Title Page

CUSTOMS MATTERS

Strengthening Customs Administration in a Changing World

AUGUSTO AZAEL PÉREZ AZCÁRRAGA TADATSUGU MATSUDAIRA GILLES MONTAGNAT-RENTIER JÁNOS NAGY R. JAMES CLARK

Copyright Page

© 2022 International Monetary Fund

Cover design: IMF Creative Solutions

Cataloging-in-Publication Data

IMF Library

Names: Pérez Azcárraga, Augusto, Azael, author. | Matsudaira, Tadatsugu, author. | Montagnat-Rentier, Gilles, author. | Nagy, János, author. | Clark, R. James, author. | International Monetary Fund, publisher.

Title: Customs matters : strengthening customs administration in a changing world / / prepared by Augusto Azael Pérez Azcárraga, Tadatsugu Matsudaira, Gilles Montagnat-Rentier, János Nagy, and R. James Clark.

Other titles: Strengthening customs administration in a changing world.

Description: Washington, DC : International Monetary Fund, 2022. | May 2022. | Includes bibliographical references.

Identifiers: ISBN 9798400200120 (book)

Subjects: LCSH: Customs administration. | Customs administration—Law and legislation. | International trade.

Classification: LCC HJ6609.P47 2022

Recommended citation: International Monetary Fund. 2022. Pérez Azcárraga, Augusto Azael, Tadatsugu Matsudaira, Gilles Montagnat-Rentier, János Nagy, and R. James Clark. Customs Matters: Strengthening Customs Administration in a Changing World. Washington, DC: International Monetary Fund.

ISBNs: 979-8-40020-012-0 (paper)

979-8-40020-466-1 (ePub)

979-8-40020-464-7 (PDF)

Please send orders to:

International Monetary Fund, Publication Services

PO Box 92780, Washington, DC 20090, USA

Tel: (202) 623–7430 | Fax: (202) 623–7201

E-mail: publications@imf.org

Internet: www.elibrary.imf.org

www.bookstore.imf.org

Contents

• Foreword

• Abbreviations

• Acknowledgments

• Contributors

• Introduction

• 1 The Multifaceted Role of Customs and Its Importance for the Economy and Society

• Gilles Montagnat-Rentier and Christian Bremeersch

• 2 How Trade and Tax Policies Are Shaping Customs

  Tadatsugu Matsudaira and Michael Daly

• 3 Institutional and Professional Foundations of Modern Customs Administration

  János Nagy and Hubert Duchesneau

• 4 Customs in a World of Enhanced Trade Facilitation

  R. James Clark and Danielle Bernard

• 5 Strengthening the Core Customs Processes through Integrated Risk Management

  Augusto Azael Pérez Azcárraga and Rossana San Juan

• 6 Customs Enforcement and Cooperation with Other Administrations

  János Nagy and William LeDrew

• 7 Customs Administration and Digitalization

  Tadatsugu Matsudaira and Jonathan Koh

• Appendixes

• Index

Foreword

Customs administrations have played an instrumental role in economic management and development since ancient times. For many nations, collecting duties at borders was the main source of income for hundreds of years until the early 20th century. Customs administrations have also helped collect data to define trade policies and generate the balance of payments statistics. Today, collecting duties and taxes on imports is only one of the responsibilities carried out by customs administrations. Their role has expanded to take on economic and social dimensions, including helping address global challenges such as combatting pandemics and natural disasters and facilitating global supply chains.

The accelerating pace of global transformation in recent decades has seen an ever-increasing volume and interdependence of international trade. With that, new challenges have emerged for customs administrations: the digitalization of trade and customs processes, the adoption of new technologies and business models, renewed national security and safety of society concerns, and revamped protectionism. Moreover, while the complexity of trade relations has increased, customs administrations must respond to the trade community’s growing demands for trade facilitation through the simplification, transparency, and predictability of customs procedures, as well as time and cost reductions.

The COVID-19 pandemic has been another turning point. The pandemic proved that free and efficient international trade is essential for achieving an inclusive, sustainable recovery everywhere. And it highlighted once again the critical role that customs can play in streamlining the supply chains that support economic activity and the importation of goods vital to combatting the pandemic. The pandemic also tested customs capabilities around the world—including the challenge of mobility restrictions and limits on in-person contacts—and emphasized the need to accelerate automation. These challenges highlight the need for customs administrations to assess and strengthen their institutional practices and processes, not just to improve their current operations but also to constantly evolve, be more dynamic, and face the ever-changing environment in which they operate.

Against this background, this book offers a cross-sectional view of the crucial issues for policymakers and customs officials to consider when evaluating the current state of their customs system. Its goal is to help them face emerging challenges strategically and build on broad practical experiences to develop, reinforce, or advance their roadmaps for customs modernization and reform.

