities · Utilities (water, electricity, and other energy supply). · Electronic infrastructure, office equipment, information and communications technology (ICT) equipment · Other equipment and tools (cars, uniforms, telephones, office stationery, inspection equipment) Completing operational tasks: · Preshipment inspection 10 · Destination inspections · Independent certification and verification The role of the private sector in border management reform · Moving cargo to and from inspection facilities · Unpacking and repackaging inspected cargo · Managing and maintaining electronic infrastructure · Independent analysis and testing (laboratory services) · Supplying permanent and temporary support staff (skilled and unskilled) Supplying specialist services: · Staff training · Printing and publication services · Catering and hospitality services · Electronic infrastructure development · Staff insurance, pension, and health services · Building, equipment, and infrastructure maintenance · Donor funded capacity building projects delivered by private contractors 170 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N management can complement evolving border gathering exercises to assistance with operations, ac- agency requirements. Used well, vendor services tive management of border controls, the implemen- enable border agencies to focus on core functions tation of good governance practices, and long term such as control and enforcement. The private sector training commitments. can also help introduce new skills and capabilities, Less comprehensive arrangements between overcome temporary resource limitations, and offer agencies and commercial suppliers include the service enhancements that benefit the wider trade maintenance of pools of experts, consultants, and community. contractors who can be brought in at short notice. To ensure that control and enforcement objec- Their expertise is usually specialized--for example, tives are served as well as possible, activities should in training, research, development, ICT systems, be reviewed continually--to identify core and non- and regulatory impact assessment. Such pools enable core activities, and to distinguish those that should border agencies to ensure access to critical expertise be outsourced from those that are best conducted when it is needed, without incurring the expense of in-house. The best choices for organizational perfor- permanent staffing. And reform projects often do re- mance are seldom easy to identify. Sound cost-bene- quire expertise beyond that of regular staff. fit analyses are needed. Governments occasionally contract private ser- To illustrate the decisions about private sector vices for frontline control and enforcement. For suppliers that a border agency may have to make, example, in many countries governments contract consider the dissemination of customs tariff infor- preshipment inspection companies to increase mation. Traditionally such information is printed by revenue--and as a stopgap measure where border in-house publishers, often reaching several hundred management integrity problems arise. Under pre- pages, and then sold to traders. Yet private publish- shipment inspection contracts, the contractor: ers--and specialist government publishers--usually · Inspects cargo for export before shipment. have better economies of scale for printing and dis- · Verifies relevant commercial documents for tribution. If such third parties can disseminate the accuracy. information at a lower cost, outsourcing the job to · Instructs the importer through an inspection cer- them makes good business sense (contractual ar- tificate or a report of finding on correct duties and rangements aside). Online publication is even more taxes--on which basis the importer pays duties. cost effective, radically reducing distribution costs: Using preshipment inspection companies for traders can print only the pages they need. And if clearance is controversial, however. It introduces an customs administrations lack the ability to host and additional layer of control--often with significant update online publications, they can procure com- operational disruptions--which the more developed mercial off the shelf solutions, which may be much countries (with good border management practices) 10 cheaper than in-house solutions. do not require. border management reform Carefully procured private services can also The role of the private sector in improve a border agency's technological capacity. Vehicles for contracting with When agencies adopt new technology, simply pur- private organizations chasing new equipment usually is not enough. Staff There are three principal contracting vehicles for require instruction in its use, and management prac- bringing in private sector services: through public tices need adjustment to ensure that it is applied in procurement, through regulated fee structures or the best manner possible. For example, a procure- revenue sharing models, and through conditions ment strategy for modern X-ray scanners should specified in business authorizations. include operations research, advisory services, and Public procurement rules and procedures, training. If these are managed well, the agency will which vary by country, are often set by a dedicated internalize the new skills. Another example of ven- public procurement office or specified by depart- dor services is the help that private sector companies mental procedures and public auditors. When can provide to border agencies recovering from civil funds are provided by donor agencies further cri- conflict. Services can range from initial requirement teria are likely to apply. 8 Any large expense will B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 171 usually require a cost-benefit evaluation--though The poor management of private commercial in- practices vary with institutional arrangements and terests can enable private rentseeking. For example, with the amounts at issue. In addition, good prac- if a procurement contract for ICT does not specify tice normally dictates that private service procure- international standards, the vendor may build a sys- ment is subject to tender, ensuring that the govern- tem using its own standards, forcing traders to pro- ment--and the economy at large--receives the best cure special soft ware. Some less scrupulous vendors value for its money. may even make heavily discounted offers to gov- Contractual arrangements governed by regu- ernment, expecting to recover the resulting losses lated fee structures--for example, to conduct a labo- through excessive profits from traders' purchases of ratory test--normally are also put to tender and are additional products or services. subject to similar procurement rules. The same is Another challenge can be the fragmentation of true for contractual arrangements governed by reve- border institutions in many countries. The many nue sharing models--for example, where companies government stakeholders with an interest in bor- that help collect duties and taxes take a percentage der management and operations (see box 10.1) are (as some preshipment inspection companies and pro- likely to have diverse spending criteria and different viders of electronic customs infrastructure do), The preferred vendors. Those criteria and preferences defining feature of regulated fee structures and rev- can clash severely when services must be procured enue sharing models is that the expense for invest- jointly, as for a single window system. Customs may ment is recovered from the traders rather than from be authorized to spend money only on private ser- the border agencies. Th is approach to contracting vices to improve customs procedures--not on ser- can be attractive where agency resources are tight-- vices to improve the trade environment more gener- but, if inefficiently managed, it risks becoming a tax ally. And conservative customs officers may hesitate on trade. to approve spending on services that benefit other Finally, business authorizations may set condi- agencies. Even when such interdepartmental ten- tions for the provision of services to border agen- sions can be resolved, differing supplier preferences cies wherever certain private operators are required can pose further obstacles. Major political support by law to be authorized by the government. In the may be needed to meet such institutional challenges. United Kingdom, for example, the customs authori- Despite the great benefits that private suppliers zation for port and airport operators handling over- can offer border agencies, procurement officers must seas cargo includes conditions that specify require- approach each decision critically, asking whether ments for suitable offices and inspection facilities particular suppliers have the skills and capabilities as well as provision for working inventory systems. they need. Damage from failed projects can be se- 10 Similarly, veterinary and quarantine authorities can vere, especially when it affects the wider trading set their own conditions for dedicated border in- community--likely causing severe losses, not just to The role of the private sector in border management reform spection posts, while further conditions frequently certain firms, but throughout the economy. The cost apply to the handling of dangerous and hazardous of fi xing what has failed adds to total border man- goods. agement costs. Management challenges in engaging Conclusion private sector suppliers Private vendors can complement efficient bor- The private sector has two roles in border manage- der agency operations. They can crucially support ment, as a stakeholder and as a service supplier. As a reform by supplementing available resources and stakeholder it generates a demand for reform and can capabilities. In return, however, they expect to be help border agencies ensure that control objectives able to make a profit. The fact that their interests are met. As a service supplier it can help border agen- are primarily commercial need not confl ict with cies focus on core activities while providing access reform objectives--so long as those interests are well to new skills and capabilities. Both roles put private managed. companies at the heart of any border management 172 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N reform program--as drivers, as partners, and as 7. See "ISO 28000:2007," International Orga- suppliers. nization for Standardization, http://www. Policymakers should recognize the private sector's iso.org/iso/iso_catalogue/catalogue_ics/ diversity, and they should carefully consider how and catalogue_detail_ics.htm?csnumber=44641. when to approach particular communities within it. 8. See for example "Procurement Policies The interests of such communities vary and are not and Procedures," The World Bank, http:// always aligned. Balancing them can be difficult for go.worldbank.org/YZVQ9VQ490. policymakers pursuing border management reform. Guidance from dedicated trade facilitation commit- References tees, often with government sponsorship, can help identify the best solutions and help put them in place. European Commission. 2007. "Electronic Customs And better substantiated research--surveys, ques- Multi-Annual Strategic Plan, 2007 Yearly Re- tionnaires, case studies, pilot programs, interview se- vision (MASP Rev 8)." Working document ries, open consultations, and cost-benefit analyses-- TAXUD/477/2004­Rev. 8­EN, European can further help to fine tune reform programs. Commission, Brussels. European Parliament and Council of the European Notes Union. 2005. "Regulation (EC) No 648/2005 of the European Parliament and of the Council 1. See "United Nations Centre for Trade Facili- of 13 April 2005 amending Council Regulation tation and Electronic Business Trade Facili- (EEC) No 2913/92 establishing the Commu- tation Recommendations," United Nations nity Customs Code." Official Journal of the Eu- Economic Commission for Europe, http:// ropean Union, April 5: L 117/13­19. www.unece.org/cefact/recommendations/ Grainger, A. 2007. "Trade Facilitation and Supply rec_index.htm. Chain Management: A Case Study at the Inter- 2. See "United Nations Centre for Trade Fa- face Between Business and Government." PhD cilitation and Electronic Business: List of diss., Birkbeck, University of London. National Trade Facilitation Bodies/Com- ------. 2008a. "Customs and Trade Facilitation: mittees," United Nations Economic Com- From Concepts to Implementation." World Cus- mission for Europe, http://www.unece.org/ toms Journal 2 (1): 17­30. cefact/nat_bodies.htm. ------. 2008b. "Trade Facilitation and Import-Ex- 3. For the rule see "Chatham House Rule," port Procedures in the EU: Striking the Right Royal Institute of International Affairs, Balance for International Trade." Briefing paper http://www.chathamhouse.org.uk/about/ EP/EXPO/B/INTA/2008/06, European Par- 10 chathamhouserule/. liament, Brussels. border management reform 4. Between 2002 and 2005 donors commit- ICC (International Chamber of Commerce). 1999. The role of the private sector in ted an average $21 billion annually to nar- Incoterms 2000: ICC Official Rules for the In- rowly defined aid for trade projects (OECD terpretation of Trade Terms. Paris: International and WTO 2007). From 2001 through 2006 Chamber of Commerce. grants and loans to trade facilitation projects OECD (Organisation for Economic Co-operation increased from $101 million to $391 million and Development) and WTO (World Trade (http://tcbdb.wto.org/category _ project. Organization). 2007. Aid for Trade at a Glance aspx?cat=33121). 2007: 1st Global Review. N.p.: OECD and WTO.. 5. See "Agreement to Establish and Implement OGC (United Kingdom Office of Government the ASEAN Single Window, Kuala Lumpur, Commerce). 2005. Managing Successful Projects 9 December 2005," Association of South- With Prince2. London: TSO. east Asian Nations (ASEAN), http://www. Raven, J. 2001. Trade and Transport Facilitation: A aseansec.org/18005.htm. Toolkit for Audit, Analysis and Remedial Action. 6. Also known as hauliers. Washington, DC: The World Bank. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 173 ------. 2005. A Trade and Transport Facilitation Customs-Trade Partnership Against Terrorism Toolkit: Audit, Analysis and Remedial Action. (C-TPAT) Strategic Plan. US CBP, Washing- Washington, DC: The World Bank. ton, DC. SITPRO and A. Grainger. 2008. A UK Review WCO (World Customs Organization). 1999. In- of Security Initiatives in International Trade. ternational Convention on the Simplification London: SITPRO. http://www.sitpro.org.uk/ and Harmonisation of Customs Procedures policy/security/initiatives0108.pdf. (As Amended). Brussels: WCO. http://www. UNECE (United Nations Economic Commission wcoomd.org/Kyoto_New/Content/Body_ for Europe). 2000. "Creating an Efficient En- Gen%20Annex%20and%20Specific%20 vironment for Trade and Transport: Guide- Annexes.pdf. lines to Recommendation No. 4--National ------. 2007. SAFE Framework of Standards to Se- Trade Facilitation Bodies." Publication ECE/ cure and Facilitate Global Trade. Brussels: WCO. TRADE/256, United Nations, Geneva. World Bank. 2010. Trade and Transport Facilitation ------. 2001. "National Trade Facilitation Bodies: Assessment: A Practical Toolkit for Implementa- Recommendation No. 4, Second Edition, Ad- tion. Washington, DC: The World Bank. opted by the United Nations Centre for Trade World Bank and D. Widdowson. 2007. "WTO Ne- Facilitation and Electronic Business (UN/ gotiations on Trade Facilitation Self Assessment CEFACT)." Publication ECE/TRADE/242, Guide." World Trade Organization Document United Nations, Geneva. TN/TF/W/143, World Trade Organization, UN ESCAP (United Nations Economic and Social Geneva. Commission for Asia and the Pacific). 2004. WTO (World Trade Organization) 2009. "WTO ESCAP Trade Facilitation Framework: A Guid- Negotiations on Trade Facilitation: Compila- ing Tool. New York: United Nations. tion of members' textual proposals." Document US CBP (United States Customs and Border Protec- TN/TF/W/43/Rev.19, Negotiating Group on tion). 2004. Securing the Global Supply Chain: Trade Facilitation, WTO, Geneva. 10 The role of the private sector in border management reform 174 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 11 CHAPTER Reform instruments, tools, and best practice approaches Robert Ireland and Tadatsugu Matsudaira In addition to the critical considerations for border management mod- ernization discussed in other chapters of this book, three dimensions of modernization should be addressed: sector specific modernization, interagency coordination, and cross border harmonization. Looking at these three dimensions, this chapter explains how international instru- ments, tools, and best practice approaches--hereafter referred to col- lectively as international instruments--can be most useful to countries. The chapter presents a typology of the international instruments and discusses how countries can work toward adopting each. An annex brief- ly describes many of the key international instruments, tools and best practice approaches currently available to reformers. Three dimensions of reform mandates or trading partners' practices, and equally, other border agencies can Discussed in this section are three also improve their own risk manage- dimensions of border management ment systems in isolation. While this reform: sector specific modernization, may create definite improvements at the interagency coordination, and cross bor- agency level, it will not deliver an opti- der harmonization. mized process for the end user. Sector specific modernization Interagency coordination As border agencies face the continuous To deliver an optimal industry level challenge of improving their business solution, alignment and cooperation Reform instruments, tools, and best practice approaches processes, either to identify efficiencies with other national stakeholders is nec- in the traditional operational and proce- essary. Forms of interagency coordina- dural fields or to meet a changing policy tion vary widely in scope and include or global environment, sector specific activities such as increased data sharing, modernization is commonly observed harmonization of data requirements in border reform efforts. Because the and coding, delegation of authority, regulatory framework of a sector is often joint operational activity (such as joint formulated on an agency basis, a sector customs and quarantine inspections), specific approach is often seen as an and the use of a single window for bor- agency specific approach. For example, a der clearance processes. Interagency customs administration can improve its coordination may enable multiple agen- own risk management system without cies to share a single noncompliance consideration of other border agencies' database or see one agency conduct risk B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 175 management activities on behalf of other border documents, including formatting and coding, may agencies. A true interagency approach will enable need to be consolidated between agencies, and infor- the development of a single access point for the bor- mation and communications technology (ICT) sys- der clearance process (a single window) rather than a tems may require extensive modification or complete sector specific approach that, while improving indi- redevelopment to enable integration and systems vidual processes, will still require the trading com- compatibility--raising the questions of who changes munity to deal with multiple points of access to com- what and who pays. In addition to these technical plete regulatory requirements. issues, the question of who leads the changes and who bears the burden can result in a situation where Cross border harmonization individual agencies may agree with the concept of The third dimension of border management reform an interagency approach, but gaining consensus on is cross border harmonization. The need to consider how these changes should be implemented becomes cross border harmonization comes directly from the problematic. For example, consider the situation fact that international trade is, by definition, a cross where all key border agencies have their own ICT border transaction. Cross border harmonization systems which are not interoperable and they discuss increasingly draws policymakers' attention because of implementation of a single window. In such a situa- evolving regional integration initiatives and is of great tion, when one agency states that the single window interest particularly to landlocked countries, whose should be based on its system, it is not difficult to competitiveness is partly governed by the perfor- imagine that the other agencies would counterar- mance of neighboring countries. The export process gue and prefer a single window based on their own in one country relates directly to an import process agency specific systems. Sustainable high level politi- in another country and, with increased integration of cal commitments, such as decisions at the ministerial trade supply chains, opportunities exist to create effi- or cabinet level, would help to resolve such issues-- ciencies through harmonization efforts that can treat but ministers need an appropriate guide. both the import and export procedures as part of the same clearance process. Targeted areas could include The role of international instruments harmonization of data requirements and procedures, coding harmonization, delegation of authority, syn- International instruments can range from legally chronization of working hours, joint inspection pro- binding requirements, such as those incorporated cesses, sharing of facilities (juxtaposed offices, one in World Trade Organization (WTO) agreements, stop border posts), and regional single windows. through to recommended best practices and guide- lines. Usually they are developed and negotiated by 11 The need for coordination countries in specialized multilateral organizations. As international instruments are generally agreed Reform instruments, tools, and best practice approaches Interagency coordination and cross border harmo- and ratified at the political level, they can be a per- nization will require modification in one or more suasive driver of change--with high level political agency's systems, and this raises issues of jurisdiction commitment, interagency conflicts over leadership and demarcation. A regulatory framework is tradi- and ownership can be managed across agencies. tionally based upon an individual agency's require- Change based on international instruments can ments within a sovereign country. For example, also bring clarity to overall change objectives, thus customs laws may prescribe how a customs adminis- increasing engagement with industry stakeholders tration operates--but not how other agencies should (including donor community stakeholders, private undertake their regulatory responsibilities. Equally, sector stakeholders, and government employees). In- one country's customs laws cannot dictate the roles ternational instruments are not generally standalone and responsibilities performed by another country's texts, and usually they are supported by implementa- customs administration. tion guidelines to help countries make the necessary The impact of an interagency approach may be changes to their systems and procedures. Further- significant. Regulatory requirements on data and more, certain international instruments function 176 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N as benchmarks of change by providing monitoring Box 11.1 Sponsors of international indices (discussed further in the following sections). instruments Because international instruments are interna- Intergovernmental organizations tional public goods, countries and agencies can ex- · CODEX: Codex Alimentarius Commission (a joint pect more expert assistance to be available through subsidiary body of the Food and Agriculture Or- specialized international agencies and developed ganization of the United Nations [FAO] and the countries that have already adopted such instru- World Health Organization [WHO]) ments. Also, with international experience and les- · ICAO: International Civil Aviation Organization · IMO: International Maritime Organization sons learned from other countries (including de- · OIE: Office International des Epizooties (officially veloping countries facing similar situations--for the World Organization for Animal Health) example, landlocked countries), donor assistance · UN/CEFACT: United Nations Centre for Trade Fa- may be more achievable when a country places em- cilitation and Electronic Business (a subsidiary phasis on international instruments rather than on body of the United Nations Economic Commis- its own unique solutions. sion for Europe [UNECE]) Finally, adherence to international instruments, · UNECE: United Nations Economic Commission when it is announced to stakeholders and the general for Europe (a regional body of the United Nations) · WCO: World Customs Organization (officially the public, provides higher predictability and transpar- Customs Co-operation Council) ency for the trading community and investors. It cre- · The World Bank (officially the International Bank ates a favorable environment for international trade for Reconstruction and Development [IBRD]) and direct investment, and it shows the clear willing- ness of the country to adopt international standards Others (not intergovernmental bodies) and provide services and a regulatory framework at · IATA: International Air Transport Association the global level. · ISO: International Organization for Standardization Sponsors of international instruments Numerous specialized international bodies develop 4. Standardized regulatory procedures for consign- and maintain trade related instruments. Some of the ments crossing borders. more widely known organizations and associations are 5. Border agency information management sys- listed in box 11.1. The list is indicative only--it should tems for consignment data processing. not be regarded as exhaustive. For example, WTO 6. Needs assessment to identify the gaps between agreements also provide an international harmoniza- current border management practices and antici- tion framework in certain areas of trade formalities, pated levels. and ongoing multilateral negotiations on trade facili- 7. Performance indicators to measure moderniza- 11 tation1 will likely produce a new WTO agreement fol- tion progress and to identify bottlenecks. lowing the completion of the negotiations. This section will give a detailed explanation of Reform instruments, tools, and best practice approaches each type of instrument. It will also refer to a num- Typology of international instruments ber of specific international instruments. These in- struments are discussed in more detail in annex 11A. Countries might use and refer to international (For the full names of concepts, instruments, and instruments in their border management modern- organizations to which this section refers using only ization efforts. These instruments may be catego- initials, acronyms, or other abbreviations, see notes rized in the following areas: to table 11A.1, in the annex to this chapter.) 1. Standardized cataloging of commodities cross- ing borders. Standardized cataloging of commodities crossing 2. Standardized cataloging of identifiers of con- borders means a harmonized description of the com- signments crossing borders. modity and its sharing among stakeholders. As duty 3. Standardized methods of transmitting informa- rates and many regulations are based on commod- tion related to the consignments. ity type, it is imperative to have a coding system for B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 177 identifying and describing goods. In reality the goods United Nations electronic Trade Documents Proj- classification system of one agency could be different ect (UNeDocs). In the customs domain, the WCO's from that of another agency: for example, if the cus- Data Model guides standardized data requirements toms goods classification system is different from the and their definition and the application of codes for quarantine goods classification system, such a differ- electronic transmission. IATA's standardized elec- ence undermines interagency coordination. Another tronic messages on air cargo operations (for example, example is in a single window environment, where freight manifest) are widely used in the industry. the trader needs to input data only once for multiple regulatory purposes. If the customs and quarantine Standardized regulatory procedures for consignments goods classification systems are different, the trader crossing borders are provided by specialized interna- would need two goods description data inputs to sat- tional organizations. They are developed through isfy both regulatory requirements. The internation- a series of consultations and negotiations focusing ally adopted instrument for goods classification is the on achieving both trade facilitation objectives and WCO's Harmonized Commodity Description and appropriate levels of control. In the customs arena Coding System (HS Convention; see annex). the key instrument is the WCO's International Con- vention on the Harmonization and Simplification Standardized cataloging of identifiers of consignments of Customs Procedures, also known as the Revised crossing borders enables multiple stakeholders to iden- Kyoto Convention (WCO 1999). Th is conven- tify specific consignments within the supply chain and tion and its associated guidelines provide customs create linkages between the physical consignment administrations with guiding principles on manag- and its associated information. The ability to track ing an internationally harmonized border clearance and trace individual consignments supports trade process. Similar guidelines are provided by conven- facilitation and security as well as food and product tions in the areas of road traffic, ship and port man- safety and logistics quality. Illustrative cataloging agement, and air transportation. 2 In addition, cer- references are the Unique Consignment Reference tificate and technical conformity procedures for the (UCR) and Unique Shipment Reference (USR): for importation of certain types of goods are provided example, ISO 17364 and ISO 17365. by instruments of CODEX (for foods) and OIE (for animals and animal products). Standardized methods of transmitting information related to the consignments enables seamless data Border agency information management systems for sharing and data flow among the stakeholders within consignment data processing guide countries on how to a country and across a border. Traditionally this was construct the ICT platform for their clearance processes. 11 done in the form of paper, but increasingly it is done In the WCO's Revised Kyoto Convention (WCO electronically. In a paper format, the UN Layout 1999), chapter 7--titled "Application of Informa- Reform instruments, tools, and best practice approaches Key provides a base format for multiregulatory pur- tion Technology"--and its associated guidelines poses. The concept of Single Administrative Docu- provide valuable information to countries introduc- ment (SAD), originally developed in the EU and ing a customs ICT system. UN/CEFACT Recom- based on the UN Layout Key, is now in wide use. mendation 33 (UNECE 2005) gives guidance on These instruments not only standardize the paper establishing a single window. Also, its Single Win- format but also prescribe what sort of information dow Repository (UNECE 2006) provides informa- is required for the formalities. UNTDED provides tion on other countries' single window systems. countries with standardized definition of such data requirements. Added to this, certain international Needs assessment to identify the gaps between current instruments provide standardized description of border management practices and anticipated levels data requirements besides goods description. Such is increasingly used when a country or agency would areas include coding on location, country name, and like to modify its systems in order to meet certain tar- means of transport. For electronic data transmis- geted situations. Originally developed as a model to sion the UN has developed UN/EDIFACT and the measure the difference between expected service 178 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N levels and delivered or perceived service levels, gap (for the party to indicate high level commitment to analysis is a method useful in comparing an orga- adherence to the convention provisions). The acces- nization's existing performance with its desired per- sion instrument has to be deposited at the depository. formance based on recognized norms (Parasuraman, Contracting parties are given incentives to eliminate Zeithaml, and Berry 1985). The World Bank's Trade noncompliance situations--for example, by peer pres- and Transport Facilitation Audit (TTFA), for initial sure, by the driving force of the market, with techni- diagnosis, has been used in more than 40 countries cal assistance and capacity building support, through (see Raven 2005; the recently revised version, retitled a dispute settlement mechanism, and, in a few cases, Trade and Transport Facilitation Assessment, is now through sanctions. Examples are WTO agreements, available in World Bank 2010). The World Bank, the WCO's HS Convention (WCO 1999, 2008b), together with the IMF, OECD, UNCTAD, and and the IMO's FAL Convention (IMO 1965). WCO, has also produced a needs assessment guide (World Bank 2008) for the WTO Trade Facilita- Recommendations are unilateral acts with no bind- tion Negotiations, which has been used by more ing legal force--they simply propose a given behav- than 80 WTO members. The WCO also developed ior to countries. The purpose of such recommenda- the Customs Capacity Building Diagnostic Frame- tions is to examine the technical aspects of national work and has used it to identify customs needs in systems, as well as related economic factors, with a more than 100 countries. view to proposing to the countries practical means of attaining the highest possible degree of harmoniza- Performance indicators to measure modernization tion and uniformity. No penalty is incurred in case progress and to identify bottlenecks are valuable tools of nonconformity by the sponsoring party. Never- to monitor the modification and, in certain cases, to theless, to increase international accountability, cer- fine tune modernization efforts. In many instances, tain recommendations contain an acceptance pro- border management modernization emphasizes cedure. In such cases a country needs to deposit its streamlined procedures and the reduction of dwell acceptance instrument at the repository. Examples and processing times. The WCO's Time Release are UN/CEFACT recommendations. Study (WCO 2002a) is one such tool, providing stakeholders with data and information to identify Guidelines and guides are nonbinding instruments the current situation, identify bottlenecks, and to and tools whose purpose is to provide interested monitor the effects of modernization. Any national national agencies with information on a particular effort also needs to be reflected in the behavior of technical matter and to encourage them to take the international traders and investors. The World appropriate measures as an aid to decisionmaking. Bank's Logistics Performance Index (LPI) reflects They frequently follow intentions of political will 11 private sector perceptions of the country's perfor- and include declarations such as the WCO's revised mance in trade facilitation and modernization Arusha Declaration on integrity in customs (WCO Reform instruments, tools, and best practice approaches (Arvis and others 2007; Arvis and others 2010). 2003b). There is no acceptance mechanism for them. Examples are the WCO's Time Release Study (WCO The hierarchy of international 2002a) and the World Bank's Trade and Transport instruments Facilitation Audit approach (Raven 2005). Th is section describes four legal categories of inter- Compilations, case studies, and best practices are com- national instruments, from those with binding force pilations of foreign experiences whose purpose is to pro- to those with a strictly informational function.3 It vide interested national agencies with cases for a par- provides a general overview of these four categories. ticular technical matter and to deepen understanding of the issues as an aid to decisionmaking. Examples Conventions are instruments with legal binding force are UN/CEFACT's Single Window Repository on the contracting parties.4 To become a contracting (UNECE 2006) and the World Bank's Customs party, a national ratification process is often necessary Modernization Initiatives. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 179 A suggested way to work towards the framework, administrative guidelines, resources adoption of international instruments (budget, human, equipment, and infrastruc- ture), human development, and communication. If a country or agency is interested in adopting or · In order to implement the actions identified in complying with an international instrument, the the situation or gap analysis, if necessary, budget following steps should be considered:5 arrangements can be addressed. In the case of a · Institutional agreement to adopt or comply with lack of capacity, dialogue with donors and experts the instruments always needs change manage- should be carried out on specified objectives and ment. In developing agreement, both the pros actions. and cons of adopting the instrument need to be · A formulation of reform packages needs to be examined. Depending on the result of this pre- set up along with the identified actions. In this liminary examination, the country or agency stage the responsible organizations, tangible might have a general idea whether to adopt or objectives, timeframe, list of stakeholders to be comply with it entirely or partially, and over consulted, project management body, and key what time period. performance indicators need to be specifically · Translation of the instrument into the local official described in order to produce actionable plans. language is important to enable the instrument to · If the identified actions require it, reform in leg- be incorporated or reflected in the local regula- islation, regulations and organizations should be tory framework. By doing the translation, ques- carried out. For a smooth change management tions on the interpretation of terms and phrases implementation process, an inclusive approach may arise for which clarification is needed. in cooperation with the other stakeholders is · Consultation with stakeholders is needed to high- advisable. light its importance in the case of interagency co- · If necessary, tendering for experts, procurement ordination and cross border harmonization. For of equipment, and infrastructure are also ad- the purpose of reducing the conflict costs and dressed. If the country or agency does not have seeking synergies, when reforming regulations, an adequate number of trained staff, appropriate parties and regulators sponsoring similar regula- training should be delivered to identified staff. tions should be consulted. Often regulators are The objectives of modernization should be well cognizant of their own sector but fail to look at shared with the stakeholders--staff in particu- flows of goods, means of transport, and people lar--through good communication. and their associated information. Private sector · In the case of international agreements, accession entities and the ministry in charge of competi- work is necessary. In many countries, the acces- 11 tiveness might well be in a position to look at the sion work belongs to the ministry of foreign af- issues from the perspective of overall trade flows. fairs, which is not necessarily familiar with the Reform instruments, tools, and best practice approaches · Situation analysis, or gap analysis, is the practice substance of the international convention in of identifying the current situation and assess- question. The agency responsible for substan- ing gaps vis-à-vis the anticipated models. It is ad- tive matters should help the ministry ensure visable to conduct this practice with the stake- smooth and accurate work. In certain countries holders in order to let them share their views. the agency responsible may second its staff to the Gap analysis is conducted not only to identify ministry of foreign affairs for the accession work. gaps between the current situations and the an- · Monitoring the progress of modernization work is ticipated models, but also to identify obstacles essential for sustainable project management. If that might prevent the country or agency from any implementation difficulties are encountered adopting or complying with the international the cause of the difficulties should be identified instruments. Remedial actions are also agreed and addressed--whether by modifying the ac- in this way. Here, attention needs to be paid to tions, timeframe, resources, or management, or several different aspects including, for example, by some other method. In this process attention strategic management, the legal and regulatory should be paid to the formulation of a governing 180 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N monitoring body. It is also advisable to have rep- of knowledge and can develop a network of experts. resentatives of stakeholders in the governing They will also have a sense of ownership of the inter- body who can share all the information with national instruments. their organizations and counterparts. Regular Tables 11.1 and 11.2, for example, show atten- monitoring is imperative to allow them to re- dance at the WCO's Permanent Technical Com- ceive early warning. The earlier corrective mea- mittee and HS Committee--both technical experts' sures are taken, the lower the conflict costs and meetings. The former discusses customs procedures, wasted resources. the latter the classification of goods. The two tables · Feedback to the international organization spon- show regular participation by developing country soring the instrument is highly recommended. WCO members in both technical committees. For a smoother path on or toward an interna- tional instrument it is advisable for the country Conclusion to participate in standard setting and mainte- nance work within the sponsoring organization. International instruments provide a valuable tool There are several benefits from this, the most im- for modernizing border management processes. To portant being that the country may be able to enjoy the greatest possible advantage from interna- reflect its interest and any concern in the interna- tional instruments, reformers need to be aware of tional instrument. At the very least it could reg- these instruments and familiarize themselves with ister and share its interest and concerns, which them. Stakeholder consultations and an inclusive could facilitate a subsequent provision of assis- approach remain the key to success. Governments tance and support. should consider encouraging their national experts Another important aspect of participation is to participate in the international standard setting that the standard setting and maintenance body is and maintenance work at the sponsoring interna- the place where national experts meet and is the best tional organizations. Th is constitutes an essential place to receive accurate information, answers, and part of capacity building. details on foreign experiences. Through participa- As crucial messages to the sponsoring interna- tion in the work, national delegates avail themselves tional organizations, continued maintenance of the Table 11.1 Attendance at the WCO's Permanent Technical Committee meetings, 2002­06 Year of meeting Attendee information 2002 2003 2004 2005 2006 Number of members attending the meeting 59 60 60 53 60 Percentage of all WCO members attending 36 37 37 32 36 11 Percentage of non­EU, non­OECD members among members attending 54 60 53 50 62 Reform instruments, tools, and best practice approaches EU is European Union. OECD is Organisation for Economic Co-operation and Development. WCO is World Customs Organization. To maintain consistency across years, calculations assume that all EU and OECD members are the same to 2006, though in fact some members joined during the period examined. Source: Matsudaira (2007). Table 11.2 Attendance at the WCO's HS Committee meetings, 2004­06 Month and year of meeting Attendee information May 2004 October 2004 March 2005 September 2005 May 2006 Number of members attending the meeting 62 69 66 76 68 Percentage of all WCO members attending 38 43 40 46 40 Percentage of non­EU, non­OECD members among members attending 66 71 68 70 71 EU is European Union. HS Committee is Harmonized System Committee. OECD is Organisation for Economic Co-operation and Development. WCO is World Customs Organization. To maintain consistency across years, calculations assume that all EU and OECD members are the same to 2006, though in fact some members joined during the period examined. Source: Matsudaira (2007). B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 181 instruments and accumulation of cases for the in- and intensified in 2008­09, and which has led to struments should be carried out, and advocacy out- plunging international trade volumes. reach and promotion activities, as well as pooling of In the past, many governments have focused on experts, are desirable. In addition, sponsoring in- modernization of customs administrations without ternational organizations should consider working recognizing the impact on other border agencies. more with their counterparts to widen the scope and Thus, national leaders should now take a more com- application of current agency specific international prehensive and holistic approach to border manage- instruments. ment. This chapter has attempted to introduce the Border management modernization is a crucial reader to the major instruments and tools devel- endeavor for governments seeking to improve their oped by international organizations and available international trade policy objectives. Whether the for countries interested in strengthening their bor- primary objective is trade facilitation, revenue col- der management, especially in the context of trade lection, security, societal protection, or a mixture of facilitation and collaborative border management. these, improving the effectiveness and efficiency of For those readers already well versed on the items, border agency operations will contribute to achiev- the chapter provides an extensive list of references ing these objectives. This is particularly relevant now to the leading literature on the topics and technical with the global financial crisis that began in 2007 information from international organizations. 11 Reform instruments, tools, and best practice approaches 182 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Annex 11A worth mentioning here that several organizations, Key international instruments for such as the International Organization for Migra- border management modernization tion (IOM) and the Organization for Security and Co-operation in Europe (OSCE), have developed The universe of border management modernization strategies for controlling people crossing borders. is immense. For example, a Compendium of Trade The instruments covered below are listed in Facilitation Recommendations (UNECE and UNC- annex table 11A.1. They fall into the seven categories TAD 2001) contains over 200 trade facilitation of border management modernization instruments instruments and recommendations (see Butterly listed earlier (in the main text of the chapter), and 2003, p. 34). Therefore, this annex concentrates on they are presented here basically in the order of the cornerstones that international organizations and seven categories (some instruments cover more than associations have developed and that are accessible one category). The technical complexity of each in- to all countries. Instruments developed by national strument means that only a snapshot of each can be administrations or customs unions (such as the provided. Accordingly, reference is made to sources EU) are not highlighted. Because this chapter has (in some cases Web pages) that describe the instru- focused on trade facilitation, the annex will primar- ments in more detail for practitioners or researchers. ily consider goods rather than persons--but it is Table 11A.1 International instruments and tools for border management modernization Name of instrument or tool Type Contribution to trade facilitation Primary sponsor HS Convention International convention Standardized commodity description for nomenclature WCO WCO Recommendation on UCR and Recommendations and Standardized unique consignment reference WCO guidelines guidelines ISO Standards on UCR and USR Guide Standardized unique consignment reference and unique ISO shipment reference UN Layout Key Guide Standardized trade document format UNECE and ISO UNTDED Guide Standardized consignment data elements UN/CEFACT UN/EDIFACT Electronic data interchange Standardized process for the electronic exchange of trade UN/CEFACT standard data WCO Data Model Electronic transmission tool Trade data elements and mechanism for transmission; also WCO a single window tool Cargo-IMP Guidelines Standardized air cargo document format IATA Revised Kyoto Convention and Guidelines International convention Standardized customs procedures WCO SAFE Framework of Standards Guidelines Standardized customs security and trade facilitation best WCO 11 practices TIR Convention International convention Standardized road trade facilitation measures UNECE Reform instruments, tools, and best practice approaches FAL Convention International convention Standardized maritime trade facilitation measures IMO Annex 9 to Chicago Convention International convention Standardized air transport trade facilitation measures ICAO Principles for Food Import and Export Guidelines Standardized food safety certification and conformity CODEX Inspections and Certifications and procedures associated Guidelines Terrestrial Code International convention Standardized animal quarantine procedures OIE Customs ICT Guidelines Guidelines Standardized approach on use and application of ICT to WCO customs operations UN/CEFACT Recommendation 33 Recommendation Standardized approach to establishing a single window UN/CEFACT Single Window Repository Compilation Online compilation of national single window experiences UN/CEFACT Trade and Transport Guiding tools Needs assessment tools for preliminary trade and logistics The World Bank Facilitation Assessment facilitation diagnostic Diagnostic Framework Guiding tools Needs assessment of customs organizational and WCO operational capacity (continued) B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 183 Table 11A.1 International instruments and tools for border management modernization (continued) Name of instrument or tool Type Contribution to trade facilitation Primary sponsor WTO Trade Facilitation National Self- Guiding tools Needs assessment tools to identify gaps and actions The World Bank in Assessment of Needs and Priorities necessary to comply with proposed WTO trade facilitation cooperation with measures the IMF, OECD, UNCTAD, and WCO Time Release Study Guiding tools Performance indicators to measure time from goods arrival WCO to release and to identify bottlenecks Logistics Performance Index Guiding tools Performance index to measure private sector's perception of The World Bank logistics performance Other UN/CEFACT recommendations Recommendations Variety of trade facilitation measures UN/CEFACT Cargo-IMP is Cargo Interchange Message Procedures. Chicago Convention is the Convention on International Civil Aviation. CODEX is the Codex Alimentarius Commission. Customs ICT Guide- lines is the Kyoto Information and Communications Technology Guidelines. FAL Convention is the Convention on Facilitation of International Maritime Traffic. HS Convention is the Harmonized System Convention. IATA is the International Air Transport Association. ICAO is the International Civil Aviation Organization. ICT is information and communications technology. IMF is the Interna- tional Monetary Fund. IMO is the International Maritime Organization. ISO is the International Organization for Standardization. OECD is the Organisation for Economic Co-operation and Develop- ment. OIE is the Office International des Epizooties. SAFE Framework is the Framework of Standards to Secure and Facilitate Global Trade. Terrestrial Code is the Terrestrial Animal Health Code. TIR is Transports Internationaux Routiers. TIR Convention is the Convention on the International Transport of Goods under cover of TIR Carnets. UCR is Unique Consignment Reference. UN is the United Nations. UN/CEFACT is the United Nations Centre for Trade Facilitation and Electronic Business. UN/EDIFACT is the United Nations Electronic Data Interchange For Administration, Com- merce and Transport. UNCTAD is the United Nations Conference on Trade and Development. UNECE is the United Nations Economic Commission for Europe. UNTDED is the United Nations Trade Data Elements Directory. USR is Unique Shipment Reference. WCO is the World Customs Organization. WTO is the World Trade Organization. Source: Authors' compilation of information presented in the text. HS Convention The WCO's Harmonized System Committee is The International Convention on the Harmonized in charge of maintaining the Convention and meets Commodity Description and Coding System, also twice a year to clarify classification issues and to ne- known as the HS Convention, Harmonized System, gotiate amendments to the HS nomenclature. The or HS, was adopted in 1983 at the WCO in Brussels HS is formally amended every 4­6 years to reflect and came into force in 1988. The HS Convention actual trade patterns and social or regulatory in- provides for standardized goods classification as well terests; the most recent amendment will enter into as a maintenance body and revision procedures. As force on January 1, 2012. of February 2009, 135 countries plus the European Reference: http://www.wcoomd.org/home_ Community had signed the HS Convention and wco_topics_hsoverviewboxes.htm over 200 countries claimed to apply the HS nomen- clature in practice. Th is means that more than 98 WCO recommendation for Unique percent of merchandise crossing borders was classi- Consignment Reference (UCR) and guidelines fied based on the HS classification. The WCO adopted a recommendation for UCR in 11 HS goods classification consists of approximately 2001 and modified it in 2004. The purpose of UCR 5,000 commodity groups organized in 96 chapters is to assist multiple stakeholders seamlessly track and Reform instruments, tools, and best practice approaches beginning with live animals and ending with works trace the flows of the consignment and its associated of art, collectors' pieces and antiques. Each item is information. The instrument recommends that UCR uniquely identified with a six digit code. To reflect should be structured at a consignment level in accor- the diverse interests of countries, countries are al- dance with ISO 15459 and its updated versions (see lowed to add a further suffi x to the internationally below), or other relevant standards or industry specific harmonized 6 digits for more detailed classification. reference numbers not exceeding 35 alphanumeric Although HS classification was developed by cus- characters, enabling a unique origin-to-destination toms experts, its objectives are not limited to cus- information and documentation trail for the entire toms purposes. Indeed, the HS Convention is widely international trade transaction. It also recommends used in, for example, trade statistics, monitoring of that the UCR should be unique nationally and interna- controlled goods, rules of origin, internal taxes, and tionally, lasting for a sufficient period of time (at least 10 international trade negotiations--as well as in the years according to the guidelines). The instrument also trading community, for purposes such as commer- recommends the importance of determining the issu- cial sales contracts and freight tariffs. ing party and the party responsible for maintenance. 184 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Reference for recommendation: http://www. The Layout Key covers the commercial transac- wcoomd.org/pftoolsucrrecomm.htm tion sector, the payment sector, transport and related Reference for guidelines: http://www. services, and official formalities. It provides not only wcoomd.org/files/1.%20Public%20files/PDFand for the size, design, and format of the forms, but also Documents/Procedures%20and%20Facilitation/ for data elements and their definition. Guidelines UCR_new_e.pdf for application adopted in 2002 provide practical information on the Layout Key. ISO standards on UCR and USR Reference: http://www.unece.org/cefact/ ISO 15459 was adopted in 1990 as a unique identifier recommendations/rec01/ece_trade_270_E.pdf specifying a particular transport unit (such as con- tainer and pallet) used in international supply chain. UNTDED As international trade and logistics transactions have In recognizing the need for a standardized list- become complex, and the need to track and trace a ing of consignment data elements, UNECE and shipment has become more important, it became UNCTAD developed UNTDED as a comprehen- obvious that a single standard was no longer enough sive directory of standard trade data elements and to identify a particular shipment. Accordingly, ISO codes. UNTDED provides for data element name, 15459 was modified as a multipart standard that definition, tag number, attributes, and element use includes transport units, registration procedures, and location in relevant documents. As it provides common rules, individual items, returnable trans- universal definitions, it could be used as a common port items, product groupings, product packaging, terminology to convert one country's data element and groupings of transport units. These standards to the other country's data element, as in commu- are quite pertinent after recent developments in radio nications between Chinese and Japanese (with Eng- frequency identification devices (RFID). Relevant lish as the common language). The application is not ISO standards on supply chain application for RFID limited to international trade; it could be used in any include the following standards: ISO 17363 (freight e-commerce, including health, insurance, and medi- containers), ISO 17364 (returnable transport units), cal. UNTDED is maintained by UN/CEFACT. ISO 17365 (transport units), ISO 17366 (product The ISO adopted UNTDED in 1993 (not neces- packaging), ISO 17367 (product tagging). sarily the latest one) as the ISO standard, ISO 7372 Reference: http://www.iso.org/iso/iso_catalogue/ (UNECE and UNCTAD 2001, p. 63). catalogue_tc/catalogue_detail.htm?csnumber Reference: http://www.unece.org/trade/untdid/ =43347 UNTDED2005.pdf (ISO publication of the contents of ISO stan- dards is fee-based.) UN/EDIFACT 11 Recognizing the importance of a standardized UN Layout Key approach to the electronic transmission of trade Reform instruments, tools, and best practice approaches The UN Layout Key is a set of model forms for data, the UN/ECE developed the United Nations/ trade documents (paper based). It was developed Electronic Data Interchange For Administration, and adopted by UNECE in 1963. A number of Commerce, and Transport (UN/EDIFACT)--the international organizations responsible for bank- international standard for electronic data exchange ing, customs, freight forwarders and postal services, of trade information (Butterly 2003, p. 54). It incor- and transport by sea, rail, and road made a decision porates an electronic version of UN/TDED . and recommendation to align their internationally UN/EDIFACT provides for a set of interna- established document formats to the Layout Key. tionally agreed standards, directories and guide- UN/CEFACT adopted a recommendation invit- lines for the electronic interchange of structured ing the governments and interested organizations to data--in particular those related to trade in goods pursue their efforts to align all document formats in and services between independent, computer- international trade with that Layout Key. It has been ized information systems (UNECE 1994). By registered as ISO 6422. using UN/EDIFACT, several standard electronic B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 185 messages for international trade transactions and procedure, and conveyance reporting (WCO 2004a, operations are developed. Such messages include paragraph 12). The current Version 3 includes re- CUSDEC (declaration to customs), CASCAR quirements for customs and for other border agen- (cargo report to customs), and CUSREP (response cies such as agriculture, human health, environmen- from customs). tal protection (Basel Convention), and marine safety UN/EDIFACT and the messages based on it (WCO 2008a, paragraph 7). The WCO Data Model are maintained by UN/CEFACT. The ISO adopted is consistent with UN/CEFACT work and is ex- UN/EDIFACT syntax rule as ISO 9735. pected to be widely used. For example, UNCTAD's A UNeDocs project to provide an XML based customs processing ICT system, the Automatic Sys- electronic message for more interoperability than tem for Customs Data (ASYCUDA), which has EDI based messages "has been suspended by the UN/ been introduced in over 80 countries, is compatible CEFACT Bureau and is currently under review."6 with the WCO Data Model.7 Reference: http://www.unece.org/trade/untdid/ Reference: http://www.wcoomd.org/home_ d08a/d08a.zip wco _ topic s _ pfover v ie w boxe s _ tool s _ a nd _ instruments_pftoolsdatamodel.htm WCO Data Model (Details are copyright protected. For more detail The concept of harmonized customs data began life please contact the WCO.) in 1996 when the Group of Seven (G7) launched the Customs Data Harmonization Initiative. In its 1996 Cargo-IMP Communiqué, issued from Lyon, the G7 stated: "[I] IATA developed and maintains Cargo Interchange n order to facilitate the free flow of trade, we will Message Procedures (Cargo-IMP), which is designed initiate an effort to further standardize and simplify for use between airlines and other parties as an elec- customs procedures among our countries. Uniform tronic message source for specifications concerning documentation and electronic transmission stan- space allocation in the aircraft, air waybill, flight man- dards would reduce costs for business and govern- ifest, accounting, status, discrepancy, embargo, cus- ment, complement efforts in the WTO by elimi- toms, Cargo Accounts Settlement Systems (CASS) nating barriers to trade and development, and so billing,8 dangerous goods, allotments, and surface promote growth." (G7 1996, paragraph 25). The G7 transportation. For example, FWB is a standard- made this decision because of concern that the con- ized electronic message format for master air waybill, fusing, duplicative, and nonstandard systems of data FHL is that for house air waybill. IATA is promoting were a significant nontariff barrier to trade. By 1998, paperless air cargo processing (e-Freight) for which G7 Customs experts had developed a simplified and these electronic messages are the keys to realization. 11 harmonized data set for import and export proce- Reference: http://www.iata.org/ps/publications/ dures. As a result, over 800 data elements requested cimp.htm Reform instruments, tools, and best practice approaches for import declaration by G7 countries in 1996 were reduced to 128 data elements in 2005 (WCO 2006). Revised Kyoto Convention and Guidelines In 2002 the WCO took over management of The WCO's Revised Kyoto Convention is the inter- the G7 data sets and UN/EDIFACT message speci- national trade facilitation convention for customs fications, which became known as Version 1 of the (WCO 1999). The first iteration of the Interna- WCO Data Model. Version 1 included the G7 data tional Convention on the Simplification and Har- sets for cargo reporting and goods declarations for monization of Customs Procedures was adopted in both imports and exports; message implementation 1973 at the WCO Council sessions in Kyoto and guidelines based on the UN/EDIFACT customs entered into force in 1974. The revised convention messages CUSCAR and CUSDEC; the code sets was adopted in 1999 and came into force in 2006 (international and G7), used for the coded data ele- with 40 contracting parties. It had 64 contracting ments; and the revised Kyoto Convention Customs parties as of June 2010. Data Principles (WCO 2002b). Version 2 was ex- The Revised Kyoto Convention has a main body panded to include other border agencies, the transit comprised of administrative provisions, accompanied 186 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N by a general annex and specific annexes. The general J1: Travelers annex, which is obligatory to accept in the accession J2: Postal traffic to the Revised Kyoto Convention, provides for basic J3: Means of transport for commercial use trade facilitation measures generally applicable to J4: Stores any customs regime. The specific annexes, which are J5: Relief consignments optional for accession, provide for measures for spe- While the Revised Kyoto Convention is focused cific customs regimes (such as inward processing and on customs procedures, it recognizes the importance temporary admission). Each annex or annex chapter of other border agencies to trade facilitation and the is accompanied by guidelines that essentially provide crucial need for cooperation. For example, the Re- interpretation and a collection of customs best prac- vised Kyoto Convention contains a binding transi- tices. The contents of the general annex and specific tional standard on coordinated border management: annexes are (WCO 1999): "[I]f the goods must be inspected by other compe- tent authorities and the Customs also schedules an General annex examination, the Customs shall ensure that the in- Chapter 1: General principles spections are coordinated and, if possible, carried Chapter 2: Definition out at the same time" (WCO 1999). Chapter 3: Clearance and other customs Reference: http://www.wcoomd.org/home_wco_ formalities topics_pfoverviewboxes_tools_and_instruments Chapter 4: Duties and taxes _pfrevisedkyotoconv.htm Chapter 5: Security Chapter 6: Customs control SAFE Framework of Standards Chapter 7: Application of information Following the September 11, 2001 attacks in the technology United States, the WCO membership considered an Chapter 8: Relationship between the customs instrument of security standards that would empha- and third parties size four core features: (1) receipt of advance data in Chapter 9: Information, decision and rulings electronic form for all cargo, (2) the use of risk assess- supplied by the customs ment to analyze the data to determine high risk Chapter 10: Appeals in customs matters cargo, (3) the use of nonintrusive inspection equip- ment (NII) such as X-ray machines to inspect high Specific annexes risk cargo, and (4) the use of an authorized economic A1: Formalities prior to the lodgment of the operator (AEO) system that would grant benefits, goods declaration such as faster clearance time, to businesses that the A2: Temporary storage of goods government validated as low risk. This initiative cul- 11 B1: Clearance for home use minated in the adoption of the WCO Framework B2: Re-importation in the same state of Standards to Secure and Facilitate Global Trade Reform instruments, tools, and best practice approaches B3: Relief from import duties and taxes (SAFE) in 2005 (WCO 2007b). SAFE comprises C1: Outright exportation two pillars: relationships between customs admin- D1: Customs warehouses istrations and relationships between customs and D2: Free zones the trade community. Not being an international E1: Customs transit convention, SAFE is nonbinding. Yet most WCO E2: Transshipment members have signed a pledge that they will work to E3: Carriage of goods coastwise implement SAFE, with the qualification that many F1: Inward processing would need capacity building assistance to do so. F2: Outward processing As its title shows, although security (which is F3: Drawback the focus of chapter18) was the primary basis for the F4: Processing of goods for home use creation of SAFE, it is striking that its architects de- G1: Temporary admission signed an instrument that strives for a balance be- H1: Customs offences tween security and facilitation--one based on the B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 187 assumption that a border agency can apply appro- system of seals. Customs at the border of the tran- priate controls for purposes of security while still sit country can inspect the TIR Carnet and confirm facilitating trade. Indeed, SAFE's emphasis on risk that the seal is secured rather than conducting a full assessment in order to avoid customs intervention blown physical inspection (UNECE 2007). The five in every consignment--for example, inspection or pillars of the TRI Convention are (UNECE 2007, scanning--is also at the heart of the Revised Kyoto pp. 6­7): Convention. 1. Goods should travel in customs secure vehicles Reference: http://www.wcoomd.org/home_wco_ or containers. topics_epoverviewboxes_tools_and_instruments 2. Throughout the journey, duties and taxes at risk _epsafeframework.htm should be covered by an internationally valid guarantee. TIR Convention 3. Goods should be accompanied by an interna- One of the more complex set of procedures at the tionally accepted customs document (TIR Car- border relates not to imports and exports, but to net), opened in the country of departure and goods in transit. Indeed, GATT Article V is devoted serving as a customs control document in the to issues of transit. While not relevant to all coun- countries of departure, transit, and destination. tries, transit is especially important to landlocked 4. Customs control measures taken in the country countries that are at the mercy of bordering coun- of departure should be accepted by all countries tries for their participation in international trade. of transit and destination. The need for coordination between border agencies 5. Access to the TIR procedure for national asso- of landlocked countries and their neighbors engen- ciations to issue TIR Carnets and natural and ders the need for standardized mechanisms for bor- legal persons to utilize TIR Carnets shall be au- der procedures. thorized by competent national authorities. The Convention on the International Transport Reference: http://www.unece.org/tir/convention/ of Goods under cover of TIR Carnets (TIR Con- bases.htm vention) focuses on the international transit system during road transportation and is a crucial trade fa- FAL Convention cilitation tool.9 Under the auspices of the UNECE it The International Maritime Organization (IMO) is was adopted in 1959 and entered into force in 1960. an intergovernmental organization based in London It was revised in 1975. While the TIR Convention that provides a regulatory framework and coopera- was founded by European countries, it can be rati- tion forum for shipping. On the issue of trade facili- fied and used by any country. Currently there are tation at borders, the IMO has a role because it has 11 over 65 contracting parties covering all of Europe developed some instruments that relate to cargo and several countries in North Africa, the Middle vessels traveling between ports. In 1965 the IMO Reform instruments, tools, and best practice approaches East, and North and South America. While origi- adopted the Convention on Facilitation of Interna- nally intended for road transport, it can also be ap- tional Maritime Traffic (FAL Convention), which plied to other forms of transport such as container states that its primary purpose is "to facilitate mari- ship. The TIR Convention provides for a guarantee time traffic by simplifying and reducing to a mini- network in cooperation with the International Road mum the formalities, documentary requirements Transport Union (IRU), through which it is issued and procedures on the arrival, stay and departure of (UNECE 2007). ships engaged in international voyages."10 The pur- The TIR Convention is intended to cover the pose of the FAL convention is to prevent delays in movement of goods under seal. In the past it was maritime traffic, foster cooperation between govern- common for border agencies to physically inspect ments on maritime issues, and to promote standard- goods in transit, to ensure there were not viola- ization of maritime formalities. The FAL Conven- tions of laws related to customs duties and to guard tion Annex contains standards and recommended against reimportation. The TIR system involves the practices on formalities, documentary requirements, use of one transit document, a TIR Carnet, and a and procedures. The annex also contains eight 188 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N standardized forms for the arrival of both goods and outcome consistent with consumer protection and persons at seaports. The annex promotes the use of the facilitation of trade. Its associated guidelines EDI to transmit forms between ports and ships. As provide a framework for the development of import of 31 January 2009 the FAL Convention had 114 and export inspections and a certification system ratifications (the IMO has 168 member states and consistent with these principles. three associate members), covering about 90 percent References: of global shipping tonnage.11 · w w w.codexa l imenta rius.net/down load/ Reference: http://www.imo.org/Conventions/ standards/37/CXG_020e.pdf contents.asp?topic_id=259&doc_id=684 · w w w.codexa l imenta rius.net/down load/ standards/354/CXG_026e.pdf Annex 9, Chicago Convention The Convention on International Civil Aviation, Terrestrial Code known as the Chicago Convention, was adopted The Terrestrial Animal Health Code (Terrestrial in 1944. Article 37 of the Chicago Convention Code) is a set of standards and recommendations requires contracting states to committed "to col- maintained by OIE; the objective of the latest ver- laborate in securing the highest practicable degree sion, Terrestrial Code 2009, is to assure the sanitary of uniformity in regulations, standards, procedures, safety of international trade in terrestrial animals and organization in relation to aircraft , personnel, and their products. Standards and recommendations airways and auxiliary services in all matters in which include a user guide, animal health surveillance, such uniformity will facilitate and improve air navi- import risk analysis, animal health measures appli- gation" (ICAO 1944). In 1949 the ICAO Council cable before and at departure, border posts and quar- adopted "Standards and Recommended Practices" antine stations in the importing country, design and on facilitation, which became Annex 9 to the Chi- implementation of identification systems to achieve cago Convention. Originally Annex 9 dealt primar- animal traceability, zoning, and compartmentaliza- ily with simplifying procedures for the clearance of tion. In particular, section 5 deals with trade mea- aircraft and its cargo and passengers, standardizing sures, import and export procedures, and veterinary required documents, and reducing paperwork. In certification. the 11th edition of Annex 9 the scope expanded to Reference: www.oie.int/eng/normes/mcode/ include issues such as using risk management dur- en_sommaire.htm ing inspections, security, and enforcement (ICAO 2002). There is now a 12th edition (ICAO 2005). Customs ICT Guidelines There were 190 contracting parties to the Chicago These Guidelines, derived from the guidelines for Convention as of January 2009. Chapter 7 of the General Annex to the Revised 11 Reference: http://www.icao.int/icao/en/atb/fal/ Kyoto Convention, are maintained by the WCO (WCO 2004b). They are designed to help customs Reform instruments, tools, and best practice approaches Principles for Food Import and make decisions on improvements in services to cli- Export Inspections and Certifications ents through the use of ICT, which the guidelines and associated Guidelines call information and communications technologies Codex Alimentarius is a compilation of stan- (ICT). The Customs ICT Guidelines identify the dards, codes of practice, guidelines, and other rec- principal areas of customs program delivery where ommendations related to foods. It is maintained the application of ICT may be viable. In addition, by the Codex Alimentarius Commission, which the guidelines identify and suggest possible trading was established in joint collaboration between the partner interfaces and attempt to outline a number Food and Agriculture Organization of the United of issues that customs administrations will encoun- Nations (FAO) and the World Health Organization ter if they choose to develop ICT systems. Such (WHO). Its "Principles for Food Import and Export issues include legal issues and requirements, security, Inspection and Certification" provides principles for client consultation, and a brief explanation of vari- governments with the aim of ensuring an optimal ous communication protocols. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 189 Reference: http://www.wcoomd.org/home_wco_ Trade and Transport Facilitation Assessment topics_pfoverviewboxes_tools_and_instruments The World Bank developed the Trade and Trans- _pftoolsict.htm port Facilitation Audit (Raven 2005) as guide- lines to help countries and reformers conduct an UN/CEFACT Recommendation 33 accurate initial diagnosis of constraints for trade UN/CEFACT Recommendation 33 is a recom- and transport facilitation, and to help them design mendation on establishing a single window. It corrective trade activities. The approach has been defines a single window as "a facility that allows par- implemented in more than 40 countries over the ties involved in trade and transport to lodge stan- past 5 years. Th is toolkit has recently been updated dardized information and documents with single to reflect lessons learned in World Bank operations, entry point to fulfi ll all import, export, and tran- and the revised version--retitled Trade and Trans- sit related regulatory requirements. If information port Facilitation Assessment--is now available is electronic, then individual data elements should (World Bank 2010). only be submitted once" (UNECE 2005). Thus the References: recommendation does not exclude a possibility of a · http://w w w-wds.worldbank.org/external/ nonelectronic single window. The recommendation default/WDSContentServer/WDSP/IB/2002/ is supplemented by guidelines that illustrate three 01/18/000094946_0201040949053/Rendered/ basic models for a single window: a single author- PDF/multi0page.pdf ity, a single automated system for the collection and · http://siteresources.worldbank.org/EXTTLF/ dissemination of information, and an automated Resources/Trade&Transport_Facilitation_As- information transaction system. It also provides sessment_Practical_Toolkit.pdf guidelines on practical steps in planning and imple- menting a single window, with a compilation of WCO Diagnostic Framework national experiences. The WCO Customs Capacity Building Diagnostic Reference: www.unece.org/cefact/recommenda- Framework (WCO 2005) emerged from the phi- tions/rec33/rec33_trd352e.pdf losophy that was enshrined in the Customs Capac- ity Building Strategy adopted by the WCO in June Single Window Repository 2003 (WCO 2003a). The strategy posits that it is The Single Window Repository is an online compi- difficult to reform a customs administration if there lation of countries' single window experiences. As is not a comprehensive and accurate understanding of November 2009, 14 cases were available on the of its capacity building needs. Hence, the WCO UN/CEFACT Web site: Finland, Germany, Ghana, advocates that a diagnostic or needs assessment be 11 Guatemala, Hong Kong SAR, China, Japan, Korea, conducted to gain a clear view of an administration's Malaysia, Mauritius, Senegal, Singapore, Sweden, operations and organization by comparing its char- Reform instruments, tools, and best practice approaches the United States, and the former Yugoslav Repub- acteristics and performance with internationally lic of Macedonia. According to UN/CEFACT, 30 accepted standards. single windows are in operation in the world and the Because the WCO's strategy contends that cus- repository intends to cover all of them. Following toms modernization must include a holistic and UN/CEFACT Recommendation 33, the repository comprehensive approach, its Diagnostic Framework has a standardized approach where all the national is organized under seven clusters that cover every as- experiences in the repository provide information on pect of a customs administration: strategic manage- background of the introduction of single window, ment, human and financial resources, legal frame- establishment, services, operational model, business work, customs systems and procedures, information model, technology, promotion and communication, and communications technology, external coopera- judicial aspects, standards, benefits, lessons learned, tion, and good governance. For each cluster the Di- future plan, and contact information. agnostic Framework lists a series of diagnostic ques- Reference: http://www.unece.org/cefact/single_ tions, common weaknesses, potential solutions and window/welcome.htm improvement options, and useful resource material. 190 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N At the conclusion of a diagnostic mission the diag- Release Study (TRS), as a performance measure- nosticians prepare a report that summarizes the cur- ment tool in the trade facilitation modernization rent capacity of a customs administration and what arsenal (WCO 2002a). The TRS can be used for needs to be done to raise that capacity. The Diag- imports, exports, and goods in transit and all modes nostic Framework can be used for purposes of needs of transport. While the TRS was originally devel- assessment by both external experts or by internal oped for use by customs administrations, it is appli- staff. It is a key component of the WCO's Columbus cable to all border agencies involved in the release Program, which has been carried out in more than process. Indeed, it is crucial to success that all bor- 100 WCO Member countries. der agencies, along with all trade stakeholders, be Reference: http://www.gfptt.org/Entities/ involved in the study (so that differentiations can be ReferenceReadingProfi le.aspx?id=d32b7bd3-0b5f identified). To be useful, the TRS goes beyond mea- -40a5-a045-00d320153cf0 suring time--a study must also consider the com- modities being traded, the mode of transport, the Trade Facilitation Self-Assessment location, what government agencies were involved, of Needs and Priorities and the inspection channel (green, yellow, or red; The WTO Trade Facilitation National Self-Assess- WCO 2007c). More important, the TRS identifies ment of Needs and Priorities (WTO 2009) was causes and attributes of the delay by soliciting feed- developed by the World Bank in cooperation with the back from the stakeholders, especially private sector IMF, OECD, UNCTAD, and WCO as a response service providers. to concerns from developing countries about the The TRS is helpful in identifying obstacles to potential obligations of a final trade facilitation the release process, including a lack of skilled or agreement. The tool, which has been used by over 85 knowledgeable resources; poor or unused ICT; frag- WTO member countries, presents a comprehensive mented or confusing legislation; deficient coordi- list of all the trade measures currently being negoti- nation amongst border agencies; inadequate com- ated in Geneva and outlines a strategy for identifying munication between border agencies and the trade whether or not a country is in compliance with the community; inefficient payment mechanisms or measures. If a country determines it is not in com- weak banking systems; a deficient infrastructure; a pliance with a particular proposed measure, the tool substandard or delayed declarations submission; ex- is helpful in ascertaining what needs to be done to cessive numbers of required supporting documents; reach compliance--for example, through the applica- a lack of simplified procedures; and customer delays tion of local remedies, through capacity building, or in removing goods (WCO 2007c). through technical assistance. In practice the tool is The WCO has developed a Web based appli- used at a workshop that brings together stakeholders cation for creating a database for the TRS. Coun- 11 from all border agencies and the trade community to tries can use the TRS soft ware to generate reports conduct a gap analysis. The purpose is that with all indicating the average times and standard deviation Reform instruments, tools, and best practice approaches the relevant stakeholders in one venue analyzing the for each step in the process of releasing goods. The measures, the combination of the appropriate exper- soft ware is on the WCO server, and use is password tise and a checks and balances verification process protected to ensure the confidentiality of the data will lead to a more accurate assessment of the status (WCO 2007a). of compliance, needs, and priorities. The tool is becoming widely recognized. For ex- Reference: http://www.wcoomd.org/files/ ample, a proposal under consideration in the WTO 1.%20Publ ic%20f i les/PDFa nd Documents/ Trade Facilitation negotiations would require that Procedures%20and%20Facilitation/ W TO_ "(WTO) Members shall measure and publish their Documents_E/tnTFW143R3.pdf own average time for the release of goods in a consis- tent manner on a periodic basis, using such tools as Time Release Study the WCO Time Release Study" (WTO 2008). The WCO developed the Guide to Measure the Reference: http://www.wcoomd.org/fi les/1.%20 Time Required for the Release of Goods, or Time Public%20files/PDFandDocuments/Procedures B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 191 %20and%20Facilitation/Time_Release%20_ 8. Alphabetic Code for the Representation of Study_ENG.pdf Currencies 9. Codes for Ships' Names Logistics Performance Index 10. Documentary Aspects of the International The Logistics Performance Index (LPI) was devel- Transport of Dangerous Goods oped by the World Bank and is based on results of 11. Measures to Facilitate Maritime Transport Doc- the survey of international logistics service providers uments Procedures (global freight forwarders and express carriers) with 12. Facilitation of Identified Legal Problems in Im- respect to their perception of logistics friendliness port Clearance Procedures in the countries where they are operating and those 13. Authentication of Trade Documents by Means with which they are trading. The combined survey other than Signature results are supplemented with objective data on 14. Simpler Shipping Marks the performance of key components of the logistics 15. Code for Ports and Other Locations (UN/ chain in the home country--data collected for 100 LOCODE) countries, from which the LPI is produced. 16. PAYTERMS: Abbreviations for Terms of The LPI consists therefore of both perception Payment and objective measures. It measures performance 17. Facilitation Measures related to International along the logistics supply chain within a country and Trade Procedures has three parts: perceptions of the logistics environ- 18. Code for Modes of Transport ment of trading partner countries, information on 19. Codes for Units of Measurement used in Inter- the logistics environment in the home country of op- national Trade eration, and real time-cost performance data for the 20. Codes for Types of Cargo, Packages and Packing home country of operation. It is increasingly quoted Materials with Complementary Codes for Pack- by policymakers and reformers in referring to their age Names countries' logistics performance and capacity build- 21. Layout Key for Standard Consignment ing needs. Instructions Reference: www.worldbank.org/lpi 22. Freight Cost Code 23. Harmonization of Transport Status Code UN/CEFACT Recommendations 24. Use of the United Nations Electronic Data In- UN/CEFACT produced and maintains a number terchange For Administration, Commerce and of trade facilitation recommendations, including the Transport (UN/EDIFACT) UN Layout Key for Trade Documents and the most 25. The Commercial Use of Interchange Agree- 11 recent on the single window concept (Recommenda- ments for Electronic Data Interchange tion 33). The numbered recommendations are: 26. Pre-Shipment Inspection Reform instruments, tools, and best practice approaches 1. United Nations Layout Key for Trade 27. Codes for Types of Means of Transport Documents 30. Electronic Commerce Agreement 2. ISO Country Code for Representation of Names 31. E-Commerce Self-Regulatory Instruments of Countries (codes of conduct) 3. National Trade Facilitation Organs: Arrange- 32. Compendium of Trade Facilitation Recommen- ments at the national level to coordinate work dations on facilitation of trade procedures 33. Establishing a Single Window (with guidelines) 4. Abbreviations of INCOTERMS: Alphabetic (Recommendations 28 and 29 have been removed.) code for INCOTERMS 1990 The following numbered and unnumbered rec- 5. Aligned Invoice Layout Key for International ommendations are under development: Trade 34. Single Window Data Harmonization (also 6. Numerical Representation of Dates, Time and Guidelines) Periods of Time 35. Legal Framework for International Trade Single 7. Unique Identification Code Methodology Window 192 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Online (Alternative) Dispute Resolution 11. See further "Facilitation Section (FAL)," Cross Border Recognition of Digital Signature ICAO, http://www.icao.int/icao/en/atb/fal/. Reference: http://w w w.unece.org/cefact/ recommendations/rec_index.htm References Notes Arvis, J., M. Mustra, L. Ojala, B. Shepherd, and D. Saslavsky. 2010. Connecting to Compete 2010: 1. Negotiations on a review of, and possible im- Trade Logistics in the Global Economy. Wash- provements in, the General Agreement on ington, DC: The World Bank. Tariffs and Trade (GATT) Articles V, VIII Arvis, J., M. Mustra, J. Panzer, L. Ojala, and T. Naula. and X, on customs cooperation and on tech- 2007. Connecting to Compete 2007: Trade Lo- nical assistance and capacity building support gistics in the Global Economy. Washington, DC: in these areas. See WTO (2004), annex D. The World Bank. 2. UN/ECE's TIR Convention, IMO's FAL Butterly, T. 2003. "Trade Facilitation in a Global Convention, and ICAO's Chicago Conven- Trade Environment." Part 2 of Trade Facilita- tion (annex 9), all introduced in the annex tion: The Challenges for Growth and Develop- to this chapter. ment, ed. C. Cosgrove-Sacks and M. Apostolov. 3. The section is inspired by Matsudaira (2007). New York: United Nations. 4. Legal binding force differs from the "enforce- G7 (Group of Seven). 1996. Economic Communiqué: ability" of sanctions against a noncompli- Making a Success of Globalization for the Benefit ant contracting party. Certain conventions of All. Lyon: G7. provide a transition period, a grace period, ICAO (International Civil Aviation Organization). or reservation rights on specific provisions. 1944. The Convention on International Civil Generally countries have discretion to ratify Aviation. Chicago: ICAO. or not to ratify the convention. ------. 2002. Annex 9 to the Convention on Inter- 5. The proposed approach is inspired by Mi- national Civil Aviation: International Standards kuriya (2004), WCO (2006), and World and Recommended Practices--Facilitation. 11th Bank (2008). ed. Montréal: ICAO. 6. See the online notice from UN/CEFACT, ------. 2005. Annex 9 to the Convention on Inter- http://www.unece.org/cefact/unedocs.html. national Civil Aviation: International Standards 7. See further the ASYCUDA Web site, http:// and Recommended Practices--Facilitation. 12th www.asycuda.org/aboutas.asp. ed. Montréal: ICAO. 8. CASS is an IATA program designed to sim- IMO (International Maritime Organization). 1965. 11 plify the billing and settling of accounts be- Convention on Facilitation of International Mar- tween airlines and freight forwarders. See itime Traffic. London: International Maritime Reform instruments, tools, and best practice approaches further "Publications and Interactive Tools: Organization. Cargo Interchange Message Procedures Matsudaira, T. 2007. "Trade Facilitation, Customs (Cargo-IMP)," IATA, http://www.iata.org/ and the World Customs Organization: Intro- ps/publications/cimp.htm. duction to the WCO Trade Facilitation Instru- 9. See further "TIR--TIR Convention," ments." Global Customs and Trade Journal 2 (6): UNECE, http://www.unece.org/tir/ 243­54. convention/bases.htm. Mikuriya, K. 2004. "Legal Framework for Customs 10. See IMO (1965) and, for the conven- Operations and Enforcement Issues." In Cus- tion as amended through 2005, "Con- toms Modernization Handbook, ed. L. de Wolf vention on Facilitation of International and J.B. Sokol. Washington, DC: The World Maritime Traffic, 1965," IMO, http:// Bank. 51­66. w w w.imo.org /Conventions/contents. Parasuraman, A., V. Zeithaml, and L. Berry. 1985. asp?topic_id=259&doc_id=684. "A Conceptual Model of Service Quality and B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 193 Its Implications for Future Research." Journal of ------. 2003b. "The Revised Arusha Declaration: Marketing 49 (4): 41­50. Declaration of the Customs Co-operation Raven, J. 2005. A Trade and Transport Facilitation Council Concerning Good Governance and Toolkit: Audit, Analysis and Remedial Action. Integrity in Customs." Customs Co-operation Washington, DC: The World Bank. Council, WCO, Brussels. UNCTAD (United Nations Conference on Trade ------. 2004a. "Issues Arising from the 46th IMSC and Development). 2008. "Border Agency Co- Meeting." Internal document PM0130E1, ordination/Cooperation." Technical Note 14, WCO, Brussels. UNCTAD Trust Fund for Trade Facilitation ------. 2004b. Kyoto Convention Guidelines on the Negotiations, UNCTAD, Geneva. Application of Information and Communications UNECE (United Nations Economic Commission Technology. Brussels: WCO. for Europe). 1990. UN/EDIFACT Draft Direc- ------. 2005. Customs Capacity Building Diagnostic tory: Introduction and Rules. Available at http:// Framework. Brussels: WCO. www.unece.org/trade/untdid/texts/d100_d. ------. 2006. "Fact Sheet: The WCO Customs Data htm. Model--Version 2.0." WCO, Brussels. Avail- ------. 1994. "Design of UN/EDIFACT Mes- able at http://www.wcoomd.org/files/1.%20 sages, Guidelines and Rules Submitted by the Public%20files/PDFandDocuments/Proce- Message Design Guidelines (MDG) ad hoc dures%20and%20Facilitation/CustomsData_ Group." Document TRADE/WP.4/R.840/ Model_ENG.pdf. Rev.2, UNECE, Geneva. ------. 2007a. Internet Software for the Time Release ------. 2005. "Recommendation and Guidelines Study: User Manual. Brussels: WCO. Available on Establishing a Single Window to Enhance to WCO members at http://www.wcoomd. the Efficient Exchange of Information Between org/members/files/Members%20PDF%20EN/ Trade and Government." UN/CEFACT Rec- FacilitationProced_PDF/TRS%20user%20 ommendation No. 33, United Nations, New manual-updated.pdf. York and Geneva. ------. 2007b. WCO SAFE Framework of Stan- ------. 2006. Case Studies on Implementing a Single dards. Brussels: WCO. Window. ------. 2007c. "Time Release Study." Internal docu- ------. 2007. TIR Convention Handbook. ment PC0179E1a, Permanent Technical Com- UNECE (United Nations Economic Commission mittee, WCO, Brussels. for Europe) and UNCTAD (United Nations ------. 2008a. "Current Status of the WCO Data Conference on Trade and Development). 2001. Model." Internal document PC0214E1a, 11 Compendium of Trade Facilitation Recommenda- WCO, Brussels. tions. Geneva: United Nations. ------. 2008b. "Position Regarding Contracting Reform instruments, tools, and best practice approaches WCO (World Customs Organization). 1999. In- Parties to the HS Convention and Related Mat- ternational Convention on the Simplification ters." Internal document NC1314E1a, WCO, and Harmonisation of Customs Procedures (As Brussels. Amended). Brussels: WCO. World Bank. 2008. "Self Assessment Guide for ------. 2002a. Guide to Measure the Time Required Technical Assistance and Capacity Building for the Release of Goods. Brussels: WCO. Support Needs and Priorities." Document TN/ ------. 2002b. "WCO Customs Data Model." In- TF/W/143/Rev.2, WTO (World Trade Orga- ternal document PC0090E1, WCO, Brussels. nization), Geneva. ------. 2003a. "Capacity Building in Customs: A ------. 2010. Trade and Transport Facilitation As- Customs Capacity Building Strategy Prepared sessment: A Practical Toolkit for Implementation. by the World Customs Organization on Behalf Washington, DC: The World Bank. of the International Customs Community." WTO (World Trade Organization). 2004. "Doha World Trade Organization (WTO) document Work Programme: Decision Adopted by GCW467, WTO, Geneva. the General Council on 1 August 2004." 194 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N WTO draft document WT/L579, WTO, ------. 2009. "WTO Negotiations on Trade Fa- Geneva. cilitation Self Assessment Guide," Trade Facili- ------. 2008. "WTO Negotiations on Trade Fa- tation Negotiating Group meeting document cilitation Self Assessment Guide," document TN/TF/W/143/Rev.3, WTO, Geneva. TN/TF/W/139/Rev.1 and TN/TF/W/139/ Rev.1/Add.1, Negotiating Group on Trade Fa- cilitation, WTO, Geneva. 11 Reform instruments, tools, and best practice approaches B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 195 12 CHAPTER Managing organizational change in border management reform Darryn Jenkins and Gerard McLinden Managing change successfully in a complex institutional environment requires a strong sense of direction and purpose, widespread organiza- tional ownership, perseverance, access to advice and support when need- ed, and a committed and stable leadership team. It must be planned and executed in concert with all key stakeholders, adequately resourced, and based on a realistic timeframe. Managers must build a strong organi- zation to gather internal and external support while coping with the expectations created by the process. The managers must develop a clear strategy with performance measures calibrated to the situation. Unfortunately, many reform programs The external dimension of establish new organizational structures border management reform or deploy new technology rather than make more basic human and procedural The list of external stakeholders in bor- changes. However important new pro- der management is long. It includes the cedures, structures, and technology may government, other public sector agen- be, meaningful and sustainable change cies, the private sector, and the inter- is unlikely unless there are appropriate national trading community. Each of incentives that can persuade employees these groups will have its own interests to support and contribute to reform. and, thus, its own perspective on the Some broad change management prin- advantages and disadvantages of what- ciples are set forth in table 12.1. ever reforms are considered. Border management extends beyond Even within groups, interests will the role of any single agency--even one differ. In the private sector, for exam- Managing organizational change in border management reform created by merging functions formerly ple, procedural improvements favored assigned to various organizations (such by traders who fi nd the current sys- as customs and immigration). Even after tem complex and opaque may be op- such a merger, there will be several agen- posed by customs brokers who fear the cies with border management respon- changes will reduce traders' need for sibilities. So integrated and efficient their services. For reform to succeed in institutional arrangements are needed, the long term, key stakeholders must be arrangements that delegate tasks and in- persuaded that changes are necessary, troduce embedded procedures for both well conceived, and directed. Unanim- policy and operational coordination. ity is not required--but any changes The parts of a comprehensive reform resisted by key constituencies will take plan are listed in box 12.1 (their practical a long time to succeed, perhaps longer applications were detailed in chapter 2). than any administration can endure. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 197 Table 12.1 Key organizational change management principles Principle Objective Challenge Managerial focus and Maintaining focus on the A key challenge facing senior management in the reform program is that they already have very leadership reform program demanding day to day responsibilities but will need to commit their time increasingly toward the reform. Empowering the senior The effectiveness and credibility of senior management is a prerequisite for driving the change management team management program, particularly in leading and directing middle management and staff. Considering the effect on A balance will need to be struck between sensitivity to staff concerns during the change process morale and avoiding distraction from the principal tasks of reform. It is important to assess the opinions of staff through regular consultations to strengthen their voice. At the same time, a steering committee and senior management must make the necessary decisions. Setting the change agenda Developing action plans and A sense of purpose will be instrumental in driving change. It is management's task to establish targets early on reform objectives and targets and to communicate them to staff in clear terms. This will help to align efforts to common goals, while engendering a sense of success as results are achieved. Monitoring and Success on performance targets can help to counter low staff morale during change. communicating progress Management should identify operational and administrative reforms that can be easily and objectively measured and keep these goals visible to staff. Communication and Ensuring adequate A complex organization demands robust mechanisms for disseminating accurate, timely, coordination communication mechanisms and precise information. This is particularly important when roles, responsibilities, reporting structures, and processes will be undergoing change. The need for regular Regular consultations with management teams and employees are important. In addition to consultation improving information flows, such consultations will help staff to accept ownership of the change process, help overcome stakeholder resistance, and identify implementation risks and constraints before progress is hindered. Human resource issues Auditing and monitoring Senior management needs to be fully aware of the availability of skills to meet core objectives personnel resources and reformulated job descriptions. Using training to support the Change management relies on human skills. Existing staff capacity often is insufficient to make change management program reforms successful. The change management agenda needs to include staffing and training plans. Ensuring valued staff are Valued staff must be retained despite the uncertainty that change can produce. Usually the best retained staff are the most employable elsewhere. Senior management must show it is aware of, and values, their contribution. Establishing clear staff roles Throughout the reform process, a continuing staff communication program must explain and responsibilities changing roles and responsibilities. This can help maintain staff accountability, productivity, morale, and direction during the disruption. Maintaining staff motivation During change programs, staff can lose motivation and discipline can break down. Systems to and discipline monitor and maintain high levels of performance and discipline among officials must be in place. So-called soft rewards, such as complimenting staff on performance, providing sincere thanks 12 for effort, and celebrating small victories, can be effective in affirming the worth of individuals to the organization and maintaining their motivation. Managing organizational change in border management reform Accordingly, reformers must develop a broad com- expectations is an important part of selling reform, mitment to reform and its overall direction across those expectations, to be credible, must accommo- the political spectrum. date reality and the change capacities of the actors International experience over the past two de- involved. The various and sometimes contradictory cades has shown that political will is the largest interests of stakeholders make mobilizing support factor in the success--or failure--of public sec- a complex and difficult task. Border management tor reform. Change will not happen without clear, reform requires many government agencies to be sustained government support. At the same time, committed to change. Clearly establishing what government support rests on industry and popular each agency is expected to do--and how its fulfi ll- support. In seeking political support reformers must ment of its responsibilities will be measured and re- work toward widely shared objectives, particularly ported--is crucial. if strong and easily mobilized domestic constituen- Promoting the reforms to partner agencies as cies are likely to oppose the changes. While building early as possible will pay off when it comes time to 198 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Box 12.1 Structure of an organizational reform plan Objectives and role · Management resources. Relate wider government and ministry objectives and · Per formance monitoring and evaluation goals to the agency: procedures. · Define the agency's role in contributing to these · Incorporation of monitoring feedback in to work goals. programs. · Defi ne the agency's short and medium term · Planning and budgeting systems and processes. objectives. · Information and accounting systems. · Simplification of procedures. Functions and work program · Organizational and departmental improvements. Review and assess government needs and translate · Reporting hierarchies. these into specific deliverables: · Harmonization of practices, formats, and · Define the functions of the agency. standards. · Identify key tasks required to accomplish goals. · Review appropriate methodologies and define ap- Resource requirements propriate work practices for each task. Determine resource requirements associated with the · Prepare annual and five year work programs. work programs, including: · Set out performance targets and deliverables. · Finance, logistics and staffing requirements. · Develop a reporting and monitoring system. · Human resource requirements. · Staff training and development. Management and organization · Sources for finance. Develop an appropriate management system to deliver · Information and communications technology specified products, covering: requirements. initiate a dialogue with government decisionmakers. neglected or considered only as an afterthought. Such an approach will ensure that other interested Public sector agencies often compete for power, in- agencies are full partners rather than possible crit- fluence, and resources and are therefore not natural ics. Genuine interagency reform is unlikely if there partners in such endeavors. Longstanding animosi- appear to be clear winners and losers among partici- ties and suspicions may need to be overcome--a pating agencies. To be successful, proposed reforms prospect that often can seem all but impossible. In will need to accommodate the legitimate concerns such cases senior government officials must step in and operational needs of all key agencies--reforms and, if necessary, make personnel changes to demon- should be built on a shared vision for the future and strate genuine commitment to reform. Yet since even joint ownership of the reform program. (The various ministers may champion the interests of their own 12 interests and concerns of participating agencies are agencies over those of the nation, reformers should discussed in chapter 5.) have hard data to encourage agreement--at least on Managing organizational change in border management reform Genuine consultation and willingness to com- the problems, if not on the solutions. To show how promise will make the change program more credi- individual border agencies contribute to clearance ble. A complicating factor in many developing coun- delays, data from comprehensive time for release tries is that border management agencies often are studies can be useful. Without such data agencies at various stages of development. Customs, typically, may simply blame customs or poor trade infrastruc- already has an automated system and a good grasp of ture for any and all delays. aspects of the modern approach to border manage- Informal approaches at the senior level are often ment, such as risk management. Other border man- a means of softening resistance. Managers should al- agement agencies often do not--and therefore may ways be willing to share information--even when it feel at a disadvantage in negotiations. seems like a one way street--to allay suspicion and es- While the value of accommodating all border tablish sound communication and cooperation chan- agencies' interests is generally recognized, the need nels. This approach can be smoothed by engaging for interagency coordination during change is often stakeholder agencies as early as possible, preferably B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 199 well before particular solutions are identified. Seek- Box 12.2 Communications and ing contributions from all players during develop- awareness plan ment can also do much to allay fears and suspicions. · Identify and define awareness raising objectives A useful starting point in discussions is to estab- and strategies. lish firm ground rules and criteria for determining · Prioritize messages to be conveyed to recipi- success. Some possible rules--for example, no par- ents, including the public and the media. ticipating agency will be abolished or incorporated · Undertake a cost-benefit analysis of different com- into another, no staff will be declared redundant, munications and awareness raising strategies. · Undertake a comparative analysis of the effec- and no policy options will be taken to the govern- tiveness of communications media. ment until unanimously approved--may all prove · Identify the different stakeholder groups and useful in generating broad support across agencies. analyze their needs and capacities. Without such rules agencies may participate primar- · Design communications and information materi- ily to protect their own budgets. Collaborative bor- als, including manuals, communications guide- der management (the model outlined in chapter 2) lines, fact sheets, press relations packs, and a is based on increasing effectiveness without making communications toolkit. radical organizational and structural changes. Senior managers, in seeking closer relations with other agencies, should identify the officials best Border management equipped to lead dialogue with stakeholders. They organization structures should be selected for merit (including personal qualities) and not simply for the organizational po- Changes of government often bring changes in orga- sitions they occupy--though of course some hierar- nizations' responsibilities, mandates, and reporting chical sensitivities will need to be observed. relationships. Even when such changes are needed, Border agencies must also develop their exter- they are often undertaken without any coherent nal relations with the trading community they serve reform strategy to address underlying problems. In through a balanced and comprehensive program of that case structural changes may give the impression consultation, public relations, and education. Public of progress yet result in little--if any--improvement support is vital to regulatory reform, so the public to performance. must be assured that its views will be heard, valued, To be sure, outside stakeholders may welcome and acted on. Management must sell the reforms, what they see as a shakeup of troubled agencies about not only emphasizing good outcomes, but also being which they have been complaining--justifiably or candid about possible negative consequences. Strat- otherwise--and these reactions alone may be reason 12 egies should be developed to overcome likely objec- enough to restructure. The perception of change can, tions. In short, an effective communications strategy in turn, drive reform. Managing organizational change in border management reform should include various media and include regular Nevertheless, care must be taken throughout the face to face interaction with stakeholder groups reform process to ensure that daily operations con- (briefing members of parliament, for example, be- tinue to meet government standards. Maintaining fore annual budget debates). Standing meetings with effectiveness must take the highest priority, higher stakeholders (quarterly with closely involved clients, even than achieving short term modernization goals. or even monthly if a new program or major policy For example, a large restructuring of government change consultation is involved) are a good source border management responsibilities must neither of feedback on how well the program is being re- reduce revenue collection nor delay the processing ceived--and are a valuable experience for managers, and clearance of goods. who will be required to explain where the program Reformers, as they sift through organizational is heading. Likewise, such standing meetings offer a options, must therefore consider how easy or how sound basis for dialogue on unforeseen problems as difficult it will be to achieve desired outcomes. To do they emerge. The steps in a general communications so requires a thorough analysis of both the work and and awareness plan are laid out in box 12.2. the disruption entailed by a given strategy, as well as 200 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N any likely impact on operational effectiveness. Once The effect such arrangements have had on bor- reformers have weighed these factors they may prefer der management is important, given the conflicting a lengthier and more pragmatic process--with less mandates and priorities of border management agen- organizational disruption--to a more rapid and dis- cies (chapter 1). In the developed world revenue from ruptive one. trade taxes collected at the border is less crucial to national budgets, and border enforcement need not Current trends in border seriously impair revenue collection. But in the devel- management organization oping world revenue from trade flows is a critical part The world today presents a bewildering array of bor- of national budgets. Decisionmakers must recognize der management arrangements. Rather than address revenue agencies' competing objectives and must not every option, it will be more useful here to classify copy inappropriate models--however great the per- the major ones and comment on them--and, in ceived pressure to do so. In these circumstances con- particular, to explain the recent trend of merging servative models of organization retain their value, various government agencies into single overarch- though added resources may be needed to deal with ing organizations with a focus on achieving broader new and emerging priorities. policy objectives. Revenue authorities were formed in a number of Single revenue agencies. Over the last 20 years numer- developed countries to improve effectiveness and ef- ous governments have opted to collect revenue ficiency. However, in developing countries revenue through a single agency. Such agencies range from a authorities were established through direct pressure fully integrated revenue authority, outside the civil from multilateral institutions and bilateral donors. service and acting under discrete legislation, to a Developing countries, where it is important to re- loose collection of bodies that nominally report to a ward staff for results while quarantining salary in- director general of revenue and exist within the civil creases from the wider civil service, found it expedi- service (while retaining legally separate--if effec- ent to move away from rigid civil service processes tively constrained--individual identities and opera- and outmoded terms and conditions of service. The tional independence).2 revenue administration model was seen as a vehicle Zambia, for example, established a revenue for this aim.1 agency that successfully built on the experience of Similarly, in the last few years, and in direct Uganda. In Zambia the existing customs and tax de- response to the heightened international security partments of the civil service were brought together environment, authorities--notably in the United under a commissioner general. Later a value added States--have moved toward forming border control tax division was added. Each of the three divisions agencies. The structural design of these amalgama- was headed by a commissioner, as was the common 12 tions has varied, though the motivation has com- management services area responsible for corporate monly been driven by changing political priorities. functions such as human resources, finance, infor- Managing organizational change in border management reform Some border management changes have not suc- mation technology, and office services. Together ceeded, often because serious problems in the orga- with the commissioner general, the commissioners nization were simply passed on to a new agency: is- form the senior management group of the revenue sues such as failing management, poorly conceived agency, while a board of directors, appointed by the reform strategies, disagreement on the direction of minister and comprising senior government and pri- reform, and inadequate funds and human resources. vate sector representatives, oversees the agency. Th is Reform has failed in other cases because the change structure has continued, and arrangements similar lacked political will and managerial direction. In to it have been instituted elsewhere--notably in Af- some cases there was never a strong intention to suc- rica and Latin America, where it is now the most ceed, and reform was intended to go no further than common form of organization. to a presentational level. And often different organi- In the United Kingdom and Canada customs zational cultures, working methods, and staff com- and tax agencies were amalgamated. Canada ex- petencies have made genuine integration difficult. perimented with common technical units in audit B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 201 and program evaluation, areas in which it had been Whether to merge these units seems to be a matter an international leader for some time. Its experi- of choice. On the one hand, such mergers seem to ence underscores the need to foresee how cultural work better for investigation units than for audit differences in the two agencies can create tensions units, perhaps because investigators are closer to in the amalgamated agency. The United Kingdom sharing a single mindset. On the other hand, the experimented with common units in enforcement. technical skills needed to identify and secure evi- Estimates of its success have been clouded by the dence for particular kinds of revenue fraud mean government's later move to form a border agency that investigators from each technical area still that combines elements of customs and immigra- must be included. Sharing a location can be help- tion, traditionally seen as culturally nonaligned ful for such joint investigations, though it is not organizations. necessary. Mergers of tax and customs into one agency are The integration of intelligence units, once again, often resisted by staff and managers. Some argue has not been consistently successful. Some argue that an easier way to increase efficiency would be to that intelligence should not be too closely linked invest more in both agencies--others that merging with investigation because intelligence spans all them will result only in a new, larger dysfunctional operational areas. Linking intelligence very closely organization. Yet it was found that a single revenue to investigation has sometimes caused intelligence agency could use resources more effectively (through to suffer (in border enforcement, for example). The the combination of common services, for example) other approach is treating intelligence as a support and more effective operations (through informa- function shared equally by all users--leading some tion sharing and through combined audits and in- managers to locate it in the support side of the func- vestigations against common corporate targets). In tional structure. Wherever the intelligence unit is theory these more effective operations are achievable located, it must be well managed by knowledgeable through interagency cooperation, but in practice people who can ensure that its operational needs are such cooperation has rarely been successful--in ei- met and that its focus remains on clients. ther the developing or the developed world. Also, the One clear result of integrating tax and cus- united front that top revenue agency management toms into a single revenue agency is that, within can present is a powerful tool for improving compli- the new agency, the part responsible for border ance and building a strong organization within the management--the customs part--tends to focus government. chiefly on revenue collection, even though that is just The integration of tax and customs compliance one of its many responsibilities.3 This tendency can audits has not always succeeded. Different techni- hamper the customs part of the revenue agency in 12 cal areas require different knowledge and skills, and developing partnerships with the private sector and small management efficiency gains often are out- with other border management agencies. And that Managing organizational change in border management reform weighed by the stresses of forced amalgamation. Yet in turn can mean that key government priorities, joint audits can be useful in dealing with a specific such as trade facilitation, take second place. corporate target. Experience suggests that agencies should retain separate compliance audit capacities, Single border protection agencies. In recent years gov- but also that joint audits should be mounted when- ernments have increasingly emphasized protecting ever appropriate. The lack of integrated compliance communities by sharing intelligence and controlling audits, however, can lead clients to complain about the movement of goods and persons. One result of a lack of coordination among the audit units and this emphasis has been the creation of border pro- about the disruption of business by auditors' separate tection agencies. visits to their premises. To reduce inconvenience to However, there is a danger that such agencies clients, agencies should ensure that their audit units may be created--and others dissolved--without a coordinate their programs. coherent underlying strategy. Such cases can create The integration of tax and customs investiga- difficulties, as structural change is substituted for tion units has an equally mixed record of success. real management reform. 202 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Often the best course is to fi x problems without Canada has formed a border services agency setting up new structures. As an Australian review that combines the operational functions of customs, argues, "to create new organizations or merge exist- quarantine, and immigration, while leaving policy ing ones . . . raises several risks" (Smith 2008): to the relevant ministries and agencies (for example, Citizenship and Immigration Canada and the Can- It could disrupt unduly the successful and ef- ada Revenue Agency). The new agency looks much fective work of the agencies concerned and like a traditional customs agency--it has all the re- create significant new costs. Large organiza- sponsibilities that customs would have, plus immi- tions tend to be inward looking, siloed and gration and quarantine checking at the border. slow to adapt, and thus ill suited to the dy- namic security environment. For a number The management implications of of the agencies concerned national security border agency organization considerations are embedded with a broad The organization of border agencies is dictated by range of other service delivery, policy, pro- government priorities. No model is equally appro- gram and regulatory functions which could priate for every situation; all have advantages and be jeopardized by restructuring them around disadvantages. their security roles. Existing arrangements vary widely. Some gov- ernments have one border agency with separate pol- An alternative course, the review continues, is icy and operational arms (the United States). Others "to recognize and build on the strengths of existing maintain several ministries with policy functions, institutions but to identify weaknesses and address plus a single operational agency within one of those them" (Smith 2008). ministries (Canada, the United Kingdom). Still oth- Even having a cogent strategy for the new agency ers have the traditional arrangement: several agen- does not guarantee success. For example, the United cies, each including both policy and operational States has concentrated on physical security at the functions. border. Under a community protection principle, On the one hand, a single border agency can the government has created a homeland security cut costs through the sharing of corporate services agency that incorporates any and all activities possi- (training, human resources, information technol- bly related to border control. The agency's size makes ogy, finance and administration). It also may reduce management complex, and this in turn makes it the cost of coordination. And it can improve risk more difficult to achieve underlying objectives, such identification and client segmentation. as coordinating efforts across border functions. Thus On the other hand, interagency cooperation can the Department of Homeland Security contains: be secured in less disruptive ways than through cre- 12 · A customs and border protection agency. ating a single border agency--an underlying princi- · An immigration and customs enforcement body. ple of collaborative border management (chapter 2). Managing organizational change in border management reform · A transportation security administration. And yet reformers who favor collaboration over in- · A directorate of citizenship and immigration tegration must weigh the benefits of coordination services. against its costs: for example, that of maintaining And that is not all--the department includes other separate systems and that of stretched communica- organizational units with overlapping mandates. tion lines. Furthermore, change across multiple or- In the United Kingdom the government has set ganizations requires long lead times, affecting how up a border agency incorporating certain functions functions develop. of the previous Border and Immigration Agency, the In the end the choice of a given structure for bor- United Kingdom Visas Agency, and customs border der management will depend on a country's circum- control (including verification of goods). Policy for stances, on its history of public administration, and these activities remains scattered among the Home on the likelihood of securing political will for the Office, HM Revenue and Customs, and the Foreign effort. Often the choice is also directed by interna- Office. tional factors--and complicated by the move toward B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 203 national single windows for processing goods across met, while any information sharing responsibilities borders (chapter 8; briefly discussed below). Execu- must be clearly articulated and enforced. Similarly, tives in border management agencies may have little the relationships of service delivery agencies with de- ability to influence the choice. livery partners should be clear, well structured, and Whatever structure is chosen, achieving gov- based on a shared understanding of accountabilities. ernment objectives is key to success. Yet experience There should be a process for regularly reporting per- shows that government objectives for border man- formance issues and risks. Operating performance agement often are undefined or ambiguous. So it is should be reviewed regularly through a structured of paramount importance to forge a clear, widely process--both within each service delivery agency shared vision. Without such a vision, it is extremely and with the policy agency--that focuses on present difficult to articulate reform strategies and to choose and long term achievements. And there should be an appropriate organizational forms. unbiased process for dispute escalation and resolution. Policy agencies must resist the temptation to mi- A consistent theme: separating border policy from bor- cromanage service delivery agencies. There should be der service delivery. One theme is clear in the present a mechanism for airing concerns. For this purpose approach of governments to border management. some administrations have an overarching man- As more countries seek to increase border manage- agement board, including the heads of policy agen- ment capacity and to collaborate effectively, govern- cies and of service delivery agencies--an internal ments increasingly tend to make small border policy body operating at the same level, and in the same units set the agenda for the larger operating agencies. way, as regular top management meetings in any Known in France as a cabinet scheme of administra- organization. tion, this feature of border management organiza- tion is also seen in the United Kingdom's division of Management implications for individual agencies. At functions between commissioning agents (the policy the agency level several approaches to organizational departments, such as the Home Office and the trea- structure have shown varying degrees of commit- sury) and service providers (border agencies, now the ment to functional control lines. Other issues--with single border agency). the system of government, with the devolution of Separating border policy from border service de- authority, and with integrity--have in many cases livery sits comfortably within the collaborative bor- been influenced by both history and geography. In der management model (chapter 2) and can be less countries with strong provincial government, auton- organizationally disruptive. Still, such a separation omy hinders the pursuit of national control and con- must be formalized through framework agreements sistency. For example, Afghanistan and the Lao Peo- 12 defining work principles--for program accountabil- ple's Democratic Republic share a desire to centralize ity, for delegation to service delivery agencies, and for customs policy and regulations as part of border Managing organizational change in border management reform the functional split in roles and responsibilities be- management reform, but both national governments' tween policy agencies and service delivery agencies. plans for greater centralization face entrenched pro- To make the separation work, the government must vincial networks, structures, and attitudes. clearly identify obligations, accountabilities, and Where centralization encounters these obsta- performance measures. It must develop incentives cles, management may prefer a phased approach as to full participation and disincentives to nonpartic- more prudent. Successful reform uses the energy of ipation. And it must establish means of verification. the people most affected to drive change: they must In policy agencies, the heads of each corporate adopt reform and own it. To do so they must be function should be responsible for ensuring that convinced to accept the substance of change and its frameworks are regularly reviewed to reflect any timing--the reason why change management is now changes to the operating model or to delivery stan- so much discussed by prospective reformers. dards. And in the service delivery agencies, busi- Often individual organizational structures can ness plans should set out how objectives will be de- be changed to show that priorities have changed--or livered, resources deployed, and performance levels to overcome particular problems. For example, any 204 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N effort to increase central control over regional offices · Equip staff to do the job--while dealing with should be based in headquarters. And any effort to in- staff members whose performance does not meet crease attention to value added border management agency standards. functions--such as risk management, intelligence, and The starting point is to review the human re- information and communications technology--will sources regime, looking at--but also beyond--its have a stronger organizational form if divisions are cre- normal functions of recruitment, selection, mobility, ated for these activities, each headed by a senior official. remuneration, and separation. (A full list of elements to be reviewed appears in box 12.3.) Human resources management At one border management agency, senior man- agers expressed skepticism when a major reform pro- Human resources management is critical to border gram introduced--as its first change--a requirement management reform. Change is about people--and that all staff selection be based on merit (whether grand visions for reform can mean little to people for hiring, for training, or for attendance at external who have more immediate concerns, such as provid- training and development events). The agency was ing food, shelter, and education for their families.4 notoriously nepotistic. But the managers also asked A change program must look at human re- why priority would be given to a seemingly minor sources early on. If changes to terms and conditions matter when the agency had major problems with are needed, agency staff will accept delay. But they structure and operating efficiency. In reality, the will do so less gracefully if real problems are ignored. agency's integrity problems resulted partly from the During change, management should: way the agency's staff had been transferred in from · Listen to staff members' perspectives. existing civil service departments--removing them Box 12.3 Human resources development plan Staffing elements: Increased professionalism: · Identify obsolete staff positions. · Analyze legislation and internal procedures to iden- · Identify outdated positions requiring reformulation tify areas where officials have insufficient or exces- and skills upgrading. sive discretionary powers. · Identify options for reducing unnecessary positions · Interview officials and other stakeholders to iden- and model budgetary implications. tify gaps. · Recommend options for recruitment to new and · Review past and pending disciplinary cases, if any. remodeled positions. · Review integrity strategies to identify lessons. · Identify principal human resources transparency Job descriptions: implications and integrity strategies. 12 · Create new and revised positions. · Identify options for transparency training, drawing · Integrate new tasks into existing positions. on international best practices. Managing organizational change in border management reform · Modify existing job descriptions to enhance focus · Advise on mechanisms for integrity testing of po- and increase consistency with core objectives. tential recruits and staff. · Review and comment on the code of conduct. Training elements: · Propose modifications to the mission statement · Identify training objectives and targets. and core values based on assessments. · Identify training priorities by staff position and · Advise on internal disciplinary proceedings and function, target audience, and modes of delivery. staff sanction mechanisms related to transparency · Set requirements for staff trainers to ensure train- and integrity. ing skills are transferred. · Develop proposals for strengthening internal audit · Identify procedures for the selection of training procedures. candidates. · Disseminate mechanisms for circulating informa- · Establish exchange programs and internships with tion and guidelines to operational staff. other administrations. · Establish options for skills development training. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 205 from the civil service pension scheme and so depriv- Much literature on organization change focuses ing them of a safety net. Also contributing to the on the importance of reform champions in driving integrity problems was the absence of any way for reform initiatives. While the personal commitment staff to get loans for housing or other personal pur- of one or two individual leaders often can make a poses. Recruitment lead times are fairly long, and major difference to the success or failure of reform the agency needed new, energetic staff members to programs, it is equally important to build a broad drive reform. So human resources management was, team of leaders all committed to achieving the same in fact, essential to reform. reform goals. Experience suggests that leaders often change and that reform programs based only on the Leadership personal commitment of one or two individuals are What makes leadership effective? What are the char- unlikely to succeed in the longer term. acteristics of a good leader? Such questions about leadership stir academic debate. What they rarely Management group acknowledge is that an organization requires various A comprehensive reform strategy involves the par- types of leadership at various times. During reform, ticipation of managers and supervisors at all orga- inspirational leadership will encourage staff to help nizational levels. Early on, therefore, a reform must make changes. But during consolidation a more develop managers--ideally through both formal transactional style will help cement the changes, coursework and practical training, either internal or making them sustainable. external (or both). Managers demonstrating a com- Reform requires leadership that is not only mitment to change must be recognized for their strong but visible. Leaders lead from the front-- contribution. they must be visible, persuasive, and able to articu- Since candidates are likely to be scarce, and since late their vision in terms understood by all key stake- managing reform puts stress on organizations, find- holders, particularly the officials who will put the ing suitable managers requires planning and incurs changes into effect. some risk. Once the structure is established, reform- Leadership during change must also demonstrate ers can begin determining which existing manag- the values that leaders espouse. Typically the leaders of ers are suitable and where it may be necessary to fill a reform create its long term vision, and they oversee gaps in competence from the outside. If a group of the development and implementation of a coherent promising managers is immediately below the or- transformation strategy. To be effective a leader's vi- ganizational level required, their qualifications for sion should be simple, credible, and focused on over- advancement--formal education, technical barriers, coming current problems, bridging the gap between and desired personal qualities--should be assessed 12 the present and a better future. A vision that stake- against the official job description and position re- holders accept will energize reform. Such a vision quirements (which should be updated as part of re- Managing organizational change in border management reform must have emotional, as well as intellectual, appeal. structuring, discussed below). If officials have the A good leader encourages supervisors and man- required qualifications the organization should con- agers to take some risks, to reward innovation, and sider advancing them, even those who lack seniority. to accept error (up to a point) as an inevitable effect For those with the required personal qualities, but of delegating responsibility. A special challenge for without a particular qualification or experience, in- senior management is the need to build officials' dividual development plans should be drawn up and confidence in themselves. Strong, affirmative lead- discussed with them, and a projection should be made ership can conduce to such confidence, which is a about when they will be ready for advancement. prerequisite for real change. The process described above should be used to Leaders are spokespersons: they represent the make staffing plans for all management positions, organization to external constituencies. While either to fi ll immediately from within, to fi ll exter- such communication is demanded by stakeholders, nally by transfer or appointment, or to leave vacant it also--when effective--can motivate and satisfy for a short time to qualify an internal candidate. A staff. structured managerial succession plan will result, 206 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N identifying likely candidates and transparently out- best people are in place to drive the process. Early on, lining a competency development process that is it can be useful to introduce or reinforce the prin- calibrated to the projected management vacancies. ciple that recruitment and selection are based exclu- By showing all immediate and forthcoming man- sively on merit. Such an approach powerfully signals agement recruitment needs, this plan will enable re- to officials that they have opportunities to contrib- cruitment to meet needs as they arise, rather than lag ute and that longstanding inequities will no longer behind to the detriment of operations. be tolerated. Apart from the benefit of having better Existing cultural and administrative norms often qualified and motivated officials in key positions, give merit second place to seniority. Those norms merit selection gives staff early warning that infor- may be violated when younger, better qualified of- mal and customary networks are no longer effective. ficials are identified for management positions. So In some administrations management should expect be it: advancements based on merit will clearly signal considerable resistance to such a change, both inside that times have changed. and outside, as established relationships lose their influence over staff advancement. Resistance to change Merit selection should apply not just to recruit- Resistance to change will not evaporate overnight, no ment and promotion but to specialized training and matter what steps are taken to overcome it. But once development opportunities. Some basic technical a core group of staff has been convinced that man- training should be given to all staff. But selection agement is serious and committed about a reform-- for external attachments, overseas placements, and and that the reform will be supported politically and attendance at workshops and conferences should be bureaucratically in the long term--that group will used to develop promising employees and to reward support and work for change. To make that happen, performance. People selected for specialized training senior management must be visible, trustworthy, should be those best suited to applying the training and persuasive about the new vision. at work. Such training opportunities--especially In many cases resistance is passive. Where there those that involve travel (which in practice often go is pressure to conform, and particularly where there to the most senior or most favored, rather than to is nepotism or corruption, it may be difficult for an the best qualified or to those making the greatest individual to support reforms led by senior manage- contribution to corporate objectives)--can be of- ment. In such cases leaders must be fair, consistent, fered to selected lower level officers to broaden their and persistent in conveying the values that drive horizons, promote their long term development, change. and keep them motivated. During change these of- Finally, leaders must recognize the effect of poor ficials will be relied on to carry the vision forward, infrastructure on staff morale. Officials will not and management should recognize the burden that 12 work and make sacrifices for reform if management their exposure places on them. cannot adequately accommodate them in a profes- Managing organizational change in border management reform sional environment. To ask officials to work harder Remuneration and reward and better, to preach pride and self esteem, to assure Many border agencies operate within the constraints them of their importance to the national effort, and of civil service terms and conditions. The constraints then to let them work in appalling conditions is un- vary by country and agency. But they are greatest in conscionable. If the officials are to take responsibil- developing nations, where civil servants' salaries and ity for change, the management must also assume work conditions often are less favorable than they are responsibility. The officials must be persuaded that in the industrialized world. Many border agencies in management is doing its best to improve working the developing world must find ways to reward staff conditions and, where possible, living conditions. adequately, fi nancially and otherwise. If officials are required to carry out changes that reduce their Merit selection informal income--a requirement of many reform Managing a comprehensive change program often programs--they must be compensated. Unfortu- involves large staffing changes, to ensure that the nately, reformers often overlook this need because B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 207 they lack the resources to give officials incentives for quarantined within one agency without touching participating in reform. One novel approach to sal- the central agencies. Another variation is to add skill ary supplementation for border management, a for- and responsibility loadings on top of ordinary sala- mality service fee, is discussed in box 12.4. ries. Such loadings might be available to specialists, For officials who must use special skills, and who to staff on special task forces and projects, or to staff can demonstrate through special training require- with difficult or dangerous assignments. Many fur- ments that they have those skills, it may be possible ther variations on this general approach can be iden- to persuade central agencies to create a separate job tified by senior managers with some imagination. category with a higher salary range than the stan- Bonus schemes are another way to reward out- dard one. The approach may be limited by disparities standing performance. But care must be taken to across agencies, but it offers possibilities. A variation ensure that bonus schemes do not reward only of- is to place the special category higher within the job ficials deployed to certain positions--and that they category. Th is solution sometimes gains more sup- reflect government objectives. For example, in coun- port from central agencies because the disparities are tries where customs is part of a revenue authority, Box 12.4 The introduction of a formality service fee by Thai Customs International studies have identified and discussed salaries (95 percent) and to finance the introduction of the problem of corruption in government agencies new technology (5 percent). A fee of 200 Baht (approxi- operating at the border. Of all government agencies, mately $6.20) is applied to each import or export entry, customs is often cited as being among the most cor- with an additional fee of 70 Baht (approximately $2.20) rupt. To battle such corruption, most commentators per entry for recording data in the customs electronic highlight the importance of establishing appropriate clearance system. human resource management strategies--strategies The Thai FSF was introduced following extensive contributing to an environment that fosters integrity consultations with all key stakeholders, including rel- and offers staff appropriate incentives to perform in a evant ministries and the private sector. It is tied to a professional and ethical manner. series of other reform and modernization initiatives. One key element of this approach to combating Since its introduction it has been subject to regular, corruption in border management requires govern- independent evaluation. The results so far appear very ment agencies to ensure that remuneration levels af- positive, with reported complaints regarding miscon- ford a reasonable standard of living for officials. Un- duct by customs officials falling from 92 in 2006 to 69 fortunately, while commentators recognize the issue, in 2007 and just 36 in 2008. few have offered any practical means for increasing Traders, though required to pay the FSF, are gen- remuneration in environments with limited financial re- erally positive about its introduction as it is predictable, 12 sources and where it is difficult to quarantine public nonnegotiable, and subject to a formal receipt--thus sector pay increases to border management officials. eliminating the time and costs incurred in negotiating The novel approach adopted by Thailand's customs the informal arrangements that previously applied. Managing organizational change in border management reform agency is an interesting attempt to address the issue According to a survey conducted in August 2008 by in a practical way. Associate Professor Dr. Ratana Sursakdis Amorn in Thai Customs has been attempting to tackle the association with Thai Customs, 85.7 percent of eco- problem of corruption for many years. It initiated re- nomic operators agreed with the continuation of the forms aimed at simplifying formalities and moderniz- FSF provided that the modest fee amounts were ing systems and procedures, both to limit corruption maintained. opportunities and to eliminate incentives for traders to Introduced as a pilot in 2004, the FSF is now being offer bribes to officials. While these efforts were partly reviewed to determine whether it should be continued. successful, it became clear that the very low wages The positive feedback from the private sector so far paid to customs officials posed a significant barrier to indicates that the pilot has been successful in tackling meaningful progress in eliminating corruption. one of the most difficult anticorruption issues facing After exploring a number of options, Thai authori- border management reformers. ties decided to pilot the collection of a formality ser- vice fee (FSF), with the proceeds used to supplement Source: Personal communication with Thai Customs officials. 208 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N bonuses are typically paid for meeting revenue by varying their work environment. That said, some targets--a practice that gives officials an incentive to specialists should remain in their work units for raise revenue without concern for the needs of trad- longer periods: for example, investigators and labo- ers. In such countries customs officials understand- ratory technicians must stay at their posts longer, to ably make governments' trade facilitation objectives ensure that the investment in their training yields a a secondary priority. return. But staff in positions where extra pay is reg- Rewards other than money can motivate officials ularly available--from overtime or shift work, for to participate in reform. The recognition of effort example--may be moved more often to avoid ineq- can take many forms: officials may be invited to join uities in pay across job levels. senior officers at public hearings or important meet- The argument that rotation has a negative effect ings, to brief senior officers or ministers, to represent on expertise, because people shift just as they are the agency at functions, to attend interagency com- learning their jobs, is not convincing. A workforce mittees. All are ways to reward good performance that is trained, committed, and motivated can com- and to show that the organization values an individ- bine rotation with effectiveness. ual's contribution. A similar effect can be realized Staff rotation can also be used to address prob- for the work unit as a whole simply by seeking staff lems that arise where staff selections have not been views on performance improvements--and by act- made on merit. A change of position can help a staff ing on those views. member who has not performed well, though it In agencies where staff lack access to pension should not be used as a means of letting people--or schemes, housing funds, or small loans to assist their managers--off the hook. Any problems should families during domestic and seasonal crises, a good be relayed to the receiving work unit, which can de- employer will try to fi ll the gap--not to become a termine a course of action. social welfare agency, but to patch holes in the safety For rotation to succeed it must be well planned, net for staff. Such efforts are not entirely altruistic. transparent, and consistent. All staff must know the The organization benefits when officials are happier, outline of the scheme and how it applies to their jobs. more motivated, and less likely to be tempted by The dates of moves should be known well in advance. rentseeking opportunities. For example, a retirement Only in extreme circumstances should a rotation be benefit scheme may be based on insurance and staff delayed: discomfort felt by management is not a contributions. Or a fairly small government contri- valid reason. Rotation should have a high priority, bution, and loans by ballot, may be used to seed a with adequate funding set aside for it. staff housing scheme until a sizable fund emerges. The rotation of managers can be handled sepa- Other solutions to the difficulties sometimes faced rately, but should be included in the policy--staff by developing country staff include relieving their cannot be expected to accept rotation when manag- 12 greatest financial burdens by paying annual bonuses ers are exempt. Managers should be expected to ex- during the most difficult season of the year, rather perience all aspects of the work of the organization. Managing organizational change in border management reform than at the end. In short, management can do much A set rotation period should be adhered to (in some to help and reward its staff without breaking the countries, for example, managers are moved every bank. two or three years). Managers should be shifted if their performance is poor, perhaps to be replaced by Rotation and job mobility people with lower rank but with good performance Regular rotation can build confidence, cultivate records. Managers need to accept this arrangement skills and experience, and foster a better under- as the price of their status. standing of how an organization's disparate parts Clients must know of the rotation policy and the fit together. Even if initially expensive, rotation is reasons for it. Not all will agree with it--and some justifiable for staff members who may come under may attempt to derail it--but that should not affect outside pressure. It reduces the risk that they will implementation. Clients will have to accept lower commit rentseeking by making them less closely quality service in the period immediately before and identified with particular clients. It motivates them after a series of transfers, but this inconvenience will B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 209 be balanced by the gains from breaking unhealthy corruption has two sides--border officials rarely relationships that have become too close. bribe other border officials. A citizens' charter, set- ting out what the private sector can expect from bor- Integrity programs der management, can be useful. An extensive body of literature addresses corrup- tion in border management agencies, yet often it Codes of conduct and disciplinary codes simply reports and describes the problem. There Over the past decade many border management is little practical information on how to deal with agencies have put in place codes of conduct that corruption effectively where junior officials have spell out the behavior expected of officials and pre- large discretionary powers and work closely with scribe sanctions for those who fall short. Sanctions the private sector, and where close supervision is that raise the moral cost of inappropriate behavior difficult--precisely the situation of many border need support from leadership. Such sanctions are management officials. The role of management is more likely to be accepted in a climate that rewards to transparently reduce financial and social stresses, ethical behavior, where values espoused by senior to encourage adherence to corporate values, and to management are genuine and expressed in actions. punish breaches of published codes of conduct that Just as a code of conduct should go beyond integrity staff members have agreed to follow. and cover behavior in the workplace and beyond, Corporate values can be instilled starting with it should reflect the values an organization expects the induction process, which should be revisited in staff to demonstrate. all training activities. Integrity workshops can be Disciplinary codes set forth detailed procedures run back to back with short technical training ses- for extreme and persistent poor performance. A dis- sions. Another technique is to dedicate one session ciplinary code should distinguish between minor of- in each training course to an integrity case study. fences, such as repeated lateness or failing to carry At the corporate level, the first priority is to have out a lawful order, and more serious ones, such as a comprehensive integrity policy statement and ac- lying about qualifications, failing to arrive at work tion plan that clearly define how each staff member is for an extended period, or being found guilty of a responsible for preventing corruption. Such responsi- serious criminal offence. The code should specify bilities begin with self assessment. First, senior man- a range of applicable penalties: examples include agement--say, tiers two and three--should identify warnings, official reprimands, fi nes, salary reduc- vulnerabilities and mitigation strategies at a diagnos- tions, and dismissal. tic workshop. The results will help refine a compre- hensive integrity action plan in a framework devel- Managing performance 12 oped by top management. Second, work unit staff At the beginning of each reporting period--usually should assess systems and controls to pinpoint areas a calendar year--each staff member should agree Managing organizational change in border management reform most vulnerable to corruption. This two step process with a supervisor about tasks and standards. The makes management's position clear to all, with no agreement should be put in writing (many organiza- room left for corporate values to be misunderstood. tions have forms for the purpose). The staff member's The World Customs Organization's comprehensive progress should then be reviewed at regular inter- integrity development framework, comprising initia- vals of no more than six months. If any adjustments tives designed to encourage opportunity and incen- are agreed on during these regular reviews, either to tive, was initially developed for customs but is equally the tasks (because they have changed) or to the stan- applicable to all border management officials.5 dards (because the initial ones were unrealistic), such Clients should not be forgotten. Clear, unam- adjustments should be recorded. biguous standards of behavior for private sector During the regular reviews, any poor performance representatives should be framed through a similar by the staff member should be discussed openly. Its process guided by both industry bodies and non- causes and possible solutions should be identified and governmental organizations. Key to any integrity recorded. A date should then be set for a followup and anticorruption strategy is the principle that review, usually on an accelerated schedule (say, after 210 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N three months rather than six). If at the followup re- Training and staff development view the poor performance has persisted, the staff Successful management demands a training and member should get a warning that disciplinary ac- staff development policy that systematically sets tion may follow unless improvements are made-- out types and levels of training--covering a career and another followup review should be scheduled. If progression through the ranks, and including spe- nothing changes after the second followup review the cialist and management training and development. manager should take disciplinary action, with sanc- Training programs should be based on assessed orga- tions possibly including dismissal. nizational need and on future staff needs. A train- Managers who notice a staff member's continued ing master plan should be adopted to ensure that all poor performance between reviews should not wait staff members, including new recruits, are equipped until the next regular review, but should accelerate with the basic technical skills their jobs demand-- the staff member's review schedule. To wait for the including further training and education to prepare next regular review will be unfair to the staff mem- them for advancement and specialized tasks (box ber and unhelpful to the work unit. 12.6). The plan can identify courses appropriate to In some cases it might be appropriate to estab- staff members at each level; staff members may then lish formal performance contracts with key officials. enroll in further courses on their own initiative. Such an approach has been piloted by customs au- A fully effective training system must allow all thorities in Cameroon, where it has given a strong staff members equal opportunity to participate-- boost to the overall reform program (box 12.5). a point often overlooked, especially in remote Box 12.5 Cameroon Customs Integrity Initiative Within the Cameroonian context, customs is perceived frontline officers and senior management--individual as one of the institutions with the most important prob- and team performance contracts with measurable in- lems of transparency. A new program financed by the dicators were signed. Each inspector's performance World Bank and introduced in 2006 was designed to was to be assessed through eight indicators: four strengthen the chain of command by holding each link related to trade facilitation, four related to the cus- accountable--with the assistance of activity, perfor- toms clearance process and fines. For each indica- mance, control, and risk indicators--in an effort to tor a maximum or minimum value was set based on improve understanding of activities on the ground, to median monthly values in the three preceding years. provide an effective decisionmaking tool, and to re- An inspector achieved his or her contract if he or she duce corruption in customs. (Lessons of the first phase improved performance by 15 percent on all indicators of the reform were published in Libom Li Likeng, Can- after the six month pilot period. tens, and Bilangna 2009.) For inspectors below 100 percent contract per- 12 Cameroon Customs had already carried out steps formance, a system was established that begins with to strengthen accountability. They included the regu- warnings and interviews and can lead to the inspec- lar publication of revenue collection data, increased tor's transfer to another customs station. For the best Managing organizational change in border management reform contacts with the business community, automation performing inspectors a limited financial bonus is through the use of ASYCUDA software, and reduced granted, along with nonfinancial recognition. information asymmetry through the use of individual Frontline officers, as well as middle management, performance indicators. Still, the Head of Customs supported the initiative because they wished to have wanted to initiate a second wave of reforms--to change their performance assessed on the basis of objective the behaviors of frontline officials, and to reduce cor- criteria. Early results show that performance contracts ruption and increase performance. Accordingly, she have led to decreased clearance times and reduced commissioned the development of an integrity action poor practices, with revenues maintained at the same plan with a specific focus on human resources policies level as before. Moreover, the contracts have contrib- through a monitoring and incentive framework. uted to increased information flow from inspectors to A pilot was set up and performance contracts the Head of Customs. for the two largest customs stations were designed. For further information contact Gael Raballand In early February 2010--following a dialogue among (graballand@worldbank.org). B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 211 realize their potential. Such counseling can be part Box 12.6 Training master plan of a planned transfer or promotion regime for staff. A training master plan should do ten things: · Identify training objectives and targets (based on Interagency arrangements a needs review and human resources capacity assessments). Border management needs to focus on developing · Classify training priorities by subject area, target practical interagency arrangements. In some cases audience, and means of delivery. this means the amalgamation, or full integration, of · Propose training courses or programs, indicat- agencies. In other cases it means major policy and ing those that exist already and those that will operational coordination in resource use--for exam- need to be developed. · Set requirements for internal staff trainers, to en- ple, in information and intelligence. sure that training skills are transferred. Some customs agencies already have a longstand- · Set procedures for trainee and internal trainer ing responsibility to conduct primary health and im- selection. migration checks on persons entering the country, · Create manuals and documentation for training with support from secondary referral desks staffed courses, conferences, and workshops. by the agencies mainly responsible for those areas. · Outline terms of reference and contracts for A government's reasons for assigning these tasks to trainees. customs may include resource constraints and a de- · Create a strategic training framework showing how the plans will be met, including a training sire to further national interests (for example, by pro- timetable for course participants and trainers. moting tourism). Underpinning the arrangements · Set up a quality control monitoring program, in- may be extensive service level agreements linked to cluding continual reviews (for example, feedback agreements between ministers and departmental questionnaires and informal discussions). chief executives--the departments agree to reach · Set up a program for the long term monitoring certain service levels, and government in turn agrees and upgrading of training capacities. to provide extra resources. Th is approach offers a best practice model for interagency arrangements. locations. Such equality of opportunity can be en- Customs, since it is at the crossroads of trade, is sured by developing course materials in a modular ideally placed to act on behalf of other agencies with form and by making them available to staff every- border management roles. National single windows where (as in distance learning). Technical train- for international trade are increasingly being estab- ing, for example, can be broken into three or four lished for this purpose. A national single window is difficulty levels, and a set of modules for each can generally described as providing: 12 be distributed in whatever way is most convenient · A single point where all the data required by regu- for offices. Staff members can then complete each lation to clear goods across a border can be lodged. Managing organizational change in border management reform module in sequence, as far as their various devel- · A single point where parties can be notified of opment paths may lead them. To enhance train- a decision to release goods from border control. ing with face to face tutoring, expert officers can The national single window can take various become mentors for a region. The system described forms, but most involve electronic links and mes- here can be applied to materials such as those made saging among government agencies and the trading available through the World Customs Organization community. A national single window will provide e-learning scheme. for the payment of duties, taxes, and any applicable Management must support these broad training fees and charges. The payments generally are to be approaches by developing and putting in place indi- made electronically to the accounts of the govern- vidual plans for each officer. These plans should be re- ment agencies concerned. viewed and adjusted each year as part of performance Care must be exercised in using the term single management. Supervisors have a responsibility to window. Some arrangements provide a single win- counsel staff on their individual development--to dow for lodging documents at each border point.6 remedy any deficiencies, and to help staff members Others are comprehensive, enabling data to be 212 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N lodged electronically in a system that links all rel- nongovernmental nonprofit sponsored by its mem- evant border agencies (chapter 8). bers, but Singapore's portal is private and for profit A comprehensive national single window can (chapter 8). Other, technically complex systems are extend to peripheral agencies, such as the registrar being designed elsewhere to mix border controls of companies (depending on the system for register- with business operations in a more encompassing ing clients). To ensure control it is preferable to have fashion. In some cases public-private partnership one identifier across all government activity--for arrangements are being considered--arrangements example, by requiring that a taxpayer identification that would bring public policy into play, since policy number be quoted in all dealings with government. and regulatory functions cannot properly lie outside It is surprising that this simple but effective policy government control and thus should not be vested in has not been widely adopted. Instead, some single public-private partnerships (though some have sug- window designs now give each participating agency gested they might be). its own identifier, allocated only to clients who can Wherever an administration locates itself in first show that they have taxpayer identifiers. Such this spectrum, increasing interagency cooperation duplication undermines trade facilitation and regu- and integration at the border requires a gradual ap- latory control. proach. Reform proponents often lose sight of the As border operations become more integrated, time and resources needed to re-engineer processes. the place of value added services in interagency ar- Usually such re-engineering requires the creation of rangements arises as a crucial issue. At stake here are new electronic links across agencies, followed by a the larger questions about structural change exam- cleansing and uploading of data. Issues of funding ined earlier in this chapter: what are the concerns and timing are involved, as are issues of priority set- that mainly drive border reform, and what form of ting (for allocating scarce national resources) and of organization best reflects these concerns? The easiest development assistance funding. form to attain might be one based on traditional cus- Any integrated approach to border reform-- toms functions, but with added health, quarantine, whatever its sophistication--will rest on a set of and immigration tasks. Assuming that policy is set agreed control regimes for streamlined, yet com- by a central cabinet, the border organization's only prehensive operations covering the interests of all remaining role would be to establish procedures for agencies concerned. Where there is a single focal operational liaison with outside agencies that also point, interagency arrangements must be formally have interests at the border (police, security, intel- recorded. Depending on each client agency and its ligence). Such procedures are already in place at well role at the border, the arrangements may range from functioning agencies: perhaps the best example is the statements of broad operational principles to de- Canada Border Services Agency. tailed service level agreements. 12 With the advent of single window systems, however, customs commercial clearances are being Conclusion Managing organizational change in border management reform linked to value added trade services. Such linkages add complexity to an already difficult mix at the bor- Without detailing all that is required for manag- der. In countries where the value added services are ing change, this chapter has offered a framework available they generally are provided by trade portals for reform. It has suggested specific actions, and it linked to government agencies and banks, as well as has looked at the strategies and philosophies that to customs brokers and freight logistics operators. have guided successfully reformed organizations. Such portals already exist in some countries, and as It has attempted to identify what worked and what more administrations look toward single window did not--as officials, despite their good intentions, arrangements the lines between the portals and may fall into traps. Organizations will have various border control are becoming blurred. Some mod- problems according to their circumstances. But for els, such as Australia's and Singapore's, have trade reformers wondering what to do next, the forego- portals outside the government with limited links ing outline should point toward a path to workable to government agencies. Australia's trade portal is a solutions. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 213 Notes 6. Ukraine began its modernization moves with this change in its Odessa port opera- 1. The discussion of revenue authorities and tion. Clients appreciated having all agency their formation in De Wulf (2005) remains representatives co-located and not having to useful and accessible, other than in a few go from one agency to another. matters of detail. 2. See the readings referenced in De Wulf References (2005) and Taliercio (2003). 3. In all the arrangements described here for De Wulf, L. 2005. "Human Resources and Organiza- integrating tax and customs into a single tional Issues in Customs." In Customs Modern- revenue agency, the customs part of the new ization Handbook, ed. L. De Wulf and J.B. Sokol. agency continues to be involved in both rev- Washington, DC: The World Bank. 31­50. enue collection and border management-- Libom Li Likeng, M., T. Cantens, and S. Bilangna. the two functions not having been separated 2009. "Gazing into the Mirror: Operational In- during the merger. Arguments can be made ternal Control in Cameroon Customs." Discus- for and against this continuation of customs' sion Paper 8, Sub-Saharan Africa Transport Policy twofold function based on its implications Program (SSATP), The World Bank, Wash- for the revenue collection (some focusing on ington, DC. Available at http://siteresources. efficiency, others on effectiveness). However, worldbank.org/EXTAFRSUBSAHTRA/ none of those arguments is relevant to bor- Resources/DP08-Cameroon-Full.pdf. der management or to perceptions of border Smith, R. 2008. Report of the Review of Homeland management. and Border Security. Canberra: Australian 4. Maslow's familiar theory is sound: people Government. look to their primary needs first. Taliercio, R.R., Jr. 2003. "Administrative Reform 5. All WCO tools related to integrity are avail- as Credible Commitment: The Impact of Au- able on the WCO Web site, www.wcoomd.org. tonomy on Revenue Authority Performance in Latin America." World Bank, Washington, DC. 12 Managing organizational change in border management reform 214 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 13 CHAPTER Nontariff measures: impact, regulation, and trade facilitation Olivier Cadot, Maryla Maliszewska, and Sebastián Sáez Like the ebbing tide uncovering rocks on the sea bottom, the progressive reduction of tariffs (currently around 5 percent for industrial countries and 10­20 percent for most developing countries) has revealed the im- portance of other barriers to trade. Some of those barriers are inherent to doing business across borders: informational costs, dealing in foreign currencies and languages, and so on. These "natural" trade costs are very large: Anderson and van Wincoop (2004) estimate their combined ad valorem equivalent at 36 percent.1 Some others, however, are inflicted by policy. These policy induced nontariff barriers (NTBs) are very di- verse in nature, from regulations that ostensibly address domestic issues (say, public health)--but have an incidental impact on trade--to specific border procedures, such as customs clearance, that may raise trade costs because of the way they are implemented on the ground. Reducing these NTBs is part of a large part to negotiated phaseouts and broader trade facilitation agenda aimed strengthened multilateral disciplines. at the reduction of overall trade costs. New generation measures are much This agenda--and the linkage between broader in scope, including rules of ori- trade facilitation and NTBs--gained gin, traceability requirements, sanitary prominence with the 2001 Shanghai and product standards, and regulations Accord of the Asia-Pacific Economic of all sorts. They have proliferated for a Cooperation (APEC), which pledged variety of reasons, most often to increase to reduce trade costs by 5 percent over consumer safety, and often--though Managing organizational change in border management reform the following five years. It is now very not always--without explicit protec- much at the core of the Doha Round's tionist intent. The term nontariff mea- agenda as well. sures (NTMs) has gained acceptance to In spite of a voluminous literature, designate these measures without the the definition of NTBs, their identifica- pejorative (protectionist) connotation tion, and the measurement of their ef- associated with the term NTB. fects on trade are still very much a fuzzy Naming is one thing, measuring science. Early attempts at measuring the another. Analysts of NTMs, seeking effect of nontariff barriers focused on to identify NTMs and to measure their easily identified policy instruments such effects on trade, have proposed a range as quantitative restrictions and prohibi- of approaches briefly reviewed below. tions. However, use of these old style None is flawless, and numerous diffi- measures has largely receded, thanks in culties remain. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 215 To make progress on the NTM streamlining identification of NTMs and methods to quantify agenda, policymakers need a reasonably clear pic- their effects. Following is a section that examines ture of how prevalent NTMs are, how NTMs' ef- WTO disciplines as well as efforts to streamline fect on trade can be assessed quantitatively, and what NTMs at regional and national levels. A final section multilateral, regional, and national disciplines are al- provides conclusions and policy recommendations. ready available to contain the trade inhibiting effects of NTMs. These three issues interact, in the sense Defining nontariff measures that data on NTMs can be important in enforcing and measuring their inhibiting the existing disciplines and targeting negotiations effects on trade to open trade. Th is chapter takes stock of present knowledge with respect to these questions. Its con- We seek out and catalog NTMs for a specific rea- clusions may be previewed here: son: to understand better the measures that are dis- · Between one-third and two-thirds of traded placing or replacing tariffs and to understand where goods are affected by one or more nontariff discipline on NTMs would be beneficial. Tariffs are measures, with technical standards appearing in obvious, directly observable, and unambiguously surveys as both the most prevalent and the most intended to affect trade--but NTMs are regulatory difficult to comply with. measures that may affect trade even unintentionally, · Estimates of the ad valorem equivalents (AVEs) whatever their primary purpose. Thus, whether a of NTMs suggest levels roughly comparable to regulatory text qualifies as an NTM or not depends tariffs--5 percent to 10 percent on average, with on its trade effects--and NTMs accordingly can be very substantial peaks. Estimates of the effect defined as regulatory texts that either create a wedge of NTMs on trade flows suggest that harmoni- between domestic and foreign prices or affect trade zation and mutual recognition agreements can flows. provide substantial gains in trade, particularly Baldwin (1970) added a normative dimension by for smaller firms with substantial compliance defining nontariff measures as "any measure (private and information costs. or public) that causes internationally traded goods · The rules of the World Trade Organization and services to be allocated in such a way as to re- (WTO) provide an agreed benchmark for duce potential real income." However, introducing NTMs' acceptability, help governments per- normative considerations is a source of complication suade their trading partners to bring NTMs into rather than clarification. For instance, NTMs may rule compliance, and provide a basis and setting be used to correct market failures that would other- to negotiate further market opening. Substan- wise reduce welfare but not income; so focusing on 13 tively these rules require nondiscriminatory their income reducing effects may wrongly suggest treatment and permit member governments to that they are undesirable. Definitions based on price Nontariff measures: impact, regulation, and trade facilitation maintain whatever level of protection they de- or quantity are less conducive to misinterpretations. sire--but require them to meet certain condi- For want of a universally acceptable definition, tions. Regulations must be necessary to achieve ad hoc taxonomies have flourished. Baldwin (1970, a legitimate policy objective, not disguised bar- for example) as well as Laird and Vossenaar (1991) riers to trade or unnecessarily restrictive of trade. took intent and impact as their key defining criteria. Where the WTO rules stop, negotiations begin; The WTO has also developed an NTM nomencla- governments have undertaken higher than ture for negotiation purposes. The WTO nomencla- WTO levels of discipline in regional trade agree- ture, reproduced at the broadest level, is shown in ments and through bilateral arrangements, and box 13.1. they have unilaterally liberalized NTMs when The scope of NTMs captured by the WTO no- they view this action as being in the national eco- menclature is fairly wide and includes numerous be- nomic interest. hind-the-border measures. For instance, "Govern- The chapter is organized in three main sections. ment participation in trade" (category I) includes a The first section below discusses the definition and broad range of measures, including the presence of 216 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Box 13.1 Classification of nontariff Box 13.2 Classification of nontariff measures by the World Trade measures according to the United Organization's Non-Agricultural Nations Conference on Trade and Market Access (NAMA) Development (UNCTAD) in 2009 I. Government participation in trade The nomenclature adopted for nontariff measures II. Customs and administrative entry procedures in 2009 by the United Nations Conference on Trade III. barriers to trade and Development (UNCTAD) contains the following IV. Sanitary and phytosanitary measures categories, at the broadest level of aggregation (the V. Specific limitations and quantitative restrictions first letter in the code for each category): VI. Import charges and levies A000 Sanitary and phytosanitary measures VII. Other (intellectual property and safeguards) B000 Technical barriers to trade Source: Adapted from WTO (2003b). C000 Preshipment inspection and other formalities D000 Price control measures E000 Licences, quotas, prohibitions and other state owned enterprises, single channel marketing quantity control measures arrangements, and so on. F000 Charges, taxes and other paratariff measures In 1994 UNCTAD created a classification G000 Finance measures H000 Anticompetitive measures that has been widely used since because it underlies I000 Trade related investment measures coding in the Trade Analysis and Information Sys- J000 Distribution restrictions tem (TRAINS), which records data on tariffs and K000 Restriction on postsales services NTMs into the statistical system of the United Na- L000 Subsidies (excluding certain export subsidies tions Statistical Division (UNSD). However, UNC- classified under P000, below) TAD's 1994 coding has become obsolete, for two M000 Government procurement restrictions reasons. First, it featured old style measures--quan- N000 Intellectual property titative restrictions and the like--that have largely O000 Rules of origin P000 Export related measures been phased out. Second, it grouped into catchall categories many measures important now, such as Source: Authors. product standards. In 2006 UNCTAD's Group of Eminent Per- conducted work on the issue, leading to a separate sons on Non-Tariff Barriers (GNTB) started work- classification set out in an influential paper by Dear- ing on a new classification, more appropriate to re- dorff and Stern (1998). This OECD classification is cord the new forms taken by NTMs (and closer to fairly similar to that of UNCTAD, but the OECD the WTO's). The new classification, adopted in July classification also includes investment measures and 2009, is shown at the broadest level of aggregation lumps together import surcharges of all sorts with 13 (one letter) in box 13.2. contingent protection measures (antidumping, regulation, and trade facilitation The new nomenclature provides better disag- countervailing duties, and safeguards). Nontariff measures: impact, gregation of NTMS, at one letter and one digit (64 categories), one letter and two digits (121 categories), Data sources or even one letter and three digits (special cases). It The primary source of data on NTMs is UNC- covers a wide range of measures, some of which are TAD's TRAINS database, which is managed by a clearly behind the border (an example is anticom- multi-agency consortium of the IMF, ITC, FAO, petitive measures, which include arcane measures OECD, World Bank, UNCTAD, UNIDO, and like compulsory national insurance). The new no- WTO. The TRAINS database draws on informa- menclature has not been widely used yet, and some tion provided by governments, combined with the ambiguities will need to be dealt with. Nevertheless, WTO's NTM database and information collected it will provide the basis for the new wave of NTM by regional secretariats (for example, ALADI, data collection to replace TRAINS. SIECA, and SAARC) along with some regional Work by the Organisation for Economic Co- development banks, such as the Inter-American operation and Development (OECD) has also Development Bank. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 217 Coverage in TRAINS has never been complete. Measurements of incidence and impact Its classification focused on a relatively narrow set It is an understatement to say that coverage ratios, of measures, and implicitly limited the instruments AVEs and, more broadly, estimates of the impact of it covered--and government reporting has always NTMs on trade vary substantially across studies, been haphazard (see de Melo and Carrère 2009 for making it difficult to draw sweeping conclusions. details). Out of 165 countries for which trade sta- Nevertheless, a number of observations can be made. tistics are available on the COMTRADE database, First, NTMs affect a very large share of imports, only about 100 have NTM entries--and the entries while standards and technical regulations are now are essentially for 2000­01, though some updating the major form of NTM. The studies reviewed show has recently taken place. A major effort, led by an coverage ratios ranging between one-third and two- UNCTAD Multi-Agency Support Team (MAST), thirds of imports (34 percent for industrial country is underway to seek up-to-date data from an expand- imports from developing countries according to ing number of countries. The data collection effort is Nogues, Olechowski, and Winters 1986; 57 per- based on UNCTAD's new classification. Instead of cent in the sample of Kee, Nicita, and Olarreaga relying on government reporting, UNCTAD com- 2009). Moreover, one of the most striking results to missions consultants to seek NTM information from come out of recent work (see for example Disdier, national authorities, regional secretariats, importers' Fontagné, and Mimouni 2008) is the prevalence of associations, chambers of commerce, and other pri- product standards in agrifood trade. Subject to cave- vate sector sources. It is expected that capacity build- ats discussed in the previous section, International ing will lead, over time, to self sustaining data collec- Trade Centre survey results suggest that technical tion systems at the national and regional levels. barriers (essentially standards) are just as prevalent Exporter and importer surveys provide a source for a wide range of products and destinations. Thus, for more qualitative data on NTMs. For instance, standards and technical regulations seem to have su- the World Bank (2008a) carried out interviews of perseded quantitative restrictions as the major form exporters and government officials in 13 countries of NTMs. in Asia and Latin America and carried out similar Second, as for the severity of NTMs, estimated interviews in East Africa (World Bank 2008b). Cov- AVEs show overall averages of 5 percent to 10 per- erage varies substantially across countries, as does cent, with substantial peaks--higher than tariff the balance between private sector and public sector peaks. Kee, Nicita, and Olarreaga (2009) find aver- information. ages of 9.2 percent (simple) and 7.8 percent (trade Finally, the World Bank has developed two indi- weighted) across 4,545 product specific regressions. cators for specific components of trade costs: These estimates are somewhat lower than those of 13 · The Doing Business project (see http://www. Bradford (2003), who finds average AVEs ranging doingbusiness.org/) measures the cost of fees from 7.8 percent (Canada) to 28 percent (the United Nontariff measures: impact, regulation, and trade facilitation for importing or exporting a 20 foot container Kingdom) to 52 percent (Japan). If products with (World Bank 2009, p. 49; Djankov, Freund, and no NTMs are eliminated, AVEs climb to 39.8 per- Pham 2006). cent and 22.7 percent respectively in Kee, Nicita, · The Logistics Performance Index (LPI; see and Olarreaga (2009). These higher orders of mag- http://www.worldbank.org/lpi) measures the nitude are comparable to those obtained using price infrastructure and regulatory environment in based methodologies by Andriamananjara and oth- which logistics chains operate, based on survey ers (2004), although individual estimates vary sub- data from global freight forwarders and express stantially: for instance, Andriamananjara and others carriers, with direct measurement of some quan- (2004) find a 73 percent average AVE for apparel, titative indicators. against only 20 percent in Kee, Nicita, and Olar- These indices are designed chiefly to raise politi- reaga (2009). Kee, Nicita, and Olarreaga (2009) cal awareness on trade facilitation issues. Caution also observe that NTM AVEs, unlike tariffs, tend should be exercised in using them for rigorous sta- to rise with income levels, reflecting stiff agricultural tistical analysis. NTMs in rich countries.2 A reality check is provided 218 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N by a recent survey on nontariff trade costs between the use of e-business tools, and certain regulatory har- Arab countries that returned AVEs ranging between monization measures at the border (regulatory envi- 2 percent and 11 percent, with an average of 6 per- ronment). They estimated that the combination of cent (Hoekman and Zarrouk 2009). these measures would yield a remarkable 21 percent Estimates of the trade reducing effect of NTMs rise in trade ($254 billion) in the APEC region. The are largely consistent with these AVEs. Using a grav- measures with highest impact were those related to ity equation, Hoekman and Nicita (2008) find an port efficiency and the regulatory environment. In- elasticity of trade to NTMs around one-half, imply- deed, Francois, Van Meijl, and van Tongeren (2003) ing that cutting the AVE of NTMs in half--from noted that trade facilitation measures typically bring around 10 percent to around 5 percent--would higher benefits than most measures now under discus- boost trade by 2­3 percent. sion in the Doha Round's market access negotiations. The studies examined find that standards and technical regulations have a particularly significant World Trade Organization disciplines impact on trade. Chen, Otsuki, and Wilson (2006), on nontariff measures using a gravity equation, find that standards have a stronger impact on developing country exports NTMs exist within a framework established by the and that testing and inspection procedures reduce rules of the trading system, including the multi- exports by 9 percent and 3 percent respectively. Ac- lateral rules of the WTO Agreement, the rules in cess to relevant information about standards seems regional trade agreements, and even rules agreed in key, as informational barriers by themselves reduce bilateral or plurilateral negotiations. The following trade by 18 percent while firms with foreign capi- section discusses these rules and their connection tal--typically larger ones with better access to infor- to the empirical analysis of NTMs and their effects. mation--are less affected. Finally, nonharmonized Legal rules provide an agreed normative bench- standards cause diseconomies of scale for exporters, mark for NTMs' acceptability. By characterizing reducing the likelihood of entry in foreign markets some NTMs as illegal they defi ne which NTMs a (in addition to reducing volumes conditional on government is obligated to address and which its entry). Czubala, Shepherd, and Wilson (2007) also trading partners have a right to complain about. find that the trade inhibiting effect of standards is Conversely, where an NTM is not characterized as reduced when they are harmonized. These results are illegal under the rules, trading partners and their confirmed by Baller (2007), who found that mutual stakeholders who seek action to reduce its trade re- recognition agreements had a strong positive effect ducing effects can only obtain it if the importing both on the probability that bilateral trade takes country agrees. Thus, the rules draw the line be- place and on its volume. tween actions that trading partners can expect for 13 The policy implications emerging from this body free and actions for which they must negotiate and regulation, and trade facilitation of work are thus fairly clear: standards related NTMs pay in some form. Nontariff measures: impact, have a real impact on trade, compliance costs matter, Substantively, these rules require nondiscrimi- and harmonization and mutual recognition agree- natory treatment and permit member governments ments that reduce those compliance costs--without to maintain whatever level of protection they desire, necessarily watering down the substance of the mea- but they do not stop at nondiscrimination. They re- sures--can have a positive impact on trade flows. quire that regulations be necessary to achieve a legit- The conclusions are similar for trade facilitation. imate policy objective and not be disguised barriers Djankov, Freund, and Pham (2006) estimate that a to trade or unnecessarily restrictive of trade. Where one day delay in shipment for exports means a reduc- the WTO rules stop, negotiations begin; govern- tion in trade of at least 1 percent--and 7 percent if ments have undertaken higher than WTO levels of the exports are agricultural products. Wilson, Mann, discipline in regional trade agreements and through and Otsuki (2003) simulated changes in trade flows bilateral arrangements, and they have unilaterally among APEC member economies to improve effi- liberalized NTMs when they view this action as ciency in the use of ports, the customs environment, being in the national economic interest. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 219 WTO disciplines. Until 1979 the General Agree- the GATT's most favored nation clause for border ment on Tariff and Trade (GATT) limited its basic charges (article I:1) also applies to internal taxes and rules for regulation to two requirements--not to dis- regulations--a WTO member must apply the same criminate and not to ban or restrict imports. But the regulations to like products from any WTO source. drafters recognized a short list of policies that would In dispute settlement decisions interpreting trump trade liberalization, some of them highly rel- article III:4, GATT panels clarified that the scope evant to NTMs. The 1979 Agreement on Technical of this provision is very broad indeed. According Barriers to Trade (TBT Agreement; WTO 1994c) to the panel in 1958, "the drafters of the Article in- expanded GATT disciplines on regulation with tended to cover in paragraph 4 not only the laws and a plurilateral code that added rules affecting even regulations which directly governed the conditions nondiscriminatory regulations. Finally, after the of sale or purchase but also any laws or regulations Uruguay Round, the WTO Agreement included an which might adversely affect modify the conditions amended TBT Agreement as well as a new Agree- of competition between the domestic and imported ment on the Application of Sanitary and Phytosani- products on the domestic market" (GATT 1959, tary Measures (SPS Agreement). Going far beyond p. 60).4 In later decisions panels clarified that this nondiscrimination, these two agreements provide nondiscrimination requirement has a very broad additional discipline on NTMs. scope--applying, for instance, to technical regula- tions, government benefits, sales practices of state Nondiscrimination and the GATT. The principle of owned enterprises, regulations on product quality or nondiscrimination is central to the GATT. A mul- ingredients, measures discouraging the use of certain tilateral tariff agreement, the GATT also includes products, labeling regulations, and shipping charges nontariff obligations designed to secure the value of of government run railways or postal services. the agreed tariff concessions and to generalize their In principle, the trade effects of an NTM are of no benefit to all GATT members on a most favored importance in determining whether an NTM violates nation basis. These nontariff obligations now apply the GATT's nondiscrimination principle--trade ef- to all WTO members through the GATT's incorpo- fects from the NTM should be considered irrelevant. ration into the WTO Agreement. Since 1949 it has been recognized that any higher tax- Because a discriminatory internal tax or regu- ation of imported products violates article III, even lation can eliminate any benefit of a tariff binding, if no damage is shown and even if there is no tariff GATT article III:1 recognizes the principle that in- binding on the product in question. As a GATT panel ternal taxes, charges, and regulations should not be found in 1987, the prohibition on tax discrimination applied to imported or domestic products to protect between like products does not protect expectations 13 domestic production. Article III:2 prohibits impos- of any particular trade volume but only expectations ing on imported products internal taxes or charges about the competitive relationship between imported Nontariff measures: impact, regulation, and trade facilitation higher than those imposed on like domestic prod- and domestic products (WTO 1995, p. 128). ucts. And article III:4 requires that imported prod- But what if a regulation or tax treats imports ucts be accorded "treatment no less favorable than less favorably without any explicit discrimination that accorded to like products of domestic origin in between like products? Disputes over such de facto respect of all laws, regulations and requirements af- discrimination have confronted the WTO dispute fecting their internal sale, offering for sale, purchase, settlement system with the task of distinguishing be- transportation or use" (WTO 1986, p. 6). tween on the one hand, domestic regulatory or tax As a GATT panel described it in 1958 when schemes that were clearly set up so as to discriminate, writing about article III:4, "the intention of the and, on the other, domestic schemes set up for some drafters of the Agreement was clearly to treat the other purpose that have an unintended negative ef- imported products in the same way as the like do- fect on imported products. mestic products once they had been cleared through WTO panels and the WTO Appellate Body Customs. Otherwise indirect protection could have solved this conundrum by drawing on the the be given" (GATT 1959, p. 60).3 Moreover--since principle in article III:1 that taxes and regulations 220 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N should not be applied so as to protect domestic pro- Accordingly, for an NTM, a trading partner duction. They have agreed that the provisions on must demonstrate a rule violation (such as denial national treatment in articles III:2 and III:4 must of national treatment). The importing country then be interpreted in the light of this principle. Thus, must show that the measure: in judging dissimilar taxation of two products that · Falls within the policy objectives listed in compete with each other, WTO panels will only article XX. find a violation of article III:2 if "the design, the ar- · Does not discriminate arbitrarily between coun- chitecture, and the revealing structure" of the tax tries where relevant conditions are the same, and measure show that it is applied so as to protect do- also takes into account relevant differences. mestic production (WTO 1996, paragraph 29).5 · Is not a form of disguised protectionism. The WTO's approach to de facto discrimina- Three of the exceptions in article XX refer to tion does not amount to letting in trade effects measures "that are necessary." But what is neces- through the back door. The orthodox doctrine that, sary? To analyze necessity panels have used a bal- even if there is no trade, discrimination violates the ancing approach. In the leading WTO case on this rules remains as valid now as in 1949. The decisions issue, concerning a Korean discriminatory regime referred to above have simply shown that, when a for imported beef, the WTO Appellate Body noted regulation or tax does not explicitly discriminate that necessity claims must be evaluated in relation against imports, more flexibility will be shown if to circumstances. It further noted that such evalu- its demonstrable purpose was to advance some non- ations always involve weighing and balancing a se- trade objective. ries of factors, prominently including (WTO 2001, paragraph 164):6 Exceptions. The GATT also includes a short list of · The actual contribution made by the measure to exceptions in article XX that permit a government achieving the stated objective within article XX. to maintain measures that would otherwise violate · The importance of the common interests or val- the positive rules of the GATT--for instance, mea- ues protected. sures that discriminate against or between imports · The measure's restrictive impact on trade. or that ban importation of a good. The article XX In this case and others the WTO Appellate exceptions permit measures necessary to, or related Body has looked for a relation between the mea- to, certain named policies--for instance, measures sure and the end pursued that is not just a contri- "necessary to protect human, animal or plant life bution to accomplishing the objective, but closer or health," measures "necessary to protect public to being indispensable to accomplishing that ob- morals," measures "necessary to secure compli- jective. The party seeking to demonstrate that its ance" with otherwise GATT-consistent laws and measures are necessary must establish this through 13 regulations, and measures "relating to the conser- evidence or data establishing that the measures ac- regulation, and trade facilitation vation of natural resources if such measures are tually contribute to the achievement of the objec- Nontariff measures: impact, made effective in conjunction with restrictions tives pursued. Evaluation of a measure's necessity on domestic production or consumption" (WTO also requires an evaluation of its restrictive effect 1986, pp. 37­38). A proviso to the list requires that on trade (or on the sale or distribution of imports the measures in question not be "applied in a man- behind the border, if the issue is justifying behind- ner which would constitute a means of arbitrary the-border discriminatory regulations). The less or unjustifiable discrimination between countries restrictive an NTM is, the more likely it is to be where the same conditions prevail, or a disguised justifiable as "necessary" (WTO 2009, paragraphs restriction on international trade." In any dispute 305­10). the complaining party bears the burden of proof But it cannot really be necessary for an NTM as to whether the positive rules have been violated; to violate GATT rules if there is some reasonably however, exceptions are an affi rmative defense, for available, GATT-consistent way for the govern- which the burden shift s to the defending party ment to accomplish the same goal. A GATT panel (WTO 1986, p. 37). pointed this out in the United States­Section 337 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 221 case in 1988 (GATT 1989), and other WTO pan- country, or must be shipped in containers that have els have repeatedly recognized the essential truth of been painted pink. this proposition.7 In the Korea­Beef (WTO 2001)8 The SPS Agreement and the TBT Agreement go and United States­Gambling (WTO 2005)9 cases beyond GATT rules to address the impact of NTMs the Appellate Body clarified that, as a panel evalu- on trade, even in cases where the NTMs are non- ates necessity, it must examine whether the defend- discriminatory. The SPS Agreement--developed ing party could reasonably be expected to employ as part of the Uruguay Round agricultural trade an alternative measure that is WTO-consistent (or package--specifically tackles typical NTMs affect- less WTO-inconsistent) and that would achieve ing food trade and applies only to sanitary and phy- the objectives pursued by the measure at issue. An tosanitary measures, which are typical NTMs affect- alternative measure may be not "reasonably avail- ing food. The TBT Agreement provides related but able" if it is merely theoretical in nature or imposes separate disciplines that apply to all other standards, on a member an undue burden, such as prohibitive technical regulations, and conformity assessment costs or technical difficulties in its implementation. procedures for all products.10 Moreover, an alternative measure that is "reason- The SPS Agreement (WTO 1994b) presents the ably available" must preserve the defending party's tradeoff between free trade and regulatory sover- right to achieve its desired level of protection with eignty most explicitly. It states that WTO members respect to the objective pursued under article XX have the right to take SPS measures--but it requires (Sáez 2005). Where the complaining party iden- that such measures must be applied only to the ex- tifies an alternative measure the defending party tent necessary to protect human, animal, or plant has the burden of demonstrating that its GATT- life or health, and that the measures must be based inconsistent measure is "necessary" (WTO 2009, on scientific principles and not maintained with- paragraph 319). out sufficient scientific evidence (articles 2.1, 2.2). To determine whether such an alternative mea- Whether scientific evidence supports a measure is sure exists, then, the panel must evaluate three an element of whether the measure is necessary and things: proportional. A member has the right to set its de- · Whether the alternative measure is economi- sired "appropriate level of sanitary or phytosanitary cally and technically feasible. protection," but in doing so it must take into account · Whether the alternative measure would achieve the objective of minimizing negative trade effects the same objectives as the original measure. (article 5.4). · Whether the alternative measure is less trade re- Article 2.2 of the TBT Agreement confronts the strictive than the original measure. same tradeoff in similar terms. It requires that mem- 13 If any of these elements is not met, the alterna- bers ensure that technical regulations are not pre- tive measure is deemed to be not compatible with pared, adopted, or applied with a view to, or with the Nontariff measures: impact, regulation, and trade facilitation WTO obligations. Here, as well, economic informa- effect of, creating unnecessary obstacles to trade. It tion on the NTM at issue is directly useful. further clarifies that technical regulations must not be more trade restrictive than necessary to fulfi ll a Beyond nondiscrimination: the legitimate objective, taking into account the risks of SPS and TBT Agreements nonfulfi lment. Unlike GATT article XX, which is While the GATT bans discrimination in internal limited to a short list of acceptable excuses such as taxes or regulations, GATT rules impose no limi- public morality and public health, TBT article 2.2 tations whatsoever on a nondiscriminatory mea- provides an open illustrative list of acceptable "legiti- sure's objectives, subject, policy focus, or method- mate objectives." ology. Government regulatory sovereignty remains These SPS and TBT necessity requirements en- supreme. A government could even impose a nondis- courage members to address nontrade problems, criminatory regulation that burdens all trade--such such as product safety, through less trade reducing as a requirement that all goods offered for sale must and more efficient measures. Thus, the costs in terms be labeled only in the language of the importing of trade inherent in the regulations should be clearly 222 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N lower than the benefits obtained. These agreements 1998, paragraphs 205­07).14 In the compliance promote a more efficient use of instruments that cre- phase of the Salmon and Apples disputes each panel ate fewer distortions from an economic standpoint. relied on its experts and quickly concluded that the The analysis of necessity under the SPS and TBT importing country's amended import regime failed Agreements rolls together the same combination of the three part test. themes as the analysis of necessity in article XX: No panel has yet applied the necessity and pro- · A measure's contribution toward a policy portionality test in TBT Agreement article 2.2 (al- objective. though claims under article 2.2 are at issue in at least · The legitimacy and importance of the objective two pending disputes). pursued. · The measure's restrictive impact on trade--in- Regionalism and other preferential cluding the government's choice not to employ trade agreements reasonably available alternatives that would have Governments have also addressed NTMs--espe- been less restrictive. cially those arising from standards, technical regula- There is an essential difference, however. In any tions, and conformity assessments--through prefer- dispute applying SPS article 2.2, 5.4, or 5.6 (or any ential trade agreements (PTAs). The communication combination of these) to a (nondiscriminatory) SPS channels created in setting a preferential trade agree- measure--and in any dispute applying TBT arti- ment can build mutual trust and confidence in the cle 2.2 to any other measure--the complaining party judgment of other regulators, creating a basis for bears the burden of proving there is a lack of neces- agreements on the harmonization of standards, on sity. On the other hand, in a GATT dispute where the mutual recognition of test data, or on the mutual the defending party invokes an affirmative defense recognition of conformity assessment. under article XX, the defending party bears the bur- Similar benefits can arise from other, similar den of proof on all the issues in article XX (including agreements made within an established bilateral necessity, and nondiscriminatory, nonprotectionist or plurilateral relationship. Examples include mu- application). This difference can make a substantial tual recognition agreements between the European difference in the outcome of the dispute.11 Union and the United States and agreements related Panels in SPS disputes have not had difficulty to standards among members of APEC. applying the three part test outlined above, rely- ing on objective expert evidence on the risks com- SPS and TBT provisions in preferential trade agree- bated by a measure--for example, fish diseases in ments. Preferential trade agreements made by the the Australia­Salmon dispute (WTO 1998)12 or European Union, and those made by the United plant diseases in the Japan­Apples dispute (WTO States, contain measures to reduce or eliminate 13 2003a).13 Since the alternative measures proposed NTMs. Horn, Mavroidis, and Sapir (2009) review regulation, and trade facilitation by exporting countries will always be significantly measures in 28 such agreements with developed Nontariff measures: impact, less restrictive than the disputed measures are, the and developing countries. The authors distinguish only questions are whether the proposed alternative among 52 policy areas, which they divide into two is technically and economically feasible and whether types of commitments: it would deliver the importing country's designated · Commitments going beyond the WTO, but in appropriate level of protection. As the WTO Appel- areas already covered by commitments agreed late Body noted, the SPS Agreement does not explic- at the multilateral level--reconfirming existing itly require a member to define appropriate levels of WTO commitments or providing further obli- protection routinely for all products--but in a dis- gations (WTO+). pute the panel must use some benchmark for SPS ob- · Commitments related to areas or policy instru- ligations, and if the defending party does not supply ments that are qualitatively new--not previously a defined appropriate level of protection the panel regulated by the WTO (WTO-X). must infer such a definition from the level of protec- The SPS and TBT measures are examples of tion in the defending party's SPS measures (WTO WTO+. In contrast, labor laws, environmental B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 223 measures, and measures on the movement of capi- the acceptance of technical regulations as equivalent tal--among others--are examples of WTO-X. and the mutual recognition of conformity assess- Preferential trade agreements made by the Eu- ment procedures and bodies (bodies where parties ropean Union and those made by the United States must explain nonequivalence to other parties' con- cover WTO+ areas to a very large extent. The TBT formity assessment procedures and nonrecognition provisions in European Union agreements typi- of those procedures). In addition, a few developed cally not only reinforce the commitments from the countries--European Union members and more WTO TBT Agreement, but also establish forums developed members of APEC and the Association to promote unilateral or mutual recognition of stan- of Southeast Asian Nations--have arrangements for dards and of conformity assessment. In contrast, the the mutual recognition of conformity assessment re- agreements made by the United States are less deep sults in certain sectors (for example, in telecommu- in their commitments, typically reconfirming the nications and in electrical, electronic, and medical WTO obligations of preferential partners. However, equipment). most TBT provisions in United States agreements The depth of TBT liberalizations depends on are legally enforceable--in contrast to European several factors. The first is the degree of the parties' Union agreements.15 development. Provisions on the harmonization of The coverage of SPS provisions by preferential standards and, most important, the recognition of trade agreements is less common, and rarely are the conformity assessment results are included in pref- provisions legally enforceable.16 Most of the United erential trade agreements among countries with States agreements contain exemptions from dispute similar degrees of development. The second factor is settlement for SPS measures--dispute settlement is the degree of integration. Deeper and more compre- allowed for only by the two agreements that contain hensive agreements, such as customs unions and eco- legally enforceable SPS provisions. nomic association agreements, most often go beyond For TBT provisions the most common approach the WTO TBT commitments. The third factor is taken in a number of agreements signed between de- whether the European Union or the United States is veloped and developing countries is the mutual rec- involved. In preferential trade agreements involving ognition of conformity assessment results (Lesser the United States liberalization related to TBT can 2007; Permartini and Budetta 2009).17 Such mutual take several forms: for example, the acceptance of the recognition is considered to be less costly than the partner's technical regulations as equivalent, align- harmonization of regulations, standards, or confor- ment toward international standards, and the mu- mity assessment procedures. The next most common tual recognition of conformity assessment results. approach is to increase transparency requirements-- In contrast, preferential trade agreements between 13 urging members to notify each other about new and the European Union and European Neighborhood modified regulations and procedures. Policy countries are based on harmonization toward Nontariff measures: impact, regulation, and trade facilitation Other approaches that are often adopted in PTAs European Union regulations, standards, and con- include harmonizing technical regulations, harmo- formity assessment procedures--while in European nizing standards, harmonizing conformity assess- Union preferential trade agreements with more re- ment procedures, and--the least common--accept- mote countries (such as Chile) convergence towards ing other parties' technical regulations as equivalent international standards is preferred. to one's own (despite differing technical specifica- tions). All these approaches are compatible with each Unilateral reform: lessons from other. Often a preferential trade agreement includes a two decades of reform range of measures based on various approaches. For TBT commitments most preferential trade More than other areas of trade policy, NTMs are agreements do not include provisions more stringent intimately linked to national regulatory structures. than those in the WTO TBT Agreement--yet many Unlike tariff reductions, NTM reforms affect not include provisions resembling those in the WTO+ just industry structures but also how public agencies category. The farther reaching commitments concern work and interact with the private sector. 224 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Accordingly, streamlining NTMs should be international best practice is to impose mandatory viewed as part of a broader regulatory reform agenda regulatory impact assessments. such as that embraced by industrial countries in the 1990s. And regulatory reform requires strategic A need for leadership. Change often occurs when a thinking. Th is section summarizes some lessons crisis makes it impossible to do business as usual-- from international experience--in particular, six provided that leadership can seize the opportunity. case studies from the World Bank's Doing Business "A crisis is a terrible thing to waste," wrote Thomas project and its Foreign Investment Advisory Service Friedman (2005, quoted in World Bank 2009, p. 19). program, recently studied by the Investment Cli- Mexico's regulatory reform gathered momen- mate Advisory Services of the World Bank Group tum immediately after the so-called Tequila Cri- (FIAS 2009). The six countries were Australia, Hun- sis of 1994­95. The impetus for reform came from gary, Italy, the Republic of Korea, Mexico, and the recognizing that the private sector--hard hit by the United Kingdom. crisis--could no longer hope for help from trade protection after Mexico had joined the GATT Improving the substance and improving the process-- (now WTO) and the North American Free Trade two complementary objectives. Streamlining NTMs Agreement (NAFTA). Under the new constraints, involves two distinct, though complementary, pol- improving national competitiveness by cutting red icy objectives. One is to improve the substance of tape suddenly appeared as the only option. Similarly, existing NTMs. The other is to improve the pro- Korea launched its regulatory reform in response to cess through which new NTMs and regulations are the 1997 crisis, which exposed the vulnerability of a issued and put into practice. development model based on state intervention and In the short run, when regulations are too many widespread nontransparency (FIAS 2008b). and too harmful, a cleanup process is the first step-- But a crisis is not enough: leadership is needed and possibly the one that yields the highest imme- to seize the opportunity and transform it into po- diate returns. Improving the substance of existing litical momentum. The governments of both Korea NTMs means reviewing them in light of existing and Mexico could read the signals correctly, draw evidence about their effects. Transparency is critical. the right conclusions, and get into action--because Often it is fairly easy to spot regulations and NTMs minds were ready. For instance, in Korea, the wave of that are redundant, harmful, and unnecessarily com- reforms of the late 1990s built upon partly successful plicated--and sometimes such NTMs are known to efforts that stretched back to 1981. competent ministries. To eliminate harmful NTMs Reform is often driven by a surprisingly small all that is needed is to expose and shame the respon- group of technocrats. Mexico's regulatory reform sible ministries in roundtables with the private sec- was top down. Driving it was a small group of 15 to 13 tor (as was done in Mexico; see FIAS 2008a)--or to 20 economists and lawyers, many of them trained regulation, and trade facilitation create registries, such as single windows, where the abroad and sharing a vision that placed markets, not Nontariff measures: impact, ministries are asked to justify all measures. the state, at the center of Mexico's growth strategy. In the long run, though, what matters is the Korea's regulatory reform was also very much top regulatory process. Any modern society requires down--so much so that the lower ranks of the ad- a constant stream of new product standards and ministration ultimately did not own it. regulations as technology and societal preferences Support at the highest level is crucial when re- change. To slow that stream, in 2004 Mexico im- formers take on powerful vested interests, but it is posed a regulatory moratorium. This, however, could not enough in democracies with separation of pow- only be a temporary fi x. What is needed is not just to ers. The Mexican technocrats had full support from prevent regulatory proliferation, but, more broadly, Presidents Salinas (1988­94) and Zedillo (1994­ to improve how regulations are issued and enforced. 2000), and in particular from their legal counsels. And that requires putting in place procedures that But such presidential support became less decisive have clear, consistent requirements for transparency, after the Institutional Revolutionary Party (PRI) impartiality, and economic rationality. Here the lost control of Mexico's Congress in 1997. In the B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 225 long run there is no alternative equal to building co- Regulatory reforms should aim high, but they alitions and strong institutions. should also start small. Reform processes often have little credibility or goodwill at the outset. They need Start small--even when aiming high. NTMs are dis- to assert themselves by picking low hanging fruit and tortionary, typically benefiting a few at the expense winning easy battles. Th is is the strategy that was of many, so building coalitions to get rid of them successfully followed by Mexico's early reformers. A should not be a problem. Yet in heavily distorted good entry point for NTM reform is the creation of economies many groups benefit from one rent gen- a registry of existing NTMs and regulations, based erating policy or another, and each fears it will be on compulsory notification by competent ministries. next. Uncertainty about the distributional impact of A guillotine approach can also be used--mandating reforms adds to inertia. the elimination of a set number of (generally redun- In order to overcome fear and inertia losers must dant or obsolete) regulations. For instance, in 1998 be visibly compensated. The art of reform is to find Korea's President Kim Dae Jung instructed all min- compensations that are less distortionary than the isters to eliminate half their regulations by year end measures being eliminated. For instance, in the (FIAS 2008b). Democratic Republic of Congo (DRC), overstaffed parastatals (companies owned or sponsored by the Lock in reforms through legislation. However well state) impose myriad border taxes to cover their designed and needed, reforms are always at risk of payrolls without providing much service in return. reversal. When Mexican elections returned a major- Those taxes, which typically go with complicated ity in Congress that was hostile to the president, par- procedures, raise trade costs and slow down the tisan politics greatly slowed reform. By 2000 general movement of goods. But restructuring parastatals reform fatigue in the face of disappointing growth involved in transit procedures and infrastructure-- (though Mexico's disappointing performance was and downsizing their bloated workforces--would set due to a variety of factors that had little to do with a precedent for many other, equally inefficient para- the reforms) had eroded political support for further statals in other sectors of the economy. Setting such a regulatory reform. In 2003 the newly created regu- precedent is, understandably, loathed. In such a case, latory oversight commission lost a key battle against building viable coalitions for restructuring would in- the telecommunications sector, waiving its right to volve not only reaching out to importers penalized issue an opinion on a draft regulation for the sector by high trade costs, but also neutralizing losers by of- that was favored by incumbent operators. The same fering credible social plans. Inasmuch as those social year its head was abruptly replaced, and in 2009 the plans could be financed out of well designed taxes, agency found itself without direction for several 13 they would be less costly to the economy than the months in a row. parastatals' present stranglehold on trade. Reforms need to be locked in through legal re- Nontariff measures: impact, regulation, and trade facilitation The interaction between parastatal restructur- form--so they become legally enforceable--and ing, social liabilities, and tax reform illustrates an- through the creation of sufficiently powerful insti- other key principle: synergies between reforms. tutions. Mexico's federal regulatory oversight body, Once domestic taxes are adequately designed and the Comisión Federal de Mejora Regulatoria, proved collected, border taxes are easier to dispense with. too weak to maintain momentum, having failed to Other areas of synergies include procedural changes secure for itself a prestigious role like that of the and technology upgrading in customs administra- Comisión Federal de Competencia responsible for tions as well as investments in infrastructure, regu- enforcement of competition law. Korea's Regulatory latory simplifications, and changes of behavior on Reform Committee also lacked clout because its ex- the ground. For instance, better roads cannot re- pertise was insufficient (FIAS 2008b). duce transit times as long as redundant checkpoints When domestic commitment is not enough, and blockades are maintained by police, paramili- international agreements can serve as anchors, as tary forces, and bureaucracies, as is often the case in discussed earlier in this chapter. NAFTA provided Africa. a strong anchor for the Mexican reform process 226 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N because the political cost of breaking away from it is to speed clearance, since they still require trips to would have been prohibitive--and Mexico's NAFTA their offices in downtown Port Louis. Similarly, risk partners also had regulatory reform agendas of their management techniques introduced by customs own, generating policy coherence in the bloc. The agencies in several countries are incompletely un- prospect of European Union accession provided the derstood by other agencies. strongest possible anchor to Hungarian reforms be- Works on corporate change management often cause of its reliance on mutual recognition and be- observe that the strongest resistance to changes in cause of the single market's very ambitious regulatory rules and procedures typically comes from middle reform agenda. However, the degree of commitment management. The same is true in public agencies. provided by trading agreements varies--and so does A change mandated from the top is only as good as the substance of their NTM reform agendas. For in- division heads and lower ranking officials make it-- stance, the East African Community (EAC) has an and they may be uncertain about the effect of regula- agenda of NTM elimination, but so far its implemen- tory reform on their own status and position. When tation on the ground still lacks force. regulatory improvement comes as part of an aggres- sive agenda of state retrenchment and privatization To ensure that reforms are carried out, engage mid- it can easily be perceived as hostile and threatening, dle management. Reforming alone is hard. Mexico's leading to inertia or passive resistance. In Mexico experience shows the critical need for international a spoils system made it possible to change public support. Its regulatory oversight bodies drew heavily agency staff down to the middle ranks in key areas on support from peer agencies, international experts, (FIAS 2008a). But such a system creates a risk of po- and stakeholders most affected by NTMs. Product litically motivated reversal later on--and it does not standards, in particular, are increasingly complex-- help make reforms viable in the long term. Far bet- yet regulatory needs do not differ radically by coun- ter is the use of training and communication to gain try. There is no need for a national agency to expend the support of a stable, competent administration. scarce resources duplicating work (expert review, Indeed, Mexico's regulatory oversight body sought standard setting) that has already been done else- such support through capacity building seminars-- where. But fruitful contact and cooperation with but its means were too small. foreign agencies requires that national agency staff In the end, NTMs are and will remain an im- have enough training to communicate with for- portant component of trade regulations. What is eign peers. Economists, engineers, and lawyers in needed is a clear understanding of the policy objec- Mexico's regulatory oversight bodies who had been tives sought and a constant review of their impact trained in the United States felt at ease communi- and appropriateness. When they are needed, and cating with counterparts there, as well as in Canada often they are needed, policymakers need to con- 13 and the United Kingdom. This ability to exchange stantly strive to reduce their trade distorting impact regulation, and trade facilitation ideas and bring home best practices made the econ- and seek ways to ensure effective administration at Nontariff measures: impact, omists, engineers, and lawyers efficient and highly least cost to legitimate traders. motivated--showing the value of selecting agency staff carefully at the outset. Notes Engaging middle-ranking administration levels in the reform process is crucial. Whatever high level The authors would like to thank Amelia Porges pronouncements may say about NTM streamlining for her comments and suggestions, particularly and regulatory reform, not all agencies will march in on World Trade Organization law--though as step--and the pace often is set by those that are slow- usual the authors are solely responsible for any est to cooperate. In Mauritius, as part of a thorough errors. modernization of customs, online application pro- 1. They estimate the "representative" ad va- cedures are being put in place to speed requests for lorem equivalent of trade cost between two permits delivered by other ministries. Some of those industrialized countries at a whopping 170 ministries apparently remain unaware that the point percent. Of this 21 percent is transportation, B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 227 44 percent is border related trade barriers, conformity assessment schemes except SPS and 55 percent is retail and wholesale dis- measures--for instance, food regulations tribution costs. Of the 44 percent of border imposed for other reasons. related costs 8 percent is tariff and nontariff 11. A "necessity test" (a requirement that a mea- measures and 36 percent is nonpolicy trade sure must be necessary to achieve stated costs, of which 7 percent is the language bar- nontrade policy objectives) also appears in rier, 14 percent the currency barrier, 6 per- GATT articles XI:2, XII:2, and XII:3(c), cent information costs, and 3 percent a "se- (i), and (d), and in corresponding provi- curity barrier." Note that percentages do not sions of article XVIII; GATS articles VI:4, add up because they compound (so the total XIII:2(d), and XIV; the GATS Annex is more than the sum). on Telecommunications, paragraph 5(e); 2. The methodology of Kee, Nicita, and Olar- TRIPS articles 8.2 and 27.2; and GPA arti- reaga (2009) makes it possible to estimate cle XXIII:2 (see for example WTO 2003b). different AVEs for the same product de- 12. In WTO (1996­2008) at DSR 1998:VIII, pending on the importing country's factor 3327 (and see Corr.1 at DSR 1998:VIII, endowment. 3407). 3. The panel that wrote the report, titled "Italian 13. In WTO (1996­2008) at DSR 2003:IX, Discrimination Against Imported Agricul- 4481. tural Machinery" (quoted here at paragraph 14. In WTO (1996­2008) at DSR 1998:VIII, 11), comprised trade officials who had partici- 3327 (and see Corr.1 at DSR 1998:VIII, pated in negotiating the GATT in 1946­48. 3407). 4. Panel titled "Italian Discrimination Against 15. Horn, Mavroidis, and Sapir (2009) found Imported Agricultural Machinery" (quoted that 12 out of 14 United States and 5 out of here at paragraph 12). 14 European Union agreements under re- 5. In WTO (1996­2008) at DSR 1996:I, 97. view had legally enforceable TBT provisions. 6. In WTO (1996­2008) at DSR 2001:I, 5. 16. Only 8 European Union agreements cover 7. Available online at http://www.wto.org/ SPS measures, with only 3 containing legally gatt_docs/English/SULPDF/91390261.pdf enforceable provisions. Out of 12 United (GATT Basic Instruments and Selected Doc- States agreements with SPS provisions, only uments reference number BISD 36S/345). 2 include legally enforceable commitments. 8. In WTO (1996­2008) at DSR 2001:I, 5. 17. Lesser (2007) reviews 28 PTAs signed by 9. In WTO (1996­2008) at DSR 2005:XII, Chile, Mexico, and Singapore. Piermartini 13 5663 (and see Corr.1 at DSR 2006:XII, and Budetta (2009) review 70 signed agree- 5475). ments representing regions, all levels of de- Nontariff measures: impact, regulation, and trade facilitation 10. Chapter 16 addresses SPS measures exten- velopment, and all degrees of depth in the sively; this chapter's analysis is limited to the trade among the parties. essential principles of the agreements. SPS article 1.1 provides that the SPS Agreement References applies to all SPS measures that may, directly or indirectly, affect international trade; Anderson, J., and E. van Wincoop. 2004. "Trade annex A defines the scope of SPS measures Costs." Journal of Economic Literature 42: subject to the agreement (health protection 691­751. measures, principally to protect against risks Andriamananjara, S., J. Dean, R. Feinberg, M. Fer- arising from the entry, establishment, or rantino, R. Ludema, and M. Tsigas. 2004. 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Most efforts--with the ex- ception of the European Union--have focused simply on facilitating the movement of goods across borders, not on integrating border man- agement more broadly. Even so, customs unions provide some examples of the most advanced forms of regional integration and cooperation in border management. Th is chapter surveys the border man- Round. From 1948 through 1994 agement issues facing both regional there were 144 notifications of RTAs trade agreements (RTAs) and customs to the General Agreement on Tariff s unions. and Trade (GATT). In contrast, since 1995 there have been 240 such noti- The rise of preferential fications to the WTO.1 More than liberalization: a changing 90 percent of notifications concerned landscape for border FTAs. management The unprecedented rate of growth in RTAs--especially during the last Customs unions are still less common decade--has been driven in part by than other, lighter forms of regional increased WTO membership and integration such as free trade agree- by new notification obligations. All ments (FTAs). Yet customs unions face WTO members are today party to many of the same challenges--while at least one RTA, with one excep- Regional integration and customs unions pushing customs and border coopera- tion (Mongolia). The average African tion much further, yielding some of the country belongs to four RTAs, the most advanced and sophisticated forms average Latin American country to of regional border cooperation and bor- seven. der policy management. A 2006 study notes other patterns Apart from customs unions, many in RTAs (Fiorentino, Verdeja, and To- RTAs have been formed in recent years queboeuf 2007): as a result of trade liberalization ini- · Bilateral RTAs account for 80 per- tiatives. Preferential trade agreements cent of all RTAs. are being negotiated, in addition to the · There has been a shift from using multilateral negotiations now under- RTAs to achieve regional integra- way as part of the World Trade Orga- tion toward gaining strategic mar- nization (WTO) Doha Development ket access. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 231 · Europe has the largest number of RTAs, ac- Box 14.1 The five stages of counting for almost 50 percent of RTA notifica- regional integration tions to the GATT and WTO. · Partial scope agreement: Two or more customs · African RTAs come closest to the traditional territories extend preferential market access to concept of regional integration based on geo- each other on a fixed (usually limited) number graphic proximity. of goods. · All the customs unions of which the WTO has · Free trade agreement: Two or more customs been notified are among geographically contigu- territories extend preferential market access to each other on goods, services, or both. ous countries. · Customs union: The members apply a common Among regional integration's various forms, or external tariff on trade with third parties, while stages (box 14.1), the most common is the FTA. (Re- they allow goods to move among the members' gional transit regimes and trade corridor arrange- territories free of customs duty. ments are discussed in chapter 17.) Partial scope agree- · Common market: A customs union without cross ments are limited to developing countries--since border controls on flows of labor and capital. developed countries are constrained by WTO article · Economic and monetary union: A common mar- XXIV, which mostly precludes such agreements, and ket with a common currency and macroeco- nomic policies. also since such agreements eventually are likely to form a path toward FTAs (Fiorentino, Verdeja, and Source: Adapted from Balassa (1961). Toqueboeuf 2007). The main reason why FTAs are much more common than the other three forms of preferential market integration (customs union, com- are. Finally, most FTAs are bilateral (Do and Wat- mon market, and economic and monetary union) is son 2007, p. 8). In contrast, most customs unions that the onus of coordinating policies--particularly of which the WTO is notified are truly regional border policies--is much lighter on FTAs. Parties to (among neighboring countries) and involve more a customs union must develop a common external than two parties. tariff (CET), which presupposes common tariff and One result of the proliferation of RTAs (mostly industrial policies. Customs unions also require a in the form of FTAs) is an increasingly complex higher degree of political convergence and trust than global trading regulatory system. Access to markets FTAs do. Similarly, the two more advanced forms of is governed by various rules and procedures. The integration--common markets, where provisions for Director-General of the WTO, Pascal Lamy, has the free flow of goods are extended to labor and capi- observed:3 tal, and economic and monetary unions, where par- 14 ties share a common currency and macroeconomic The proliferation of regional trade agree- policies--are least common because they require the ments can greatly complicate the trading Regional integration and customs unions greatest policy coordination, political convergence, environment, creating a web of incoher- and trust among parties. ent rules, and intricate rules of origin. An An FTA requires the parties merely to nego- increasing number of WTO Members are tiate rules of origin and agree to tariff reduction party to ten or more regional trade agree- schedules. 2 They need not achieve the deeper pol- ments, most of which for a given Member, icy convergence required by customs unions. In contain agreement-specific rules of origin. contrast with customs unions, FTAs enable the Th is . . . complicates life for customs of- contracting parties to maintain their own exter- ficials who are obliged to assess the same nal tariff s on goods imported from third parties. product differently depending on its origin, Preferential rules of origin are used to determine thus compromising the transparency of the whether goods imported from one contracting trading regime. Borrowing the expression party to another are entitled to preferential tar- used by Professor Bhagwati--this is where iff treatment. So FTAs are simpler, and therefore we begin to have a real "spaghetti bowl" of faster to negotiate, than customs union agreements twisted rules of origin. 232 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Article XXIV of the GATT and the The rules of the multilateral trading system cre- Enabling Clause: WTO legal requirements ate exceptions to the nondiscrimination and most favored nation principles. These exceptions include The overall goal of the WTO is to support interna- the 1971 waiver to enable the Generalized System tional trade and development. Its five constitutional of Preferences (GSP), the 1979 Enabling Clause, ar- principles are trade without discrimination, the ticle XXIV of GATT 1994, and article V of GATS. removal of barriers to trade, predictability (through GATT article XXIV provides for customs unions, transparency and binding trade rules), the promo- FTAs, and interim agreements resulting in the for- tion of fair competition, and encouraging develop- mation of customs unions or FTAs. Where WTO ment and economic reform. members have entered into customs union, FTA, The WTO constitutional principle of trade or interim agreements, they are in effect exempted without discrimination is, in turn, supported by two from the most favored nation principle in their trade principles: that of the most favored nation and that with the other parties to these agreements--for both of national treatment. The most favored nation prin- granting and receiving privileges. ciple prohibits a WTO member from discriminat- By 15 December 2008, the GATT and WTO ing among its trading partners. It is found in WTO had been notified of 13 customs union agree- legal texts such as the GATT 1994, the General ments and 6 customs union accession agreements Agreement on Trade in Services (GATS), and the (table 14.1). All the accession agreements pertained Agreement on Trade-Related Aspects of Intellectual to the expansion of the European Economic Com- Property Rights. In article I of the GATT 1947 (and munity. Of the 13 customs union agreements, 2 accordingly under GATT 1994) the WTO mem- pertained to customs unions between the European bers undertake to extend "any advantage, favour, Economic Community and other parties (Andorra privilege or immunity" to all members "immedi- and Turkey). All these agreements were notified to ately and unconditionally" with respect to--among the GATT and WTO in terms of either GATT ar- other matters--"customs duties and charges of any ticle XXIV or the Enabling Clause.4 kind imposed on or in connection with importation Article XXIV of the GATT contains the specific or exportation"; "the method of levying such duties and general requirements for the formation of cus- and charges"; and "all rules and formalities in con- toms unions and FTAs. The main objectives are to: nection with importation or exportation" (GATT · Prevent an adverse impact on third parties by 1986, p. 2). prohibiting the establishment of additional or Table 14.1 Customs unions notifications to the World Trade Organization by 15 December 2008 (excluding the European Community accession agreements) 14 Agreement Basis for notification Date of notification Andean Community Enabling Clause October 1, 1990 Regional integration and customs unions Caribbean Common Market (CARICOM) Article XXIV October 14, 1974 Central American Common Market Article XXIV February 24, 1964 East African Community Enabling Clause October 9, 2000 European Community­Andorra Article XXIV February 23, 1998 European Community­Turkey Article XXIV December 22, 1995 EC Treaty Article XXIV April 24, 1957 Economic and Monetary Community of Central Africa Enabling Clause July 21, 1999 Eurasian Economic Community Article XXIV April 21, 1999 Gulf Cooperation Council Enabling Clause November 19, 2007 Mercado Común del Sur (Mercosur) Enabling Clause February 17, 1991 Southern African Customs Union Article XXIV June 25, 2007 West African Economic and Monetary Union Enabling Clause October 27, 1999 Source: Authors' compilation. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 233 higher external trade barriers (the "external" better market access for products, especially com- requirement). pared with other countries that produce the same · Ensure the creation of "genuine" RTAs by re- goods. Yet in reality the agreements usually form moving tariffs and other regulations of com- part of a broader political and economic program merce on substantially all intra-RTA trade (the informed by international, regional, and national "internal" requirement). issues.5 These issues are reflected in the policies · Article XXIV:4 also requires that the aim of included in the agreements with a bearing on how these agreements should be to facilitate trade border management policies are affected by regional between the participants and not to raise barri- integration. Discussed below are some of the rea- ers to the trade of third parties. sons for forming RTAs that may have implications GATT article XXIV:8(a) provides that the key ele- for border management.6 ments for a customs union are: · The substitution of a single customs territory Market access. True market access would require for two or more customs territories. A customs the rationalization of border management policies territory is defined as a territory that maintains to facilitate trade, as liberalization and good border separate tariffs or other regulations of commerce governance are complementary policies. However, for a substantial part of the trade of the territory the use of less transparent forms of protection-- with other territories. which may include administrative policies such as · The duties and other restrictive regulations of standards regulations implementation or customs commerce are eliminated with respect to sub- procedures--could be used to deny some of the ben- stantially all the trade between the constituent efits granted by reducing trade barriers. territories of the union, or at least with respect to substantially all the trade in products originat- Harmonization and regulatory cooperation. Related ing in such territories. to market access, regulatory cooperation and the · Substantially the same duties and other regula- harmonization of policies and procedures are tions of commerce are applied by the members becoming important in modern RTAs. The broad of the customs union with respect to trade with scope for regulatory alignment in border manage- territories that are not part of the union. ment includes the harmonization of documentation The definition of a customs union and the exter- and procedures, the mutual recognition of proce- nal requirement (on trade with territories not part dures and standards, the exchange of information, of the union) are specific to customs unions and re- and more. Access to the better practices of trade late to the standing of the common external tariff, partners may be a supplementary incentive for poor 14 which GATT article XXIV: 8(a)(ii) defines as being countries with low capacity. "substantially the same duties and other regulations Regional integration and customs unions of commerce" in WTO law. The term substantially Foreign policy. Facilitating trade clearly helps to was interpreted in a WTO dispute as having "sub- deepen trade relations. Cooperation on policies stantially the same duties and other regulations of related to borders--a highly sensitive area--helps commerce" as for third parties. This ruling implied build trust. So a customs union may have a supple- that a common external trade regime by customs mentary foreign policy role, deepening cooperation unions means "sameness," and that flexibility is lim- and making shared policies necessary (to set up and ited (Devuyst and Serdarevic 2007). run the union). The most famous RTA, the Euro- pean Economic Community, was created largely Motives for signing regional for political reasons and specifically regarded as an trade agreements and links instrument to prevent further conflict among Euro- with border management pean economies through increased trade and eco- nomic integration. It went on to become a customs States enter into RTAs for various reasons. The union, then a common market, and finally a mon- most obvious economic reason is the need to secure etary union. 234 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N New security dimensions. Both RTAs and increased forums such as the WCO and the WTO to express a cooperation among regions are used to develop common position and increase their influence. common responses to emerging challenges. Some new economic and noneconomic challenges include Regional market failures. Regional market failures preventing terrorism, protecting the environment, can be seen in the lack of the scale effects described promoting labor standards, and ensuring economic above. But other aspects of failures can be seen when security. Border management has an important role border management challenges require policy coor- here. Part of the response to the terrorist attacks in dination among trade partners. For instance, mod- the United States, for instance, was to create a sin- ern border management requires modern informa- gle Department of Homeland Security in charge of tion and communications technology (ICT) and all border policies. Common border security initia- financial tools (such as guarantees) and thus requires tives may be mooted in RTAs--while it often hap- regional networks and interconnections. pens that bigger, more developed countries conclude RTAs to reward political allies.7 Being landlocked. The most urgent regional mar- ket failures are seen in landlocked countries, which Policy lock-in. Participation in trade agreements depend on cooperation with neighbors to manage enables states to lock in domestic economic reform international transit. Forming an RTA with neigh- measures in the medium to long term by preventing boring countries that have coastal access can provide changes. An international legal commitment makes a solid institutional framework for addressing transit. it more difficult to reverse painful but necessary Clearly integration motives run much deeper short term commitments without incurring retali- and broader in customs unions than in RTAs. In ation or a loss of confidence from other states and customs unions such motives generally go beyond investors. Trade facilitation reforms are not neces- merely economic reasons and span the foreign pol- sarily easy, as powerful interests (tax revenue admin- icy dimensions described above. Countries in cus- istrations and some private sector providers of clear- toms unions are ready to share more in common ance, transport, and logistics services) are linked than countries in FTAs are, and customs unions with border processes. are often a first step toward deeper integration. The defining characteristic of customs unions is to cre- Economies of scale. Some RTAs between African ate large commonalities for border policy through a economies with small domestic markets can benefit common external tariff. the countries by creating economies of scale. Exam- ples exist for private and public services that are inte- Managing a customs union's external gral to border management: the RTAs allow reduc- border and common external tariff 14 ing border management's costs as well as improving its quality by expanding the scale of operations, Th is section and the following one more closely Regional integration and customs unions making more sophisticated border and logistics ser- examine customs unions and their implications for vices feasible. Higher value added services, certain border management.9 Customs unions are a very types of infrastructure and equipment, and viable advanced and sophisticated form of regional integra- bond systems may similarly become feasible. Finally, tion in border management. Features that are unique forming an RTA can enable cost sharing with trade to customs unions, but also characteristic of FTAs, partners. will be signaled as such. Factors in the choice of any particular regional Critical size. Another scale effect is to provide some integration options will include: global bargaining or market power to countries as a · The overall aims of the FTA or union. group. One economic rationale for countries to form · The scope and depth in which member states are a customs union by adopting a common external tar- willing to share national sovereignty. iff might be to set optimal tariffs.8 Forming an RTA, · The perceived benefits and costs of FTA or union countries may also seek to join ranks in international membership. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 235 · The need to maintain national control for eco- · Does the revenue from customs duties deriving nomic, fiscal, or security reasons. from the application of the common external · The institutional trust between member states. tariff belong to the union or to members? In most customs unions (and by implication in · If the revenue accrues to the members, does each FTAs), all internal borders remain for the purposes country retain what it collects or will the revenue of moving goods between members. Here most FTAs be shared according to a formula? and customs unions have focused facilitation efforts · How will value added tax and sales tax on goods largely on goods, services, and transport, and much traded between member states be dealt with? less on people. Exceptions include the European · Will common prohibitions and restrictions be Union, which in 1990 adopted the Schengen Conven- agreed, or will each country enforce its own? tion and in 2005 established the European Agency for · Will provision be made for the mutual recogni- the Management of Operational Cooperation at the tion of standards and controls? External Borders of the Member States of the Euro- · Should provision be made only for trade in goods pean Union (FRONTEX), and--to a lesser extent-- across borders, or also for trade in services and the Economic Community of West African States.10 movements of people? Cross border flows--of goods, services, trans- Answers will prompt additional design consid- port, and people--are still very much managed erations. For example, if it is decided that clearance using a silo approach. Not all management is in- should take place in the country of final destination formed by broader policy issues such as migration or or that revenue be shared according to trade within security. Sectoral strategies, or strategies specific to the union, provision should be made for controls to border agencies, are used without a single overarch- track movements of goods among union members. ing strategy. Additional provisions will need to be agreed, in- The exception (again) is the European Union. creasing complexity and the cost of doing business. Following the September 11, 2001 attacks on the Still, these disadvantages could be outweighed by United States, various reviews examined ways to other considerations. improve the management of the external border. A 2003 communication from the European Com- The common external tariff mission referred to the "complementary and inter- To define the CET, countries must first categorize twined nature" of roles played by customs and bor- goods into a common tariff nomenclature and then der agencies (2003, p. 37). In 2004 the commission agree on a tariff that will apply to all countries in also submitted a communication on proposals to the customs union for each nomenclature band. In improve police and customs cooperation (European agreeing on the CET countries must find consen- 14 Commission 2004). sus on why a tariff should be applied at all. This is a challenging task since tariffs, particularly in devel- Regional integration and customs unions Defining the border in a customs union oping countries, are designed to further important national policy objectives. Most commonly the What does border mean in a customs union? Cus- primary objective is to raise government revenue. toms union policymakers must help to determine Depending on the structure of consumption in each the answer. The WTO defines a customs union as-- country, different products will generate different among other things--"The substitution of a single revenue streams--so members of a customs union customs territory for two or more customs territo- will not necessarily have similar interests in main- ries." For border management and trade facilitation taining a given tariff for a given sector. A second- this means more than the replacement of two or ary objective of tariff policies is to protect domestic more sets of tariffs with a common external tariff. industries (including on a temporary basis, as with Decisionmakers face various architectural options: safeguard measures) or to provide space for infant · Where will goods be cleared--at the first point industries. Here too, the sectoral objectives of union of entry into the union, or in the country of final members will vary. For instance, Mercado Común destination? del Sur does not maintain a CET for all sectors but 236 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N excepts sensitive industries, such as sugar and auto- administratively complex, and it also raises issues mobiles. Despite such complications, negotiating a about the meaning of customs unions. Applying the CET is an opportunity to simplify the tariff struc- principle requires a control mechanism (a transit ture and even to proceed to some external liberaliza- regime, bonding processes, even rules of origin)-- tion (DNA 2007). firstly to enable members to account for and collect Putting CET procedures into practice also re- duties on goods imported into their territories, and quires some harmonization among members. In the secondly to prevent diversion, that is, the entry and customs unions surveyed, one issue with the CET was exit of goods moved through the territory of one the gap between commitment and implementation-- member into that of another under suspension of a gap consisting specifically of exceptions and deroga- duties. tions to the CET. In this sense most customs union CETs can be described as imperfect. Administratively, The origin principle. Exceptions to the final destina- common customs procedures and close interagency tion principle are the European Union and Southern cooperation are required to maintain the integrity of Africa Customs Union, where the origin principle a CET, including a common basis for the valuation of is applied. A great advantage of the origin regime is goods. In the Southern Africa Customs Union, for that it removes any need to control the movement example, all member states apply the WTO valuation of goods within the union for revenue collection, rules--but both free on board (FOB) values and cost, offering both a simpler administrative solution and insurance and freight (CIF) values are used, so the ef- more freedom for the movement of goods within the fect of the tariff is not uniform. union. A formula for revenue redistribution must be Revenue administration agreed, and may also incorporate a common pool Revenue administration is the second key feature of of resources to be disbursed on regional projects. In customs unions. The CET is not an end but a means the European Union, customs duties collected12 are to an end. Changing tariff policy is the first objec- for the union's budget and fund its common policies, tive, simplifying intraregional trade by abolishing member states keeping only a percentage to cover the internal restrictions the second. And the choice of administrative cost of collection. In the Southern a revenue collection and retention regime for CET Africa Customs Union (SACU) customs duties are revenues--as well as for other duties and taxes paid into a revenue pool and shared through a for- imposed on cross border movements of goods--has mula.13 Studies have been undertaken in Mercosur important implications for the simplification of on a customs revenue distribution mechanism, but intraregional trade. this mechanism has not been finalized. The origin regime presupposes great trust among 14 The final destination principle. The most common member administrations in the capability and integ- customs union practice is for member states to apply rity of their partners--since revenues are collected Regional integration and customs unions the final destination principle, whereby revenues are on behalf of the union and then redistributed among collected and retained by the country of final con- its members. When customs unions include land- sumption. In the East African Community, the locked countries, coastal countries necessarily will final destination option is applied, though it will be collect revenues on behalf of their neighbors. reviewed in 2011. In the interim arrangement of the Gulf Cooperation Council,11 revenues are collected Fiscal borders and internal controls at the external border of the customs union and then Fiscal borders and internal controls serve four aims: transferred to the member where the cleared goods · They are monitoring devices in the administra- will be finally consumed--but efforts are underway tion of all indirect taxes levied on the destina- to review this arrangement. tion principle--that is, by zero rating exports for The final destination principle is fair--customs value added tax (VAT). duties are accrued by the customs union member · Fiscal or national borders provide a backstop in which the goods will be consumed--but it is against roundtripping for indirect taxes, and a B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 237 trigger point for VAT refunds for honest export- only for imports but also for exports. Most countries ers and importers. refund or zero rate VAT and sales tax on exported · For excise duties, fiscal frontiers are the detection goods. Illegal activities, such as so-called ghost ex- point for smuggling--they enable authorities to ports and roundtripping, compel countries to con- monitor both duty paid and tax free items cross- trol the exportation of goods from their territories ing the border. to prevent fiscal fraud.15 · National borders also serve nonfiscal purposes, In most customs unions measures related to such as immigration control, health standards, indirect taxes affecting the importation, transit maintenance, security, and drug enforcement. movement, and exportation of goods are dealt with The aim of FTAs and customs unions is to abol- nationally--not regulated regionally. The excep- ish tariffs and other trade barriers on goods traded tion, again, is the European Union, where controls among members (the "internal" requirement of the between member states were abolished with the WTO). But elimination of duties on goods moving introduction of the single market in 1993. A new among members' territories is problematic for de- VAT control system, including a VAT Information veloping countries that rely on such duties for state Exchange System, catered to trade between member income. Therefore, some customs unions have not states. Challenges arose, and the European Union yet entirely liberalized their regional markets. In is still grappling with VAT leakage through schemes the East African Community an asymmetrical ap- such as the so-called carousel fraud (box 14.2). proach is followed, to attain the elimination of du- Internal controls, however, are required not only ties within the union while allowing space for ad- for fiscal purposes but also to enforce national pro- justment: Kenya does not impose duties on goods hibitions and restrictions. Such prohibitions and from other members, but until 2010 they can impose restrictions can give effect to international commit- duties on goods imported from Kenya. In the South- ments, such as the Convention on Trade in Endan- ern Africa Customs Union a special clause allows gered Species. They can protect society, for example member states to impose duties on goods produced by requiring a permit to import firearms. And they in other member states for the protection of infant can protect industry, for example, by banning the industries. However, apparently only two members importation of all or certain types of secondhand impose these duties, each on one product. goods. In the Gulf Cooperation Council, Saudi The transactional imposition of VAT or sales tax Arabia enforces controls aimed at preventing the on goods traded between customs union members importation of pork products and alcohol for reli- is one of the key reasons preventing the removal of gious reasons. Ideally, customs unions would try to internal controls. Pressure to reduce tax compliance standardize prohibitions and restrictions. Such stan- 14 burdens for business makes it an attractive option dardization is, of course, necessary when a union de- to scrap or reduce fiscal frontiers in customs unions. cides to abolish internal controls or to clear goods at Regional integration and customs unions Goods would be cleared, and international trade the first point of entry into the union. taxes (customs duties and VAT or sales tax) paid, at the point of first entry into the customs union. Putting the common external tariff into But such an approach is problematic, since in most practice: duty relief and suspensions schemes customs unions different countries impose VAT One important practical consideration for a CET and sales tax at different rates.14 Trade liberalization is to reduce the risk of trade deflection--importers has reduced the importance of customs duties as a choosing entry points into the union that are likely source of income for most developed, and some de- to grant them more favorable treatment. The deflec- veloping, countries--yet VAT and sales tax on im- tion risk can be reduced through internal border ported goods remains an important source of gov- controls, which tend to remain in place where rev- ernment income, and its importance has grown with enues are collected on the final destination princi- the growth in international trade and the increase ple. But for unions using the origin principle inter- in VAT and sales tax collections on imported goods. nal controls are much weaker, so the burden is on Furthermore, VAT and sales tax are of interest not the border at the point of entry. Accordingly, it is 238 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Box 14.2 Value added tax administration in the European Union: missing traders and carousel fraud In removing customs control at its border the European Union had to devise a new solution for collecting value added tax (VAT). Since rates vary by member state, the European Union system has to be able to tax goods de- pending on where the value added is generated. Until 1993 the destination principle was applied: the VAT paid on all inputs was rebated to exporters and applied on the full value of the good for importers, effectively detaxing goods when they left one country and retaxing them when they entered another. Under the transitional system agreed in the borderless European Union, pending a definitive system, the destination principle was retained. It still applies today--with the major difference that no customs officers are charged with verifying that goods are actually exported. Instead, exporting firms must supply the VAT number of their customers in the destination country, allowing authorities to verify that the exports indeed qualify for an export rebate--and ensuring that importers cannot claim a VAT credit for imported purchases. In theory the VAT number allows tracing the movement of goods and thus administering VAT. But in practice the incentives for fraud are considerably increased under the transitional system. The reason is that a good's im- porter is responsible for collecting the VAT on its full value when reselling it (not just for the seller's share of value added, as would be the case if the good had been sourced domestically)--making fraud much more profitable. The simplest such fraud occurs when the importing company goes bankrupt--"missing"--before the VAT is col- lected. More sophisticated, and harder to detect, is the carousel fraud: goods are resold to buffer companies, sometimes several times, before being re-exported to the country of origin (when the exporter additionally receives a fraudulent VAT rebate). Three options have been considered for a definitive system to reduce VAT fraud--said to cost as much as 2­4 percent of total VAT receipts, or about half the union's budget. The options are: a harmonized VAT plus national sales tax system (called VIVAT), a reverse charge system, and collection on the origin principle. Source: Adapted from Baldwin (2007). also necessary to reduce the incentives for traders for re-exportation, temporary admission for inward to circumvent duties. To do so member countries processing, manufacture under bond, customs ware- must closely harmonize tariff collection policies and housing, export processing zones, and transit. The procedures. East African Community has plans to harmonize In particular, duty exemption and suspension duty suspensions, but until recently had not done policies must be closely harmonized. Exemption so, and national policies continued to prevail (DNA policies--partial or full--apply to certain catego- 2007). ries of goods. Such policies need to be managed carefully, as they can be a source of fiscal leakage. How regional trade agreements and 14 Generally the categories of product exempt from customs unions are ushering in a new duties are similar--goods destined for display and operating model for border management Regional integration and customs unions exhibition, goods for diplomatic use, and so on--yet there are differences across countries. For instance, In customs unions, and even more in RTAs, reform some countries exempt goods consumed by the gov- efforts have mostly been focused on trade facilita- ernment. It is important to harmonize the categories tion--not border management. One reason is that of exempt goods. the main objectives of such arrangements are trade Duty suspension policies also can be a source of related. Another is that since "public opinion would fiscal leakage. Such policies are an important aspect easily accept the transfer of sovereignty rights in of export promotion--their objective being to avoid the economic field, but not so in judicial and law indirectly taxing imports by taxing imported inputs, enforcement matters," therefore "no strong lobby- or to avoid taxing goods that will not be consumed ing group . . . would have pushed for the abolition of in the country (transit trade, exhibition goods). Ad- law enforcement borders as business and trade had ministrative methods depend on the circumstances done since the 1950s regarding the free movement requiring duty suspension: temporary admission of goods and services" (Hobbing 2005). Regional B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 239 initiatives have ventured beyond trade facilitation, and other concerns. Finally, it must canvassed, politi- for example by liberalizing movements of persons-- cally supported, resourced, and understood. as in the European Union, but also in the Com- Beyond the WTO customs union minimum mon Market for Eastern and Southern Africa and requirements--and the best practice of first movers the Economic Community of West African States, such as the European Union--customs unions have which give nationals from the region the rights to ample latitude in setting a strategic direction and enter member countries without visas and to access charting new approaches to border management. local labor markets. The close integration implied by a customs union Most customs unions have undertaken some can call forth a vision and working methods that go trade facilitation--modernizing and simplifying beyond national borders and horizons and beyond procedures, expediting the movement of goods--yet traditional customs union cooperation. there is a striking gap between good proposals and The blueprint and operating model should be an- commitments, on the one hand, and implementation chored in a comprehensive strategy that links goals on the other. The challenge is to balance continuous with specific actions. It should identify timeframes, improvements while working toward regional and responsible parties, and interdependencies. And it national implementation. Developments in trade should have a monitoring mechanism that will alert facilitation also appear to be driven by particular is- decisionmaking bodies in case of delay or technical sues, not anchored in a holistic vision and strategy deadlock, allowing the bodies to propose remedies. with political and technical support. In customs unions, as in countries, movements The trade facilitation provisions of customs of people and goods across borders should be sub- unions and RTAs--usually underpinned by insti- ject to modern controls following international stan- tutional mechanisms, such as working groups and dards and best practice. Elements in a new border committees16 --focus mostly on customs issues. In management operating model for customs unions particular, they include commitments to: could include: · Apply GATT article VII as the basis for the val- · Managing risk. uation of goods. · Simplifying and harmonizing policies and · Accede to and implement the WCO's Revised procedures. Kyoto Convention (WCO 1999). · Eliminating duplication; · Apply modern procedures and techniques, such · An integrated business solution. as risk management and automation. · Traveler, trader, and third party management. · Make the amendment, application, and inter- · Enhanced mutual administrative assistance. pretation of customs laws and procedures more · Mutual recognition. 14 transparent. · An enabling legal framework. · Strengthening policymaking and delivery Regional integration and customs unions Strategic issues institutions. The common border management policy for a cus- The selective review below focuses on elements toms union should have trade facilitation at its cen- for which RTAs (FTAs and customs unions) offer ter. Many elements of such a common policy are, in new border management solutions. Other elements theory, applicable to RTAs as well--but the com- also matter, but do not necessarily differ much from mon border management policy may prove more modern border management policies that could be challenging without the strong incentives created put into practice outside a trade agreement. by a common tariff policy. As the strategic starting point for a common pol- Risk management: toward a icy, a shared policy blueprint and operating model common customs union strategy should outline the future approach for applying regulatory controls. The blueprint and model should Risk management in customs and border opera- be both forward looking and aspirational, but at the tion responds to various needs, including the need same time should address real challenges, bottlenecks, to facilitate legitimate trade and travel while coping 240 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N with an increasing workload. It recognizes that documentation requirements. Customs unions have resources should be targeted on high risk people, strong incentives to harmonize, not only customs goods, and activities. In a customs union it is dif- policies and procedures (such as revenue collection ficult to move toward a common understanding of on the origin principle), but also policies promot- border management if member states take divergent ing transparency and information exchange, which approaches to risk identification and management. build trust. Risk management is therefore central to the aims In most African regional formations and cus- of uniformity across a customs union and coordi- toms unions that include several landlocked coun- nation among border agencies. It should inform the tries, transit policies and procedures at present are union's border management blueprint and operating not successful. model. Risk management can help customs unions The international standards developed by the that are resource strapped--and it can sharpen stra- WCO for goods can be adjusted for managing move- tegic objectives and identify impediments, ensuring ments of people across FTAs and customs union bor- proper priorities and allocation. ders. Procedures already followed in customs unions, A common risk management strategy allows all such as the European Union, should be examined border agencies initially to share information on and emulated where feasible. goals, strategies, priorities, and methods used against Adopting a single common customs declaration noncompliance. In the European Union a proposal for the importation, exportation, and transit move- was made to establish a common external border ment of goods facilitates their processing. It also en- practitioners unit to oversee and plan operations ables regionally standardized clearance and common for the common risk strategy (European Commis- transit procedures (box 14.3), and it facilitates the sion 2003, p. 46). The Andean Community has also transition to a national or regional single window started work on regional risk criteria, units of risk, (chapter 8). Similar standardized documents can and information exchange formats. be developed for controlling movements of people. Some supporting tools for a customs union com- In Mercosur the Technical Committee on Cus- mon risk management strategy are discussed below. toms Affairs was tasked to develop the Mercosur One is the common application of authorized eco- Single Customs Document and the 1999 Asunción nomic operator and trusted traveler schemes. An- Program. In the South Africa Customs Union the other is the exchange of information through inter- member states adopted and implemented the Single connected systems. Administrative Document, covering all customs transactions, in 2006. The members of the Andean Simplifying and harmonizing Community have developed a common customs policies and procedures document and apply common rules on customs in- 14 spections through the Integrated Manual of Proce- Border related procedures in RTAs often are out- dures for Regional Inspection. Regional integration and customs unions dated and based on paper documents. Existing pro- cedures should be reviewed against international Eliminating duplication: rationalizing conventions (such as the WCO's Revised Kyoto controls through one stop approaches Convention) and international best practice, to ensure that procedures are radically simplified and Harmonizing rules and procedures is one aspect of that they incorporate modern techniques including eliminating duplication costs. Joint border opera- risk analysis and the extensive use of ICT. Gener- tion is another. In FTAs, and where decisionmakers ally RTAs offer a good anchoring point for initiat- decide to maintain all or most internal customs ing such reform, providing useful forums for experts union controls, joint border controls--or one stop to exchange views, access best practices, and devise border posts--can reduce delays, duplication, and solutions to common problems. red tape (chapter 4) while also improving controls Transaction costs for traders crossing borders and reducing the risks of smuggling and of false can be reduced by harmonizing procedures and declarations. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 241 Box 14.3 Coordination at the regional level: the implementation of the New Computerised Transit System in Europe The New Computerised Transit System (NCTS) is a paperless electronic system extending to 23 countries--19 European Union countries, the European Free Trade Association countries, and Liechtenstein--and linking over 3,000 customs offices. It covers transit procedures based on the European Union Single Administrative Document, mainly for road transport. Since 1 July 2005, transit declarations must, as a general rule, be lodged electronically. A subsequent phase, completed in January 2006, included computerized handling of guarantees and enquiries. European Commission statistics show a rise in the number of NCTS transit movements, from around 5.5 million in 2004 to more than 7.5 million in 2005. To realize the electronic network, the European Commission took the lead by developing a standard NCTS software application--the minimum common core (MCC)--and ensuring its maintenance. Adopted by 15 out of 25 members states (the others have developed their own application), the MCC was funded by the Customs 2000 program budget (23 percent of the total budget). This harmonization of the basic software architecture has been challenging, encountering compatibility problems with most national customs ICT systems. A second part of the NCTS reform is the codification of transit procedures in a manual, published in 2001, and offering guidelines for aligning the implementation of transit policies. However, the European Court of Auditors finds widespread divergence in implementation. Similarly, simplified measures for transit (authorized consignor and consignee status, comprehensive guarantee) were not demonstrably in place in a majority of member states. The European Court of Auditors found that the European Commission had successfully assumed its coordi- nation role for the implementation of the NCTS--but it outlined shortcomings in the lack of operational agreement between the European Union and member states, and in the fact that monitoring of implementation was yet to be done and had been left to the member states. Numerous discrepancies were found in the application of legal provisions at the country level, and implementation has been defective in several areas: · The status of authorized consignors was not properly checked in several countries. · Enquiries in case of nonarrival were conducted with delays and subject to imperfect communication between customs agencies. · Recovery proceedings were slow (in case of nonarrival, debt can be recovered from the country which had to collect the duties). · The accounting of noncollected duties was also slow and inconsistent because of divergent interpretations. Another general issue noted by the European Court of Auditors was unsatisfactory data collection. Finally, automated risk analysis using information generated by the NCTS was only applied in a few member states sur- veyed--and in most member states checks on transiting goods were nearly nonexistent, because they were not considered a priority. Source: Adapted from the European Court of Auditors (2007). 14 One stop posts have proved challenging, for sev- requirement that can raise sensitive issues of national Regional integration and customs unions eral reasons. First, joint controls are incorrectly per- sovereignty. However, international experience has ceived to reduce the efficacy of enforcement. Second, demonstrated that these issues are easily solved concern arises around sovereignty and jurisdictional through bilateral negotiation and national enact- issues when two countries' border officers work to- ment.17 Issues requiring attention in the establish- gether in the territory of one. Third, there is likely ment of one stop border posts include: no common vision for joint operation at the various · The legal framework. agencies that conduct border controls. · Mapping current controls, procedures, and One stop posts bring various border functions-- documentation. immigration, customs, and other border controls-- · Agreeing on the one stop controls, procedures, closer together. For example, customs officers from and documentation. two bordering states conduct import and export · A traffic flow system. procedures in adjacent offices or rooms. The coun- · Facilities and infrastructure ICT issues. try on whose territory this occurs must give foreign · Human resources. customs officers jurisdiction on its territory--a · Monitoring. 242 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N The Mercosur countries, in the Recife Agree- travel documents. Related to interconnectivity is ment, reached consensus on 16 border points where the introduction of a common single administrative integrated controls should be applied. The South Af- document (examples given above). rica Customs Union identified the establishment of The ideal for customs unions is to have a com- one stop border posts as a high priority trade facili- mon ICT system. Where this is not a goal, then sys- tation issue, but little progress has since been made. tems should at least be interconnected to exchange The East African Community has made progress in data seamlessly and electronically. When used with establishing a one stop border post between Kenya other arrangements, such as an authorized economic and Uganda at Malaba. The Andean Community operator system or trusted traveler scheme, intercon- aims to have single controls in place at all common nection can avoid duplication in the submission of border posts, according to the Community Policy information and so make the arrangements most ef- for Border Integration and Development, and a fective. In the Andean Community a pilot for the pilot is in place for the single control of goods at the electronic transmission of customs declarations has Pedro de Alvarado and La Hachadura border posts received support from draft regulations. between Guatemala and El Salvador. An interesting arrangement of the mutual rec- Mutual administrative assistance: ognition type is in place between Norway and Swe- sharing information and intelligence den: one country handles border procedures and The real time exchange of data between national enforcement on the other's behalf. In other words, agencies, and the existence of interconnected sys- at one border post Norway will undertake its own tems, have other benefits. As long as internal con- controls and controls on behalf of Sweden, while at trols are in place, the exchange of information helps another border post Sweden does the same.18 Pre- national agencies ensure compliance. In developing conditions for such cooperation include a high level countries it is especially beneficial to have mutual of trust. administrative assistance provisions, which com- New trade facilitation and international secu- bat underinvoicing by enabling export and import rity measures demand that travelers and cargo spend administrations to share declared values. Intercon- time at ports of entry. Th is demand can be met by nected systems enable agencies not only to share using nonintrusive baggage and cargo examination transactional data, but also to cooperate in establish- equipment, such as scanners. Joint controls and one ing a common valuation database for the customs stop border posts allow the joint acquisition, or joint union. use, of such equipment. Adequate infrastructure-- A Mercosur mutual administrative assistance including, for example, inspection and detention fa- agreement in 1997 aimed at preventing and sup- cilities--is also needed (chapter 4). pressing customs offenses, provides for (among other 14 things) the exchange of data. In 2000 the Mercosur Integrated business solution: automation Committee of Customs Directors approved an ac- Regional integration and customs unions and managing interconnections tion plan to counter customs infringements, with a Simplified procedures, and common or harmonized list of practical measures to fight smuggling (Lopes procedures, pave the way for developing integrated de Lima n.d., p. 10). An annex to the Southern Af- business solutions and interconnectivity. Techno- rica Customs Union Agreement has been developed logical advances can enable greater integration of that provides for customs mutual administrative as- the ICT solutions used by administrations to link sistance. The Andean community also has a mutual databases, enabling the real time sharing of informa- administrative assistance framework in place. tion and the application of more sophisticated risk Mutual assistance does not require an RTA. management and intelligence. Th is reduces paper- Standalone international customs cooperation and work and congestion at ports of entry, expedites the mutual administrative assistance agreements have admission of people and goods, fast tracks clear- been signed. For instance, South Africa has agree- ance, and reduces opportunities for corruption in ments with 16 countries and is currently negotiating filing goods and cargo declarations and in presenting with 10 others, including several African neighbors.19 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 243 The United States has bilateral agreements with 62 be aligned. The customs code establishes the com- countries.20 The European Union has such individ- petence of the customs authorities, provides overall ual agreements with 7 countries, and it has included coherence in customs procedures, helps make proce- provisions for mutual assistance in its RTAs. dures more predictable and transparent, encourages Useful benchmarks for preparing new texts--or cooperation with the private sector, and provides a updating existing ones--include the WCO model framework for appeal procedures (de Wulf 2005). agreement on mutual administrative assistance, the One option for customs unions is to develop WCO Johannesburg Convention, and recent cus- a common customs code, as the European Union toms union mutual administrative assistance texts. did in 1992, the West African Economic and Mon- A new trend is to include agreements of mutual as- etary Union did in 2003, and the Gulf Coopera- sistance in the text of RTAs--likely offering a better tion Council did in 2003. The process of adopting framework to guarantee effective cooperation, and a common legal infrastructure can serve as vehicle also ensuring coherence in various aspects of bilat- for harmonization, simplification, and modern- eral cooperation on customs issues. ization in accordance with international WCO principles. Mutual recognition Yet this process can be challenging. Mercosur ad- Another mechanism to eliminate duplication is opted a customs code to deal with both substantive mutual recognition. In a customs union context this and procedural issues in 1994, but the code has not can include mutual recognition of valuation, classi- yet entered into force, for reasons allegedly includ- fication, and origin rulings; of the registration and ing "overstretch" (Vervaele 2005, p. 13). In 1997 the licensing of client types (traders, brokers, bonded Mercosur Customs Affairs Technical Committee warehouses, and so forth); of regulatory permissions, was instructed to conclude an additional protocol such as certificates; and of travelers, through the to the customs code to address, among other issues, cross border operation of trusted traveler schemes. free zones and the CET. Other examples of regional Mutual recognition requires high degrees of trust initiatives include the Andean Community's Com- and standardization, with seamless communication munity Customs Rules, adopted in 2003, and the and information exchange channels. South Africa Customs Union Agreement's provision Mutual recognition schemes do not require an that the legislation of member states on customs du- RTA. For instance, the European Union and the ties shall be similar (further provision is made for the United States are negotiating mutual recognition adoption of annexes to regulate customs matters). of authorized economic operators--and the United The design and status of a legal framework, and States already has such agreements with Canada, its relation to national laws, will be informed by 14 New Zealand, and Jordan. Japan and New Zealand the union's legal regime and practice as well as by also signed such an agreement in 2008. However, the constitutional practices of member states. The Regional integration and customs unions RTAs offer a good conduit for the negotiation of framework can take the form of a customs code-- mutual recognition. In particular, customs unions either self executing or requiring national action-- make mutual recognition agreements easier by push- and can be included in annexes or protocols to ing countries to harmonize. agreements. In a customs union the principles of transparency and access to information require that Creating an enabling legal framework the legal framework should be published, easily ac- Agreed customs union designs, principles, policies, cessed, and regularly updated. and procedures must be anchored in a legal instru- ment. One goal of a customs union is to ensure the Strengthening institutions: capacity uniform and consistent application of union rules. building, coordination, and enforcement A common enabling framework promotes this goal's Coordinated border management demands capable attainment. regional and national agencies, while such capable Customs codes must provide a good framework agencies also promote institutional trust: agencies for modern and efficient operations--and they must are willing to cooperate on cross border solutions 244 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N if they have similar capacities. Capacity and trust and for agency leadership. Integrity training should are also integral to customs union viability and to be considered, since controls are only as good as the removing internal trade barriers, as both put pres- people enforcing them. sure on members to achieve similar and acceptable Customs unions can set up regional funds to border regulation and enforcement. fund regional capacity and coordination and na- Most RTAs and customs unions have established tional capacity building projects. In theory regional institutions, such as committees, to coordinate their funds could be financed directly from CET reve- sectoral activities. In most cases coordinating mech- nues, but--in all existing cases except the European anisms are in place for trade in goods, but not for Union--revenues remain treated as accruing to na- border issues. For the goal of coordinated border tional members. management, consideration needs to be given to es- Finally, new institutional configurations for cus- tablishing a mechanism representing all the border toms unions should be considered.23 These include: agencies active in the region--in addition to sector · A regional customs executive agency to manage specific mechanisms. and execute all customs activities for the union. Beyond creating regional and national gover- · A regional customs executive agency to develop nance structures, regional and national agencies operational policy and standards (with imple- also need capacity building. Some can come from re- mentation by member states). gional and international partners such as the WCO, · An integrated external customs and border which is setting the tone for customs capacity build- management agency to bring together all border ing with its Columbus program.21 Its approach could agencies. be applied to other border agencies. For example, the These options can improve coordination and add WCO's Time Release Study approach (chapter 11) efficiencies. They can also concentrate resources in a could be used by customs unions to measure flows union with a capacity deficit. across their external and internal borders and iden- tify improvements. Conclusion: enabling delivery Regional trade partners can also be important al- to work toward results lies for capacity building. In some instances--argu- ably in developed country­developing country RTAs, Regional economic integration outcomes for cus- but also in RTAs involving middle and low income toms unions offer much potential but frequently countries--regional partners will have more advanced have not met expectations. Some of the reasons are: border management policies and greater expertise. · Political unwillingness. Governments may hesi- The South Africa Revenue Service, for instance, pro- tate to part with certain sovereign decision- vides technical assistance to regional partners.22 making powers. Customs unions require much 14 Even where capacity is more evenly distributed collective trade and tariff policy development, across a region, cooperation requires coordination including the joint negotiation of trade agree- Regional integration and customs unions and global capacity. For instance, since a minority ments with third parties. Tensions between re- of noncompliant traders will use every possible op- gional and national interests force national gov- portunity to bypass controls, agencies must combine ernments and their stakeholders to weigh the static controls with mobile operations against crim- perceived loss of sovereignty against the benefits inals. Joint operations, while significantly limiting of regional cooperation. Th is is especially true the options of those criminals, can familiarize agen- for developing countries whose independence is cies within and between countries with each oth- relatively recent. er's working methods and feed into a common risk · Fiscal concerns. Putting a customs union agree- management approach. Similarly, common training ment into practice entails reducing or eliminat- standards and joint training programs--sectorally ing of duties and necessitates fiscal adjustment. as well as for bordering countries--can build much Sometimes this is very difficult for developing institutional trust. This training should be not only countries that rely on customs duties for fiscal for operational staff but also for border managers purposes.24 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 245 · Gaps in capacity and skills. Such gaps delay im- This means, for one thing, that initiatives should plementation and frustrate progress. Developing be properly scoped, broken down into delivery countries, and especially their national admin- chunks, prioritized, sequenced, and attached istrations, often lack the capacity and skills to to milestones. It also requires that the best and participate in or actively work toward regional brightest should be tasked with delivery. integration arrangements. · Resource allocation can be supported by a com- · Lack of alignment. Putting a customs union mon vision and action plans, which should make agreement into effect requires the whole of gov- it easier to quantify the needed resources and ernment. Usually it is driven by or involves the motivate their provision. Customs unions with ministries or departments of foreign relations, resource constraints should make the most of international trade, finance, and agriculture, as scarce resources by giving critical activities the well as customs administrations. Interagency co- highest priority and by reaching out to interna- operation within and between countries must be tional cooperating partners. For example, both secured through the design and implementation the East African Community and the South- of agreements and initiatives. ern Africa Customs Union have started engag- Good practice dictates that the policy objectives ing the WCO Capacity Building Directorate to should be underpinned by clear actions and time- help develop a common trade facilitation vision, frames and a clear allocation of responsibilities and to ensure the vision is aligned with WCO and resources, with political and administrative buy-in to other international instruments and best prac- the strategic framework and with institutional focus tices, to develop action plans, and to reach out and support. All this is more difficult for unions and for financial and technical support donors. national administrations faced with skills shortages. Generally, RTAs--and customs unions as a Nevertheless, the aims are to allocate responsibility specific advanced case--provide an ideal basis for and ensure accountability, both of which require ac- transnational coordinated border management. The tion by both national administrations and customs member states of customs unions share a common union secretariats. Among possible accountability goal of promoting economic integration through ap- measures, one is the requirement of regular report- plying a common external tariff, removing duties on ing to political heads or senior officials on progress goods traded between their territories, and harmo- made and challenges faced. nizing their policies in related areas. As a corollary, Further principles for regional integration and they are also committed to removing nontariff barri- customs unions include: ers and simplifying movements of people and goods · To make needed implementation actions possi- through the union. Most customs unions so far have 14 ble, national administrations and customs union not focused systematically on coordinated border secretariats must work to build institutional management; most reform efforts have focused on Regional integration and customs unions capacity and to overcome distrust between na- measures to facilitate trade, usually from a customs tional agencies (in the same country and in dif- perspective. Furthermore, most customs unions still ferent countries). have some internal controls--for fiscal reasons, for · Political leaders and senior officials are respon- security, or for other reasons. sible for setting the tone and pace--generating a The increasing complexity of managing ever sense of urgency and creating the necessary en- larger movements of people and goods across bor- abling frameworks. ders, combined with the number of regulatory · To create incentives for cooperation between of- role players involved, is compelling customs union ficials, customs union activities can be linked to policymakers to adopt a coordinated border man- organizational and individual performance con- agement approach and to consider unionwide ap- tracts (other methods are also possible). proaches to risk management, mutual recognition, · Implementation also requires that the move- joint or one stop controls, trusted traveler and trader ment from policy to execution be supported by schemes, and real time information exchange within a structured program management approach. and between countries. A comprehensive approach 246 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N involving strategy, policy, process, people, and tech- 11. The Gulf Cooperation Council consists of nology is required--while high level commitment Bahrain, Kuwait, Oman, Qatar, Saudi Ara- and implementation also remain critical. bia, and the United Arab Emirates. 12. Tariff revenues in the EU constitute only a very Notes small share of revenues collected at the border. 13. Interestingly, the SACU pool consists of cus- 1. The WTO Web site contains a chart and toms duties but also excise duties. Customs graph of new and cumulative RTAs, by year, duties are shared on the basis of the level of from 1949­2009. See "Regional trade agree- intra-SACU trade--and this requires re- ments: facts and figures," WTO, http:// liable trade statistics, especially on goods www.wto.org/english/tratop_e/region_e/ moved between member states. The SACU regfac_e.htm. formula also provides for a development 2. As do partial scope agreements. component into which a percentage of ex- 3. Quoted from "Multilateral and Bilateral cise duties is paid and shared on the basis of Trade Agreements: Friends or Foes?", An- developmental indicators. nual Memorial Silver Lecture (31 October 14. In practice VAT is a consumption tax, since 2006), Columbia University, New York, fi rms are reimbursed for the inputs they in, "Lamy warns bilateral agreements are buy even when the inputs are for their own not `the easy way out' from the suspended consumption. talks," WTO, http://www.wto.org/english/ 15. Ghost exports are transactions where cus- news_e/sppl_e/sppl46_e.htm. toms clearance documents are presented for 4. Most of the agreements (13) were notified in the exportation of goods without the actual terms of article XXIV. Fewer (6) were noti- goods being exported. Roundtripping takes fied in terms of the Enabling Clause. place where goods are exported but then 5. For a review of rationales behind the for- smuggled back into the export country. mation of RTAs, see for example Schiff and 16. For example, the SADC Protocol on Trade Winters (2003). establishes the Sub-Committee on Customs 6. See also Maur (2008). Cooperation, and the North American Free 7. Fiorentino, Verdeja, and Toqueboeuf (2007), Trade Agreement (NAFTA) establishes the paragraph 24. Trilateral Heads of Customs Conference. 