Improving international e-Customs The European ITAIDE initiative

Eveline van Stijn, Niels Bjørn-Andersen, Liana Razmerita and Helle Zinner Henriksen Department of Informatics

Copenhagen Business School Howitzvej 60

2000 Frederiksberg, Denmark [evs, nba, lr, hzh].inf@cbs.dk

Abstract— The objective of this paper is to present the strategy employed in the European Union to reform the customs processes by means of information technology, spanning borders within and outside the EU. The European ITAIDE project (IT for Adoption and Intelligent Design for E-government) aims to develop and implement solutions that support improved interactions between government agencies and businesses, providing Single Window Access and creating possibilities for gaining Authorized Economic Operator status. As an example of this, we report on the e-export solution implemented by the Danish tax and customs administration, which supports the submission of export statements in electronic format through Single Window Access. Based on this case, we argue that in order to realize massive diffusion of e-customs solutions, it is crucial to address challenges regarding for instance interoperability and IT-readiness. The integral approach of the ITAIDE project offers a great opportunity to do so.

e-customs; ITAIDE; Single Window Access; interoperability; IT-readiness

I. INTRODUCTION Businesses are frequently obliged to submit statements,

reports etc. as part of their operations. Prominent examples are taxation-statements related to duty and excise (on goods like alcohol) that must be reported on a regular basis. It has been identified that sometimes as many as 150 documents may accompany goods that are shipped across borders. Any reduction in administrative tasks is welcomed by businesses, which often consider their interaction with the public sector to be a burdensome task [1]. E-government solutions promise the advantage of lowering this burden and bringing efficiency gains at the side of governments simultaneously.

The EU has set out to re-engineer the customs processes within the broad inter-organizational networks and to develop IT solutions to support the re-engineered e-customs. The purpose of the ITAIDE project (ITAIDE stands for IT for Adoption and Intelligent Design for E-government) is to contribute to the ‘Single Window Access’ and the ‘Authorized Economic Operator’ vision, which have been identified as the ultimate objectives of the many EU initiatives targeting effectiveness in cross-border trade. The ITAIDE research also aims to contribute by proposing re-engineering solutions on how to reduce the administrative overhead associated with

trade transactions while at the same time increasing the security and control mechanisms.

The purpose of this paper, then, is to present such improvement efforts by focusing on the situation of e-customs efforts in the EU and the contribution of the ITAIDE project. While the ITAIDE project is a European initiative, e-customs is targeted at a wide international level and ultimately should not only be useful for trade within European borders, but also for trading beyond the EU borders.

The remainder of the paper is organized as follows. In section II, we detail some of the background of customs and the ambitions with IT and ITAIDE. In section III, the Danish e-Export system is discussed as an interesting example of how an EU-country can introduce a Single Window Access system. From a pragmatic view, it is argued that a combined technological and organizational view on IT-based projects is imperative for success, and hence we pay attention to both these sides of the story. In the concluding discussion (section IV) in particular the identified issues of interoperability and IT-readiness are further addressed.

II. EU CUSTOMS AND IT SUPPORT International trade is at a crossroad where we face the

apparent paradoxical needs of enhanced security and control – particularly regarding fraud and terrorism – and at the same time a strong pressure to streamline procedures to become more efficient and cut down “red tape”. In the EU customs legislation, it is stated that adoption of the “Modernized Customs Code” will lead EU member states to:

• implement the e-Government initiatives in the area of customs;

• fulfill the commitment to the 'better regulation' initiative in this area, by providing less complex and better structured rules and regrouping several regulations;

• enhance the competitiveness of companies doing business in and with the Community, thus creating economic growth;

• increase security and safety at the external border, once common standards (including those for risk-analysis)

The research presented in this paper is part of the ITAIDE integrated project (nr. 027829), which is funded by the 6th Framework Information Society Technology (IST) Program of the European Commission. See www.itaide.org for further information. Proceedings of the First International Conference on the Digital Society (ICDS'07)

