A December 2016 Inter-American Development Bank (IDB) report stated that of a sample of 38 mostly Western Hemisphere countries, T & T's Customs is among the three worst. The other two countries were Haiti – the poorest country in the hemisphere, and Bolivia. This indictment was unsurprising to intermediaries in the Maritime Sector, who for years have been feeling the impact of a Customs Administration rife with ad-hoc and contradictory procedures, absent standard operating procedures (SOPs), questionable regulations, transaction fees which appear to have no basis in law, and obsolete practices which have their basis in colonial times, when the policy prescription was different, and in the total absence of automation, and the continuance of which serve only to generate windfall revenues for Customs. This of course comes at a cost to business, both in terms of forgone income, significant loss of business efficiency and productivity, and loss of credibility and reputation in the international business
Fundamentals of Customs Administration
The World Customs Organization (WCO) opined that Customs is often the first window through which the rest of the world views a country, and as such it does much to shape the perceptions of the key individuals and organizations involved in making important trade and foreign investment decisions. There is clearly no recognition of this by our Customs.
Fully stated, the responsibilities of a Customs administration are revenue collection; national security; community protection; trade facilitation; and collection of trade statistics. The WCO asserts that an efficient and effective national Customs administration is fundamental to the fulfillment of Government policy objectives in these respects. More often than not, these responsibilities are consolidated into an all-encompassing dual role of border protection and trade facilitation. Effective and high performing Customs Administrations give equal focus to both roles. For the purpose of this article, we will focus on the peculiarities of Customs’ revenue collection and trade facilitation in Trinidad and Tobago.
From our perspective, an important distinction needs to be made between revenue collection and revenue generation. The former – revenue collection – presupposes that the services extended and transactions thereto are defined, transparent, predictable, consistent and such like. On the other hand, revenue generation is pre-occupied with maximizing all and any opportunities to extract the most amount of revenue possible. In this scenario, the rules are unclear and/or undefined, and operating procedures are non-standard and inconsistent. Further, there is either no framework or weak framework for escalation and mediation, and governance and/or oversight is weak or deliberately lacking. Our Customs administration remains unduly fixated on revenue generation, at the expense of or with little concern for trade facilitation. Customs continues to capitalize on absent checks and balances to strong- arm legitimate businesses into paying unjustified and often falsified fees.
Perhaps the greatest bug-bear in the quagmire of Customs Administration is the application of overtime. Intermediaries presenting transactions for authorizations at any time during regular hours of 8am-4pm, are more often than not required to complete an “overtime application”. If this is not complied with, chances are that the transaction will not be facilitated. Notwithstanding the time presented, the intermediary will surely receive an overtime billing.
Not only is a Customs officer on duty paid for the hours worked, but that officer’s man-hours of overtime is applied to every transaction which is presented during the overtime hours that the Customs officer works. Which other business in the private or public sector will be allowed to impose such a practice on the customers they serve?
It is little known that a significant percentage of Customs’ overtime fees are paid into a consolidated fund which is then distributed to Customs officers. As a result, they are deeply motivated to channel transactions which can be processed during regular hours into overtime hours. In an environment where there are no performance standards, nor are there checks and balances to suppress this practice, it has become deeply entrenched. Add to this the apparent ease with which theses officers can arbitrarily interpret and/ or increase fees, and we have a recipe for the corrupt practices which only seem to be escalating as the gravy train is reduced by reduced vessel calls, and the decline in other shipping related business.
Customs officers appear to believe that the above practices are a victimless crime, in that it’s the international carriers to which charges are passed on. However, as is the case for most businesses, these costs are simply passed on in some form. In the case of shipping, it’s the freight rates, and so ultimately it’s the local consuming public that pays.
The IDB, WCO, and the WTO are among the international agencies which hold that trade facilitation is an important engine of economic growth. The IDB particularly, emphasizes that moving goods across borders quickly and cheaply is essential for firms to be competitive and for countries to boost trade and participate more fully in the global economy.
How does Trinidad and Tobago’s Customs rank in this context? An international benchmark report provides some insight. The World Economic Forum’s Enabling Trade Report 2016 ranks Trinidad and Tobago 106th out of 136 countries measured. This report features 7 Pillars. When disaggregated, Pillar 3
- Efficiency and Transparency of Border Administration (that is, Customs) was ranked 112th. When this Pillar is further broken down, a component titled Customs Services Index, was ranked 117th. It is important to note that a related Pillar – Operating Environment, ranks T & T 119th. Within this Pillar, Efficiency and Accountability of Public Institutions was ranked 124th, and this was one of the areas which significantly contributed to the overall low rating in this Pillar. This report captures the challenges to which stakeholders in the Maritime sector are subject as they seek to conduct trade. It is worthwhile to further illustrate with a few case studies.
