LITERATURE REVIEW
2.5 Customs-Business Partnership
2.5.3 Practical Development of the CBP
fundamental responsibility to ensure that statutory requirements are met, the manner in which this is achieved is often quite flexible.
The legal status of Customs has not changed drastically but administrative measures are undergoing a significant change within the broader process of administrative reform. According to Widdowson, businesses are not passive regulates and their voice must be heard and their concerns must be attended to. Though the political system in one country remains relatively stable, the ways in which the government governs do change. The citizen community today is placing higher demand on the effectiveness and efficiency of government agencies.
This argument could be interpreted in the sense that the manner in which Customs implements legal provisions is open to administrative discretion, which permits Customs to maintain organizational flexibility and potential for change.
It is particularly important for such flexibility and change management in a turbulent environment.
(4) Separate release from clearance (5) Use of risk management & assessment (6) Simplified procedures for authorized traders (7) Maximum use of information technology (8) Cooperation with other agencies and foreign counterparts
(9) Partnership with the trade (WCO, 1999b, 2008b) These principles are congruent with the objectives of the RKC, which are “not only to meet the needs of trading community to facilitate the movement of the movements of goods but also to improve the effectiveness and efficiency of compliance with Customs laws and practices.” (WCO, 2008b)
Partnership with trade is explicitly projected as a key component of modern Customs. In the Preamble, the RKC stipulates “…cooperation wherever appropriate with other national authorities and the trading communities.”
General Annex, Chapter 1, Article 3 of the RKC further stipulates that “The Customs shall institute and maintain formal consultative relationships with the trade to increase co-operation and facilitate participation” These two provisions formally establish the principle of partnership for Customs to build cooperative and mutually-beneficial relationship with business.
Then, more operationally, special procedures for authorized persons under transitional standard 3.32 are stipulated, and the principle of compliance and facilitation is incorporated. However, the concept of authorized persons is rather narrowly-defined in the RKC because trade security has not yet been treated as a required condition.
2) Manifestation in the WCO Arusha Declaration
Customs, with administrative monopoly, room for discretion and lack of appropriate accountability is particularly susceptible to corruption (WCO, 2007). Ever since the 1990s, the WCO has urged the international Customs community to fight against corruption. In 1993, it launched a formal declaration on integrity, “The Arusha Declaration of the Customs Cooperation Council concerning Integrity in Customs” (usually referred to as “the WCO Arusha Declaration”). In
2003, the WCO revised the Arusha Declaration into “The Arusha Declaration of the Customs Cooperation Council concerning Good Governance and Integrity in Customs” (usually referred to as “the WCO Revised Arusha Declaration”). It is interesting to find that “good governance” has been especially inserted into the declaration title. It was the first time for the WCO to declare that business shared responsibility for a corruption-free and effective Customs. The values of the Customs- business relationship are to be “open, transparent and productive.”
3) “Customs-business partnership” in the WCO SAFE Framework of Standards11
In 2005, the WCO launched another milestone instrument, “the Framework of Standards to Secure and Facilitate Global Trade (usually referred to as
“the WCO SAFE Framework of Standards”), which aims to enhance security and facilitation in the international trade supply chain. The framework is based on two pillars: Customs-to-Customs cooperation and Customs-business partnership. For the pillar of the Customs-business partnership, it provides that:
Each Customs administration will establish a partnership with the private sector in order to involve it in ensuring the safety and security of the international trade supply chain. The main focus of this pillar is the creation of an international system for identifying private businesses that offer a high degree of security guarantees in respect of their role in the supply chain. These business partners should receive tangible benefits in such partnerships in the form of expedited processing and other measures.
11SAFE is the acronym for “Security And Facilitation in a global Environment” coined by the WCO, which conveys the main purpose of developing this international instrument to safeguard “security” in the international trade supply chain as a global response to combat terrorism and other cross-border threats, as an aftermath of
Historically it was the first time for the WCO to put the Customs-business partnership in its instruments and to lay out specific standards. It was also the catalyst for Customs administrations to take the Customs-business partnership as a critical theme in their modernization.
Under the pillar of the Customs-business partnership, six standards are outlined to form the Customs-business partnership, to specially establish the international accredited trader regime; put otherwise, the Authorized Economic Operator (AEO) programs. The AEO Guidelines serve as a starting point for the national AEO program. The AEO is different from the “authorized traders” specified in the RKC because the AEO program attempts to strike a balance between security and facilitation. The rationale of the AEO program is to adopt an integrated international trade supply chain management for seamless security and facilitation.