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are introduced and managed via a common IT framework;

• reduce the risk of fraud; and

• contribute to better coherence with other Community policies, such as indirect taxation, agricultural, commercial, environmental, health and consumer protection policy

Accordingly, e-government innovation has resulted in new IT infrastructures and many of the paper documents have been replaced by electronic versions. However, to a large extent, this replacement has not been accompanied by the necessary changes in legislation and an actual redesign of procedures and processes. Whereas e-customs holds the promise of substantial efficiency gains, the use of these new systems is far too often very cumbersome. Thus, the exchange of electronic data between companies and taxation authorities on the one hand and interoperability of data between the EU member states on the other hand, are priorities aimed at “streamlining customs procedures and processes as well as further the adaptation of the rules towards common standards for IT systems” [2].

In order to guide the national tax authorities in their development of IT software a “Draft eCustoms vision statement and multi-annual strategic plan” [3] has been developed. This is a working document, which is subject to continuous re-negotiation and improvement amongst the member states.

Within this context, the main challenges for the ITAIDE project are:

“How can customs documents and procedures be digitized and redesigned, and what business and administrative challenges may be encountered? To achieve this ITAIDE will develop a Common Information Model, in collaboration with UN/CEFACT, for electronic documents and document mapping software to improve the pan-European interoperability of taxation and customs systems. This interoperability is an essential prerequisite to achieve strategic goals of the European Commission for e-customs such as the introduction of Authorized Economic Operator and Single Window Access service provisioning for businesses.” [4]

An Authorized Economic Operator is a company that has special status, where simplified and situation-specific tax rules apply. An AEO needs to be able to maintain certain levels of control and security in exporting its goods and declaring taxes. This requires certification from the tax authorities. The simplified customs procedures for the AEOs are expected to lead to significant reductions in the administrative load and hence a reduction of costs.

Another vision pertains to the Single Window Access points. This means that organizations can handle customs processes at one integrated virtual ‘location’. As it was defined at a recent World Customs Organization meeting:

“A facility enabling the provision of standardized information with a single body to fulfill all import, export and transit related regulatory requirements. If information

is electronic then individual data elements should only be submitted once.” [5]

We make reference to a Danish example of SWA in the next section.

III. THE DANISH E-EXPORT SOLUTION The Danish e-Export solution illustrates an e-customs

solution that is an excellent example of how a SWA can be established and implemented with success in an EU-country. The case description is based on ex ante documentation and ex post analysis concerning the e-export solution. The ex ante documentation consists mainly of those expectations to the system which were outlined in the systems requirements included in the official call for tenders issued by the Danish tax and customs administration in 2003. The ex post documentation is provided by key informants at the Danish tax and customs administration (SKAT) through five interviews with senior officials and from public available information about the system.

A. Background of the project Over the last three decades the Danish tax and customs

administration has worked towards building a strong IT-infrastructure supporting all functions within the domain of taxation in Denmark. At present the Danish tax and customs administration IT-portfolio includes more than 100 systems which support the execution of all tax and customs administration tasks. As the following example illustrates, the Danish tax and customs administration has managed to be a first mover in utilizing IT to support its operations providing companies with different e-government solutions to reduce the amount of red tape in reporting to authorities.

The first IT supported export system for the Danish tax and customs administration was implemented in 1988. At that point in time the system was solely used by the local tax and customs offices. Basically it was intended for employees at the tax offices to register export statements in an IT system. Only two years later, the first shift towards a more self-service oriented structure was introduced. From 1990 it became possible for companies to report their export statements into the system via an on-line connection or electronic media such as discs or tape. However, this opportunity was not widely adopted by the companies.

The next version was in line with the overall diffusion of the Internet at the end of the second millennium. At that time, a comprehensive modernization of the system took place in the Danish tax and customs administration. Since 2000 it has been possible to report export statements via the Internet using the ftp-protocol. But once again the authorities realized that there was not a massive adoption of this system. It was mainly the tax and customs administration themselves, which used the system for entering information.

