21st century customs?
On Second thought' By Dietmar Jost
For many years, customs administration representatives around the world discussed what would constitute a customs administration in the 21st century. The discussion resulted in the World Customs Organization adopting in 2008 a policy paper, Customs in the 21st Century, listing 10 strategic best practices for Customs administrations to follow in their reform and modernization agendas.
Besides closer cooperation ' including a global electronic network among customs administrations worldwide, better coordination among border agencies, customer orientation and partnerships with legitimate traders, intelligence-based risk management, and integrity ' the best practices also include modern working methods and procedures. In other words, electronic systems to replace paper-based processing, and audit-based and traders' systems controls to complement transaction-based controls.
One would have expected these strategic best practices would have been applied at a recent reform and modernization activity, the European Union's Excise Movement and Control System. EMCS is a computerized system to monitor the intra-community movement of excise goods. With an initial phase started April 1 in a few of the 27 EU customs and excise administrations, the system is expected to roll out to all 27 member countries on Jan. 1, 2011.
Why does the European Union still control internal movements of goods? Don't they have a customs union and a single market? Well, while politicians in Europe agreed to abolish customs borders within the European Community to establish the European single market in 1993, they did not do so for the value-added tax and excise tax. Intra-community trade of goods in general and excise goods in particular (tobacco, mineral oil products, alcohol, etc.) still has to be monitored and controlled as taxation applies in the country of destination. Moving to a system whereby goods are taxed at origin and move freely within the EU would clearly remove significant bureaucratic burden from trade, but would require EU governments to agree on a clearing system distributing the revenues relative to the intra-community trade. Obviously, governments have chosen the perceived easier way and decided to put the burden on trade.
Within these constraints, the introduction of EMCS for excise goods is certainly a positive sign from the administrations to try to reduce the burden on trade. But it only replaces paper forms with an electronic messaging system. All traders in Europe still must report each and every movement of excise goods. Even worse, EMCS will require them to report them twice, once to the local Customs office at departure and once to the local Customs office at destination.
It would have been a significant facilitation step, if the EU Customs administrations would have introduced audit- and system-based controls and greater cooperation among each other like in the case of VAT. In particular for those traders that have invested in the Authorized Economic Operator (AEO) program and are moving goods between premises of their company located in different EU member countries, such modern working methods as recommended in the WCO paper would have provided tangible benefits. AEO companies have already demonstrated their internal control, recordkeeping and IT systems, their compliance record and financial solvency are healthy and trustworthy in order to qualify for AEO status.
An example of the difficulties companies may face with EMCS was raised in a discussion I had with an official from a customs administration of an EU member country during the 2010 WCO IT Conference in April, where, ironically, experts from around the world were discussing greater collaboration towards globally networked customs administrations. The example was a big retailer with stores in a number of EU countries. The company operated only a few distribution centers to provide supplies (including alcohol and tobacco
products) to stores in different EU countries. The company asked the customs administration in the country, where they had several retail stores, whether they could send the departure as well as the arrival notification from the DC in the other member country as they had not the necessary IT infrastructure in the stores at destination to connect to the local customs authorities. The response given to the company was negative as the architecture of EMCS would not support such a business process.
This example shows that in 2010 the 21st century as described in the WCO policy paper has not yet fully arrived in the EU Customs administrations. The implementation of EMCS seems to be a classic example of computerizing paper-based procedures without prior business process reengineering. Clearly another opportunity missed to walk the talk and to provide modern working methods and procedures to the trading community in general and the AEO companies in particular.