Month / March 2010

by Mike Poverello

What Modernisation means for Customs – Part 4

While on this subject, it is good to recognise the role which automation played in South Africa’s technology migration in the supply chain. Our choice to adopt Electronic Data Interchange (EDI) as preferred communication channel, opposed to Direct Trader Input (DTI) as did most European countries, has positioned this country as a world leader in many areas of supply chain automation.
The external trade practitioner, importer, exporter and logistics operators in South Africa have at least 30 years experience in e-commerce with Customs and other operators in the local supply chain. As far back as the early 1980’s there has existed some form of automated support for trade to interact with Customs. This gradually evolved into more sophisticated processes requiring more than simple tariff data base, duty calculator, and currency conversion worksheet to prepare a customs declaration.
Late in the 1970’s a bunch of customs officers and COBOL programmers set up a makeshift office, overlooking Seapoint, Cape Town developing custom’s first computer system. 1981 saw the introduction of the Customs Automated Processing of Entries (CAPE) system – imports only. There was one primary goal – to eliminate computation errors by trade. In fact, the extent of errors obviated in the first 9 months of operation more than paid for the cost of the system.
Within a year or two, one entrepreneur introduced the first broker system which was embraced enthusiastically by trade practitioners – the clearing and forwarding agents. This would now pose a role-challenge to the ‘entry clerk’ who was used to framing customs declarations ‘by hand’, in seven fold by carbon copy, to satisfy the state’s information requirements. You see photocopy machines were not commercially vialble to be the mainstream copy medium in those days.
Notwithsatnding the fact that automation provided a fraction of the operational functionality of the customs import clearance process; the sheer speed within which tariffs could be validated and duties and taxes calculated was in itself impetus enough for the Commissioner to insist on more functionality. In time, the manual cash register was replaced by a customs revenue accounting process providing more integration within the system. The mid 1990’s saw significant developments on the CAPE system with the introduction of the automated deferment of payment scheme. The log-jamming at customs cash halls had become untenable for trade forcing Customs to undertake a major revamp of its system – it was not uncommon for pay-in clerks to spend two full days waiting to remit monies to the cashier before obtaining release for their consignments.

Over the years the demand for broader access to EDI functionality lead to several more bureaus coming onto the scene. For more than a decade EDI was only an option for medium and large freight forwarding concerns due to cost constraints. Today, there are several companies offering desktop solutions which can be tailored to suite the needs of the customer big and small. It is key to note that these systems are fully-fledged supply chain solutions, not just frontend clearance declaration capturing solutions. The trade has evolved drastically in the last 15 years. In the not too distant past a clearaing agent/broker made profit from framing declarations. Today such organisations must offer a variety of ‘automated’ supply chain options and services including costing, warehousing, inland distribution, consolidation and credit facilities. In the past, most brokers were able to provide all the necessary specialist services such as tariff and valuation appraisal, refunds/drawbacks and trade remedy submissions to ITAC and the DTI. These days, due to the high premium of manitaining such skills, few agents/brokers can offer the full scope of these services. The big audit companies have by-and-large cashed in on this business with good and bad results. The ‘good’ is that such ‘applied customs audit skills’ are available in limited quantity to traders who have recourse to refunds/drawbacks and trade remedies. The ‘bad’ is that not all the audit firms provide the best advice all the time, and charge the earth for their services. I suppose this is not unlike the legal fraternity where truth and justice are not always the prime objective.

Back to Customs – in the mid-1980’s Customs introduced a selectivity module in the clearance system to improve throughput and efficiency. This was the first significant change to impact on the role of the customs checking officer. While the solution worked adequately, the effectiveness of ‘true’ tariff and valuation appraisal went down the tubes. I will discuss this specific matter in detail in a future post.

It was in 1993 that the first discussions around EDI were considered in SARS Customs. The WCO had been making overtures on the subject and shortly released the first version of its ICT Guidelines, later to be published as the Kyoto ICT Guidelines. The concept of EDI was vigorously pushed at the WCO, even though the G7 managed and maintained the the Customs data model. At the time, EDI message standards were anything but standard with only a few administrations adopting UN/EDIFACT. The US and Canada pursued ANSI X-12, and it was mainly Australian Customs who formerly spear-headed the development and use of EDIFACT in the customs domain. January 2002 the result of the G7 initiative to standardise and simplify Customs Data requirements of the G7 countries was handed over to the WCO for maintenance, further development and to address a wider Customs community. The last G7 version became version 1 of the WCO Customs Data Model. In 2003 the WCO published version 1.1 in order to cover the Supply Chain Security requirements. From the list of 27 data elements required to identify high risk consignments only 1 data element was added to version 1 of the WCO Customs Data Model. It is now the de facto standard for all WCO members and is widely used, although predominently its version 1 and 2 releases.

Since the WCO has taken full control over its EDI destiny, the Information Management Sub-committee (IMSC) – a dedicated unit set up to administer manitainance and control over Customs message development. – has since progressed the Customs Data Model into its 3rd generation, which now includes options for both both UN/EDIFACT and XML formats.