In 2002 the Danish tax and customs administration invited its advisory board, which consists of the major business and export associations, and other central players in the Danish business community related to export, to provide input for a new strategy regarding the utilization of IT in customs. The

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objective was to develop and implement a new system which would make it more attractive for companies to report export statements electronically.

TABLE I. REQUIREMENTS FOR THE E-EXPORT SYSTEM

Label Content On-line reporting Possible for exporter to report all data via on-line web-

interface Automatic processes

Possible to automatically forward information to other government agencies

On-line requests Possible to request data on the reporting, e.g. about company, control results and history

Data mining and reports

Both data mining in the full and in parts of the Export system according to criteria and to have fixed reports defined

Administration Possible to maintain and update tables e.g. for validation Risk profile analysis

Possible to conduct risk analyses based on risk assessment module develop elsewhere, and check results

Control and audition trail

Must be available

Security function Access security where only authorized personnel have access with those rights they can get

Integration and data exchange

Provide integration with all relevant existing systems including approval for export of temporary stored goods

Data exchange with external government agencies

Both nationally and internationally

Data exchange format

Exchange of data between exporters and authorities must also be possible based on EDIFACT and XML formats with same solution as the web-system

The discussions around developing a new system were a result of the recognition by the Danish tax and customs administrations of the big challenges driven by the New Public Management [6] and e-government discourse [7], which was prevalent at the turn of the millennium. As stated in an internal document from the Danish tax and customs administration describing the situation in 2002, it was clear that procedures had to be changed in order to meet the requirements articulated by businesses, citizens, and society in general for digital government. It is stated that it was necessary to “… streamline and rationalize the public sector using IT to secure that businesses and citizens are at the centre of the services provided by the public sector regardless of which public institution is in charge of delivering the service…” (internal document). On this basis, the Danish tax and customs administration formulated the goal of creating a single window access points for interaction, or a one-stop government as it was labeled at that point of time [8].

In accordance with the EU directives in the domain of customs, a call for tenders was formulated and announced in June 2003 together with the recommendations from the advisory board. The timeframe for the development of the system stipulated that implementation should take place in the second quarter of 2004.

It is difficult to take into consideration all the functionality required by the system right from the beginning. Therefore, the system development has followed an incremental process with

a relatively long test phase, which took almost nine months. In order to perform extensive testing and fixing bug operations the system has functioned in parallel with the old system for almost seven months. The old system was abandoned in March 2006.

B. Systems Requirements and Functionality In the general description of the system requirements, a

number of features have been identified as being crucial for the system. These features are presented in Table 1.

The objective of the new system was to increase the share of self-reported export statements from 45% to 90%. Furthermore, the aim was to build an automatic risk assessment mechanism into the system. In this way the system would meet the requirements for intensified control mechanisms according to the EU rules and regulations. By including the risk assessment mechanism in the new system it would lead to a minimum of inconvenience for companies. In summary, the requirement was to provide an integrated, advanced, and top-modern customs system for companies based on fast, simple, efficient, and correct customs procedures handling. The e-export system addresses interoperability issues for the data exchange between public administration/custom and companies and it is designed to be interoperable with a new import system which has been used in Denmark since 2001.

The e-export system is supposed to facilitate the integration of systems used by the public administration and companies for the various custom declarations. Accordingly, the e-export system is using United Nations Directories for Electronic Data Interchange for Administration, Commerce and Transport (UN/EDIFACT, 2006) and XML standards. Furthermore, the system is based on a “service oriented IT-architecture” based on the principles of open, distributed systems, which applies a graphical user interface.

For the risk analysis, a profile is associated with the export statement declaration for each particular country. An export declaration can be classified as low risk, medium risk or high risk. A more or less rigorous control or no control is done according to the report issued by the risk analysis module. Apart of a high risk analysis report that can trigger further control on exporter declarations and companies, random controls can also be done to export companies. The normal e-export procedures that were integrated into the new system are illustrated as a four step process in Figure 1.