CASE STUDY 1: Customs delay at Point a Pierre January 2017
In January 2017 a tanker arrived at the local refinery to load fuel; an export cargo. A very irate Customs officer later telephoned the owner/operator of the tanker, to complain that there was conflicting documentation concerning the destination of the cargo and as a result, the vessel would not be allowed to load. After some discussion, it was determined that the local intermediary had indeed given to its agent the correct information but the local refinery had made an incorrect assumption. The Customs officer in charge called the local intermediary and demanded a prompt letter including all the relevant details or the vessel would not be allowed to load cargo. The company complied and the ship was eventually released - over 24 hours after arrival. This for a transaction which should have taken approximately 8 hours, all things being equal. The local intermediary missed an important deadline as a result of the significant delay, which deprived them of revenue and damaged their reputation, as well as that of the country. This incident cost the company in excess of US $130,000.
The irony of it all is that there may even be a charge from Customs for ‘receiving’ the requested letter!
CASE STUDY 2: Issues at Chaguaramas Customs January, 2017
Also in January of 2017, the agent of a vessel doing business in Chaguaramas arrived one evening at Customs in Chaguaramas to facilitate a proposed transaction.
The Customs officer on duty informed the agent that effective immediately all such business at Chaguaramas must now be approved by the Assistant Comptroller of Ports, located at Customs House Port of Spain, something that had never been required before.
The officer also insisted that the Maritime Services Division approval was required for the transaction, and it was only after he was forced to check his books to confirm that this also has never been required before, did he back down. The transaction however would have to be delayed until the following morning when Customs House was open for business.
On the following day, the agent reported to the Assistant Comptroller who advised that the local intermediary would be required to make an advance payment to Customs before the transaction at the port would be allowed to proceed; a fee of approx. TT$250 covering the cost for each one of two separate transactions. The transactions were eventually allowed with Customs willing to accept payment at a later time, which is actually the norm.
Finally, the relevant approvals were granted by the officer in charge, but the local intermediary was faced with a delay of over 16 hours, and with a cost of more than US $16,000.This cost could have been even greater if a penalty had been added as a result of missed deadlines.
It is pertinent to highlight that both these transactions relate to export cargo; US$ generating export cargo, a commodity in very short supply in T & T.
These two incidents only represent the “tip of the iceberg” and exemplify the manner of facilitation that some businesses face; licensed business generating hundreds of thousands of dollars in foreign exchange. They serve to highlight;
a) Customs’ laissez faire approach to conducting facilitation of what is international business
b) Customs’ mindless bureaucracy
c) What happens when authority is allowed to run rife without the required knowledge and judgment, checks and balances, and without protocols of standard operating practice.
d) How poor regulation is ruining business
Among other things, today's best performing Customs Administrations are run on the basis of integrity, transparency, accountability, and predictability, maximum use of ICT, and partnership with the trade. Our Customs administration continues to resist all of the foregoing.
So what short, medium, and long term interventions are needed bring about the desperately needed reform of T & T’s Customs administration? Part 2 of this article will elucidate.
Our prescription will be heavily anchored in the WCO’s Revised Kyoto Convention, to which, not surprisingly, T & T is not a party.
Customs Administration highlighted the prevailing environment of Customs Administration in Trinidad and Tobago. To recap, T&T’s Customs Administration is characterized by an environment of little regulation; absence of checks and balances; inconsistent application of regulations; and institutionalized corruption, heavily influenced by an artificially generated and inflated system of “overtime.” Part 2 prescribes a path to Customs reform, including a recommendation to adopt the principles of the World Customs Organization’s Revised Kyoto Convention.
Towards Reforming Customs
While the World Customs Organization asserts that there is no universally accepted model for modern Customs administration, the international Customs community believes all capacity building activities in Customs should be focused on increasing Customs’ performance in respect of each of the key principles outlined in the Revised Kyoto Convention (RKC). The RKC is the main trade facilitation Customs convention. It was developed by the World Customs Organization and entered into force on 3 February 2006.