8. An optimal tariff is a way for large countries 17. This has been done successfully in countries to create positive terms of trade effects--that such as Austria, the Czech Republic, Esto- is, to force suppliers to lower their prices-- nia, France, Latvia, Germany, Hungary, Po- 14 in the large countries' favor. Because large land, Switzerland, and the United States. countries represent an important share of 18. A motivation for Norway, Sweden, and Fin- Regional integration and customs unions the world market, they can influence world land to sign cross border cooperation agree- prices. ments (starting in 1960) was "division of 9. This section limits most examples to current labor"--that is, sharing the cost of manning customs unions--unions of which the GATT the 1,630 kilometer border between Norway or WTO has been notified--thus excluding and Sweden and the 739 kilometer border be- other regional groupings that aspire to a cus- tween Norway and Finland (see Maur 2008). toms union, such as the Common Market for 19. A list can be downloaded at "Customs Eastern and Southern Africa (COMESA), Agreements on Mutual Administrative As- the Economic Community Of West African sistance," South African Revenue Service, States (ECOWAS), and the South African http://www.sars.gov.za/home.asp?pid=946. Development Community (SADC). 20. See "Customs Mutual Assistance Agree- 10. The Schengen area excludes five EU mem- ments (CMAA) by Country," United bers and includes three non-EU countries. States Department of Homeland Security, B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 247 http://w w w.cbp.gov/xp/cgov/border_ De Wulf, L. 2005. "Regional Integration and Cus- s e c u r it y/i nter n at ion a l _ op erat ion s/ toms Integration." Mimeo., World Bank Insti- international_agreements/cmaa.xml. tute, The World Bank, Washington, DC. 21. The WCO Columbus program provides DNA (Development Network Africa). 2007. "Eval- for--among other things--undertaking di- uation of an Appropriate Model for a SADC agnostic missions to pinpoint pressure points Customs Union." Report Commissioned by the and challenges, developing project plans, and South African Development Community Secre- delivering tailor made solutions. tariat, DNA, Pretoria. 22. The South African Revenue Service re- Do, V.D., and Watson, W. 2007. "Economic Analy- ports assistance to other African adminis- sis of Regional Trade Agreements." In Regional trations in four forms of capacity building: Trade Agreements and the WTO Legal System, "providing policy, legal and operational ed. L.Bartels and F. Ortino. Oxford: Oxford assistance," "hosting study visits to share University Press. 7­22. best practices with other administrations," European Commission (Commission of the Euro- "providing training interventions either at pean Communities). 2003. "Communication the SARS Academy or in other countries," from the Commission to the Council, European and "seconding SARS officials to other Parliament and the European Economic and So- administrations and hosting officials sec- cial Committee on the Role of Customs in the onded by other administrations" (Maur Integrated Management of External Borders." 2008). Document COM (2003) 452 final, Commis- 23. See pp. 18­19 in "Customs 2020: A Busi- sion of the European Communities, Brussels. ness and Technology Point of View," Ac- ------. 2004. "Communication from the Commis- centure, http://www.accenture.com/NR/ sion to the European Council and the Council rdonlyres/DF096E3D-A1B9-44D6-91C3 on Enhancing Police and Customs Co-opera- -340935DD4B74/0/Accenture_Customs tion in the European Union." Document COM _2020_English_032009.pdf. (2004) 376 final, Commission of the European 24. For example, trade taxes account for ap- Communities, Brussels. proximately 25 percent of state revenues in European Court of Auditors. 2007. "Special Report Sub-Saharan Africa (Baunsgaard and Keen No 11/2006 on the Community Transit System, 2005, p. 3). with the Commission's Replies." Notice 2007/C 44/01, European Union, Brussels. Available on- References line at http://eur-lex.europa.eu/LexUriServ/ 14 LexUriServ.do?uri=OJ:C:2007:044:0001: Balassa, B. 1961. The Theory of Economic Integration. 0019:EN:PDF. Regional integration and customs unions Homewood, Illinois: R.D. Irwin. Fiorentino, R.V., L. Verdeja, and C. Toqueboeuf. Baldwin, R. 2007. "EU VAT Fraud." Vox: Research- 2007. "The Changing Landscape of Regional based Policy Analysis and Commentary from Trade Agreements: 2006 update." Discussion Leading Economists, June 14­22. Available at Paper 12, Regional Trade Agreements Section, http://www.voxeu.com. Trade Policies Review Division, World Trade Baunsgaard, T., and M. Keen. 2005. "Tax Revenue Organization Secretariat, Geneva. and (or?) Trade Liberalization." Working Paper GATT (General Agreement on Tariffs and Trade). WP/05/112, International Monetary Fund, 1986. "The Text of the General Agreement on Washington, DC. Tariffs and Trade." Geneva: GATT. Available at Devuyst, Y., and A. Serdarevic. 2007. The World http://www.wto.org/english/docs_e/legal_e/ Trade Organization and Regional Trade Agree- gatt47_e.pdf. ments: Bridging the Constitutional Credibility Hobbing, P. 2005. "Integrated Border Management Gap. Duke Journal of Comparative & Interna- at the EU Level." CEPS Working Documents no. tional Law 18(1): 1­75. 227, Centre for European Policy Studies, Brussels. 248 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Lopes de Lima, J.A.F. n.d. "International Co-opera- Schiff, M., and L.A. Winters. 2003. Regional Integra- tion in Mercosur : Is the `Third Pillar' More Ad- tion and Development. Washington, DC: The vanced Than the `First Pillar'?" Mimeo. Available World Bank. at http://www.asser.nl/default.aspx?site_id= Vervaele, J. 2005. "Mercosur and regional integration 8&level1=10790&level2=10865&level3=& in South America." International and Compara- textid=29424. tive Law Quarterly 54 (2): 387­410. Maur, J.-C. 2008. "Regionalism and Trade Facilita- WCO (World Customs Organization). 1999. In- tion: A Primer." Journal of World Trade 42(6): ternational Convention on the Simplification 979­1012. and Harmonisation of Customs Procedures (As Amended). Brussels: WCO. 14 Regional integration and customs unions B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 249 Information and communications 15 CHAPTER technology in support of customs unions: a case study of the European Union Tom Doyle and Frank Janssens This chapter provides a case study on the use of information and communi- cations technology (ICT) to support the customs union now in place at the European Union (EU). The customs union is a pillar of the EU, essential to the functioning of its single market. Such a market can function proper- ly only with common application of common rules at its external borders. The customs union has made the EU better able today to combine efforts toward two goals: facilitating trade and protecting the interests of citizens. The chapter looks both at broad devel- principles of the EU customs union opments in customs ICT at the EU have been: and at a specific case, the creation of · No customs duties at internal bor- the New Computerised Transit Sys- ders between EU member states. tem (NCTS). It is hoped that the les- · Common customs duties on im- sons drawn here--both from the broad ports from outside the EU. developments and from the NCTS · Common rules of origin for prod- case study--will usefully guide other ucts from outside the EU. customs unions pursuing economic · A common defi nition of customs integration. value. Two key achievements of the EU The EU customs union customs union are the creation of a Common Customs Tariff and a Com- In June 2008 the EU celebrated the munity Customs Code. The tariff ap- 40th anniversary of its customs union, plies to goods imported across the EU's inscribed as a political objective in the external borders. The legal framework Informationandcommunicationstechnologyinsupportofcustomsunions 1957 Treaty of Rome. On that occasion for the code was established in 1992. 2 the European Parliament adopted a With the completion of the internal resolution1 highlighting major achieve- market, goods now circulate freely be- ments of the EU customs union and also tween EU member states. offering a prospect for the future. The division of responsibilities be- The mandate of the customs union tween the European Commission and is to act as a single customs territory ap- EU member states is based on a sub- plying a single legislation in a uniform sidiarity principle.3 Th is principle is way. The goals are to facilitate legiti- intended to ensure that decisions are mate trade, to apply a single commercial taken as closely as possible to the citi- policy effectively, and to protect society zen, and that constant checks are made by fighting fraud, terrorism, and orga- to determine whether action at the nized crime. From the outset the major community level is justified (in view B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 251 of alternative possibilities at the national, regional, trans-European electronic systems were developed. and local levels). Specifically, the commission will For the EU's economy to continue competing glob- not take action outside areas that fall within its ex- ally, it was essential to be able to exchange electronic clusive competence, except in cases where EU action information with the trade through various inter- would be more effective than action taken nation- faces based on commonly used technology. ally, regionally, or locally. The mandate to create and operate trans-Euro- The subsidiarity principle is closely bound up pean customs systems required a legal basis for the with the principles of proportionality and necessity, possible--or even obligatory--use of electronic which require that any action taken by the EU should declarations.5 A major initiative for the EU customs not go beyond what is necessary to achieve the Treaty union, Electronic Customs has its direction and con- of Rome's objectives. In practice the EU's legislation, tent governed by regulation,6 joint decision,7 and a international agreements, and overall coherence are common code of practice.8 managed by the European Commission through Under the Customs 2013 work program, ICT cooperation among European institutions and EU developments are governed by a detailed work pro- member states, with operational responsibilities re- gram and priorities for investments made from the maining at the national level. The EU's legislation is EU budget. Such investments must be approved by directly applicable in its member states, and national the EU's member states and monitored through administrations are required to align their national regular meetings of its Customs 2013 Committee. legislation and implementing provisions accordingly. All project documentation is maintained by the Eu- The EU's 27 national customs services now work ropean Commission and published on secure Web together to act as a common customs service by ap- sites to guarantee its availability to all concerned plying common legislation and working methods. parties. A work program, Customs 2013, has been created to reach this important goal--as well as to reinforce Organization security (within the EU and at its external border) The typical approach to customs ICT developments and to strengthen the fight against fraud. Other ob- begins with the European Commission preparing a jectives have been added: for example, to make Eu- project proposal, which is then reviewed by national ropean business more competitive by reducing trans- delegates of the Electronic Customs Group. A com- action costs through automation and simplification. mon position--taking into account the views of the EU member states--is established. The Euro- The use of ICT for customs at pean Commission then takes responsibility for the the EU: the situation today design, development, and implementation of the 15 agreed position. Embedded in the provisions of the EU's new cus- At the start of each new project a project plan toms code4 is an enhanced mission for EU customs. of customs unions: a case study of the European Union Information and communications technology in support and user requirements are prepared by the European The use of ICT is essential to this enhanced mis- Commission and reviewed and agreed by the Elec- sion, which includes the integration and intercon- tronic Customs Group. Business process models are nection of new and modernized customs procedures then prepared. The models are incorporated into the throughout the EU. system functional specifications. Once the specifica- tions are adopted, the system technical specifications Mandate and governance become the basis for soft ware development. All soft- Developments in ICT are closely linked with the ware must undergo detailed testing before its accep- evolution of policy, legislation, and procedures in tance and deployment. the EU customs union. Initially ICT was a purely Before ICT solutions can be allowed to enter national competence--systems were designed into production, EU member states must subject for the operational responsibilities of individual the solutions to conformance tests. The European member states. Later, to replace paper based trans- Commission typically operates the test tools, refer- European procedures, solutions known as customs ence data systems, and statistical tools. It also may 252 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N operate a central repository for information destined provided by trade to customs administrations, for a nonoperational use that is not time critical (for with the resulting followup traffic. example, statistics). In the common domain--to ensure its sound functioning as part of a decentralized system--al- Business architecture most all features of the functional specifications The business architecture--including the imple- must be mandatory requirements: that is, they must menting provisions and operating guidelines--is be implemented as described in the specifications. in principle based on EU legislation. Until recently The features of the national domain are also de- visual representations of each business process scribed in the functional specifications. However, were improvised, with accompanying descriptions. these features are optional or recommended, mean- Now, as part of a modernization effort, new meth- ing that national administrations are in principle ods to represent business processes are being tested free to follow them or not. Recently the customs (described below). agencies of EU member states--supported by trade The business architecture reflects the reality that representatives--have shown a willingness to avoid the EU member states perform operational tasks drafting 27 discrete versions of specifications for the while the agreed regulatory framework is managed national domain. by the European Commission. All business processes Traditionally the specifications in the external linked to the operational environment are managed domain have remained recommended or strongly rec- at the national level. But for all ICT systems where ommended, meaning that national administrations interactions are required between national admin- are not obliged to follow them. As a result, interfaces istrations, or between the national administrations between trade and various national administrations and the European Commission, common specifica- in the EU are heterogeneous and often technically tions must be developed. These specifications refer incompatible. generally to three distinct domains (figure 15.1): Internal research at the European Commission · Common domain: where customs to customs in- is suggesting the establishment of a collaborative en- formation exchanges happen--between national vironment: the European Commission would pro- administrations, between the national adminis- pose functional specifications for the common and trations and the European Commission, or both. external domains, while national administrations · National domain: where customs to customs in- would complete the environment with the national formation exchanges happen between customs domain. entities of the same national administration. In the future a business process modeling tool · External domain: where customs to business (available online for authorized users) will be used information happens--mainly the declarations to make system specifications. Tool and functional 15 of customs unions: a case study of the European Union Figure 15.1 European Union customs domain architecture Information and communications technology in support External National Common National External domain domain domain domain domain Trader Customs Customs Trader office office Secure network National + National system central services system + reference data Source: Author's depiction of information in the text. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 253 specifications will gradually be completed, reviewed, full) of the workflow. The European Commission agreed, and aligned. The final product will visual- operates no central business application, but it oper- ize business processes, with textual descriptions for ates central services such as monitoring, the mainte- more comprehensive understanding. The tool is also nance of common reference data, and the coordina- intended to maintain the business logic, both in tion and compiling of statistics on the overall system. rules and in associated conditions needed for future Both categories of systems use a secure common operations. The end product will then be used to ob- systems interface network for data transmission. tain system process models, which will be the basis The network provides telecommunications services for further technical specifications. The goal is to au- as well as the monitoring and support services that tomate the process as far as possible, drawing upon enable the interface among various technologies. this work for soft ware development and for automat- ing all activities related to ICT (including testing) as Methods and tools far as possible in the European Commission and in A specialized methodology for ICT system develop- EU member states. ment and operations--Tempo--is based on indus- try best practice for systems development and project Technical architecture management. Closely following the recommenda- The first category of ICT technical architecture is tions of the world's most widely accepted ICT ser- centralized. A cluster of databases located centrally, vice management approach,9 Tempo includes a set at the European Commission, holds reference infor- of guidelines and document templates. The quality mation necessary for the functioning of the EU cus- assurance team working for the European Commis- toms union. These centralized systems make the sion keeps Tempo up to date, taking into account required information available throughout the EU, factors such as experience, technical evolutions, and to ensure that all administrations and all customs state of the art methods elsewhere. The use of Tempo offices are synchronized and are using correct and is mandatory for the European Commission but updated reference information. available as an option for EU member states. An example of these centralized systems is the For tools--in systems development, operations electronic integrated customs tariff, which holds the testing, and management reporting--the European tariff nomenclature, tariff rates, and additional tariff Commission has a policy of using commercial off the related information (such as antidumping measures). shelf (COTS) solutions as much as possible. An electronic fi le transmission update--in practice Research is being done on tools to draft business a daily fi le--updates the national tariff databases of process models with the help of computers. Such EU member states. The national tariff system con- models can be used by vendors to develop solutions 15 tains the information received from the European with their products using compliant Web service Commission along with national information (such interfaces.10 A standard executable language allows of customs unions: a case study of the European Union Information and communications technology in support as national prohibitions and restrictions) and na- users to deploy mission critical processes on a reli- tional measures related to taxation (such as excise able technical platform, assuring performance and duties). scalability. The second category of ICT technical architec- A standard modeling notation11 allows busi- ture uses electronic information exchanges with nesses to understand their internal business proce- formats and procedures harmonized between part- dures in a graphical notation. The notation enables ners. Such exchanges are used for the customs trans- organizations to communicate the procedures in a European system. The NCTS is based on a distrib- standard manner, while it also facilitates the under- uted architecture: each EU member state has its own standing of performance collaborations and business national application, which processes the data in a transactions between organizations. workflow environment. Processing is based on the The powerful combination of modeling nota- national validation process for an incoming message. tion and executable language allows migration from The outcome can be the sending of a message to an- a graphical model to computer code--without the other member state or the completion (in part or in need to actually write code. 254 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Business processes change regularly with chang- resulted in a costly systems integration effort, requir- ing business requirements. The ideal approach is to: ing much development, operation, and maintenance. · Draw the updated processes. Second, meeting legislative deadlines can be · Ensure that all data mappings are completed, challenging. It has been particularly challenging that the business rules and conditions are de- for the EU because each member state must draft fined, and that workflow parameters are defined. a national project plan and align it with those of · Finally (through the tool used), get the process all other EU member states and of the European deployed in a test or production environment. Commission. Services have recently been added to make in- Third, for satisfactory results all partners must formation exchange tools more accessible. One such complete development and testing on the same service is a light client facility, comparable to a Web timetable. Without such alignment, countries ready browser and providing direct access to central infor- by an agreed date cannot benefit from their invest- mation. Web services allow automated online con- ments. Getting the EU countries to agree on a single sultation of centralized systems. start date for operations has been a major challenge. Combinations of centralized and decentralized Fourth, conformance testing for ICT solutions systems, as described above, have recently been cre- must be mandatory, to prevent newcomers from en- ated to make available a new type of single trans- dangering the customs operations of countries al- European system that provides more functions and ready in production. The EU approach to the deliv- limits the costs for EU member states. ery of system upgrades has been to give countries a The Economic Operators System (EOS) of the time window for starting operations. Letting opera- EU is a combination of: tions start gradually--one country at a time--leaves · Centrally stored information distributed for na- time for sound analysis and corrective actions. tional operations. Fifth, long transition periods should be · Information exchanged by countries after pro- avoided--to minimize technical risks and problems cessing at the national level. arising from the need to support old and new func- Workflows at the central and national levels tionalities in parallel. thus exist in combination in the EOS. In case of de- Sixth, budgetary restrictions and competing synchronization, the central repository takes prece- national priorities make it difficult to plan for new dence and national databases will be resynchronized systems and for modifications to existing solutions. automatically. For the NCTS the European Commission funded To facilitate trade, at the central level the Euro- the development of a startup national system, which pean Commission has created a data dissemination was then made available to EU member states free system12 that provides economic operators and the of charge. 15 general public with online information. The infor- Seventh, the management of centralized ICT of customs unions: a case study of the European Union mation includes the complete customs office list, solutions entails meeting certain demands--for ver- Information and communications technology in support customs tariff information, a tracking facility for sions in several languages, for specific changes re- export and transit movements, and so forth. quested by individual partners, and for operational support tailored to each partner's soft ware platform Lessons from the EU experience (as for the various platforms used by EU member Nine lessons may be drawn from the EU experience states). with customs ICT development. Eighth, responsibility may be transferred to the First, technical heterogeneity makes interopera- partners through training and procurement sup- bility technically challenging. The current ICT envi- port for system maintenance. In the EU the need to ronment is characterized by heterogeneous technical support more and more branched soft ware (a result architectures (hardware, systems soft ware, database of countries' needs to individualize the soft ware) and middleware, application soft ware, and commu- persuaded the European Commission to launch nication infrastructure and soft ware). The inabil- an initiative for certain member states to take over ity to create a more homogenous environment has the management, maintenance and evolution of B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 255 their applications. The initiative was a joint effort. national and regional policies and procedures related A similar effort for collective soft ware development to electronic customs (e-customs) and to trade facili- was launched--though it ran afoul of diverging tation are coherent. national requirements, legal differences in public In a customs union whose partners remain in procurement processes, and so forth. Other efforts charge of operations at the national level, creating likely will follow, to promote economies of scale and and operating ICT systems requires trust, goodwill, faster progress in automating customs functions. and much coordination. It further requires a clear Ninth, to overcome shortfalls, labor must be mandate, a governance structure, and a clear and ad- redistributed so that tasks are carried out where re- equately resourced work program--along with the sources are available. Countries with the resources constant coordination efforts. to keep building on the agreed path must make their The first hurdle is to create a common vision and specifications, soft ware, test tools, and other ICT measurable, outcome based deliverables for projects features available to those without such resources. agreed on in advance by all partners. A realistic work Here the central authority's aim should be to pro- timetable should be adhered to, functional and tech- mote progress through increased cooperation with- nical system specifications agreed to. If some coun- out pushing for shifts in competence. In the EU the tries correctly apply the timetable and have systems present financial crisis has meant that there are fewer ready by the agreed deadline while other countries resources for investments to develop new ICT solu- encounter delays and miss the deadline (for sound tions, or even to add functionality to existing sys- reasons or otherwise), it is very difficult economi- tems. Overall modernization in the EU may slow as cally for the countries that meet the deadline. a result of some countries' resource constraints. The Regional interoperability must be assured to European Commission assumes a vital role in orga- allow a seamless data flow between member states nizing, coordinating, and making available environ- of a customs union that is building a common trans- ments for joint use--virtual or conference meetings national ICT system. Business processes through- and joint documentation storage--along with speci- out the union must benefit regulatory authorities, fications and soft ware. supply chain partners, and traders. The processes should render risk analysis more effective, allowing What aspects of ICT for customs for efficient monitoring of trade flows and the ap- are transferable from the EU propriate selection of consignments to be checked. to other customs unions? Furthermore, the processes should reduce business operating costs in the region, speed the movement This section begins by suggesting overarching prin- of goods across regional borders, and reduce paper 15 ciples for ICT development by customs unions other based formalities as much as possible. than the EU customs union, based on the EU cus- of customs unions: a case study of the European Union Information and communications technology in support toms union's experience. It then looks at the advan- A centralized system or several systems? tages, disadvantages, and risks of a single standard Given the overarching principles set forth above-- system--or centralized system--compared with and taking into account present fi nancial con- those of national systems. It concludes with a list of straints, which can affect the development and recommended actions. maintainance of ICT systems--a comparison can be made between two approaches to systems devel- Overarching principles for ICT opment for customs unions. First, having a central- at other customs unions ized system (or single standard system) comes with The way forward suggested here for customs unions certain advantages, disadvantages, and risks. Second, outside the EU is to create a strategic plan setting out having several discrete national systems (or a distrib- the vision, objectives, and business, technical, and uted system) brings other advantages, disadvantages organizational frameworks needed for sustainable and risks. interoperable systems. The strategic plan should lead A centralized (or single standard) system--one to the delivery of essential services, ensuring that all used by all countries in the customs union--is more 256 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N feasible the greater the alignment of rules and leg- investments in human and financial resources, both islation. The appropriateness of such a system will for systems development and for systems operations. be determined largely by the customs union's in- The customs union must develop a strategic tegration capability and by the political will of its plan to deliver the requirements for further regional members. convergence. In many areas common legal and pro- A centralized (or single standard) system brings cedural rules do not, by themselves, ensure a level the following benefits: playing field for economic operators. So, beyond the · Significant economies of scale, reducing system necessary regulatory changes, common guidelines development and maintenance cost and the ex- and working methods may be required. The strate- tent of development and operations efforts. gic plan should match the legal and business inte- · An ability to build the system on international gration with an appropriate technical approach, to best practices in this business domain, starting be completed in accordance with an agreed multian- with fresh technology building blocks and bas- nual timetable. ing development on a technical platform that Under the strategic plan, economic operators uses open standards (for example, services ori- should be able to access unionwide information re- ented architecture). lated to import and export requirements through an · An ability for traders to use--or interface information portal. The portal should also contain with--only one system. information about rules on the movement of goods · The better equipping of regional management across borders (for example, agricultural, environ- for regional trade, external tariff management, mental, and other regulatory legislation). The first and national self determination in revenue step is for the customs union member states to agree collection. on a common standard. Such a common standard In addition, the following specific features are will, in turn, facilitate the interlinking and harmo- possible using a centralized (or single standard) nization of national information portals. system: For risk to be managed efficiently, the exchange · Any installations serving multiple countries can of intelligence information is essential. So is risk be deployed in a way that ensures the data of any analysis, conducted according to common criteria country are secure--accessible only to the offi- and standards. To allow a rapid, direct, and secure cials of that country. exchange of control information (to counteract na- · A central suite of reference data can be set up tional and regional threats), a secure electronic sys- (for example, for the common external tariff, for tem is needed--one that allows the dissemination value and classification information, for origin and exchange of intelligence information across all certificates, for transit guarantee management, regulatory control points in the region. 15 and for other reference material such as stamps National risk systems must allow interconnec- of customs unions: a case study of the European Union or an office list). tivity and interoperability. The development of a Information and communications technology in support · The system can be configurable in various sizes, risk management framework requires, among other from a small installation to a very large one. things, common functional and technical specifica- · The system can be enabled to permit extensive tions for national risk analysis systems--to ensure timely and remote operations support. that regional profi les can be readily incorporated · Business continuity can be assured, utilizing a into the national systems. The successful regional load balanced infrastructure. application of risk management depends on paral- However, experience suggests that it is difficult lel developments in authorized economic operator for a customs union to develop and operate a cen- schemes, audit controls, standardized customs con- tralized (or single standard) system. The reasons for trols, and technical interconnectivity capabilities. this difficulty are mainly political rather than tech- A regional valuation database could be nical. An alternative is to have several systems (or a developed--containing import and export values distributed system). The price of having several sys- for genuine trade in the region, and accessible by all tems is a need for greater coordination and higher customs offices throughout the region. The values B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 257 would be accessible by customs code heading, com- both functional (customs) and nonfunctional modity description, manufacturer, quantity, country (mainly technical) requirements. of origin, or destination. Valuation data could be ob- · Establish a coordinating body that will ensure tained (wherever this is cost effective) from sources the full information of all parties concerned, including recently used invoices, catalogs, vendor provide them with an opportunity to discuss is- price lists and offers, questionnaires, and third party sues in establishing ICT systems, ensure that op- service providers such as preshipment inspection erational decisions are proposed for decision--or companies. (if no decision can be reached) sent to the steer- A regional legislation database could be devel- ing committee--and, finally, keep a risk register oped to provide details on prohibitions and preferen- and ensure that a security policy is established. tial rate regulations. Such a database would simplify The coordinating body should drive progress the management and validation of documents and by making proposals and suggestions, without enable economic operators to benefit from exonera- threatening national competences. tion or exemption on certain products. The database · Establish a monitoring and reporting policy. could also provide for recording details of regula- Monitoring will provide correct and objective tions on restricted, exonerated, and exempted goods information. Reporting will ensure that national on import and export. and central authorities are duly informed. The regular provision of appropriate information Implementation strategy will greatly help to secure resources for future The following actions are recommended for existing initiatives--as well as support for any remedial or emerging customs unions. actions. · Prepare a document describing the customs · It is recommended to use a project management union's ICT strategic objectives (goals to be tool in defining a program plan that encompasses achieved), to be approved by all member coun- the various ICT projects. Such a tool can help tries after discussion and review of the text. track progress and the use of resources--like a · Put in place a suitable governance structure, sup- GPS, it guides the customs union toward its goal ported at the highest political level. The structure of functioning well. should establish clear agreements for the distri- · Organize regular (annual) evaluation exercises, bution of labor among participating countries-- to learn from experience and to keep the spirit including the creation of a central secretariat-- of cooperation high. Such exercises should yield and for their provision of suitable human and operational improvements and create a mecha- financial resources, both for the management of nism for continuous improvement. 15 the central secretariat and for the resulting work program. The governance structure should also A case study: creating the New of customs unions: a case study of the European Union Information and communications technology in support establish a steering committee to provide guid- Computerised Transit System ance, make strategic decisions, and resolve issues escalated from the operational level. Since the introduction of ICT in customs systems · Establish a scope document and a multiannual across Europe, the creation of an electronic Euro- strategic plan (including a timetable)--docu- pean transit system has been an ambition for the ments that together yield a clear implementation EU. Initially this ambition was thwarted by process- strategy. The scope document should set imple- ing power limitations, by the high price of memory mentation priorities (top, middle, and lower), capacity, and by limited bandwidth--but also, and leading to the establishment of several project perhaps most importantly, by the lack of any real phases. The multiannual strategic plan should political will or determination to develop a pan- provide a clear overview of all major tasks, with European system. the timetable for their execution. Even as progress toward the development of a pan- · Based on the objectives, establish detailed user European system was being frustrated, the existing requirements for the system--a list to include common and Community transit systems--which 258 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N were paper based--became more prone to fraud. In- cooperate. When the system was created 20 coun- creasing numbers of movements were not closed in tries were involved. Now there are more than 30. The their allowed timeframes, mainly for the simple rea- success of the project depends on the will to succeed son that highly taxable goods had disappeared from among all countries involved--and on the existence official records during transit. These cases were time of a coordinating authority able to orchestrate all consuming and difficult to close. Often the fraud the actions needed for progress. For the NCTS the could not be traced to its perpetrators, leaving the European Commission agreed to assume the role of principal (the person accepting responsibility for coordinator and to host all international meetings the consignment) or the guarantor with little option required for the project. other than to pay the duties and taxes at stake. Because rising fraud threatened the existing Eu- The European Union's approach ropean transit system, the European Parliament cre- to NCTS transformation ated the Enquiry Committee to investigate. A key The NCTS project was the largest ever undertaken in finding of the committee was that the existing paper the EU customs and trade domain. It also mounted based system was no longer fit to support trade in a major challenge to the status quo, prompting some Europe, particularly given the increasing demands resistance and skepticism from the start. The parties of global commerce. The committee recommended affected were concerned about the scale of changes that the transit system be automated--as soon as and about the long NCTS development cycle. possible. To manage these concerns, a gradual transforma- tion approach was adopted. Initially the systems de- Business objectives and challenges velopment was scoped. In the first major work phase The main objective in creating a new European tran- only essential functionality was developed. In the sit system was to replace the paper based system with next phase automated guarantee management was a reliable, automated one that would enable customs introduced. The third phase focused on introduc- authorities to identify open movements online. ing the automated enquiry procedure for nonclosed Under the paper based system most movements took movements. several weeks to close, as postal services were used to The phased approach enabled a quick start in the return papers from destination offices to departure first phase, restricting participation to limited num- offices. In contrast, the new electronic system should bers of countries and of traders--to test the NCTS provide information immediately, enabling inquiries system's functionality and efficiency. Only after the from the moment when the time period expired for system had proved itself over several months, with- performing a transit. out any major problems, were more countries able to Other objectives included covering all the terri- join. And only in the following phase were all coun- 15 tory covered by the paper based system; requiring the tries obliged to participate. At that time it became of customs unions: a case study of the European Union trade to submit transit declarations electronically to mandatory for the trade to use the new system, with Information and communications technology in support customs; and having the new system perform several the old paper based system surviving only as a fall- logical checks prior to validation (to keep mistakes back option. to a minimum). There were two major challenges. The first was The solution blueprint adopted for the NCTS convincing the trade to switch from a paper based The NCTS project was ambitious from the outset, as system to an electronic one--bringing benefits for the first major international scale automation proj- the system (in quality and in reduced vulnerability ect in the EU customs and trade sector. The coun- to fraud and irregularities), but also for the trade tries involved were not on a common platform, and (mainly in reduced transaction costs, as there would their progress towards automation varied. no longer be a need to fi ll out paper forms and bring To avoid major delays from debates and ne- them to customs offices). gotiations, it was decided that the NCTS would The second major challenge was coordinat- be built largely on the basis of the existing paper ing all the countries involved and getting them to based system. Existing business processes and legal B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 259 frameworks would thus need only slight adjustment among all user countries. Traders still had the option to allow the replacement of paper by electronic mes- of migrating to NCTS and using the paper based sys- sages. The data elements to be exchanged could be tem as a backup. simply taken from paper documents. The only mat- In the third phase the whole NCTS system be- ters requiring agreement would be message defini- came mandatory, not only for national agencies, but tion and format. When the system was conceived also for traders. Every transit declaration now had there was no real alternative to the UN/EDIFACT to be electronic. Also, the international guarantee format--which was well documented in the inter- management system was introduced, ensuring that national field--so agreement on it was quite rapid. NCTS movements validated at any point in the cus- toms territory of participating countries are covered Driving the adoption of the NCTS with an international guarantee valid throughout As the NCTS was being developed in parallel to the whole territory. the existing paper based system, countries initially Whenever an evolution from one phase to the could volunteer to take part as early adopters. The next involved changes in the international part of Czech Republic, Germany, Italy, Spain, the Nether- the system, the evolution was covered by extensive lands, and Switzerland were the first countries to use conformance testing. This meant that the customs the NCTS in its first phase. Where countries opted agency concerned had to evaluate its national appli- to join, traders too could learn and use the system cation against an automated test tool and success- voluntarily. fully execute a number of business scenarios. The countries that volunteered in the first phase of the NCTS cited several reasons for joining, Transformation outcomes including: With the NCTS developing over several carefully · A realization that the paper based system was planned phases, transformation outcomes have been in crisis, and that urgent solutions were needed gradual. The volume of transactions has steadily to offset the growing financial risks linked to grown over the years, as countries have joined the highly taxable goods. NCTS and as it has replaced the previous paper · A belief that once the new system achieved criti- based system. cal mass, it would increase efficiency and so re- Using the NCTS today are 27 EU member states duce costs for both agencies and private parties. plus Switzerland, Norway and Iceland. In addition, a The countries that did not volunteer initially cited: growing number of countries in East and Southeast · A desire to wait until the new system was Europe have official observer status while preparing stabilized. national NCTS applications, with a view of joining 15 · Worries about the extra cost and effort of acting in upcoming years. In 2008 the system was used for as test cases. about 20 million transit movements throughout Eu- of customs unions: a case study of the European Union Information and communications technology in support · Some skepticism about the implementation rope (figure 15.2). timeframe--and general uncertainty about the The NCTS now enables European customs ser- long term prospects for project success. vices to start an enquiry procedure at any moment. The companies and traders that became early For sensitive (high duty) consignments, agencies no adopters generally were large and medium size en- longer need to wait weeks for a paper copy to return terprises. Smaller companies questioned the return before starting an enquiry. In practice the enquiry is on the investment (joining costs). They needed more started as soon as the validity period for the NCTS proof that the eventual benefits would justify up- movement ends. This period can be set in the system, front costs, time, and efforts. taking the distance of the movement and other cir- After an initial period of development and use, cumstances into account. the NCTS received a positive evaluation and was No real cost-benefit analysis of the NCTS has opened up to all countries using the common and been done. However, questions asked of the trade Community transit systems. This second develop- community have yielded the estimate that, for ment phase emphasized achieving interconnectivity each transit movement, the NCTS has obtained a 260 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Figure 15.2 Total movements in the New Computerised Transit System from its operation start date, with error rate as a percentage of all electronic messages sent (2004­09) Movements (thousands) Error rate (percent) 1,000 5.0 800 4.0 600 3.0 400 2.0 Trend lines 200 1.0 0 0.0 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Oct-09 Source: Author's construction using data obtained from New Computerised Transit System (NCTS). productivity gain of about 30 minutes. With labor the NCTS project was set up and organized suc- costs gross billed at 30 an hour, the 8,800,000 cessfully. The main changes, if the work were re- movements in 2008 would then achieve annual cost done, would be technological: choice of systems savings of 132,000,000. Although labor may cost architecture, more use of XML (rather than UN/ less for customs brokers in some areas, the cost sav- EDIFACT), better tools to manage central system ings remain impressive--suggesting that the NCTS reference data and statistical information. investment repays itself annually several times over. The NCTS project has succeeded so far. Its major achievement has been making it possible Lessons learned from the NCTS project to follow up on nonclosed movements, halting 15 Three critical success factors have enabled the devel- the fraudulent use of the previous system--a use of customs unions: a case study of the European Union opment of NCTS to its present state: that undermined that system's fi nancial stability. Information and communications technology in support · Strong political will and support. The NCTS has also brought fi nancial benefits to · A mandated coordinating body providing direc- both public and private users by increasing their tion, momentum, and the required flow of infor- productivity. mation to all parties involved--to communicate progress, and to ensure the correct implementa- Notes tion of commonly agreed rules (since the system can only function well when all parties have de- 1. "European Parliament resolution of livered what is required in their domains). 19 June 2008 on the fortieth anni- · Quick agreement on systems architecture--par- versary of the Customs Union," P6_ ticularly on which aspects are to be centralized TA(2008)0305, European Parliament, and which decentralized. http://w w w.europarl.europa.eu/sides/ There is general acknowledgment between the getDoc.do?pubRef=-//EP//TEXT+TA+P6 European Commission and its member states that -TA-2008-0305+0+DOC+XML+V0//en. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 261 2. Implementing powers are conferred on the 6. "Regulation (EC) No 648/2005 of the Eu- European Commission, which is assisted by ropean Parliament and of the Council of a Customs Code Committee. Both the reg- 13 April 2005 amending Council Regulation ulation establishing the Community Cus- (EEC) No 2913/92 establishing the Com- toms Code--Council Regulation (EEC) munity Customs Code," European Union, No 2913/92--and the code's implement- http://eur-lex.europa.eu/LexUriSer v/ ing provisions can be accessed through the LexUriServ.do?uri=OJ:L:2005:117:0013: Web page "Taxation and Customs Union: 01:EN:HTML. Customs Legislation," European Commis- 7. "Decision No 70/2008/EC of the European sion, http://ec.europa.eu/taxation_customs/ Parliament and of the Council of 15 January common/legislation/legislation/customs/ 2008 on a paperless environment for customs index_en.htm. and trade," European Union, http://eur-lex. 3. The subsidiarity principle is defined in ar- europa.eu/LexUriServ/LexUriServ.do?uri= ticle 5 of the treaty that established the Eu- OJ:L:2008:023:0021:01:EN:HTML. ropean Economic Community in 1957. See 8. See note 4. "Europa: summaries of EU legislation-- 9. The Information Technology Infrastruc- Treaty establishing the European Eco- ture Library, known as ITIL. See "Wel- nomic Community, EEC Treaty--original come to the Official ITIL Website," United text (non-consolidated version)," European Kingdom Office of Government Commerce Union, http://europa.eu/legislation_sum- (OGC), http://www.itil-officialsite.com/ maries/institutional_affairs/treaties/ home/home.asp. treaties_eec_en.htm. 10. Business Process Execution Language 4. "Regulation (EC) No 450/2008 of the Eu- (BPEL), short for Web Services Business ropean Parliament and of the Council of Process Execution Language (WS-BPEL) is 23 April 2008 laying down the Commu- an OASIS standard executable language for nity Customs Code (Modernized Customs specifying interactions with Web Services. Code)," European Union, http://eur-lex. 11. The notation is known as BPMN. See "Ob- europa.eu/LexUriServ/LexUriServ.do?uri= ject Management Group/ Business Pro- OJ:L:2008:145:0001:01:EN:HTML. cess Management Initiative," OMG, www. 5. "Decision No 624/2007/EC of the Euro- bpmn.org. pean Parliament and of the Council of 23 12. Electronic databases accessible through the May 2007 establishing an action program European Commission's Web site are listed 15 for customs in the Community (Customs at "Taxation and Customs Union: Electronic 2013)," European Union, http://eur-lex. Databases," European Commission, http:// of customs unions: a case study of the European Union Information and communications technology in support europa.eu/LexUriServ/LexUriServ.do?u ec.europa.eu/taxation_customs/common/ ri=OJ:L:2007:154:0025:01:EN:HTML. databases/index_en.htm. 262 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 16 CHAPTER Sanitary and phytosanitary measures and border management Kees van der Meer and Laura Ignacio In addition to customs processing, all agricultural food and forestry products face sanitary and phytosanitary (SPS) measures as part of the border release process. Since these products are important to many de- veloping countries--and shipments are relatively small--much of their trade faces SPS procedures. This chapter starts with a discussion of that comply with international princi- the nature of SPS management and the ples, adequately protect health, and pro- role of the World Trade Organization mote market access. (WTO) Agreement on the Application of Sanitary and Phytosanitary Measures SPS controls and their (SPS Agreement), followed by a discus- management sion of characteristics of agricultural product markets and SPS agencies. The Governments have long been concerned segmentation of the food market poses about the potential for economic damage special challenges for safety manage- caused by the introduction and spread of ment and trade promotion. plant pests and animal diseases, since The chapter discusses the general individuals can do little against such pattern of limited cooperation between hazards. Government measures can SPS services and customs. The perfor- include trade bans, movement controls, mance of SPS border management can quarantine, disinfection, and destruction be improved by promoting cooperation of infected products and animals. Pests with other border agencies, the private and diseases can spread easily over bor- sector, and sister organizations in other ders, so control measures are an area of trading countries. Involving SPS agen- cooperation among countries. The focal Sanitary and phytosanitary measures and border management cies in cooperative border management points of such cooperation are the Office can benefit governments and the private International des Epizooties (OIE, sector. Unfortunately this cooperative called in English the World Organiza- aspect of SPS has received little atten- tion of Animal Health) and the Inter- tion from international agencies. national Plant Protection Convention.1 The SPS clearance process differs Governments set rules against un- from the customs clearance process: a safe food, as individual consumers have major aim of SPS services is export pro- only a limited ability to verify them- motion (market access), and work vol- selves the safety of what they eat. The ume away from the border may be much Codex Alimentarius Commission is larger than at the border. In developing the international framework for food countries, SPS agencies face great chal- safety, operated by the Food and Ag- lenges in performing their roles in ways riculture Organization of the United B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 263 Nations (FAO) and the World Health Organiza- In addition, countries are encouraged to har- tion.2 Two bodies cooperate in standard setting for monize their policies with international SPS stan- animal food product safety: OIE leads on zoonotic dards and measures--such as those espoused by the threats in food (threats pertaining to diseases that Codex Alimentarius Commission on food safety, can be spread from animals to humans), the Codex the International Plant Protection Convention on Alimentarius Commission on hygiene and other as- plant health, and OIE on animal health--but are al- pects. Since food chains may also be contaminated lowed to apply stricter requirements as long as the re- by unsafe agricultural inputs and the unsafe use of quirements are based on scientific justifications that inputs, governments also control the quality and include an assessment of risks. Countries may also safety of pesticides, veterinary drugs, animal feed, apply fewer and less stringent standards or opt not and fertilizers in import, trade, marketing, and use. to apply international SPS standards and measures, provided that this does not affect the rights of other WTO principles for SPS control. While there are clear countries under multilateral trade rules. justifications for importing countries controlling the safety of imported plants and animals and the prod- Capacities needed. Implementing these principles ucts thereof, countries may be tempted to use SPS is complex and demands many capacities in which measures as disguised protectionist measures. There- developing countries generally are lacking. Coun- fore, the use of SPS measures has been brought under tries first need an extensive legal and regulatory the discipline of the WTO trading regime. Members framework for food safety and plant and animal of the WTO must sign its SPS Agreement (WTO health, with transparency, the rule of law, and the 1994a) as well as its Technical Barriers to Trade capacity to implement measures. In substance, a (TBT) Agreement (WTO 1994b). The agreements country must be able to: stipulate that an importing country has the right to · Monitor its status on plant pests, animal dis- refuse market entry and control imports--provided eases, and food safety. that it justifies such measures under the principles of · Operate testing and diagnostic laboratories. the agreements, including: · Certify the safety of plants, animals, and · Transparency. Information on SPS measures is products. easily accessible. There are set procedures for no- · Carry out inspections at borders and behind them. tification in cases of new or amended measures. · Conduct risk analysis and risk management. · Nondiscrimination. Measures are equally ap- · Report any plant and animal pests and diseases plied to importers as well as domestic producers. and any food hazards to trading partners and in- Similarly, all trading partners are subject to the ternational organizations. 4 16 same requirements. · Participate in bilateral and international nego- · Proportionality. Interventions are proportional tiations on market access and trade agreements. Sanitary and phytosanitary measures and border management to the health risks to be controlled. A minimum requirement for international rec- · Equivalence. There is mutual recognition among ognition of these services is the use of international trading partners of different measures that standards. Some of the services may be delegated to achieve the same level of protection. nongovernment entities, but the government com- · Science based measures. Measures to protect petent authority3 should provide proper supervision. plant, animal, and human health are based on Developing countries' limited capacities mean scientific principles and sufficient scientific evi- that such countries face difficult choices about pri- dence. Generally this requires the assessment of orities in carrying out SPS control measures--spe- risks involved and the definition of an acceptable cifically, in three areas: level of risk. · Putting in place import requirements that pro- · Regionalization. Recognition of the possibility tect sufficiently against health hazards and com- that disease or pest affected countries may have ply with WTO principles. areas or regions that are disease or pest free, and · Complying with demands from neighboring allowing exports from such areas or regions. countries and importing countries that hazards 264 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N be prevented from spilling over to their territo- are acceptable. Such preapprovals may also depend ries, and providing information about any pest on the ability of competent authorities to control the and disease situations. safety of exported products. Inspection teams from · Putting in place nondiscriminatory measures for the importing country may visit the exporting coun- the domestic market, in synergy with the export try to verify--before market access is granted--that and import controls. production, processing, and transport facilities, and the capacities of the competent authority, comply Market access. Exporting countries confront a range of with importing country standards.5 requirements imposed by importing countries. Market Agricultural inputs--such as seed, feed, pesticides, access requests are decided on the basis of risk assess- and veterinary drugs--present high risks. Seed, other ment procedures, for which the Codex Alimentarius propagation materials, and live animals can carry new Commission, the International Plant Protection Con- pests and diseases into a country. Importation there- vention, and OIE--among others--have provided fore usually requires formal quarantine or post entry standards. Requirements include product and process quarantine measures, and trade from countries with standards and may also address producers and produc- certain pests and diseases may be forbidden. Feed may tion facilities, production methods, storage and trans- contain pathogens (the pathogen responsible for bo- port facilities, disinfection treatment, required certifi- vine spongiform encephalopathy, or mad cow disease, cates, and capacities of competent authorities. is a notorious example) and may be tainted with dan- Importing countries commonly require cer- gerous pollutants and toxins. Once these undesirable tificates affirming product health and safety. They contaminants enter the food chain they cannot be re- include veterinary health certificates for nearly moved, resulting in food products that are dangerous all animals, animal products, and animal produc- to consumers and possibly leading to export bans--so tion inputs; phytosanitary certificates for nearly all feed warrants intensive controls. The same applies to plants, plant products, and plant production inputs; forbidden pesticides and veterinary drugs, or forbid- and, in many cases, food safety certificates for fresh den formulations of these substances. and processed food. For animal and plant health issues, the capacity First time exports of most agricultural and food of public agencies and the relations between govern- products to a country usually must be approved. Ex- ments are crucial to gaining and maintaining market porting countries usually are required to provide data access. Private capacities play a less important role on their pest and disease situations based on inter- in market access for these issues--except for enter- national standards (especially International Plant prises that deal with breeding stock or with seed and Protection Convention and OIE standards). Not planting material.6 In contrast, for food safety, once providing such information may result in product market access has been obtained, responsibility lies 4 16 bans based on the precautionary principle.4 Import- mainly in the private sector--unless frequent non- and border management ing countries, however, may not ban imports of goods compliance by an exporter triggers public interven- Sanitary and phytosanitary measures from countries with pests and diseases that are also tion in the importing country.7 widespread in the importing countries' own territo- Most countries waive the risk assessment re- ries and for which the importing countries have no quirement for products that have long been im- control programs. International standards allow for ported without problems. But if noncompliance establishing pest free or disease free zones that, in with import standards is frequent, if there is a case of principle, can divide a country into different zones a food hazard, if a plant or animal disease breaks out for export and import requirements. However, estab- in the country of origin, or if quarantined pests and lishing such zones demands much capacity, and get- diseases are detected, then trade may be suspended ting them recognized by trading partners is difficult. until a risk assessment is conducted and special mea- For animal products (including fishery prod- sures are agreed. Examples of suspensions include: ucts), many countries require preapprovals for im- · The European Commission's ban on seafood ports, preapprovals that are given only if hygienic and products from China, Thailand, and Vietnam structural conditions in the food processing plants when forbidden antibiotics were detected. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 265 · Japan's ban of spinach from China when residues analysis and critical control points (HACCP). The of forbidden pesticides were detected. government can also control the safety and quality of · The ban in many countries of bovine and poul- agrochemicals and feed, and it can work to prevent try products from countries where bovine environmental hazards. This segment is growing in spongiform encephalopathy and avian flu were all developing countries, driven by urbanization and detected. growing modern food retail chains, but it still repre- · Bans of milk products from China during the sents a small share of food sales. melamine crisis. Tier 3 is the traditional food market segment. It · The banning by the United States of raspberry is operated by mainly small informal players without imports from Guatemala after cyclospora con- supply chain coordination, and it remains dominant tamination was found. (by trade volume) in all developing countries. Gen- Requirements for food and agricultural products erally there is no price incentive for safety assurance usually identify three import categories: prohibited systems that promote good agriculture, hygiene, articles, restricted articles, and nonprohibited ar- and manufacturing practices, or for systems based ticles. Prohibited articles are banned from import, on HACCP. The main role for government in this except perhaps with special permits for research pur- segment is to prevent supply chains from becoming poses. Restricted articles can only be imported if spe- tainted by pathogens, banned pesticides and veteri- cial requirements (permits, certificates, disinfection) nary drugs, and other dangerous chemicals, and to are met. Nonprohibited articles generally can be im- ensure that no unsafe or substandard food enters the ported with no requirements, or with simple routine market. Given the weakness of public capacity, the ones (such as phytosanitary certificates). complexity of these markets, and the large number of small enterprises involved, most governments can Market differentiation effectively control only a limited number of hazards. Developing countries can be characterized accord- Market segmentation has implications for border ing to a three tier market structure for food prod- management. Goods in tier 1 require few checks by ucts, with different food safety management issues the public sector, since private enterprises manage in each tier (Van der Meer and Ignacio 2007). controls throughout the supply chain. Tier 2 compa- Tier 1 is the demanding export market segment, nies will conduct some controls, though less compre- mainly selling in Organisation for Economic Co- hensively. Tier 3--including bulk shipments without operation and Development (OECD) countries. known producers and ultimate buyers--poses the Demand for safety assurances, including traceabil- most risks and requires the most control. Still, not ity, is high in this market segment. Buyers exclude all tier 3 shipments are the same. Often there is much 4 16 noncompliant suppliers. Supply chain controls are small, local, and informal agricultural and food trade, mainly carried out by private companies. Generally especially along land borders in developing countries. Sanitary and phytosanitary measures and border management the buyer pays a price premium for compliance and Such trade is especially difficult to control--and usu- traceability. In this segment governments play a fa- ally does not require intensive controls, because food cilitating and supervising role. production and consumption practices are generally Tier 2 is the emerging domestic modern market the same on both sides of the border. Although some segment, consisting mainly of supermarkets, tourist controls are needed to prevent the smuggling of un- restaurants, and international fast food chains. In safe foods--and to respond in the event of food safety this segment market demand for safety assurances incidents--burdensome checks on small traders at is still weak--the main factor in competition and international border crossings only create incentives in market access is still product price. Private en- for illegal trade. Even less necessary for informal local terprises struggle to recover the cost of supply chain trade are phytosanitary and veterinary controls, since coordination. Here the government can help by pests and diseases are often the same on both sides of supporting good hygiene practice, good agriculture the border. Such controls are needed only during out- practice, good manufacturing practice, and safety breaks of contagious animal diseases, such as avian flu and quality management systems based on hazard or foot and mouth disease. 266 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N As the distance from a product's origin to its des- Many SPS agencies perform their role in sequence tination increases, SPS risks also increase (since pest with customs.9 In some countries--such as the Peo- and disease situations are more likely to differ in two ple's Republic of China--customs decides which places the greater their physical separation). In ad- goods need SPS clearance. After a customs declara- dition, such risks are higher wherever traceability is tion is filed, the applicant may be directed to the SPS lacking and producers and traders are anonymous-- agencies for further clearance before returning to cus- not unusual conditions in developing countries. toms. In contrast, in Cambodia a general inspection Accordingly, the formal trade segment requires agency--Camcontrol--has, among its other duties, an adequate SPS control system, and government that of checking at the border for product identity trade promotion programs are targeted at this part and food safety in all incoming shipments. That re- of trade--the part for which the cost of border clear- sults in more duplication of data and paperwork than ance is an important factor in competitiveness. is found in the People's Republic of China. SPS control clearance Rentseeking. Rentseeking can affect SPS agencies in Border processing by SPS agencies is preferably many ways. Public funding for inspection services guided by recommendations of the standard setting and laboratories is often very low, and the focus is bodies--the Codex Alimentarius Commission, the on regulatory inspections rather than food safety International Plant Protection Convention, and risks. Unofficial policies encourage agencies to con- OIE (annex 16A). duct more inspections and laboratory tests than are Border post SPS clearance is only part of the total needed. Inspections are biased toward selecting for- SPS clearance process. The process starts with an ap- mal enterprises, from which a fee can be collected-- plication for import licenses and permits. For many not toward selecting high risk producers. Some products, sanitary or phytosanitary certificates are countries require health certificates for all exports needed from the origin country. Obtaining the re- (even if the importing countries do not require such quired permits, licenses, and certificates can be time certificates) and collect samples to test food safety. consuming (filing applications in advance, waiting for Some countries also test imports extensively. Finally, approvals) and costly (fees and unofficial payments). even if these problems are absent and administrative At the border, quarantine officers check required processing is efficient, inspectors may prefer to deal papers, collect statistical and other information, and with goods owners or their agents in person to allow check whether goods conform to the papers. The of- for the collection of informal payments. In sum, exist- ficers do partial or full physical inspections, take ing incentives in many countries tend to drive inspec- samples, and perform simple tests or send samples tors away from risk based inspection and toward to a laboratory. Finally they decide on destruction,8 practices that increase transaction costs--both con- 4 16 quarantine, or treatment--and on release or rejec- trary to the SPS and TBT principles of the WTO. and border management tion. Animals may be quarantined in the exit coun- Sanitary and phytosanitary measures try under that country's competent authority. Fresh Market access role. The capacities of SPS agencies products and live animals usually need to be checked play an important role in gaining and maintaining and released at the border post. Other quarantined market access. Increasingly, to gain market access, goods may be sent to bonded private or government countries must be able to provide basic data on their warehouses, where inspections can be carried out plant pest, animal disease, and--less frequently-- and from which the goods are released after all diag- food safety situations. Some developing countries nostic and other requirements are met. spend more time and effort assuring market access Controls should depend on the risks associated and complying with importing countries' require- with goods. Even if no formal risk management is ments than on import control. in place, controls will differ by goods, shippers, and perhaps informal payments. Import permits and Transit. Customs transit systems are subject to health certificates need not result in faster clearance SPS controls, provided there is a reason to believe at the border. that allowing the transit shipment presents a risk. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 267 For processed food there is generally no ground for · Poor coordination of border processes and time assuming a risk. But the situation differs if plants, consuming sequential processes. plant materials, animals, and animal products are · Inadequate information technology, making involved (see annex 16A). If any pests are present in electronic lodging impossible. transited goods and could enter the country, ship- · Inefficient and redundant bureaucratic procedures. ments are subject to normal phytosanitary controls. · Higher inspection rates than necessary because Traders can avoid these controls by using sealed of poor risk management. trucks or containers, provided the seals are not bro- · Unnecessary duplicative administrative require- ken (for transloading or otherwise). A more strin- ments for private and public safety (quality) as- gent regime applies to animal diseases: any suspicion surance schemes and transport documentation. that diseased animals are present, even in a sealed · Rentseeking and corruption. truck or container, can block entry. · Unnecessary testing, inspection, and disinfesta- tion treatment costs. Common weaknesses in SPS control procedures. SPS control measures in most developing countries are Priorities in developing countries. Most developing far from satisfactory.10 They do not adequately pro- countries seem to give the highest priority to pro- tect against trade related health hazards, do not suf- moting market access by meeting importing coun- ficiently ensure market access, and are too costly for tries' requirements. Health protection also receives traders. Health protection weaknesses often include: attention, yet health controls are often ineffective · The inability to identify (diagnose) health haz- and driven partly by rentseeking (fees and infor- ards as a result of weak staff qualifications at mal payments). Developing countries generally give both inspectorates and border posts, insufficient much less attention to the cost of doing business, diagnostic and testing capacities to verify animal at least at the agencies responsible for conducting health and product safety, and an insufficient op- controls. The incentive structure for developing erating budget. country quarantine agencies, for example, often · Lack of systematic data gathering and an absence prompts many inspections, tests, certifications, and of risk profi les. permits--with little emphasis on risk management · Little guidance for inspectors about priority and reducing inspection rates. International support health hazards. from donors and international organizations (such · The absence of inspection manuals. as FAO and OIE) usually targets SPS control capaci- · A bias in interventions toward revenue genera- ties for improving market access and health protec- tion from fees and informal payments. tion, while it gives less attention to the transaction 4 16 Market access weaknesses often include: costs borne by the private sector. · Inadequate data collecting and processing, lead- Sanitary and phytosanitary measures and border management ing to an inability to provide needed informa- Performance measurement. Measuring the perfor- tion to trading partners for obtaining market mance of SPS agencies is very difficult. No perfor- access. mance indicators exist. Virtually no efforts are made · Inadequate expertise to challenge adverse deci- to assess performance, other than through specialists' sions by importing countries. subjective judgments. Time release studies (chap- · The nonrecognition of a country's competent ter 11) could capture some of the time spent on SPS authority by its trading partners--because of controls at the border--but such data are not used in weaknesses in its institutional framework, in its SPS services. One reason for not using time release control capacities, or in its technical expertise. study data is the preoccupation with market access Costs of doing business often include: and health protection. Another may be that the cost · Separate declarations for SPS control and customs. of SPS procedures is generally higher away from the · Duplication of tasks and data gathering at the border than at the border. Moreover, the individual border by customs, quarantine agencies, and bor- contribution of each SPS service (plant health, ani- der police (immigration). mal health, and food safety) in time release studies 268 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N may be too small to be measured precisely, so the progress in e-commerce and to establish a national results may be less useful for reforming policy. single window (chapter 8). To be sure, more product and process informa- Institutional issues for coordinated tion may be required for SPS control than for cus- border management toms control. For SPS there may be more product de- In a coordinated border management approach it is tails, as well as seasonality information, so a shared necessary to address the relations among SPS agen- database using harmonized system codes might re- cies, other border agencies, and private stakeholders. quire additions beyond those codes. The problem is not insurmountable with effectively deployed infor- SPS agencies and customs agencies. It may be cost mation technology, developed in cooperation with effective for customs agencies to perform certain all users. At present SPS agencies typically are be- general tasks for SPS agencies--tasks such as check- hind in their adoption of such technology. ing conformity between goods and documents, The typical SPS agency is also behind in using deciding whether goods should be checked by quar- risk management techniques effectively. One reason antine officers on referral, and checking expiration why cooperation between customs and SPS agen- dates on food labels. Indeed, some countries for- cies may be difficult is that risk assessment gener- mally delegate these powers to customs. ally seems more complex for SPS than for customs. Yet SPS agencies generally see such cooperation Causes of complexity include: with customs as a mixed blessing, if not as a direct · The range of products, hazards, and ecological threat. Regularly heard from SPS agencies are the conditions related to SPS. complaints that customs is interested only in taxa- · The cost of collecting data on health hazards. tion, not in health protection; that customs officials · The varying SPS control requirements imposed have no expertise in SPS issues; and that delegating by importing and exporting countries. SPS tasks to customs results (allegedly) in the release Because of this technical complexity and the gap of goods that need SPS checking. in capacities, involving SPS agencies actively in col- Accordingly, SPS agencies frequently expend laborative border management will require prolonged much political energy protecting their existing man- capacity building as a precondition. At present there dates and administrative competence. (It is also fair is apparently little understanding of the differences to say that many customs agencies are not eager to between customs agencies and SPS agencies in risk take on additional tasks.) Similar arguments arose parameters, risk assessment, and risk management. in turf struggles between customs and immigration This lack of understanding can lead to the mistaken authorities. But the successful delegation models belief that the goal is to establish a single integrated used for many years by customs and immigration risk management system for both agencies. In fact, 4 16 in Australia--and more recently in the United the most that is possible is some coordination in se- and border management States--suggest that customs can perform routine lecting shipments for physical inspections. Sanitary and phytosanitary measures tasks, such as immigration processing, without low- What is needed is not one risk management ering standards. system but, instead, one comprehensive risk man- With effective information technology, and agement framework. Such a framework should use with a dataset based on harmonized system codes, it proven disciplines to meet the risks faced by both should be possible for customs to ensure that goods customs and SPS agencies. subject to SPS inspection are sent to the proper quarantine officials. However, the experience of one Coordination among SPS agencies. Overlapping middle income country with extensive international jurisdictions and rivalry among SPS agencies are trade shows that, despite many years of talks, cus- common--especially between agencies in agricul- toms and SPS agencies have not been able to agree ture ministries and public health ministries. Over- on information sharing procedures for control and lapping responsibilities may be functional (animal risk management. That is why many SPS agencies product safety and human health), or they may arise still collect their own information--failing to make from agency responsibilities for different parts of the B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 269 overall supply chain (agricultural inputs, produc- international organizations (such as the World Cus- tion, primary processing, transport, and wholesale toms Organization) have produced strategy and and retail markets). Some countries have tried to guidance documents for customs modernization. In solve coordination problems by merging the various addition, some donor agencies have helped to mod- services into a single agency. ernize customs in regional cooperation and eco- After recent changes, the United States has only nomic integration projects. one border inspection agency (the Department of Within SPS agencies, however, there is little Homeland Security). China has one organization awareness of these international efforts at customs responsible for inspection and market access policies modernization. Nor is there any similar interna- (the General Administration of Quality Supervi- tional drive to modernize SPS agencies. Although sion, Inspection and Quarantine). And other coun- the United Nations Centre for Trade Facilitation tries have only a single agency for food safety.11 No and Electronic Business has recommendations for solution is perfect--a single agency may struggle to national single windows that cover all agencies with acquire the necessary competence in policymaking, border functions, no international organization data collection, standard setting, risk management, seems to pursue interagency border cooperation. The and control over domestic production and markets. World Customs Organization deals only with cus- Having a single quarantine agency on the border toms agencies and has no projects with other border gives some advantages in efficiency and in cooperation agencies (though its good practice recommendations with customs and other border agencies. But these ad- call for cooperation among such agencies). vantages may be reduced by additional coordination The international framework for SPS comprises issues and by strife among SPS agencies behind the the Codex Alimentarius Commission, the Interna- border. The collaborative border management model, tional Plant Protection Convention, and OIE. Th is discussed in chapter 2, offers some hope of overcom- framework differs from the international customs ing such obstacles without a disruptive process of or- framework, despite some similarities. The most im- ganizational amalgamation (see also chapter 12). portant role of the international SPS framework is to set standards, as mandated by the WTO in its SPS agencies and the private sector. A particular chal- SPS Agreement. That mandate has led to efforts lenge in modernizing border clearance for agricul- at increasing the number of international science tural and food products--especially in tier 1, but based standards. The constituencies of the three increasingly in tier 2--is the extensive use of private standard setting organizations within member sector certification and traceability of goods through states--food safety authorities for the Codex Ali- the supply chain. Such certification and traceability mentarius Commission, national plant protection 4 16 requires much administrative work, so it would be organizations for the International Plant Protec- best for the private sector if the required informa- tion Convention, and veterinary organizations for Sanitary and phytosanitary measures and border management tion were integrated in formats that could also be OIE--are all mainly technical in their expertise used for SPS, customs, and other agencies. The same and mandate. information could then be used for other private While OIE is a membership organization simi- sector administrative requirements--for example, lar to the World Customs Organization, the Codex in transport and logistics service providers and in Alimentarius Commission is formally a cooperative financial institutions. Several countries are making arrangement between the World Health Organiza- efforts to develop such public-private data models to tion and the FAO, located in the FAO. The Inter- increase competitiveness and promote trade. national Plant Protection Convention is a conven- tion deposited with and facilitated by the FAO. All The international framework and three have limited resources. Work on good practices support for modernization and training for food safety, plant health, and ani- mal health depends mainly on the FAO and donor Customs modernization is strategically important funding and, to a lesser extent, on the World Health for SPS agencies. As discussed in chapter 11, many Organization and OIE. 270 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N At international organizations, work on good technology and risk management. Costs related to practices for SPS system development focuses SPS control generally are higher behind the border mainly on international standards and on compli- than at the border. And SPS agencies--unlike cus- ance with the SPS principles of the WTO, sector toms--have important roles in gaining and main- by sector (for food safety, for plant health, and for taining market access by providing information animal health). Both the FAO and OIE have noted to importing countries and meeting their require- the importance of coordination between SPS agen- ments. Although no broad assessments are available, cies and customs. But no work on good practice it is fair to say that in several developing countries has resulted, and the nod to coordination has not more resources seem to go into this role than into been reflected in the border management modern- controlling imports. ization agenda. Although the SPS principles of the There are no system performance measurement WTO require that measures be science based and tools for SPS agencies (such as time release studies proportional to the risks they address, these prin- for customs). Rentseeking often biases the develop- ciples do not explicitly formulate a goal of promot- ment and implementation of SPS systems, jeopar- ing trade by reducing transaction costs as much as dizing compliance with the SPS principles of the possible. Generally the work that is being done on WTO. good practices for SPS control does not contribute In most developing countries customs and SPS much toward coordinated border management in agencies cooperate very little. Duties are separately goods clearance. There is no comprehensive body of performed and guided by agency mandates. Fre- recommendations on how to harmonize the work quently the relationship is adversarial. Although of SPS agencies with that of customs--whether in the World Customs Organization and other inter- product codes, in information technology and data- national organizations have established recommen- base systems, in electronic commerce, or in national dations for a coordinated customs approach, until single windows. recently they have had virtually no capacity building Individual OECD countries are leading in the projects for achieving cooperation between customs development of new systems. New Zealand has de- and SPS agencies. veloped E-cert, allowing information exchange on The work of international organizations--the SPS certification through web based XML data fi les FAO and, to a lesser extent, the World Health Or- that can be used in preclearance.12 And the Neth- ganization and OIE--on good practice for SPS sys- erlands, adapting E-cert principles, has developed tems development is based on the principles and CLIENT for preparing and issuing all certificates recommendations of the WTO's framework for SPS and planning any related inspections. As an e-com- and for TBT. While emphasizing cooperation with merce system through which exporters can do all ap- customs, the framework has no recommendations 4 16 plications and lodging online, CLIENT could con- for achieving it. and border management siderably reduce steps and requirements. There is little available empirical information on Sanitary and phytosanitary measures Exporters of some goods destined to the Nether- practical issues affecting coordination between SPS lands, and competent authorities in exporting coun- and customs agencies in using product code systems, tries, can use the CLIENT system.13 Yet most devel- or in mandating and delegating SPS control tasks to oping countries will be far from able to adopt such customs. Work is needed to bring a cooperative bor- systems until they receive extensive support. No in- der management perspective to good practice recom- ternational agencies are actively supporting this kind mendations for SPS systems development and imple- of border modernization improvement. mentation. Special attention should be given to: · Reducing SPS control transaction costs. Conclusions and recommendations · Exploring ways to reduce the duplication of SPS control tasks--through the delegation of ad- Customs and SPS agencies differ in many ways. ministrative tasks and simple SPS control tasks Much smaller than customs, SPS agencies are behind to customs--and using the results to create good in modernization, particularly for information practice recommendations. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 271 · Harmonizing product codes for customs and link SPS agency systems with those of customs, SPS control, to enable information exchange the private sector, and other border management and--where appropriate--the delegation of stakeholders. tasks. · Developing performance measurement for SPS · Improving the exchange of information be- agencies. tween SPS agencies in exporting and importing · Developing a vision for SPS systems develop- countries. ment in relation to goods clearance systems that · Evaluating future directions in the development reflects customs modernization, e-customs sys- of information technology for SPS control--to tems, national single windows, and a collabora- improve risk management and (eventually) to tive border management approach. 4 16 Sanitary and phytosanitary measures and border management 272 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Annex 16A to recognize controls put in place by the exporting Guidelines on the entry of imported country to facilitate the entry of goods. Thus, the food products and agricultural goods importing country may decide to release without inspection foods that are accompanied by an of- Th is annex summarizes the guidance on border ficial certification. These agreements are useful for management that is provided by SPS standard set- importing countries that have limited capacities for ting bodies--the Codex Alimentarius Commission, diagnostic testing or tracking systems. Authorities the International Plant Protection Convention, and may also decide to reduce routine inspections if the OIE. importers have controls over suppliers and means to verify their compliance. Food products For goods being re-exported, the destination Legislation should establish a country's competent country's requirements should be specified in the authority over the food import control system and accompanying certificate of re-exportation, and in- should clearly defi ne the procedures necessary to spections should be made accordingly. verify that imported foods conform to the import- The importing country's competent authority ing country's food safety requirements. Procedures should set forth the criteria to determine whether at the border may include: consignments are: · Checking documentation. · Accepted. · Verifying product identity against documents. · Allowed entry, if cleared upon inspection or ver- · Examining food and packaging. ification of conformance. · Collecting and testing samples. · Released after reconditioning or other correc- · Rejecting or destroying shipments that do not tive measures, if the product was originally comply with requirements. nonconforming. The nature and frequency of inspecting, sam- · Rejected, but with the option of redirecting the pling, and testing imported foods should be based product for uses other than human consumption. on the risk to human health the product presents. · Rejected, but with an option to re-export or re- Risk is determined using available scientific infor- turn to the country of export at the exporter's mation in relation to the consumption of the food. expense. Risk may depend on the product, the country or re- · Rejected with a destruction order. gion of origin, the exporter's or the exporting coun- For more on food safety controls see "Appen- try's history of compliance (or noncompliance), and dix: Principles and Guidelines for Imported Food other relevant information. Thus, consignments of Inspection Based on Risk," in Codex Alimentarius high risk foods (for example, meat and fish products) Commission (2003). 