FIGURE 1: NORMAL E-EXPORT PROCEDURE IN DENMARK

1. Export data are transmitted from the company

3. The company waits for a possible export control.

EU

4. Danish Customs controls and releases the goods, prints the SAD-document that

must follow the goods to the “Office of exit”.

2. Automated risk analysis

Goods

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As a first step the exporter submits the declarations to the custom office that produces an associated risk analysis report. Following the risk analysis report the Danish tax office issues the SAD document or proceeds to control in more details the exporter company data associated with the goods.

The SAD document is the EU Single Administrative Document which is one of the core customs document for export, transit and import in countries in the European Union and EFTA (Iceland, Norway, Liechtenstein, and Switzerland) [9, 10].

The overall architecture of the system relies on a client-server architecture and it integrates a WebLogic server and a Sysbase database [11] (see Appendix). The core modules of the system communicate with other external modules such as: a Risk Analysis module, Taric Database (the EU tariff database [12]), Import Database, and others through Application Programming Interfaces (APIs). The system is implemented as a Java web-based application. The companies send export declarations using the SWA point available on the web in many cases directly from their own e-export system.

The exporter goes through several steps before submitting the application. A screenshot of one of the windows and its associated fields that need to be filled in by the user are represented in Figure 2.

The system does not require the end-users to have extensive knowledge about the export procedures. There is help associated with each field that needs to be filled in. Basically, the interface mirrors the former paper-based forms that exporters used to fill out. No radical change has taken place with respect to the export declaration; it is only a change in the means for the generation of information and the transportation of information which solely takes place on the Internet.

However, the screenshot also directly reveals one of the issues with interoperability at the international level: the primary language of the SWA service is Danish! Translation is not necessarily a straightforward task. Differences across countries, not only with respect to language used, but also regarding information requirements and the local procedures and processes, need to be considered in this light. Therefore, within the ITAIDE initiative, much more change is expected than in this Danish example, and major re-engineering efforts are to be expected. We will elaborate on these challenges in the discussion.

FIGURE 2 SCREENSHOT OF THE E-EXPORT SYSTEM, WINDOW FOR REPORTING EXPORT STATEMENTS

C. Organizational implementation The system has been fully functional since September 2005,

but for security reasons the old export system has been used in parallel for six months. However, as shown in Table 2, the massive uptake of the new system did not take place until just before the old system was closed down on March 1st, 2006, in spite of massive implementation efforts.

TABLE II. NUMBER OF EXPORT DECLARATIONS SUBMITTED

Month New system key in by tax employees

New system key in by companies using web

New system enter data using EDI

Total usage of new system

Sept. 2005 558 295 0 853 Oct. 2005 1.818 1.683 0 2.759 Nov. 2005 1.352 1.871 1 3.224 Dec. 2005 1.962 2.785 495 5.242 Jan. 2006 1.757 5.015 2.333 9.105 Feb. 2006 2.305 9.010 8.360 19.793 March 2006 19.973 35.422 70.158 125.659 April 2006 6.805 31.182 69.892 107.953

Figures from Danish customs (May 2006) A lot of resources were invested in marketing of the system

to the potential users. Furthermore, the beneficial features of the system were marketed through the monthly newsletter from

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the Danish taxation authorities, and information about the system was also provided online. Finally, a lot of efforts were invested in training the potential users. Courses were offered and a number of companies took the opportunity to join. Representatives from Danish tax and customs administration suggested that these described efforts were the main reasons for the successful diffusion of the system. However, if we look at the adoption curve for the new web-based e-export system, we find a particular interesting development: once the use became compulsory, uptake became much faster. The agreements with the trade and industry organizations meant that the users were forced to adopt the new procedures. And noticeably, there was almost no publicly voiced opposition to following the new procedures.

