Journal Issue

5. Customs Administration Operations

Andrea Lemgruber, Andrew Masters, and Duncan Cleary
Published Date:
May 2015
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Release Time of Goods by Customs

Customs’ role in supporting trade facilitation is crucial for the efficient conduct and growth of international trade and economic development. Customs administrations can further this goal by applying simple, predictable, and fast processes, which translate into reduced costs and clearance times, as well as greater reliability of the customs system. A common international indicator that measures trade facilitation is the release time of imported goods. The RA-FIT survey included a question on import clearance times from the moment the shipment is first received at customs to the time it is released from customs. The indicator was then divided into two categories: imports that underwent physical examination (red channel) and those that did not (yellow and green channels). Answers were also differentiated by the mode of arrival: air, sea, or land.

Regarding the release time of goods subjected to physical inspection, clearance efficiency tends to increase by income grouping from LICs through HICs (in particular for maritime traffic). Indeed, LICs in 2010 took slightly more than five days to clear sea containers subjected to physical inspection, whereas UMICs/HICs took fewer than two days to undertake the same task.

Regarding release times of goods not subject to physical inspection, UMICs and HICs again show consistently better average release times than less-developed economies. These income groups clear sea containers passing through yellow and green channels in about a day, while release times for LICs and LMICs are longer (even though reported numbers for LICs are better than those reported by LMICs).

Overall, release times in many surveyed respondents could still be improved. Less-than-optimal release times may generate higher costs for their economies and act as hidden tariffs. Therefore, it is necessary to continue making efforts to improve clearance procedures, which requires among other things (1) provisions and agreements that allow for better coordination among all border control agencies; (2) the publication and availability of information about import and export requirements, and formats and instructions for completing customs declaration forms; (3) traceability of goods; (4) special programs for compliant operators; (5) alignment of the legal framework with the customs IT systems and field operations; and (6) the implementation of a coherent risk management system.

Figure 19.Release Times for Imports—Sea, Air, and Land, 2010

Source: RA-FIT Database, 2010.

Customs Control Selectivity and Inspections

Physical inspection of goods, while necessary, is often used too intensively. This practice may reflect (1) weak risk management and control selectivity; (2) insufficient use of documentary reviews (which are more effective than physical inspections to detect certain types of customs offenses); or (3) customs officers seeking face-to-face contact with traders, which increases the risk of corruption. A high rate of physical inspection of goods is often an indicator of delayed modernization of customs administration, unless it is justified by special circumstances, such as the execution of security checks. In contrast, a high percentage of customs declarations accepted without control before clearance (“green channel”) often demonstrates the effectiveness of control selectivity, customs’ capacity to focus on high-risk consignments, and a greater focus on trade facilitation.23

RA-FIT data suggest that the incidence of red channel checks—or physical inspections—and income level are negatively correlated (Figure 20). Indeed, LICs physically inspect about half of their customs declarations, while HICs selected only about 20 percent of the declarations for red channel control. This trend is not so clear for documentary checks (yellow channel), with UMICs reporting a greater use of this mode (51.7 percent). Geographically, the selection rate for physical and documentary control is very high in sub-Saharan Africa, with close to 40 percent for yellow channel and 43 percent for red channel. There may be an interesting connection to this practice in African countries of also undertaking comprehensive audits on the tax administration side (see discussion on audit in Section 4). This trend possibly demonstrates an engrained culture of wanting to check everything rather than being selective through the adoption of risk approaches, negatively affecting the efficiency and effectiveness of tax and customs administrations alike. In other regions (Europe, Western Hemisphere and Asia and Pacific countries), selection for physical inspection is more restricted. However, European countries’ rate of yellow channel selection is relatively high, at about 41 percent.24

Figure 20.Customs Traffic by Channel, 2010

Source: RA-FIT Database, 2010.

Post-Clearance Audit

Post-Clearance Audit (PCA) is not yet a strongly developed function of customs in developing countries.25 PCA, just like for audit case selection in tax administration, makes use of risk-based approaches. Such approaches allow customs to target resources more effectively while improving compliance levels and better facilitating trade. The key objectives of PCA26 can be summarized as follows: (1) to ensure that customs declarations have been completed in compliance with customs requirements, via examination of a trader’s systems, accounting records and premises; (2) to verify that the amount of revenue legally due has been identified and paid; (3) to facilitate international trade movements of the compliant trade sector; (4) to ensure goods liable to specific import/export controls are properly declared, including prohibitions and restrictions, licenses, and quota; and (5) to ensure conditions relating to specific approvals and authorizations are being observed, for example, pre-authenticated transit documents, preferential origin/movement certificates, licenses, quota arrangements, customs and excise warehouses and other simplified procedure arrangements.

Of the 63 customs administration respondents, 44 reported that they conduct PCAs, and on average had over a three-year period (2009–11) also increased the number of PCAs conducted, which is a positive trend. Figure 21 shows the percentage increase in PCAs by region and also by income group over the period 2009–11.

Figure 21.Increase in Post-Clearance Audits, 2009–11

(Percentage of Respondents)

Source: RA-FIT Database, 2010.

23Of course, if there is no selection system based on the noncompliance risk of a shipment, a high rate of “green channel” traffic could also indicate extreme administrative inefficiency.
24Note that this average is with reference to only two eastern European countries that participated in the first round of RA-FIT.
25The Post-Clearance Audit process can be defined as the structured examination of a business’ relevant commercial systems, sales contracts, financial and nonfinancial records, and physical stock and other assets as a means to measure and improve compliance with a country’s customs and tax laws. It is referred to as “post-clearance” because it takes place after a shipment has been cleared, and is in this regard more akin to a regular tax audit.
26As summarized by WCO (2012).

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