CHAPTER

4 Simplifying Procedures and Improving Control

Prior to Release of Goods

François L. Corfmat

A central element in reforming customs administration is the streamlining of

basic procedures, with the aim of enhancing revenue and quickening customs
clearance operations. This chapter considers the three main areas of the customs
process prior to release of goods from the point of entry that typically require
attention: the control of manifests, the assessment and verification of duties due,
and procedures for the payment and collection of those amounts.

A. Control of Manifests
The cargo manifest is the prime document for control of imported goods. It
provides sufficient information to permit identification of the goods, the names
of the consignee and consignor, and certain other information (such as weight
and container number). The manifest may be a specific customs form or the
commercial forms (bill of lading, airway bill) that meet the information needs of
the customs administration. In many customs administrations, this information is
available electronically from the carriers or transportation agents.

Correct use of the manifest is essential to ensure that all imported goods are
brought under customs control and presented to customs for clearance
formalities and payment of duties and taxes when applicable. Customs
procedures to capture and process data from cargo manifests are generally weak
in most countries. Even in developed countries, the reconciliation process to
match information on customs declarations with data from manifests is an area
where improvements are only quite recent. For example, U.S. Customs reviewed
its control procedures in the mid-1980s, and automated systems for processing
manifests were not introduced until 1989 for air cargo and late 1991 for sea
cargo. It is important to realize that strengthening the capacity for customs to
control information from cargo manifests means reducing the possibilities of
fraud and leakage, thereby consolidating the import tax base and increasing
revenue.

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There are three main reasons for the difficulties related to processing cargo
manifests:

x the exchange of information for cargo shipments between carriers and

customs authorities is usually not properly organized;

x the responsibilities between customs and port/airport authorities for tallying

unloaded goods are unclear; and

x the matching and writing-off process of data on manifests with customs

declarations is not done in a timely manner or even, in some countries, not
done at all.

Two series of operations are essential to ensure adequate treatment of manifests:

first, the manifest should be adjusted, as necessary, at the time of the unloading
of incoming goods (the tallying process); second, all the details of the manifest
(consignments) should be cleared or written off by a customs declaration within
a statutory period of time.73

A number of procedural steps are necessary to secure these controls, in particular

to ensure that the writing-off process is carried out in a timely manner.
Moreover, it is important that customs regulations assign responsibility and
provide for penalties for transportation companies if there are excesses or
shortages of cargo. The same rules should apply to port/airport authorities (or
transit shed operators) when unloaded goods are missing. In addition to
penalties, duties and taxes should be paid for any missing goods unless operators
can satisfy customs that the goods were not shipped or were lost prior to arrival
in the country.

Once responsibility has been determined and control procedures have been
established, computer applications for the processing of data from cargo
manifests should be developed. They should provide, in particular, for automated
reconciliation of manifested goods with the goods shown on the declarations,
and for rapid information retrieval to allow the investigation of discrepancies and
excesses. For the computer system to work correctly, carriers must assign a
unique identifier to each manifest and to each consignment. The WCO is
working toward providing recommendations and guidelines on a Unique
Consignment Reference (UCR) number that could be used for this purpose. See
Box 4.1. Advanced techniques for dispatching information should also be
introduced, including the use of interface systems between port authorities and

73The statutory limit varies from one country to another and should be in the range of 15 to 45 days. The customs
declaration assigns the goods a status or a destination (import for consumption, bonded warehousing, transit,
reexportation, or temporary admission).

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Box 4.1. The UCR mechanism

The Unique Consignment Reference (UCR) number is a reference number to be used by

customs authorities (of exporting and importing countries) as a generic mechanism to facilitate
legitimate trade. A UCR number binds together (using a maximum of 35 alphanumeric
characters) all the information about a chain trade transaction (information would include
calendar, country of export, company ID, and transport references), from the initial order and
consignment of goods by a supplier, to the movement of those goods and arrival at the border,
through to their final delivery to the importer. Because of its tracking capability, the use of the
UCR number will also facilitate bilateral and multilateral cross-border customs audits.

The WCO has been working on the UCR concept and technical issues related to its use for
several years within ad hoc committees, including customs representatives of its member
countries and representatives of international associations of freight forwarders, carriers, and the
transportation industry. It is to produce a recommendation and guidelines on the structure,
requirements, and use of the UCR number. For example, use of the UCR number will require an
automated environment using e-commerce technologies as well as international standards for
electronic messages—such as UN/EDIFACT or XML (eXtensible Mark-up Language)—for
import and export cargo and goods declarations (on which, see Chapter 9).

customs, or, where conditions and infrastructures permit, the connection of

customs systems to networks that will allow the processing of information from
manifests before cargo arrival.

