CUSTOMS-BUSINESS PARTNERSHIP IN CHINA CUSTOMS
4.2 Evolution of Customs-Business Relationship
4.2.2 Evolution of the Customs-Business Relationship
Historically, the customs-business relationship in China has witnessed a transformation from the late 1970s when China launched the reform and opening-up policy. Two scholars, Chen (2013) and Yu (2011), who are also experienced practitioners in China Customs, have conducted comprehensive reviews and deliberations on this evolution. Gao’s (2002) research supports their arguments.
4.2.2.1 Legacy of Customs from 1949 to 1978
While discussing the economic and social development in China, people take 1978 as a demarcation line, because that year Deng Xiaoping took power and replaced Mao Zedong as the icon of the second generation leadership of China, and China formally decided to transform itself from a centrally-planned economy to a market economy. The economic growth and development mode has undertaken a profound model shift since then.
From 1949 to 1978, which is generally referred to as “first 30 years” in the history of the People’s Republic of China (PRC), the CPC adopted Marxist doctrines and ideology, and followed the Soviet Union’s model of a centrally-planned economy, in which all of the economic activities are controlled by the state. During this period, the economic development in China was frustrated and destroyed by a series of political movements. In 1978, the amount of GDP was only 364.5 billion RMB and was ranked 10th in the world ranking and was one of the least developed countries in terms of income. Comparatively, in 2013, China’s GDP soared to 56884.5 billion RMB, which was over 150 times that of 1978, and was ranked Number 2 in the world18.
18These statistics were compiled and analyzed by the National Bureau of Statistics of the People’s Republic of China, retrieved on May 6, 2014 at http://www.stats.gov.cn/ ztjc/ztfx/jnggkf30n/200810/t20081027_65687.html
Regarding the policy of foreign trade, it was also a Soviet-style regime, under which only 12 state-owned enterprises were authorized to engage in imports and exports. Due to the impacts of the Cold War and sanctions by western countries, trade partners were mainly socialist countries. International trade was not treated as an important strategy of economy development and trade volume was very small.
Customs itself was under the portfolio of the Ministry of Foreign Trade. A customs informant questioned: “How could a brother (Customs) monitor other brothers (state- own foreign trade companies under Ministry of Foreign Trade)?” There were no formal tariff systems, no adequate legal customs systems, no systematic procedures in line with international customs standards and best practices (China Customs, 2001).
Therefore, customs focused on controlling limited goods and a small number of passengers, as recalled by Mr. Wen Xuan, a previous senior customs official that had worked in Wenzhou Customs House since the early 1970s:
My Customs work started in 1970. Then it was simple. Our office was in the post office. The main task was to open every post parcel from foreign countries or Hong Kong and Macau to check whether there were items which break the regulations on politics-sensitive issues.
The results were most disappointing. Not much “enemy items”. It was very funny and ridiculous, right? However, strict control as gatekeeper was rather dogged in the mind of Customs leaders and officers.
Regarding the legacy, Lou (2012), in reviewing how China Customs was reformed from a political perspective, argues that “[e]ven though China Customs have been undergone fundamental change in many dimensions in the past three decades, legacy in the ‘first thirty years’ is still embodied in organizational and individual behavior, especially in terms of customs-business relationship, it seems Customs think it holds privilege and power over business.” Now, let us examine how the customs-business relationship changed in the second 30 years (1978-2008 and beyond).
4.2.2.2 Business as “Administratees”
From the late 1970s to 1980s, the customs-business relationship can be characterized as “business as administratees” (Sun, 2008; Yu, 2011; Chen, 2013.
During this period, the broad operational environment in which China Customs operated was as follows: international trade was still controlled and operated by state- owned enterprises; these enterprises did not have incentives to commit fraud or smuggling; the tensions between increasing workloads and limited administrative resources in China Customs were not as serious as today. To ensure compliance with customs-related laws and regulations, customs focused on “cargo” rather than the companies that owned the goods, and strict control was still a priority (China Customs, 2000; Gao, 2002).
