Click to edit Master title style Moscow, 22-23 November 2004 Slide 1 Cutting costs in trading with...

Click to edit Master Click to edit Master title styletitle style

Moscow, 22-23 November 2004 Slide 1

Cutting costs in trading with Cutting costs in trading with RussiaRussia

Critical success factorsCritical success factors

Peter WilmottPeter WilmottDirectorDirector

Intertek Customs Advisory ServicesIntertek Customs Advisory Services



Trade FacilitationTrade Facilitation• Trade facilitation isTrade facilitation is

• Easier means cheaperEasier means cheaper• Therefore trade facilitation cuts costs in trading with RussiaTherefore trade facilitation cuts costs in trading with Russia

MAKING INTERNATIONAL TRADE EASIER



Customs, and other strange Customs, and other strange practicespractices

• Trade facilitation is not just about Trade facilitation is not just about CustomsCustoms

• But without Customs’ willing But without Customs’ willing participation and leadership, trade participation and leadership, trade facilitation will not happenfacilitation will not happen

• Customs are the premier border agency, Customs are the premier border agency, with unparalleled international networks, with unparalleled international networks, norms and standardsnorms and standards

• Getting Customs ‘right’ will deliver Getting Customs ‘right’ will deliver immediate and larger benefits than other immediate and larger benefits than other facilitation initiativesfacilitation initiatives



IssuesIssues

• Identifying critical success factors Identifying critical success factors mean dealing with issues:mean dealing with issues:– ProceduresProcedures– Information TechnologyInformation Technology– IntegrityIntegrity– IntegrationIntegration– The tendency of governments to The tendency of governments to

interfereinterfere



Basic principlesBasic principles

• Adam Smith, 1776:Adam Smith, 1776:– Four canons of taxation:Four canons of taxation:

• Equity, certainty, convenience, efficacyEquity, certainty, convenience, efficacy

• Joseph Stiglitz, 1980:Joseph Stiglitz, 1980:– Economic efficiency, administrative Economic efficiency, administrative

simplicity, flexibility, transparency, simplicity, flexibility, transparency, fairnessfairness

• These principles apply to all These principles apply to all government-run compliance regimes, government-run compliance regimes, and not just to tax collectionand not just to tax collection



ProceduresProcedures

• These are the means by which government These are the means by which government agencies secure compliance of agencies secure compliance of international traders with their legal international traders with their legal obligationsobligations

• Procedures implyProcedures imply– The provision of information to tradersThe provision of information to traders– The submission of traders’ data to governmentThe submission of traders’ data to government– Acceptance by traders of responsibility for their Acceptance by traders of responsibility for their

acts, including payment of duties and taxesacts, including payment of duties and taxes– Government decisions on ‘clearance’ or Government decisions on ‘clearance’ or

‘closure’‘closure’



Procedures - analysisProcedures - analysis

• For the lowest compliance costs:For the lowest compliance costs:– Information on traders’ obligations must be Information on traders’ obligations must be

available, clear, timely and unambiguousavailable, clear, timely and unambiguous– Data must be collected from traders by Data must be collected from traders by

procedures that are efficient, non-procedures that are efficient, non-burdensome and predictableburdensome and predictable

– The consequences of traders’ declarations The consequences of traders’ declarations must be unambiguous, fair, predictable and must be unambiguous, fair, predictable and consistentconsistent

– Government decisions must be timely, clear, Government decisions must be timely, clear, fair and effectively enforcedfair and effectively enforced



Information TechnologyInformation Technology

• The best use of ITThe best use of IT– Aids efficiency and certainty in Aids efficiency and certainty in

communicating with traderscommunicating with traders– Gives government effective tools for Gives government effective tools for

managing risk, assessing and collecting managing risk, assessing and collecting duties and taxes, and producing duties and taxes, and producing statistics and management informationstatistics and management information

– Simplifies data collection and the taking Simplifies data collection and the taking and communication of administrative or and communication of administrative or legal decisionslegal decisions



IT - analysisIT - analysis• IT by itself does not deliver trade facilitationIT by itself does not deliver trade facilitation• Large, expensive administrative systems Large, expensive administrative systems

quickly become inflexible, out of date and quickly become inflexible, out of date and unfriendly to business needs; smaller, agile unfriendly to business needs; smaller, agile systems attuned to business practice do notsystems attuned to business practice do not

• System specification is a vital step in System specification is a vital step in procuring efficient and effective IT systems, procuring efficient and effective IT systems, and requires intensive dialogue between and requires intensive dialogue between owners and users, whether private or public owners and users, whether private or public sectorsector

• Joined-up, modern and business-friendly Joined-up, modern and business-friendly systems cut costs and promote trade systems cut costs and promote trade facilitation – other systems don’tfacilitation – other systems don’t