B. Assessment and Verification Procedures

Assessment and verification procedures (by which is meant customs operations
and controls performed during the clearance process, prior to release of the
goods from the port of entry) include such activities as the tariff classification of
goods, customs duties and tax computation, the application of other legislation,
and the subsequent examination of documents and goods. These procedures
usually start with the self-declaration by the importer/exporter or customs agent
(broker). Many administrations impose complex and time-consuming control
procedures for customs clearance of imports. Many customs administrations in
developing countries have not yet organized selective controls. The tariff
classification and valuation of goods, which are essential to verify the accuracy of
the assessment process, are in some cases left to the individual initiative of
customs officers. Not enough effort and resources are devoted to the collection
of relevant information from importers, to the establishment and maintenance of
a reference data base on values of imported goods, and to training in these areas.
A lack of efficiency in classification and valuation methods and controls leads to
considerable losses of revenue and to a distortion in tariff protection levels.

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The simplification and rationalization of customs controls during clearance

should aim at avoiding excessive processing steps for declarations, defining the
responsibilities of customs clearance officers, reducing opportunities for
collusion with traders, and curtailing delays in customs clearance operations. To
that end, the principle of self-declaration should be the norm, and penalties
should be in place to help ensure that good-quality information is presented to
customs. The profession of customs agents/brokers should, ideally, be organized
and supervised by the customs administration through an accreditation system of
licenses to ensure quality service to the trade community and to facilitate
clearance formalities.

Cargo examination should be selective, based on such criteria as patterns of

trade, origin of goods, importer’s and customs broker’s performance,
discrepancies between declarations and supporting documents, value of
consignment, and incentive for misclassification. The selection process for the
physical examination of goods should be based on an information system using a
methodology to determine risks and the possible types of fraud (as discussed
further in Chapter 5). Cargo selectivity criteria should be developed using both
local information (from customs regional offices), and national priorities (from
headquarters) to create an automated system for the assessment of risk. It should
also be used to develop the audit criteria for customs. In addition, random and
surprise checks should be carried out. As a general guideline, the physical
examination of consignments and goods should not exceed the rate of 20
percent of the total number of customs declarations. Guidelines should also be
developed for the type of examination to be conducted, for example, cursory
(counting the number of packages and verifying marks and numbers), selected
goods examination (say, one in ten packages), or intensive (inspection of all
goods). Access to customs inspectors’ offices should be strictly limited, so as to
ensure that these staff can work without interruption and reduce opportunities
for traders or brokers to influence the verification process.

C. Payment and Collection Procedures

The payment of customs duties and taxes by importers (or the provision of
adequate assurance that they will be paid) is a precondition for the release of
imported goods. As long as this condition is not met, the goods should remain
under customs control. This is in accordance with the principle by which the
goods serve as a guarantee for payment of duties and taxes. Provisional advanced
payment should be authorized to allow the quick release of perishable goods that
justify urgent delivery. However, as a general rule, deferred payment schemes for
import duties and taxes should be permitted only for registered importers who
have a good record with customs and who have posted security with them and
have a taxpayer identification number.

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In many developing countries, customs does not secure payment before release
and traders are given too easy an access to deferred payment mechanisms
without adequate guarantee and documentation. To evade payment of import
duties and taxes, traders often make extensive use of temporary relief systems,
such as warehousing, temporary admission, and transit. With these systems, some
traders expect (often with good reason) that customs will lose track of the goods
and payment obligations. Arrears in customs duty and tax payments should not
exist, but often do—and they are then an indication of how serious customs
control problems have become.

An approach to collection that has proven successful in many countries, and that
is recommended, is to have banks perform the cashier function in large offices.
Customs, of course, should retain responsibility for the supervision of the
collection system and for ensuring that the monies collected by the banks are
deposited in the government accounts. Where the banks are authorized to collect
customs revenue, the number of banks (and branches) should be restricted. A
proliferation of banks may create difficulties in ensuring that correct duties have
actually been paid, in identifying the accuracy of bank receipts presented to
customs, and in reconciling remittances to the central bank and/or the treasury.