4 16 may have to undergo 100 percent inspection until a and border management defined number of consecutive consignments meet Animals and animal products Sanitary and phytosanitary measures requirements, establishing a compliance history. Countries and their veterinary authorities are Sampling frequency may be higher for consign- encouraged to adopt sanitary measures to ensure the ments for products, exporters, or importers with no, safe trade of animals and animal products.14 A coun- or poor, compliance history. try's import requirements should take into account Sampling should be based on Codex Alimen- the health situations in exporting, importing, and tarius Commission sampling plans or internation- transit countries and may require prior consultation. ally accepted or scientifically based sampling plans. Members of the OIE should use OIE standards to Analytical tests should be conducted using validated harmonize their requirements. Stricter standards analytical methods. should be adopted based on import risk analysis. Alternatively, the importing country can use Certification can ensure that commodities com- memorandums of understanding, mutual recog- ply with OIE standards. The certificate should not nition agreements, or certification arrangements allow the exclusion of pathogens or animal diseases with competent authorities of exporting countries already present in the importing country and not B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 273 subject to an official control program, nor should examined by the competent authority of the export- it allow the exclusion of pathogens or diseases not ing country, as attested by an accompanying interna- listed by OIE (unless justified by an import risk tional aquatic animal health certificate. analysis). The importing country may refuse entry to: The veterinary authority of the exporting coun- · Animals found to be affected by, suspected try is responsible for veterinary certifications in in- of being affected by, or infected with a disease ternational trade. It gives authorization to certifying capable of being transmitted to animals in its veterinarians, provides instructions and training, territory. and monitors activities to guarantee integrity and · Aquatic animals found to be affected by a disease impartiality. listed by OIE and of concern to the importing At border posts and quarantine stations, veteri- country. nary services should provide adequate personnel, fa- · Semen, embryos, ova, hatching eggs, and brood- cilities, and equipment to implement measures justi- combs of bees, and products of animal origin fied by the amount of international trade and by the intended for use in animal feeding, or for phar- epidemiological situation. Such measures include: maceutical, surgical, agricultural, or industrial · Clinically examining and obtaining specimens use--if certain diseases in the exporting country, of material for diagnostic purposes from live or in transit countries that preceded the import- animals or carcasses of animals affected or sus- ing country, are capable of being introduced by pected of being affected by an epizootic disease, these products into its territory. and obtaining specimens of animal products sus- · Meat or products of animal origin intended for pected of contamination. human consumption, if inspection shows that · Detecting and isolating animals affected by, these might be a danger to the health of persons or suspected of being affected by, an epizootic or animals. disease. · Animals, semen, embryos, ova, hatching eggs, · Disinfecting, and possibly disinfesting, vehicles and broodcombs of bees that are not accompa- used to transport animals and animal products. nied by an international veterinary certificate, In addition, border posts and quarantine sta- and aquatic animals that are not accompa- tions should have facilities for feeding and watering nied by an international aquatic animal health animals. Importing countries should make available certificate. to the public a list of border posts equipped to con- If international veterinary certificates are not duct import controls. correct or do not apply to the products, the veteri- An importing country should accept only animals nary authority of the importing country may either 4 16 that have been examined by an official veterinarian of return the products to the exporting country or, al- the exporting country, as attested by an accompany- ternatively, subject them to adequate treatment to Sanitary and phytosanitary measures and border management ing international veterinary certificate issued by the make them safe. exporting country's veterinary authority.15 Similarly, For animals, the importing country may choose an importing country should require an interna- to quarantine them for clinical observation and bio- tional veterinary certificate before accepting semen, logical examinations to establish a diagnosis. If the embryos, ova, hatching eggs, and broodcombs of diagnosis confirms the presence of an epizootic dis- bees; meat and products of animal origin intended for ease, the importing country may return the animals human consumption; and products of animal origin to the exporting country or slaughter them if return intended for use in animal feeding or for pharmaceu- to the exporting country is not practical or would tical, surgical, agricultural, or industrial use. pose a danger. For aquatic animals and products, the import- Countries are encouraged to apply risk manage- ing country should accept raw, uneviscerated fish of ment in dealing with hazards arising from trade in species susceptible to a disease listed by OIE and des- animals and animal products, to implement objec- tined for introduction into an aquatic environment tive, scientific, defensible, and transparent measures or for human consumption only if the fish have been to achieve protection appropriate to the risk. 274 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Transit. A transit country may require an interna- inspection, testing, and treatment. Phytosanitary tional veterinary certificate; it may also examine inspection of entire consignments is often not prac- the health of animals in transit unless the animals tical and should be based on sampling. are transported in sealed vehicles16 or containers. A Depending on the inspection results, consign- transit country may refuse passage if: ments may be detained in a postentry quarantine · Exams show that the animal or consignment station for inspection, testing, or treatment--or its of animals in transit are affected by or infected distribution or use may be restricted. Tests following with any epizootic diseases listed by OIE. internationally agreed protocols may be required to · The international veterinary certificate is inac- identify or confirm a visually detected pest, to check curate or unsigned. for infestations not detectable by inspection (if part · The transit country considers that certain dis- of a requirement), and to check for latent infections. eases in the exporting country, or in a transit The primary document in the international trade country preceding it in the itinerary, are capable of plant and plant products is the phytosanitary cer- of being transmitted to its own animals. tificate attesting that consignments of plants, plant For more information on veterinary controls see products, or other regulated articles have been in- OIE (2009a, 2009b). spected or tested by the exporting country's national plant protection organization and have been found Plants and plant products compliant with specified phytosanitary import re- The national plant protection organization17 of a quirements of importing countries. Importing coun- country is responsible for the phytosanitary import tries should require phytosanitary certificates only regulatory system, which prevents the introduc- for regulated articles such as, but not limited to, tion of quarantine pests18 or minimizes the entry plants, bulbs and tubers, seeds for propagation; fruits of regulated nonquarantine pests19 with imported and vegetables; cut flowers and branches; grain; and commodities and other regulated articles.20 A regu- growing medium. Phytosanitary certificates should lated article is any material capable of harboring or not be required for processed plant products that spreading pests and deemed to require phytosanitary have no potential for introducing regulated pests, or measures, particularly where international trans- for other articles that do not require phytosanitary portation is involved. They include plants and plant measures. However, phytosanitary certificates may products used for planting, consumption, or process- also be required for: ing; packaging materials, including dunnage; soil, · Plant products that have been processed but have organic fertilizers, and related materials; potentially a potential for introducing regulated pests (for contaminated equipment, such as used agricultural example, wood and cotton). and earth moving equipment; travelers' personal · Regulated articles for which phytosanitary 4 16 effects; and international mail.21 The national plant measures are technically justified (for example, and border management protection organization should make public lists of empty containers, vehicles, and organisms). Sanitary and phytosanitary measures regulated articles. In cases of noncompliance, such as the detection Phytosanitary measures, such as prohibitions, of a listed quarantine pest or a regulated nonquar- restrictions, and other import requirements, may antine pest in a consignment of plants for planting, only be applied if necessary based on phytosanitary measures such as detention, treatment, reshipment, considerations, scientific justifications, interna- or destruction may be taken. Administrative non- tional standards, and other relevant requirements compliance, such as erroneous or incomplete phytos- and considerations of the International Plant Pro- anitary certificates, may be resolved with the export- tection Convention. Import prohibitions apply only ing country's national plant protection organization. to quarantine pests, while regulated nonquarantine pests are subject to established pest tolerance levels. Transit. For goods in transit, consignments that are Border measures may include documentation transported and remain in sealed containers through- checks, consignment integrity checks, verification out the passage do not present a phytosanitary risk and of treatment during shipment, and phytosanitary will not require phytosanitary measures. Possibilities B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 275 of risk occur when consignments are transported in customs or border police if goods need to be open containers, are held for a period of storage, or are seized and destroyed. split up, combined, or repackaged, or if the means of 9. The 2004 Cross Border Transit Agreement transport changes (for example, from ship to railway). of the Greater Mekong Subregion recom- In such cases phytosanitary measures may be needed. mends simultaneous inspection and joint For more information on phytosanitary controls processing by customs and other agencies, see FAO (1997, 2001, 2004, 2005b, 2006, 2009). but the operational implications have never been fully worked out on the ground. Notes 10. An illustration can be found in an assess- ment for Lao People's Democratic Republic 1. The Office International des Epizooties was (World Bank 2009). established in 1924. The International Plant 11. See World Bank (2007), pp. 36­39, for some Protection Convention was established in examples. 1952--with roots in a five country agree- 12. E-cert of New Zealand is compatible with ment of 1881 and in the Convention for the The United Nations Centre for Trade Fa- Protection of Plants of 1929--and its secre- cilitation and Electronic Business. See tariat is under the Food and Agriculture Or- "E-Cert--Value for the Regulator (Prepared ganization of the United Nations. by New Zealand)," Second FAO and WHO 2. In 1963 the FAO and the World Health As- Global Forum of Food Safety Regulators sembly established the Codex Alimentarius (Bangkok, Thailand, 12­14 October 2004) Commission. It has its roots in the late 19th Conference Room Document 38, at http:// century Austro-Hungarian Empire. www.fao.org/docrep/meeting/008/ae150e/ 3. In general, a "competent authority" is an of- ae150e00.htm. fice legally charged to supervise and enforce 13. Other countries are interested in participat- safety measures. ing in the New Zealand and Netherlands 4. The precautionary principle, in article 5.7 initiatives, and some are making efforts to of the SPS Agreement (WTO 1994a), sup- adopt the systems. ports taking protective measures even with- 14. This information generally applies to aquatic out complete scientific evidence of risk. animals as well. 5. The use of inspection teams is established 15. For aquatic animals the required document practice at the European Commission (Di- is an international aquatic animal health rectorate General for Health and Consumer certificate. 4 16 Affairs) and in OECD countries. The prac- 16. Sealed means that an attached seal attests to tice is now also followed by the People's Re- the vehicles having undergone actions such Sanitary and phytosanitary measures and border management public of China. as cleaning, disinfection, and inspection. 6. Producers for export, however, may have to 17. Each country that ratifies the International follow protective measures, such as nettings Plant Protection Convention is required to for preventing insects in fruit and vegetable have a national plant protection organiza- production. tion, which is the competent authority. 7. There are, however, cases where private en- 18. A quarantine pest is a pest of potential eco- terprises have been leading and supporting nomic importance to the area it endangers the public sector to meet conditions required and not yet present there--or present there, for obtaining market access. This can go as but not widely distributed there and being far as helping a government formulate legis- officially controlled. lation based on what works in an exporting 19. A regulated nonquarantine pest's presence in country. plants for planting affects the intended use of 8. In some countries quarantine staff, having those plants with an economically unaccept- no authority to seize goods, must call on able impact. The pest is therefore regulated 276 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N within the territory of the importing con- Publication 23, International Plant Protection tracting party. Convention, FAO, Rome. 20. A regulated article is any plant, plant prod- ------. 2006. "International Standards for Phyto- uct, storage place, packaging, conveyance, sanitary Measures: Consignments in Transit." container, or soil--or any other organism, Publication 25, International Plant Protection object, or material capable of harboring or Convention, FAO, Rome. spreading pests--deemed to require phyto- ------. 2009. International Standards for Phytosani- sanitary measures, particularly where inter- tary Measures: Glossary of Phytosanitary Terms. national transportation is involved. Publication 5, International Plant Protection 21. Special provisions govern the import of Convention, FAO, Rome. pests, biological control agents, and other OIE (Office International des Epizooties). 2009a. regulated articles for scientific research and Terrestrial Animal Health Code 2009. OIE, education (FAO 2005a). Paris. ------. 2009b. Aquatic Animal Health Code 2009. References OIE, Paris. Van Der Meer, K., and L. Ignacio. 2007. "Standards Codex Alimentarius Commission. 2003. "Guide- and Supply-Chain Coordination--Impact on lines for Food Import Control Systems." Docu- Small-Scale Producers." In FAO Commodities ment CAC/GL 47-2003, Codex Alimentarius and Trade Proceedings 2: Governance, Coordi- Commission, Rome. nation and Distribution Along Commodity Value FAO (Food and Agriculture Organization of the Chains, Rome, 4­5 April 2006. Rome: FAO United Nations). 1997. "International Stan- Trade and Markets Division. 85­94. dards for Phytosanitary Measures: Export Cer- World Bank. 2007. "Food Safety and Agricultural tification System." Publication 7, International Health Management in CIS Countries: Com- Plant Protection Convention, FAO, Rome. pleting the Transition." Report 40069-RU, The ------. 2001. "International Standards for Phyto- World Bank, Washington, DC. sanitary Measures: Guidelines for Phytosani- ------. 2009. "Lao People's Democratic Republic ­ tary Certificates." Publication 12, International Sanitary and Phytosanitary Measures: Enhanc- Plant Protection Convention, FAO, Rome. ing Trade, Food Safety and Agricultural Health." ------. 2004. "International Standards for Phytos- Report No. 48802, Rural Development, Natu- anitary Measures: Guidelines for a Phytosani- ral Resources and Environment Department, tary Import Regulatory System." Publication East Asia and Pacific Region, The World Bank, 20, International Plant Protection Convention, Washington DC. 4 16 FAO, Rome. WTO (World Trade Organization). 1994a. "Agree- and border management ------. 2005a. "International Standards for Phyto- ment on the Application of Sanitary and Phy- Sanitary and phytosanitary measures sanitary Measures: Guidelines for the Export, tosanitary Measures." WTO, Geneva. Available Shipment, Import and Release of Biological online at http://www.wto.org/english/docs_e/ Control Agents and Other Beneficial Organ- legal_e/15-sps.pdf. isms." Publication 3, International Plant Protec- ------. 1994b. "Agreement on Technical Barri- tion Convention, FAO, Rome. ers to Trade." WTO, Geneva. Available on- ------. 2005b. "International Standards for Phyto- line at http://www.wto.org/english/docs_e/ sanitary Measures: Guidelines for Inspection." legal_e/17-tbt.pdf. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 277 17 CHAPTER Transit regimes Jean-François Arvis This chapter looks at transit regimes: specifically, the case of goods mov- ing into a customs territory but not cleared for consumption, and with no payment or delayed payment of import duties, domestic consumption taxes, or other charges normally due on imports. In such cases transit regimes are intended to protect the revenues of the country through which goods are moving (the transit country) to avoid their leakage into its domestic market. Transit regimes cover the movement of domestic and regional policies in areas goods on land trade corridors. Land- including transportation, services, and locked countries depend totally on trade. A full analysis of regional transit transit corridors passing through their regimes--or of the economics of tran- neighbors. Yet transit often takes place sit supply chains and the political econ- between coastal countries--in fact, the omy of corridors serving landlocked most active transit corridors are between countries--would expand the policy such countries. Admittedly, transit can focus far beyond the scope of customs also take place when goods entering a reforms and border management. The country pass through part of the same World Bank has published several up- country before being cleared inland. dates providing comprehensive coverage Transit procedures should be simple (Arvis and others 2007; World Bank to avoid generating excessive delays and 2008; Arvis, Mustra, and others 2010; costs. Poorly designed and implemented Arvis, Marteau, and Raballand 2010; transit regimes are a major obstacle to Arvis 2010; World Bank 2010). trade. According to many international The following overview of transit organizations and transport facilitation regimes and their implementation at Transit regimes forums, dysfunctional transit proce- the national and regional levels over- dures are a major factor in higher trade hauls the chapter by the same author costs for landlocked developing coun- in the Customs Modernization Hand- tries. Various global and regional initia- book published by the World Bank (De tives have sought to improve transit re- Wulf and Sokol 2005). More extensive gimes. Generally, developing countries information, including analysis of tran- are increasingly doing this in the con- sit systems and regimes, is available in a text of regional trade agreements. working paper to which the author con- The regional transit regime is key tributed (Arvis 2010). to implementing regional trade, cus- The chapter develops its main mes- toms, and transport agreements. The sages (box 17.1) in five sections, of which subject raises complex questions, es- the first introduces the concepts, and the pecially given the entanglement of second the basic principles of a transit B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 279 Box 17.1 Main messages of this chapter · Transit regimes are based on three universal components: bonds, manifests, and the process for authorizing transit operations. Inefficiency can be traced to the deviant implementation of one or more of these principles-- due to a lack of trust, due to weak compliance, or to accommodate local interests. · Chaining transit regimes across borders into door to door carnet systems--such as the TIR or common transit in Europe--has obvious advantages. Although regional agreement posits the existence of carnet systems, no working examples exist other than the two mentioned. · A weak case can be made for localized carnet systems (as opposed to TIR implementation)--and a strong case for localized common transit where there is sufficient regional integration. · Policymakers need a comprehensive approach to transit related policies beyond the customs transit regime: associated transport policies, infrastructure policies, and corridor cooperation policies. · A transit regime does not need a heavy information and communications technology (ICT) infrastructure, nor one that is distinct from the pre-existing customs ICT module. Transit requires the tracing of manifests and carnets, for which real time technologies--such as e-seals using the global positioning system (GPS)--are neither essential nor always desirable. Note: TIR, as it is now known, stood initially for Transports Internationaux Routiers (International Road Transport). The TIR Con- vention is the only extant global transit regime (detailed later in this chapter). regime and its procedures. The third looks at the economic centers. In both cases the basic customs contribution of legal treaties, the fourth at regional mechanisms are similar. However, implementation systems (using the cases of the only two working ex- is easier for national transit. amples, TIR and common transit in Europe). The A third category is door to door transit, where fi fth provides an overview of a central topic: imple- only one procedure covers international and national mentation. The sixth and seventh cover facilitation transit for all the countries on a trade corridor. This issues and enabling measures. procedure dispenses with the usual renewal of inter- national or national transit at each border. Developed Types of transit initially with the TIR (see box 17.1, note 1; detailed below), door to door transit will be referred to in this In discussions of transit regimes, transit most often-- chapter as a carnet system (after the TIR instrument). but not always--refers to road and rail transporta- tion between landlocked and nonlandlocked coun- Transit systems and transit regimes tries. In some cases transit is from a country of origin Transit systems here mean the infrastructure, legal 17 to a destination country, and borders are crossed only framework, institutions, and procedures serving once. In other cases a transit shipment crosses several trade corridors (seen as a whole). Every transit sys- Transit regimes borders--for example, a shipment from the Nether- tem must have six components: lands to Russia crosses Germany and Poland.1 · The political commitment to allow transit It is useful to distinguish between international trade--formalized in bilateral, regional, or mul- and national transit. International transit procedures tilateral treaties. are used when national borders are crossed. National · The physical infrastructure for transit, including transit is when goods are transferred within national border checkpoint facilities. borders, from the point of first entry into a coun- · Public and private institutions and people with try to another location in the same country where certain capacities and competences related to the customs procedures are conducted (dry ports are an movement of goods along a trade corridor. These example). Both types of transit can be combined-- institutions and people comprise: a typical situation in many landlocked developing · Public agencies in the transit country super- countries where imported goods arrive at national vising the flow--mainly customs and other borders from other transit countries and then are agencies involved in controlling interna- most often shipped under national transit to main tional trade and transportation. 280 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N · Transportation services, including the truck- the operation: for instance, some products (such ing industry, customs brokers, and freight as alcohol) are considered high risk. The guarantee forwarders. may be set according to the transit operator, and · Trust building mechanisms, partnerships, and co- in some cases (such as railways) it may be waived. operative initiatives that bring together the many · The regulation of transit operators is needed participants in the transit and corridor operations. from both a customs and transport perspective, · An enabling environment for movements of since the transit operator provides a service that vehicles and people--including vehicle regula- includes both brokerage and transport. tions, the provision of trade in freight services · Customs should properly manage the informa- across countries, allocation visas for drivers, mu- tion on goods in transit and, specifically, should tual insurance recognition, a financial sector in- reconcile information on entries into and exits tegrated across countries, and law enforcement. from the customs territory (or during clearance · The provisions and procedures applicable to in the case of national transit). This is necessary shipments in transit and to the carriers or trad- to identify violations and potential leakages. ers of the goods. The typical transit procedure, depicted in figure 17.1, The sixth and last component listed, transit pro- is implemented as follows: visions and procedures, is the subject of this chapter. · At the initiation of transit (at the entry post), cus- Hereafter it will be referred to as the transit regime-- toms verifies the transit manifest and affi xes the a narrower concept than the transit system. seals against a guarantee provided by the principal. All six transit system components are essential. · At the termination of transit (at exit post or an Corridor infrastructure and agreements to move inland clearance destination), customs checks vehicles and goods across borders are preconditions the seals and manifest and discharges the guar- for trade. But the heart of the transit system is the antee after reconciling information on entries transit regime, which governs and makes possible into and exits from the customs territory (in- the movement of goods from their origin (often a bound and outbound manifest information). seaport) to their destination (such as a clearance cen- · When the cargo is high risk--or when not ter in the destination country). The efficiency of the enough security is offered by the seals and the transit supply chain depends on the design of the guarantee--goods may move in convoys guarded transit regime and, above all, on its implementation. by customs officers. · It is common and acceptable practice to impose The basics of customs transit (reasonable) specified routes and impose a maxi- mum transit time. A transit regime is, in essence, a public private part- Thus, associated with the physical movement of 17 nership by which operators are authorized for transit goods are two types of flows: information (manifest) when they meet a set of criteria and provide financial flows and financial (guarantee) flows. A functional Transit regimes guarantees. In exchange, customs allows unimpeded transit regime ensures that the physical movements, transit for trucks or trains. The key requirements for information flows, and financial flows are effectively a well functioning transit system, developed over synchronous. Otherwise, for instance, a delay in the centuries, are universal and include: information associated with transit manifests may · Customs should make sure the cargo is secure postpone the discharge of bonds and increase costs. by sealing appropriately designed vehicles (closed trailers or containers). Key concepts and definitions · The principal of the transit operation--the owner Key to a discussion of transit regimes are the follow- of the goods, or, more often, his agent (a freight ing concepts: forwarder or trucker)--should deposit a guar- · Seals. antee (or a bond) covering the value of taxes and · Documentation flow. duties that would be due in the transit country. · Principal and guarantor. The guarantee may depend on the fiscal risk of · Guarantees. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 281 Figure 17.1 The sequence of international transit Guarantee Activate guarantee If copies not cleared If copies Issue cleared guarantee Discharge Reconcile copies 1 of guarantee py Co Central customs office Co information systems py 2 Copies 2, 3, and 4 Point of entry Country of transit Point of departure Source: Arvis (2005), p. 252, fig. 11.1. Seals. There should be a physically secure mecha- Box 17.2 General requirements nism so that goods present at the start of the transit in respect to seals, from annex E.1 of the amended operation will leave the transit country in the same International Convention on the quantities, form, and status. The easiest and best Simplification and Harmonization of Customs Procedures way for customs to guarantee this is by sealing the (Revised Kyoto Convention) truck,2 to ensure that goods cannot be removed from or added to the loading space of the truck without The seals and fastening shall: either breaking this seal or leaving visible marks on a. be strong and durable; 17 the loading space. Seals and trucks approved for use b. be capable of being affixed easily and quickly; in the transit operation therefore must conform to c. be capable of being readily checked and Transit regimes well specified criteria that ensure their effective and identified; secure operation (box 17.2). New transport seals are d. not permit removal or undoing without breaking being studied; prototypes already in use include a or tampering without leaving traces; e. not permit use more than once, except seals microchip that is activated when broken, transmit- intended for multiple use (e.g. electronic seals); ting a signal that is picked up by satellite and sends f. be made as difficult as possible to copy or information to the organization or principal of the counterfeit. sealed container (including information on its loca- Source: WCO (1999). tion). Although the prices of such automated seals are high at present, they are expected to fall in the coming years. be based on paper documentation shipped from the customs post at the exit from the transit country-- Documentation flow. To control the start and comple- after validation of the valid transit transaction--and tion of a transit procedure, a system for monitoring issued by the customs post that controls the origin the movement of goods is needed. This system could of the transit shipment. Increasingly, however, such 282 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N documents are sent electronically. When the cop- concerned, covering the full amount of duties, ies of the documents match, the transit operation is taxes and other charges for which the goods are completed and the guarantee released. When they liable. do not match, the transit procedure is not completed · A comprehensive guarantee covers several transit satisfactorily, and import duties, taxes, and other operations up to a given reference amount, set charges are increased by a stipulated fine. to equal the total amount of duties and other charges that may be incurred for goods under Principal and guarantor. The principal is the owner the principal's transit operations over a period of the goods--or more often, the owner's represen- of at least one week. tative (such as the carrier). The principal initiates In general the calculation of a transit guarantee is the transit procedure and is responsible for follow- based on the highest rates of duties and other charges ing that procedure--providing guarantees and the applicable to the goods, and it depends on the cus- necessary documentation. To act as the principal (or toms classification of the goods. The amount cov- agent) companies must be registered, must obtain a ered by the comprehensive guarantee is 100 percent guarantee to cover the transit operations, must use a of the reference amount. If the principal complies transit customs document and bill of lading, must with a certain criterion of reliability, the amount of present the goods and declaration at the relevant cus- the guarantee to be specified to the guarantors may toms offices (of departure, transit, and destination), be reduced by customs. For high risk goods, customs and must accept responsibility for the sealing of the can be allowed to calculate the guarantee at a per- transit vehicle. centage related to the risk of nonclearance. A guarantor is a private or legal person who un- An international transit regime such as the TIR dertakes to pay jointly and separately with the debtor allows for further savings. For individual guarantees (in most cases the principal) the duties and taxes that many countries avoid potentially complex valuation will be due if a transit document is not discharged procedures by offering vouchers based on ranges properly. A guarantor may be an individual, firm, or for the value of goods that transit operators carry. other body eligible to contract as a legal third person. Although this system may cost more on average, it Normally it is a bank or insurance company. Guar- is much simpler at initiation. The TIR guarantees antors must be authorized by customs, which--as a attached to the TIR carnet are effectively vouchers. rule--publishes a list of financial institutions autho- (The costs of guarantees are discussed later in the rized to act as guarantors. chapter.) Guarantees. The guarantees acceptable by customs Transit and border management: are defined by the regulations of the transit country. specific but limited requirements 17 Within the open options of financial securities, the There are essential conceptual and operational differ- choice is the exclusive responsibility of the principal. ences between transiting goods through the transit Transit regimes A guarantee can be provided as a bond by a bank or country and their final clearance in the destination as a form of insurance by a guarantor, who can be country. These differences are not always recog- reinsured internationally by well known and reliable nized, including by government decisionmakers. insurance companies (this is the case with the TIR). As a result the design and implementation of transit Nonguarantee forms of security, such as depos- systems in developing countries often depart from its, may still be in place in some transit countries good practice. although they cannot be recommended. At times the Transit is a transport operation under customs principal is also the guarantor--a common practice control--not a clearance or series of clearances. To for rail transport, which grants customs access to this extent, it is not conceptually different from in- more direct recourse mechanisms. ternational shipping. There are two categories of transit guarantee: The agent for a transit operation is the carrier or · An individual guarantee covers only a sin- the freight forwarder, not the owner of the goods. gle transit operation effected by the principal The agent furnishes the guarantee and lodges the B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 283 transit declaration (manifest) with customs. Th is The transit manifest relates to the container or agent is normally (but not always) different from the trailer, which between origin and destination may declarant making the final declaration. be hauled by various vehicles (there may be a change The transit declaration is a simplified document, of tractor--or there may be multimodal transport, such as a road or rail manifest, and should be pro- such as by ship or rail and then by road). cessed in an entirely distinct way from clearance at the border. The transit manifest and final declara- Transit in international law tion are separate documents serving separate pur- poses. For instance, a transit manifest might not Over the years transit provisions have been codified carry information about the harmonized system by a number of international conventions--the most (HS) classification of the cargo. Customs does not important being the agreements on transit in the need to value the goods for each vessel precisely-- General Agreement on Tariffs and Trade (GATT),3 it needs only to be sure that a proper guarantee is the World Customs Organization's amended Inter- issued by the transit operator for all its goods cur- national Convention on the Simplification and Har- rently in transit. monization of Customs Procedures, or Revised Kyoto For transit traffic, the due diligence expected of Convention (WCO 1999), and the 1982 Interna- customs is limited to affi xing or checking the seals tional Convention on the Harmonization of Fron- and verifying the guarantee instrument. As a general tier Control of Goods (sometimes called the Geneva rule no inspection of the goods is required. Other Convention; UNECE Inland Transport Committee border agencies, such as standards or quarantine, are 1982). Key principles derived from these international not parties to transit operations. instruments are summarized in box 17.3. Box 17.3 General provisions applicable to customs transit as codified by international conventions 1. General · Freedom of transit. · Normally no technical standards control. · No distinction based on flag or owner origin. · No unnecessary delays or restriction. 2. Customs diligences in transit · Limitation of inspection (especially if covered by an international transit regime--such as the TIR, described later in this chapter). 17 · Exemption from customs duties. · Normally no escort of goods or itinerary. Transit regimes · No duty on accidentally lost merchandise. · No unnecessary delays or restriction. In addition, under an international transit regime such as the TIR: · The transit regime applies to multimodal transport when part of the journey is by road. · Flat rate bonds are used for transit goods. 3. Health and safety · No sanitary, veterinary, or phytosanitary inspections for goods in transit if no contamination risk. 4. Security offered by the carrier · Declarant to choose the form of security, within the framework afforded by legislation. · Customs should accept a general security from declarants who regularly declare goods in transit in their territory. · On completion of the transit operation, the security should be discharged without delay. Source: Authors. 284 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N The actual customs transit regime varies widely traveling under an international transit procedure," across countries. In many countries and regions and parties should also "facilitate to the utmost the the basic transit arrangements, such as guarantees, transit of goods carried in containers or other loads are poorly implemented and greatly penalize land- units affording adequate security." Articles 4 to 9 locked countries. In other countries and regions na- promote the harmonization of control and proce- tional transit provisions have evolved into harmo- dures. Contracting parties are bound to: nized and regionally integrated transit regimes (the · Provide staff and facilities that are compatible best working example is the TIR, detailed later in with the traffic requirement (article 5). the chapter). · Organize joint border processing to ease controls In the GATT agreements on transit, article V (article 7). provides for freedom of transit. It states that: "There · Harmonize documentation (article 9). shall be freedom of transit through the territory of each Contracting Party, via the routes most conve- Regionally integrated transit systems nient for international transit, for traffic in transit to or from the territory of other Contracting Parties." There are obvious advantages to integrating transit Further, it affirms that: across borders in a region or along a trade corridor-- eventually linking countries, or even regions. No one . . . except in cases of failure to comply with doubts that a unified international regime is superior applicable customs laws and regulations, to a chain of national procedures. such traffic coming from or going to the ter- International transit calls for the cross country ritory of other contracting parties shall not harmonization of procedures and documentation. be subject to any unnecessary delays or re- It requires an internationally accepted guarantee strictions and shall be exempt from customs system and stipulates mutual control of transit duties and from all transit duties or other operations. Authorities in each customs territory charges imposed in respect of transit, except along a trade corridor are ultimately responsible charges for transportation or those commen- for transit in that territory, and they can set their surate with administrative expenses entailed own rules. Legally, the chain is a sequence of inde- by transit or with the cost of services. pendent transit procedures. However, large gains are possible with cross border cooperation and The Kyoto Convention came into force in 1974 with the creation of framework to integrate transit and was revised in 1999 (WCO 1999). While the across territories into a single seamless procedure. convention is worded very broadly, its annexes define A key element of the framework is a single docu- customs terms and recommend certain practices. An ment that accompanies the shipment along the 17 annex section in the amended convention (WCO transit chain and allows officials to verify the ship- 1999, Specific Annex E, chapter 1), focusing on ap- ment's compliance with the transit regime. Such a Transit regimes plicable customs formalities and seals, informs the document is commonly known by its French term, discussion of these topics later in this chapter. carnet. The 1982 International Convention on the Har- A major development in transit systems, the car- monization of Frontier Control of Goods (or Geneva net allows for a single transit procedure throughout Convention) is very much about transit facilitation, several territories. Operators gain greatly from: recognizing the importance of transit for countries' · The elimination of duplicated or reinitialized economic development. It promotes joint customs procedures (documentation, seals, guarantees) processing through the simplification of customs at borders. procedures and the harmonization of border con- · Reductions in complexity and in administra- trols, drawing heavily on the European experience. tive costs, since operators can use a single transit Article 10 applies to goods in transit: "contract- manifest and a single guarantee. ing parties are bound to provide simple and speedy A carnet transit regime, or regional single procedure treatment of goods in transit, especially for those regime, must include the following ingredients to B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 285 ensure cross border comparability and an effective Convention has 68 parties, primarily in Europe, the chaining of transit procedures in each country: Middle East, North Africa, and Central Asia. It is · Harmonized documentation. not yet implemented in the Americas or East Asia · Common standards for transit operators. regions, where TIR membership is spotty. There are · Common enforcement standards. parties to the convention in Sub-Saharan Africa. · A regionally integrated system to ensure interop- Widely seen as the best practice for international erability in bonds across countries and consis- transit regimes, the TIR system is a model for any fu- tency in manifest reconciliation (to discharge ture regional transit frameworks. Many developing or call guarantees consistently, customs in coun- countries want either to join the TIR system or to de- try B should be able to call a bond issued by a sign regional equivalents replicating its essential fac- guarantor in country A). tors. These factors--more fully explained in the UN The most difficult element in a carnet transit re- Economic Commission for Europe's TIR manual gime is regional integration. The only fully developed (UNECE 2010) and in the International Road Trans- regional systems to date are the TIR and the European port Union (IRU) website4--include five main pillars: common transit system. Each represents the most log- · Secure vehicles. The goods are to be transported ical solution to the bond and manifest problem, but at in containers, or compartments of road vehicles, a different degree of regional integration. The many constructed so as not to allow access to the inte- attempts to copy the TIR and the common transit sys- rior or the goods removal or addition of goods tem in developing regions have not succeeded (Arvis, during the transit procedure--ensuring that any Marteau, and Raballand 2010; Arvis 2010). tampering will be clearly visible. The TIR convention, under the United Nations · International guarantee valid throughout the Economic Commission for Europe (UNECE), is journey. Wherever the transport operator can- the only global transit system. Created in the 1940s not (or does not wish to) pay the customs duties in Europe, it was instrumental in boosting trade ac- and taxes due, the international guarantee sys- cording to the objectives of the Marshall Plan. The tem ensures that the amounts at risk are covered TIR is the main instrument for trade from Europe by the national guarantee system of the operator. to distant trading destinations in Eastern Europe, · National associations of transport operators. Na- Central Asia, Northern Africa, and the Middle East. tional associations control their members' access The common transit system streamlined some to the TIR regime, issue the appropriate docu- features of the TIR in the 1980s, taking advantage ments, and manage the national guarantee system. of greater economic and financial integration within · TIR carnets. The standard international customs European Union and European Free Trade Associa- documents accepted and recognized by all signa- 17 tion countries. For a group of countries, the common tories of the TIR Convention. transit system is now conceptually very similar to the · International and mutual recognition of customs Transit regimes national transit system. control measures. The transit and destination countries accept control measures taken in the The TIR country of origin. The international transit regime initially known In essence, TIR operations can be carried out in in French as Transports Internationaux Routiers participating countries by a truck operator who is a (International Road Transport) is now referred to in member of a national association, with the network documentation and legal texts only as TIR. The Cus- of national associations acting as guarantor. Both toms Convention on the International Transport of the national associations and the IRU, which issues Goods under Cover of TIR Carnets, or TIR Con- the carnets, are private. In this respect the TIR sys- vention (UNECE 2002, section 2, pp. 31­231)-- tem embodies a win-win working partnership be- adopted in 1960 and revised in 1975--is not only tween public and private entities. one of the most successful international transport The TIR system has been a success, the num- conventions but also the only existing global transit ber of carnets issued rising from 3,000 in 1952 to regime (though it is still Eurocentric). So far the TIR 3.1 million in 2007. The main reason is that all 286 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N parties involved (customs agencies, other legal bod- the market. The IRU arranges for a large interna- ies, transport operators, and insurance companies) tional insurance company to provide a guarantee of recognize that the system saves time and money last resort. The guarantee is for a fi xed amount--it through its efficiency and reliability. The TIR Con- covers taxes and duties up to US$50,000. vention is simple, it is flexible, it reduces costs, and it The TIR carnet is a physical document with sev- ensures the payment of customs duties and taxes that eral copies, or vouchers. At each border one copy is are due with the international transport of goods. removed and retained. The cover itself is sent back Furthermore, the convention is constantly updated to the IRU once the TIR transport has been termi- in accordance with the latest developments, mainly nated at the destination's customs office. The carnet in fraud and smuggling. The TIR is used mostly be- is printed by the IRU and distributed by national tween European Union countries and trading part- associations. Its price depends on the national asso- ners outside the union--but it is also used in tran- ciation and the number of sheets or vouchers, based sit operations in Central Asia, the Caucasus, the on the number of borders to be crossed. Maghreb, and parts of the Middle East. The IRU plays several essential roles in the TIR In countries that use the TIR system the na- system: tional guaranteeing association is recognized by the · It certifies national associations and audits country's customs agency. The association, in most their capacity to regulate the entry of trucking cases representing the transporters, guarantees pay- companies. ment within the country of any duties and taxes that · It sells carnets to national associations to cover may become due because of any irregularity in the the cost and management of the carnets, as well course of the TIR transport operation (depicted in as the cost of reinsurance between national figure 17.2). Because the national guaranteeing asso- associations. ciation is not a financial organization, its obligations · It functions as a clearing house for guaran- are usually backed by insurance policies provided by tees and information--essentially reconciling Figure 17.2 The sequence of the TIR operation Insurance Info on carnet IRU Transit Departure country 17 If no carnet, claim duties country Claim duties national Claim Carnet national duties association Discharged association If copy not cleared carnet Transit regimes Reconcile copy and clear Co 1 py 1. Issue py 2 Co carnet Central customs office information systems 2. Affix 3. Check seals 4. Check seals 5. Break seals seals Take copy 1 Take copy 2 Discharge carnet Country of Country of Country of departure transit destination Source: Arvis (2005), p. 256, fig. 11.2. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 287 manifest information and checking the validity systems--systems that apply to goods imported into of customs claims to allow transfers. According any of the 27 European Union member states and to the IRU only 3 percent of customs claims are 4 European Free Trade Association countries5 from fraudulent, while the rest are spurious claims re- outside that area, as well as to exports in the reverse sulting from customs' loss of carnet information. direction. The Community transit system applies to To qualify for TIR, each trucking firm (or other trade between European Union members and third transporter) must make a contract with the national countries, while the common transit system (in the guarantee association that includes three obliga- more restricted sense) to trade between European tions: to meet all requirements set out in the TIR Union and European Free Trade Association coun- Convention, to return each used TIR carnet after tries under essentially the same rules. Imports are completion of the TIR transport, and to pay any subject to duty in the destination country in accor- amount of duties, taxes, and other charges on de- dance with the European Union's common external mand by the national guarantee association. Com- tariff, and to value added tax (VAT) in accordance panies participating in the system must meet the with national tax rates. The recently implemented criteria of the convention to become members of New Computerised Transit System (NCTS) has the national association, and they must make a fi xed made the European common transit system even one-time payment of about US$8,000. Again, the friendlier (chapter 15). TIR system is applicable only to containers or road Guarantees can be of three kinds: a cash de- vehicles with load compartments to which there is posit, guarantee by a guarantor (who vouches for no interior access after a customs seal has secured it. the trader), or a guarantee voucher (a multiple of At present the TIR carnet is still a paper docu- the standard 7,000) valid for up to one year. For a ment--a serious handicap. However, steps are being regular procedure the guarantee must apply specifi- taken to make it electronic. The IRU has developed cally to an individual trip. Authorized transporters an Internet based application allowing TIR car- (and other principals) may present comprehensive net holders to send their carnet information elec- guarantees valid for multiple trips and longer peri- tronically to the relevant border control agencies ods, but covering only the total duty expected to be in advance, before the holders arrive at the offices at risk in an average week--the so-called reference of departure or entry. In early 2009 this soft ware amount. The coverage of the comprehensive guaran- was being tried out in several Central European tee or guarantees can be less than 100 percent of the countries. reference amount, and it can even be waived if the The TIR system is criticized for its apparent principal meets conditions that imply low risk. centralization, a feature that explains the reluctance The European common transit system repre- 17 of developing countries to join the TIR system and sents a very streamlined evolution of a regional car- their preference for developing purely regional alter- net system. It is now fully computerized, it does not Transit regimes natives (such as the so-called TIR lite). For the IRU require the soft infrastructure of the TIR (the IRU the carnet system is a private monopoly. The IRU and national associations), and it allows competition sets the price for entry into the system--the cost for guarantees. There is also less intermediation by for operators and for national associations to sat- brokers. In essence it is like a national transit sys- isfy TIR professional and financial standards--and tem, but expanded into an economically integrated sets the price for each transit operation through the region. However, the European common transit sys- wholesale price of the carnet (its cost to the national tem is more demanding than the TIR, and its pre- guarantee association, which adds a markup when conditions are less easily met. setting the carnet's retail price for individual trans- The TIR was designed to help connect national port operators). transit systems without the preconditions of harmo- nization and integration. In contrast, the European The European common transit system common transit system requires a very high degree The European common transit system comprises of customs and financial integration--and trust-- the European Community and common transit within the region where it is implemented. The most 288 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N binding requirement is that a bank in one country Bonds and guarantees are basic financial must be willing to routinely issue bonds that an- products--available from the local banking and, other country's customs can confidently call. That ultimately, insurance industries. Regular transit op- requires a high degree of integration--yet it may be erators have a comprehensive guarantee, equivalent possible within small, or very homogeneous, groups to a standing line of credit, which among other ben- of developing countries. The same standards should efits should make the guarantee available at the time be applied to authorized operators. Finally, common when the transit declaration is introduced. Pricing transit should be backed by harmonized transport may vary, but fundamentally the cost of the guaran- policies. tee is proportional to the time between its initiation and its discharge. Hence, inefficient information ex- Common implementation change and delayed discharge entail significant costs. issues for transit regimes The author of this chapter has even observed in- stances where the logistics companies had to arrange This section discusses implementation issues in four for the return of validated manifests (for example, categories: from Chad to the Central African Republic)--an · Issues for developing country transit regimes. obvious conflict of interest. · Differences between transit facilitation and On African corridors the comprehensive guar- trade facilitation, with related misconceptions. antee may cost as much as 0.25 percent or even 0.5 · Technological requirements (tracing, not track- percent of the value of the goods for each country ing, is needed). crossed. Voucher guarantees, adequate for occasional · Th ings that are unnecessary, undesirable, or operators, avoid this problem, as they are not time unworkable. sensitive--but typically they cost more. Contrary to a widespread opinion, the TIR carnet (a voucher by Common implementation issues nature) is fairly cheap in such circumstances, since in developing countries on average it is priced at 0.2 percent of taxes and du- Even when a trade corridor crosses several coun- ties (or typically 0.1 percent of value of the goods) tries, the basic transit procedure is implemented at for the basic guarantee. In any case, the cost of the the country level. In most cases--especially in low guarantee is much less than transportation costs. income economies and corridors serving landlocked least developed countries--there are too many devi- The initiation of transit is often lengthy, especially ations from core transit principles for the transit in ports. Along virtually all the developing country regime to support efficient supply chains. corridors visited by the author, the time to initi- ate transit in a port is similar to the time to clear 17 Weak information systems and poor guarantee man- goods for local consumption in a coastal country. In agement are major problems. Unlike clearance, which some instances it can take even longer--in 2008, for Transit regimes happens in one place, transit requires an exchange of instance, it took four weeks in the Dar es Salaam cor- information from at least three places: that of tran- ridor in Tanzania and two in the Beira corridor in sit initiation, that of transit termination, and that of Mozambique. There is no simple or single explana- the guarantor (to validate and discharge the bonds). tion for this problem, which affects both large and The management and tracing of the manifest is not small transit operators. However, it seems that in always properly and rigorously implemented and, in many cases customs does not clearly separate clear- many cases, is not automated, causing major errors ance from transit procedures but applies the same and delays (such as in the discharge of bonds). More- process to both. over, the tracing and reconciliation of manifests can In reality, transit goods should not be subject be very imperfect. According to the IRU, 95 percent to the same risk management and control as locally of reported TIR related customs claims arise from cleared goods. Document checking, classification, the loss of carnet pages in customs systems--not and valuation should not be sticking points for tran- from fraudulent behavior. sit goods. In theory, transit can be initiated in a port B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 289 using the information already available in the ship- guarantee--for their operations. On most corridors ping manifest. in developing countries the same principle of incen- tives (lower guarantee, fast track) could be applied, Lax regulation of entry may not encourage high qual- since much of the trade is managed by large global ity and compliance. Of particular importance are the and regional companies delivering comprehensive regulations applicable to transit operators (truckers logistics services. and freight forwarders) and customs brokers. Better services may be encouraged by creating thresholds Control mentality and convoys. As already exemplified for the operators authorized to participate in transit by the problem of initiation in ports, customs agen- operations--for instance, in company size (number cies often are suspicious with transit. They may resort of trucks, equity), professional requirements, and to the use of convoys during the transit trip, where deposits (for brokerage operations). Although the the transit vehicle is escorted by policemen and a cus- aim often is to keep requirements low and the mar- toms official. Convoys need time to be created (up to ket open for small operators, the problem is that lax four days' wait) and are slow. Additional delays--and regulations encourage the development of low qual- costs--are borne by the principal, and do not eliminate ity services--services that cannot cover the full tran- all risk of fraud and corruption. Illogically, convoys do sit supply chain and undermine the development of not exempt principals from the need for guarantees. good, comprehensive services. Though convoys tend to be less prevalent nowadays, Lax regulation of entry generates rents. In most they still exist, notably in Western and Eastern Africa Commonwealth countries liberal regulations make and Western Asia. In the absence of convoys control customs brokers de jure or de facto mandatory inter- points and checkpoints may be imposed. mediaries for customs operations, resulting in an overly intermediated supply chain. According to re- Regional carnet systems have not succeeded, apart from cent research transit cargo from Durban (South Af- the TIR and the European common transit system. rica) to clearance in Blantyre (Malawi) had to use Typically transit takes place over at least two territo- eight different brokers--one on each side of every ries: one or more transit countries plus national tran- border--essentially to fi ll and submit the same in- sit in the destination country. The value of integrat- formation on the same document used by the Com- ing the transit systems and regime over the corridor, mon Market for Eastern and Southern Africa and or even a subregion covering several corridors, has Southern African Development Community. In ad- been recognized for a long time. So has been the fact dition, different domestic banks were covering the that the TIR and European common transit system transit in each of the four countries on the corridor. are the natural references for transit at the regional 17 Queueing systems for trucks, or tours de role for level. However, no other regions have succeeded so individual truckers, are still very prevalent in franco- far at passing beyond harmonization to the integra- Transit regimes phone Africa and in some countries in the Middle tion of national transit. East. They bring costs up, lower service quality, and With the enormous success of the TIR system, prevent the emergence of organized companies hav- the same concept has been made the basis for at- ing long term commercial relationships with ship- tempts to establish bilateral and multilateral agree- pers and freight forwarders. ments among countries elsewhere: for example, in Conversely, transit regimes in developing coun- Asia, Africa, and South America. In South America, tries today rarely provide incentives for compliant despite the soundness of the legal framework6 and transit operators offering the best services with min- transit trade growth in the Mercado Común del Sur imal fiscal risk. In Syria a guarantee ceiling limits the (Mercosur) countries, the spirit of the rules is not number of trucks in transit that a company can op- fully reflected in procedures. Among the Andean erate to two or three. The European common tran- countries integration is significantly lower than in sit system relies largely on the concept of authorized Mercosur, even though an Andean Manifest is in economic operators, with specific incentives--such use. Eastern Asia has several agreements, such as the as reduction or even a waiver of the comprehensive Greater Mekong Subregion (GMS) Agreement for 290 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Facilitation of Cross-Border Transport of Goods regional systems (Arvis, Marteau, and Raballand and People (CBTA), which has similarities with the 2010; Arvis 2010). First, an efficient transit regime TIR. Implementation efforts, though steady, have depends on the other components of the transit sys- not yet fully materialized. tem, including institutional capacities, private sector Africa's geography and the number of its land- capacity, and other political-economic constraints. locked countries make it highly dependent on tran- Second, misconceptions in transit design and im- sit corridors. It hosts several transit agreements on plementation have appeared even in conducive en- paper--but implementation has faced various chal- vironments for a successful transit regime. Th ird, lenges. There are four different regions with sepa- the conceptual differences between the TIR and the rate problematics: Western Africa (the West Afri- European common transit system are complex and can Economic and Monetary Union, or UEMOA, are not always fully understood. plus Ghana), Central Africa (the Douala Corridor), Most regional experiments such as the TRIE Eastern Africa (the Kenyan and Tanzanian corri- have been implicitly based on two principles--prin- dors), and Southern Africa. In many ways the in- ciples that clearly depart from the experience of tegration of transport and customs policies is most the efficient regimes in Europe. One is that transit advanced in Africa, at least within the main regional should be as open as possible to small scale operators. groupings--in Western Africa, UEMOA and the The other is that regional systems should be adapted Economic Community of West African States to meet those operators' needs. The resulting ap- (UEMOA­ECOWAS); in Central Africa, the Eco- proach waters down key design principles and imple- nomic and Monetary Community of Central Af- mentation mechanisms (such as guarantees and their rica (CEMAC); in Eastern Africa, the East African management), as is known from history and from Community (EAC) and the Common Market for the European experience. Eastern and Southern Africa (COMESA); and, in The main conclusion is that there is no strong Southern Africa, the Southern African Develop- business case for regional TIR lite. Instead, com- ment Community (SADC). There are few restric- mon transit may be implemented within a subregion tions on the movement of people and vehicles, and in the very few cases where regional integration-- there are common vehicle insurance systems (yellow in transport and financial services, trade, and and brown cards in ECOWAS and COMESA). Fur- customs--makes it possible. Between regions, or thermore, UEMOA and CEMAC are a monetary within regions with limited integration, TIR should union where residents can cross borders with simple be seriously considered as a global transit regime. identification documents. Unfortunately, all this has not yet created an efficient transit regime. Transit facilitation and trade facilitation: Western Africa has chosen as its common transit differences and misconceptions 17 system the Transit Routier Inter État (TRIE), based on the TIR. Unfortunately, the TRIE has not suc- Transit trade usually is small compared with imports Transit regimes ceeded so far, as implementation has departed from and exports, and usually it requires less oversight, an important principle: the regulation of entry, and capacity building, and investments. Transit facilita- incentives for quality services, have been jeopardized tion measures may differ from, or they may comple- by using queueing systems for truckers in the appli- ment, the trade facilitation measures proposed in cation of protectionist and interventionist bilateral this handbook. agreements. Also, excessive overloading has made it Transit facilitation relies on components in four impossible to seal cargo. The situation is better in categories, listed below. Southern Africa, but--as mentioned above--the · Building national capacities, including: traditional role of customs brokers and the frag- · The implementation in the customs code of mentation of guarantees prevent the emergence of a real national transit system, with the provi- a regional system. sion for a transit manifest different in form Three lessons emerge from a review of implemen- and substance from the customs clearance tation problems and the lack of success in creating declaration. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 291 · The creation of a service specialized in a bond. At that stage NCTS is the only fully func- transit. tional application for regional transit. · The training of border officers in border The e-TIR, which has a different concept, is in posts accredited for transit. its pilot phase. In e-TIR the carnet barcode or Safe- · Improvement in the information system: customs TIR number helps validate a page of the carnet at should implement a rigorous paper or ICT based one of the border crossings, and this information is documentation cycle that reconciles entry and sent into a central database to which each participat- exit documents. ing country has access. Radio frequency identifica- · Regulation of entry for operators involved in tion device (RFID) technology applied to vehicles transit. or trailers may also facilitate the tracing of cargo on · International cooperation: this should address a corridor and speed up controls at entry and exit issues such as the harmonization of documen- checkpoints. As of mid-2010 there are no full scale tation, the mutual recognition of controls and examples. guarantees, and the exchange of information. Tracking as opposed to tracing: Transit goods can be A little help from technology: traced through the automation of carnet or transit tracing, not tracking, is needed manifest. Tracking, in contrast, involves localizing Customs agencies must properly manage the infor- the merchandise. The prices of global positioning mation on transit manifests or carnets in order to system (GPS) tracking devices are falling, and they do three things: are ever more popular with large trucking firms that · Trace the goods entering and exiting the coun- want to know where their vehicles are at all times try, with adequate management of transit mani- (so they can alert consignees if delivery is likely to fests or carnets. be delayed). Drivers who have breakdowns also want · Discharge the bonds. their companies to know where to find them, and · Communicate with other participants, or with GPS devices have become important management an overseeing body (such as the IRU) in the tools for logistics operators. case of a carnet system. An ICT system can be Such tracking for the benefit of cargo owners of great practical help. Within customs in the should not be confused with tracking by customs transit country, the system electronically tells or other border agencies, which may be done with the exit post to expect the arrival of a shipment or without the trucker's knowledge. Suppliers rec- within a plausible timeframe. When closed by ommend electronic devices to customs authorities, the exit post, the transit information is input and and products such as e-seals with GPS tracking have 17 the guarantee is automatically released. their appeal. However, for a transit system to work, The automation of customs documentation there is absolutely no practical need for real time Transit regimes is widespread. Several applications have modules tracking. There are serious disadvantages as well, for national transit. For instance, the United Na- including the reinforcement of the control mental- tions Conference on Trade and Development ity (with the potential for abuse) in place of a part- (UNCTAD) has already developed transit add- nership approach with incentives for compliant op- ons to ASYCUDA++. The national transit mod- erators offering guarantees. In addition, there is no ule is already built in new generation systems such established best practice or clear guidance for how as ASYCUDA World and its competitors.7 So customs can use tracking information--nor has any far these systems have not been adapted to carnet developed country implemented it. systems. Recent experience suggests that the eventual The interconnection of national customs is desir- contribution of e-seals and tracking may be less to able and practically indispensable for a truly region- improve procedures than to help rebuild confidence ally integrated system, such as the NCTS in Europe. between customs and transit operators, leading to It allows for a seamless exchange of information on a the disuse of unfriendly control solutions such as transit manifest or the initiation and termination of convoys. For instance, in Jordan e-seals have been 292 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N implemented recently to dispense with convoys. · Transit facilitation in fact reduces the need Kenya and Ghana are doing the same with the sup- for border infrastructure. port of trucking companies. · Needs for ICT are very limited, and overreliance Those examples show that technology is un- on ICT solutions may be counterproductive. likely to change the principles of transit regimes, · Bonds are not expensive, and transit cannot do which are universal and predate the industrial revo- without bonds. The costliness of bonds is an ar- lution. While the automation of information and of gument commonly used against joining the TIR, financial flows is very desirable, much clarification is or for developing an idiosyncratic solution. But needed on how to do it, especially between countries. even when bonds are fairly expensive (for exam- ple, up to 1 percent of value), their cost is much What is not needed, not desirable, less than that of other logistics needs--such as and does not work: some common transportation--or than the impact on produc- misconceptions corrected tion and distribution of an inefficient transit The perception of a need for real time tracking and supply chain (Arvis, Mustra, and others 2010). GPS, or for heavy ICT, is not the only misconcep- In fact, the cost and low availability of bonds are tion commonly encountered in corridor transit facil- a consequence--not a cause--of inefficiency in itation projects. Other misconceptions are rectified transit regime implementation. In many devel- below. oping countries, it is true, small transit brokers · Freedom of transit does not mean: cannot easily mobilize bonds from commercial · Freedom to choose routes in transit countries. banks--but with proper regulation of entry, or It is perfectly acceptable for a transit country in a regional system, those brokers should not be to impose certain routes for transit traffic, as in the market. The cost of bonds is also increased long as it does not discriminate by trade type by the time taken to discharge transit and by a or by carrier nationality. For instance, envi- lack of competition for their offering (for ex- ronmental reasons or infrastructure load ample, in Western Africa a monopoly is given to capacities may justify the concentration of chambers of commerce, for which bonds are an heavy vehicles on certain routes. Customs important source of revenue). may also impose routes for transit traffic to · Some simple ideas on where and how to clear-- prevent trucks from wandering. though apparently common sense propositions-- · Transit services open to everybody. The regu- simply do not work. Among such ideas, some of lation of entry to favor compliant operators the ones most found in reports and project pro- is desirable. A major problem is that many posals at present are: developing countries have pushed for transit · For landlocked countries, clearance at the port 17 to be as open as possible to the local truck- of entry in the gateway country. Beyond the ing sector. obvious issues of territorial jurisdiction, the Transit regimes · Transit does not require a heavy border infrastruc- main problem with this idea is that the tran- ture. sit country, to prevent fraud or fiscal loss, · Since the process at the border should be still needs a system to make sure that goods limited to fairly simple diligence--check the are consumed in the destination country. manifest and the seals, no inspection--there At best there can be preclearance, with the is no need for a large transit infrastructure. risk of adding a layer of procedures. In rare · Transit does not require specific border post instances this is feasible: for example, where arrangements. there is a very short transit corridor and a · Transit flows should be separated from the dominance of transit trade over domestic flows cleared at the border: for example, trade at the port of entry.8 there may be a separate fast lane at a border · For a customs union to dispense with tran- post with substantial activity (100 trucks a sit procedures entirely. In fact, since VAT or day). sales taxes are collected in the country of B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 293 consumption, some transit mechanism must requirements: punctuality, special handling, and be maintained--even if a collective mecha- other concerns. nism is agreed for the collection of extra- union duty (as in the EU and SACU). Regulating for quality instead of quantity. License restrictions often applied include limitations on Enabling policies for transit facilitation, where a carrier may operate (defi ned regions or apart from those related to customs routes), on truck types, and on the kinds of com- modities to be carried, as well as the rigid separa- Transit system implementation relies not only on tion of for hire services from own account opera- customs related measures but also on policies related tions. Governments practicing such restrictions are to transport, infrastructure, and services. Such poli- encouraged to consider replacing them with quality cies have been comprehensively treated (World Bank licensing. Quality licensing tests and recognizes an 2008; Arvis 2010). Nevertheless, here are a few of operator's ability to perform--its technical skills, the more important. its bookkeeping and fi nancial capacity. As an adjunct to the TIR, the IRU offers an internation- Harnessing open markets for ally recognized certificate of professional compe- transport and logistics services tence for trucking fi rm managers and their driv- Liberalizing access to markets. Countries that still ers. Quality licensing does not set a prior limit on closely regulate their trucking industry should take a the number of carriers to be certified, but it raises second look at restrictions on entry into the industry the professional standards of the industry. It can and at restrictive arrangements that have the effect empower carriers to charge higher rates for superior of reducing truck capacity utilization or service qual- services, and it can qualify them for entry into the ity. Transit countries that reform their trucking TIR system. regulations--first for domestic traffic, and second, for bilateral traffic and transit traffic to landlocked Rewarding reliable transporters. Border control neighbors--stand to benefit. agencies that introduce selective inspection on the In many instances, restrictions (such as quotas) basis of risk analysis are likely to favor the higher for transit truck operation comes from the desire of standard carriers, those who maintain a consistent landlocked least developed countries to secure a cer- pattern of operations that can be recognized in a tain share of the transit traffic for their own truckers. customs risk analysis database. Such carriers can be However, experience in both Central Africa and the rewarded with green channel treatment, reducing Greater Mekong Sub-region shows the drawbacks delays to a minimum. 17 of bilateral negotiations that restrict the numbers of operators and the market shares of certain other Avoiding the repeated weighing of trucks in transit. Transit regimes countries. Protectionism of this sort generally is at Multi-axle trucks involved in international trade are the cost of the trading community, through lower rarely the worst overloading offenders. Nevertheless, productivity and through higher tariffs. in some corridors they are considered easy targets for The inefficiencies of a tour de role system are informal payments and are repeatedly stopped and many. Having to wait in line is the most obvious weighed. As an alternative--for consistency with the but not necessarily the most damaging. A greater ill goal of developing a premium class of international is the barrier introduced between the freight owner freight movements--containers moving overland and the trucker, preventing them from negotiat- should be weighed before departure from the port ing their contracts directly. Much is to be gained of entry in the transit country (or from the point of if these parties can get to know each other through origin in a landlocked country) and at border cross- regular service, so that the freight owner knows who ings. They should be provided there with official is carrying his goods and what risk he runs of pil- weight certificates exempting them from further ferage or late delivery. The trucker also benefits by weight checks in the same country, provided that coming to understand the freight owner's quality seals remain unbroken. 294 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Enhancing the role of integrators (freight forward- logistics services in the corridor, but also on increas- ers). With the intensified focus on source to destina- ing the quality of those services. The right manage- tion supply chains, there is now a premium on good ment framework can give a landlocked country a say forwarding services. Delivery that is reliable and on in the provision of infrastructure and services on time is highly valued. Shippers are increasingly will- routes that, though important to its trade competi- ing to pay specialist agencies--multimodal opera- tiveness, lie outside its borders. Six points are impor- tors--to assume full responsibility for the entire sup- tant here: ply chain. By means of a through bill of lading, the · Corridor management agencies are another way shipper enters into a single transport contract with of building trust between partners (and have the freight forwarder--who in turn makes separate performed well in this respect, at least in East- contracts with trucking firms, railways, or shipping ern Africa). lines to cover each leg of the multimodal journey. · Corridor groups need to have clear development objectives, with a mandate for problem solving. Shrinking the role of customs brokers. Even as freight · Corridor issues, by their nature, are often solved forwarders are increasingly used, the demand for through interactions among many public and customs brokers is being reduced by the focus on private entities. integration and by the trend toward shifting clear- · Corridor management requires a strong and en- ance from border crossings to destination points thusiastic champion. (consignees' premises). Declarations can now be · Corridors can pilot reforms. prepared by the shipper and fi led electronically. The · Funding for corridor management is a special introduction of true regional transit systems will challenge. also reduce the need for intermediaries at the border. Monitoring, measuring, and Inland container depots. In recent years these have benchmarking corridor performance grown in number, as they offer a convenient inter- Monitoring the performance of corridors is impor- mediate solution between clearance at the border and tant if interventions are to be targeted. Most cor- clearance on the buyer's premises. Similar to dry ports, ridor performance measurements have included inland container depots often are located in the out- cost and time, but not all have specified the unit of skirts of hub cities, where the price of land is moderate transport: per ton, per consignment, per truck, or and where arterial highways and railways give good per twenty foot equivalent unit (TEU). Th is com- access while avoiding interference with urban traffic. plicates comparison across corridors. Reliability and The core functions of such depots are the unloading safety are also important, but they are hard to specify of containers from long distance trucks (and trains) consistently. An international consensus needs to be 17 into short term bonded storage; the inspection of developed on these definitions. the containers; the payment of duty and obtaining of A promising contender is the method that the Transit regimes customs clearance; and the reloading of the contain- United Nations Economic and Social Commis- ers onto local trucks for delivery in and around the sion for Asia and the Pacific (UNESCAP) has de- city. A secondary function that may be added is ware- veloped, using a graphical method to show corridor housing, where containers--after being cleared by performance (cost and time). It is now widely used customs--can be unstuffed and their contents deliv- throughout Central and Eastern Asia. Another ex- ered to multiple destinations, or even broken down, ample is the FastPath soft ware, developed for the processed, and repackaged for multiple final buyers (as United States Agency for International Develop- with pharmaceuticals or auto parts). ment (USAID) to help identify and evaluate poten- tial improvements in developing countries with port Managing trade corridors and logistics chain inefficiencies. The main practical reason for looking at trade cor- To generate indicators of a corridor's perfor- ridors in a policy perspective is to focus not only on mance, a monitoring method should be used that improving the routes used by transport and other incorporates the best characteristics of both the B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 295 UNESCAP and FastPath models and that is com- ------. 2010. Connecting Landlocked Developing patible with both of them. Among the advantages of Countries to Markets: Trade Corridors in the 21st such a method are that it differentiates between ex- Century. Washington, DC: The World Bank. ports and imports, that it specifies the overseas ori- Arvis, J., J.. Marteau, and G. Raballand. 2010. The gin or destination of freight movements, and that it Cost of Being Landlocked: Logistics Costs and includes maritime segments. It also provides read- Supply Chain Reliability. Washington, DC: The ily understood specifications of minimum cost and World Bank. time, including the shipment size to which the speci- Arvis, J., M. Mustra, L. Ojala, B. Shepherd, and D. fications refer and how variations above the mini- Saslavsky. 2010. Connecting to Compete: Trade mum should be estimated. Finally, it generates an es- Logistics in the Global Economy. Washington, timate of the total transport cost using the corridor DC: World Bank. and so offers a basis for assessing the importance of Arvis, J., M. Mustra, J. Panzer, L. Ojala, and T. Naula. proposed improvements. 2007. Connecting to Compete: Trade Logistics in the Global Economy. Washington, DC: World Notes Bank. De Wulf, L., and J.B. Sokol, eds. 2005. Customs Mod- 1. Still, in a few cases cargo originates and ends ernization Handbook. Washington, DC: The up in the same territory but transits through World Bank. a second country. For instance, commodities UNECE (United Nations Economic Commission destined for the Northeastern part of India for Europe). 2010. "TIR Handbook: Customs and originating from other parts of India Convention on the International Transport transit through Bangladesh, as all alterna- of Goods Under Cover of TIR Carnets (TIR tive Indian routes are much longer. Convention, 1975)." UNECE document ECE/ 2. For illustrative purposes we focus on trucks; TRANS/TIR/6, United Nations, New York however, the same applies for other modes and Geneva. Available at http://www.unece. of transport, such as wagons, barges, and so org/tir/tir-hb.html. forth. In practice the procedures may be sim- UNECE Inland Transport Committee. 1982. "In- plified for trains. ternational Convention on the Harmonization 3. See "WTO Legal Texts," World Trade Or- of Frontier Controls of Goods." UNECE docu- ganization, http://www.wto.org/english/ ment ECE/TRANS/55/Rev.1, United Na- docs_e/legal_e/legal_e.htm. tions, Geneva. 4. See "IRU: International Road Transport UNECE (United Nations Economic Commission 17 Union," IRU, http://www.iru.org. for Europe) and UNCTAD (United Nations 5. Norway, Iceland, Switzerland, and Conference on Trade and Development). 2001. Transit regimes Liechtenstein. Compendium of Trade Facilitation Recommenda- 6. Acuerdo sobre Transporte Internacional tions. Geneva: UN. Terrestre (ATIT). WCO (World Customs Organization). 1999. In- 7. CGnet in Ghana, Gainde in Senegal, Simba ternational Convention on the Simplification in Kenya. and Harmonization of Customs Procedures (As 8. The best known example is the Ethiopian Amended). Brussels: WCO. transit trade cleared in Djibouti. World Bank. 2008. Improving Trade and Transport for Landlocked Developing Countries: World References Bank Contributions to Implementing the Almaty Programme of Action. Washington, DC: The Arvis, J.F. 2005. "Transit and the Special Case of World Bank. Landlocked Countries." In Customs Moderniza- ------. 2010. "A Global Review of Transit Regimes." tion Handbook, ed. L. De Wulf and J.B. Sokol. Mimeo., International Trade Department, The Washington, DC: The World Bank. 243­64. World Bank, Washington, DC. 296 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 18 CHAPTER The national security environment: strategic context David Widdowson and Stephen Holloway The radically changed nature of the international trading environment since the September 11, 2001 attacks on the United States has had a significant impact on border operations. In many cases the regulatory burden on the international trading community has increased consider- ably. Indeed, while no doubt well intentioned, a number of government responses to the international security threat may do little more than increase the regulatory burden on honest traders and achieve little in the way of enhancing the ability to identify potentially high risk individu- als or consignments. Well designed national security requirements can, however, be incorporated seamlessly into border operations in a way that can enhance national security without compromising trade facilitation objectives. This chapter explores ways in which Regulation of the this can be achieved--with specific international supply chain commentary on recent developments since September 11, 2001 in regulatory supply chain security initiatives, and on the appropriate- The regulatory focus on the interna- ness of various regulatory responses tional supply chain changed after Sep- from the perspective of risk manage- tember 11, 2001 from one that was gen- ment and commercial practicality. erally facilitative to one that placed the The chapter identifies key elements security of the supply chain at the center The national security environment: strategic context of a contemporary compliance man- of border management policy. Border agement strategy and their applica- control--of which supply chain security tion in mitigating risk. It then iden- is but one element--has always formed tifies specific risks to the security of part of the regulatory continuum, and the international supply chain and since the 1980s there has been a global analyzes a range of compliance man- effort on the part of regulators to agement strategies intended to address achieve an appropriate balance between such risks. Based on that analysis, it facilitation and regulatory intervention. provides policymakers and adminis- There is, however, clear evidence indi- trators with a range of recommended cating that the balance has been tilted policy responses and operational heavily towards intervention following strategies. the 2001 attacks (Widdowson 2006), at B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 297 least as far as many developed countries are advocates the encouragement of voluntary compli- concerned. ance through cooperation, support, and the positive More significantly, whereas customs border con- reinforcement of compliant behavior. The rational- trol issues have traditionally centered on commer- ist model, on the other hand, advocates an enforce- cial illegality (for example, duty evasion) and general ment approach, the focus of which is the deterrence community protection (for example, against harm- of noncompliant behavior by punitive means. ful products and biological threats), the 2001 attacks In practice regulatory agencies will generally highlighted the potential for the supply chain itself adopt compliance management strategies that in- to be utilized by terrorists to cause physical and eco- corporate both normative and rationalist elements. nomic damage. A proliferation of security focused These elements effectively represent opposite ends control regimes ensued. Indeed, supply chain secu- of a compliance management continuum that seeks, rity promptly became the priority issue, and with the firstly, to encourage voluntary compliance, but also three day closure of the United States borders, the eco- includes a range of punitive measures that may be nomic impact of any breakdown in the supply chain applied in the event of noncompliance. became obvious to everyone involved in international A number of issues need to be considered when trade. A number of initiatives, introduced to improve determining the best mix of elements that should the security of the supply chain, were developed and be present in a regulatory framework. These include implemented, first by the United States and subse- the need to achieve a cost effective outcome consis- quently by other countries and international organi- tent with the desired policy outcome; the nature of zations. Understandably, the United States initiatives the operational environment that is being regulated have tended to lead the supply chain security agenda, including the commercial practices that apply; and and that continues to be the case, although with in- the extent to which the regulatory requirements are creasing controversy and some resistance from other likely to impact on the operational effectiveness of countries and the private sector. Cases in point are the the activity being regulated. controversial Importer Security Filing and Additional Consequently, most compliance management re- Carrier Requirements for cargo arriving in the United gimes will comprise a combination of regulatory ap- States by ocean vessels--commonly called the 10+2 proaches, with the specific components of a particular rule1--and the practice of 100 percent maritime cargo scheme being dependent on the scope of the risk that container scanning under the Secure Freight Interna- is to be treated and the demographics of the regulated tional Container Security project.2 population. Moreover, the selection of individual Such controversy serves to challenge the appro- strategies to be employed will depend not only on the priateness of certain approaches to supply chain reg- risk that noncompliance might present but also on the 18 ulation, and it questions whether the supply chain consequences that might ensue from failure. is becoming regulated and controlled to the detri- Regardless of the strategy adopted, the rule of The national security environment: strategic context ment of the efficiency and effectiveness of both gov- law must remain at the core of any regulatory re- ernment and business. In analyzing the appropri- gime, bearing in mind the fact that the fundamen- ateness of the diverse regulatory regimes from the tal role of the regulator is to ensure compliance with perspective of risk management and commercial the law. Achievement of government objectives (in practicality, it is first necessary to briefly examine this case ensuring security of the supply chain) relies the principal elements of a contemporary compli- first and foremost on well constructed rules, and it is ance management strategy. therefore incumbent upon regulators to continually question the validity of the rules that have been es- Elements of modern tablished in order to ensure their ongoing relevance compliance management to the policy aim. In the political climate since the 2001 attacks, however, it takes a very brave person Models for managing regulatory compliance essen- to question the validity of rules that have ostensi- tially fall into two broad categories: normative and bly been designed to mitigate supply chain security rationalist (INECE 2009). The normative model risks. This issue will be addressed later. 298 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Several models have been developed to identify don't know, then how can they be expected to com- better practice in regulatory compliance manage- ply? While ignorance of the law may be no excuse, it ment, all of which emphasize the need for an effec- explains many instances of noncompliance and, con- tive legislative base. The model shown in figure 18.1 sequently, the need to provide meaningful advice to illustrates the need for a sound legal basis on which those who are being regulated is essential. to build the range of administrative and risk man- agement strategies which the border agency chooses Compliance assessment to adopt (see for example Widdowson 2005b). The elements of compliance assessment in the bor- der management context generally include data and Informing the international trading community physical screening, documentary checks, and risk An appropriate range of client service strategies, based scanning and physical examinations as well as including effective consultation arrangements and preshipment and postshipment audits and investi- clear administrative guidelines, is necessary to gations (reflected in the third tier of the pyramid in provide the commercial sector with the means to figure 18.1). achieve certainty and clarity in assessing their lia- Effective compliance assessment includes strate- bilities and entitlements (reflected in the second tier gies that are designed to identify both compliance of the pyramid in figure 18.1). In 1997, when call- and noncompliance. This does not sit well with those ing for an urgent international process of regulatory who favor a focus on noncompliance and who argue reform, the Organisation for Economic Co-oper- that the only recognized result of compliance as- ation and Development (OECD) stated that such sessment activities is the identification of noncom- reform should include more flexible approaches to pliance, together with associated enforcement ac- regulatory compliance management, with the longer tions such as prosecution and monetary sanctions term goal of shifting governments "from a culture of (Widdowson 2006). The saying "If it isn't counted, control to a culture of client service" (OECD 1997). it won't get done" applies aptly to this situation. In Such a cultural shift has required government other words, if the management focus is solely on the agencies to accept the view that strategies other than identification of noncompliers, staff will fail to see enforcement activities represent legitimate means of the relevance of identifying compliant traders. This mitigating the risk of noncompliance and are critical is a particular problem in much of the developing to achieving an effective balance between facilitation world where traders, regardless of their compliance and regulatory intervention. Indeed, it is of critical record, face almost exactly the same regulatory con- importance to ensure that the commercial sector is trols as noncompliant traders--so frequently there provided with the ability to comply with regulatory are few positive incentives associated with maintain- requirements. They need to know the rules. If they ing a strong compliance record. 18 In recent times, there has been an increased em- Figure 18.1 Simplified compliance management phasis on a partnership approach to assessing and The national security environment: strategic context pyramid achieving regulatory compliance, and some such strategies that have been introduced in the supply chain security environment are discussed later. The government and industry partnership concept is Enforcement Recognition based on the premise that companies with a good record of compliance require less, or different, reg- ulatory scrutiny than those with a history of poor Compliance assessment compliance or about which little is known. The part- Client service nership approach to security has been adopted across a range of sectors--examples include the United Legislation States Department of Homeland Security Transport Source: Based on Widdowson (2005b). Security Administration's Known Shipper Database (commonly called the Known Shipper program) for B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 299 the air transport industry3--and its potential appli- that the benefits that fail to materialize are generally cation to air passengers is also a topic for debate. to the detriment of industry (Widdowson 2005a). Recognition Enforcement A key element of the partnership strategy seeks to Naturally, in the process of assessing the level of com- provide highly compliant companies with ben- pliance with border regulations, agencies encounter efits such as facilitated clearance arrangements, an two situations: compliance and noncompliance. entitlement to self assess, and reduced regulatory The noncompliance spectrum will range from inno- scrutiny--benefits that provide compliant compa- cent mistakes to blatant fraud. If the error nears the nies with the incentive to demonstrate their com- fraudulent end of the spectrum some form of sanc- mitment to comply with regulatory requirements. tion will need to apply, such as administrative pen- The effectiveness of such arrangements hinges on a alties or--in the more severe cases--prosecution, healthy working relationship between government license revocation, or possible criminal prosecution. and industry, based on partnership and trust: that is, Before determining the need for or nature of a a relationship that reflects a mutual commitment to sanction, however, it is important for regulators to accountability and improving compliance. identify the true nature of the risk by establishing Later in this chapter we examine a number of part- why the error has occurred. For example, it may re- nership arrangements that seek to mitigate risk by: sult from a control problem within a company due · Identifying compliant businesses, including to flawed systems and procedures, or it may be the those that are dedicated to ensuring the security result of a deliberate act of noncompliance. In such of their supply chains. situations the most appropriate mitigation strategy · Encouraging participation in such partnership will depend on the nature of the identified risk and, arrangements by providing a range of benefits unless the act is found to be intentional, it may be that formally recognize the compliant nature of appropriate to address systemic problems within the participating businesses. entity or to provide the company (or perhaps an en- · Enabling regulatory agencies to place a greater tire industry sector) with advice on particular com- focus on the trade transactions of higher risk pliance issues or provide formal clarification of the businesses. law through binding rulings or other means (Wid- Such partnerships must be a two way proposition dowson 1998). In all cases the severity of the mea- with clearly identified costs, benefits, and responsi- sures applied should appropriately reflect the level bilities for both parties. Consistent with the coop- of noncompliance--in other words, "let the punish- erative, consultative approach that a partnership ment fit the crime." 18 program is intended to achieve, industry should be invited to play a major role in identifying the range Management based regulation The national security environment: strategic context of incentives that may be made available under such an arrangement. Signing up to such partnership The concept of management based regulation seeks programs is not, however, a cost free decision, and to leverage business knowledge, experience, and therefore the benefits offered through such programs practice to achieve the regulatory objective. Thus it need to be tangible and meaningful. has the potential to be far more cost effective than Provided such programs can achieve mutual ben- prescriptive regulation, and it certainly is less disrup- efit for both government and industry, the partner- tive of those business processes. It is also more likely ship approach is destined to succeed. However, if the to encourage innovation in managing compliance anticipated benefits fail to materialize for either of risk, since businesses are more likely to comply with the parties, the relationship is likely to be less than their own internal rules and procedures than with successful, particularly when would-be participants those imposed externally by government. Indeed, have made a significant investment in the initiative. there is empirical evidence to suggest that manage- Given that one of the parties to such a partnership is ment based regulation can lead businesses to make a regulatory authority, it is hardly surprising to learn risk related behavioral changes (Bennear 2007). 