Customs discretion

Customs discretion    Customs discretion is the extent to which customs officials, accorded statutory powers, are free or obliged to apply them, either by express regulatory stipulation or because they have no specific instructions on their practical implementation.
   It operates at the Customs-trade procedural interface in two quite distinct modes and guises.
   In many developing countries with high tariffs, small and ill-trained customs staff, and lax official and commercial cultures, badly drafted legislation accord customs wide powers of discretion, which is applied in arbitrary and unpredictable fashion subject only to varying degrees of irregular payment.

Previous commentary by John Raven •   Year of the compliant trader

   In major trading nations, discretion, progressively limited by a range of trends and events, and guided by carefully nurtured risk-management, is a fully acceptable, indeed still indispensable customs attribute. In routine trading many key border control requirements oblige customs to take innumerable operational decisions usually focusing on value, classification or a possible need for physical inspection. It's a relatively simple intervention for easily accessible general cargo, but extremely onerous and complex for containerised shipments and highly time-sensitive airborne goods.
   The basic commercial need for good professional customs risk-management reflected in a high degree of operational certainty for consistently compliant traders is fully met in most developed economies. In recent years, however, globalization, in the hands of large multinational companies operating finely tuned integrated supply chains, has imposed urgent new needs for simplification and standardization of national procedural structures generally managed through automated means.
   Commercial pressures and strong professional developments in customs have combined with increasing government awareness of international trade's role in national economic development to stimulate a number of advances in the use of discretion.
   The World Customs Organization, created under its original title of the Customs Co-operation Council to secure 'harmony and uniformity in ' customs systems,' took a very important initiative in the Kyoto Convention. It gave this general remit special force by its declared objective of the 'simplification and harmonization of customs procedures.'
   By the time this convention had acquired a useful signatory constituency the swelling tide of electronic innovation in communications and information processing and the associated growth of world trading networks forced a set of substantial additions and improvements in a Revised Convention text. These, together with continuing original standards, set out clear model procedures with supporting guidelines to offer examples of best practice and open up some suggestions for further advances.
   By offering a number of key procedures that together provide a firm pattern of good customs practice, the revised convention makes significant and useful inroads into unfettered customs discretion. One new clause, in particular, Transitional Standard 32.2, has had important and, at the time, quite unintended consequences.
   It provides that 'for authorized persons who met criteria specified by the customs, including having an appropriate record of compliance with customs requirements and a satisfactory system for managing their commercial records, 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.
   'In addition, to the extent possible, other special procedures are:
   ' 'Allowing a single goods declaration for all imports or exports in a given period where goods are imported or exported by the same person.
   ' 'Use of the authorized person's commercial records to self-assess their duty and tax liability and where appropriate 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.'
   This broad approach was given firm outlines by the Swedish Stairway, introduced by the Swedish Customs, with unfortunate timing, at the end of 'normal' customs considerations in 1999-2000.
   To quote one of its official announcements, 'The Stairway is a scheme for structuring routines and procedures that enable companies to influence how customs issues are handled by following different programs that ensure that regulations are complied with and quality maintained. Depending on the resources a company is willing to assure the quality of its customs declarations, Swedish Customs will bring new as well as traditional control measures to bear in the way the declarations are handled.
   'The Stairway consists of five steps, the first two of which comprise the program for quality assurance established by Swedish Customs, while steps three and four are programs for quality assurance that can be individually adapted to each company. Step five involves international cooperation, in that the quality assurance granted to a company by a particular country will also be accepted by other countries linked to the system.'
   Even in purely 'peace-time' customs practice, this introduced quite new elements of harmonized procedural precision a novelty which, given the somewhat conservative customs community, made it a brave innovation rather than a readily adopted precedent.
   All facilitation hopes were dashed when, after 2001, antiterrorist security added to and dominated major customs systems. Even the Stairway became a straitjacket and under the powerful influence of the U.S. Customs and Border Protection's new Customs-Trade Partnership Against Terrorism(C-TPAT) membership conditions, the 'authorized persons' of the Revised Kyoto Convention were transmuted into Authorized Economic Operators (AEO) of the revised EU Customs Code. The simplifications set out in Standard 32.2 became the basis of a varying but roughly equivalent procedural benefits accorded to 'compliant' traders defined by the United States, European Union and a number of other customs in terms of novel and previously unnecessary obligations in respect of physical security and staff training and recruitment. The daring and speculative initiative of special benefits for 'authorized persons' was given a new and restrictive guise as restriction of quite normal simplifications to a newly defined community of 'safe' traders.