Under the WCO SAFE Framework of Standards, the AEO is defined as “a party involved in the international movement of goods in whatever function that has been approved by or on behalf of a national Customs administration as complying with WCO or equivalent supply chain security standards” (WCO, 2005b). The scope of the AEO encompasses all stakeholders in the international supply chain like “manufacturers, importers, exporters, brokers, carriers, consolidators, intermediaries, ports, airports, terminal operators, integrated operators, warehouses, distributors” (WCO, 2005b) Under this definition, the scope of business entities has been expanded beyond importers and exporters, as the WCO takes a holistic approach toward the international trade supply chain. As the World Bank (2009, 2010) observes, implementing AEO programs can be seen as a paradigm shift for cross-border management.
4) Highlights in Customs in the 21st Century
In 2008, the WCO adopted a strategic policy paper, “Customs in the 21st Century: Enhancing Growth and Development through Trade Facilitation and Border Security” (referred to as “Customs in 21st Century”). It took five years, from 2003 to 2008, for the WCO and its members to research and to prepare this monumental instrument. To chart a new direction for Customs modernizations all over the world, the WCO identifies 10 key building blocks for future modern Customs (see Figure 2.6).
Figure 2.7 Customs in the 21st Century: Building Blocks Source: Adapted from the WCO, 2008b.
Among those building blocks, Customs-business partnership is re-highlighted:
Customs in the 21st Century should enter into strategic pacts with trusted economic operators. Customs needs to understand the concerns of business, while business needs to know the requirements of Customs. Most importantly, there is a need to translate this relationship into a partnership that results in mutually beneficial outcomes. (WCO, 2008b)
By “strategic pacts,” the WCO utters the necessity for Customs and business to pursue broader and higher goals beyond their narrow sector domains.
Of course, such pacts shall be entered with trusted economic operators that are compliant with Customs laws and rules. Mutual understanding is critical for each party. The WCO asserts that such partnerships should be beneficial for both parties.
5) Elaboration in the WCO Customs-business Partnership Guidance
In June 2013, the member administrations requested the WCO to develop a comprehensive guidance with a view to “assisting Members in the process of institutionalizing a regular partnership/engagement arrangement with business.” With such endorsement, the WCO Secretariat, supported by voluntary members, developed the WCO Customs-business Partnership Guidance. The researcher was also invited to provide scholarly comments on the draft, and the initial findings of this study have been shared with the expert panel which is charged to develop the draft guidance.
Developing the guidance was a critical initiative for the WCO to promote each building block incorporated in “Customs in 21st Century;” that is, the WCO would like to provide practical standards and tools for the member administrations to embody and implement each building block.
The guidance assumes that the efforts taken by the WCO members in developing partnership arrangements with business are at different stages:
members which have not yet begun the process, members which are at initial stages, and members that already have well-developed and mature partnership arrangements.
Not providing a single “one-size-fits-all” approach, the Guidance provides guiding principles on building the CBP like regular consultation, with wider stakeholder engagement, institutionalized collaborative mechanism, etc. It identifies the potential benefits for both Customs and business. Possible challenges are emphasized.
Desirable factors for successful CBP arrangements are identified. The Guidance also includes a Phased Action Plan Template to help members to institutionalize the CBP in a systematic manner. Best practices in 22 Customs administrations are tabulated and attached. It is noticed that the CBP practices by Thai Customs has been introduced, in spite that only sketchy information is included.
Nevertheless, the researcher thinks that the guidance is more operation-oriented. The listing of benefits, challenges, and factors of the CBP are still generated from common sense and intuition. Further exploration of this study will generate empirical evidence.
2.5.3.2 Obligations under the World Trade Organization
In promoting and regulating international trade, the World Trade Organization (WTO) is a prominent international organization. One of the critical areas for the WTO and the WCO to work together is to enhance trade facilitation. The WTO is competent in crafting trade policies at the global level, and the WCO provides technical standards and tools respectively on Customs issues. With its dispute-settlement mechanism, the WTO’s agreements are more binding on its member states than the WCO’s instruments and standards. Therefore, the WTO’s stress on the cooperation between border management agencies and traders deserves the attention of the international Customs community (WCO, 2013).
In December 2013, the WTO initially adopted the WTO Agreement on Trade Facilitation (ATF) in Bali, Indonesia, the milestone instrument on implementing trade facilitation globally. In the ATF, there are two articles concerning Customs-business consultation and cooperation.