Thus, as observed by Sun (2008), the customs-business relationship was more “customs-centered” and “control-oriented,” which were inherently embedded in China’s long tradition of being “Officialdom-centered.” Businesses were not treated as equal stakeholders; customs control was conducted in a narrow customs workplace;
strict control and rigid enforcement were applied and implemented; innovative working methods like the application of information and communication technology (ICT) and risk management had not been applied. Mr. Shao Xiaoping, Director of Pudong Customs House, Shanghai Customs District, recalls:
Though our country adopted the reform and opening-up Policy, the international trade volume was still small. Customs work methods were still inherited from old fashions or routines. Though state-owned trade companies were assumed not to do illegal things, Customs still behaved like a boss.
4.2.2.3 Business as “Clients”
This period covered the whole of the 1990s. Customs gradually treated business as “clients.” As discussed previously, China Customs’ “fundamental principles” were “promoting economic development” in this period.
The fundamental context for such a transition was that the Chinese Communist Party (CPC) as the ruling party, was formally committed to establishing a
“market economy with Chinese socialist characteristics.” In 1994, the “Decision of the Central Committee of Chinese Communist Party (CCCPC) on Some Major Issues Concerning Comprehensively Deepening the Reform” was launched (China.org.cn, 2014). It was in this milestone document that businesses as the main players in the market economy were formally recognized. Government agencies were required to transform their functions, provide better public service and enabling conditions for commerce promotion and economic development.
The second imperative for customs to adopt such a new management model can be attributed to learning from “best practices” from foreign customs administrations (Yu, 2011; Lou, 2012; Chen, 2013). As characterized by scholars and practitioners both in China Customs and in the international customs community, the 1990s saw a “booming era” for customs modernization. Moving from a “closed-door”
position to opening up to the outer world, China Customs enhanced its frequency, scope and depth in exchanges and cooperation with foreign customs administrations.
Such “eye-opening” activities helped China Customs learn ideas and practices for its own modernization drive. In this regard, “customer-orientation” in customs work was introduced and applied, which had been widely applied in the customs in western countries such as Australia and the UK where the New Public Management (NPM) were widely implemented.
Furthermore, the demand from local governments was also a major force. The reform and restructuring of fiscal policy in 1993 fundamentally changed the relationship between the central government and local government. According to the policy, a kind of “fiscal federalism” was adopted and the central government and local government shared major tax revenue based on a new allocation arrangement.
Local governments had strong incentives to lure investment in order to boost the local economy. Therefore, local government explicitly and implicitly hoped that customs could provide more facilities for trade processing.
Within this mode, customs treated business as its customers or clients.
Customs realized that goods in their own right would not commit fraud or smuggling.
It is the persons (natural and legal) that own or hold the goods that would commit illegal behaviors. It was definitely a fundamental shift of the image of business held
by customs. Therefore, customs shifted its administration and control over business.
Based on the analysis of the nature of business operations and compliance history, customs made a decision on the level of risk and allocated resources and applied an appropriate level of control. The rationale of a new mode of customs control was that customs could achieve efficiency and effectiveness in enforcement through encouraging voluntary compliance.
4.2.2.4 Business as “Partners”
From the beginning of the 21st Century, the discourse on business as a partner has been well taken by China Customs. This shift was both driven by domestic pressures and international imperatives. China participated in economic globalization since it acceded to the WTO in 2001, and international trade has grown exponentially. China Customs, driven by surging workload and limited resources, needed to strike a balance between “seamless control” and “fast clearance.”
Considering the critical role which international trade plays in boosting economic growth, policy makers in China Customs realized that customs and business were not necessarily “enemies” to each other. Internationally, the 911 terrorist attack in the US dramatically brought the customs-business partnership into the limelight. The C- TPAT program initiated by the US CBP in 2002 was a ground-breaking initiative, though it was originally proposed as a policy to fight against terrorism. It opened a window for customs to rethink the relationship between customs and business.
Informally, the concept of a partnership with business entered public discussion and policymaking in China Customs at the end of the 1990s (especially from 1998 to 2000), when China Customs was engaged in amending China Customs Law. As Gong (2000), Gao (2002), and Yu (2011) argue, the principle of balance of rights and obligations for business was advocated and pursued. The amending process was in tune with the amending process of the WCO Revised Kyoto Convention. As an obligatory requirement, China Customs was obligated to translate the principles and provisions in the WCO Revised Kyoto Convention into its customs law. The rationale of customs-business cooperation and consultation was absorbed.
In a formal sense, China Customs adopted the principle of the customs- business partnership in 2005, when the WCO launched the SAFE Framework of
Standards and China Customs and sent a letter of intent to the WCO regarding its commitment to implementing the framework.