The book also reaffirms the IMF’s commitment to supporting its member countries in these efforts by strengthening key institutions and their ability to promote inclusive and sustainable growth and economic development. Likewise, it expresses the IMF’s willingness to continue collaborating closely with our partners, seeking to optimize everyone’s resources and generate synergies for our membership.

Kristalina Georgieva

Managing Director

Abbreviations

Acknowledgments

We started this project thanks to the encouragement of Michael Keen, who has always recognized the relevance of customs administration for fiscal performance and sustainable development. He set this vision in the book Changing Customs: Challenges and Strategies for the Reform of Customs Administrations, which he edited in 2003. As we publish this new IMF customs book two decades later, we offer our sincere thanks to Katherine Baer, who has been an enthusiast of this project since the beginning and has provided invaluable guidance, and to the senior managers of FAD’s Revenue Divisions that oversee our capacity development programs for tax and customs administrations: Debra Adams, Andrea Lemgruber, Margaret Cotton, Andrew Masters, Andrew Okello, and Rebecca Sparkman, who have given enormous support during this journey.

This book reflects the teamwork, dedication, and knowledge sharing among FAD senior customs specialists who drew on significant experience gained over many years providing capacity development to customs administrations in emerging markets and developing countries. We acknowledge the outstanding contributions of several FAD’s external customs experts who helped us draft the various chapters: Danielle Bernard, Christian Bremeersch, Michael Daly, Hubert Duchesneau, Jonathan Koh, Willian Ledrew, and Rossana San Juan. Our thanks go also to FAD’s customs long-term advisors, Rachel Auclair, Stephen Cox, Selvin Lemus, Stephen Mendes, David Smith, and Philip Wood, for their valuable comments.

This project would not have been possible without the expertise, patience, wisdom, and personal warmth of Barbara Hebert, the book’s main technical editor. Her thorough review and inputs have been extremely useful. Special thanks to Robert Kokoli, FAD senior customs specialist, who supported the technical review and provided helpful insights.

We greatly appreciate the kind support of the international organizations that generously shared their experience, provided inputs, and took the time to peer review the book: The World Customs Organization, through Tadashi Yasui, who summarized the comments of the World Customs Organization reviewers; Alina Antoci, William Gain, Ernani Checcucci, José Gutiérrez Ossio, from the World Bank; and Sandra Corcuera and José M. García Sanjinés from the Inter-American Development Bank.

We thank our colleagues from the IMF’s Communications Department: Rumit Pancholi, Wala’a El Barasse, and Patricia Loo, for their excellent contributions during the editing and publication process.

We reserve our greatest appreciation to the IMF member countries’ customs administrations and their management teams and staff, from whom we have learned so much over the years. This book acknowledges these officials who, despite the daily challenges faced in carrying out their functions, are committed to introducing substantive reforms to improve the performance of their organizations, thus contributing to their country’s economy, society, and security. Thank you for believing that customs matters.

Contributors

Danielle Bernard has 20 years of customs experiences with the Canadian customs administration and is an accredited Technical and Operational Advisor in Post-Clearance Audit for the World Customs Organization. She has experience in customs administration capacity building in the areas of risk management and Post-Clearance Audit, conducting diagnostic missions and assisting in the development of an advanced Post-Clearance Audit case study workshop with the World Customs Organization.

Christian Bremeersch spent his career in the French customs administration, with the exception of periods of secondment as customs resident advisor to Burundi (five years) and Mali (one year) on behalf of the French Ministry of Cooperation, and to the Democratic Republic of Congo (two years) on behalf of the IMF. He has extensive experience in customs administration capacity building in Francophone Africa as a short-term expert in the IMF’s Fiscal Affairs Department.

R. James Clark has more than 20 years of experience as a senior leader and director with Canada customs administration and has worked in internationally in capacity development on customs modernization, trade facilitation, public service management and leadership. He is accredited by the World Customs Organization as a Custom’s Modernization Expert and led the development of their Post-Clearance Audit Advanced Workshop. He has conducted missions in Africa, Asia, Central Asia, the Caribbean, South America, and Central America. He has been a headquarters-based expert for the IMF and is a short-term expert for the IMF as well as the World Bank.

Michael Daly has been an external tax and trade policy expert with the IMF’s Fiscal Affairs Department since 2006. Having worked in the Tax Policy Branch of Canada’s Ministry of Finance, the European Commission, the Economics Department of the Organisation for Economic Co-operation and Development, and the World Trade Organization’s Trade Policies Review Division, he has 40 years of experience encompassing a wide range of tax and trade-related policies.

Hubert Duchesneau, a customs modernization and capacity building consultant, has had a policy, operational, and organizational development career with the Canada Border Services Agency and the World Customs Organization. His research and practice interests include institutional and professional development, notably frontline training and leadership, integrated border management, customs-private sector partnerships, and the promotion of integrity.