   In these circumstances the focus of discretion has shifted to the declarant, as AEO status and C-TPAT membership are voluntary options while customs have been obliged — or see the patent need — to reward added control by a balancing set of fairly well-defined advantages, although some of these for example 'fewer' physical inspections and 'less' delays are only indicative.
   This is still the general state of customs discretion in developed economies at a time, eight years on from 9/11, when not a single terrorism-related consignment has been found in all the probing security procedures of main trading states, with the possible exception of a containerload of illicit small arms from the United States recently seized by the Nigerian Customs.
   Meanwhile, however, work has continued to bring greater precision and effective limits to the exercise of customs discretion in less-developed countries. The WCO Capacity Building Directorate has been bringing the Revised Kyoto Convention to the forefront of its now extensive Columbus technical assistance program.
   The WTO has spanned the widening time-gap in the completion of the Doha Round with a growing set of proposals for universally applicable procedural simplifications, many reflecting the Kyoto provision for customs but stretching out further into the whole apparatus of official border management.
   Given that many of the proposed simplifications are already included in the Kyoto Convention and that most have been part of the accepted procedural wisdom in all major industrial economies, the implicit intention of the WTO draft Facilitation Agreement text is to reform and improve border management in the many developing countries that still depend on inefficient and untrustworthy official control agencies.
   One interesting element in this WTO initiative is an EU Submission calling for the elimination of pre-shipment inspection services.
   These began as an understandable effort by the International Monetary Fund and World Bank to safeguard customs revenues — and so their own loans — by obliging borrowers to confide key valuation and control procedures, and so related exercises of discretion, to specialist private services.
   These agencies then demonstrated the dangers of systematic non-discretion by invariable inspection of every consignment and invariable exaction of associated charges. It took many years for the contrast with selective risk-management techniques in the better Customs services to stimulate traders and eventually the IMF and World Bank to disown and decry pre-shipment inspection regimes.
   Looking round at the overall discretionary landscape today and taking account of the radically different behavior and needs of developed and developing economies it is not unreasonable to conclude that: In developed economies the battle on customs discretion is firmly focused on the extent to which traders volunteering to qualify under special security regimes such as C-TPAT membership and the highest category of EU AEO can obtain fully defined procedural benefits. The facilitation downside is that the more simplifications are listed as attached solely to qualified traders, the less is left as the normal expectation of non-volunteers who may be reticent either because they are just unable (usually as small and medium enterprises) to meet some of the more advanced security precautions, are doubtful of the real benefits of doing so or, in a minority of cases, want to evade over-careful customs surveillance for 'normal' revenue evasion purposes.
   A neutral observer may well wonder how far genuine customs practice is served by a meticulously detailed 'you do this — I do that' compliance/facilitation balance sheet, justified largely by traders' understandable desire to get the best assured benefits in return for voluntary assumption of quite new obligations. Their cause is largely illusory because the still unrestrained discretion of customs as to whether they will resort to physical inspection or otherwise delay release quite outweighs any advantages attaching to other well-defined procedural simplifications that were, in any case, previously available to any compliant operator. It is self-evident that the force of customs discretion is not just in the extent to which it is seen to be relinquished but also the procedural focus of its residual exercise.
   The many layered security controls — first qualification as a duly registered 'compliant' trader under C-TPAT or AEO rules, then profuse data provided prior to export in respect of every consignment with the further prospect of 100 percent scanning — are a massive degradation of the sort of facilitation standard that was generally regarded as very practicable in good customs practice prior to 9/11.
   ICC Customs Guideline 18 sets out one key objective in all its elegant simplicity — 'A modern customs service ' replaces transaction-by-transaction treatment by account-based, post-entry procedures for importers with proven compliance histories and consistent import patterns.'
   This basic facility, already accorded by some customs administrations and far exceeding, in operational value all the 'benefits' now on offered to AEOs or C-TPAT members may be seen, in retrospect, as an optimal exercise of true Customs discretion.
   As it is a large and growing proportion of world trade that is hampered by the costs and complication of new security regimes, moulded in customs practice by legislative risk-management, based on still unquestioned assumptions not only that terrorists looking to use weapons of mass destruction will be unable to find all they need inside the United States, but that they will also decide to feed the required items into fully documented trade systems rather than use some of the fully clandestine smuggling techniques so successfully exploited by illicit drug traffickers.

John Raven
consultant,
Brussels, Belgium