Chapter One: Customs Modernization Text n 1 Objectives of Customs Operations

Customs administration are expected to raise substantial revenue, provide domestic producers with protection, provide supply chain security, prevent the importation of prohibited or unsafe imports (for example, illegal weapons or out-of-date medicines), and combat the trade of narcotics through the implementation of laws and regulations that are in line with WTO commitments. Customs administrations are expected to accomplish these objectives both effectively (by achieving them) and efficiently (at the lowest possible cost to the budget and to the trading community) without compromising trade facilitation.

Evolution of Customs Role

The responsibilities of customs continue to evolve. Customs administration are now increasingly regarded as «the key border agencies» responsible for all transactions related to issues arising from the border crossing of goods and people. Some of these functions are undertaken in close cooperation with other national agencies. The operational guidelines of customs cannot give equal weight to all functions constantly; choices and priorities are inevitable in light of changing circumstances:

• Raising revenue has traditionally been high on the agenda of governments, represented by the Ministry of Finance (MOF), because of the critical importance of import duties as a source of budget revenue for many developing countries. Revenues from import duties for a sample of African countries accounted for just under 30 percent of total tax revenue, on average. In comparison, this share averaged 22 percent for countries in the Middle East, 13 percent for Latin American countries, and 15 percent for Asian countries. While import tariffs are widely recognized as more distortionary sources of revenue than general sales and income taxes, they remain important for historic reasons, and because they are relatively easy to collect. Collection of VAT (Value Added Tax) on imports constitutes another major source of budget revenue. Therefore, a control mentality that ensures that all duties are assessed and paid has permeated customs, irrespective of whether this causes delays in the release of imports. With tariff rates declining over time, customs revenues as a share of the total budget revenues have also tended to decline in most countries; but customs revenues are still a major concern of MOF officials. This priority has been reflected in many past customs reforms and TA (Technical Assistance) initiatives.

• Import tariffs are meant to protect domestic producers, who expect customs administrations to ensure that all importers pay the official import taxes to ensure a level paying field. On average, customs duties amount to 17 percent of the total import value in a sample of African countries, 12 percent in the Middle East, 10 percent in Asia and the Pacific, and 7 percent in the Western Hemisphere. Increasingly, import tariffs are being seen as an instrument of protection rather than of raising budget revenue. This clearly so in developed countries where tariffs provide only a tiny share of total revenue and on average represent less than 1 percent of overall import value. Import tariffs in developing countries are high, however, thus hampering trade among developing countries as well as the competitiveness of countries’ economies.

• Trade facilitation has attracted increasing interest in recent years as evidenced by the WTO Cancun Agenda and the WCO (World Customs Organization) Revised Kyoto Convention. This interest has been brought about by an increasing commitment of governments to pursue a private sector-oriented growth strategy, combined with increased private sector assertiveness (уверенность) and demands for better government services. Cost reduction to the trader, derived from easier customs procedures, stem largely from the possibility of reducing inventories and the amount of operations capital , as well as the possibility for traders to satisfy increasingly stringent «just in time» requirements.

• Civil society is demanding better governance and has identified customs services as particularly prone to harboring corrupt practices. Targeting customs for improvements fully recognizes the fact that the integrity situation reflects the integrity of the greater society to which the administration belongs.

• Over the years, customs administrations have received a mandate to protect society. This has been included in the mandate of the WCO, to reflect the notion that most customs administrations are responsible for preventing the cross-border movement of dangerous and unsafe goods. However, the security concern was elevated to new heights after the events of September 11,2001. The focus shifted from just imports to the entire supply chain, including exports. New procedures are being introduced and additional safety measures are being prepared and implemented.