300 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Using this approach, regulated entities are often international trade itself. Technological innovation, expected to develop plans or management systems leading to the twin benefits of vast improvements that comply with criteria prescribed by the regulatory in the speed of transportation and communications authority--for example, security plans under the In- and the lowering of costs, has resulted in better ternational Ship and Port Security (ISPS) Code, or access to overseas markets and a much greater diver- physical security and access restrictions under the sity among entities involved in international trade. It various customs authorized economic operator and has also resulted in exponential growth in the use of related programs. The regulatory approach may in- containers for maritime transport. clude a requirement for certification by government The changing nature of trade is also highlighted regulators or third party auditors of the plans and by a 2006 UNCTAD report, which estimates that management practices, together with evidence of about one third of international trade in goods in- compliance (OECD 2008). The OECD has recog- volves trade in unfinished goods and components nized the importance of compliance measurement and a similar percentage represents trade within the with this regulatory approach, as with compliance same company (UNCTAD 2006). It is likely that oriented regulation generally (OECD 2008, p. 10): these percentages have increased since the time the UNCTAD report was prepared. Indeed, the WCO Performance standards focus attention on estimates that the percentage of intracompany trade desired outcomes and provide flexibility to is now closer to 50 percent (WCO 2008). find less costly or better solutions but mak- The majority of such trade occurs within an ing them work depends on being able to mea- integrated global logistics system in diminishing sure and monitor performance. Sometimes timeframes, to meet global sourcing and just-in- it is difficult to operationalize the desired time business models that emphasize low inventory. outcome into an enforceable regulatory stan- Companies manage a continuous flow of goods that dard, or sometimes it is prohibitively costly are transported as part of an intricate logistics and for the regulator to monitor outcomes. supply chain management system that ensures de- livery at precisely the moment they are required for This is an important issue with respect to regu- use as an input in production. lation of the international supply chain, because it The benefits in cost savings and efficiency are sig- is particularly difficult to monitor or measure sup- nificant, but so are the commercial risks considering ply chain security risk in a way that is meaningful to that even a short disruption to that supply chain can business--keeping that risk below a specified level. have considerable financial consequences (Kommer- There is no such thing as zero risk in the international skollegium 2008). supply chain, and (at least at an operational level) busi- Global sourcing is becoming an increas- 18 nesses are often better positioned to identify risk in ingly common trend in modern supply chains. their supply chain than are regulators--although that An example, the sourcing for production of the The national security environment: strategic context changes as the focus moves to broader strategic risk. Apple iPod nano (box 18.1), highlights not only the This then leads to a discussion of risk manage- complexity of today's international supply chains but ment in the context of supply chain security and, in also the difficulties in managing the associated risks-- particular, whether that risk can be identified in a way both from a commercial perspective in ensuring just- that facilitates the design of cost effective and efficient in-time delivery of components, and from a business regulatory approaches to supply chain security that and government perspective with respect to securing meet both government and private sector concerns. the supply chain from potential security threats. The reality is that there is a convergence of in- The nature of supply chain security risk terest between business and government in main- taining a secure supply chain. It requires coopera- The changed nature of maritime transport security tion and coordination to function effectively and to risk is in many ways, despite the 2001 attacks, reflec- minimize the risks of disruption to, or abuse of, the tive of the increase in the volume and complexity of legitimate flow of goods. Th is collective benefit in B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 301 Up to this point the discussion has been mainly Box 18.1 An example of the complexity of the international supply about generic risks that flow from the complex and chain: the Apple iPod nano interdependent nature of modern supply chains, but the focus on counterterrorism since the 2001 The Apple iPod nano is a small mobile MP3 de- attacks has required the international community vice to which users can download their preferred to seriously consider the ephemeral characteristics music using a personal computer connected to of terrorist risk. Unlike other risks (such as accident the Internet. The central microchip of iPod nano is risk) where the events are unintentional and their provided by a US company (PortalPlayer). The core likelihood can be reasonably estimated from empiri- technology of the chip is licensed from a British cal observations, the probabilities associated with a company (ARM) and is modified by PortalPlayer's programmers in California, Washington State, and terrorist attack are much harder to quantify. The Hyderabad. OECD suggests two reasons for this (2009a, p. 6): PortalPlayer works with microchip design com- panies in California, which provide the finished de- First, terrorist attacks are relatively infre- sign to a company in Chinese Taipei that produces quent. This is especially true of attacks that wafers imprinted with hundreds of thousands of belong to the class of extreme events, with chips. These wafers are then cut up into individual low probabilities, major consequences, and disks and sent to another facility in Chinese Taipei, possibly spillovers into connected systems. where they are individually tested. The chips are then encased in plastic and read- For such infrequent events, past events carry ied for assembly by Silicon-Ware in Chinese Taipei little information on future probabilities. and Amkor in the Republic of Korea. The finished microchip is then warehoused in Hong Kong SAR, Second, attaching probabilities to inten- China before being transported to mainland China, tional acts is particularly problematic because where the iPod is assembled. of the possibility of strategic behavior: terror- Source: Adapted from "Stark Reality" (2006). ists adapt their strategy to changes in the se- curity environment in which they operate. supply chain security is recognized in the study un- Since little is known about how they will re- dertaken by the Swedish National Board of Trade spond (because the set of available strategies is (Kommerskollegium 2008). very large), it is not clear how security policies The development and implementation of strate- or other relevant changes affect probabilities. gies to mitigate supply chain security risks is there- In sum, terrorist attacks are not characterized fore complicated and frustrated by the high degree of by risk but by uncertainty, meaning that no 18 interdependence and associated network character- credible objective probability can be assigned istics exhibited by modern global supply chains. This to their occurrence. The national security environment: strategic context has created great uncertainty as to where the risks ac- tually begin and end, since what at first may look like What can be said with some degree of certainty a minor event can quickly turn into a fullblown cri- is that the nature of risk in the international trading sis (OECD 2009b). An often quoted example is the environment requires flexibility and resilience to be fire at a single source supplier used by Ericsson that engineered into regulatory initiatives to ensure their resulted in $400 million in lost sales for Ericsson, a effectiveness, and that this notion of flexibility and drop in stock price of 11 percent, and the eventual resilience requires cooperation between and across exit of that business line. The principle is illustrated business and government rather than a parallel and on a global scale when one considers that the current self centered (silo) approach. It also requires both na- financial crisis resulted from regulatory approaches tional and international perspectives that acknowl- that were adopted with relative confidence but that edge the increased connections and interdependencies failed to identify the potential global ramifications between and among economies. It requires, in other of a seemingly isolated risk in one sector of a particu- words, the practical application of the collaborative lar economy. border management concept outlined in chapter 2. 302 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N As the OECD points out in its studies of coun- introduced into the supply chain when they are at try risk management when discussing the necessity rest and least vulnerable when they are in motion for collaboration between government agencies, (see OECD 2005). Th is has driven a great deal of there may be an exposure "to unforeseen vulnerabil- the regulatory design thinking around supply chain ities when risks arise that do not fit neatly within security measures and placed particular emphasis on the remit of one particular department . . . Indeed those nodes in the network where the container is efficient risk management may be compromised by handled or stored. the inability to deal effectively with bottlenecks in The OECD makes another important point the exchange and analysis of information or to set when it notes that most international container priorities informed by the entirety of a country's risk trade passes through one or several ports. In this portfolio" (OECD 2009b). Furthermore, the risk context it is important to note that none of the small, management efforts of one company can be nulli- feeder ports that transship cargo through the world's fied by the inattention or inadequacy of a single sup- major hubs can be ignored as a potential risk node ply chain partner (Closs and others 2008). In other in the broader supply chain dynamic. It is true that words, the security of the entire trade supply chain it is incumbent on such ports to put in place secu- is only as good as its weakest link. rity measures in accordance with the requirements If it is accepted that container cargo is one of of (for example) the ISPS code, but the effectiveness the unique features of modern international cargo of those measures is in turn dependent on the com- transportation and that there is potential for it to mitment to supply chain security of the governments be utilized by terrorists or by organized crime, then that are responsible for them and the quality of the one of the critical supply chain security risks to be relevant regulatory framework and its enforcement. analyzed relates to the international movement of A common thread that can be discerned from containers and, more specifically, to what is inside the various risk characteristics of the modern sup- those containers. ply chain is the importance of supply chain visibility. Visibility represents the key to early risk identifica- The specific stuffing location is paramount tion and response and is a precondition for supply from a security perspective because it repre- chain resiliency. It must therefore be considered to sents the last point in the container transport be of equal significance to both government and chain where the physical contents of the con- business. tainer can be visually identified and recon- At present most supply chain security initiatives ciled with the commercial invoice and/or bill have as their foundation a concept of layered security. of lading. After the doors are shut and sealed This concept attempts to design redundancy into the and until they are re-opened by Customs or by system so that security breaches at one level can be 18 the consignee at the final destination, all in- guarded against at a subsequent level. Such initiatives formation regarding the contents of the con- acknowledge that an insecure supply chain has ad- The national security environment: strategic context tainer (such as the manifest, the bill of lading verse effects on both business and government--and and even the commercial invoice) are necessar- that all, to a greater or lesser degree, require public ily unverified. Thus the originating shipper has and private sector participation to be embodied in a critical role to play in the container security the proposed regulatory measures. However, it is sug- by generating a clear, accurate and complete gested that a number of these initiatives are less effi- inventory of the physical contents of the con- cient and effective in their design than others because tainer. Proper site security, stuffing procedures they fail to contribute to supply chain visibility. and oversight of the stuffing process are neces- sary for this important link in the chain to be Supply chain visibility: a business perspective secure (OECD 2005, p. 29). A Global Supply Chain Benchmark Report, pub- lished by the Aberdeen Group in June 2006, It is axiomatic that cargo containers are at their emphasized the importance of supply chain visibil- most vulnerable in terms of having unlawful cargo ity to business. It found that a lack of supply chain B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 303 visibility--coupled with poor automation--impacts projects as their peers." It is further noted that "as a company's bottom line through longer lead times, regulatory oversight intensifies, enterprises are find- larger inventory buffers, budget overruns, and ing increased value in moving to a single trade com- demand-supply imbalances. In particular, large mul- pliance platform for the entire company that enables tinationals are of a scale where poor visibility and consistency of product classifications and restricted uncoordinated multitier processes result in signifi- party screenings and provides a common view of cant just-in-case inventory carrying costs, premium compliance activity and trade costs" (Aberdeen freight expenses, and extended cycle times (Aber- Group 2006). deen Group 2006). Some particularly relevant find- In this context it can be argued that supply ings from the report include: chain visibility and resilience are critical character- · Some 79 percent of the companies included in istics of an international compliance strategy, and the report said that the lack of supply chain pro- that a focus on trade compliance is as important to cess visibility is their top concern. business as it is to regulators. Both are seeking to · Among the companies included, 82 percent were maintain security across the supply chain, although concerned about supply chain resiliency--but motivated perhaps by different objectives. As the just 11 percent were actively managing this risk. Aberdeen Group's report (2006) states: · The top five gap areas relating to supply chain risk were risk profi les of vendors (56 percent), Managing international logistics is not like supply chain security (51 percent), logistics ca- managing an extended domestic supply pacity and congestion (47 percent), risk profi les chain; it's fundamentally a multi-party pro- of countries (46 percent), and weather disrup- cess fraught with greater unpredictability in tions and natural disasters (44 percent). quality, lead times, costs, and risks. Rather · In addition, 47 percent wanted to improve the than create the absolute-lowest-cost fi xed data quality of the event messages, including for network, leaders are building into their lo- timeliness, completeness, and accuracy. gistics networks more points of flexibility. · According to 91 percent of companies, unex- This helps them continually scan their envi- pected supply chain costs were eroding their ronment for bottleneck symptoms or spikes anticipated low cost country sourcing savings, in demand and take action. with transportation budget overruns being the top culprit. The Aberdeen Group's report reveals that im- Supply chain visibility: a provements in supply chain risk management are government perspective 18 being achieved through the adoption of two core Supply chain visibility is of equal importance to gov- strategies: fi rst through "increasing logistics and ernments, since greater visibility provides regulatory The national security environment: strategic context supply agility by ensuring alternate suppliers, carri- authorities with the information they need to ana- ers, routes, and the like are arranged," and second lyze risks, identify high risk or suspect shipments, by "improving visibility and automation of supply and target potential security threats. The critical ele- chain activity" both upstream and downstream in ment here is information, since the regulator's ability the supply chain. to identify and treat risk is dependent on the timeli- Bearing in mind the importance of compliance ness and quality of information. If the information (performance) measurement, multinational busi- that is provided to commercial operators and regula- nesses are increasingly measuring the performance tors is inaccurate or intentionally false, the best regu- of their supply chains via the concept of total landed latory scheme in the world will be unable to achieve cost. The Aberdeen Group's research shows that the its objectives in the absence of other sources of intel- best performers are those companies that have been ligence. This theme is further explored later in this most successful in reducing their total landed costs chapter. and documentation. These companies are "twice as Supply chain visibility in real time allows a rapid likely to have current budgeted trade compliance response to emerging risks, and if this is combined 304 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N with effective risk management systems that include sensitive and competitive information. As Dahlman proactive event and exception management, 4 the and others (2005) state: whole process of supply chain security is significantly enhanced. End-to-end supply chain visibility, al- Large shipping companies have informa- though difficult to achieve, improves responsiveness tion on the containers they transport and for business (production rates and shipment lead where they are at any given time. Smaller times) and government (early risk identification). feeder companies are usually less organized. The international movement of cargo is far from The information systems are unique to each being fully visible, because there is no single regula- company and do not interact with those of tory agency with end-to-end supply chain respon- harbors or customs authorities. Th is infor- sibility. As the OECD has previously observed, the mation is of commercial value, and it is un- most vulnerable period for the container is at the clear how much information shipping com- time of its stuffing, before the shipper seals it. The panies are willing to share, and with whom system relies on the trusted shipper, and the major- and under what conditions. ity of stock is presumed to be safe. However, the bill of lading represents a weak point in the chain: how While there is no doubt that a lack of timely do the authorities or downstream industry players and accurate data reduces supply chain visibility, the know what is actually packed in the container? The major barrier to end-to-end supply chain visibility bill of lading is rarely verified through inspection of remains this lack of integration and its surround- the containers after packing or during transport; and ing challenges--including the technology and in- road transport, where the container is in the hands of frastructure limitations of the various stakeholders a single person for a lengthy period of time over large up and down the supply chain, which in many cases distances, is especially problematic (OECD 2005). include government. The ideal visibility outcome for both govern- The OECD recognizes such shortcomings in its ment and business is visibility on demand. This can identification of common challenges to effective risk only be achieved through close integration of rele- management, which include "misinterpretation or vant government and business logistics systems. This misrepresentation of data, communication bottle- concept has been discussed at length among border necks and logistics breakdowns, which may increase management agencies as best practice with respect to with every step taken between a source of informa- achieving seamlessness in cross border transactions, tion and its use by decision makers. Overarching, all- and it is predicated on government having direct and hazards policy frameworks promote coordination of secure access to commercial data for risk assessment highly specific expertise, development of information- purposes. sharing arrangements, improvement of data integra- 18 Although some may claim that this ideal has tion capacity, investment in training civil servants been achieved in the context of single window ini- and cooperation exercises across multiple agencies The national security environment: strategic context tiatives (see chapter 8), a true single window with involved in country management" (OECD 2009b). on-demand access to existing commercial data by government and other stakeholders--such as port Supply chain security initiatives authorities and freight forwarders--has yet to be- come a reality. While some of the more progressive We now turn to an examination of the various regu- port community systems may be presented as role latory strategies that have been introduced since the models in the port environment (see for example 2001 attacks to address supply chain security risks. Long 2009), a similar solution in the broader supply The United Kingdom's trade facilitation body, SIT- chain is far from being a reality. Indeed, there may PRO,5 has developed a useful categorization for the be a degree of resistance among participants in in- various types of recently introduced international ternational trade to share with government what in trade security measures (SITPRO 2008): most cases represents valuable commercial informa- · Umbrella measures--aimed at security risks in tion, for fear of competitors gaining access to price their broadest sense. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 305 · Goods specific measures--aimed at risks specific are required to provide the information two to eight to individual types of goods. hours prior to arrival. · Control specific measures--aimed at meeting nar- Another early initiative was the United States rowly specified control objectives. Container Security Initiative (CSI). Introduced in · Safety measures--concerning the safety of staff 2002, CSI involves bilateral arrangements between and use of critical infrastructure. CBP and other customs authorities that are designed · Commercial measures--business based initia- to identify high risk cargo containers before they tives to manage transport and supply chain risk. are loaded on vessels destined for the United States. The SITPRO categories are referred to in the Economies agree to the posting of United States of- following discussion of the various supply chain se- ficials at ports that ship large volumes of goods to the curity initiatives that either have been implemented United States, and for CBP to independently screen since September 11, 2001 or are now planned. It is maritime containerized cargo (generally through important to note, however, that the categorization of X-ray and radiation scanning) before being loaded a particular initiative neither confirms nor questions on board vessels destined for the United States. its validity. Other factors need to be taken into ac- The CSI is an example of a control specific ini- count before such judgments can be made, and these tiative, its focus specific to goods that are exported are examined later in the chapter; in this section the to one particular economy. Those destined for other various strategies are identified and briefly described. economies are not subjected to similar arrange- Many of the initial supply chain security mea- ments. At the time of writing 58 ports, account- sures may be described as umbrella measures, de- ing for 85 percent of container traffic bound for the signed to deal with security risk in the supply chain United States, were participating in CSI. 8 at the broadest level. The first of these initiatives was A number of shortcomings were identified in the the US Customs-Trade Partnership Against Terror- CSI initiative due to its reliance on receiving "com- ism (C-TPAT) program. In essence C-TPAT is a vol- plete and accurate manifest data to analyze in de- untary government-business program that encour- ciding which containers to target for further inspec- ages cooperation between United States Customs tion" (Sarathy 2005): and Border Protection (CBP) and the international trading community in an effort to increase the level In Rotterdam the CSI team found that man- of international supply chain security. The intention ifest data was not complete. The data was is that businesses participating in the program, in ex- limited to containers actually transferred change for meeting CBP-designed security standards from one vessel to another in Rotterdam. and becoming C-TPAT certified, should receive cer- Manifest data did not extend to containers 18 tain benefits such as reduced inspections and priority that remained on board a vessel bound for processing. Manufacturers, importers, carriers, and the [United States] which stopped in Rotter- The national security environment: strategic context service providers participate by submitting detailed dam. Further, the CSI did not have manifest self appraisals of their supply chain security practices, data on containers from Rotterdam which appraisals that are periodically verified by CBP. had arrived by truck, rail or barge from other Other initiatives are much narrower in focus. countries (neighboring [European Union] For example, the United States Bioterrorism Act6 is countries as well as countries further afield a goods specific measure designed to help the United in Eastern and Central Europe). Further, States Food and Drug Administration (FDA) de- paper manifests were received at 40 differ- termine the source and potential cause of any con- ent locations within the Rotterdam port. tamination of imported food and beverages. The Dutch law sometimes prevented such paper act facilitates such identification by requiring regis- manifests from being removed from their lo- tered food facilities7 to provide the FDA with con- cations. These factors together made it diffi- signment information prior to importation into the cult for CSI to receive accurate and complete United States. Depending on the mode of transpor- and timely manifest data before the contain- tation, parties involved in importing these products ers left Rotterdam. 306 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N According to Sarathy (2005), the information European Commission has its own advance cargo deficiencies that became apparent through the Rot- information regulation called Pre Arrival / Pre terdam exercise led to the introduction of the United Departure (enacted in 2005 and to take effect in States Advance Manifest Rule (also referred to as 2011), and it has the European Union authorized the 24 hour rule). This requires all ocean carriers or economic operator program (enacted in 2008). Ja- nonvessel operating common carriers to electroni- pan's Advance Filing Rules on Cargo, Crew and cally transmit cargo manifests and entry data to the Passenger Information, which took effect in 2007, CBP Automated Manifest System 24 hours before covers cargo arriving by sea or air in Japan. China's the United States bound cargo is loaded onto a ves- 24-hour Advance Manifest Rule--which took effect sel at the port of export. In essence, the 24 hour rule in 2009--mandates that for all export, import, and shifted responsibility for the provision of informa- transshipped cargo by any Chinese ports, ocean car- tion from the foreign ports to carriers, forwarders, riers must provide the manifest or the bill of lading and brokers. to Chinese Customs 24 hours prior to loading. In The 24 hour rule is a further example of a con- addition, authorized economic operator programs trol specific initiative, one focusing predominantly have been launched by Japan (in 2006) and by China on prescribed information and procedural compli- (in 2008; see Donner and Kruk 2009, pp. 11­13). ance. Other United States control specific initiatives Two United States control specific initiatives include the Secure Freight Initiative (SFI)9 as well as that are currently being debated on their implemen- the 10+2 rule and the practice of 100 percent mari- tation, and which the international community is time cargo container scanning under the United watching particularly closely, are the 10+2 rule and States Secure Freight International Container Secu- the 100 percent scanning initiative. Formally known rity project (both mentioned earlier). Such initiatives as Importer Security Filing (ISF) and Additional are not solely being pursued by the United States-- Carrier Requirements, the 10+2 rule requires im- a fact evidenced by the widespread adoption of the porters and ocean carriers to electronically submit 24 hour rule (and variations of it) by other customs data elements--in addition to the 24 or so data ele- administrations. Border related security initiatives ments that they are currently required to provide-- are now ubiquitous. Even so, most responses to the to the United States Department of Homeland Se- threat of supply chain terrorism can be traced back curity Customs and Border Protection agency. The to their United States origins. The C-TPAT initia- purpose of this initiative is to improve risk based tar- tive, for example, ultimately led to the development geting in relation to cargo destined for importation of the WCO SAFE Framework of Standards to Se- into the United States before the cargo is loaded on cure and Facilitate Global Trade--including the au- vessels at foreign ports. thorized economic operator concept, which has been The practice of 100 percent container scanning is 18 or is being introduced around the world in one form requested by a 2007 United States law that involves or another. The C-TPAT focus on relatively broad the scanning of all United States bound container The national security environment: strategic context supply chain security risks and the development of cargo at foreign ports by 2012 using nonintrusive an overall framework for managing supply chain se- inspection equipment, including radiation detec- curity have been further built on with the introduc- tion and imaging equipment.11 A pilot program to tion of the International Maritime Organization In- test the feasibility of 100 percent scanning has been ternational Ship and Port Security (ISPS) Code, the conducted at six selected CSI ports. United States SAFE Port Act,10 the International Organization for Standardization supply chain se- Appropriateness of the curity standard (ISO 28000), and the United States regulatory initiatives Known Shipper program (mentioned earlier), which is being implemented by a range of transport security A significant number of the security related regula- agencies around the world. tory initiatives that have been introduced since the Governments outside the United States have 2001 attacks are representative of a risk manage- adopted supply chain security regulations. The ment based regulatory approach and reflect many of B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 307 the principles of compliance oriented regulation, of compliance programs. Such programs help create a which risk management based regulation is a subset. network of secure operations, they establish a base level of security standards, and they help raise the Partnership programs overall level of security for global operations. Also, The WCO SAFE Framework, the United States participation in voluntary programs helps to further C-TPAT program, and the various national pro- build the partnerships between the public sector and grams based on the SAFE Framework's authorized private industry necessary to create a secure environ- economic operator concept are all considered to fall ment (Purtell and Rice 2007). within the management based regulation category. There are, however, a number of concerns with Importantly, all such programs are voluntary. Mem- these schemes, all related to the need to deliver the bers of the international trading community are benefits claimed by authorities. Indeed, there is invited to join the various programs on the under- considerable doubt as to whether some of the iden- standing that they will derive benefits not available tified benefits--particularly those associated with to those who choose not to apply for membership. the mutual recognition of authorized economic op- The various schemes do not impose any regulatory erator status--will ever see the light of day. Given burden on industry participants that the partici- that all international trade has to take account of pants are not willing to accept, and the decision to activities in at least two separate countries, there participate is based solely on considerations of com- are obvious shortcomings for commercial opera- mercial and social responsibility. tors in a situation where compliance and facilita- Each of the programs has a clear focus on sup- tion incentives apply only at export or import. ply chain visibility, but in a way that encourages in- Customs, looking for origin-destination supply dustry participants to address the required security chain security, and industry--particularly the ex- risk outcomes in a relatively flexible manner. This is porters--are even more conscious of the benefits of achieved by leveraging business knowledge, operat- intergovernmental cooperation to give authorized ing practices, and information systems, with an op- economic operator programs extended application portunity for the regulators to verify industry's self and extra benefits to all concerned. Consequently, assessed findings. Also, by leveraging existing com- the mutual recognition of such programs and of au- mercial practices and procedures in this way, any dis- thorized economic operator status becomes a quite ruption to business processes is reduced as much as important agenda for many customs administra- possible. tions and economic operators (Irish 2009, p. 80; The various programs also reflect sound princi- Buzdugan 2005, pp. 84, 99­100). According to the ples of risk management by seeking to identify low WCO (2007, p. 54): 18 risk members of the trading and transport commu- nity. The principal aim of C-TPAT, the European The Resolution on the SAFE Framework . . . The national security environment: strategic context Union authorized economic operator program, and calls upon Customs administrations to work the Known Shipper program, for example, is to pro- with each other to develop mechanisms for vide border agencies with a method of identifying se- mutual recognition of AEO validations and cure elements of the international supply chain and authorizations, and Customs control results so allow them to focus their resources on potentially and other mechanisms that may be needed to high risk operators. Assessing the compliance levels eliminate or reduce redundant or duplicated of such companies, regardless of the result, provides validation and authorization efforts. the agencies with a clearer picture of compliance lev- els and the potential impact of noncompliance. This Mutual recognition is a broad concept in turn greatly assists in determining where future whereby an action or decision taken or an compliance resources should be directed. authorization that has been properly granted The notions of coordination, cooperation, by one Customs administration is recog- and collaboration, which are at the heart of mod- nized and accepted by another Customs ad- ern regulatory compliance, are well served by these ministration. The standardized approach to 308 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Authorized Economic Operator authoriza- that any supply chain is only as good as its weakest tion provides a solid platform for long-term link and risk attaches to the entirety of the supply development of international systems of mu- chain, not just one entity within it (OECD 2009a). tual recognition of AEO status at bilateral, Indeed, it is not known if any participants in either sub-regional, regional and, in the future, C-TPAT or an authorized economic operator pro- global levels. In order for a system of mutual gram have received cheaper insurance by virtue of recognition to work it is essential that . . . that participation. there be an agreed set of common standards. Partnership programs are strengthened in both their efficiency and effectiveness when they seek to However, while some WCO members are inter- incorporate a broader range of regulatory matters preting the guidelines to require an authorized eco- than those relating to a single authority. To achieve nomic operator to demonstrate a high level of supply this a significant degree of interagency collaboration chain security (for example, Singapore), others are is required. adopting a far broader interpretation that includes The OECD has recognized the dangers of a one customs compliance generally. The European Union, dimensional, or silo, approach by government that for example, requires an authorized economic opera- fails to acknowledge the connections and interde- tor to demonstrate (European Commission 2007): pendencies of modern society. As it states in its pub- · An appropriate record of compliance with cus- lication "Innovation in Country Risk Management" toms requirements. (OECD 2009b, pp. 4­5): · A satisfactory system of managing commercial and, where appropriate, transport records, which Over time highly defined areas of compe- allows appropriate customs controls. tence tend to develop in which numerous · Where appropriate, proven financial solvency. ministries, departments and regulatory · Where applicable, appropriate security and agencies at various levels of government carry safety standards. out operations in parallel and separate silos. Clearly an unfortunate casualty of this failure to A modern networked society with increased agree on basic authorized economic operator criteria connections and interdependencies may be is the concept of mutual recognition. If one admin- exposed to unforeseen vulnerabilities when istration requires an entity to demonstrate levels of risks arise that do not fit neatly within the both general compliance and security compliance remit of one particular department. Indeed, before being granted authorized economic opera- government departments might focus on tor status, but another grants that status solely on one phase of what is actually a multi-lay- the basis of security compliance, the achievement of ered risk management cycle. . . . Policymak- 18 mutual recognition is unlikely--unless the parties ers, regulators and emergency services with are prepared to adopt a lowest common denomina- narrow or short-sighted focus on achieving The national security environment: strategic context tor approach. their individual mandates may also miss op- Another potential benefit that has attracted portunities, fail to leverage the expertise of some attention is the potential for reduced insurance colleagues in different government depart- premiums, that is, the possibility that certification as ments, compare different types of risks and an authorized economic operator or member of C- share lessons learned. TPAT may result in a reduced risk profi le and there- fore lower premiums. However, measures to improve Supply chain security initiatives that fail to en- security do not necessarily lead to a reduction in in- courage interagency collaboration invite the same surance premiums, because insurance companies sort of costs and inefficiencies as initiatives that ig- take a networked view of the supply chain (as they nore the commercial aspects of the supply chain. should) and are therefore concerned that a secure en- The preferred governance model for risk manage- tity may be tainted by less secure entities that form ment, as identified by the OECD from its various part of their supply chain. This reflects the principle case studies, is therefore one characterized by an B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 309 approach that addresses networked risk by (OECD · Downstream in the supply chain (importer or cus- 2009b, p. 11): toms broker): · Coordinating the many central, regional, and · Buyer. local government bodies in their various efforts · Importer of record. to implement national policy goals related to · Ship-to party. public safety and security. · Consignee. · Providing guidance to such bodies on how to The success or otherwise of the 10+2 rule as a risk conduct risk assessments. management tool is totally dependent on its founda- · Streamlining and standardizing reporting re- tion, that is, the quality and timeliness of the data quirements for risk assessment and emergency provided. If the data are false or inaccurate, intention- management plans through a common informa- ally or otherwise, the utility of ISF is compromised-- tion sharing mechanism. as are the risk decisions that flow from that data. In The WCO SAFE Framework--with its this regard, the +2 component provided by the car- government-to-business and government-to-govern- rier does not really alter the risk equation, because ment pillars--is considered to be a good example of while the container is moving there is less risk of il- a governance approach that is relevant and effective legal cargo being introduced into it than when it is in the international trade and transport security en- stationary (see for example OECD 2005). vironment. Its effective realization is, however, likely In this context it is important to note that any to take some time. persons or groups intent on using the supply chain for criminal or terrorist activity are unlikely to ad- Additional information requirements vertise the fact through poor documentation of the The 10+2 rule (or ISF) is based on the same sup- trade and transport transaction. It is more probable ply chain security philosophy as CSI--although in that they will utilize legitimate sources and plausible this case the initiative is related to the informa- data so as not to draw attention to the transaction. tion associated with the cargo (in line with China's For example, they may set up a legitimate interna- 24-hour Advance Manifest Rule). In essence the tional trading company--or purchase one--and 10+2 rule extends the advance manifest require- establish their legitimate trading credentials over a ment further into the supply chain, at least from period of time. It is also likely that they may seek to a data perspective, and shift s the virtual border use a well known and established carrier or logistics beyond the port of loading of the cargo back to provider, perhaps even one that is C-TPAT certified the manufacturer. If the supply chain is examined or listed on the Known Shipper Database. from the perspective of the border management Anyone who may consider this scenario far- 18 agency and it is assumed that the port of destina- fetched need only refer to the example of the Khan tion is the central node in the supply chain for a network and the level of sophistication exhibited in The national security environment: strategic context particular consignment, the data elements that that case (see for example Crawford and Stecklow comprise the 10+2 rule can be characterized as 2004; Albright and Hinderstein 2005). The 10+2 follows:12 rule is unlikely to detect anything unusual about a · Upstream in the supply chain (importer or cus- transaction in situations where the associated infor- toms broker): mation has been constructed in such a way--and yet · Manufacturer. such a shipment logically falls at the very high or ex- · Seller. treme end of the risk scale, at least as far as impact · Container stuffing location. is concerned. If, on the other hand, the 10+2 rule · Consolidator. data are unintentionally inaccurate (for example, · Country of origin. through transcription errors or other carelessness), it · Harmonized System (HS) classification. is still unlikely to be detected by regulatory screeners · Upstream in the supply chain (carrier): but more likely to be detected than a carefully con- · Vessel stow plan. structed scam. An economist once argued: "If cus- · Container status message. toms insisted on more accurate manifest reporting, 310 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N it would be far easier to identify shipments that consignments. The information provided facilitates posed a security risk."13 However, the authors do the identification of the cargo, the means of trans- not recall anyone actually describing their cargo as portation, and the various industry participants in "weapons of mass destruction"! the supply chain, and the fundamental data elements Note also that investigations to uncover so- will provide a realistic, basic snapshot of the relevant phisticated illegal activities are extremely complex consignment. While further data elements will assist and take considerable time to complete, and con- in building a more comprehensive picture relatively sequently targeting under the 24 hour rule is com- quickly, there comes a saturation point at which ad- pletely reliant upon automated processing systems. ditional information is unlikely to usefully contrib- For example, it took the authorities about ten years ute to the regulator's knowledge of the transaction. to uncover the activities of the Khan network, and Based on the assumption that deliberate non- there is little doubt that such activities would not compliers are unlikely to submit completely ac- have been identified within 24 hours even if addi- curate information to government agencies, the tional data elements had been requested. authors believe that the saturation point for such It has also been shown that even profi ling is not noncompliers will be reached much earlier in the a particularly successful technique for detecting so- data submission process. In other words, given phisticated illegal activity of this type. For example, that certain data elements will be inaccurate, bor- Press argues that "strong profi ling (defined as screen- der agencies will at best have access to a handful of ing at least in proportion to prior probability) is no relevant information and will be unable to develop more efficient than uniform random sampling of the a true picture of the transaction beyond some very entire population, because resources are wasted on basic aspects such as the vessel, carrier, and the like. the repeated screening of higher probability, but in- This is because noncompliers are unlikely to provide nocent, individuals" (2009, p. 1716). information that may attract attention from a risk Good intelligence and risk indicators based on targeting perspective. that intelligence are now, and are likely to remain, Th is phenomenon is illustrated graphically in the most effective and efficient means of detecting figure 18.2. The compliance assessment and regu- unlawful activity prior to arrival of a consignment. lation model addresses the utility of routine data Requesting cargo related information as early as pos- collection relating to individual transactions from sible in an international trade transaction certainly the perspective of identifying potential regulatory provides extra time for border agencies to undertake a meaningful risk assessment of the cargo and de- Figure 18.2 Compliance assessment and cide whether or not to intervene, either by scanning, regulation model physical inspection, or import prevention--but to be 18 High effective, such assessments must be based on accurate information. The national security environment: strategic context It is also pertinent to note that, from a compli- ance perspective, regulated entities can generally be Data requierments divided into three categories: Noncompliers Compliers · Those who will actively seek to comply. · Those who will comply provided they are given Point of optimal appropriate incentives to do so (including appro- collection priate incentives to avoid noncompliance). · Those who will intentionally pursue a course of noncompliance. Low Compliant members of the international trad- ing community (including those who fall into the Low Utility High second category) will generally provide authori- Source: Widdowson and Holloway (2009). ties with accurate information in relation to their B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 311 noncompliance. It postulates three basic principles is that it treats the supply chain itself as an additional that can be summarized as follows: compliance management resource. · As data requirements increase, the value added to the assessment process decreases exponentially. Examination levels · Beyond a particular point (point of optimal col- Many border agencies undertake 100 percent screen- lection) the requirement for additional informa- ing of consignments15--in the sense that the asso- tion adds a regulatory burden to noncompliers ciated information is screened--and some have with minimal benefit to the regulator. already introduced 100 percent physical screen- · The point of optimal collection is reached earlier ing initiatives through the use of radiation portals. for noncompliers than for compliers. Screening, which in many cases is now fully auto- The model is qualitative and has not been tested mated, forms an integral part of an appropriate risk by way of empirical research. The authors would management regime that assists in identifying those encourage research designed to test the validity of containers which may pose a security (or other) the model. risk and are therefore candidates for scanning and It is therefore considered that as the provision inspection. The 24 hour rule and similar require- of more information is mandated, such require- ments for advance information contribute to the ments are likely to add cost to an international screening process and the early identification of high trade transaction without a commensurate regula- risk cargo. tory benefit. A more cost effective approach that No border agency, however, is physically exam- is also more likely to identify supply chain secu- ining 100 percent of its international trade, through rity risk is through secure, real time access (that the use of X-ray equipment or otherwise. Indeed, is, visibility on demand) to existing commercial this would be impossible with currently available data in the supply chain and through the leverag- technology, physical infrastructure, and the volumes ing of partnerships with the private sector to as- of container trade. Consequently, while in theory sist in identifying anomalies. In the absence of spe- the physical inspection of the contents of every con- cific intelligence--such as evidence of an internal tainer may provide the best determination of a secu- conspiracy--it should be recognized that industry rity risk, it is also one of the most costly and labor participants are better placed than regulators to ob- intensive measures to implement. serve what is normal and abnormal as goods move In this context it is the authors' contention that along the supply chain. the concept of 100 percent examination (for ex- Governments can add value by facilitating the ample, scanning as opposed to screening), even in process through appropriate regulation, interna- the environment after the 2001 attacks, represents 18 tional cooperation, and harmonization and stan- the antithesis of risk management. Indeed, no 100 dardization so as to maximize supply chain visibil- percent examination policy could be considered The national security environment: strategic context ity. Value is not added through the prescription of to represent a valid risk based regulatory control additional data requirements.14 As noted by Laden, mechanism, as the absence of any form of selectivity "A good supply chain security program should retain excludes its qualification as a legitimate risk treat- the flexibility to achieve the goal of a more secure ment. Furthermore, social expectations no longer system of global trade . . . not simply become another accept the concept of intervention for intervention's `paper tiger'" (2007, p. 80). sake. Rather, the current catchphrase is intervention A further example of the role that governments by exception, intervention when there is a legitimate can play is in the closely related area of export con- need for intervention--that is, intervention based trols. The publication and dissemination to the pub- on identified risk. lic and private sectors of denied persons lists and There has been strident criticism from both the red flag indicators provide guidance to supply chain public and private sectors with respect to the pos- participants concerning potential risks, and they sible implementation of 100 percent scanning (see also serve to supplement supply chain visibility. A for example Ireland 2009; WCO 2008, 2009). Such particular advantage of this approach to regulators criticism covers a broad range of issues including, 312 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N but not limited to, potential costs and delays (Ca- at their ports of departure for information rafano 2008); staffing challenges (Straw 2008); the that indicated elevated risks. Only in cases lack of physical choke points where large numbers where documentation gave reason to suspect of containers can easily be scanned on their way elevated risk would a container be subjected through ports (Straw 2008); the complexity of the to physical scanning or inspection. task required of those viewing the scanned im- ages (Straw 2008); and the shortcomings of avail- Conclusion able technology, regarding which Ritter comments (2009): Mandatory scanning requirements and increased information requirements are intended to form . . . logic follows that there must be a direct part of the broader suite of security programs which relationship between quantity of scanning include such initiatives as C-TPAT and the European and risk mitigation. Unfortunately, a stron- Union's authorized economic operator program. ger relationship actually exists between risk These initiatives are in turn designed to provide bor- mitigation and enhancing the quality of der agencies with a degree of confidence about the scanning. The global trade industry would security of a participant's supply chain. Th is being be better served by focusing on mandating the case, the question that must be asked is this: if a improvements in the type of cargo scanning trader demonstrates a commitment to global supply rather than insisting that additional effort be chain security by achieving and maintaining autho- focused on the quantity of scanning. rized economic operator status, does there remain a genuinely risk based need for the trader to provide The portal monitors have proven to be an ideal advance information to the authorities who granted technology for verifying that legitimate radioactive that status, and for the trader's cargo to be scanned cargo is present in the supply chain--but little more. as a matter of routine? Trucks continue to trigger alarms by the thousand As previously noted, any challenge to the valid- each day, and secondary inspections are being per- ity of security initiatives can be quickly dismissed formed with increased frequency in United States on the basis that it is seen not to be supportive of ports and other select locations throughout the international antiterrorism efforts. However, it is the world. These secondary inspections ultimately serve authors' belief that the time has come to critically to verify that commodities such as smoke detectors, evaluate the appropriateness of existing and pro- fi re brick, or cat litter are, in fact, emitting harm- posed security initiatives, particularly in the context less amounts of radiation. But verifying normal of contemporary risk management principles and is not the objective. And the actual utility of this commercial practicality. In this case, the evidence 18 approach, with regard to security threats, is still suggests, more is not necessarily better. unclear. International attempts to retrofit security reg- The national security environment: strategic context It should be noted that the CSI program is not ulation into already overly complex cross border seen to fall into the same category as 100 percent regulatory frameworks are resulting in particu- scanning. It is selective in that it focuses on spe- larly costly outcomes for industry, and this at a time cific ports and adopts a risk based targeting strategy when economic stimulation is supposedly high on within those ports. As noted by Straw (2008): the global political agenda. Regulatory initiatives must therefore be carefully scrutinized to ensure [The United States Department of Home- that they are achieving a cost effective outcome for land Security] has long asserted that it both business and government that is consistent screens 100% of US-bound cargo containers. with: That never meant a physical examination of · The desired policy outcome. each container, however. Rather, it referred · The nature of the operational environment being to a risk-based screening, beginning with a regulated, including both its commercial prac- review of all US-bound container manifests tices and relative security risks. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 313 · The extent to which the regulatory requirements 2002). Available at http://www.gpo.gov/ are likely to affect the operational effectiveness fdsys/pkg/PLAW-107publ188/pdf/PLAW- of the activity being regulated, in this case inter- 107publ188.pdf. national trade and transport. 7. The Act requires registration of all domestic In the authors' opinion the approach that is most and foreign food facilities that manufacture likely to achieve these objectives is one of compli- and process, pack, or hold food for human ance oriented regulation--in which the elements or animal consumption in the United States. of both enforcement and incentives to comply with 8. United States Department of Homeland regulatory requirements are present--as opposed to Security, "Container Security Initiative the more prescriptive approaches, which are less cost- Ports," www.dhs.gov/xprevprot/programs/ effective and significantly more disruptive to com- gc_1165872287564.shtm, accessed 8 June mercial operations. Border managers are therefore 2009. encouraged to focus on the philosophy behind such 9. See "Security Filing with CSI, Megaports," initiatives when determining what may or may not United States Department of Homeland represent an appropriate regulatory response to their Security Customs and Border Protection, identified security risks. http://www.cbp.gov/linkhandler/cgov/ newsroom/fact_sheets/trade_security/sfi/ Notes csi_megaports.ctt/csi_megaports.pdf. 10. See "Secure Freight Scanning at a Glance," 1. See "Security Filing `10+2'," United States United States Department of Homeland Department of Homeland Security Customs Security Customs and Border Protection, and Border Protection, http://www.cbp. http://www.cbp.gov/linkhandler/cgov/ gov/xp/cgov/trade/cargo_security/carriers/ newsroom/fact_sheets/trade_security/sfi/ security_fi ling/. sfi _scanning.ctt/sfi _scanning.pdf. 2. See "SFI: Secure Freight Initiative," 11. Implementing Recommendations of the 9/11 United States Department of Homeland Commission Act of 2007, Public Law 110­53, Security Customs and Border Protec- 110th Cong. (August 3, 2007). Available tion, http://www.cbp.gov/xp/cgov/trade/ online at http://www.gpo.gov/fdsys/pkg/ cargo_security/secure_freight_initiative/. PLAW-110publ53/pdf/PLAW-110publ53. 3. See "Known Shipper Database," United pdf. See section 1701. States Department of Homeland Security 12. "Security Filing `10+2'," United States De- Transportation Security Administration, partment of Homeland Security Customs 18 http://www.tsa.gov/what_we_do/layers/ and Border Protection, http://www.cbp. aircargo/database.shtm. gov/xp/cgov/trade/cargo_security/carriers/ The national security environment: strategic context 4. Event and exception management provides security_fi ling/. authorized individuals with notification of 13. Quoted from discussions at the Round Table events that have an impact on the decision- on Security, Risk Perception and Cost-Bene- making process. In the business context this fit Analysis, International Transport Forum might be something like a shortage of inven- and OECD Joint Transport Research Cen- tory or shipment delay. In the government tre, Paris, December 11­12, 2008. context this might be a change in transport 14. It should be noted that CBP has "softened" route, origin, or company details. It can form its stance on ISF recently--for example, by an effective element of a profi ling and target- showing restraint in enforcing the rule until ing system. March 2010 and by relaxing some elements 5. On SITPRO see chapter 6, endnote 1. of interpretation and reporting timelines. 6. Public Health Security and Bioterrorism Pre- However, the fundamental thrust of the ini- paredness and Response Act of 2002, Pub- tiative remains inappropriate in terms of risk lic Law 107­188, 107th Cong. (June 12, management and commercial reality. 314 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 15. The terms screening, scanning, and physi- Dahlman, O., J. Mackby, B. Sitt, A. Poucet, A. Meer- cal examination need to be defined. For ex- burg, B. Massinon, E. Ifft, M. Asada, and R. Alew- ample, Martonosi, Ortiz, and Willis (2006) ine. 2005. "Container Security: A Proposal for a define them as follows: screening is "the ini- Comprehensive Code of Conduct." National tial assessment of the risk of [containerized Defense University, Center for Technology and cargo] based on the manifest, shipper, car- National Security Policy, Washington, DC. rier, consignee and other information asso- Donner, M., and C. Kruk. 2009. 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Coun- tries that recognize the need to improve their border management op- erations can draw on international experience and lessons from best practice--and on international support to initiate reforms. For customs, the World Customs Organization (WCO) has for years been a forum for detailing procedures and for helping members put these procedures in place. Other border agencies do not benefit from such international guidance, but their interventions are usually simpler and are focused on more specific objectives. Until now international experience with reform programs carried out in recent projects to strengthen border manage- years to help authorities in fragile states ment has often come from projects car- improve border management. ried out in a normal operational envi- This chapter does not focus broadly ronment for border agencies. Here the on border management. Rather, it fo- term normal implies that government cuses more narrowly on the most impor- provides basic security and that it pro- tant agency operating at the border-- vides a functioning legal and judicial customs. On the one hand, revenue environment. In such conditions tradi- collection by customs is high on the tional, time tested methods for support- agenda in fragile states (for which rev- ing and assisting border agencies--when enue is always a key priority)--as well as well designed and delivered--promise to for the donor community that typically yield results. supports such countries. On the other Different sets of problems arise for hand, initiatives for customs in fragile Border management considerations in fragile states border management reform in fragile or states have already been implemented, weak states--the topic of this chapter. and instructive lessons can be extracted The chapter's first section describes the from these experiences. Yet the same les- most frequently used criteria for identi- sons may be applied equally to the im- fying a fragile or weak state (henceforth provement of other agencies operating a fragile state). The second section draws at the border. on the experience of the international community to help fragile states deliver Definition of fragile states services to their citizens, and it outlines and lessons learned key lessons learned from a variety of im- from past support plemented projects--not only for bor- der agencies. The third section details This section provides the widely accepted nontraditional customs management definition of fragile or weak states--and B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 317 it argues that, for the application of nontraditional be an absence of functioning government and of customs practices, a somewhat broader country the rule of law. grouping is desirable. Experience on the ground con- · Postconfl ict or political transition countries, firms that countries not covered by the traditional with phases related to the situation immediately definition of fragile state have adopted many nontra- after conflict and the transition situation that ditional customs practices and can provide guidance follows the immediate postconflict reconstruc- on how best to use these practices. tion phase (for example, Mozambique and An- gola after the cessation of armed conflict). Definition of fragile states and · Countries that experience a gradual countries targeted in this chapter improvement. The term fragile state (or weak state) is used for · Countries where governance is deteriorating. countries facing particularly severe development · Countries that experience episodes of temporary challenges. The World Bank Independent Evalu- fragility in the stronger performers--at times, in ation Group describes these countries as follows: only part of the country. "Most have poor governance and are embroiled · Countries that admit to weakness of administra- in extended internal confl icts or are struggling tion, with corrupt practices well grounded across through tenuous postconflict transitions. They face the administration or in particular areas. similar hurdles of widespread lack of security, frac- However, the above classification by itself does tured relations among societal groups, significant not allow the grouping of countries according to the corruption, breakdown in the rule of law, absence cause of fragility. Such a grouping is important in of mechanisms for generating legitimate power and helping to pinpoint the approaches with the best authority, a huge backlog of investment needs, and chance of success in remedying particular gover- limited government resources for development" nance problems (in this case weak customs agen- (IEG­World Bank 2006, p. xxiii). A working group cies). Accordingly, rather than simply using this or advising the multilateral development banks recom- another classification of fragile states, this chapter mended that they identify potentially fragile situa- proposes a detailed diagnostic for the problems of tions based on: "(a) an absolute cut-off point of an border agencies and customs operations in coun- average CPIA [Country Policy and Institutional tries targeted for support--first to identify the dys- Assessment] country rating of 3.2 or less, or (b) the functions of border management agencies, and then presence of UN [United Nations] and regional (e.g. to seek out the most appropriate support, whether African Union, European Union, Organization of through traditional capacity building approaches or American States) peace-keeping or peace-building through nonconventional approaches. 19 missions during the past three years."1 All observ- ers agree that in the medium to long term countries Main lessons learned from earlier efforts Border management considerations in fragile states move in and out of the fragile state category. by the development community to engage For analytical purposes--and to help the donor in development work in fragile states community tailor support most likely to provide results--development partners have converged The need to do good diagnostic work before engag- around an approach developed by the Organisa- ing in support activities is also confirmed by the les- tion for Economic Co-operation and Development sons learned in earlier efforts to assist fragile states. (OECD), an approach that recognizes common Past initiatives to assist border management agencies characteristics (weak governance and vulnerability in fragile states often have not delivered the results to confl ict) along with differentiated constraints expected. Sometimes this was because of unrealis- and opportunities in fragile situations. Inspired by tic ambitions and the need to be seen as achieving this approach, this chapter distinguishes six sets of results rapidly. At other times it was because insuf- fragile states: ficient resources were allocated. Periodic assess- · Countries in prolonged crisis or impasse--mili- ments of donor organizations' support to fragile tary conflict is in full swing, and there may well states have somewhat improved the performance of 318 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N this intrinsically difficult set of support projects. A parallel systems without thought to transition World Bank review of support to low income coun- mechanisms and long term capacity develop- tries under stress in 2006 suggested that there had ment. It is important to identify functioning sys- been a modest increase in the number of projects tems within existing local institutions and work with outcomes rated satisfactory--from 50 percent to strengthen these systems. in 2002 to 58 percent in 2003, 65 percent in 2004, · Work on a realistic vision of reform, and identify and 82 percent in 2005 (IEG­World Bank 2006, steps ahead to achieve the vision. Reform design p. xxv). Contributing to the increase were improved and sequencing need to be identified up front, donor coordination, more realistic needs assessment, not invented along the way. The lack of a vision and better project monitoring. Below is a list of key has prevented many projects from achieving their lessons learned from the experience.2 ultimate goal of enabling local authorities to take · Security. Without basic security it will be im- over in due course. The vision should be realistic possible to deliver basic services, certainly in the and shared as much as possible with the segments areas of revenue mobilization and community of the population most affected--where possible, protection. Local and foreign staff must be as- with the population at large. Policy issues affect- sured of the security of their life and property. ing the operations of border agencies should be No ironclad guarantees can be given in this area, addressed and announced transparently, not but measures must be put in place to ensure that presented as donor driven priorities (an example staff can execute their official functions without from trade policy was the proposal to introduce undue safety risks. The same is true for citizens a flat tariff rate when the Reconstruction Trade that need to comply with basic legal provisions Policy Package was suggested for Iraq). related to service delivery. Citizens should not · Donor coordination and predictable aid levels have to fear retaliation, corrupt behavior, or the must be part of the support program. The World like. In some cases domestic security forces can Bank is working with the United Nations, the be deployed. In other cases there will be a need European Commission, and bilateral donors at to call on foreign peacekeepers. the OECD Development Assistance Commit- · Diagnosis of the key problems must precede policy tee (DAC) to revise the guidance for integrated formulation and implementation. Projects benefit postconflict recovery planning, aiming at pro- from a thorough diagnosis of situations--such as viding a shared platform to support greater co- the political situation--that will limit what can herence among political, security, development, be achieved and should inform the modalities of and humanitarian actors in fragile transition delivering support. Political sensitivities and the situations. existence of clan loyalties--for instance--also · Capacity building needs to start early. It must not 19 need to be taken into account. Local expertise be launched as an afterthought. and experience need to be mobilized, and this · Monitoring of progress is required, as there will Border management considerations in fragile states can be done only after a detailed analysis of avail- be lot of learning by doing. Without adequate able human and financial resources and service monitoring it is not possible to identify what has delivery issues on the ground.3 All too often this been achieved, what the implementation prob- step has been skipped or shortchanged in favor lems have been, and how to adjust the project ac- of framing an urgent response. cordingly. The success of these projects depends · Country ownership and absorptive capacity are largely on the capacity to adapt to changing cir- at least as important as the technical quality of cumstances and lessons learned in the field. Re- the knowledge products delivered. Involve coun- views of many projects have noted, though, that try counterparts to a degree. Even in deteriorat- to remedy data shortcomings the projects need ing situations some state involvement should to include a data gathering component. be sought. Where possible, international actors · Sharing positive and negative experiences across should avoid activities that undermine national similar projects improves project design. This re- institution building, such as the development of quires a dedicated effort, with contributions B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 319 from people other than the task managers, who states--operate under the strong belief that using for- may not be in the best position to take the initia- eign trade as the tax base is both expedient and, in the tive in sharing. Sharing can lead to better guide- short term, the only alternative available. Hence they lines for new operations. Narrative and problem tend to concentrate on strengthening the role of cus- solving notes, however, are likely to be more use- toms in generating budget revenue, not on strength- ful than formal guidelines. ening the roles of most other border agencies. Often · Expectations for success should be realistic. The the mission of customs to stem weapons smuggling World Bank's experience shows that the success is also very high on the priority list, as restoring na- rate of projects in fragile states--though it has tional security is a precondition for normalizing eco- been increasing over the years--is substantially nomic activity and fostering development. smaller than in the rest of its portfolio. Projects To many it seems that raising customs revenues is implemented in countries with lower Country rather simple compared with levying income taxes-- and Policy Institutional Assessment (CPIA) or most other taxes. Officers control the movement ratings have a lower probability of success. Staff of imported and exported goods across the border, working on these projects should recognize these and they apply the statutory tax rates to the values of constraints, and any later failures should not these goods; goods are released only when taxes and necessarily affect their career prospects. duties are paid. In reality, however, the procedures for If these lessons are kept in mind during project raising customs duties and taxes are rather complex, design and implementation, they are sure to improve and trader compliance often leaves much to be de- the chances of success for projects aiming at border sired. Simplifying somewhat, one may say that cus- management improvement in fragile states. toms clearance procedures comprise taking control of goods that traders intend to bring across the border, Border management in fragile states: key processing declarations, obtaining payment on du- elements of the institutional framework ties and taxes, releasing the goods, and undertaking a postclearance audit. Processing customs declarations Border management comprises the activities of all requires that customs determine the value of goods, government agencies with responsibility for ensur- the applicable tariff rate, and exemption status. If a ing that imports satisfy environmental, security, preferential tariff applies importers must also pres- industrial, and phytosanitary standards as well as ent a valid certificate of origin. Some cargo enters the customs requirements. The importance of these country duty free or for transit purposes, and special agencies shifts somewhat over time and with cir- customs regimes deal with these trade flows--each cumstances. Experience has shown that develop- with its own operational complexities. 19 ing countries that rely heavily on customs revenues These tasks require an adequate legal framework give customs great importance. Consequently, stan- backed by a judicial system and an effective institu- Border management considerations in fragile states dards inspection often is given much less importance tional infrastructure, as well as a functioning man- in such countries--as reflected in the scarcity of agement structure and adequate resources. Much has resources and staff for standards inspection, or even been written on these processes and the enabling en- by the relevant agencies' total absence from border vironment that permits customs to effectively and posts. efficiently meet its responsibilities. But nearly all the Th is emphasis on customs revenue generation available documentation pertains to countries in is even more acute in fragile states than in develop- a position to implement the guidelines detailed in ing countries in general. In fragile states the agencies the World Customs Organization's Revised Kyoto responsible for generating domestic revenue often Convention (see chapter 11)--or to countries where are incapable of functioning properly, leading local these guidelines are at least pertinent and their cor- governments and donors to look at foreign trade rect implementation has a realistic chance of success. as the sole tax base for necessary budget revenues. Efforts by customs and by the donor community to Donors--under pressure from their own constitu- support customs modernization in developing coun- encies to gradually reduce their financing in fragile tries have broadly followed these guidelines. 320 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N In fragile states the situation is vastly different, practical, by valuation practices in keeping with and simplified procedures--at times deviating from World Trade Organization rules. documented best practices--may need to be consid- Customs operations cannot wait until a new ered. The rest of this section focuses on the extent comprehensive customs code is prepared and to which customs' legal framework, control and enacted--a process that can be lengthy. In the initial clearance procedures, organizational setup, staffing, stages of reform, the existing customs code probably and management structure (given customs' key re- can be used as the legal basis for customs actions, sponsibility to mobilize resources) may need to be provided amendments are made quickly to elimi- adjusted to take the circumstances of fragile states nate excessively obsolete provisions and create a legal into account. foundation for new procedures. But work on draft- ing a modern code should begin early on, guided by Legal framework international conventions and agreements in the Where a customs administration is being established customs area (World Trade Organization and World or reformed but no workable legislative framework is Customs Organization) and by generally accepted present, much can be gained by preparing a simple, modern customs procedures. Countries that belong transparent customs code. This can provide an ade- to a customs union or other economic integration ar- quate legal basis for customs functions. rangement are bound to apply the common customs Tariffs should be differentiated as little as pos- law of the regional arrangement. Others can be in- sible. A single rate--already applied in Chile--may spired by the legislation prevailing in other countries be feasible (such a flat tariff was recommended by that have modernized their customs system. the international community in Iraq immediately after the fall of the Saddam Hussein regime). If the Customs control and clearance procedures change to a single rate is too drastic, one alternative Smooth border crossing procedures require that bor- is to set a tariff with very few bands. Another is to der agencies have effective control over goods that set indirect taxes applicable to imports and domes- enter and leave the country--and that they oper- tic production high enough to generate the required ate with well trained personnel, properly operat- budget revenues, even if these taxes will initially be ing information and communications technology collected largely on imports. (ICT) systems, and adequate infrastructure. These The tariff rate differentiation should not be conditions often are not present in fragile states and based on the degree of processing, as is often er- will take time to put in place. Given the immedi- roneously advocated by technical advisors. Such acy of the need for budget revenue, tradeoffs among escalation results in higher effective protection for some of the objectives of customs and of other bor- processed than for nonprocessed goods--a situation der agencies will need to be accepted. Where other 19 that later proves hard to reverse. Protection objec- agencies are not present at the border, customs may tives should be clearly targeted, and they would sometimes act on their behalf with very little specific Border management considerations in fragile states be better accomplished by imposing a temporary training--but trade facilitation and the protection higher tariff on a few well identified goods while of domestic economic activity may suffer. As more their production is being stimulated. Fragile states qualified personnel become available, as ICT sys- sometimes rely on specific tariff rates or reference tems become operational, as refined procedures are prices for the most common imports, given that introduced, and as infrastructure improves, service customs valuation skills are scarce and compliance to the trading community will gradually improve. amongst the trading community is low (such prices Most nontraditional interventions are activated are relied on, formally or informally, in Somalia). to support customs control and clearance processes. But such a practice is crude, unable to differenti- In addition to those discussed in the next section, ate according to the value of goods. It also tends to control and clearance procedures will most likely be regressive. If applied in the short term and for rely on physical inspection more than is warranted pragmatic reasons, such an approach is understand- in countries with greater trade compliance and able--but it should be replaced, as soon as this is ability to undertake postclearance audits--and on B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 321 a simplified duty drawback system, rather than on Organizational structure of customs temporary admissions (which are difficult to control Customs is best decentralized, with a central and restrict the use of duty exemptions). Security at office assuming overall responsibility for customs the border often presents a major challenge for con- administration, regional offices functioning as trol, particularly in countries that suffer from in- regional headquarters and assuming responsibil- ternal conflict or are emerging from such conflicts. ity for administering customs in their geographical Where border officers are unable to take control of jurisdiction, and local offices for customs control all goods arriving at a border or port because of pil- and clearance activities. Decentralized organiza- fering or smuggling, it is very unlikely that many tion requires proper delegation of authority, clear goods will be declared to customs and that duties delineation of responsibilities, and effective lines of and taxes will be fully paid. (Experience has shown command and reporting. Broadly speaking, head- that this often happens when the perimeters of ports quarters should concentrate on central management and border posts are not well delineated, fenced, or without getting involved in daily routine opera- guarded, and surveillance equipment is absent. Th is tions that properly belong to field offices. Experi- was the case in Monrovia when Liberia was liber- ence shows that often this principle is not respected ated and the port was not yet under effective central and that managers are often petitioned to make, or government control. A similar situation now pre- insist on making, detailed operational decisions. vails at the eastern border of the Democratic Re- Thus, in crowded corridors in customs headquar- public of Congo.) The geography and existing road ters, importers, customs brokers, and others may infrastructure will dictate the precise nature--and wait at the doors of officials--including the customs effectiveness--of the intervention. Porous borders, director general--to obtain authorizations, request with multiple entry points, will present greater chal- intervention in disputes with field managers, or ask lenges than borders with only one or a few crossing for signatures for a variety of purposes. Such prac- points to be secured. tices are greatly disruptive and prevent headquarters Port security presents special challenges. The In- from concentrating on important central manage- ternational Maritime Organization has established ment functions. They also permit excessive face- an International Ship and Port Facility Security to-face contact between traders and customs offi- (ISPS) Code that requires a security plan for ports, cials, contacts that all too often challenge integrity. consisting of--among other items--perimeter secu- Headquarters will be able to carry out its mandate rity, personnel training, and drills. The ISPS Code effectively only if functions and activities are ade- can guide the implementation of key measures that quately decentralized and authority is adequately should permit border agencies to function. The se- delegated to heads of regional and local offices, with 19 curing of ports in Haiti to enable border control appropriate controls in place to ensure compliance agencies to operate, which has been supported by with rules and procedural requirements. Border management considerations in fragile states the international community, may offer a good Fragile states will benefit from a simple admin- example. Short term efforts to secure the customs istrative structure that allows them to carry out the premises--drawing on personnel outside customs, most essential customs administration activities even United Nations peacekeepers--were com- in an organized manner. They should avoid imi- bined with longer term initiatives to train person- tating the organizational setup of more developed nel in security tasks, and finally with infrastructure countries, as trade flows initially will comprise only investment for customs offices and installations (as straightforward imports and exports. Below are well as for securing ports and border crossings). some guidelines for the organizational structure Customs should be trained and equipped to gradu- of customs in fragile states, with the qualification ally assume effective control over import cargo from that country variations--in terms of geography the military. and in the role assigned to customs--will require Any support activity to customs should take flexibility. these requirements into account and budget for At the headquarters level there should be four them. units providing local offices with resources and 322 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N technical support for revenue collection and con- providing for staffing and training is to make a sys- trol. These are: tematic comparison between the staffing require- · A human resource management unit, focus- ments (level and qualifications) for a simple customs ing on personnel recruitment and selection and operation--given the present circumstances of the the preparation and delivery of urgently needed country--and the staff engaged by customs before trainings. the country became a fragile state. · A technical support unit responsible for the Some countries undertaking customs reform development of customs control and clearance have chosen to pursue radical staff renewal, either procedures, valuation procedures, tariffs and by introducing an autonomous revenue agency nomenclature, the control of origin procedures, (ARA; examples are Bolivia, Ghana, and Uganda) exemption control, and transit procedures. or by recruiting a management fi rm to temporar- · An ICT support unit. ily assume many customs functions while prepar- · An internal control unit. ing local staff to take over in due course (examples Depending on the available resources and the are Mozambique, Angola, and more recently the expected workload, these functions can be grouped Democratic Republic of Congo). Such efforts are initially in just one or two units--to be further split time consuming and extremely delicate--as well up later, when work volume and available resources as costly--but they do have the advantage of being permit. able to draw on the strong elements of the old staff and bring in new blood over time. In circumstances At the regional office level. Depending on the size, of high unemployment this permits customs to be geography, and trading activity of a country, a very selective and recruit good staff. The process regional governance level may be needed. The initial can, however, be very contentious--at times it will structure of regional offices should be limited to the be impossible to remove the existing staff--and yet most essential support and monitoring functions, it must obtain both internal and external legiti- similar to what was noted in the previous paragraph macy. Such a radical program needs to be grounded for headquarters. The most essential operational sup- in a thorough understanding of the forces at play in port units will concentrate on valuation, classifica- the country. tion, origin, internal control, training, and ICT. Whatever method is chosen to select the staff for border control activities, much will be gained from At the local office level. This is where all control and providing them with appropriate training. For im- declaration processing functions take place to ensure mediate needs, urgent basic skills training should be revenue collection and the processing of incoming organized for available personnel so that the new or and outgoing goods flows. Organizational arrange- reformed customs systems and procedures can be im- 19 ments are needed here for: plemented without delay. These courses should instill · Cargo manifest control and writeoff. the basic skills and attitudes of a civil servant, such Border management considerations in fragile states · Declaration reception and validation. as service orientation and integrity, and they should · Declaration checking, including the important provide a basic understanding of the new customs duty assessment activities (particularly value, system (concentrating on the most essential controls classification, and origin checking). and procedures). More extensive training will need · The physical inspection of imports. to be provided as soon as it can be organized. There- · The collection of duties and taxes. fore, the development of a comprehensive training · The prevention of smuggling and the securing of system should begin early on. Obviously the dura- goods until they are released from customs control. tion and curriculum will depend on the severity of initial staffi ng constraints. Newcomers normally Staffing and training should undergo full time induction training. A part Staffi ng border agencies in fragile states is a most time arrangement, such as half a day of work and challenging task--and one that will determine half a day of instruction, may work well, as it allows whether progress ultimately is made. A key step in a larger number of staff to be trained early. Technical B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 323 assistance from international or regional organiza- approaches to project definition, preparation, and tions, neighboring countries, or other providers can implementation. What matters in these circum- help deliver the training. In addition to classroom stances is not adhering to tested approaches, but training, on-the-job training--side by side with for- searching for approaches that can promise results in eign experts--should be arranged if possible. the difficult circumstances of a fragile state. Experience has shown that in these circum- Management structure stances results can be delivered through a greater Key responsibilities of customs management include involvement of the local community and traditional setting strategic and operational plans, establishing power structures, through the use of private sector performance measurement and evaluation systems, providers, and through a reliance on nongovern- developing personnel management and development mental organizations for the delivery of key ser- systems, providing internal controls to ensure that vices. Testing the new approaches, monitoring them procedures are followed correctly and ethical stan- closely, and introducing modifications are all parts dards are adhered to, ensuring a good management of this pragmatic approach, which has been tested information system, and ensuring that relations selectively in countries facing serious constraints with the trading community are maintained. This to the implementation of the traditional processes is a tall order for customs in fragile states, for which and techniques. This section first compares the tra- the initial priority is to raise revenue. ditional approaches used for strengthening customs Two issues stand out here. First, revenue targets with the techniques used in fragile states, where the should be realistic given the scale of trade, the com- traditional methods are unlikely to strengthen cus- pliance level of the trading community, and the risk toms in its main revenue generating function. Sec- that old habits (challenging to staff integrity) will ond, the section presents the nontraditional tech- linger. Overambitious targets will discourage man- niques and illustrates their application with case agement and staff even as they lead to overly optimis- studies and lessons from experience. tic expectations that, as history has shown, often re- sult in the replacement of top customs management. Support to customs in fragile Second, customs staff members who are paid de- states may rely on nontraditional cently and on time will be a major strength to the or- approaches different from those ganization--and will allow management to enforce used for other countries discipline, as the risk of losing a decently paid job in a society with rampant unemployment is a strong Where traditional approaches are not expected to incentive for avoiding disciplinary action. Fragile yield good results, several developing countries have 19 states often are plagued by the nonpayment or late relied on approaches that stood out for their prag- payment of civil service salaries. This could be rem- matism and promise rather than for their adherence Border management considerations in fragile states edied by letting customs retain part of the revenues to customs orthodoxy and consistency with inter- it raises to pay its staff--an earmarking practice that national best practice. Th is section focuses on the is contrary to budget orthodoxy, but that may well approaches that differ most radically from a tradi- be accepted temporarily, as a pragmatic way to en- tional customs model, including: sure that the key responsibility of customs is met · Relying on management contracts with outside (mobilizing the resources to fi nance government firms. expenditures). · Relying on a substantial presence of foreign tech- nical experts. Border management in fragile · Creating an autonomous revenue agency (ARA). states: nontraditional approaches · Hiring preshipment inspection and destination inspection companies. One of the major lessons learned from past sup- · Relying heavily on reforms driven by ICT. port to fragile states is that their precarious circum- · In landlocked countries, requesting that customs stances require a pragmatic rethinking of traditional clearance take place at the first port of entry. 324 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N · Obtaining advance notification from the depar- The Government of Mozambique, with the as- ture port of arriving cargo. sistance of the United Kingdom Department for The section describes each process in some detail, International Development (DFID), the IMF, and provides country specific examples (where adopted), the World Bank, issued an international tender for and assesses the possible contributions of each ap- management services that Crown Agents eventually proach--evaluating its conditions for success and its won. The DFID covered 43 percent of the project possible pitfalls, with a summary of the important cost, and the Mozambique government financed the lessons for fragile states. rest of the total $37 million estimated project cost for the first three years using proceeds from a World Management contracts Bank infrastructure project. A management contract is a time bound contract The objectives of the contract were: that country authorities make with a foreign com- · Sustainably improve customs receipts and intro- pany to manage its customs services--to raise sub- duce financial controls to prevent internal fraud stantially greater import duties than the country and theft. Customs duties, representing about 60 could raise itself, and to prepare the country to take percent of total budget revenues, would need to over full customs responsibilities within a given bear the brunt of revenue mobilization for some timeframe. The contractor is paid on a fi xed price time to come; no quantitative targets were re- basis or, more commonly, on a percentage of import tained, in part because of the unavailability of a values, possibly complemented by a performance useful database and the great uncertainty about related payment. future economic development in the country. Three such contracts have been implemented: · Develop an appropriate modern administration with Crown Agents in Mozambique (1997­2006) structure and organization and introduce effec- and Angola (began 2001 and still ongoing),4 and tive, efficient customs control procedures. with customs and Tax Consultancy LLC in the · Assess staff qualifications and integrity, and take Democratic Republic of Congo (began in 2008).5 the needed steps to retrench redundant staff and Such contracts have also been considered by several recruit and train new staff. other countries in recent years. Because the contract · Review customs legislation and regulations, with with Mozambique has been completed and its re- a view to providing a basis for consistent, trans- sults can be evaluated with some benefit from his- parent customs operations. torical perspective, it will be used to illustrate such · Introduce antismuggling techniques. contracts--and to draw lessons for other authorities · Introduce a computer driven customs manage- considering such a contract. ment system. The contract specified that to undertake this as- 19 Main features of a management contract: the exam- signment Crown Agents would take over the man- ple of Mozambique (1997­2006). In Mozambique agement of customs. Crown Agents recruited about Border management considerations in fragile states the contract with Crown Agents was made after 60 expatriate staff and gradually placed them in ex- the country emerged from a long civil war that had ecutive and operational positions. A senior Crown seriously weakened its institutions. 