SARS Customs took seven years to implement its EDI capability, eventually transacting the first EDI CUSDEC and CUSRES interchanges with trade in 2000. The protracted delays occured as a result of  huge organisational change between 1995 and 1998 leading up to the amalgamation of The Department of Customs & Excise and the Receiver of Revenue into SARS. Having achieved success on imports, SARS’ next challenge was to bring all other modes of clearance – exports, inbond movements and cross border (Customs Union) movements – to an automated state. Talk to you soon.


by Mike Poverello

What Modernisation means for Customs – Part 3

It is important to consider that ‘modernisation’ is not just a facet or trait of the African continent. Through my experience and involvement in other modernisation programmes, it is quite clear that the pre and post 9/11 world of customs administrations has in fact laid most, if not all customs administrations on a platform or cause for much introspection and rebuilding.
The collapse of the Berlin Wall in the 1980’s brought about a significant change beyond the political domain in the so-called dismantling of the Communist Block. Many of the former ‘iron curtain’ countries had little or no internal structures to deal with the impending establishment and rebuilding of their individual economies – in a modern commercial world. From a customs point of view, few in fact had a ‘Customs’ department. The West European countries had a significant advantage over their eastern counterparts from a trade and technological point of view. The burgeoning European Union (EU) had little choice but to assist in their eastern neighbour’s development. Donor aid through international assistance packages saw the proliferation of ‘customs programmes’ – providing both ‘consultants’ and ‘consulting houses’ significant opportunity to rake in huge profits in developing or modernising a host country’s customs administration. At this time there was very little by way of choice in terms of automated systems. A country either accepted the UN’s ‘free’ ASYCUDA system, or if its government had favourable ties with the French, then the alternative was the SOFIX system. Microsoft and others were too busy developing operating systems and desktop software at the time. Besides, the well-to-do developed countries were all too busy pushing ASYCUDA on unsuspecting ‘developing’ countries, and little thought was ever given to customs software development on a commercial level. At that time UK and US Customs were so involved in securing assistance programmes under the ASYCUDA banner and were exceedingly opposed the French offering, which had proven very successful in the French-speaking territories. It was a well-known fact at the time that neither of the aforementioned administrations thought ASYCUDA a viable option for their own countries.
It is therefore easy to understand why UNCTAD can stake claim to over 80 installations worldwide, of its various ASYCUDA software versions. Many of these countries have benefitted little through the painful experiences of ‘freeware’ installation. The experience normally consisted in ‘European’ customs influences being forced on the target country with little option of ‘customisation’ to the state’s needs. Hordes of consultants would ‘construct’ a customs administration around the software product. Customs technique would take the form of crash courses on the ASYCUDA application and the HS Nomenclature. The donor aid ‘buddy system’ also ensured that Pre-Shipment Inspection (PSI) agencies (in many cases the same consulting houses) were awarded lucrative contracts to inspect all consignments being exported from the developing ‘third world’ state to ‘first world’ countries. The reason: these states had no experience on tariff classification and customs valuation. In reality, this was never going to form part of the donor aid. After all, why train a nation when so much money can be made from outsourcing the operation of key customs functions. Once again, is it not surprising that the poorer countries seek to rid themselves of domination by global outsiders. This practice continues even today, where many a contract for the implementation of non-intrusive inspectional (NII) equipment – X-Ray and Gamma Ray scanners – is awarded to the same PSI culprits who, in turn, hold a nation’s traders to ransom through onerous scanning fees. The host nation is dangled a carrot in not having to foot the bill for any NII infrastructure, while the concessionaire recoups all capital costs, and more, through the aforementioned screening fees – all in the name of supply chain security! Fortunately, African states are beginning to avoid these deals.
Over the last 10 years, new developments in ‘customs’ software has seen a numerous array of software houses developing customs, port community and supply chain computerised solutions. To avoid polarisation some of these vendors have been forward-thinking in modelling their solutions on standards as established by the World Customs Organisation (WCO). At the same time, so-called developing countries are also questioning more profoundly the credibility of companies and consultancies in the customs space. External supply chain operators and software vendors supporting the trade and industry are likewise concerned with the level of sophistication and ease of implementation of these products.
My experience over the last 15 years bears little support for the so-called management consultants who act as ‘change agents’. This is a space which the host nation must control at all costs; otherwise there will be nothing but disaster. My home country, South Africa, is one such place that has taken a key decision not to consider implementation of a software solution, supported by a 3rd party vendor. Likewise, the onerous and often dangerous involvement of too many management consultants is also being kept in check.
The developments unravelling in the SARS Customs modernisation programme will in my view provide a world-class case study for any nation aspiring to a modernisation of such magnitude. All the key criteria are in place to enable this success: government funding and buy-in, management support and sponsorship, and external stakeholder involvement.
Watch my blog for more customs modernisation developments, soon.