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Traditional Role of Customs

Historically, customs administrations all over the world have served as state “gatekeepers”, taking jurisdiction on anything and everything that move across the borders and serving as tax collectors, border guards, port managers and immigration agents all at the same time. Other than to ensure security at border crossings and ports, the main function of many customs jurisdictions is to protect the financial and fiscal interest of the state by ensuring the collection of taxes on both imports and exports.

 

During the Spanish period in the Philippines, the role of customs was mainly to collect ad valorem taxes for the colonial government. At that time, the main port of entry was the Port of Manila, with the Captain of the Port as head. In many areas outside of Manila, the traditional barter system remained; it won’t be until the 1800s before customs offices are established in the ports of Zamboanga, Cebu, Iloilo, Sulu, Legaspi and Tacloban.

 

During the American regime, the Philippine Customs Service was made a counterpart of the American Customs Service, headed by the Insular Collector of Customs (later Collector of Customs). In 1947, Philippine customs was reorganized, with the Commissioner of Customs as head. The current customs organizational structure is still mainly based on the reorganization of the Bureau of Customs in 1975, albeit with a few changes.

 

Different Setting, Different Model

In the Philippines, with customs collections significantly contributing to approximately 15% of national revenue, the role of customs has primarily been that of a revenue-collecting agency. In recent decades, evolving government policies have made customs functions wide ranging and more complex. Other than the revenue functions, customs has been given the task of implementing various government policies and initiatives affecting trade, agriculture, health and public safety, statistics and border security.

 

In other customs jurisdictions such as Hong Kong and Singapore which have insignificant revenue collections or less reliance on such revenues, the customs function is merged with the immigration function, and more relevant for census and statistics purposes.

 

Many of the more modern customs jurisdictions have become less reliant on revenue collections and as such, their functions have now been focused on areas such as:

 

  • border security and protection
  • customs and trade compliance
  • facilitation of legitimate trade
  • interdiction of prohibited and illicit goods
  • enforcement of restrictions and regulations
  • protection of Intellectual Property Rights (IPRs) and cultural heritage, and
  • implementation of free trade agreements (FTAs)

 

It is not surprising therefore that a customs administration focused on revenue collections would be attached to the treasury or finance department. If the agency’s focus is on border protection, it would be attached to the border agency; and if on trade facilitation, to the trade department.

 

In various settings, customs will have major similarities in functions, but will have varying differences depending on government priorities and expectations.

 

Customs in the 21st Century

In the past decades, international trade, transport and travel have grown exponentially. The globalization of trade and business has mainly been brought about by the lowering of tariff rates, reduction of trade barriers, opening of markets, efficiencies in transport and logistics (bigger planes and container ships, integration of the shipping industry, lowering of fuel and other logistics costs, etc.).

 

With increasing volume of trade (especially e-commerce and online purchases), growing complexity of trading rules (environment regulations, security requirements, preferential trading rules and other compliance requirements), new trading models (just-in-time, low inventory, vendor-managed inventory and multi-modal transport) and an increasingly digital supply chain, customs is being forced to adopt to this modern environment and address increasing demands and expectations from the trading community. Revenue collection has definitely ceased to be the major core function of customs.

 

Based on many research studies conducted by the World Customs Organization and other aid agencies, customs issues can be categorized broadly as follows:

 

  • unnecessary customs control measures
  • non-transparent, complex and inadequate procedures
  • excessive processes and documentation
  • lack of automation and IT support
  • absence of a modern compliance management program
  • incapacity to use audit-based control and risk management techniques, and
  • lack of coordination between agencies affecting border movement of goods

 

Within the context of a globalized economy, the role of customs has evolved into a very complex environment demanding focus on wide-ranging concerns such as the following:

 

  • protection of the economy from revenue fraud and unfair trading (over and under invoicing, origin fraud, tariff misclassification and IPR infringement);
  • facilitation of legitimate trade (by expediting processes and by enhancing competition through the levelling of the playing field for traded goods);
  • reduction of the cost of doing business at the border (by reducing the cost of compliance and by efficient targeting of high risk goods and traders);
  • minimizing customs control by focusing on high-risk areas (increasing ability to detect revenue fraud and other offenses);
  • protection from illicit trade such as narcotics and weapons and from terror activities;
  • enhancing mutual recognition of customs programs and controls; and
  • ensuring economic integration through implementation of bilateral, regional and other preferential trade arrangements.

 

A Modern PH customs

For Philippine customs, every administration and every customs commissioner has had varying priorities and directions. Given the highly-politicized environment, many of the customs initiatives under various leaderships were focused on short-term projects and solutions resulting in the lack of program sustainability.

 

Amidst the demands of a globalized economy, what should be the focus and mandate of a modern customs? Should it be a revenue agency, an enforcement agency, a customer-driven trade promotion agency, or a border protection agency? The answer is that it is any, as well as all of the above.

 

In general, customs has to collect revenue, protect citizens from illicit trade, promote legitimate trade, enforce health, safety and environment regulations, and secure borders. In specific terms, how should this be done?

 

A modern customs must have the following functions and capabilities:

 

  • an efficient and streamlined organization,
  • a regulatory environment that promotes efficient, transparent and modern customs,
  • a competent, multi-skilled and specialist workforce,
  • a contemporary compliance management program focusing on prevention rather than interdiction,
  • a highly-automated process and management system, that is simple, transparent and efficient,
  • a comprehensive single window automated program for all users (importers, brokers, shipping lines, airlines, forwarders, consolidators, arrastre operators, warehouse operators, and all trade regulating agencies),
  • a modern non-intrusive inspection equipment and facility for the control of trade, transport and travel in ports and airports,
  • an intelligence-driven, IT-supported and audit-based customs control and risk management system,
  • a paperless trade facilitation program for compliant traders,
  • a mutually-recognized security program (Authorized Economic Operator program), and
  • an information management system (using big data technology) to assist in the investigation of revenue fraud and other non-compliance offenses.

 

A review of current operations and systems of PH customs will indicate that many of the functions and capabilities of a modern customs are not existent or are in the development stage.

 

With limited budget and resources, the challenge for PH customs is how to effectively perform its mandate even as it attempts to reform and modernize itself. For many decades, PH customs has not crafted a strategic framework for customs modernization and management. In the absence of such framework, reforms efforts will remain on an ad-hoc and piece-meal basis, with every change in administration providing a different direction on how customs intends to function in the 21st century.

 

The author is an international trade, indirect tax (customs) and supply chain expert. He is the Editorial Board Chairman of Asia Customs and Trade, an online portal on customs and trade developments affecting global trade and customs compliance in Asia. ACT provides trade intelligence through industry updates and features; columns written by customs and trade professionals and experts; and specially commissioned reports. For questions, please email the author at agatonuvero@customstrade.asia (www.customstrade.asia).

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