In late spring of 2006 about 95% of all export documents were submitted electronically. Of these about 30% are submitted through the new web-based solution, and about 65% are submitted via the EDIFACT/XML interface. So far, the solution has proved a success, and Denmark is now probably in the forefront compared to the rest of the EU countries with regard to having the exporters submit their documents in electronic form.

In the context of improving e-customs on an international scale, then, we have to ask how such solutions as e-export can be successfully diffused amongst other countries.

IV. DISCUSSION AND CONCLUSIONS “The objective of developing a new export system is that the Danish tax and

customs administration wants to make it more attractive for businesses to use an electronic application when reporting export.” - www.skat.dk

Despite the fact that the e-export system is a fully functioning system fulfilling all of its functional requirements there are still a set of open issues to be pursued. Four times as many declarations as expected have been received since the system has been launched and therefore delays in submitting the export declarations have been encountered by certain users of the system. The reason for the increase in declarations is due to a change in procedures. In the new system it is not possible to submit multiple declarations in one record. Each declaration has to be submitted in a unique record. Given that the procedure for submitting records in the new system is very easy this has not meant much extra work for exporters. It has only meant an extra load on the e-export system. By mid 2006, these problems have been addressed. However, the development team is still concerned about the future performance of the system. Since they are receiving much more declarations and associated items they are envisaging carrying out further performance and stress tests. The results of the tests are expected to indicate how the system needs to be upgraded.

One issue that needs to be addressed in order to make the solutions suitable for use across many different countries is interoperability. For one thing, the Danish solution at the moment would not be directly transferable, because of the language used. Within the ITAIDE project, the default is English and use is for instance made of standards set by the United Nations. Some of those standards are available in multiple languages. Interoperability is understood not only in linguistic terms, but also in terms of matching technologies, as

well as processes and procedures [13]. Practices are often derived from the rules and regulations of the European Union as well as guidelines of the World Customs Organization. Requirements from countries such as the US also must be taken into account. Within the ITAIDE setting, a multitude of partners – government agencies, academic institutes, and businesses (both trade companies and technology providers) – cooperate in the design of both technological solutions and the redesign of procedures. If there is insufficient alignment, the efficiency gains on one side will likely only mean extra burdens for other partners. Thus, the creation of this broad ITAIDE network is considered of key importance to deal with the multiplicity and complexities of e-government in an integrated way.

As mentioned above, the massive adoption of the system took place only six months after the launch of the new system. There is no question that the main reason for the exceptional quick adoption has been the use of force. Almost everybody had to use the new self-service system. The argument was that it was easier for the exporters, and more importantly, it was much easier and cheaper for the Danish Customs to receive data in that form. And who can be against saving resources in the public sector?

The soft, voluntary approach to IT adoption has characterized Danish Government IT policies for decades [see for example 14, 15]. More recent initiatives, where more direct regulation has been applied does, however, indicate that this might be an acceptable and even recommendable venue in order to further IT adoption in general. As such the case presents an interesting trend in the sense that the massive adoption took place only after it was made mandatory to use the system.

A significant prerequisite for companies utilizing and benefiting from an electronic self service solution for cross-border taxation is a high level of ‘e-business readiness’. Businesses simply have to be able to use IT in their daily operations. In a large ten-country survey, it was found that Danish companies had a higher level of IT and e-business supported business processes than the other countries involved in the study [16]. The study included Brazil, Mexico, the US, Germany, France and Denmark; as well as some Asian countries such as China, Japan, Singapore, and Taiwan. The study showed that all Danish companies had access to e-mail, 96% had a web-site, and about 50% had introduced e-business in the eight key business processes. The e-business readiness was therefore higher than in any of the other nine countries included in the survey.

The public sector operates within the maxim of accessibility, accountability, predictability, and transparency and offering services on-line exclusively can challenge the maxim if businesses are not confident using IT in their daily operations. If governments make the use of the developed standards and digital forms obligatory, the opportunities for success are also dependent upon the ways in which both government and organizations are able to migrate towards the use of the new solutions. For instance, though developments are fast, not all member states in the EU have reached comparable levels of IT use yet.

