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Using IT to Solve the Challenges of Customs Administration

Rait Raal, business development manager, Cybernetica AS, Estonia

Because of increasing global trade and relevant security threats, customs administrators all over the world are facing new challenges how to facilitate trade while also implementing required security measures so as to maintain safety in customs proceedings. This article describes the latest changes in the role of customs facilities, also looking at how useful technology principles can be brought to bear so as to meet those challenges and to modernise customs business procedures.

During the last decade, increasing trade liberalisation and modernisation of economies have transformed business and governance in all of the worlds developed and developing countries.  Opportunities presented by increased trade are substantial, but unless traders can become more competitive, they will have problems in competing in external and internal markets as low-cost and high-quality imports increase.  Constraints against competitiveness mostly have to do with poor use of inputs and technologies.  It is also true that the business sector is constrained by a poor ability in relation to the extension of services.  Overcoming these constraints will require effective action on the part of the public sector to address market failures and create an enabling environment for the private sector through suitable policies and regulations, as well as investments in information technologies.
Removing non-tariff barriers, facilitating trade, modernising customs services all of these are equally important in promoting economic developments.  This is particularly important now that border formalities have become increasingly complex because of the policies and procedural requirements which are directly related to international and regional trade commitments, including membership in the World Trade Organisation.  Additional border formalities which have been implemented to secure the international supply chain in the wake of the terrorist attacks of September 11, 2001, represent further and serious constraints on the free flow of goods across borders.
The main function for customs officials 30 years ago was to collect duties and taxes in an effective way, but now such officials face a very difficult situation.  On the one hand, they must facilitate legitimate trade and help to enhance the competitiveness of the economy, and the easiest way to do that is to examine as few shipments as possible.  On the other hand, customs officials are on the front line in terms of recognising shipments which can endanger society, and that means that thorough examination of every shipment can be seen as something that is of use.
In order to find a reasonable compromise between inspection of all shipments and inspection of no shipments at all, customs officials must develop and implement modern information systems, use uniform methodologies, and define priorities for the further development of ICT so as to modernise the process.  Priorities in the strengthening of ICT capacities have been defined at the global level by several World Customs Organization (WCO) initiatives.

The two main challenges for customs authorities in a globalised world are:
1) Difficulties in amending legislation, including laws which relate to customs business process in relation to the use of IT solutions;
2) Detecting tax fraud in relation to changing data in various customs documents, e.g., importing goods for export purposes, but actually selling some of the goods on the domestic market.
These are problems which can be addressed via the appropriate technological means.
When it comes to changes in legislation, the fact is that requirements about customs documents are usually found in laws and regulations.  These requirements should be based on profiles and processing rules small scripts which are usually created by an analyst who works together with customs lawyers.  These rules may apply to any operation related to customs documents, e.g., valid and appropriate data fields such as nomenclature and other codes.
Profiles and processing rules can be altered without shutting down the relevant system.  The validity of profiles and processing rules can be limited in terms of time.  When legislation changes, new rules can be added and implemented at a certain date.  Systems must preserve old rules so that older documents can be processed in accordance with the rules that were in effect at the time when the relevant document was prepared.
In terms of fraud detection and risk identification, integrated risk management is one of the most important mechanisms for every customs information system.  The idea here is to provide explicit support for the management of the supply chain of goods so as to integrate the treatment of risks across the whole range of customs documents.  Here we can offer an example which makes this process clear.  Figure 1 depicts the chain of customs documents which relates to a single shipment.  The documents are submitted by different entities.  The summarised entrance declaration is submitted by the carrier, who might also present the manifest, temporary warehousing notices are produced by the owners of terminals, transit declarations come from principals, and customs declarations are filed by the consignee or broker.
All of these documents are analysed to detect fraud and possible risks to society.  Risk analysis criteria differ from document to document.  Some contain more data and, therefore, need more complex and meaningful risk criteria.  For other documents, which contain less data, very simple risk analysis criteria can be applied.  It is also true that different entities are involved in the life cycle of a shipment, which means that new risks can be discovered at later stages in the process.
Because data on customs documents can be forged, all documents should be linked with reference numbers.  The concept of using a previous document is the basic mechanism which makes it possible to link different customs documents that have been filed in relation to a single shipment.

The principle of linking documents provides a high level of business value for customs administrations.  Cross-checks of documents allow officials to compare and verify commodity data that are stated in one document against data presented in a previous one.  Status checks of documents are also possible.  For instance, a customs declaration cannot be released before the transit declaration its previous  document is cleared for next customs procedures.
Second, the linkage also offers a write-off functionality for all customs documents.  Once a document is released, amended or rejected, holders of previous documents are so informed.  Thus all documents present a clear view about the current status of declared goods.
One of the most important opportunities offered by document linkage is flexibility in risk management.  All documents are analysed for risks, but not all risks are equal some require immediate action, while others can be handled later.  Summarised entrance declarations, for instance, require immediate analysis, and high-priority risks must be considered when the goods arrive.  There are also low-priority risks, however, such as the valuation of goods.  These can be monitored more effectively once a customs declaration has been filed.  Linkage of documents makes it possible to track all risks across the chain of documents.  When one is filed, the process of integrated risk management makes it possible to define all uncontrolled risks which are related to the shipment and should be examined more closely when the next document is filed.
Last but not least, there is also feedback about the effectiveness of controls.  Document linkage makes it possible to correlate identified risks and to monitor results, which makes it possible to identify effective and ineffective criteria and to take appropriate steps in line with same.
All of these principles have been implemented in Estonia by Cyberneticas Customs Engine product suite ( in co-operation with the Estonian Tax and Customs Board.  Modernisation of the agencys information systems has allowed it to be a front-runner in the EU, as well as to provide flexible services to businesspeople via the use of advanced technological means.  Modernisation of the customs system also influences private sector entities, and that will be discussed more thoroughly in future issues of Baltic IT&T Review.

Rait Raal, business development manager, Cybernetica AS, +372-502-9122,

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