6 The public Agents consultant was appointed as delegated man- sector operated at a serious deficit, and the donor ager of customs and was responsible for carrying out community was urging the government to raise the reform as specified in the contract. A Mozam- larger domestic fi scal resources to complement bique national was retained as deputy director of donor contributions. The International Monetary customs, to provide a legal basis for action in cases Fund (IMF) provided technical assistance and where the law did not confer necessary powers on advice, but at that time no donors were ready to a nonnational or on someone not belonging to the fi nance the long term technical assistance needs Mozambique civil service. A Technical Unit for Re- that would have been required to help Mozam- constructing Customs (UTRA, its initials in Portu- bique Customs upgrade its revenue mobilization guese) was created to monitor the implementation capacities. of the contract and take on the issues that required B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 325 sovereign powers. The foreign experts were fi rst reason why the contract was extended beyond assigned to the port of Maputo and later to other the timeframe originally envisioned. points of entry into the country. · Customs authorities have positively assessed the The contractor claims the following outcomes: management contract experience at interna- · Despite a sharp reduction in tariff rates, customs tional conferences.7 duty receipts nearly doubled in dollar terms be- · Private sector operators have expressed satisfac- tween 1997 and 2006. Duties as a share of im- tion with the progress achieved, particularly ports rose slightly from 8.9 percent in 1995 to with the reduction in clearance times and the about 10 percent in 1999­2000, but they fell reduction of blatant corruption. back to slightly over 4 percent of imports by 2006, largely as a result of the reduction in tariff Lessons from Mozambique and other management rates. When the value added tax (VAT) was in- contracts. The Crown Agents project in Mozam- troduced in 2000, customs was well positioned bique was the fi rst of its kind and was initiated to manage this tax; by 2001­02 the VAT on im- in very difficult circumstances. Donors, recipient ports raised nearly a quarter of total tax revenue. countries, and contractors had no body of expe- Clearance times fell during the early years of the rience to draw on. Yet with the benefit of hind- program--from more than a month when the sight, the experience yields some lessons for similar program started, to 18 days in 2000, to about 8 projects: days in mid-2002. · Ensure political will and support for the objec- · Internal fraud, causing millions dollars of rev- tives of the program and its implementation enue loss, was documented and halted. modalities, including the extensive use of foreign · Enforcement was strengthened and led to larger experts in operational capacities. Such will and numbers of seizures--but staff corruption con- support are crucial for the acceptance of the pro- tinued to plague the customs organization at the gram by all stakeholders, and thus for its success. end of the contract. · Get staff to buy in. Special efforts should be · The program of staff renewal was undertaken made to ensure that the program is owned by through a retrenchment program and the sys- the local customs management authorities and tematic recruitment and training of new staff, staff--not imposed from the outside, marginal- with the result that by the end of the contract izing the staff. The reforms should aim for a good the skill mix of customs staff had substantially understanding of the local cultural and juridical improved. Although the retrenchment program environment, not a replication of donor country encountered serious delays and resistance, it was practices. The implementation team should in- 19 eventually completed in the last phase of the clude change management experts. project. · Contractors should be accountable to local Border management considerations in fragile states · A basic computer based customs management authorities--not just to the donor community fi- system was gradually put in place. nancing the contract. Care should be taken that · Customs clearance processes were reviewed and this accountability has a structure ensuring clear somewhat modernized, but manual procedures lines of communication and authority. and paper based processes were still prevalent at · Customs reform is best implemented as part of a the end of the contract--and basic elements of more comprehensive trade policy and trade facili- the customs control system, such as electronic tation reform. Customs operate within a given manifest submission and Electronic Data Inter- trade regime and given tariff regulations, both change (EDI), are still awaiting implementation. of which should be supportive of an effective cus- · A new customs code and operational regula- toms operation (the case in Mozambique). Also tions were issued, in conformity with WCO best needed to achieve the set objectives are support- practices. ive reforms in civil service employment, border · Strengthening national customs management control, judicial appeal, and the enforcement of took more time than anticipated--the major sanctions and immigration. 326 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N · The management contracts should attempt to staff retrenchments and dismissal for corrup- ensure that contractors are paid based on perfor- tion, for which labor legislation stipulates par- mance and that the government interferes as little ticular processes (due process, proof of evidence). as possible in daily management. Failing to abide by established regulations can · A performance based contract needs mile- lead to appeals that are acrimonious and expen- stones that are clear, objective, measurable, sive to settle. and achievable. In the absence of an adequate · A well thought through and implemented com- information base this is easier said than done. munications campaign should inform all Yet a special effort should be made to set per- stakeholders--staff as well as the trading formance criteria for revenues raised (taking community--of the program objectives. The tariff changes and trade flows into account), implementation details will benefit program for training provided and skills transferred outcomes. (particularly management skills), and for the · The management contract should specify a clear time to release import and export cargo. exit strategy. As the contract is a temporary solu- · A balance must be established between tion for a crisis situation, the exit strategy should government oversight of the program and provide for the transfer of management skills, for interference in customs management. In country ownership and maintenance of the new Mozambique UTRA was set up for this electronic customs management system, for in- purpose--but was not fully successful, as frastructure acquisition, and for maintenance some responsibilities, reporting lines, and and future financing. accountabilities were blurred. · Various financing formulas can be drawn up for · Respect the dividing line between taking on op- management contracts. In the Crown Agents erational responsibilities, and exercising sovereign contract with Mozambique costs were shared power. Contractors should restrict themselves to between DFID and the government, with the operational responsibilities. contractor fees set up as a fi xed management · The transfer of management skills needs to fee. An alternative would pay the contractor have very high priority. This objective should out of the additional revenue resulting from be reflected in the composition of the team its intervention. Calculating such added rev- of foreign experts and in the team's working enue is not simple, as revenue developments method. Hands-on operational customs ex- are also affected by exchange rate fluctuations, perts will contribute to achieving the short tariff changes, and changes in trade policy and term objective of raising revenue, while others trade flows. A clear understanding on an ac- will need to focus on the training and capacity cepted methodology would need to be reached 19 building objectives of the project. The man- in advance. Another alternative is for a private date of the second and third Crown Agents company to invest in the venture and be paid Border management considerations in fragile states contracts in Mozambique addressed this issue through levying a transaction fee (much as the head on by establishing a one-to-one mentor- Ghana Community Network is entrusted with ing program. Recruiting a balanced team of managing the single window in Ghana; see foreign experts with the required skills will re- De Wulf 2004). main a challenge, as it requires recruiting cus- toms experts who are available on short notice Heavy reliance on foreign experts and willing to work extensively in a difficult from donor countries environment. For some developing countries the development · An explicit customs modernization strategy is community decided that the best way to strengthen needed. Contractors should be guided by such revenue performance was to send a heavy con- strategy, informed by a detailed diagnostic. tingent of technical experts to build capacity in · Contractors should abide by established civil ser- customs--or even, for the short term, to do hands- vice regulations--particularly when dealing with on work in customs operations. The approach and B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 327 the difficulties encountered are illuminated here by and to gradually focus more on developing govern- three case studies: ment capacity. · The experience of Australia in supporting re- form and modernization in Papua New Guinea. Solomon Islands. Since July 2003 Australia has been · The experience of Australia in supporting re- setting up the Regional Assistance Mission to Solo- form and modernization in Solomon Islands. mon Islands (RAMSI), responding to a request for · The building up of customs services in assistance from Solomon Islands Government to Timor-Leste. restore security and law and order. Following four years of tensions in the country, the program aims Papua New Guinea. Support to customs in Papua at both providing stabilization assistance to Solo- New Guinea was part of the border manage- mon Islands and developing longer term institution ment and transport security sector of the broader strengthening and peace building. Among its objec- Enhanced Cooperation Program (ECP), financed tives are to transform Solomon Islands Customs into by the Australian Government. The ECP aims at an administration capable of delivering revenue and improving national security through the strength- community protection programs and reduce compli- ening of the country's capacity to collect revenue, ance costs through trade facilitation. The program facilitate the lawful movement of people and goods log framework, jointly developed by Australian and across the border, and regulate the safety and secu- Solomon Islands Customs, details activities until rity of international transport links. Australian offi- 2009, but assistance is likely to continue after this cials were placed in advisory positions in various date. The framework gives priority to management departments and agencies of the Papua New Guinea development, policy, legislation (including a new government, working with its customs to a logical tariff schedule, implementing the HS 2002, 8 and framework that was negotiated and agreed with its revising the exemption schedule), improving busi- authorities. The framework, which was to last until ness processes (such as compliance and risk man- 2009, set forth the program's goals, purpose, compo- agement), and ICT (including a cargo management nent objectives, outputs, assumptions and risks, key system). In 2005 Australian Customs deployed two performance indicators, and monitoring indicators. officers to Solomon Islands in advisory positions and Based on this framework, each technical assistant made resources available for the purchase of equip- defined his or her area of responsibility and worked ment. The officers provide advice on operational out a detailed work program against which he or she issues, provide technical assistance, and build capac- would be evaluated. ity. Australian Customs also provides short term Under ECP, Australian Customs has four staff work placements and training for Solomon Islands 19 working within the Papua New Guinea Internal officers in Australia. Corporate governance remains Revenue Commission. Although some ECP posi- a key issue to be addressed. Capacity and skills within Border management considerations in fragile states tions are in-line positions, at customs the techni- the organization are still limited, and resistance to cal assistants are in an advisory capacity--they are change makes reform difficult. That is why advisors there to assist the reform process through a combi- took substantial operational work even though the nation of technical assistance and capacity building emphasis of the program is on capacity building. within the organization. The customs ECP team leader acts as the deputy commissioner of customs Timor-Leste. As in Solomon Islands, so in Timor- and provides high level mentoring and advice to Leste a creation or relaunch of customs services ben- the executive staff. The other advisory positions efited from secondments of international customs under ECP focus on issues such as investigations, staff in a comprehensive donor community effort revenue, and border security. In-country advisors to assist the country. Timor-Leste gained its inde- are complemented by work placements for Papua pendence in 2002. Following the 1999 civil unrest New Guinea officers in Australia and by training in East Timor a United Nations multilateral peace- in both countries. The ECP strategy was expected keeping mission had been established there with to move away from hands-on, operational activities executive, judicial, legislative, and administrative 328 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N authority. In 2000 the United Nations Transitional Timor-Leste Customs Service in the Director and Administration in East Timor (UNTAET) com- Deputy Director positions. Successive Portuguese prised approximately 9,000 personnel, including advisors remained in place until September 2007. a small number of international customs officers Unfortunately the officials from Portugal kept whose charter was to reclaim and rebuild customs existing systems in place, developing no clear vision services for East Timor. for a future organizational structure or for modern The Border Service of East Timor (BSET) was clearance procedures. The urgency of their interven- one of the first government agencies created, respon- tion and their fast deployment largely account for sible for the critical border services of customs--im- this shortcoming. Because Portugal financed the in- migration, quarantine, and assisting with revenue tervention, the selection of staff was left wholly to collection and security. In its early development the its officials, not subjected to a competitive process. BSET focused on the basics of creating an adminis- Only in 2004 was a customs code issued--one that tration, determining a mandate, developing legisla- is largely aligned to the procedures advocated by the tion, establishing facilities at Dili Airport, Dili Port, World Customs Organization, yet still fails to ad- and land border crossings, developing processes, and dress certain key modern customs procedures. The recruiting and training local staff. blame for this deficiency appears to fall on restricted Between 2000 and 2002 the customs adminis- consultation with operators and with experts in the trations of Australia, Finland, New Zealand, Por- field. A revision of the code was recommended soon tugal, and the United States provided officers to after its adoption. Advisors often did not work in support and guide the BSET's development of or- a team. Where capacity building was provided it ganizational and management capacity through tai- was largely the result of the advisors' interpersonal lored training programs, mentoring, and direct su- skills and motivation. Inadequate attention appears pervision. During this time robust procedures and to have been paid to training in some key customs systems that were practical, effective, and tailored skills, such as valuation and classification. to meet the needs of the new customs administra- In April 2002 UNCTAD agreed to provide its tion were fully implemented across core competen- customs clearance ICT system, ASYCUDA, to help cies. The BSET's capability covered airports, ports, Timor-Leste modernize and streamline its customs border posts, marine activities, examinations, goods operations. The system became operational in late and passenger clearance, intelligence, auditing, and 2003, but the introduction of the modern proce- training. In essence, a basic but fully functioning dures was plagued by funding shortages--as well as customs service was established. by resistance from the externally provided customs The program's reliance at its outset on non- staff to implementing the automated clearance sys- Timorese staff in customs was due to a severe short- tem. Also, staff trained in ASYCUDA procedures 19 age of indigenous capacity. The shortage existed were deployed elsewhere, undermining the useful- largely because customs services previously had ness of their training. Until recently the desired Border management considerations in fragile states been staffed by Indonesian nationals, who had left results of the ASYCUDA system thus were not the country during the independence troubles. The achieved, as several of its crucial modules remained non-Timorese staff were expected to focus on re-es- inoperative--in particular the manifest, warehous- tablishing key administrative functions and on per- ing, and risk modules. forming line responsibilities. In 2006 a new action program was launched to In 2001 BSET became the Customs Service of roll out all the modules of ASYCUDA in Timor- East Timor (CSET), and immigration was estab- Leste and to place much greater emphasis on capac- lished as a separate government service. Follow- ity building. The World Bank has supported this ing independence in May 2002, under the United second phase of the program. Nations Mission of Support in East Timor (UN- MISET) peacekeeping and rebuilding mission, Lessons learned from Solomon Islands, Timor-Leste, three customs officials from Portugal and Myan- and similar experiences. Many other customs services mar were engaged to lead and manage the emerging have benefited from donor support that included B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 329 technical assistance and the provision of selec- a full endorsement from management is required tively experienced customs officers for extended in- for the introduction of lessons learned in train- country assignments. These other experiences have ings abroad. much in common with the case studies above. Some · Donor coordination should ensure that the ap- of the lessons learned are listed below. proach adopted is shared by all participants--and · Political support from the local authorities needs that it is implemented. Clear, agreed performance to be assured and nurtured. This implies sharing criteria and donor leadership will pay off. Avoid a vision and strategy, as well as providing timely fragmentary, donor driven subprojects that do information on progress achieved. not mesh with the program's overall vision. · A minimal enabling environment should be the · Predictable funding levels should ensure that the first priority. The customs organization should strategy can be smoothly implemented and that function with the minimum required effective- technical assistance staff turnover is kept as low as ness before more advanced customs features-- possible. such as risk management, internal audits, and · Be realistic. Adjust customs control, clearance postclearance audits--are introduced. Mini- processes, and ICT use to local circumstances. mum effectiveness includes having electricity, Avoid a doctrinaire insistence on the most mod- staff who arrive on the job when required, decent ern processes and procedures, even those that buildings, reasonable security for the staff and for are internationally endorsed, as this might risk goods under customs control, reasonable salaries jeopardizing the introduction of approaches paid on time, and the like. At the same time, that are more pragmatic given local constraints. other government agencies with border control The organizational chart should be as simple as responsibilities--and the business community-- possible, not a copy of what exists in the home must move forward with modernization. country of the technical assistance providers. · Technical assistance staffing is key. Staff profi les Integrity can rarely be much better in customs for advisors should match their assigned tasks. than in the rest of the economy--though process Clear job descriptions and systematic competi- simplification and transparency will help. Real- tive recruitment--not only from the country ize that even in the best circumstances, reform that provides the funding--will pay off hand- takes time. somely. Staff with project and change manage- ment skills should be included in the team to Autonomous revenue agencies (ARAs) obtain buy-in from local authorities, the donor Since the mid-1980s several countries' revenue agen- community, and the private sector, and to as- cies have been granted greater autonomy. Although 19 sume financial and accounting responsibilities. this approach is not designed especially to assist with Also, staff will need the flexibility to accommo- revenue mobilization in fragile states, it deserves Border management considerations in fragile states date their working methods to both progress and attention, as it has sometimes been presented as an the lack of progress. option. · Local customs staff are key. Identify, early on, the local counterparts who will take over in cus- Autonomous revenue agencies (ARAs) defined. An toms--and train them. Motivate them to stay ARA is a governance regime for an organization with the customs service with realistic promises engaged in revenue administration that provides of training and career development. Keep them for more autonomy than that afforded a normal in positions where they can apply their training. department within a ministry. There are various Keep them fully informed about program objec- degrees of operational autonomy in government ser- tives and modalities. vices. At one extreme are agencies that operate with · Apply the results of training. Trainees should be very little autonomy (such as an education minis- supported to pass on their knowledge or to foster try), and at the other are state enterprises with large change within the organization. To overcome in- autonomy. Because taxation is a very intrusive gov- ertia and the rivalry of superiors and colleagues, ernment function and is at the core of government 330 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N sovereignty, revenue agencies have never been given departments into one authority. In Latin America more than partial autonomy. Nevertheless, most lit- most ARAs are headed by a chief executive officer, erature uses the term autonomous revenue agency, so while in Africa and Asia most ARAs are headed by the same term is used here. a commissioner general backed by a board of direc- Under the ARA model, the governments that tors. Invariably the fi nance minister appoints the make policies assign the responsibility for the poli- head of the board, and board members represent the cies' execution to agencies with greater day-to-day fi nance ministry and other public sector agencies. autonomy and accountability. An ARA responsible Some boards (for example, in Zambia and Uganda) for revenue mobilization can act as a single purpose include private sector representatives. The day to agency, separate from the fi nance ministry--and day management of ARAs with boards of direc- thus can remain focused on a single task, free from tors rests with a chairman or commissioner. The political interference in day-to-day activities and ARA is entrusted with the administration of taxes from more general civil service constraints. (customs, direct, and indirect)--though at times it With greater accountability and greater opera- is also given responsibility for tax policy, possibly tional flexibility, ARAs were expected to operate creating confusion and conflicting with the finance more effectively and efficiently. A 2006 survey for ministry. Foreign nationals often have been selected the IMF that reviewed the experiences of ARAs in to head new ARAs, as to secure technical expertise revenue agencies suggested that the ARAs' creation and management skills not otherwise immediately had responded to perceived shortcomings of estab- available on the domestic market. Also, at times for- lished revenue agencies, in particular (Kidd and eign managers have been thought better positioned Crandall 2006, p. 27):9 to resist political and social pressures for special · Low operational efficiency. consideration. · The perceived need for a catalyst to launch broader reforms in the revenue agency. Financial autonomy. Resources available to ARAs · Impediments caused by the application of civil are set either as budget allocations negotiated annu- service rules to revenue agency staff. ally, as a fi xed percentage of total revenue, or as a · Poor communication and data exchange among variable percentage based on revenues collected.10 the existing revenue departments. Perceptions of In Peru a fi xed share was set at 3 percent of customs political and ministerial interference. revenue collections, but customs was also allowed · High rates of corruption. to charge fees for services. Some ARAs have gained That the initiative to eliminate corruption was greater autonomy in procurement, thus avoiding listed last is probably because the survey respondents detailed scrutiny by the finance ministry for each were ARA staff. Case studies suggest that the desire and every expenditure item--a stifling practice in 19 to stem corruption was a major argument for finance many countries. At times, as a reward for exceed- ministries granting greater autonomy to revenue ing revenue targets, customs obtains a premium to Border management considerations in fragile states agencies. Experience has shown that corruption is be shared between staff and ARAs. This provides an a major problem in the revenue agencies of fragile incentive only when targets are realistic (Fjeldstad, states. Kolstad, and Lange 2003; Therkildsen 2003). Con- About 40 ARAs now operate, largely in Af- versely, ARAs underestimate likely revenue to cap- rica and Latin America (the first, created in the late ture such premiums. 1980s in Peru, was followed by another in Ghana). The main characteristics of an ARA can be analyzed Human resource management. The freedom from under three headings: management structure, finan- restrictive civil service rules for staff recruitment cial autonomy, and human resource management. and compensation has been a major advantage of ARAs, permitting several to remove staff who were Management structure. To ensure greater autonomy, not sufficiently competent or honest. Bolivia took a in all cases ARAs combine the customs department, very systematic approach to ensuring that its staff direct taxation department, and indirect revenue matched the desired profi les for professionalism and B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 331 integrity.11 Peru and Tanzania also undertook dras- is neglected. Customs operates on a transaction basis. tic staff renewals at the creation of the ARAs. Most In contrast, the other taxes are managed on a retro- countries that did likewise were able to upgrade the spective (ex post) assessment basis. Zimbabwe's ARA, skill mix of their staff substantially. When other the Zimbabwe Revenue Authority (ZIMRA), merged countries were less forceful in renewing staff, sev- operations and staff to such an extent that specializa- eral observers noted this as a missed opportunity. tion was diluted, undermining customs' operational Other countries failed to deliver adequate training effectiveness and efficiency--even though the avowed programs, partly undermining the quality enhance- objective of the ZIMRA structure was to prevent the ment gained by revamping recruitment procedures. marginalization of customs operations. The ARA The salaries of ARA staff were raised substantially structure has since reinstated the position of a deputy in all ARAs, to allow the ARAs to recruit and moti- commissioner of customs. vate qualified staff--in many cases the salaries were The ARA approach to reforming customs tack- raised tenfold. The raises helped to attract special- les only the management of customs, not the opera- ized staff, especially those with alternative employ- tional issues that affect revenue generation. Whether ment opportunities in the private sector (such as ICT this approach is better than alternatives will depend staff, finance and budgeting staff, and investigation on the causes of the present organization's perform- and accounting staff ). Better salaries--and salaries ing below expectations and on whether those causes paid on time--also helped reduce corruption. Not can be addressed by giving customs greater opera- only are well paid staff less likely to engage in cor- tional autonomy. If security issues are the main chal- rupt practices, but when one is fired for corruption lenge to effective customs operations, it is unlikely it is worse to lose a well paid job than a poorly paid that a traditional ARA will provide a solution. A one. The new salary scale in an ARA can also allow good diagnostic of the local situation should tell greater differentiation between higher and lower decisionmakers whether an ARA can contribute level staff, akin to private sector practice. to raising higher revenues in fragile states, if higher revenues are the prime reform objective. The follow- Lessons for fragile states. Some fragile states have ing reflections in four categories--management au- investigated the ARA model as a promising approach tonomy, human resources, financial resources, and to improving customs revenue performance. The the drive for operational efficiency--are based on evidence from implementation so far does not jus- experiences with ARAs. tify unambiguous support for this option. Quite a · Management autonomy: few ARAs have led to higher revenues--certainly · What are the chances an ARA will be able to at first--but that result cannot solely be attributed exercise its new managerial flexibility? Will 19 to their newly acquired autonomy, and it may have the finance ministry and civil service con- resulted from operational changes introduced simul- tinue to dominate the minutiae of running Border management considerations in fragile states taneously with and independently of the granting of the ARA? autonomous status. · Is a nonnational manager acceptable if a As in development assistance for the most national cannot be identified in the early part--and for customs reform especially--it is dif- years of the ARA? How receptive would a ficult to generalize about the desirability of ARAs national institution be to hands-on mana- for fragile states. Each case responds to a very special gerial leadership by an outside director or situation and environment, so each requires its own commissioner? solution--there is no one size that fits all. · Human resources: The introduction of an ARA that merges all rev- · What are the chances a real staff renewal enue agencies into one runs the risk of ignoring the program and new recruitment program will substantial differences between the approaches of cus- be put in place--not just the recontracting or toms and of the department of direct taxes or domestic recruitment of old staff who have been proven indirect taxes, and between the specific skills required incapable of achieving desired objectives, or for each--with the result that customs modernization who have a reputation for corruption? The 332 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N history of ARAs has shown that both out- changes--a view that seems supported by comes are possible, with longlasting effects the survey taken in 2006?13 Results are best on the organization. when customs uses its autonomy to pur- · Is there an external perception of legitimacy sue full modernization ( as was the case in for the policies of paying revenue agency Peru), and where autonomy is respected over staff more than other civil servants and wid- the years. Results are weakest--even wholly ening the pay differential between higher unsustainable--where customs delays such and lower level staff? Can the argument be fi ll modernization. used that revenue agency staff need higher In summary, granting a customs agency ARA pay because of their crucial role in financing status is no panacea for strengthening customs opera- government expenditures?12 Can a compen- tions and raising larger revenues. At best it can pro- sation policy be agreed with the finance min- vide an enabling environment for actions that can be istry to prevent the erosion of staff salaries, difficult in a traditional organization, such as intro- with periodic external audits? ducing effective human resource management, ensur- · Managing incentive pay is very difficult in ing adequate financial resources, and even overhaul- any circumstance largely for two reasons: ing customs control procedures. Yet an ARA cannot because the output of a revenue agency and guarantee any of these. Only a good diagnostic analy- the contributions made to it by individuals sis, integrating the perspectives of political economy and by teams are difficult to measure, and be- and of border security, will tell policymakers whether cause the policy lacks external and internal the ARA model improves the chance of raising much perceptions of legitimacy. Would an ARA be needed revenues in a fragile state. better equipped than a less autonomous rev- enue agency to deal with these difficulties? Preshipment inspection and · What are the chances that the higher pay destination inspection will be coupled with effective disciplinary Correct valuations are crucial in customs clearance. action for poor performance and bribery? In While a core task of customs, valuation is also one the absence of such discipline an increase in of the most difficult, as customs often does not have salaries may merely replace poorly paid, cor- the information or expertise necessary to ascertain rupt staff with well paid, corrupt staff. the validity of import values noted on customs dec- · Financial resources: larations or accompanying invoices. Under World · What is the likelihood of instituting a fi- Trade Organization valuation principles, countries nancing plan for the ARA that assures ad- are committed to applying the declared transac- equate resources? tion value or invoice value unless there is reasonable 19 · Will the ARA be given greater procurement doubt about its truth or accuracy--in which case the autonomy, to avoid the protracted proce- countries are authorized to use alternative valuation Border management considerations in fragile states dures that often characterize traditional principles.14 The difficulty of valuing imports and budget expenditure authorizations? Is there the belief that undervaluation leads to great revenue an antecedent capacity for adequate over- losses have led some developing countries to contract sight and audit capacity, to ensure that ex- preshipment inspection companies for assistance. penditures are well guided? Th is section describes such services as they have · The drive for operational efficiency: evolved over the years, discusses their application, · Would granting ARA status improve the and provides advice on how best to use them. chances that management adopts an appro- priate vision of a modern customs service Preshipment inspection and destination inspection and implements it--as opposed to seeing the defined. In preshipment inspection (PSI) special- ARA as little more than a source of higher ized private companies are hired to check shipment pay? Can the creation of the ARA be a cata- details--essentially the price, quantity, and qual- lyst, enhancing the chance of real operational ity of goods ordered overseas. Developing countries B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 333 use PSI to safeguard national fi nancial interests, example specified a phased reduction of the PSI in- for instance, against capital flight and commercial tervention. PSI variation, called destination inspec- fraud, as well as against customs duty evasion--and tion, draws on the information gathering capacity to compensate for inadequacies in administrative of inspection companies once goods have landed in infrastructure. A PSI program has four steps: the importing country. The destination inspection · The importer requests that the PSI company pro- investigates the postentry declarations included in vide an export certificate detailing the normal the contract. Destination inspection contracts can price of such a good exported from the given be as comprehensive as the traditional PSI contract, country of origin to the given destination coun- or they can be very selective and based on a risk anal- try; the classification of that commodity; and, at ysis undertaken in the importing country (Mexico is times, the origin and duties and taxes due. an example). The findings from these interventions · The PSI company inspects the goods in the ex- are expected to give customs greater confidence in porting country before they are shipped, and it making valuation decisions. issues a verification certificate. · The importer includes the verification certificate Evaluating preshipment inspection services on the in the customs declaration. ground. In early 2009, 12 countries had entered · Customs can use these data for valuation into PSI contracts with members of the Interna- purposes--to challenge the valuation provided tional Federation of Inspection Agencies (IFIA) for by the importer, or to accept the importer's valu- explicit revenue protection objectives. An additional ation with greater confidence. 14 countries held contracts with IFIA members for There is no standard PSI contract. Some PSI con- customs support services in the form of destination tracts allocate the trade from different parts of the inspection services or more selective PSI and risk world to different companies. Others allow the trader assessment services.16 to choose among companies with whom the country There has been much debate among development has a contract. Most do not require PSI certificates professionals about PSI intervention for customs pur- for low value imports (creating a risk that the trader poses. Proponents argue that the PSI intervention may split shipments into smaller consignments to helps customs raise larger fiscal revenues and speeds avoid PSI intervention), for the government's own up customs clearance, and that these benefits exceed imports, for exempted goods, or for categories of the cost of the service. In contrast, critics contend that: goods in which customs believes it has the necessary · Inspecting shipments at export is a burden on capacity to verify prices. Fees for PSI services can be exporters and importers, creating delays and ad- borne either by the government of the importing ditional costs. 19 country or by the importer. They typically range from · There is no guarantee that goods imported are 0.6 to 1 percent of the value of the inspected ship- the same as goods inspected. Border management considerations in fragile states ments. The activities of PSI companies are subject · The requirement for exporters to entrust sen- to a World Trade Organization PSI agreement that sitive information about their transactions to recognizes General Agreement on Tariffs and Trade PSI companies is an intrusion into commercial (GATT) principles and obligations as applying to the confidentiality. activities of PSI agencies mandated by governments. · The scarce foreign exchange spent on PSI could The obligations placed on governments using PSI in- be better used to finance deep and sustainable clude nondiscrimination, transparency, protection customs reforms. of confidential business information, avoidance of · Inspection results are erratic and untrustworthy. unreasonable delay, the use of specific guidelines for Still other critics argue that PSI agents abroad are price verification, and the avoidance of conflicts of no more above integrity problems than local cus- interest by the inspection agencies.15 toms officers are, and that PSI companies often use Reliance on traditional PSI services has declined undue influence and financial incentives to obtain over the last few years and has been partly replaced by contracts.17 Finally, hiring PSI companies is often a new generation of PSI and PSI type contracts. One characterized as counterproductive to customs 334 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N reform, particularly if PSI services are substituted claim that these extra steps complicate overall trade for efforts to improve customs services.18 The ser- procedures and lead to errors that are difficult to chal- vices of PSI companies often were regarded as a tem- lenge at the import stage. This is echoed in a recent porary solution to alleviate weaknesses in customs trade logistics survey finding that, in Sub-Saharan services. When weaknesses are alleviated, it was said, Africa, 56 percent of respondents cite the interven- the contracts would not be renewed. However, PSI tion of PSI companies as causing major delays (Arvis interventions have been a stable feature in customs and others 2007, p. 35). On the other hand, private operation for many years in some countries--and, sector representatives in some countries approved of often, little skill transfer is noted. the PSI requirements, claiming they have reduced The outcomes of a particular PSI intervention customs bribery and harassment, shortened clearance can be judged against its impact on revenues, trade times, and provided a degree of certainty. facilitation, and the customs administration. Impact on customs administration. The use of PSI Revenue impact. Authorities in fragile states, as well services can demoralize customs personnel and may as donors, will attach the greatest importance to the affect their cooperation with PSI companies--per- intervention's revenue raising capacity. But the rev- haps because most PSI contracts are entered into enue impact of PSI interventions is not straightfor- by the finance ministry without the full support of ward. It is difficult to separate the impact of intro- customs. Also, PSI intervention may hamper cus- ducing PSI from the impacts of trade liberalization, toms modernization efforts, as it reduces the pres- customs reforms, and shifts in trade patterns. A PSI sure on customs to build up experience in valua- company provides authorities with detailed statis- tion. Although some contracts stipulate that PSI tics on its interventions, revenues, valuation uplifts companies provide valuation training and transfer (by category of product and by origin of the goods), valuation databases to national customs, this rarely and so on, and it reports revenue gains as a result works out in practice. The PSI companies usually of the intervention. Companies tend to claim credit are not good at training local staff--and the compa- for revenue improvements and for trader compli- nies' added value comes from their access to data in ance increases (much as the presence of a police offi- the goods' country of origin, access that is denied to cer deters drivers from running a red light without national customs officers. requiring a higher number of traffic citations).19 Opponents of PSI, including traders as well as some Lessons for fragile states. In fragile states for which customs officers, tend to discount the claims of revenue generation is a top priority, it may be worth- increased revenue. Experience, also, has shown that while to establish PSI contracts for a specific period customs officers often ignore the data in PSI certifi- while expertise is developed. Data provided by PSI 19 cates or--worse still--use the data to extract bribes companies can give customs information it does not from traders (Anson, Cadot, and Olarreaga 2006). have and is unlikely to obtain on its own. The weaker Border management considerations in fragile states Few countries relying on PSI contracts systemati- the customs organization, the greater this contribu- cally use the data provided by the PSI companies for tion can be. But the outcome of such a contract will monitoring, nor do many periodically evaluate or depend on a number of factors. To avoid a negative audit the PSI intervention and customs' use of the impact on trade facilitation it is necessary to build service. A detailed econometric study on the impact practical approaches and incentives into the customs of PSI intervention on revenues in 19 countries does, clearance process. however, suggest a positive impact on revenues-- Based on broad experience with PSI services, the despite implementation shortcomings.20 following list captures some of the issues to be exam- ined when considering PSI or when evaluating PSI Trade facilitation. The PSI intervention requires that programs already in place. traders undertake a few more steps before importing · Contract only PSI companies that have a good rep- their cargo, and it may require that customs consult utation. The IFIA provides a code of conduct for additional information before clearing goods. Critics PSI companies. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 335 · Use transparent competitive bidding procedures to · Apply the penalties provided in the law for under- select PSI service providers and to renew their valuation offenses--to enhance importers' contracts.21 compliance. · Contract a single PSI company for only a few · Set up an arbitration or appeals procedure--to years and, if needed, renew the contract under provide importers with an avenue to contest PSI competitive conditions. Avoid split con- assessments. tracts--supervising multiple companies adds · Create a steering committee--located outside complexity and tends to increase contracting customs, but with customs participation--to costs, while the country represents a smaller oversee and audit PSI activities and to determine profit for each company so that headquarters on an ongoing basis whether the contract pro- supervises activities somewhat less carefully. vides value for money. Periodic reports should be Also, split contracts have led importers to ad- made available to civil society. The WTO guide- just their import patterns to benefit from the lines for a dedicated PSI audit service (WTO inspection service providers they fi nd to be 1999) should be consulted. most helpful. · Commit to an exit strategy ensuring a smooth · Ensure that PSI contracts are fully endorsed by transition when customs fully assumes valuation customs, not imposed on customs by the finance responsibilities. A PSI company, following its ministry or central bank. Achieving this may re- exit, could be retained to assist in dealing with quire a change of management at customs. fraud sensitive goods or in other cases where val- · Link the PSI contracts with a customs moderniza- uation poses particular problems. tion project that clearly delineates the responsi- · Manage a good publicity campaign--to inform bilities of customs and those of the PSI company. traders and the public about the PSI system. · Make the PSI contract explicit: · Clarify the services to be rendered (price, Heavy reliance on ICT classification, duties paid, special import Customs control and clearance all over the world regimes). have come to rely heavily on ICT for more efficient · Provide for a time limit without automatic revenue mobilization, trade facilitation, and secu- extensions. rity. 24 Customs management systems assist trad- · List the goods to be inspected, with excep- ers and customs through the clearance process; the tions detailed. Internet and intranets are used to connect with trad- · Require assistance to customs in setting up ers and staff; and scanners provide information on valuation databases. the contents of a container, information that can be 19 · Set clear performance criteria that will allow used for security and to confirm elements important the government to verify PSI performance, for calculating duties and taxes. Border management considerations in fragile states with penalties for failing to adhere to the re- Transit systems at times are supported by truck tained criteria. tracking systems for the central monitoring of tran- · Commit the company to training customs sit truck locations, supplemented by mobile customs staff and transfering technology. response teams ready to intervene when irregulari- · Set reporting requirements including the ties are detected. Trucks also may be fitted with elec- numbers of inspections of irregularities ad- tronic seals or with other electronic devices, such as dressed, of adjustments made to values, and special motion detectors and cameras that permit of resulting additional assessments--as well transit authorities to verify whether seals have been as the number of complaints received.22 tampered with. And a single window--a new gen- · Record the PSI inspection fi ndings in the cus- eration of ICT--permits declarants to electronically toms declaration as well as in the automated cus- submit declarations containing all data required by toms management system. Reconcile the data, the border agencies concerned, while providing a explain any difference, and take appropriate mechanism for these agencies to issue permits and action. 23 clearances online (chapter 8). 336 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Much as modern customs operations generally · It had deficient program management and pro- depend heavily on ICT, so the potential contribu- cess control. tion of ICT to border management in fragile states · It failed to specify a methodology to assist with is also very important--largely because it requires migrating from the present, antiquated system much streamlining in the cargo release process. to the new system. Where clearance procedures are largely manual and · It did not contain provisions for testing and accommodate much bureaucratic complexity (with quality assurance. local and historical idiosyncrasy) the adoption of · It had no provision for partnering with external clearance procedures driven by ICT will force the project resources, in contrast to most system de- introduction of new working methods. When mod- velopment efforts in highly developed countries ern processes are forced on the customs administra- (which currently outsource 70 percent of major tion and its staff without having to be included in a system development). formal redesign of local procedures, the avoidance of It is recommended that fragile states adopt a sys- such a redesign can undermine potential local oppo- tem that has been tested on the ground in a variety sition to procedural reform--a strategy sometimes of countries, that is not overly complex and not too compared to that of the Trojan horse. In addition demanding on communication infrastructure, and to streamlining customs procedures, the adoption of that ensures implementation support will be pro- ICT in fragile states can lead to greater transparency, vided as and when needed.25 faster customs clearance, and the production of bet- ter and timelier statistics. ASYCUDA in Afghanistan and Timor-Leste. Initia- All electronic cargo clearance systems available tives to provide Afghanistan and Timor-Leste with or designed for use in fragile states will provide the ASYCUDA illustrate the donor community's con- basic customs clearance modules. But they differ viction that a strong ICT component is essential to somewhat in the technology used, module strengths, overall customs strengthening in fragile states. The and other operational details. Not all systems come PC Trade customs clearance system, promoted by with the same expertise and experience for imple- New Zealand in the Pacific islands, is another good mentation and maintenance--crucial consider- example of adequate clearance technology--it made ations for fragile states. a good stepping stone to the islands' later adoption Customs clearance systems can be either com- of more sophisticated systems. mercial off the shelf (COTS) or custom built, and In Afghanistan the World Bank's Emergency although some countries have successfully designed Customs Project financed a component of the Af- their own customs clearance systems, this has taken ghan Customs Department's five year development a lot of work and plenty of resources--while other plan--a plan that was prepared in cooperation with 19 countries have initiated such an exercise only to the donor community and thus was not a standalone abandon it and acquire a COTS system after delays project (as too many other ICT projects have been). Border management considerations in fragile states and costly modifications. Thus the World Bank ad- The ASYCUDA rollout was gradual, aiming ini- vised a small Eastern European country that had ini- tially at covering the major transit routes and then tiated the process of designing a dedicated customs at covering the declaration process in Kabul. Mod- clearance system to abandon its effort and instead ules have been introduced slowly.26 Implementation look for a COTS system. The main points of this rec- is strongly supported by top customs management, ommendation are informative. It concluded that the yet staff mobility and the reluctance of customs di- proposed custom built system had six disadvantages: rectors to abandon manual processing have slowed it · It retained a functional architecture that did not down. The fragile security situation may also hamper provide for key operational processes and infor- full, timely implementation by restricting the capac- mation processing for core customs functions. ity of central leadership to ensure staff adherence. · It failed to provide for thorough re-engineering In Timor-Leste UNCTAD agreed early on-- of the customs control and clearance procedures in April 2002--to provide the ASYCUDA cus- to ensure compatibility with modern processes. toms clearance system, as it was considered most B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 337 appropriate for the local circumstances. Early tests, be gained from a professionally designed and in September and October 2003, were successful. implemented communications strategy directed But funding problems slowed the rollout, as did the to staff and to the trader community. Customs reluctance of the foreign advisors to adopt ICT based may want to draw on outside resources to man- clearance. In the first phase it was noted that not all age such a campaign. clearance posts were connected to the system--and, · The introduction of ICT should support a new, more important, that customs was not using many streamlined customs clearance process--not the of the included modules (risk management, mani- computerization of existing clearance procedures. fest recording and clearing, valuations support, Staff may be more tempted by modern, ICT electronic declaration lodging). A second phase was driven procedures--and thus be more inclined launched in 2006 with additional funding. to accept streamlined clearance procedures. · The introduction of ICT should be geared to the PC Trade in the Pacific countries. PC Trade was first capacity of the country. At times the design of conceived as a standalone, low cost tool specifically the ICT system exceeds the country capacity. targeted for use by Pacific island countries to pro- The proposal for a single window in one East duce official trade statistics. A review of customs Asian country is a case in point. While the win- operations in the region suggested that the useful- dow design called for the submission of a single ness of PC Trade for automating customs opera- declaration that would satisfy all regulatory re- tions, and for strengthening customs administration quirements at all government agencies, several and customs duty collection, could be substantially agencies were not ready to relinquish their pre- enhanced with some modifications to add func- rogatives and operational modalities--nor did tionalities. Using funds provided by the Australian they have the required in-house ICT systems. So Agency for International Development (AUSAID) the project had to be redesigned and limited to under the South Pacific Customs Development Pro- introducing ASYCUDA, with an option to bring gram, Australian Customs and Statistics New Zea- the other agencies in later. A more careful readi- land expanded the existing system with operational ness assessment would have determined whether functions that small countries needed to effectively all the targeted agencies were prepared to submit and sustainably enhance customs operations without to a more centralized clearance procedure, saving placing too heavy demands on skills and resources. time and energy for everyone involved. The expanded PC Trade has been found well suited · Adherence must be gained in customs. The move to its purposes and, in many cases, has provided an to ICT involves changes. Adherence should be excellent bridge from totally manual approaches to sought from those who are expected to gain. 19 a full suite of automated business processes. In sev- The opposition of others--those who benefit eral countries the system has now been replaced with from existing inefficiencies and entrenched Border management considerations in fragile states ASYCUDA++. positions--should be contained. · Full political and management endorsement Information and communications technology in frag- must be sustained over time and backed up with ile states: lessons learned. Based on the experience close supervision. Th is may require personnel with customs ICT use in developing countries, the changes. The fi nance ministry, whose support following conclusions are particularly relevant for is essential to ensure adequate lifetime project fragile states. funding, should be convinced that more selec- · Relying on ICT for customs clearance is essen- tive cargo inspections will not mean reduced tial for all customs administrations. It increases revenue but will permit better utilization of transparency, fosters the adoption of simplified scarce resources in the areas where revenues are procedures, promotes their uniform application, most at risk. and limits the face-to-face contacts that many · Staff need to be brought on board. Retraining customs officers use to solicit bribes. In seeking should be offered--and complemented with staff acceptance for the new system, much can early retirement and other compensation for 338 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N staff who cannot be retrained. Efforts to instill in Douala, and estimated import duties, value added collective pride will pay off. taxes, and any other taxes on the goods are paid be- · Consult private sector stakeholders and assist them fore they begin their journey on. When they arrive with ICT adoption. They will be the prime ben- in Bangui, the process of customs clearance recom- eficiaries of a more transparent, speedier release mences and additional duties may be payable--but of goods. Experience has shown that their active hardly any additional taxes are in fact collected at support can greatly help the ICT rollout. this stage. The process, it is claimed, has resulted in much better revenue performance for the Central For landlocked countries, clearing African Republic and reduced leakage during tran- import cargo at the first port of entry sit in Cameroon. Traders, however, complain bit- Landlocked countries are faced with a special prob- terly of the complexity of the operations and mul- lem when importing goods. The goods arrive at a tiple controls. A more efficient process would be to port in a neighboring country--or even two coun- strengthen the Central African Republic Antenna tries removed from their fi nal destination--and in Douala and proceed with full customs clearance need to transit towards the destination country, and duty payments there, then send the goods on where full customs clearance must take place. A their way to their destination, where a simple verifi- well functioning transit system could deal with this cation would suffice once the goods had crossed the easily--yet transit systems do not function well, even border. Once operational, the process could also be in countries without the structural problems faced applied to cargo destined for Chad. by fragile states. These difficulties could be reduced if the land- Advance notification, advance clearance locked country were to undertake some or all cus- Some countries find it particularly difficult to take toms clearance procedures at the first port of call on control of arriving cargo--largely because of their the foreign territory. This is the practice in Djibouti, inability to control their borders and to judge the where since 1950 Ethiopian Customs has operated a veracity of some declarations, together with the preclearance facility for goods destined for Ethiopia temptation for traders of landing cargo in uncon- (World Bank 2005).27 Transit through the territory trolled areas and so taking advantage of a weak of Djibouti is unencumbered by the escort services customs administration. Islands with weak border and traffic sharing obligations that characterize control are particularly vulnerable to such smug- transit trade in so many other countries. Final clear- gling. Requiring that prearrival information be sent ance then takes place on Ethiopian territory. A simi- to customs in the destination country would help lar procedure has been proposed for Chad and, more these countries to assert more control over their recently, for the Central African Republic. In both imports. The information could be provided by 19 cases customs clearance would take place in Douala, customs in the country of departure, which has the Cameroon, and cleared cargo would be forwarded to export declarations from which to extract and for- Border management considerations in fragile states its final destination under a transit regime. With du- ward it. A mutual assistance agreement between the ties and taxes paid in Douala, and with broadly har- two countries' customs could stipulate which pieces monized customs duties and indirect taxes among of information in exporter declarations should be the countries, the risks of fraud during transit would transferred--a practice akin to that mandated by be drastically reduced, eliminating the need for es- the United States Container Security Initiative, corts. A similar proposal has been made periodi- which requires exporters of containers destined for cally for Eastern African countries such as Uganda, United States ports to provide detailed cargo data Rwanda, and Burundi. in advance of the containers' departure from foreign The recent decision to clear goods destined for ports. the Central African Republic in Douala illustrates In Albania the Pre-Arrival Information System the issues with preclearance. Since January 1, 2006 (PAIS) was in effect from 1998 to 2002, following a all goods destined for the Central African Republic 1998 crisis that drastically disrupted customs opera- arriving at the port of Douala have been precleared tions. A one way communications system designed B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 339 to function during the crisis, PAIS was abolished put this information on the Internet. Customs ex- once the crisis was over. The customs authorities of pressed interest in the export data, considering that Italy, Macedonia, Greece, and Slovenia agreed to this information could help in its verification of de- send prearrival information to Albanian customs clared import values. In 2006 customs began re- for all consignments arriving at its borders by sea or questing that the BSC accompany all import decla- by road, allowing the Albanian customs to better ex- rations for sea shipments. The program having now ercise cargo control. Albanian customs made good run for several years, customs declares itself very use of PAIS, which enabled it to better secure its cus- satisfied with the progress achieved and the value toms revenues during a particularly difficult period. of the information received. A similar program in A prearrival notification system has been in- Madagascar, launched in April 2007, is ongoing. vestigated for Haiti--but implementation has had In both countries the fi ndings of these initiatives limited success because of a lack of cooperation and the adjustments made to declared import val- from the United States, where most of Haiti's im- ues are reflected in the risk profi le module used by ports originate. To succeed better, the system would customs. have required an agreement of mutual assistance between customs authorities in the United States Paying customs officers out and in Haiti, possibly drawn up broadly along these of customs revenues lines: United States port authorities or customs pro- Customs salaries often are paid late in fragile states, vide Haiti customs with basic information on cargo a result of liquidity problems in the treasury. In the shipped from the United States and destined for Central African Republic customs officers, along Haiti (name of vessel, owner of cargo, nature of the with other civil servants, have faced long payment goods, expected and timing of arrival in Haiti, even delays for many years. Customs could be autho- export value). Then the information would be trans- rized to set aside, from its customs receipts, enough ferred electronically to Haiti customs. Th is informa- resources to pay its staff (as in an ARA). The practice tion would prepare Haiti customs if the vessel were would be an exceptional case in which earmarking-- not to land as expected or cargo not to be declared usually frowned upon by economists--is justified by as in the departure notice. Export values could be the special circumstances of fragile states. An emer- compared with declared import values as an indica- gency procedure, it would need to be audited care- tor for customs valuation. fully and would be eliminated after the fiscal situa- A variant of such a prearrival information tion finds a firmer footing. system--one that relies on the exporter, rather than customs or port authorities, providing the Conclusion 19 prearrival information to the destination coun- try--has been initiated in the Republic of Côte Mobilizing fiscal resources in fragile states is a high Border management considerations in fragile states d'Ivoire and Madagascar. In the Republic of Côte priority for both national authorities and the donor d'Ivoire the present scheme originated from the re- community. In most developing countries import quest of the Association of Maritime Transporters taxation constitutes a major part of overall fiscal (OIC, for Office Ivoirien des Chargeurs) that all revenues. This is likely to be even more so in fragile cargo destined for Abidjan be preceded by an ad- states. But successfully levying import taxes is not vance copy of the export declaration in the coun- simple--it requires among other things, the use of try of departure. The declaration, called Bordereau interlocking processes and a competent staff. Cus- de Suivi des Cargaisons (BSC), contained--among toms must be able, at least, to effectively require other data--information about the mode of trans- that traders declare their imports and exports. That port, time of the ship's departure, and details of assumes some security and a basically staffed, opera- the ship, as well as a description of the goods and tional customs service. Traditional customs working their declared export value. The document was sent methods, as spelled out in the Revised Kyoto Con- by the exporter at the importer's request. In 2005 vention (chapter 11), often are impossible in fragile the OIC asked an expatriate logistics firm to help states. 340 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N The inherent difficulty of carrying out proj- 2. These are very much in line with the OECD's ects in fragile states--documented in periodic re- "Principles for Good International Engage- views--accounts for the substantially lower suc- ment in Fragile States & Situations" (OECD cess rate for these projects compared with projects 2007). in less stressful settings. The periodic reviews have 3. For guidelines on diagnostic work in the provided useful lessons that should guide the design area of customs see "Customs Modern- of projects to improve their chances of success. Since ization Project Preparation and Imple- not all fragile states share the same weaknesses, a mentation Guidelines," The World Bank, project design should rest on a thorough diagnostic ht tp://siteresou rces .worldba n k .org / of the situation on the ground. Factors that must INTCUSTOMPOLICYANDADMIN/ be analyzed include those specific to customs and Resources/Customs_Modernization_Project those that may affect political support, acceptance _Preparation_Guidelines_ January _26_ by traders, and acceptance by customs staff. The 2006.pdf. coordination of donors, and their commitment 4. Crown Agents is an international develop- to sustainable fi nancing for the project's expected ment company providing direct assistance, duration, will need to be reviewed. Where either is consultancy, and training for public sec- lacking, the project will be plagued by duplication tor modernization, particularly in financial and a lack of resources. management, procurement, and logistics. It The nontraditional approaches to supporting provides technical assistance in customs ad- customs operations discussed in this chapter range ministration and other areas to developing widely in scope. Some rely on information sharing countries and transition countries. See the between the customs of exporting and importing Crown Agents Web site, www.crownagents. countries. Others simply suggest that customs staff com. be paid out of the import taxes raised. Still other ap- 5. Customs and Tax Consultancy LLC was proaches imply more substantial departures from created in 2008 especially in the context traditional ways of operating: entering into a man- of managing the Democratic Republic of agement contract with a foreign enterprise, for ex- Congo customs management contract. ample, or contracting one or more enterprises to 6. On the topic addressed in this and the fol- provide classification and valuation data on subsets lowing paragraphs, see also Mwangi (2004). of imports. The success of any of these approaches 7. An example was Tivane (2008). will be registered by the payment of taxes and duties 8. For the WCO's Harmonized System for on imports and by the degree to which smuggling is classifying import and export goods, see contained. Each country presents unique challenges, "HS Nomenclature 2002 edition," WCO, 19 and no two projects will be identical. http://www.wcoomd.org/home_wco_topics _hsoverviewboxes_tools_and_instruments Border management considerations in fragile states Notes _hsnomenclaturetable2002.htm. 9. The reasons listed by Kidd and Crandall 1. From "Report of the MDB Working Group include--in addition to these revenue agency toward a More Harmonized Approach to shortcomings--a desire to create islands of MDB Engagement in Fragile Situations," excellence in the public sector. 2007 Meeting of the Heads of Multilateral 10. The Kenya Revenue Authority receives 1.5 Development Banks and Multilateral Finan- percent of collections, plus 3 percent of the cial Institutions. The Country Policy and difference between actual collections and the Institutional Assessment (CPIA) is the pri- collection target for a three month period-- mary tool used by the World Bank to assess subject to a total maximum of 2 percent of the quality of country policies and the main collections (Talierco 2004). input to the World Bank's Performance- 11. For a description of the Bolivian case see Based Allocation system. IDB (2001). B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 341 12. The case in Brazil; see Kidd and Crandall due to concurrent macroeconomic or policy (2006). changes or changes in national or bureau- 13. See Mann (2004). Kidd and Crandall con- cratic leadership. The study suggests that re- cluded: "Most countries clearly believe that ductions in underinvoicing and in misclas- they had a sound basis for establishing their sification are likely to be the cause of these ARA . . . an intuitive leap was made that the increases. Results achieved in a particular ARA was the best solution to solve those country setting will differ depending on the problems and address those deficiencies . . . trader compliance with valuation and clas- in some countries, this leap may well have sification rules before PSI began, and on been in the right direction given the political how customs use the information provided context and the need for a dramatic catalyst through PSI. for change, particularly where other reform 21. Bidding documents should detail services to initiatives had failed." be procured, request price proposals, instruct 14. For a full treatment of this and other subjects bidders to spell out their prior qualifying discussed in this section see Goorman and experience for the task, and specify an exit De Wulf (2005). strategy. The evaluation criteria and weights 15. See "Preshipment Inspection," WTO, to be assigned should be made available to http://www.wto.org/english/tratop _e/ bidders in advance. An evaluation commit- preship_e/preship_e.htm. tee should be established with representa- 16. See the Internatinal Federation of Inspec- tives from government agencies concerned tion Agencies Web site, www.ifia-federation. and with private sector representatives in- org. volved in trade. Its composition should be 17. A notorious case was the PSI contract made public before the bidding documents granted by Pakistan in the early 1990s, are issued. Companies should be prohib- which led to a management overhaul at the ited from contacting individual committee PSI company. members from the time of publication of the 18. See Low (1995). The paper explains what PSI tender to announcement of the results. The is, how it works, how it can benefit user coun- committee should communicate to all bid- tries, its drawbacks and pitfalls, and under ders the results of the technical and financial what conditions it can benefit user countries. evaluation, which should be published in the It contains various case studies and recom- local press. If the tender document calls for mendations regarding the design, implemen- the committee to submit a recommendation 19 tation, and monitoring of PSI programs. to a higher authority, the recommendation 19. For an example of a study that suggests that should be made public ahead of the fi nal Border management considerations in fragile states PSI intervention helped revenue mobiliza- decision. tion in Argentina see Cristini and Moya 22. A WTO working party on preshipment in- (1999). spection has proposed a model PSI contract 20. See Yang (2008). Presented in January 2005 that could be used as a guide in drafting at a workshop organized by the Interna- these contracts (WTO 1999). tional Monetary Fund in Washington, DC, 23. Noel Johnson (2004) argues that weak coun- the paper is available online in a prepub- tries will have a difficult time undertaking lication version at http://www-personal. this reconciliation and benefiting from its umich.edu/~deanyang/papers/yang _ psi. fi ndings. Th is finding supports the hiring pdf. It concludes that PSI inspection pro- of an independent audit firm, as discussed grams lead to increases in import duties of below. 15­30 percentage points during the five 24. Th is section of the chapter draws on De year period after program implementation, Wulf and McLinden (2005) and Baioni and an improvement that does not appear to be Bhatia (2005). 342 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 25. For details see "Guidelines for Evalu- de Investigaciones Económicas Latinoamerica- ating Information Technology Solu- nas, Buenos Aires. tions for Customs," Luc De Wulf, http:// De Wulf, L. 2004. "Ghana." In Customs Moderniza- www.gfptt.org/uploadedEditorImages/ tion Initiatives: Case Studies, ed. L. De Wulf and 00000343.pdf. Guidelines for procuring a J. Sokol. World Bank Trade and Development customs clearance system are provided in De Series. Washington, DC: The World Bank. Wulf and Sokol (2005, pp. 304­309). 19­32. 26. The creation of a central database, the prepa- De Wulf, L., and G. McLinden. 2005. "The Role of ration of a management information system, Information Technology in Customs Modern- the preparation for declaration through the ization." In Customs Modernization Handbook, Internet, and the design of efficient trader ed. L. De Wulf and J. Sokol. Washington, DC: and broker registration systems all enhance The World Bank. 285­310. transparency in operations--permitting De Wulf, L., and J. Sokol, eds. 2005. Customs Mod- traders and their representatives to follow ernization Handbook. Washington, DC: The the process of their declarations without World Bank. having to track paperwork and exchange Fjeldstad, O.-H., I. Kolstad, and S. Lange. 2003. "Au- customs information with neighboring tonomy, Incentives and Patronage: A Study of countries. Corruption in the Tanzania and Uganda Rev- 27. In another example, imports into Finland enue Authorities." CMI Report R 9: 2003. Ber- and Sweden that landed in Norway were gen: Chr. Michelsen Institute. cleared at the Norwegian port and for- Goorman, A., and L. De Wulf. 2005. "Customs warded to Finland and Sweden using a sim- Valuation in Developing Countries and the plified transit system--one without bonds World Trade Organization Valuation Rules." and based on a high level of trust. The system In Customs Modernization Handbook, ed. Luc was abolished with the advent of European De Wulf and Jose Sokol. Washington, DC: The Union procedures, as Norway is not a mem- World Bank. 155­81. ber of the European Union. IDB (Inter-American Development Bank). 2001. "Bolivia: Institutionalizing Human Resources References Management in Bolivia's Customs Administra- tion." In Customs Best Practices in East Asia and Anson, J., O. Cadot, and M. Olarreaga. 2006. "Tariff Latin America. Washington, DC: IDB. Evasion and Customs Corruption: Does Pre- IEG­World Bank (World Bank Independent Eval- Shipment Inspection Help?" Contributions to uation Group). 2006. "Engaging with Fragile 19 Economic Analysis & Policy 5 (1), Article 33. States: An IEG Review of World Bank Support Online at: http://www.bepress.com/bejeap/ to Low-Income Countries Under Stress." The Border management considerations in fragile states contributions/vol5/iss1/art33. World Bank, Washington, DC. Arvis, J., M. Mustra, J. Panzer, L. Ojala, and T. Naula. Johnson, N. 2004. "Committing to Civil Service 2007. Connecting to Compete: Trade Logistics Reform: The Performance of Pre-Shipment in the Global Economy. Washington, DC: The Inspection Under Different Institutional Re- World Bank. gimes." Policy Research Working Paper 2594. Baioni, P., and D. Bhatia. 2005. "Customs Informa- The World Bank, Washington DC. tion Systems Implementation." Staff Working Kidd, M., and W. Crandall. 2006. "Revenue Author- Paper 5, Information Solutions Group, The ities: Issues and Problems in Evaluating Their World Bank, Washington, DC. Success." Working Paper WP/06/240, Interna- Cristini, M., and R. Moya. 1999. "El Control Adua- tional Monetary Fund, Washington, DC. nero en una Economía Abierta: El Caso del Pro- Low, P. 1995. "Pre-shipment Inspection Services." grama de Inspección de Preembarque en la Ar- Discussion Paper 278, The World Bank, Wash- gentina." Documento de Trabajo 62, Fundación ington, DC. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 343 Mann, A. 2004. "Are Semi-Autonomous Revenue Uganda." Paper presented at the Workshop on Authorities the Answer to Tax Administration Taxation, Accountability and Poverty at the An- Problems in Developing Countries? A Practical nual Conference of the Norwegian Association Guide." United States Agency for International for Development Research, "Politics and pov- Development, Washington, DC. erty," Oslo, October 23­24. Mwangi, A. 2004. "Mozambique." In Customs Mod- Tivane, Domingo (General Director, Mozambique ernization Initiatives, ed. L. De Wulf and J. Sokol. Customs). 2008. "Customs Reform in Mozam- Washington, DC: The World Bank. 49­64. bique." Presentation at International Finance OECD (Organisation for Economic Co-oper- Corporation Conference on Trade Logistics, ation and Development). 2007. "Principles Washington, DC, May 5. for Good International Engagement in Frag- World Bank. 2005. "Republic of Djibouti-- ile States & Situations." OECD, Paris, April. Transport Sector Review." Report 32575-DJI, Available online at http://www.oecd.org/ The World Bank, Washington, DC. dataoecd/28/5/43463433.pdf. WTO (World Trade Organization). 1999. "Draft Talierco, R. 2004. "Organizational Design Profiles of Final Report of the Working Party on Pre- Semi-Autonomous Revenue Authorities in De- shipment Inspection." Document G/PSI/ veloping Countries." Mimeo., The World Bank, WP/W/24, WTO, Geneva. Washington DC. Yang, D. 2008. "Integrity For Hire: An Analysis of a Therkildsen, Ole. 2003. "Revenue Authority Auton- Widespread Customs Reform." Journal of Law omy in Sub-Saharan Africa: The Case of and Economics 51 (1): 25­57. 19 Border management considerations in fragile states 344 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 20 CHAPTER Integrity risk modeling in the border management context Amer Z. Durrani, Michaela A. Prokop, and Michel R. Zarnowiecki Governance, in this chapter, denotes the ability of the systems that en- able a country to operate under the rule of its law (a more specific defini- tion appears in box 20.1). Poor governance significantly impairs many countries' revenue generation, and it makes their trade facilitation less effective. Moreover, poor governance is recognized as a major barrier to success for many border management reform initiatives. Earlier approaches to assessing and organizational vulnerabilities and addressing poor governance as a bar- comprehensively understand the gov- rier to border management reform ernance dimensions of border manage- had three main weaknesses. First, the ment reform, both from a bottom up earlier approaches were often more or perspective and from a top down per- less subjective in connecting corrup- spective. Such methods were needed to tion risk mapping to the overall gover- secure long term improvements. The re- nance environment (whether through sult was a mechanistic tool, developed a value chain analysis or through some to adapt available risk assessment and other method). Second, the impact of management techniques (both generic the overall governance and social envi- and sector specific) for mapping corrup- ronment on reform efforts was often tion vulnerabilities--and then, using a disregarded because that environment simple governance analysis, to infer a was discounted as an area where proj- governance accountability action plan ects could have little influence. Th ird, (GAAP). The tool would help identify a clear monitoring and evaluation tool short, medium, and long term actions was seldom provided. required, not only from project entities, These shortcomings of earlier but from other influential stakeholders Integrity risk modeling in the border management context approaches prompted a search for as well. It would also be used to assess new methods to help identify all the extent of any reduction in corrup- tion opportunities achieved through Box 20.1 What is governance? changes in governance. The proposed tool would use ge- Governance has been defined as ". . . the tradition and institu- neric business transformation audit tions by which authority in a country is exercised. This includes and the governance controls assessment (1) the process by which governments are selected, monitored, based on the Committee Of Sponsor- and replaced, (2) the capacity of government to effectively formu- ing Organizations of the Treadway late and implement sound policies, and (3) the respect of citizens Commission (COSO) internal control and the state for the institutions that govern economic and social integrated framework.1 In addition, it interactions among them" (Kaufmann, Kraay, and Zoido-Lobatón 1999, p. 1). The present chapter employs this definition. would use the World Customs Orga- nization (WCO) integrity framework B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 345 (see WCO n.d.), a modified "Gartner Magic Quad- customs systems (unlike other fiscal institutions) de- rant,"2 and World Bank guidelines for developing pend on many externalities that affect the agency's GAAPs. By using all these techniques it would en- ability to reform--and over which it has limited able graphic depictions of the governance topog- control. Above all, the traditional projects did not raphy and of the magic quadrant of action, clearly extend beyond the limited domain of customs, even showing high priority areas for the present as well as though most identified blockages were outside that for the evolving governance environment. domain. Because this approach appeared best for projects Among the limitations of traditional modern- in the highly sensitive area of customs moderniza- ization projects, three may be especially noted: tion, it was adopted to develop a vulnerability map- · A specialized reform theme, such as valuation ping and GAAP for a World Bank customs project control, implies technical competences and an in South Asia (box 20.2). Several years of experience organizational model (also based on comput- in customs reform around the world had shown the erization) that can be optimized only if strong limits of traditional modernization projects centered control issues (such as postclearance reviews, au- on customs. Many such projects were too focused on dits, and severe penalties for forging invoices) are a specific function of customs activities. Some essen- addressed in parallel. A self contained valuation tially yielded patching up procedures with a limited project, therefore, will not wholly deliver. In- effect on overall institutional capacity. Others were stead the valuation project must fit into a much all encompassing but rapidly found their limits, as broader reform programme. Box 20.2 Developing a governance accountability action plan (GAAP) for Afghan customs Customs is widely seen to be among the most corrupt institutions in Afghanistan (World Bank 2009). Concerns include interference from provincial and local power holders, resulting in a considerable diversion of customs revenues and a lack of compliance with--and enforcement of--customs procedures and control systems. There are widespread allegations of political appointments, of pressure leading to the rehiring of dismissed staff, of preference given to individuals with links to the political elite (at the central or local level), and of the sale of lucra- tive posts. Rentseeking and demanding facilitation money is said to be widespread among customs officials and among other agencies at the border. (In 2009 Afghanistan ranked 179 out of 180 on Transparency International's global Corruption Perceptions Index.a) In postconflict Afghanistan--with its complicated donor relations and its many pre-existing donor initiatives-- the challenge from the onset has been to design a cost effective customs project within a comprehensive strategy. The World Bank has been assisting the Afghan Customs Department since 2003 with the Emergency Customs 20 Modernization and Trade Facilitation Project, which prepared the ground for establishing a more efficient customs and transit regime. However, governance concerns have continued to hamper further progress. To better understand and address these concerns a governance accountability action plan (GAAP) was de- Integrity risk modeling in the border management context veloped during preparations for the Second Customs Reform and Trade Facilitation Project. Several other assess- ments had been done--for example, a World Customs Organization Integrity Development Guide self-assessment and evaluation (WCO Secretariat and WCO Asia/Pacific Region n.d.), an information and communications tech- nology (ICT) transformation audit, and a governance controls assessment using the Committee Of Sponsoring Organizations of the Treadway Commission (COSO) internal control integrated framework.b However, to identify priorities and entry points for intervention a more comprehensive understanding of vulnerabilities and responsible agencies was needed. The GAAP mapped vulnerabilities and identified priority reform areas, not only in customs but also in spheres of influence well beyond customs, by identifying other government and nongovernment ac- tors at the border. Notes a. See "Corruption Perceptions Index 2009," Transparency International, http://www.transparency.org/policy_research/ surveys_indices/cpi/2009. b. See further the COSO Web site, http://www.coso.org/IC.htm. 346 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N · Computerization is the backbone of customs as interaction with other agencies), yielding an in- reform--yet it implies a whole range of re- complete or unsustainable reform. forms, such as declaration format and process- Thematic approaches thus seem more promising. ing, legislation, organization, transit manage- They may cover more than the customs area, or they ment, postclearance checks, risk management, may address issues from a more functional angle. business process transformation, and change That is how anticorruption projects were initiated-- management (to name a few). Thus, the in- in a way that cut across the entire customs adminis- formation and communications technology tration, and sometimes beyond customs. Yet those (ICT) reform must also fit into a wider pack- projects (for reasons of visibility) essentially ad- age of reforms. dressed perceptions of corruption and of its roots, · Infrastructure development can be effective only rather than focusing on overhauling the systems if it takes into account all the border agencies' conducive to corrupt practices. Targeting corruption operational mandates, fits into a comprehensive directly, as a theme, has seldom worked and is fairly reform package, and is used to set reforms in inefficient. Either it buries corruption more deeply, concrete. It does not make much sense to con- making it more difficult to detect and unseat, or it solidate existing procedures into a modernized leads to a direct confrontation with the corruption layout--or to use modernized procedures with mafia, creating debilitating legal, political, and ad- an existing layout, as the layout should reflect the ministrative obstacles--or it does both. The best way ambitions of the reform program. forward is, instead, to reduce corruption opportu- A holistic approach is thus needed, with final ob- nities in the system. Accordingly, improving border jectives corresponding to a real development strat- management requires a review of the governance en- egy. Yet in the past such strategies have--more often vironment, and it must focus on systematic, outcome than not--simply combined a shopping list with based approaches (box 20.3) rather than thematic or much wishful thinking. Comprehensive reform simply opportunistic ones. programs face two major difficulties. First, such The most effective thematic threads used in pre- programs typically are delivered through a multi- paring the GAAP for border management reform donor scheme, with donor coordination issues that were the World Customs Organization's (WCO) are sometimes complicated. Second, the programs Revised Arusha Declaration and its associated In- may prove overambitious given the timeframe and tegrity Development Guide,3 which set the stan- absorption capacity of the customs institution--or dards for integrity in the customs environment and they may ignore, for pragmatic reasons, everything outlined a practical basis for developing and imple- outside the immediate competence of customs (such menting integrity or anticorruption strategies. Based 20 Box 20.3 The first combined and outcome based border management reform approach: the World Bank's Trade and Transport Facilitation in Southeast Europe project Integrity risk modeling in the border management context The first combined and outcome based approach to designing a border management reform project was used for the World Bank's Trade and Transport Facilitation in Southeast Europe (TTFSE) project. It addressed customs and overall border management--not just customs corruption--as one element of the transport and trade chain, and it based its outcome on improved commercial and transport connectivity. Subprojects of the TTFSE project were thus enabled to focus on noncustoms agencies and on participants at the regional level (border police, food, health and standards, the business communities). The TTFSE project was the first step toward what was called, at the time, integrated border management. Its approach was to set a highly visible set of outcomes (for example, border clearance delays slashed by half) and then--working backward from those outcomes--to identify the key elements that would enable the outcomes, the effect of those key elements on overall processes, the existing flaws in the key elements, and a few needed remedial measures that would be most effective. With this approach as its backbone, the TTFSE project was then split into country and thematic components. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 347 on a self assessment process focused on central issues placed to collect and redistribute bribes on behalf of affecting the development of an efficient integrity all the other border agencies. program, the Integrity Development Guide provides Depending on the country, types of corruption a framework to examine management, administra- prevalent in customs include one or more of the tive, and integrity strategies already being employed following. and to identify further improvement opportunities. The challenge for the border management re- Rentseeking is, literally, rent sought to recover the form GAAP was to adapt tools initially designed for cost of acquiring or retaining a lucrative position. It general customs reform to a specific area of customs includes petty or routine corruption (also called tea work--the border. Most previous projects had a top or facilitation money), whereby a trader pays a bribe down approach and often ignored, or simply could at various stages to get goods cleared (box 20.4). not address, difficulties on the ground. In contrast, Sometimes called survival corruption (as poorly the Integrity Development Guide self assessment paid government officials try to make ends meet), helped to bridge core customs functions--as usu- petty corruption is pervasive and often almost ally perceived by international donors--with the ap- accepted as a necessary evil in some countries. The plication of those functions in field operations. The overall rent may be almost fi xed, the size and fre- TTFSE project formed local project teams for the quency of bribes depending on the bargaining pow- self assessment.4 It was one of the first projects to ers of payer and recipient. Though mainly associated successfully integrate all stakeholders (not only cus- with increased business costs, rentseeking can have toms officials) in a comprehensive review of border a large and immediate fiscal impact when rents are processes from a functional perspective. considered too high and so encourage evasion. Petty corruption often can be reduced by using automa- Governance and border management tion to limit interactions between customs officials and traders. With customs revenues constituting a substantial Two things are required to combat rentseeking part of domestic revenues in many developing coun- in border management. One is an adequate working tries, efforts to address governance and account- relationship among agencies. The other is a release by ability in customs are crucial to sustained economic default approach--based on a risk management ap- growth--and are even more significant for postcon- proach, which often can exist before full computer- flict and fragile states. But the central government's idea of revenue generation often differs greatly from the way revenue is collected at borders and other Box 20.4 Assessing the financial level of 20 clearance locations. When the main responsibility petty corruption: rentseeking at customs in a fragile state of field officials is to meet revenue targets, opportu- Integrity risk modeling in the border management context nities for corruption increase. A major customs house in a fragile postconflict Customs--over time and around the world-- country was inspected by an audit department. has been associated with corruption. Unlike most Rapidly it became clear that practically every trans- other civil servants, customs officers hold direct and action was corrupt. A majority of customs staff discreet power over tangible and significant wealth. faced arrest. In addition, control and accountability systems at The local manager offered the auditors a the border are often weak. These problems are often $45,000 bribe to drop the investigation. As the au- further compounded by weak judicial systems and ditors accepted it the staff scrambled to the im- low capacity in law enforcement. porters, asking them to produce $45,000 in 20 min- utes. The importers agreed--on the condition that However, the association of corruption with cus- the customs officers would cease collecting petty toms also reflects the special visibility of customs. bribes for two weeks. These facts suggest that the Often it is the most visible agency at the border, so it rent paid to customs officers, in that customs house is often associated with corruption involving other at that time, was about $90,000 a month. agencies. Finally, customs officials are often the best 348 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N ization is rolled out--to eliminate some rentseeking reveal and facilitate on a larger scale. Indeed, in frag- opportunities. ile states grand corruption does not cause large fiscal leakages--rather, in more severe ways, it threatens Patronage is the making of appointments as part of the writ of the state. a reciprocal exchange of favors among political or Grand corruption can be partly addressed other interest groups. Patronage networks impede through an overhaul of procedures, legislation, and the emergence of an efficient, modern bureaucracy. institutional mandate with auditing tools to help de- They facilitate evasion, so they have high fiscal as tect corruption levels. Such an overhaul can be only well as social impacts. And they often extend to law partly effective, because the deep social and political enforcement agencies, leading to pervasive impu- roots of criminal networks undermine any attempt nity. While there are no technical methods for at overhauling systems--especially in fragile states dealing with patronage, it is possible to introduce and countries in conflict, where the rule of law is alert mechanisms into customs systems to point out generally extremely weak. patronage patterns. Designing a tool for mapping Collusion occurs when a trader or agent evades all vulnerabilities to corruption and or part of a fiscal obligation and a customs officer identifying mitigating actions: the receives a share in the unpaid amount. Leading to governance accountability action direct--often major--revenue leakage, collusion is plan for border management reform largely a political and social problem. Yet it can be partly checked through simple but effective, real Given the need for holistic, outcome based time alert mechanisms that bring suspicious trans- approaches to improving governance in customs actions to the attention of a network of managers and border management--and the landscape of cor- and auditors inside and outside the customs agency. ruption just described--how should interventions Examples of such transactions include systematic to improve governance in these areas be designed? valuation queries or waivers, the repeated process- Th is section outlines a possible approach. Like all ing of imports from the same importer by the same attempts to find solutions, this one starts by iden- customs officer, and the like. tifying problems in relation to the desired outcome: Collusion at borders can be addressed through: better governance in border management. · Checks and balances using external data (for ex- Considering the complexity of donor initiatives, ample, data obtained automatically from across a cost effective border management intervention the border) to validate processing. must do four things: · As much as possible, automatic capture of basic · Build on all existing activities. 20 data that cannot be interfered with later. · Prepare for longer term solutions, such as an · Downstream control. overhaul of legislation or institutions. Integrity risk modeling in the border management context · Optimize results for stakeholder ownership. Grand (or criminal) corruption occurs when crimi- · Provide quantifiable results that validate the nal interests pay or otherwise exert pressure to pro- roadmap for further reform. tect their illegal operations, such as drug trafficking. To design such an approach a methodology is re- Often such corruption amounts to state capture quired that assesses the overall governance situation by criminal networks. Assessing its impact is diffi- and that identifies vulnerabilities as well as respon- cult, as family or tribal networks--sometimes intri- sible actors. The setting of reform priorities then be- cate--collude in corrupt practices that allow large comes possible through quantifying corresponding revenue leakage and the passage of illicit and haz- risk levels and determining governance dimensions. ardous goods (drugs in particular). The greatest costs The GAAP for border management reform was of corruption to state and society are not the rents designed to be less subjective than earlier assess- and bribes as such but the underlying distortions, ments and to allow the effects of poor governance revenue leakages and criminal activities that they on border management reform implementation to B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 349 be monitored through a transparent, mechanistic postclearance verifications, and customs investiga- approach. First piloted for the development of the tions. (Aggregate risk levels for these steps appear in Second Customs Reform and Trade Facilitation table 20.2.) Project in Afghanistan (see box 20.2), the approach is described in greater detail below. From mapping corruption risks to developing the governance accountability action plan Mapping corruption vulnerabilities Mapping corruption risks, and calculating risk The first part of the approach was to map corrup- levels for each customs process step, helps identify tion vulnerabilities for each customs process step the main bottlenecks and interdiction points. But and function. Th is entailed breaking the customs underlying governance issues need to be addressed-- processing chain down into simple steps, which and these issues must be understood before mitigat- generally are consistent globally (though they may ing actions can be designed and priorities assigned to vary by country, or by point of entry and means of each action. (A further aim is to conveniently match transport). As an example, the main steps identified various categories of mitigating actions against the in a landlocked, postconflict, fragile state appear in various projects funded by donors.) figure 20.1. First, four broad organizational categories of For each step and its substeps a corruption risk mitigating action should be distinguished: level was calculated--the product of a corruption · Enforcement (defi ned as the ability to credibly impact rating and a corruption probability rating impose obligations or detect violations). (box 20.5). For example, the levels calculated for ar- · Rules of business (comprising all operating rival, landing, and cargo reporting at the border in a procedures). landlocked country identified the more substantial · Statutes and institutional mandates. risks for that country and for each agency involved · The achievement of revenue objectives. in this customs process step (table 20.1). Other cor- Second, each vulnerability identified should be ruption risk levels were calculated for the other steps: classified under one of four governance dimensions immediate customs control, compliance checks, vio- (according to the governance issue to which it is lation detection and reporting, violation processing functionally related): and adjudication, duty assessment, duty payment, · Policy (unclear policies and objectives, inconsis- exit, the transit regime, warehousing, re-exporting, tent strategies). Figure 20.1 Customs process steps in a landlocked, postconflict, fragile state 20 Arrival, Immediate Violation Violation landing, and customs control and detection and processing and cargo reporting compliance checks reporting adjudication Integrity risk modeling in the border management context Duty Duty Transit Exit assessment payment regime Postrelease Customs Warehousing Re-exporting verifications investigations Source: Authors' construction. 