Jonathan Koh, managing director of Trade Facilitation Pte Ltd, is a trade and customs consultant with more than 25 years of experience. He had worked in more than 70 countries, covering an eclectic range of projects including paperless trade/digital transformation, customs automation and national single windows, port community systems, trade facilitation strategy roadmap and performance measures, special economic/free trade zones, and regional connectivity platforms.

William LeDrew spent 28 years with the Canadian customs service rising to the level of Director General in charge of enforcement. In 1996, he accepted an assignment with the Fiscal Affairs Department of the IMF as a senior customs advisor to the government of Malawi (1996–98). After this, he was appointed as Collector of Bermuda Customs, a position he held for three years (1998–2001). He then spent three years as the Fiscal Affairs Department’s resident customs advisor in Cambodia (2001–03). In addition, he has provided technical assistance to about 30 developing countries with the World Bank, the International Finance Corporation, regional development banks such as the Asian Development Bank and the Inter-American Development Bank, the Association of South East Asia Nations, and private sector consultancy organizations.

Tadatsugu Matsudaira, Senior Economist, has been working with the IMF Fiscal Affairs Department since 2017. He covers wide spectrum of customs reform and modernization as well as project design and management based on more than 30 years of experience through Japan customs and the Ministry of Finance, the Organisation for Economic Co-operation and Development, the World Customs Organization, and the World Bank.

Gilles Montagnat-Rentier, a senior economist and former manager with the French customs administration, has been working with the IMF Fiscal Affairs Department since 2003 to advise on customs reform and modernization. His current main focus areas are revenue mobilization in Africa, trade facilitation, regional integration, customs procedures for the extractive industries, and challenges faced by fragile and conflict-affected states.

János Nagy has 43 years of experience in customs having spent 25 years in the Hungarian customs and excise administration, and financial criminal investigation service, including five years as Deputy Director General and seven years as Director General, and one year in the Ministry of Finance as Head of the European Anti-Fraud Office National Bureau. He served five years at the World Customs Organization Secretariat as Head of Service for technical assistance, reforms and modernization, as well as customs integrity. He managed and delivered IMF customs-related technical assistance programs as a senior economist from 2012 to 2021.

A. Azael Pérez Azcárraga has more than 27 years of experience in customs. He is a senior economist in the IMF’s Fiscal Affairs Department, responsible for the coordination of capacity development for customs administrations for Latin America and the Caribbean. Mr. Perez has led major modernization reforms helping countries improve trade facilitation and customs collection efficiency, while protecting their borders. He previously served for 17 years at the tax and customs administration of Mexico in several positions: Director of Customs Offices, Deputy Director General of Foreign Trade Intelligence, and Deputy Director General of Post-Clearance Audit. He was accredited by the World Customs Organization as a Customs Modernization Expert.

Rossana San Juan is an economist with a master’s degree in economics. She currently works for Uruguayan customs and is an expert in risk management accredited by the World Customs Organization. Since 2015, she has worked as a customs expert for the IMF’s Fiscal Affairs Department primarily in the Americas region as well as other regions for the World Bank. Her main focus as a consultant is risk management and data analysis methods.

Barbara Hébert is retired from the Canadian public service after a 27-year career with the customs and tax revenue administrations and the Canada Border Services Agency, where she was a senior vice president responsible for operations. Throughout her career she held a variety of positions, including executive ones in both regional and headquarters settings. She has worked as a short-term expert with the IMF Fiscal Affairs Department since 2010 and has been involved in missions focused on reform and modernization of tax and customs administrations in the Caribbean, Africa, Europe, Asia, and South America.

Introduction

Trade in goods could not properly flourish without rules. It is not surprising, therefore, that customs continues to play an important role in the modern economy and society. The raison d’être of this state administration is to ensure that international trade in goods is conducted in accordance with the laws and rules currently in force. It is this administration that ultimately authorizes (or does not authorize), the entry and exit of goods from the customs territory. The benefits of a well-performing customs administration are clear, including revenue mobilization (in many countries, customs plays a key role in collecting tax revenue), reduction in wait times and transaction costs, enhanced safety and security, and the promotion and resilience of international value chains. Particular attention must therefore be paid to the efficiency, effectiveness, fairness, and modernization of customs administrations.

The IMF devotes a significant part of its activity to capacity building in developing countries, including in customs. In 2015, the Addis Ababa Program of Action and Agenda 2030 for Sustainable Development (SDG 17.1) targeted the strengthening of national revenue collection capacities as the main source of longterm and stable financing for sustainable development. IMF research released in March 2021 shows that low-income developing countries have to deploy some $200 billion over five years just to fight the COVID-19 pandemic and then another $250 billion to return to the path of catching up to countries with higher income levels (IMF 2021). Mobilizing domestic revenue will be critical to help countries address increasing and/or high debt levels in addition to external concessional financing that has been made available to many low-income countries as a result of the pandemic. While tax administration is at the forefront of this agenda, customs is clearly involved: customs duties and taxes levied on international trade will remain an important source of revenue for many developing countries for a long time to come. Optimizing collection of these duties and taxes remains a necessity, and it should be done with the least harmful consequences for trade flows.

