One of the great ironies of intellectual history is that Adam Smith, the apostle of free trade, ended his days as a Comptroller of Customs. By the same token, it may seem strange that the International Monetary Fund (IMF), committed to the principles of free trade, should devote a good deal of its technical assistance activities to strengthening the performance of customs administrations. In each case, however, the explanation is easily found. For Smith, the position of Comptroller at Kircaldy, a post his father had also held, was an attractive sinecure (as customs posts continue to be in all too many countries). For the IMF, the support of improvement in customs administration reflects the recognition that although customs administration would wither away in an ideal world, in practice trade taxes are likely to be a significant source of revenue for many of its members, especially developing countries, for the foreseeable future; and that if trade taxes are to be levied, it is best that this be in a way that does least collateral damage to international trade flows.
Goods being carried under transit are generally not subject to the payment of duties and taxes, provided the conditions laid down by the customs administration are complied with.109 Customs transit systems are designed to facilitate the movement of goods crossing the territory of one or more states without jeopardizing revenue through diversion of such goods to the domestic market. To do this, while avoiding excessively burdensome and costly formalities, a balance has to be struck between the requirements of the customs authorities and those of the transport operators. This chapter considers how this might best be done.110
This paper, based on the considerable practical experience of the IMF’s Fiscal Affairs Department, sets out a successful strategy for modernizing customs administration. The essence is to establish transparent and simple rules and procedures, and to foster voluntary compliance by building a system of self-assessment supported by well-designed audit policies. Having set out this strategy--and its benefits--the paper discusses in depth what is required in terms of trade policy, valuation procedures, dealing with duty reliefs and exemptions, controlling transit movements, organizational reform, use of new technologies, private sector involvement, and designing incentive systems for an effective customs administration.