350 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Box 20.5 Calculating corruption risk levels for each customs process step and substep In mapping customs corruption vulnerabilities--part of the governance accountability action plan (GAAP) for bor- der management reform--aggregate corruption risk levels were calculated for each customs process step. The aggregate risk level for a step was based on levels calculated for each of its substeps. For the substeps, risk levels were calculated and high, medium, and low risk levels defined as follows: · High (red) meant that corruption impact × corruption probability = from 7 to 9. · Medium (orange) meant that corruption impact × corruption probability = from 4 to 6. · Low (green) meant that corruption impact × corruption probability = from 1 to 3. Corruption impact ratings reflect the impact of corruption in each substep on the three primary functions of customs--the collection of revenue, the facilitation of legitimate trade, and the protection of society (for example, the prevention of movements of hazardous goods). Corruption probability ratings reflect the likelihood of corrup- tion in each substep (that is, of a given corruption vulnerability being exploited). Customs corruption risk levels generally are determined drawing on existing quantitative and qualitative analy- ses and based on extensive experience and lessons from other countries. If such analyses are not available, an alternative approach is to conduct stakeholder surveys at border posts. Once corruption risk levels are calculated for each substep within a customs process step, an aggregate cor- ruption risk level for the customs process step is determined. Table 20.1 Example of corruption risk mapping summary for each substep in a customs process step (arrival, landing, and reporting), with corruption risk levels Substep of arrival, landing, Nature of corruption risk Corruption Corruption Corruption and reporting or vulnerability Agencies involved impact probability risk level Foreign release Exiting cargo (unreported or Foreign customs 3 2 Medium (orange): 6 misreported) Border infrastructure Ineffective control All agencies 3 3 High (red): 9 Immigration and other controls Identity checking Customs, border police, specialized 1 1 Low (green): 1 police agencies (for example, counternarcotics, commerce, ministry of health, ministry of agriculture, ministry of transport, provincial agencies) Driver and passenger checks Inadequate risk Customs 3 3 High (red): 9 management Border release Delay during release Police agencies, customs 3 3 High (red): 9 Isolated police checks Delay by police checks Police agencies 1 3 Low (green): 3 Cargo control by specific Unnecessary checks and 2 3 Medium (orange): 6 20 agencies other than customs delays Reach the approved customs Deliberate avoidance of Army, border police, customs, 3 3 High (red): 9 Integrity risk modeling in the border management context House customs control (smuggling) customs police, commerce Reporting Undeclared or misdeclared Customs 3 3 High (red): 9 cargo Transshipment Delay, diversion, revenue Transport (policy), commerce, traders, 3 2 Medium (orange): 6 loss, concealed goods transporters, police Weighing Redundant weighing Road administration, provincial 1 2 Low (green): 2 administration Weight ticket Unreliable weight ticket 2 2 Medium (orange): 4 Queue Delay in queue 1 3 Low (green): 3 Rentseeking Cost of rentseeking 2 3 Medium (orange): 6 Transit control Diversion Customs, police 3 3 High (red): 9 Total High (red): 91 For the calculation of corruption risk levels for each substep in a customs process step--and for the subsequent calculation of an aggregate risk level for each step--see box 20.5. Source: Authors' compilation. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 351 Table 20.2 Example of corruption risk mapping summary for all customs process steps, with aggregate risk levels and linkages to the customs reform program Aggregate corruption Customs process step risk level Linkage to the reform program Arrival, landing, and High (red): 91 To ensure compliance throughout the customs territory, the customs agency would need powers of reporting control, search, and arrest akin to police powers--including the use of weapons--and adequate computerized data exchange across borders. That would require a change in the interpretation of the constitution, some changes in penal legislation, and adjustments of the customs law. A parallel requirement would be a clarification, in the government's rules of business, of the various agencies' roles and responsibilities. For appropriate enforcement, customs would require an increased budget and resources for a 24-7 presence. Immediate customs Medium (orange): 46 To achieve efficiency, customs checks must be supported by a credible customs agency--one with control adequate powers to directly obtain information, share information with other agencies, and enforce penalties on defaulters. Compliance checks High (red): 72 Professional operating procedures need to be introduced to ensure adequate compliance checks. Such procedures can be effective only if clearance operations are well coordinated with other agencies, if customs is not subject to unnecessary interference by other departments, and if customs has the ability to prosecute and punish deliberate, repeated, and serious violations in the declaration, description, and evaluation of imported goods. This in turn would require: Adequate penal legislation. A clarification and amendment of customs' rules of business. The establishment and refinement of customs internal procedures--implemented by appropriately trained staff--to ensure adequate checks and balances. Proper reporting, measurement, and mechanisms for management feedback. Violation detection and High (red): 30 There is currently no deterrent effect from the detection of violations, as penalties--when paid--are too reporting low and are not properly accounted for by customs personnel. Violation processing and Medium (orange): 9 In the absence of a streamlined judicial process, cases are either delayed or not taken to court, further adjudication encouraging a sense of impunity among offenders. Duty assessment Low (green): 3 Revenue target objectives encourage arbitrary duty assessments, made with the aim of increasing collected revenues as much as possible (regardless of the amounts actually due). Duty payment Medium (orange): 24 Payment mechanisms are designed to capture traffic, with customs houses competing to offer the highest discounts in order to meet revenue targets--while there is little guarantee that duties will not be diverted. Exit High (red): 21 In the increasingly computerized environment, exit procedures provide a remaining opportunity for rentseeking--by delaying the exit of goods, and by creating an opportunity for face-to-face encounters between importers and customs officials. Transit regime High (red): 19 While great progress has been made in securing transit, customs still needs adequate powers of control and enforcement to ensure that the system is not abused. Warehousing High (red): 24 In the absence of clear provisions and adequate organization, warehousing schemes are not used to their 20 full potential and can be seriously abused. Re-export Low (green): 1 Inadequate transit systems generate nontransparent substitution procedures. Integrity risk modeling in the border management context Postclearance High (red): 28 It is important to establish strict and effective rules for the control of transactions after the release of goods-- verifications an essential feature of modern customs operations, but one that can operate only in a well defined organization. Customs investigations High (red): 27 Investigations should provide a safety net--a balance to upfront facilitation measures. This is possible only if customs has adequate powers. For abuse to be avoided, such powers of investigation need to be carefully managed and controlled. The color coding of aggregate risk levels for customs process steps does not always match that of risk levels for customs process substeps, as color coding for the aggregate risk levels depends partly on the number of substeps in a step. A customs process step's linkage to the reform program indicates the relevance of particular sets of mitigating actions for that step within a compre- hensive customs development strategy. Source: Authors' compilation. · Institutions (weak institutions with overlapping · Human resources and administrative capac- roles and responsibilities). ity (the lack of knowledge, skills, and human · Procedures (outdated regulatory framework, and administrative capacity to implement overly bureaucratic procedures). reforms). 352 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Table 20.3 Levels of mitigating actions needed to address vulnerabilities, by organizational (action) category and functional (governance) dimension Functional (governance) dimension Organizational (action) Human resources and category Policy Institutions Procedures administrative capacity Enforcement Political decision Legislation Border agencies Interagency Rules of business Government guidelines Interagency Administration Internal Statute Political decision Government guidelines Legislation Interagency Revenue Government guidelines Finance Budget Finance Source: Authors' compilation. For each combination of an organizational (ac- The example in table 20.5 shows the impact tion) category and a functional (governance) di- on corruption risk of one customs process substep mension, the level of the mitigating action needed (border infrastructure) within the arrival, landing, is shown in a matrix (table 20.3). The matrix also and reporting step. This impact is assessed in terms brands project input categories in a way that allows of the issues and risks, the agencies concerned, the crossreferencing among various donors. In design- probability of corruption, and the mitigating action ing this matrix it was recognized that most vulner- identified in the particular context. The mitigating abilities to corruption are attributable, or related, actions are assigned to four major customs functions to deficiencies in all four functional dimensions. To (preventive, investigative, postclearance, and online allow the setting of priorities, only the most impor- checks) and to other checks and audits. The impact tant dimensions were identified for each substep. of the mitigating actions is assessed in terms of func- Human resources and administrative capacity af- tions affected and overall contribution to reducing fect all processes and were recognized as an impor- the risk. tant crosscutting issue, but they were included in As each action may have an impact on other the matrix only when they had an unusually large areas later in the process, dealing with one aspect impact on the ability to implement reforms. It was of the reform may have a greater than proportional also recognized that any mitigation action plan result in terms of downstream operations. For ex- would require strong capacity and institution build- ample, border station design must take into account ing measures. interagency and cross border cooperation--identi- For the example introduced earlier (see tables fied under a previous step in the matrix--which 20.1 and 20.2) a comprehensive table was con- will also contribute to solve some later compliance structed (table 20.4), correlating corruption risks issues. Each time such an action is completed under 20 and vulnerabilities to possible mitigating actions the project, the table is automatically updated to and the agencies involved (broken down by the var- change the value in the corresponding cell to 0, thus Integrity risk modeling in the border management context ious levels of mitigating action) and setting priori- reducing the total impact of mitigating actions for ties for each mitigating action. The comprehensive this substep on corruption risk (shown in the right table was then transformed into an overall gover- column of table 20.5, with a starting value of 25 in nance surface diagram showing the vulnerability the example). of customs processes to corrupt practices (figure The impact on corruption risk levels of a given 20.2). aspect of reform is accordingly reflected in a specific Given the high interaction between processes, governance surface diagram for (figure 20.3, using mitigating actions in one area usually have down- the border infrastructure example). Each time an stream effects on later processes. Such effects can action is completed under the substep (or an earlier be updated automatically by the model. Links were substep), one of the peaks on the diagram is flat- therefore established in the matrix between mea- tened. Ideally, when all mitigating measures have sures taken under one process step and any later steps been introduced, the entire surface bottoms out and that would be affected by the same measures. becomes flat. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 353 Table 20.4 Example of comprehensive risk mapping summary for all customs process steps, with mitigating actions, agencies involved, and priorities set for each step Average Ease of corruption risk implementing Process Nature of corruption risk or level of process Mitigating actions and mitigating step vulnerability substepsa agencies involved actions Priorityb Arrival, · Entering cargo remains unreported Medium (orange): Policy level: 24 MT landing, and or misreported. 91/15=6.0 · Customs department and finance ministry-- reporting · Additional checks from other providing sufficient budget resources to agencies cause delays and provide ensure 24-7 presence for customs and border opportunities for rentseeking. line control. · Unreliable weighing leads to Institutional and procedural level: delays and provides an opportunity · Customs department and neighboring coun- for rentseeking. tries' customs--ensuring adequate cross border computerized data exchange and cross border coordination. Immediate · Manifest is not available. Medium (orange): Institutional and procedural level: 7 H customs · Declarations are prepared 46/9=5.1 · Customs department--introducing prenotifi- control improperly or by customs. cation and automatic link to transit document. · Customs may accept improper Human resources level: declaration in return for bribe, or · Customs department and clearing agents-- may refuse declaration. training of clearing agents. Compliance · During document controls, Medium (orange): Policy level: 8 H checks customs officers misuse their 72/11=6.6 · Customs and other agencies present at bor- discretionary powers. der--agencies delegating power to customs · Goods are undervalued. to ensure compliance . · Incorrect tariff regime is applied. · Customs, civil service commission, and judi- · Importers are subject to excessive cial agencies--amending and clarifying rules rate of control. of business and penal legislation for customs. · During physical control goods Institutional and procedural level: may be subject to pilferage, · Customs--establishing and refining internal inadequately or excessively customs procedures; ensuring that clearance examined, or control affected in operations are well coordinated with other return for a bribe. agencies; computerizing valuation process. Human resource level: · Customs--training customs officers in valuation. Violation · Penalties are too low to have High (red): Policy level: 17 H detection and deterrent effect. 30/4=7.5 · Customs, civil service commission, and reporting · Irregularities are not reported. judicial agencies--enhancing legislation to in- 20 · No distinction is made between crease penalties and strengthen enforcement minor and severe irregularities. capacity of customs. · Customs abuses discretionary Institutional and procedural level: Integrity risk modeling in the border management context powers. · Customs--introducing computerized reporting. Violation Delays in judicial processes encourage Medium (orange): Policy level: 21 LT processing and impunity among offenders. 9/2=4.5 · Judicial system--introducing expedited adjudication judicial treatment and administrative penalty schemes. Human resource level: · Judicial system--providing adequate training of judges. Duty Revenue target objectives encourage Low (green): Policy level: 10 MT assessment arbitrary duty assessments, made 3/1=3.0 · Customs and finance ministry--revising with the aim of increasing collected policy of revenue targets. revenues as much as possible Procedural level: (regardless of the amounts actually · Customs--computerization. due). 354 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Table 20.4 Example of comprehensive risk mapping summary for all customs process steps, with mitigating actions, agencies involved, and priorities set for each step (continued) Average Ease of corruption risk implementing Process Nature of corruption risk or level of process Mitigating actions and mitigating step vulnerability substepsa agencies involved actions Priorityb Duty payment Payment mechanisms are designed High (red): Policy level: 20 LT to capture traffic, with customs 24/3=8.0 · Customs and finance ministry--Revising houses competing to offer the highest policy of revenue targets. discounts in order to meet revenue Institutional or procedural level: targets (port shopping). · Customs, finance ministry, and central Duty paid is not accounted for in bank--introducing and encouraging elec- treasury. tronic payment. Exit Issuance of release note--and thus, High (red): Policy level: 8 MT exit of goods--is delayed in return 21/3=7.0 · Customs--introducing default green channel for a bribe. release. Management reviews declaration; Procedural level: final signature can cost a substantial · Customs--introducing electronic signature and amount. direct printing of release note on importer and clearing agent systems. Transit regime Goods in transit are diverted and Medium (orange): Policy level: 17 LT released for domestic consumption. 19/3=6.3 · Customs--strengthening inland enforce- ment; customs, commerce ministry, transport ministry, interior ministry: Ensuring adequate border control. Institutional and procedural level: · Customs--computerization. Warehousing Goods are pilfered. High (red): Policy level: 23 LT Control over goods entering warehouse 24/3=8.0 · Customs--introducing licensing. is inadequate. Procedural level: · Customs--strengthening inventory control; introducing document linkage and comput- erization. Re-export Inadequate transit systems generate Low (green): Policy level: 21 LT nontransparent substitution 1/1=1.0 · Customs, finance ministry, commerce procedures. ministry, and transport ministry--amending legislation. Postclearance Payments are solicited or accepted to High (red): Institutional and procedural level: 20 LT verifications influence outcome of audit findings. 28/4=7.0 · Customs department--establishing strong Importers are harassed. coordination between customs and tax authori- Postclearance audit has limited access ties; introducing and conducting management 20 for on site visits. audits; introducing approved importer scheme. Customs Importers are harassed. High (red): Procedural level: 16 LT Integrity risk modeling in the border management context investigations 27/3=9.0 · Customs department and tax authorities--in- troducing tight management control; improving intelligence and interagency coordination; computerization. Priority is as follows: H=high, MT=medium term, LT=long term. a. The average corruption risk level for customs process substeps is a mean, calculated by dividing the aggregate corruption risk level for a customs process step (see table 20.2) by the number of process substeps. b. Priority is determined through a calculation based on two variables: the aggregate corruption risk level for a customs process step (reflecting the importance of addressing the step; see table 20.2) and the ease of implementing mitigating actions. (See also figure 20.6, below, with discussion.) Source: Authors' compilation. Using the tool to monitor progress model showing the linkages among process steps, sim- Through assessing the ratings for each process step on ulations can be done to evaluate the immediate and a regular basis it is possible to evaluate any improve- induced effect of any given remedial action--and the ment in the governance situation. Using an interactive cost effectiveness of the action becomes more evident. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 355 Figure 20.2 Example of overall governance surface diagram, showing corruption risk level by customs process step and category of mitigating action Corruption risk level 30­40 40 20­30 10­20 30 0­10 20 10 0 g ortin ntrol ecks g/rep s co grtin h of vioing and stom ndin ce c ns repo ent latio al/la plian te cu y ssm HR capacity f dut and dica Process Exit Arriv Com Asse edia it ent o ction Procedure s tion Tran g Imm ousin Dete Paym t Institution xpor verifi release ns h adju Ware Functional catio Re-e Policy tigat ms (governance) ions Post dimensions of o Cust Customs process step mitigating action inves Source: Authors' construction. The GAAP can therefore be used as a monitoring tool. Based on the ease of implementation and the ag- In addition, when combined with performance indica- gregate risk level (reflecting the importance of ad- tors devised for the TTFSE (clearance performance at dressing a given customs process step), priorities for local level, overall departmental performance), it can implementation were determined. They are charted provide quantitative data on any specific result that in figure 20.6 as a Gartner magic quadrant.6 In the might be sought as part of the overall reform. For exam- top right corner are high priority customs process ple, figures 20.4 and 20.5 show what the overall surface steps, those that are highly vulnerable to corruption diagram would look like before and after mitigating risk and are easiest to implement. In the bottom right actions for border infrastructure and related upstream corner are medium priority process steps that are less mitigating actions are 40 percent implemented. (Shad- vulnerable to corruption risk but are expected to be 20 ing denotes corruption risk level ranges.) among the easier steps to implement. In the top left corner are other medium priority process steps that Integrity risk modeling in the border management context Setting priorities are highly vulnerable to corruption risk, though they The GAAP helped to identify and set priorities for are expected to be more difficult to implement. In needed mitigating actions from a systems perspec- the bottom left corner are long term priorities, those tive (table 20.6). For Afghanistan the tool showed that have lower vulnerability to corruption risk and that 10 high priority, indispensable categories of are expected to be more difficult to implement (re- mitigating action could achieve 60 percent of desired quiring substantial resources to overcome resistance results (table 20.7). and challenges). Decisionmakers can use such a dia- Ease of implementation, the expected level of gram to identify high priority steps in a given politi- difficulties anticipated to address a particular risk, cal context. is then calculated by multiplying a value assigned to each governance dimension5 with the sum of Identifying reform ownership whether it is within the prerogative of the customs In many countries several agencies, and representa- department to change or whether it requires con- tives of provincial governors and local power hold- certed action or action by other agencies. ers, are present at the borders. Such presences can 356 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Table 20.5 Example of impact mapping for recommended mitigating actions in a customs process substep (border infrastructure) Corruption probability Mitigating actions Corruption risk level Corruption impact Agencies involved Number of recommended mitigating Number of Total number of actions by major customs functionb recommended recommended Nature of mitigating mitigating actions corruption Levels of actions in (= their total risk or mitigating Area for recommended Investiga- Post- Online other checks impact on vulnerability action mitigating actionsa Preventiona,b tionb clearanceb checksa,b and audit a,b corruption risk) Ineffective All 3 3 9 Statutes, Funding 1 25 control rules of business Design 1 1 1 1 1 Cross border 1 1 1 1 1 coordination between neighboring countries' customs Presence 24-7 1 Interagency 1 1 1 1 1 coordination Maintenance 1 1 Management control 1 1 Computer checks 1 1 E-link 1 1 Number of recommendations 5 3 3 6 8 Number of recommendations as percentage of total 20 12 12 24 32 100 For border infrastructure as a customs process substep within the arrival, landing, and reporting step, see table 20.1. For corruption impact, corruption probability, and the use of both to calculate corruption risk level, see box 20.5. a. Recommendations in blue are specific to a particular substep (examples include interagency coordination, maintenance, management control, and computer checks). Those in black have already been identified under an earlier substep. b. Numbers of recommended mitigating actions in boldface denote that a similar recommendation exists in an upstream process. Each time such an action is completed under the project, the table is automatically updated to change the value in the corresponding cell to 0--thus reducing the total impact of mitigating actions for this substep on corruption risk, as indicated in the total number of recommended mitigating actions (shown in this example with a starting value of 25). Source: Authors' compilation. Figure 20.3 Example of specific governance surface diagram for border infrastructure, showing corruption risk level by recommended mitigating action and category of mitigating action Corruption risk level 1.0 20 0.8 0.6 Integrity risk modeling in the border management context 0.4 Functional 0.2 (governance) dimensions of mitigating action 0.0 g Other checks and audit in n Fund Desig ing c ination Online checks ms ence usto Postclearance n inatio d pres neig der coor e nanc Recommended Customs investigations l ontro oord mitigating 24/7 hbor ks te action Customs preventive chec Main k r ent c cy c betw ross-bo E-lin 0.8­1.0 agen uter agem een 0.6­0.8 C p 0.4­0.6 Inter Com Man 0.2­0.4 0.0­0.2 Source: Authors' construction. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 357 Figure 20.4 Example of overall governance surface diagram (modified presentation of figure 20.2) Corruption risk level 50 40 30 20 10 Functional 0 (governance) dimensions of g ortin mitigating action ntrol s heck rting g/rep s co of vioing and HR capacity ns ent ce c repo latio stom y ndin f dut Procedure ssm Exit plian it dica Process and al/la te cu s g Asse ent o Tran Institution ousin t Com xpor verifi release ction Arriv ns edia tion Policy Paym inves Customs 40­50 catio ions h Re-e Ware Dete Imm 30­40 Post tigat 20­30 adju Customs process step 10­20 0­10 Source: Authors' construction. Figure 20.5 Example of overall governance surface diagram, showing corruption risk level after border infrastructure mitigating actions and related upstream mitigating actions are 40 percent implemented (for comparison with figure 20.4) Corruption risk level 50 40 30 20 10 20 Functional 0 (governance) dimensions of g ortin ntrol mitigating action Integrity risk modeling in the border management context s heck ting g/rep s co of vioing and ns HR capacity ent r ce c repo latio stom y ndin f dut ssm Exit Procedure plian sit dica Process and al/la te cu Asse ent o Tran g Institution ousin Com t Arriv ction xpor verifi release edia tion ns Paym Policy inves Customs catio ions h Re-e Dete Imm Ware 40­50 Post tigat 30­40 adju Customs process step 20­30 10­20 0­10 Source: Authors' construction. interfere with customs, and often they are heavily increases the risk of corruption and smuggling. involved in corrupt activities. The absence of effec- Under such circumstances introducing and imple- tive coordination and efficient border management menting checks and balances becomes especially dif- procedures, combined with unclear and conflicting ficult. In certain cases, particularly in fragile states, a roles and responsibilities at various border agencies, mapping of key actors may be required--identifying 358 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Table 20.6 Example of prioritized results from an analysis of influence, corruption opportunities and risks, and governance risks, by customs process step Influence Governance risks attributed to: Corruption Human opportunities resources and Customs process step Customs Other Both and risks Policy Institution Procedure administration Compliance check 9 3 2 67 5 4 7 5 Arrival, landing, and 4 8 2 50 6 6 7 1 reporting Customs control 6 2 1 35 3 2 5 4 (immediate) Payment 5 2 2 33 5 2 3 0 Enforcement 3 3 3 27 3 3 0 3 Transit 3 3 2 24 2 2 3 0 Warehousing 3 3 3 24 1 3 2 0 Release 3 1 1 21 1 1 3 1 Irregularities 5 2 2 19 4 3 2 2 Postclearance activity 2 1 1 8 0 1 2 1 Re-export 0 1 0 1 1 1 0 0 Source: Authors' compilation. Table 20.7 Example of figures simulating the results achievable by 10 high priority, indispensable customs mitigating actions Occurrences Category of mitigating action Number Percentage of total Computer checks 40 14 Management 25 9 Audits 22 8 E-link 14 5 Inland checks 13 5 Performance measurement 13 5 Cross border coordination between neighboring countries' customs 11 4 Interagency coordination 10 4 Legislation 10 4 20 Risk management 9 3 Total mitigating actions listed under the categories above 167 59 Integrity risk modeling in the border management context Other mitigating actions 114 41 Total mitigating actions 281 100 Number of occurrences is the number of times a category of remedial measures affects the different functions identified under the matrix. Percentage of total is the weight of a category in overall project completion. Source: Authors' compilation. potential winners and losers and the strategies that government actions, and customs activities (figure can be used to deal with such issues. In Afghani- 20.7). Distinguishing among them helps in deter- stan, for instance, a conflict and crime assessment mining which issues can be addressed by the project was conducted to assist in managing risks related to and by the customs agency--and which actions will the reform process for various actors. require concerted efforts and support from other The circles of influence that shape the gover- government agencies, as well as close dialogue with nance environment of a project are social processes, development partners and other stakeholders. B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 359 Figure 20.6 Example of priorities for reform implementation in customs process steps, set according to corruption risk vulnerability and ease of implementation ("Gartner Magic Quadrant" chart) Vulnerability to corruption risk High Arrival/landing/reporting Compliance checks Immediate customs control Detection and reporting Postrelease verifications Customs investigations Warehousing Payment of duty Exit Transit Processing and adjudication of violations Re-export Assessment Low Difficult Ease of implementation Easy Source: Authors' construction. Many actions necessary to improve the overall However, such action plans often are not very focused governance situation for border management are and are not prioritized. The risk mapping approach outside customs' direct control and can be success- therefore helps in identifying crucial reform measures, ful only with strong political commitment at a se- measures that may then trigger further progress. nior government level. In Afghanistan, for instance, The GAAP for border management reform out- more than 70 percent of necessary actions are not lined in this chapter was developed for, and applied under the direct control of customs (figure 20.8). to, the design of the World Bank's Second Customs Reform and Trade Facilitation Project in Afghanistan 20 Conclusion: the governance (see box 20.2). A comprehensive tool, the GAAP could accountability and action plan for take into account Afghanistan's multilayered donor Integrity risk modeling in the border management context border management reform approach, its severe interagency interference problem, and its existing weaknesses in legislation and organiza- The risk mapping and implementation priority matri- tion while giving the government a reform dashboard ces illustrated in this chapter show which mitigation and effectively enhancing its performance. Approved actions are required at each process step and identify by the Afghanistan Minister of Finance in November the agencies responsible. The GAAP thus identifies 2009, and endorsed by other donors supporting border key crosscutting governance challenges and presents management, the GAAP will become a project moni- a corresponding reform agenda in an integrated, stra- toring tool for the government and for all donors as tegic, and prioritized way, while it identifies which soon as the World Bank project becomes effective. areas can be assisted by a particular project and which The GAAP is easily adapted to contexts other can be supported by leveraging the broader World than Afghanistan. It can be used to identify orga- Bank portfolio and through policy dialogue. Often nizational vulnerabilities and responsible actors and many of the mitigation measures identified are already analyze governance dimensions and crosscutting integrated into various government action plans. governance challenges (table 20.8) in practically any 360 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Figure 20.7 Circles of influence: visualizing the Figure 20.8 Actions needed to improve the overall governance environment of a reform governance situation for border project management that fall under the direct control of customs and other agencies Social processes Customs Both 28% 57% Government actions Customs activities Not under direct customs control 72% Project Other agencies 15% Source: Authors' construction. Source: Authors' construction. Table 20.8 Example of crosscutting issues summary from a GAAP for border management reform Governance issues Mitigating actions required Agencies Project level intervention Other actions and actors Timeframe Cumbersome, opaque · Computerization Customs · Automation of processes with · Support of legislative Immediate procedures leading to · Awareness campaign supporting infrastructure and judicial agencies delays, smuggling, and on fees, procedures improvements and equipment · Close coordination rentseeking · Revision of customs · Support to legislative and with other legislation to streamline regulatory revisions and development partners procedures improvements in administrative in revising and · Supporting and institutional framework implementing laws infrastructure and · Process and skills survey and equipment reform Lack of adequate · Data exchange · Customs · Cross border links to capture Support for regional Immediate data exchange and between neighboring · Neighboring reliable information on shipments cooperation mechanisms, coordination across countries countries' · Establishment of transit bilateral discussions 20 borders · Supporting customs tracking system with supporting between the country and infrastructure and infrastructure improvements and its neighbors on issues equipment infrastructure provision related to trade Integrity risk modeling in the border management context · Facilitate dialogue and trade with neighbors · High level of · Computerization · Customs · Clearance operations Within wider public Immediate discretionary and related change · Finance computerized countrywide administration reform, powers for management process ministry with support infrastructure support for the customs officers · Supporting · Civil service improvements and equipment development of disciplinary · Frequent infrastructure, commission provision action and enforcement interaction equipment · Executive information systems mechanisms between customs · Enhancement of allowing real time monitoring officers and disciplinary actions of operations and greater clients · Support to accountability postclearance audit · Support to postclearance audit function · Process and skills surveys and reforms (continued) B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 361 Table 20.8 Example of crosscutting issues summary from a GAAP for border management reform (continued) Governance issues Mitigating actions required Agencies Project level intervention Other actions and actors Timeframe Limited ownership of Support for overall · Government · Strong donor coordination Support of development Immediate reform process governance reform, public · Development · Assist customs agency in partners and World Bank administration reform partners designing and organizing overall assistance portfolio process awareness campaign on and leverage governance Unclear customs Review of revenue targets · Customs Policy dialogue with development International Monetary Immediate agency mandate, and of how they are · Finance partners to review revenue targets Fund to assist finance focusing on revenue internalized as operational ministry and the way in which they have been ministry in review of objectives targets · International internalized by the government revenue target policy Monetary Fund Statute of customs, Improved status for customs · Customs · Within wider public administration · World Bank Medium low salary levels, and officers (through offering · Finance reform process, prepare ground support for public term lack of proper incentive incentives or a clear career ministry for new statute of customs administration reform schemes lead to path, for example) · IARCSCa · Assist in revision of code · Leverage through rentseeking · Interior of conduct and design and joint policy dialogue ministry implementation of rewards and between development incentives schemes partners and government Interference by other · Improved interagency · Finance Prepare realistic strategy and action Solicit the support of Medium agencies at the border coordination ministry plan for effective compliance, relevant government term and by local power · Delegation of other · Interior prevention, and control function and agencies and of holders agencies' powers to ministry capacities development partners customs, to ensure · Agriculture compliance ministry Human resource · Public administration · Customs · Prepare action plan for human · Support to public Long term practices, including: reform · Civil service resource policy, rewards and administration reform · Nepotism · Transparent, merit commission incentives schemes · Policy based loans · Selection and based recruitment · Identify gaps in staff capacity, and grants promotion based develop capacity building and on- · Support of on relationships the-job training curriculum International Monetary and favors Fund a. In this example IARCSC refers to Afghanistan's Independent Administrative Reform and Civil Service Commission. Source: Authors' compilation. 20 country where a diagnostic survey of customs vulner- 2. See below, note 6, and "Methodologies: Magic Integrity risk modeling in the border management context abilities has been conducted. Matrix parameters may Quadrants," Gartner, http://www.gartner. change with local circumstances, so a careful analy- com/technology/research/methodologies/ sis of steps, substeps, and interactions is required. Yet research_mq.jsp. such an analysis can readily build on existing project 3. See "Programmes: Integrity," WCO, http:// reviews and feasibility studies. In sum, the GAAP of- w w w.wcoomd.org/home_wco_topics_ fers a comprehensive monitoring and simulation tool cboverviewboxes_programmes_cbintegrity that is also flexible enough to address any administra- overview.htm. tion's needs. Moreover, it can be transposed from the 4. Local project teams under the TTFSE were national to the regional--or even the local--level. panels consisting of midranking officials from all border agencies and private sector Notes representatives at designated pilot locations. The teams were to monitor performance 1. See further the COSO Web site, http:// (clearance and processing delays), map all www.coso.org/IC.htm. local operations and procedures, and make 362 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N recommendations to their various headquar- for customs mitigating actions. The team ters for improving processes. replaced the Gartner variables with, on the 5. For human capacity issues the value was 1 one hand, impact and effectiveness of mea- (least difficult to change). For procedural is- sures, and, on the other, ease of implementa- sues it was 2. For institutional issues it was tion (while preserving the Boston Consult- 3. For policy issues--those that require, for ing Group's original four quadrant analysis instance, changes in legislation--the value technique). was 4 (most difficult to change). 6. Developed by the Gartner Group, a research References and advisory firm, the "Gartner Magic Quadrant" uses a chart with perpendicular Kaufmann, D., A. Kraay, and P. Zoido-Lobatón. 1999. x and y axes to analyze firms by plotting com- "Governance Matters." Policy Research Work- pleteness of vision on one axis and ability to ing Paper 2196. The World Bank, Washington, execute on the other. (The original version DC. Available online at http://siteresources. of this technique, introduced by the Boston worldbank.org/INTWBIGOVANTCOR/ Consulting Group management consultancy Resources/govmatrs.pdf. firm in 1968, used such a chart--with dif- World Bank. 2009. "Fighting Corruption in Afghan- ferent variables plotted on each axis--when istan: Summaries of Vulnerabilities to Corrup- trying to decide whether or not a product tion." Assessment, The World Bank, July 2009. should be continued, further developed, or WCO (World Customs Organization) Secretariat discontinued; see "BCG History: 1968," and WCO Asia/Pacific Region. n.d. "Integ- The Boston Consulting Group, http://www. rity Development Guide Self-Assessment and bcg.com/about_bcg/history/history_1968. Evaluation." WCO, Geneva. Available online at aspx.) In the World Bank Second Cus- http://wcoweb04.wcoomd.org/ie/en/Topics_ toms Reform and Trade Facilitation Proj- Issues/CustomsModernizationIntegrity/Integrity ect for Afghanistan, the GAAP team used %20Development%20Guide%20E%20%20 a modified Gartner chart to set priorities Final.PDF. 20 Integrity risk modeling in the border management context B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 363 Editors and contributing authors Editors Enrique Fanta Ivanovic is a Senior Public Sector Specialist in the World Gerard McLinden is the convener of Bank's Poverty Reduction and Eco- the World Bank's Customs and Border nomic Management Department for Management Practice group. He joined Latin America and the Caribbean. His the International Trade Department of expertise includes institutional capacity the World Bank as a Senior Trade Facil- building, tax and customs administra- itation Specialist in January 2004. He tion, electronic government, and pub- is responsible for the design, develop- lic expenditure management. Prior to ment, implementation, and supervision joining the Bank he served as Deputy of a range of customs, trade facilitation, Director of Chilean Internal Revenue and border management initiatives and Service and then as head of the Chilean projects. Prior to joining the Bank he Customs Service. During his term as worked in the World Customs Organi- Director General of Chilean Customs zation, where he was responsible for the he was also elected as Chairman of the World Customs Organization's (WCO) World Customs Organization Council. Customs Reform and Modernization He then served as the Deputy Director program as well as a range of good gov- of the Chilean State Modernization ernance, capacity building and train- Project, in charge of e-government. ing, and technical assistance initiatives. Enrique holds a Civil Industrial Engi- Prior to joining the WCO he served as neering degree from the Universidad the Senior Australian Customs Repre- de Chile. sentative for the Asian region, based in the Australian Embassy in Japan. He David Widdowson is the Chief Exec- has over 25 years' experience in Austra- utive Officer of the Centre for Cus- lian Customs, including senior appoint- toms and Excise Studies, Canberra, ments at the Director level in a variety of Australia. He has more than 30 years' Editors and contributing authors disciplines, and was the Project Direc- experience in his field of expertise and tor for a number of multimillion dol- previously served with the Australian lar customs reform and modernization Customs Service for 21 years, includ- projects in the East Asia and Pacific ing seven years in the Senior Execu- region. He holds a Bachelor's Degree tive Service. He is the President of the in Economics and Political Science, an International Network of Customs Advanced Diploma in Quality Manage- Universities; Editor-in-Chief of the ment, and a Master's Degree in Man- World Customs Journal; an Advisory agement. Gerard has worked in over 80 Group member of the World Customs countries and has undertaken border Organization's Partnership in Customs management reform assignments on Academic Research and Development; behalf of a range of national and inter- and a founding director of the Trusted national organizations. Trade Alliance. David holds a Ph.D. in B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 365 Customs Management. His research areas include research associate of CERDI; and a member of the trade facilitation, regulatory compliance manage- editorial board of the Revue d'Economie du Devel- ment, risk management, and supply chain security. oppement. He has published numerous academic papers on trade and development. Tom Doyle is a Senior Border Management Spe- cialist in the International Trade Department of the Luc De Wulf obtained his economics degree from World Bank. He has spent 32 years working within the Katholieke Universiteit, Leuven in Belgium and the domain of customs and border management and a doctorate from Clark University, Massachusetts, has held a number of positions within the Irish Rev- US. After teaching at the American University of enue Commissioners, within the European Com- Beirut, Lebanon, he joined the Fiscal Department mission, within the Cyprus Government, and with of the International Monetary Fund. He moved to the international consultancy company Accenture. the IMF Asian Department and worked for six years During this time he has worked extensively in all focusing on China before joining the World Bank, areas of customs policy and strategy, but he is best where he worked in both the Africa and Middle East known for his work within the information and com- and North Africa Regions. Since retirement he has munications technology (ICT) environment, where co-edited the Customs Modernization Handbook and he has provided technical assistance and support to Customs Modernization Initiatives and has worked a number of countries in Asia, Africa, and Europe as on several projects and studies related to trade facili- an official and as a consultant. He has also authored tation, fiscal policy, and trade integration financed by a number of papers, including "Customs 2020," the World Bank, the UK Department for Interna- "Outsourcing as a Strategic Delivery Option for Cus- tional Development, and the European Commission. toms," and "Collaborative Border Management." Amer Z. Durrani is a Senior Trade Facilitation and Contributing authors Transport Specialist in the World Bank, currently working on regional trade and transport facilitation Jean-François Arvis is a Senior Transport Econo- issues in the South Asia Region, in addition to work- mist with the International Trade Department of ing on the resident transport sector cluster for the the World Bank and has been leading the develop- World Bank in Pakistan. His work in this area also ment of advisory work and knowledge products in covers postconflict country environments. He has the area of trade facilitation and logistics. Prior to been leading the Bank Dialogue with Pakistan and joining the Bank he worked in senior positions with Afghanistan Governments on Transport Services, the French Ministry of Economy and Industry (reg- Trade Facilitation, Customs, Ports and Shipping, ulation, trade, finance, and development aid). He is Railways, Roads, and Aviation. In Afghanistan he a graduate from the Ecole Normale Supérieure in has also led the work on Standards, Metrology, Test- Editors and contributing authors Paris and Ecole Nationale Supérieure des Mines and ing, and Quality. He has previously covered these holds doctorate degrees in physics. areas for the Bank in Bhutan, Lao People's Demo- cratic Republic, the Philippines, Georgia, and Nepal. Olivier Cadot is a Senior Economist at the World Before arriving at the Bank he worked on projects Bank's International Trade Division, Washington, in the transport sector with construction compa- DC, on leave from the University of Lausanne, nies, consultants, academia, and government in where he is a Professor and Director of the Institute Pakistan, Italy, and the US. In recent years Amer is of Applied Economics. He was formerly Assistant acknowledged for providing transport policy advice and Associate Professor at INSEAD, Fontaineb- and opinion formulation assistance to a large range leau, and has also taught at institutions including of clients in the public and private sectors in various the Paris School of Economics, Sciences Po, UCLA countries and to organizations such as the United and the University of Geneva. He is a fellow of the Nations Conference on Trade and Development London-based Center for Economic Policy Research (UNCTAD), the Chartered Institute of Logistics (CEPR) and of the Paris-based CEPREMAP; a and Transport (CILT), the International Union for 366 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N the Conservation of Nature (IUCN), various cham- from the University of Canberra, and he is admitted bers of commerce and industry, the International as a Barrister and Solicitor of the Australian Capital Multimodal Transport Association (IMMTA), the Territory Supreme Court and a Barrister of the Fed- WCO, GAC Shipping, the University of Birming- eral and High Courts of Australia. ham, National Defense University (Pakistan), and Iranian Customs (IRICA). Laura Ignacio worked on food safety and agricul- tural health issues as a consultant for the World Bank Andrew Grainger is a recognized expert in the (2003­10) and the Standards and Trade Develop- wider area of trade facilitation and trade logistics ment Facility (2007­08). Major work included the and is the founding Director of Trade Facilitation preparation of action plans on sanitary and phytos- Consulting Ltd. In January 2009 he joined the Uni- anitary (SPS) measures for Lao People's Democratic versity of Nottingham as Lecturer in Logistics and Republic, Vietnam, and Ghana, and a review of SPS- Supply Chain Management. His recent publica- related technical cooperation in Cambodia, Lao tions include work for the World Bank, the Euro- People's Democratic Republic, and Vietnam. She pean Commission, and the European Parliament. holds a Ph.D. in economics from the George Wash- Between 2002 and 2006 as Deputy Director at SIT- ington University in Washington, DC. PRO, the UK trade facilitation agency, he held the post of Secretary at EUROPRO, the umbrella body Robert Ireland currently works in the WCO's for European trade facilitation committees. There Research and Strategies Unit within the Office of he also participated as an expert within the Euro- the Secretary General, where he conducts research pean Commission's (DG TAXUD) Trade Contact on customs and international trade subjects. From Group. Other experiences include world trade and 2005 to 2009 he was a development advisor in the customs consultancy with PricewaterhouseCoopers WCO's Capacity Building Directorate. Before his and freight forwarding in Germany and Southeast WCO employment, he worked as a policy analyst Asia. Andrew holds a Ph.D. in Management from at US Customs and Border Protection, Office of Birkbeck College, University of London, an M.A. International Affairs, where he worked on supply (Distinction) in International Political Economy chain security and other enforcement matters. Prior from the University of Warwick, and a BSc (Hon- to his US Customs employment he was an investi- ours) in International Transport from Cardiff Uni- gator for 11 years with the US Federal Trade Com- versity. He is a Chartered Member of the Institute of mission. Robert has a B.A. in Political Science with Logistics and Transport. an emphasis in International Relations from Drew University in Madison, New Jersey and an M.A. in Stephen Holloway is the Dean of Studies (Educa- Public Administration with an emphasis in Policy tion/Research) and Principal Director of the Centre Analysis from George Washington University in for Customs and Excise Studies and an Adjunct Pro- Washington, DC. Editors and contributing authors fessor in the Faculty of Law, University of Canberra. He has 25 years' experience in customs and inter- Frank Janssens is currently responsible for the national trade, including 20 years with the Austra- Customs Trans-European Systems at the Euro- lian Customs Service. He has worked closely with pean Commission, where he is working as a Prin- international organizations, customs and revenue cipal Administrator. He is also the team leader of a administrations, and the private sector on inter- temporary structure to define the business process national trade and border management, including models for the new customs ICT systems to be estab- customs reform and modernization, international lished under the Modernized Customs Code. He is logistics, the international regulation of intellectual a trained economist specializing in international property, legislative reform, and strategic export con- trade and a confirmed ICT project manager. He has trols. Steve holds a Bachelor of Laws from the Aus- spent over 20 years working within the domain of tralian National University and a Master's degree customs, international trade, and information tech- in International Customs Law and Administration nology projects, where he held different positions in B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 367 the European Commission, the Belgian Ministry of of International Relations. Erich joined SARS in Finance, and the private sector. During this time he 2001 as Advisor, International Economic Law in the has worked in several areas of customs policy, such Office of the Commissioner. Before joining SARS as trade facilitation, international affairs, and assis- he worked at the Department of Trade and Industry tance. In recent years he has focused on customs in the capacity of Head, International Trade Law. modernization projects which make extensive use He has participated in the negotiation and drafting of information and communication technology. He of the Southern African Development Community is the chairman of a number of electronic customs Trade Protocol, the Southern African Customs working groups composed of participants from the Union Agreement, and various bilateral trade, cus- European Union Member States and Candidate toms, and investment treaties and has worked exten- Countries, with occasional attendance of economic sively on cross border trade, customs, and transport operators associations. issues. He holds B.Iuris and L.L.B. degrees from the University of Pretoria and an L.L.M. (International Darryn Jenkins is recognized for expertise in Economic Law) degree from the University of South restructuring and change management in the public Africa. His professional and academic focus areas sector environment, having spent much of his career are international trade and customs law, regional designing and leading complex change processes. He economic integration, and developmental studies. was previously Commissioner­Customs and Excise He was elected to the position of Director, Capacity in Zambia, Regional Comptroller in New Zealand Building at the WCO in June 2010 and will join the Customs, and Customs Ombudsman in Australia, WCO in January 2011. and he has held various positions at Director level in the Australian Public Service Board and the New Yue Li is a Young Professional of the World Bank Zealand State Services Commission. He works Group, having formerly been a consultant there. She regularly as a member of the IMF Panel of Fiscal joined the World Bank in 2007, first in the Inter- Experts, largely on reviewing revenue administra- national Trade Division within the Development tion and making recommendations for changes in Economic Research Group, and then in the East structure and management in customs administra- Asia and Pacific Region­Poverty Reduction and tion. He has overseen customs and tax administra- Economic Management Unit. Her work has been tion modernization projects in Vietnam, Indonesia, focusing on trade facilitation, services trade, foreign Uganda, Zambia, and Jamaica, and he has advised direct investment, and investment policy issues. She on a number of others as a project director. He has obtained a Ph.D. in economics from Rutgers Uni- been engaged on assignments for the major donor versity, a master's degree in economics and political organizations, including the World Bank, UK science from Syracuse University, and a bachelor's Department for International Development, and degree from Peking University. Editors and contributing authors IMF, as well as for national governments. Jenkins holds an M.B.A. (International Business) from the Maryla Maliszewska is currently a consultant University of New England, a P.G.D. (Policing and with the International Trade Department of the Public Order) from the University of Leicester, and World Bank. She has been working as a research an M.A. (International Studies) from the University fellow at the Center for Social and Economic of Sydney. He is a Member of the Australian Insti- Research (CASE, for Centrum Analiz Spoleczno- tute of Company Directors and a Member of the Ekonomicznich) since 1996. Her research interests New Zealand Institute of Directors. cover the modeling of international trade flows, the implications of regional integration using comput- Erich Kieck is currently the Group Executive for able general equilibrium (CGE) models, the location Customs Strategy and Policy at the South African of production, and agglomeration externalities. She Revenue Service (SARS), responsible for advising has coordinated studies on the economic implica- the Commissioner on International Trade and Cus- tions of a free trade agreement between the EU and toms policy and legal issues. Previously he was head Russia, EU and Georgia, and the EU and Armenia, 368 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N and on economic integration in the Euro-Mediter- trade and transport related flagship projects, includ- ranean Region and has contributed to several other ing the Logistics Performance Indicators (LPI), research studies for the European Commission. She as well as on the organization of policy dialogues, obtained a Ph.D. in economics from Sussex Univer- workshops, seminars, and distance learning courses. sity and master's degrees in international economics She is currently Coordinator for the Global Facili- from Sussex and Warsaw Universities. tation Partnership for Transportation and Trade. Prior to joining the World Bank she worked for the Tadatsugu (Toni) Matsudaira joined the World Harvard Center for International Development, the Bank in 2009 as a Senior Trade Facilitation Special- European Commission, and the Romanian Minis- ist in the International Trade Department. He is an try of Finance. She holds a Master's in Mathemat- expert on customs and border management reform ics and Information Technology from University and modernization, as well as trade facilitation, and of Craiova, Romania, a Certificate in International has contributed to several projects in these areas. Tax Policy and Administration from Harvard Law Prior to joining the Bank he worked for the Japa- School, and a Master's Degree in Public Administra- nese Government on international customs matters tion from the John F. Kennedy School of Govern- and trade facilitation policy formulation and was the ment at Harvard University. Tokyo based head delegate on trade facilitation to the World Trade Organization from 2001 to 2003. Michaela Prokop spent three years (2004­07) He also served three years with the Organisation for as Afghanistan country economist for the Asian Economic Co-operation and Development, special- Development Bank, where she was in charge of izing in border procedural barriers, and five years several governance reform programs and regional with the WCO focused on trade facilitation. Toni cooperation and trade facilitation projects. She sub- holds a bachelor's degree in Information Engineer- sequently joined the World Bank team working on ing from Keio University and a diploma in Quanti- the Emergency Customs Modernization and Trade tative Development Economics from the University Facilitation Project and contributed to the develop- of Warwick, UK. ment of the Governance and Accountability Action Plan for Afghan Customs. She is currently working Jean-Christophe Maur is a Senior Economist in as a freelance consultant focusing on governance the Growth and Competitiveness Program at the issues. She holds a Ph.D. in Political Economy from World Bank Institute. His current responsibilities the University of Durham, UK. there include leading the regional integration pro- gram and contributing to the Development Debates Sebastián Sáez is a Senior Trade Economist work- platform. Jean-Christophe joined the World Bank ing at the Trade Department, Poverty Reduction in 2008 from the UK Department of International and Economic Management (PREM) Network Development, where he was in charge of UK trade at the World Bank. He studied economics at the Editors and contributing authors negotiations in several areas and also of managing University of Chile. He earned his Master in Pub- multilateral trade assistance. His research interests lic Sector Economics at the Catholic University are regional trade integration and public goods, trade of Rio de Janeiro, Brazil, and studied at the Pro- facilitation and nontariff barriers, intellectual prop- gramme de Specialisation en Diplomatie Multilate- erty rights, and trade institutions. Jean-Christophe ral at the Institute Universitaire de Hautes Etudes has a Doctorate from Institut d'Etudes Politiques de Internationales in Geneva. He has published several Paris and is a graduate of Essec business school. He articles on international economic relations and the was also a Visiting Fellow at Harvard University. book Estrategia y Negociación en el Sistema Multi- lateral de Comercio (Dolmen Ediciones, 1999). He Monica Alina Mustra is a Trade Facilitation and is co-editor with O. Cattaneo, M. Engman, and R. Logistics Specialist with the International Trade Stern of the book International Trade in Services: Department of the World Bank. Since joining in New Trends and Opportunities for Developing Coun- 2004 she has worked on a number of the Bank's tries (World Bank, 2010). He also edited Trade in B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 369 Services Negotiations: A Guide for Developing Coun- empirical and policy research on trade facilitation, tries (World Bank, 2010). aid effectiveness, and regulatory reform issues, as they relate to economic development. He also pro- Ramesh Siva is a Lead e-Government Specialist in vides expertise in Bank operations and spent two the e-Government Practice of the Global Informa- years in the Bank's Infrastructure Vice Presidency. tion and Communications Technologies Group of He has participated in Bank projects (under prepara- the World Bank and has been involved in designing, tion and completed) totaling over $1.3 billion, and developing, and operating ICT solutions for over 25 he has provided leadership for the Bank in the estab- years. In the East Asia and Pacific Region his focus has lishment of the interagency Standards and Trade been on public sector reform and modernization in Development Facility. He also developed the initial World Bank projects with major e-Government and concept for the Bank's Trade Facilitation Facility ICT components. His expertise includes integrated in 2009 and is a member of its Program Commit- financial management systems, treasury systems, rev- tee. Mr. Wilson is currently working with the Trade enue administration systems, business systems, capac- Department in the establishment of a new public- ity planning, and design and development of e-gov- private partnership on "Aid for Trade Facilitation" ernment strategies. His current portfolio of projects for the Bank. Prior to joining the Bank he was Vice includes national treasury and financial management President for Technology Policy at the Informa- projects in Indonesia, Vietnam, and Sierra Leone; tion Technology Industry Council in Washington, customs and tax administration projects in Indone- DC from 1995­99. He has also been a Visiting Fel- sia, Lao People's Democratic Republic, Cambodia, low at the Institute for International Economics, a and the Philippines; judicial systems projects in the Senior Staff Officer at the US National Academies Philippines, Russia, Armenia, and Mongolia; and a of Sciences and Engineering and National Research technical assistance program for the implementation Council, and Adjunct Professor of International of Indonesia's National Single Window for trade. Affairs at Georgetown University. He has degrees from Wooster College and Columbia University in Cornelis (Kees) L. J. Van der Meer has extensive New York. expertise in the fields of standards and trade, private sector development in rural areas, and markets and Michel Zarnowiecki is a consultant and Customs agribusiness. From 1999 to 2006 he was a Senior Specialist. Previously he was a Senior Regional Coor- Rural Development Specialist with the Rural Devel- dinator for the Europe and Central Asia Region at opment Department of the World Bank. Prior to the World Bank, in charge of programs focused on this he worked in the Netherlands Ministry of Agri- customs and other border agency reforms. He also culture, with responsibilities for policy and manage- participated in the Southern European Coopera- ment of research and technology. He studied agri- tion Initiative (SECI) working group on cross border Editors and contributing authors cultural economics at Wageningen University and issues, which later evolved into the Trade and Trans- received a Ph.D. in economics at the National Uni- port Facilitation in Southeast Europe program, and versity at Groningen in 1981, teaching agricultural was subsequently involved in customs and border and development economics as an associate professor modernization programs in Russia, Turkey, the Cau- until 1988. He is a much published author and has casus, and Central Asia. Before joining the World significant experience working in developing coun- Bank Michel worked in the International Monetary tries. Kees is currently the leader of a consultant Fund's Fiscal Affairs Department and participated team for the Greater Mekong Subregion Sanitary in customs reform programs in over thirty countries. and Phytosanitary (SPS) Action Plan at the Asian Prior to his employment by the International Mon- Development Bank. etary Fund he was a regional commander in French Customs, and he holds the rank of Brigadier General John S. Wilson is a Lead Economist in the Devel- in the French Customs Service. opment Economics Research Group of the World Bank. He joined the Bank in 1999 and directs 370 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N Index Figures are indicated by f, tables by t. A Aberdeen Group, 303­04 Advance Manifest Rule, US, 307 Afghanistan, 337­38, 346, 360 Africa, 291 Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement), 222­24, 263 Aid for Trade initiative, 2 Albania, 339 animal pens at border stations, 60 Annex 9 (Chicago Convention), 189 Apple iPod, 302 Article XXIV of the GATT, 233­34 Asia-Pacific Economic Cooperation (APEC), 13, 125, 126, 215 Association of Southeast Asian Nations (ASEAN), 13, 125 ASYCUDA soft ware, 69, 292, 329, 337­38 Australia, 134, 203 Australian Agency for International Development (AUSAID), 338 Australian Taxation Office (ATO), 153­54 Automated Commercial Environment, US, 134 Automatic License Verification, UK, 133 autonomous revenue agencies (ARAs) defined, 330­31 financial autonomy, 331 human resources management, 331­32 Index lessons for fragile states, 332­33 management structure, 331 B Bioterrorism Act, US, 306 body search cubicles at border stations, 59 border management developments driving a new agenda, 3 initiatives for developing countries, 4 problems with current systems, 1, 2 questions to consider, 2 reform and modernization need, 2, 4 border management reform B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 371 benefits of, 86 juxtaposed border facilities (see juxtaposed business case elements, 86­87 border facilities) business case preparation steps, 85­86 "no man's land" explained, 38 capacity to succeed demonstration, 91 operations, 61­62 cost-benefit analysis, 88­90, 91t paper immigration and customs forms guidelines for contextualizing issues, 87, 88 problems, 63­64 history of collective trade facilitation private sector services, 41­42 initiatives, 79­80 scanners, 71­73 management modernization (see international security, 43­44, 72­74 instruments) smuggling, 39 organizational change management (see change station management management) administration of the facility, 74­75 potential gains from reduced trade costs, 80­81 ethics, 74 prioritizing projects, 87­88, 89 international access roads, 74 private sector interests (see private sector) monitoring performance, 75­76 regional integration (see customs unions) security, 73­74 trade costs related to border terrorism and, 43 management, 81­85 traffic management Border Service Agency, Canada, 134 access roads and corridors, 54 Border Service of East Timor (BSET), 329 layout, 60­61 border stations parking lots, 54­55 administrative buildings, 56­58 queue management, 55­56 border crossings, 39­40 transit monitoring, 70­71 borders defined, 37­39 zero risk illusion, 43­44 control agencies function, 40­41 BSET (Border Service of East Timor), 329 control equipment, 73 customs function, 40 C customs territory defined, 39 Cameroon Customs, 211 decision elements for establishing Canada, 134, 201­02, 203 closed borders, 46 Cargo-IMP, 186 deciding on a site (see site decision for a Cargo Interchange Message Procedures border station) (Cargo-IMP), 186 intermediate options, 46­47 carnet transit regimes, 285­86, 290­91 international or bilateral agreement CBP (Customs and Border Protection, US), 306 Index presence, 47 Central African Republic, 339 need for evaluation, 44, 45 CET (common external tariff ), 236­37 open borders, 45­46 change management responsible authority, 47 challenges, 201 defined, 40 change options analysis, 200­01 design considerations, 52­53 current trends, 201 duty free shops, 42 ground rules and criteria establishment, 200 elements of effective border management, 37 human resources management (see human enclave system, 38 resources management) field operations and staffing issues, 62­63 interagency arrangements, 212­13 immigration function, 40, 41 interagency coordination requirement, 199 information and communications technology management implications for individual uses, 68­70 agencies, 204­05 infrastructure and facilities, 58­60 model choice, 203­04 372 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N organizational reform plan structure, 199 Convention on Facilitation of International political will requirement, 198­99 Maritime Traffic (FAL Convention), 188­89 principles of, 197, 198t Convention on International Civil Aviation, 189 public support solicitation, 200 Convention on the International Transport of separating of border policy from border service Goods, 188 delivery, 204 corruption single border protection agencies and, 202­03 border management reform and, 84 single revenue agencies and, 201­02 governance and, 348­49, 350, 350­52t, 353 stakeholder interests coordination, 197­98 human resources management and, 208 Chicago Convention, 189 COSO (Committee Of Sponsoring CHIEF (Customs Handling of Import/Export Organizations), 345­46 Freight), UK, 133 CrimsonLogic, 134 China, 307 Crown Agents, 325­27 clearance. See goods clearance CSET (Customs Service of East Timor), 329 CLIENT, 271 CSI (Container Security Initiative, US ), 306 closed circuit television, 57 C-TPAT (Customs-Trade Partnership Against coach control buildings at border stations, 59 Terrorism, US), 306, 307, 308, 309 Codex Alimentarius Commission, 189, 263, 264, 270 Customs 2013 work program, 252 collaborative border management Customs and Border Protection, US (CBP), 306 benefits derived from, 11­12, 21 Customs Capacity Building Diagnostic concept of, 14 Framework, 190­91 customer segmentation, 11 Customs Convention on the International goods clearance process example, 19­21 Transport of Goods Under Cover of TIR information and communications Carnets (TIR Convention), 29, 80, 188, 286 technology, 15­16 Customs Data Harmonization Initiative, 186 infrastructure and facilities, 16­17 Customs Handling of Import/Export Freight intelligence driven risk management, 11 (CHIEF), UK, 133 key aspects overview, 13t customs ICT development limits and constraints of current centralized vs. several systems, 256­58 arrangements, 12­13 EU customs union outsourcing, 16­17 background and purpose, 251­52 policy basis, 14­15 business architecture, 253­54 principles of a new vision for, 12 lessons learned, 255­56 processes involved, 15 mandate and governance, 252 shared service approach features, 16 methods and tools, 254­55 Index skills required of personnel, 15 new system (see New Computerised Transit transformation considerations, 17­19 System) collusion, 349 organization, 252­53 Committee Of Sponsoring Organizations technical architecture, 254 (COSO), 345­46 implementation strategy, 258 common external tariff (CET), 236­37 principles of, 256 Common Market for Eastern and Southern Africa Customs ICT Guidelines, 189­90 (COMESA), 68 Customs Modernization Handbook, 279 Community Network, Ghana, 134 Customs Service of East Timor (CSET), 329 compliance management, 110­11 Customs-Trade Partnership Against Terrorism, US Container Security Initiative, US (CSI), 306 (C-TPAT), 306, 307, 308, 309 control booths at border stations, 58 customs unions control room of a border station, 57 automation and interconnections, 243 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 373 border definition in, 236 business architecture, 253­54 capacity building, 244­45 lessons learned, 255­56 common external tariff, 236­37 mandate and governance, 252 data exchange, 243­44 methods and tools, 254­55 duty relief and suspensions schemes, 238­39 new system (see New Computerised Transit factors impacting choice of integration System (NCTS)) options, 235­36 organization, 252­53 fiscal borders and internal controls, 237­38 technical architecture, 254 FTAs, 232 Export Control System (ECS), 68 ICT and (see customs ICT development) extraterritoriality in border stations joint controls challenges, 241­43 operations, 66­67 legal framework, 244 motives for RTAs, 234­35 F mutual recognition schemes, 244 FAL Convention, 188­89 policies and procedures simplification, 241 FIATA (International Federation of Freight principles of, 246 Forwarders Associations), 31 reasons for limited results, 245­46 Finland, 142t revenue administration, 237 Food and Agriculture Organization of the United risk management, 240­41 States (FAO), 263­64, 270 RTAs growth and patterns, 231­32 Food and Drug Administration, US, 306 stages of regional integration, 232 formality service fee (FSF), 208 strategic issues for border management, 240 fragile states trade facilitation provision, 239­40 conclusions and recommendations, 340­41 VAT administration in EU, 239 defined, 317­18 WTO legal requirements, 233­34 institutional framework for border management customs control and clearance D procedures, 321­22 dangerous goods and oversized vehicles at border legal framework, 321 stations, 58­59 management structure of customs, 324 Democratic Republic of Congo (DRC), 226 organizational structure of customs, 322­24 Department of Homeland Security, US, 95 tasks involved, 320 detailed vehicle inspection sheds at border lessons learned from development work, 318­20 stations, 59 nontraditional approaches disinfection pits or sprays at border stations, 60 advance notification and clearance, 339­40 Index Doha Ministerial Conference, 96 autonomous revenue agencies, 330­33 Doha Round of World Trade Organization, 12, 25, circumstances supporting, 324­25 79, 215 customs officers payment, 340 Doing Business Initiative, 24, 218 ICT reliance, 336­39 duty free shops, 41, 42 landlocked countries, 339 management contracts, 325­27 E preshipment inspection, 333­36 ecological function at a border station, 41 reliance on foreign experts, 327­30 enclave system, 38 security in, 319 Enhanced Cooperation Program, Papua New Framework of Standards to Secure and Facilitate Guinea (ECP), 328 Global Trade (SAFE Framework), 80, 96, 169, European Union, 13, 68, 125, 239, 307, 309 187­88, 307, 308 European Union customs union free trade agreements (FTAs), 232 background and purpose, 251­52 free zones, 38 374 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N FSF (formality service fee), 208 national single window system, 127, 130 fuzzy logic search and match, 16 reform programs obstacles, 347 governance accountability action plan (GAAP) G corruption risk levels, 353 GAAP. See governance accountability action plan identifying reform ownership, 356, 358­60 GEA (Global Express Association), 31 mapping corruption vulnerabilities, 350, General Agreement on Tariffs and Trade 350­52f (GATT), 79, 220­21, 233­34, 284, 285 as part of integrity risk modeling, 345­46 Geneva Convention (International Convention progress monitoring tools, 355­56, 358f on the Harmonization of Frontier Control of requirements, 349­50 Goods), 284, 285 setting priorities, 356, 359t Ghana, 134 underlying issues, 350, 352­53, 352­56t Giurgiu border station, 53 grand corruption, 349 Global Enabling Trade Index, 24 Group of Eminent Persons on Non-Tariff Barriers Global Enabling Trade Report, 96, 97 (GNTB), 217 Global Express Association (GEA), 31 Global Facilitation Partnership for Transportation H and Trade, 31 Hong Kong SAR, China, 143t Global Supply Chain Benchmark Report, 303­04 HS Convention, 184, 284 GNTB (Group of Eminent Persons on Non-Tariff human resources management Barriers), 217 codes of conduct and disciplinary codes, 210 goods clearance corruption issues, 208 in fragile states, 321­22, 339­40 development plan elements, 205 infrastructure and facilities, 56­57 integrity programs, 210 measurement of time involved by region, 25, 27 leadership, 206 postclearance audits, 106 management group, 206­07 prearrival clearance, 105­06 managing performance, 210­11 process example, 19­21 merit selection, 207 in SPS management, 263 remuneration and reward, 207­09 agencies and customs, 269 resistance to change, 207 agencies and the private sector, 270 rotation and job mobility, 209­10 coordination among agencies, 269­70 training and staff development, 211­12 market access rule, 267 performance measures, 268­69 I priorities in developing countries, 268 IATA (International Air Transport Index rentseeking, 267 Association), 31 transit, 267­68 ICC (International Chamber of Commerce), 31, weaknesses in procedures, 268 79 times reduction through collaboration, 28­29 ICT procurement governance external factors affecting, 148 accountability action plan, 345­46 institutional factors affecting, 149 addressing poor, 345 outcome based processes desirability, 155­56 conclusions and recommendations, 360­62 outcomes based procurement case study, 153­54 corruption issues, 348­49 proposed approach to public sector ICT, 154­55 defined, 345 public sector best practices, 152 GAAP and (see governance accountability public sector processes, 150­52 action plan) supply and installation process, 151 limitations of modernization projects, 346­47 technological factors affecting, 148­49 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 375 IFIA (International Federation of Inspection International Federation of Inspection Agencies Agencies), 334 (IFIA), 334 IMF (International Monetary Fund), 31 International Finance Corporation, 24 Importer Security Filing and Additional Carrier international instruments Requirements, 298, 307 border agency information management Indonesia, 135f, 136f, 138f systems, 178 information and communications technology cross border harmonization, 176 (ICT) hierarchy of, 179 background, 115­16 interagency coordination, 175­76 border stations key instruments customs, 68­69 Annex 9 (Chicago Convention), 189 data sharing arrangements, 69­70 Cargo-IMP, 186 fraud prevention, 68, 69 Customs ICT Guidelines, 189­90 immigration, 69 FAL Convention, 188­89 joint data collection examples, 70 HS Convention, 184 collaborative border management, 15­16 ISO standards on UCR and USR, 185 critical success factors, 118­19 Logistics Performance Index, 192 custom built vs. off-the-shelf systems, 117­18 Principles for Food Import and Export development in customs unions (see customs Inspections, 189 ICT development) Revised Kyoto Convention and expected benefits, 119­20 Guidelines, 186­87 for fragile states, 336­39 SAFE Framework, 187­88 modernization steps, 121­23, 121t Single Window Repository, 190 national single window system applications (see Terrestrial Code, 189 national single window system) Time Release Study, 191­92 organizational and human resource TIR Convention, 188 management, 131­32 Trade Facilitation Self-Assessment, 191 past and future prospects, 116­17 UN/CEFACT Recommendations, 190, procurement for border management (see ICT 192­93 procurement) UN/EDIFACT, 185­86 inspection benches at border stations, 59 UN Layout Key, 185 inspection gantries at border stations, 60 UNTDED, 185 inspection pits at border stations, 59 WCO Data Model, 186 Integrity Development Guide, 347­48 WCO Diagnostic Framework, 190­91 Index intelligence driven risk management, 11, 15 WCO Recommendation on UCR and International Air Transport Association (IATA), 31 guidelines, 184­85 International Chamber of Commerce (ICC), 31, 79 need for coordination, 176 International Convention on the Harmonization needs assessment, 178­79 of Frontier Control of Goods (Geneva performance indicators, 179 Convention), 284, 285 role of, 176­77 International Convention on the Harmonized sector specific modernization, 175 Commodity Description and Coding System sponsors of, 177 (HS Convention), 184, 284 standardized cataloging of International Convention on the Simplification commodities, 177­78 and Harmonization of Customs Procedures standardized cataloging of identifiers of (Kyoto Convention), 80, 285 consignments, 178 International Federation of Freight Forwarders standardized methods of transmitting Associations (FIATA), 31 information, 178 376 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N standardized regulatory procedures for Mercosur countries, 243, 290­91 consignments, 178 Mexico, 225, 226, 227 steps in adopting, 180­81 Mozambique-South Africa border, 46, 325­27 International Monetary Fund (IMF), 31 International Organization for Migration N (IOM), 97, 183 national security environment. See security International Plant Protection Convention, 263, national single window system 270 business process functional requirements, 137 International Road Transport Union (IRU), 31, 286 business process re-engineering, 131 International Ship and Port Security (ISPS) defined, 125­26 Code, 301, 307, 322 fee structure, 130­31 International Trade Data System project, US, 134 functional and technical architecture, 132 ISF, 310­12 functional requirements ISO standards on UCR and USR, 185 commercial auditors, 137 commercial banks, 136 J government agencies, 136 Japan, 307 law enforcement agencies, 137 JCCC (United Kingdom Joint Customs national statistics body, 137 Consultative Committee), 163 port operators and agencies, 136 juxtaposed border facilities regulator or oversight body, 136 agreements translated into national trade users, 135 legislation, 66 general criteria for required functions, 139­41t background, 64 good practice models, 133­34 case for using, 64­65 governance, 127, 130 clear understanding of purpose, 65 ICT applications, 126­27 conditions necessary for use, 65­68 implementation by country, 142­45t control staff powers, 67 implications for electronic government, 126 cooperation, 67 interagency coordination and, 212­13 extraterritoriality, 66­67 national legal and regulatory framework, 129 international standards adoption, 65­66 objectives, 127 joint examinations, 67­68 operational model, 130 joint operations, 67 organizational and human resource management, 131­32 K rationale for, 128 kennels at border stations, 60 scope and agencies involved, 126 Index Khan network, 310, 311 security risks and, 305 Known Shipper Program, US, 307 service level agreements, 131 Korea, 225, 226 single window lite vs. trade facilitation single Kyoto Convention, 80, 285 window, 128­29 technical architecture, 137 L topology and features, 137­38 laboratories at border stations, 60 value added services, 127­28 Logistics Performance Index (LPI), 24, 96, 98, 192, New Computerised Transit System (NCTS), 68, 242 218 approach, 259 background, 258­59 M business objectives and challenges, 259 Malaysia, 142t lessons learned, 261 Mauritius, 145t, 227 reasons behind adoption of, 260 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 377 solution blueprint, 259­60 trade facilitation, 335 transformation outcomes, 260­61 Principles for Food Import and Export transit regime, 288 Inspections, 189 new economic geography theory, 80 private sector new trade theory, 80­81 border stations services, 41­42 New Zealand, 133 collaborative consultation models nontariff measures (NTMSs) approaches based on assessment and current issues, 216 research, 162­64 definition, classifications, and scope, 216­17 arm's length approaches, 162 improvement objectives, 225 challenges from conflicting shareholder international pledge to reduce trade costs, 215 interests, 166­67 leadership requirement, 225­26 department specific consultation measurements of incidence and impact, 218­19 vehicles, 162 measurements of types, 217­18 informal consultation, 164 need to engage middle management, 227 local consultation vehicles, 162 need to lock in reforms through models examples, 161 legislation, 226­27 at multiple policy levels, 164­66 need to start small, 226 national trade facilitation bodies, 160­61 preferential trade agreements, 223­24 concerns and frustrations of the private SPS and TBT agreements, 222­24 sector, 157­60 WTO disciplines, 219­21 contracting choosing suppliers, 171 O management challenges, 172 ODASCE (France), 161 services provided, 170­71 Office International des Epizooties (OIE), 270 technological capacity considerations, 171 Organisation for Economic Co-operation and vehicles for, 171­72 Development (OECD), 31, 217, 299, 309, 318 private-public collaborations Organization for Security and Co-operation in assurance based controls, 168 Europe (OSCE), 183 licensing trade in restricted goods, 169 outsourcing border management, 16­17 partnerships, 169­70 preferential treatment for authorized P traders, 167­68 PAIS (Pre-Arrival Information System, risk management, 169 Albania), 339 strategies for, 167 Index Papua New Guinea, 328 stakeholders, 158 passenger halls at border stations, 59 trade facilitation concepts designed to ease patronage, 349 frustration, 159 PC Trade, 338 PTA (preferential trade agreements), 223­24 police and customs cooperation centers, 65 Pre-Arrival Information System, Albania Q (PAIS), 339 quarantine function at a border station, 41 preferential trade agreements (PTA), 223­24 queue management at border stations, 55­56 preshipment and destination inspection defined, 333­34 R evaluating services on the ground, 334­35 radiology function at a border station, 41 impact on customs administration, 335 red and green channels, 61, 62 lessons for fragile states, 335­36 Regional Assistance Mission to Solomon Islands revenue impact, 335 (RAMSI), 328 378 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N regional trade agreements (RTAs), 231­32, 234­35 performance measures, 268­69 See also customs unions priorities in developing countries, 268 rentseeking, 348­49 rentseeking, 267 Revised Arusha Declaration, 347 transit, 267­68 Revised Kyoto Convention and Guidelines, 186­ weaknesses in procedures, 268 87, 284 conclusions and recommendations, 271­72 risk based compliance management current controls, 263­64 administrative framework, 109­11 food products guidelines, 273 borders pushed outward in a virtual sense, 95­96 function at a border station, 41 case study, 107 international framework and support for complexity of documenting a typical trade modernization, 270­71 transaction, 96 market access issues, 265­66 consequences of outward pushing policy market structure for food products, 266­67 initiatives, 96 plants and plant products guidelines, 275­76 future trends and conclusions, 111­12 suspensions for noncompliance, 265­66 implementing, 106­07, 108f WTO principles for control, 264 informed compliance, 107­08 scanners, 71­73 legislative framework, 107­09 Schengen information system, 107 magnitude of tracking the movement of Second Customs Reform and Trade Facilitation people, 97 Project in Afghanistan, 360 postclearance audits, 106 Secure Freight International Container Security prearrival clearance, 105­06 project, 298, 307 range of authorities involved in border security management, 97­98 compliance management regulatory control, facilitation, and assessment elements, 299­300 intervention, 98­100 enforcement, 300 risk management application issues to consider for best results, 298­99 activities involved, 100 new focus on client services, 299 case study, 105 normative and rationalist models, 298 concept of risk, 100­01 partnership strategy, 300 integration with border control specific initiatives, 306­07 management, 101­05 examination and screening levels, 312­13 process framework, 101 in fragile states, 319 risk analysis, 103­05 goods specific measures, 306 risk defined, 100 information requirements, 310­12 Index risk identification, 102­03 management based regulation, 300­01 national single window system, 305 S partnership programs, 308­10 SAFE Framework, 80, 96, 169, 187­88, 307, 308 regulatory initiatives review, 313­14 sanitary and phytosanitary (SPS) management SITPRO categories, 306­07 animals and animal products supply chain regulation post 9/11, 297­98 guidelines, 273­74 supply chain security risk capacities needed, 264­65 flexibility and resilience clearance process, 263 requirement, 302­03 agencies and customs, 269 international container movement and, 303 agencies and the private sector, 270 nature of, 301­02 coordination among agencies, 269­70 supply chain visibility from a business market access role, 267 perspective, 303­04 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 379 supply chain visibility from a government 10+2 rule, 310­12 perspective, 304­05 Terrestrial Code, 189 supply chain visibility importance, 303 terrorism and border stations, 43 terrorist risk, 302 TFF (Trade Facilitation Facility), 34 umbrella measures, 306 TFNSP (Trade Facilitation Negotiations Support Senegal, 144t Project), 31 Shanghai Accord, 215 Time Release Study, 191­92 Singapore, 133, 144t Timor-Leste, 328­29, 337­38 single border protection agencies, 202­03 Timor-Leste Customs Service, 329 single revenue agencies, 201­02 TIR Convention, 29, 80, 188, 286 Single Window Repository, 190 Trade Analysis and Information System single window system. See national single window (TRAINS), 217 system Trade and Transport Facilitation in Southeast site decision for a border station Europe (TTFSE), 347­48 air traffic, 49­50 trade costs related to border management in cities, 48 aid for trade, 85 constraints, 47 firm level evidence, 84­85 on highways and major roads, 48 infrastructure development, 84 placement decision, 50­51 overall trade facilitation, 83 rail transport, 49 tariff rates compared to, 81­82 rivers, 50 time dimension of trade costs, 82­83 road and pedestrian stations, 48­49 trade administration and institutional seaports, 50 quality, 83­84 SITPRO (UK), 96, 161, 306­07 trade facilitation effectiveness, 83 smuggling, 39 trade facilitation Solomon Islands, 328 clearance times reduction through South Pacific Customs Development Program, 338 collaboration, 27, 28­29 SPS Agreement, 222­24, 263 countries and logistics constraints, 30 standards and consumer protection function at a defined, 23 border station, 41 development assistance available, 32­33 subsidiarity principle in the EU, 251­52 growing awareness of the need for, 24­25 supply chain security risk infrastructure and customs reform flexibility and resilience requirement, 302­03 projects, 26­28 international container movement and, 303 logistics improvements need, 29­30 Index nature of, 301­02 new reform agenda, 28 supply chain visibility from a business operational focus, 24 perspective, 303­04 promotion of, 30­31 supply chain visibility from a government single window, 128­29 perspective, 304­05 supply chain unreliability, 25­26 supply chain visibility importance, 303 technical assistance available, 33 terrorist risk, 302 trade corridor infrastructure, 28 Sweden, 143t transit regimes efficiency, 29 SWEPRO (Sweden), 161 World Bank program, 34 Trade Facilitation Facility (TFF), 34 T Trade Facilitation Negotiations Support Project Technical Barriers to Trade (TBT), 220, 222­24 (TFNSP), 31 Technical Unit for Reconstructing Customs, Trade Facilitation Self-Assessment, 191 Mozambique (UTRA), 325­26 TradeGate, Australia, 134 380 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N TradeNet, Singapore, 133, 144t Conference on Trade Development Trade Single Window Project, 133 (UNCTAD), 31, 96, 217, 301, 329 TRAINS (Trade Analysis and Information Economic Commission for Europe System), 217 (UNECE), 31, 80, 185, 286 transit regimes Electronic Data Interchange for control mentality and convoys, 290 Administration, Commerce, and Transport corridor management, 295 (UN/EDIFACT), 134, 185­86 corridor performance monitoring, 295­96 Layout Key, 185, 192 described, 279 Mission of Support in East Timor documentation flow, 282­83 (UNMISET), 329 guarantees, 283 Statistical Division (UNSD), 217 guarantor, 283 Trade Data Element Directory implementation issues, 280, 289­91 (UNTDED), 134, 184 information systems, 289 Transitional Administration in East Timor international law provision, 284­85 (UNTAET), 329 management requirements, 283­84 United States, 134, 142t, 203 open markets and, 294­95 Customs-Trade Partnership Against principal, 283 Terrorism, 169 procedures, 281, 282f Government Accountability Office, 44 regional carnet systems, 290­91 UTRA (Technical Unit for Reconstructing regionally integrated transit systems Customs, Mozambique), 325­26 carnet transit regimes, 285­86 European system, 288­89 V TIR, 286­88 value added tax (VAT), 239 regulation of entry, 290 violations section of a border station, 57 requirements for good function, 281 seals, transport, 282 W time to initiate transit, 289­90 weighbridges at border stations, 60 transit vs. trade facilitation, 291­94 World Bank, 24, 31 types of transit, 280­81 World Customs Organization (WCO), 4, 12, 31, Transit Routier Inter État (TRIE), 291 80, 96, 301, 347 transport function at a border station, 40­41 Data Model, 186 Transports Internationaux Routiers (TIR), 29, 80, Diagnostic Framework, 190­91 188, 286 Recommendation on UCR and TRIE (Transit Routier Inter État), 291 guidelines, 184­85 Index TTFSE (Trade and Transport Facilitation in World Economic Forum, 24 Southeast Europe), 347­48 World Health Organization (WHO), 264 World Organization of Animal Health, 263 U World Trade Organization (WTO), 31, 80, UCR (Unique Consignment Reference), 192­93 233­34, 264 UN/CEFACT, 133, 134, 160, 190, 192­93 WTO disciplines for nontariff measures Unique Consignment Reference (UCR), 192­93 exceptions, 221­22 United Kingdom, 133, 201­02, 203 under GATT and TBT, 220 United Kingdom Joint Customs Consultative legal rules, 219 Committee (JCCC), 163 nondiscrimination and the GATT, 220­21 United Nations Centre for Trade Facilitation and Electronic X Business (UNECE), 160­61, 270 X-ray sheds at border stations, 59 B O R D E R M A N A G E M E N T M O D E R N I Z AT I O N 381 ECO-AUDIT Environmental Benefits Statement The World Bank is committed to pre- Saved: serving endangered forests and natural · 24 trees resources. To reduce our carbon foot- · 8 million BTU of print, The Office of the Publisher has total energy chosen to print Border Management · 2,294 pounds of CO2 Modernization on recycled paper with equivalent of 50 percent post-consumer waste, in accord- greenhouse gases ance with the recommended standards for · 11,048 gallons of paper usage set by the Green Press Initiative, wastewater a nonprofit program supporting publishers · 671 pounds of in using fiber that is not sourced from en- solid waste dangered forests. For more information, visit www.greenpressinitiative.org. A s countries have come to realize the importance of trade in achieving sustainable economic growth they have progressively lowered tariffs, established regimes to encourage foreign investment, and pursued opportunities for greater regional integration. This progress has, however, been undermined by the high costs and administrative difficulties associated with outdated and excessively bureaucratic border clearance processes, which are now often cited as more important barriers to trade than tariffs. This book is designed to shed new light on these problems and to identify a range of strategies that will help officials meet their traditional control responsibilities while at the same time facilitating legitimate trade. It also provides advice to development professionals and key policy makers about what works, what doesn't, and why. This World Bank publication is a compelling account of the diverse and complex issues associated with border management in the 21st century. It is essential reading for practitioners, policy makers, and academics. To achieve national objectives related to growth in international trade and economic development, there is no alternative but to embrace a `whole of government' approach to border management modernization, which increasingly requires active coordination between all border agencies, both domestically and internationally. Use of international standards, such as those developed by the WCO, automation, and risk management are fundamental to delivering increased convergence and productivity across the border sector. These and many other tools are described extensively throughout this book, which provides sound reference material to help border reformers meet the challenges of modern times. --KUNIO MIKURIYA Secretary General, World Customs Organization Trade facilitation is a key element of the WTO's Doha Development Agenda. The evidence is clear that attention devoted to eliminating unnecessary red tape and bureaucratic obstacles at the border can reduce the costs traders face and make the goods produced by firms in developing countries much more competitive in international markets. This book provides information to guide the efforts of policy makers engaged in the critically important task of facilitating trade, while at the same time ensuring that governments are able to discharge their legitimate regulatory responsibilities effectively at the border. --H.E. EDUARDO ERNESTO SPERISEN-YURT (Guatemala) Chairperson WTO Negotiating Group on Trade Facilitation Trade performance is a key determinant of economic growth and prosperity. Over the last 45 years the countries that have grown fastest have typically been those that that have also seen the fastest growth in international trade. Research suggests that a very large proportion of business is time sensitive and many firms will lose orders or fail to close important deals if products arrive at their destination late. Effective and efficient border management regimes are therefore critical to ensuring speedy and reliable delivery of goods to foreign markets. This book provides a series of practical guidelines and advice to assist government officials and private sector stakeholders in working together to design and implement more efficient border management systems and procedures that will assist countries to take advantage of growth and development opportunities presented by participation in the global trading system. --CARLOS GRAU TANNER Director General Global Express Association ISBN 978-0-8213-8596-8 SKU 18596