Home » Across Borders » Risk Management System (Its emerging relevance in modern customs administration)
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Traditional modes of customs control are essentially reactive. It is only when goods are formally entered that customs initiate standard checks through import documentation review and physical examination – all done at the border. This means that import clearance has to factor in time spent in the normal verification process of checking the entry declaration as to customs value, tariff classification, origin, licensing, and other related customs issues, before imported goods are finally released from the piers. The net result would be delay in the processing of imports, which could be as long as the time spent completing the verification activity. Meanwhile, the imported goods languish in the piers piling up real and opportunity costs.

For sure, the automation of the import clearance process, particularly on import entry lodgment known as the Automated Customs Operation System or ACOS, has significantly reduced clearance time, compared to the old manual filing process. But automation itself, which has yet to integrate the other programmable aspects of the clearance process, including electronic manifest submissions, bank payments through automatic debiting, and the like, does not address the impact of other traditional control mechanisms in the field of customs assessment, such as valuation and tariff classification, origin, permits in applicable cases, or even enforcement concerns, such as the bringing in of contrabands or anti-social goods.

Among the areas of customs control, customs value verification check is critical in trade facilitation. Even under the old valuation system – the Home Consumption Value and the Export Value methods – any valuation dispute arising from reference values (such as the so-called published values, pre-shipment inspection reports, etc.) utilized by customs then would greatly impact on the import processing and releasing time. This is because the release of the goods was conditioned on the final settlement of such a dispute. The tentative release remedy available at that time did not provide any real relief to aggrieved importers as the determination of their import costs remained hanging, not to mention the cost of money in putting up cash bonds.

Under the new valuation system – the World Trade Organization or WTO customs valuation system, otherwise known as the Transaction Value Method – the process of verifying the accuracy and completeness of the transaction value or the price paid or payable for the imported articles becomes doubly difficult if carried out at the border. Reason being that the effectiveness of transaction value verification critically depends on certain import and trade information not available to customs at the time of the entry clearance. Securing such information requires looking at the internal business records and processes of the importer – an activity that cannot be done or completed without having to eat up substantial processing time. This is a luxury in time, which just-in-time-based trade and commerce cannot afford.

For example, a related-party transaction, as the same is defined and understood under the WTO Valuation Agreement, is one probable customs issue that could crop up at the border. Resolving the matter of whether the buyer and the seller in a given transaction is related or not would call for a closer investigation and documentation – both being time-consuming. Assuming that such buyer-seller relationship exists, customs still has to determine whether the fact of such relationship influenced or not the price paid or payable for the imported goods. Again, this would need a separate investigation, data-gathering, documentation, and analysis. If customs attempts to resolve such type of an issue at the border, it will surely find itself overwhelmed by the sheer volume of imports that have to be pended at the piers at the expense of trade facilitation.

Based on international best customs practices, customs control, particularly on transaction value verification, is best exercised in a post audit mode. Rather than determine the completeness and accuracy of declared transaction value at the border, customs does the verification after goods have been cleared and released. With the concomitant requirement for importers to keep import, trade and business records within a specified period of time, customs enjoys ample time reviewing the activities of importers on a per transaction or per account basis, depending on the desired level of review or inquiry. In this way, clearance of imported goods are not affected while the interest of government is protected with the power to check the pertinent import and company records within the period prescribed by national legislation.

It is in the foregoing context that the concept of risk management system acquires significance. Risk management simply means the organized and systematic identification and elimination, if not minimization, of risks or hurdles to one’s goal. This includes a determination of the level or importance of risks in relation to their impact on a given objective.

The inevitability of using the post entry system as the primary mode of customs control, particularly on transaction value verification, provides impetus to use intelligence information for a selective utilization of customs’ meager resources.

Under the system, customs defines, through the use of data systematically gathered from within and without the customs zone, the risks to government revenue and community interests and grades them according to the level of impact on its goals and objectives. The facility enables customs to put priority and focus on areas where the impact to income and public interest is greatest. Such an approach optimizes the use of the given limited resources in ensuring customs compliance.

Applying the risk management principles to the post entry audit system, customs will be able to target for audit only those determined to present the highest level of risk to, and the greatest impact on, customs revenue and other priority objectives of the administration. Thus, traditional big importers whose duty contributions are high would earn a low risk grade in terms of compliance level but would merit a high risk rating in terms of impact on revenue in case of negligence or declaration errors. So are companies that claim preferential or zero rate of duties deserving of a closer look to verify valid entitlement to such claims.

Risk management will also enable customs to systematically store, retrieve, and analyze data, and track down import behavioral patterns and trend exceptions for a more effective monitoring of cargo movement and documentation without the need to screen and stop imports as they pass through the border. In this sense, customs control takes a pro-active stance as it would not unnecessarily stand in the way of a smooth import clearance process. On the whole, it will provide customs with the opportunity to raise the level of customs valuation and enforcement control to an organized, efficient, and accountable discipline.

The author is an international trade and customs specialist. He is also a partner of the law firm of David Leabres Uvero Gaticales Sto. Tomas. For your comments, he may be contacted at alex.gaticales@wtiphils.com or at (632) 4002145 / 4050021.

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