1) Article 2 of the ATF
This article provides that member states shall “to the extent practicable and in a manner consistent with its domestic law and legal system, provide opportunities and an appropriate time period to traders and other interested parties to comment on the proposed introduction or amendment of laws and regulations of general application related to the movement, release and clearance of goods, including goods in transit”(WTO, 2013). Stakeholders shall also be informed in advance before such changes come into effect. It also provides for regular consultations between border agencies, traders, and other stakeholders within its territory.
2) Article 7.7 of the ATF
This article focuses on “trade facilitation measures for Authorized Operators”. It provides for a concept of “Authorized Operators” that meet specific criteria, which may include appropriate record or compliance with Customs and other related laws and regulations, a system for managing records for necessary internal control, and financial solvency and supply chain security. These “authorized operators” will be provided at least three trade facilitation measures: low documentary and data requirements as appropriate; low rate of physical inspections and examinations as appropriate; and rapid release time as appropriate.
It is found that the concept of “authorized operators” is nearly equivalent to “Authorized Economic Operators” proposed in the WCO SAFE Framework of Standards, because such previsions were actually submitted by certain Customs administrations.
2.5.3.3 Advocacy in the ICC Customs Guidelines
The International Commerce Chamber (ICC), as the global forum to promote international trade and investment, takes policy advocacy as a major part of its work, which is explicitly stressed by its incumbent Secretary General, Mr. John Danilovich (A Word from Our Secretary General, 2014). It is in this context that the ICC Commission on Customs and Trade Facilitation focuses advocacy efforts on
“Customs policies and procedures as well as other measures to facilitate international trade.”(ICC, 2012)
Early in 1997, the ICC developed its first version of Customs Guidelines, a landmark document on Customs modernization, calling for fostering partnership-like relationship between Customs and the trade community. In 2012, in cooperation with WCO，the ICC revised the Guidelines, in which ICC presents a comprehensive set of practices that ICC considers should characterize all modern customs administrations. The ICC, in a voice of the international trade community, requests Customs to do the following:
Consults the trade community systematically, to obtain views on proposed new regulations and procedures, or amendments to existing requirements, and gives them timely notice of any changes; adopts a Memorandum of Understanding program, to improve and promote co- operation with the trade community in the areas of trade compliance, security, and effective interdiction of customs fraud, drug trafficking, infringements of intellectual property rights and threats to endangered species. (ICC, 2012)
Literally, ICC does not use “partnerships;” however, its elaboration provides a holistic view on enhancing consultation, cooperation between Customs and
business in the whole process of Customs policy making. Specific areas of enforcement and compliance are mentioned.
2.5.3.4 Rollout of AEO Programs
The inception of AEO programs can be traced back to the Customs- Trade Partnership Against Terrorism (C-TPAT) program launched by the U.S.
Customs and Border Protection (US CBP) in 2001 as a “voluntary government- business initiative to build cooperative relationships that strengthen and improve the overall international supply chain and border security as the aftermath of 911 Attack”
(US CBP, 2004). The main objective of the C-TPAT is to fight terrorism. Since then, the global rollout of AEO programs has surged. According to a survey conducted by the WCO Secretariat, up until June 2011, 15 AEO programs had been established in 41 countries and 9 countries are in the process of planning. In the Asia Pacific region, 6 AEO programs (i.e. China, Japan, Korea, Malaysia, New Zealand (Polner, 2011) have been established. In addition, many WCO Members that have established AEO programs are seeking to formalize AEO mutual recognition arrangements (MRAs) with other Customs administrations (Polner, 2011). In 2008, China launched its AEO program by upgrading its Categorized Enterprise Management program, which had been implemented since the middle 1990s (ROCB AP, 2008). In 2010, Thai Customs launched a pilot AEO program (Thai Customs, 2011a).
The CBP is not only promoted by the WCO, but also is on important agenda in regional Customs cooperation. For instance, Within the framework of Customs cooperation in Asia-Pacific Economic Cooperation (APEC) and the CBP has been listed in the APEC Customs Common Action Plan. The Customs-business partnership has been promoted as a key area for Customs cooperation programs; for each year’s activities, a Customs-business Dialogue is an imminent communication platform between Customs and the private sector. Similarly, ASEAN Customs also has promised to enhance cooperation and partnerships (ASEAN, 2008b). The Guide for Authorized Traders within ASEAN will be completed by 2015 to contribute to the establishment of the ASEAN Economic Community. ASEAN also encourages the Customs administrations of its ten members to expedite compliance of the AEO programs.
2.5.4 CBP in Academic Studies