D. Paperless Processing of Imports

Many ports still suffer from chronic delays in the reception and clearance of
cargo because the interfaces between carriers, traders, agents, customs, and port
authorities are clogged by import procedures relying mainly on the processing of
paper. The application of information technology to support customs operations
“as an alternative to paper-based documentary requirements” is a standard stated
in the revised Kyoto Convention.74

Working in a paperless environment can bring significant benefits to both traders

and customs administrations. When customs administrations manage imported
goods based on automated manifest data, all the imported goods will be
accounted for and cleared; in a manual system it is difficult to know whether the
cargo is missing, and whether, if so, that is intentional or not. Modern customs
administrations that have introduced self-assessment and operate in a fully
automated environment also use a green, orange, and red channel system for
declarations processing; this significantly reduces paperwork and improves the
release time of consignments. Such a system requires the development of risk-
based criteria for control and automated selectivity systems (as discussed in

74SeeChapter VII of the General Annex. The Customs Cooperation Council recommendation of June 26, 1990
concerns the use of the UN/EDIFACT rules for electronic messages between customs and other trade users.

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#
Box 4.2. Paperless Processing of Imports
#
Principal Steps Main Benefits

Cargo agent and importer/broker activities prior to presentation

to customs

x Shipping agent transmits the manifest via EDIFACT or other No paper manifest.
electronic protocol into the customs computer system.
x Broker receives and verifies required documentation and inputs Declaration prepared in advance from electronic
import declaration information into the computer system. Broker messages.
pays duty and taxes electronically. A message notifies that the Electronic messages for payment.
declaration has been paid.
x The computer system automatically designates the channel (red, Automatic selection of goods for verification or
orange, or green). The declaration is printed in the broker's office. documentary control.

Customs operations

x For green channel declarations, the release of the goods is done Goods released without face-to-face contact.
automatically and the broker proceeds directly to the warehouse.
x For orange channel declarations, the system notifies the broker of Broker fully responsible for orange channel
the requirements and the broker certifies through the system that declaration subject to audit by customs.
the required licenses and so on are available. The system releases
the goods automatically and the broker proceeds directly to the
warehouse.
x Broker keeps on file all of the required supporting documentation Customs does not retain paper documentation.
(such as invoice, delivery order, bill of lading, and certificate of
origin).
Certain red channel goods are scanned rather
x Red channel goods are taken by the warehouse operator to the
than physically inspected.
inspection area where they are physically inspected for
classification, origin and valuation. Results are input in the system.
Certain goods may be scanned for enforcement purposes.
Inspection results are recorded and release is authorized if no
discrepancies are found.

Release at the gate

x Terminal operator verifies release of the goods and inputs Electronic notifications for exit. Terminal
notification of exit from the terminal into the system. On a operator responsible for exit control.
random basis, release officer at the gate verifies that the shipment
is as described on the declaration.

Post-release review

x Certain declarations are selected with the assistance of the Increased use of post-release verification and
computer system (using risk-based criteria) for in-depth valuation, audit for valuation, tariff classification, and
tariff classification, origin, and exemption review. Broker is origin.
requested to provide the declaration package.

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Chapter 5). Moreover, data generated by automated systems can also be analyzed
to address structural problems that delay import clearance processing.

Box 4.2 outlines paperless processing systems that are used in customs in a
number of countries. A prerequisite for the use of EDI and information-sharing
systems is that the customs legislation code allow for the use of electronic
signature and the elimination of paper forms.

E. Conclusion
The trend in international trade is toward the elimination of barriers and an
increase in speed and flexibility of services among international trade partners.
The simplification of customs procedures should be placed high on the agenda
of a customs modernization program. Such reforms will save time, reduce costs,
and speed up the movement of goods. At the same time, simplified systems and
processes will have a rapid impact on the effectiveness of revenue collection and
the transparency of customs clearance operations. Moreover, computerization
cannot be successfully implemented without first undertaking a thorough review
of customs procedures aiming at the elimination of unnecessary processing steps,
the simplification of and/or elimination of forms, and the streamlining of the
document processing flow.

Documentary and physical verification before the release of goods is not

effective for certain types of controls. In-depth controls related to valuation,
origin, incentives schemes, and exemptions are better suited to post-release
examination of documents and, when necessary, to audits and investigations on
the premises of importers, exporters, or customs agents. Such post-release
controls are examined in the next chapter.

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