Enabling Smart Borders:
Appendix: Case Studies
The following collection of case studies provides examples of some ongoing national customs reform and automation programmes.
Phase 1: Early stage
Like many countries in 2008, Kenya was suffering from inefficient trade practices. Border procedures were slow and costly. Systems were opaque, encouraging corruption and lack of compliance. Revenues from import duties and other taxes were less than they should have been.
Recognizing this opportunity, a team from KenTrade, the Kenyan government’s trade agency, took action. Team members explored trade solutions in other countries, including Singapore and several European nations. They mapped Kenyan trade processes and consulted with stakeholders to identify roadblocks and obstacles to trade. In addition, they eliminated unnecessary procedures and re-engineered others.
Today, Kenya is close to implementing a fully automated single-window system (SWS), allowing shippers to submit all their official documents through one electronic portal. The system will ultimately create an end-to-end SWS for all maritime-, air- and road-transport entry points. Its simpler, faster procedures will enable shippers to operate more efficiently and save money; it will also improve compliance and revenue-generation for the Kenyan government. Training, piloting and roll-out of the system began in late 2013, with the team continuing to add modules, for example for payment and risk management, as each one was ready. The system is expected to be fully operational by spring 2014.
The new system is likely to make a substantial difference to Kenyan trade. Until now, shipments have taken 8-10 days to clear Kenya’s border. Once the new system is operational, clearance should take no more than 3 days. The system will also be wholly transparent, allowing shippers to track what is happening with their goods at any time. The Kenyan government expects that transparency will reduce the corruption that has plagued international trade in the past. It expects the system to help raise the country’s ranking on the annual Doing Business report issued by the International Finance Corporation and the World Bank, and to help attract foreign direct investment.
How did Kenya move so far, so fast? Five years ago, nearly every stakeholder understood that the country had much to gain from a more efficient border system; simplified processes and procedures would improve Kenya’s competitiveness in global business and would generate more revenue. Many different partners then came together to support changing the old system.
To design the new system, KenTrade engaged the Singapore Cooperative Enterprise (SCE) with a government-to-government contract, signed in October 2012, to build the Kenya Electronic Single Window System. Under the contract, SCE partnered with and subcontracted CrimsonLogic of Singapore, which specializes in developing single-window systems, to deliver the single window.
In the near future, the public and private partners supporting the system will continue to develop its potential. KenTrade is working on a business model for revenue generation, based on charging a transaction fee for each entry managed through the new system.
As in any such initiative, the leadership team experiences several challenges. Support from the government’s senior leaders was essential to encourage all the government agencies to get on board. Team members always had to deal with a large number of stakeholders (and each with its own interests), and found that continuous engagement and sensitization of each one was necessary.
Cambodia began modernizing its border procedures in 1999. Since then, it has implemented three 5-year plans designed to improve the country’s position in trade facilitation, adherence to international standards, and compliance with international safety requirements. A fourth program, slated to begin in 2014, will establish a national SWS5, a single point of electronic entry for all import, export and transit-related regulatory requirements.
So far, the key reform implemented in Cambodia has been ASYCUDA World, a customs automation system. Launched in 2006, it simplifies and harmonizes customs procedures and trade documents. Funded by the World Bank, the system allows electronic processing of declarations and other documents, enables expedited clearance of goods waiting to move into or out of the country, and enhances revenue collection by the government. Dr Kun Nhem, Cambodia’s Deputy Director-General of Customs, adds that it has reduced physical inspection from about 50% of shipments to less than 20%. About 90% of single administrative document declarations are cleared within one day.
But ASYCUDA World, which is limited to customs, was always seen as one step on the path to broader trade reform, including the SWS. Today, the country’s General Directorate of Customs and Excise (GDCE) is acting as lead agency on the single-window project, with the cooperation of roughly 10 other ministries and agencies. The group includes not only the ministries of commerce and finance, but also the Port Authority and the National Bank of Cambodia.
At present, with support provided by the World Bank, the committee is working with consultants to develop the SWS business case, including specifying its primary business functions, underlying processes, options on the most appropriate operating model and IT architecture. The business case will also spell out options for the governance model and cost recovery mechanisms for the system. Other modules, such as one for e-payment that links exporters directly to banks, are under development. This process builds on the successful development and roll-out of ASYCUDA World and the customs administration’s growing capacity to manage major information and communications technology projects.
As might be expected, the ambitious venture has already encountered some obstacles. GDCE officials report that they had to overcome resistance to reform on all sides, including from customs officers and traders themselves. They have found it challenging to build the level of consensus and commitment required, and to coordinate activities among all the different agencies. They must also cope with a lack of in-depth IT knowledge and expertise among the agencies that will eventually be linked through the SWS project.
Phase 2: Medium stage
For Thailand, the year 2007 was a milestone. Before then, border procedures in and out of the country were based on electronic data interchange. Though partially electronic, the process was cumbersome and time-consuming. Shippers prepared invoices, packing lists and bills of landing, and submitted them to customs officials. Officials entered the data into the system and subsequently prepared declaration forms and paperwork, indicating how much import duty was owed. Shippers paid the import duties and, as proof of payment, had to forward the payslip to customs.
Since 2007, the process has become completely electronic – a true e-import and e-export single-window system. Only restricted items undergo physical customs inspection. Every shipment of items valued at over 1,000 baht (about US$ 32) may be liable for duty, which can be paid through an electronic payments system. The system operates 24 hours a day, seven days a week. Based on a service-charge model, shippers are charged a fee for each transaction.