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We believe that employing a strategy of closing down outdated government systems (like the previous Danish customs reporting system), and explicitly requiring further electronic interactions may well be a new trend. Indeed, the benefits are high and promising for all partners involved, but it should be clear that migrating towards new digitalized customs this way is not simple nor without risk. Thus, the question as to how implementation risks can be mitigated is one of the topics for further investigation in the ITAIDE context.

ACKNOWLEDGMENT Special thanks are due to Anni Lind, Ole Morsing and

Henning Andersen, members of the Danish tax and customs administration for providing data and information related to the e-export system for this paper.

REFERENCES [1] J. Fountain and C. A. Osorio-Urzua, "Public Sector: Early Stage of a

Deep Transformation," in The Economic Payoff from the Internet Revolution, R. F. a. R. Litan, A. M., Ed. Washington: Brookings Institution Press, 2001, pp. 235-268.

[2] European Commission, "Modernized Customs Code, TAXUD/458/2004 - REV4 http://ec.europa.eu/comm/taxation_customs/resources/documents/458rev_en.pdf," Accessed June 2006.

[3] European Commission, "Draft eCustoms vision statement and multi-annual strategic plan (Working document) http://ec.europa.eu/taxation_customs/resources/documents/masp_en.pdf," Accessed June 2006.

[4] ITAIDE, "http://www.itaide.org/," Accessed June 2006. [5] World Customs Organization,

"http://www.wcoomd.org/ie/wto/Single Window Concept.pdf," Accessed August 2006.

[6] C. Hood, "A Public Management for all Seasons?" Public Administration, vol. 69, pp. 3-19, 1991.

[7] R. Traunmüller and K. Lenk, Electronic Government, First International Conference, EGOV 2002. Berlin: Springer, 2002.

[8] K. Lenk, "Electronic service delivery - A driver of public sector modernisation," Information Polity, vol. 7, pp. 87, 2002.

[9] European Commission, Single Administrative Document (SAD) "http://www.ec.europa.eu/taxation_customs/customs/procedural_aspects/general/sad/index_en.htm," Accessed August 2006.

[10] European Commission, Single Administrative Document (SAD) "http://www.ec.europa.eu/taxation_customs/resources/documents/Presentation_and_use_of_the_form-en.pdf," Accessed August 2006.

[11] N. Bjørn-Andersen, H. Z. Henriksen, and L. Razmerita, "The streamlining of cross-border taxation using IT: the Danish e-Export solution," In: E-taxation: state and perspectives, Makolm, J. and Orthofer, G. (eds.) forthcoming.

[12] European Commission, Taric database "http://ec.europa.eu/taxation_customs/dds/en/tarhome.htm," Accessed August 2006.

[13] Y.-H. Tan, S. Klein, B. Rukanova, A. Higgins, and Z. Baida, "Information technology for adoption and intelligent design for e-government (ITAIDE)," presented at EGOV 2006, Krakow (Poland).

[14] K. V. Andersen, N. C. Juul, H. Z. Henriksen, N. Bjørn-Andersen, and D. Bunker, Business-to-Business E-commerce, Enterprises Facing a Turbulent World, Copenhagen: DJØF Publishers, 2000.

[15] H. Z. Henriksen and K. V. Andersen, "Diffusion of E-Commerce in Denmark: An Analysis of Institutional Intervention," Knowledge, Technology, and Policy, vol. 17, pp. 63-81, 2004.

[16] N. Bjørn-Andersen and K. V. Andersen, "Diffusion and Impact of the Internet and e-Commerce: The Case of Denmark," Center for e-Commerce, CBS, August 2003, 2003.

APPENDIX. ARCHITECTURE E-EXPORT

FIGURE A. CLIENT-SERVER ARCHITECTURE OF THE E-EXPORT SYSTEM AND ITS COMMUNICATION WITH OTHER EXTERNAL MODULES

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