This book follows a previous work, Changing Customs—published in 2003 by the IMF—which made the case for modernization and reform in customs administrations and laid a path to strengthened and improved customs administrations at the beginning of the 21st century. Since that volume was completed, the need for modernization has become more urgent because of increased globalization, integrated supply chains, and rapid technological advances. In addition, the convergence of the COVID-19 pandemic, conflicts, and climate change have eroded many gains made in the past 25 years in reducing world poverty—according to the World Bank’s World Poverty Overview. Now more than ever, governments need to promote economic growth and mobilize resources to address widening cracks in social systems. Customs administrations must push harder to modernize and implement their critical programs and processes so that they can play their part in facilitating trade and business, mobilizing revenue, and protecting society.

Even though this book places more emphasis on the fiscal role of customs, the modernization of customs administration must also consider core challenges relating to trade facilitation and border (and societal) protection. This requires reconciling the rapid, unhindered, and low-cost movement of legitimate trade through trade facilitation, layered with effective risk-based control and the fight against fraud and trade in prohibited goods. Failure to achieve this balance (which also involves other administrations that may be present at the border and that play other key roles in facilitating trade) will affect economic activity, public finance, and society.

In this book, we describe and analyze current challenges to customs administration and propose some ways to address them. In particular, this work highlights the lessons that the IMF, and more specifically its Fiscal Affairs Department (FAD), has garnered from the many successful capacity development efforts that have been undertaken to date. At the heart of this book, as of all FAD’s work in this area, is the potential for extremely positive effects, for both the public and private sectors, to be gained from customs modernization given the constant and rapid changes in the form, scale, and nature of international trade and, more generally, in economies and societies.

This book focuses primarily on international cargo. It should be noted, however, that customs also has to deal with people crossing a border. While the authorization of a person to cross a border is an immigration matter, the status of goods accompanying that person, including vehicles and personal items, is a customs matter. Customs rules apply to all goods, even though significant simplifications of procedures have been adopted to facilitate international travel (such as the requirement, in most situations, of merely a verbal or tacit customs declaration by the international traveler). The task of customs is also complicated by the movement of persons for illicit reasons and transportation by travelers of prohibited or restricted goods. Given the considerable and increasing number of international travelers and border crossing points, this is an important responsibility of customs administrations.

The previous IMF book on customs modernization laid a foundation for key reforms, and many of the lessons from that book remain relevant. This volume does not supersede the ideas presented there; rather, it builds upon them, touches on crucial challenges facing current administrations, and suggests approaches to working through them.

Chapter 1 is an overview of the multifaceted role of customs, its importance for the economy and society, and how it has evolved into its current role. Chapter 2 examines the impact of trade and tax policies on customs, highlighting how these policies have shaped customs’ response to modern integrated supply chains. Chapter 3 is a deeper dive into the institutional and professional foundations of customs. It discusses the need for robust management practices relating to customs reform and modernization, legislative and regulatory frameworks, learning and development, and good governance and accountability. It includes practical examples to assist the customs administration with developing their own key performance indicators (KPI).

From the foundations of modern customs administration, we move to Chapter 4, where the challenges of enhanced trade facilitation and customs’ role in supporting a pro-trade national economy are examined. A roadmap is included for customs administrations to become more transparent, with processes that are simplified, harmonized, and standardized to be more trade-friendly.

Chapter 5 examines strengthening core customs processes through integrated risk management and explains how this critical practice has many benefits from both the enforcement and trade facilitation perspectives. It includes a practical guide to assist customs administrations to identify control gaps by comparing their current performance against good practices, aiding them to develop their own roadmap for improvement.

A key role for customs is enforcement, and Chapter 6 examines strategies for strengthening this critical function. The challenges and risks associated with fraud and anti-smuggling enforcement are discussed and guidance provided on developing a robust enforcement program with an emphasis on the value of information sharing.

Finally, Chapter 7 looks forward to new and emerging technology and how it may be used to improve customs performance. The chapter also examines why previously implemented technologies sometimes do not produce the expected or desired results. The book offers some country examples, whose main objective is to inspire and connect customs administrations to share experiences and lessons learned beyond assessing their success.

While providers and beneficiaries of capacity development agree on the importance of customs and its modernization and the practical steps needed to achieve it, the challenges of customs modernization vary from country to country depending on the starting point in each case. This book reflects that many challenges to be overcome are common to all countries and that there is a wealth of experience on how to move forward.