These principles are the benchmark for Customs Administrations, and reflect the standards that all contracting parties, and countries bent on maximizing their participation in international trade subscribe to and aim for. These principles are as follows:
Integrity: Customs administrations should be free of corruption and strive to uphold the highest levels of integrity.
Transparency Customs laws, regulations, administrative guidelines and procedures should be made public and provided to clients in an easily accessible manner.
Accountability Customs administrations should be accountable for their actions through a transparent and easily accessible process of administration and/or judicial review.
Predictability Customs laws, regulations, administrative guidelines and procedures should be applied in a stable and uniform manner.
Facilitation & Control: While ensuring proper enforcement of Customs laws and regulations, Customs administrations should strive to facilitate the processing and clearance of legitimate trade by risk management.
Client Service Customs administrations should continually strive to improve the level of service they provide to clients.
Standardization Customs laws, regulations, administrative guidelines and procedures should, where appropriate, be harmonized with internationally agreed standards.
Simplification Customs laws, regulations, administrative guidelines and procedures should be simplified to the extent possible so that Customs clearance can proceed without undue burden.
systems, and audit-based controls to identify high-risk activities, people, cargo and conveyances and limit the level of Customs intervention.
Information & Communication Technology: Customs administrations should make maximum use of information and communication technology to facilitate the adoption of the principles outlined in the Revised Kyoto Convention.
Co-operation & Partnership: Customs should strive to develop co-operative relationships with all stakeholders including government agencies, the private sector and other Customs administrations.
Continuous Improvement: Customs should establish standards of performance and implement systems and procedures which strive to continually improve the efficiency and effectiveness of all business processes
These principles are consistent with what the SATT has been advocating for through years of collaborative engagement with Customs officials, and a series of escalation to the Government of the day.
The uncertainty relative to Customs procedures is ongoing and deepening, and is only contributing to increased costs to consumers via the pass-on effect. Equally significant, they have the potential to dissuade would-be investors.
Possible Methodology for Customs Reform
In light of all of the foregoing, we believe that there exists a clear path towards Customs reform and this includes but is not limited to the following:
§ Revisit the Trinidad and Tobago Revenue Authority (TTRA) framework and bolster it as necessary to achieve reform objectives
§ Engage Technical Assistance (where necessary) to develop the Standard Operating Procedures (SOPs), Train Customs Officers and develop & implement Performance Management systems
§ Implement a Code of Conduct
§ Employ CHANGE MANAGEMENT strategies as an important part of the reform
As a relatively easy way forward in the SHORT TERM, we propose the following:
1. Services offered should be listed and customers should only pay for the services offered. SOPs would be a good place to start.
2. A standard operating framework should be adopted across all ports to eliminate the current system whereby a Customs officer at one port can interpret the law in one way and subsequently have a different interpretation at another port for the same transaction. Further, the issue of an “outport” is an outdated one, particularly in relation similar, and in this respect, the ports differ only in geographic location.
3. The same operating model which applies to the airport should be adopted for the sea- port, that is, a 24 hour operation with a shift system in place. The airports run on a shift system so why not the sea-ports?
4. More stringent oversight over automation. Automation has become a key component to reforming Customs Administrations internationally, largely due to its contribution to trade facilitation. While automation is taking place within our local Customs; albeit at a slow pace, there appears to be no change management oversight that allows the new processes to be as efficient as they could be in terms of reducing transaction time and cost, reducing bureaucracy, and reducing manipulation of the system.
5. More effective staffing and succession planning. The service complains that it is severely short staffed, a situation that is further aggravated by poor succession planning and the posting of senior officers in positions where they have very short tenure and have an excuse for not exercising leadership decision making.
6. Strengthening leadership oversight/governance, whereby there will be clearly communicated procedures for escalating to the Comptroller and other relevant senior Customs Officials, with recourse assured.
The MEDIUM to LONG TERM can focus more closely on the establishment and
institutionalizing of monitoring and accountability mechanisms to ensure that objectives are met. The medium to long term will also focus on restructure, succession, and comprehensive regulatory /legislative reform, with the ultimate goal of fully realizing the standards espoused by the WCO’s Revised Kyoto Convention.
There exists a suite of international technical assistance to support Customs reform, including from the very same WCO, the World Bank, and even the World Trade Organization. The powers that be need only get serious about this important area of trade facilitation and tap into these resources, never taking our eyes of the prize until the goals are met.