More than 10 government agencies have been involved in developing the new system, with Thailand’s customs department acting as lead agency. According to officials, four specific factors have contributed significantly to the system’s success:
- Clear communication. Every such reform involves not only new government policies, but also many different stakeholders. Process changes initiated by the government need to be communicated promptly to the relevant officials, giving them time to prepare before the change takes effect.
- Collaboration with logistics companies. The government has to arrange meetings and seminars with corporate partners (such as the Thai shipping association) and importing companies to inform them about upcoming plans. Government agencies and shippers work together to review the processes for both green-light and restricted shipments, based on risk-management criteria. When issues arise, they can appeal to policy-makers for guidance.
- Internal-external IT collaboration. Internal customs IT staff participate in the development of new systems. Certain systems or modules may be put out for bid to IT-system providers, who work with responsible officials to develop solutions.
- Sector-specific knowledge transfer. For example, the food and drug association provides a database that facilitates inspection of food and drugs.
Beginning in 2014 or 2015, Thailand expects to integrate its national single-window system with the Regional single-window system created by the Association of Southeast Asian Nations (ASEAN).6 In the case of a shipment from Singapore to Thailand, for example, one system would integrate all the necessary information about that shipment; it would advise the shipper in Singapore exactly what was required for the shipment to be released in Thailand.
Brazil boasts Latin America’s largest economy, one of the fastest-growing in the world. To stimulate further growth, the country is launching an initiative to create a broad single-window system encompassing every process related to international trade. The new plan aims to build a unified system for goods flowing both in and out of the country. It will create a single interface for importers, exporters, administrative agencies and all other foreign-trade stakeholders. Officials say the first step in the initiative will be under way shortly.
Currently, both importers and exporters must submit the same information on paper documents to a variety of different agencies. Exports typically take 13 days to clear the bureaucracy, while imports require 17 days. The new plan will streamline and automate these procedures, reducing time-to-export to 4 days and time-to-import to 6 days. It will also achieve a variety of other goals:
- Transparency: guaranteeing shared access to all indicators regarding processes and information flows
- Integration: bringing every relevant agency into the single-window system
- Simplification: including easier tools for access to information and rules
- User focus: providing trade participants with real-time consultation on, for example, trade flows and regulations
Overall, Brazil expects the reform to be particularly beneficial for the nation’s small and medium-sized enterprises, many of which currently find it too complicated and costly to participate in international trade.
The task has been challenging: most people working for these agencies have done their job their own way for a long time, and few have a broad view of the overall trade picture. “The challenge is not only to change the regulatory framework, but also mindsets and habits,” said one senior official. “It’s much more an issue of managing change than of resources and technical issues.” To maintain agencies’ involvement and participation over the long term, planners designed five different projects and created working groups that met weekly. “Our main preoccupation was to bring these agencies together and help them understand that we’re here to strengthen their competencies and not kill them. They have to feel part of the project.”
Brazil believes that the participation of corporate partners in the new system is essential. By assisting the group involved with reforming customs, the private sector is helping to build the systems and integrate users’ perspectives. Brazil is also linking the project to development plans and investments in infrastructure, such as airports, ports and roads. The goal is to link the “soft” logistics of border-administration reform with the “hard” logistics of physical infrastructure to create speedy, efficient processes at every trade point. The full system, expected to be finished in 2016 or soon thereafter, will contribute to developing Brazil’s international trade and thus help the country’s economy maintain its healthy growth.
Phase 3: Smart borders
Korea’s UNI-PASS is a single-window, electronic customs-clearance system for both sea and air cargo. It integrates customs clearance, cargo management and duty payment for imports and exports.
The UNI-PASS system incorporates advanced technological features. When containers are released from a seaport, for example, a radio-frequency identification (RFID) is attached to each one. The system then tracks the container’s location and information. In addition, import companies’ enterprise-resource-planning systems are linked to UNI-PASS. When shippers release goods from a warehouse, they enter the necessary information into the system so that the Korean Customs Service does not have to wait until shipments arrive at destination ports or terminals. Imports require only about 1.5 hours to clear customs, and exports only 1.5 minutes. Duty drawback takes only about 5 minutes, and tax payments 10 minutes.
The customs service found several tactics helpful in managing the change to a single-window system. For example, when the customs office introduced new risk-selection criteria for the automated risk-management system, it also incentivized customs agents according to the number of risky items they found. The incentive plan received positive reactions from customs officers and encouraged buy-in to the new system. Customs officers were less tempted to engage in corrupt practices.
Korea also avoided a problem that has plagued many nations – the resistance by customs officers to the introduction of automated systems, out of fear for their jobs. The customs service has maintained the same staffing level for the past ten years. During that time, the quantity of goods going through customs has risen more than tenfold. The increase in productivity has allowed the agency to process more shipments while maintaining an agent’s job security.
The customs service has mounted an ongoing effort to improve the operation of the system. In the past, for instance, agency customs focused on controlling shipped items to identify potential risks. But this process has been changed to control the identity of the importer or exporter, as this is the main factor determining an item’s risk. Today, the customs agency maintains an integrated risk-management system with an electronic database of shippers, reducing procedures for reliable shippers and applying strict inspections for riskier ones.
The agency is contemplating another reform – the fourth generation of UNI-PASS – that would make the system accessible on any kind of device. By 2016, users of mobile devices or any other device providing internet connection should be able to access the system. UNI-PASS has not only streamlined trade procedures, reducing costs and increasing Korea’s international competitiveness, but has also increased transparency of border administration and contributed to national revenue through detecting illegal trade and tax evasion. It is one significant step on Korea’s road to e-government.