IntegrityIntegrity

• In countries where corruption in government In countries where corruption in government agencies is a major issue, trade facilitation is agencies is a major issue, trade facilitation is virtually impossiblevirtually impossible

• Corruption is not just about financial Corruption is not just about financial inducements – it can involve political power and inducements – it can involve political power and favouritism, or simple prejudicefavouritism, or simple prejudice

• Lack of integrity increases uncertainty and Lack of integrity increases uncertainty and arbitrariness in control systems, and thus raises arbitrariness in control systems, and thus raises costscosts

• Integrity issues can be tackled only with Integrity issues can be tackled only with political will and leadership at the highest levelspolitical will and leadership at the highest levels



IntegrityIntegrity

• This is not just a moral issue – it has a direct This is not just a moral issue – it has a direct impact on business costsimpact on business costs

• Corruption in administrative systems is the Corruption in administrative systems is the enemy of fairness, transparency, certainty enemy of fairness, transparency, certainty and predictability, and encourages and predictability, and encourages businesses to develop compensating businesses to develop compensating behaviour that consolidates corrupt practicesbehaviour that consolidates corrupt practices

• If significant corruption is present, dealing If significant corruption is present, dealing with it is a top priority, before other cost-with it is a top priority, before other cost-cutting exercisescutting exercises



IntegrationIntegration

• This means managing administrative This means managing administrative systems so as to maximise cooperation systems so as to maximise cooperation with traders and use their data and with traders and use their data and processes in a joined-up wayprocesses in a joined-up way

• Integrating different agencies’ systems Integrating different agencies’ systems requires agencies to talk to each other requires agencies to talk to each other and act in concertand act in concert

• Integration requires a deep Integration requires a deep understanding of business concerns and understanding of business concerns and processesprocesses



Government interferenceGovernment interference

• Even with the best systems in the Even with the best systems in the world, government intervention can world, government intervention can destroy trade facilitation initiatives:destroy trade facilitation initiatives:– Instructions to boost short-term revenue Instructions to boost short-term revenue

collections cut across consistent and collections cut across consistent and predictable management routinespredictable management routines

– Political favouritism removes objectivity Political favouritism removes objectivity from systemsfrom systems

– Public servants are not necessarily the Public servants are not necessarily the best placed to understand the impact of best placed to understand the impact of their own decisionstheir own decisions



Government interferenceGovernment interference

• Conclusions:Conclusions:– There must be a long-term policy There must be a long-term policy

framework to support shorter term framework to support shorter term decisions and variationsdecisions and variations

– If short-term needs require change to If short-term needs require change to systems and procedures, it is essential to systems and procedures, it is essential to communicate with business and minimise communicate with business and minimise disruption and lack of predictabilitydisruption and lack of predictability

– Governments should not interfere without Governments should not interfere without good reason - “if it ain’t broke, don’t fix it!”good reason - “if it ain’t broke, don’t fix it!”



Measuring performanceMeasuring performance

• Economic efficiency, Economic efficiency, administrative simplicity, administrative simplicity, flexibilityflexibility

• transparency, fairnesstransparency, fairness

• Are Russia’s border Are Russia’s border processes yet as good as processes yet as good as they could be? What they could be? What simplification, deregulation simplification, deregulation or harmonisation would or harmonisation would bring benefits?bring benefits?

• Do non-transparent Do non-transparent procedures and arbitrary procedures and arbitrary decisions harm business decisions harm business interests and discourage interests and discourage investment?investment?

A wide range of reform activities, and indeed the organisation of this conference, show that the Federal and local authorities

understand the challenge and are prepared to act. Their priority must now be to encourage business to join them in solving

problems and setting priorities, against a background of objective and measurable programmes.



ConclusionConclusion

• Trade facilitation is not rocket science, Trade facilitation is not rocket science, but a simple discipline applied to but a simple discipline applied to government rule-making and business government rule-making and business processes that cuts costs by eliminating processes that cuts costs by eliminating inefficiency in the supply chaininefficiency in the supply chain

• The key to making international trade The key to making international trade cheaper and easier is dialogue and mutual cheaper and easier is dialogue and mutual understanding, leading to better trade understanding, leading to better trade control systemscontrol systems

• This presentation has suggested some This presentation has suggested some critical success factors in this processcritical success factors in this process



ConclusionConclusion

• Just to repeat, they areJust to repeat, they are– EquityEquity– CertaintyCertainty– ConvenienceConvenience– EfficacyEfficacy

• Easy to say, difficult to practice. But Easy to say, difficult to practice. But Adam Smith’s principles still apply, Adam Smith’s principles still apply, two centuries latertwo centuries later

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