A secure business environment for economic development

Introduction The World Customs Organization (WCO) is dedicating 2018 to the security of the business environment, with the slogan 'A secure business environment for economic development'. In this context, member countries are encouraged to review and share their business environment that will foster their participation in international trade. By 'secure', WCO refers to an environment that is enabling, safe, fair and sustainable. Such environment will help businesses to expand their activities and create incentives for them to participate actively in international trade. Further, this enabling environment will encourage them to invest in innovation and human resource that would generate employment and result in economic growth.
The external environment in which businesses operate is crucial for their success. Evidence based research has shown that customs can contribute to making business environments more stable and predictable by, for example, streamlining procedures, tackling corruption, enhancing integrity, and facilitating the cross-border movement of goods, conveyances and people in general. Legitimate businesses require a secure supply chain to prosper, but some threats come from within trade itself, such as shipment of illicit goods that could endanger peoples' health, safety and security. Combating cross-border crime, including the illicit funding of international terrorism through trade activities, is also an important responsibility of customs.
Role of Customs
Customs can contribute to securing business environment that is 'fair and sustainable.' For example, importation of illegal goods, such as goods that infringe intellectual property rights (IPR), or legal goods which, for example, are smuggled into the country to avoid payment of duty or whose value has been misreported, can do immense harm to a country's economy. It is not only a question of financial losses for both legitimate traders (businesses) and governments; such activities also affect governance, the economy, development and human security across the globe. Recurrent fiscal deficits in case of Pakistan can be attributed partially to such revenue leakages.
WCO has taken several initiatives to secure business environment and many tools, instruments and initiatives have been developed to assist customs administrations in building an ideal environment for international trade to flourish and grow, thereby boosting economic development. Such instruments and initiatives include the revised WCO International Convention on the Simplification and Harmonization of Customs Procedures, the WCO SAFE Framework of standards to Secure and Facilitate Global Trade or the WCO Security Programme aimed at addressing border security-related challenges by helping countries with passenger controls, the fight against precursor chemicals, strategic trade controls, the fight against the trafficking in small arms and light weapons, and terrorist financing. In addition, as a consequence of World Trade Organizations (WTO)'s Trade Facilitation Agreement (TFA), WCO has also initiated Mercator Programme to support WTO TFA implementation.
Customs and Economy
The radically changed nature of the international trading environment has had a significant impact on border operations. Specifically, post-2001 security environment in Pakistan has had a detrimental effect on business environment in general and national economy, in particular. However, Pakistan Customs has risen to the occasion by not only achieving revenue collection targets and duly promoting the foreign direct investment in the country but also providing a secure environment to the industry/trade and all other stakeholders. Specially, strict anti-smuggling measures have been put in place which led to doubling of seizures (in terms of value) during the last four years. A secure business environment facilitated by efficient customs administration can, therefore, surely improve government revenues; investment and trade balance; resulting in reduction in twin deficits.
Regulatory environment in Pakistan
In many cases, the regulatory burden on the international trading community has increased considerably. Indeed, while no doubt well intentioned, a number of government responses to the international security threat may do little more than increase the regulatory burden on honest traders and achieve little in the way of enhancing the ability to identify potentially high risk individuals or consignments. Well-designed national security requirements can, however, be incorporated seamlessly into border operations in a way that can enhance national security without compromising trade facilitation objectives. The model shown in Figure illustrates the need for a sound legal basis on which to build the range of administrative and risk management strategies which the border agency chooses to adopt to provide a secure environment for requisite economic development. (see for example Widdowson 2005b).
An appropriate range of client service strategies, including effective consultation arrangements and clear administrative guidelines, is necessary to provide the commercial sector with the means to achieve certainty and clarity in assessing their liabilities and entitlements, reflected in the second tier of the pyramid in Figure. Such arrangements require government agencies to accept the view that strategies other than enforcement activities represent legitimate means of mitigating the risk of noncompliance and are critical to achieving an effective balance between facilitation and regulatory intervention. Indeed, it is of critical importance to ensure that the commercial sector is provided with the ability to comply with regulatory requirements. They need to know the rules. If they don't know, then how can they be expected to comply? While ignorance of the law may be no excuse, it explains many instances of noncompliance and, consequently, the need to provide meaningful advice to those who are being regulated is essential.
The elements of compliance assessment in the border management context generally include data and physical screening, documentary checks, and risk based scanning and physical examinations as well as pre-shipment and post-shipment audits and investigations, reflected in the third tier of the pyramid in Figure. Effective compliance assessment includes strategies that are designed to identify both compliance and noncompliance. This does not sit well with those who favor a focus on noncompliance and who argue that the only recognized result of compliance assessment activities is the identification of noncompliance, together with associated enforcement actions such as prosecution and monetary sanctions. In other words, if the management focus is solely on the identification of non-compliers, staff will fail to see the relevance of identifying compliant traders. This is a particular problem in much of the developing world where traders, regardless of their compliance record, face almost exactly the same regulatory controls as noncompliant traders - so frequently there are few positive incentives associated with maintaining a strong compliance record.
A key element of the partnership strategy seeks to provide highly compliant companies with benefits such as facilitated clearance arrangements, an entitlement to self-assess, and reduced regulatory scrutiny - benefits that provide compliant companies with the incentive to demonstrate their commitment to comply with regulatory requirements. The effectiveness of such arrangements hinges on a healthy working relationship between government and industry, based on partnership and trust: that is, a relationship that reflects a mutual commitment to accountability and improving compliance.
Naturally, in the process of assessing the level of compliance with border regulations, agencies encounter two situations: compliance and noncompliance. The noncompliance spectrum will range from innocent mistakes to blatant fraud. If the error nears the fraudulent end of the spectrum some form of sanction will need to apply, such as administrative penalties or - in the more severe cases - prosecution, license revocation, or possible criminal prosecution.
Both trade and passenger traffic has increased a consequence of globalization, mainly due to advances in transportation, information technology and trade liberalization. This surge poses particular challenges for border agencies, especially as multiple agencies with differing mandates and priorities operate at borders. The challenge for customs, therefore, is to facilitate legitimate movement of passengers and goods across borders while at the same time securing revenues and securing borders under its mandate. Customs operating at borders can develop a matrix based approach in determining the level of risk before resorting regulatory controls. The risk level can be determined by the likelihood and consequence of an event as depicted by the matrix in Figure 2.
It is up to customs administration to assign more or less weightage to likelihood or consequence of an infringement in determining risk.
Conclusion
Enforcement and incentives should complement one another in any security related regulatory environment and customs administration should ensure that a balance is achieved that promotes trade without compromising on security. Pakistan Customs has coped with this challenge in a befitting manner. It would not be wrong to say that Pakistan Customs has effected/displayed an unparalleled combination of professionalism, strategic thinking/planning, and operational excellence to achieve substantial growth in revenues and an optimum facilitation to the trade. And the bedrock of these achievements is the provision of a secure environment by Pakistan Customs which has also been instrumental in economic development of Pakistan.