Reference no: EM133328764

Question: In conducting their responsibilities for managing borders and collecting revenue, customs administrations operate in environments of uncertainty and change. It is not easy to predict, for example, how many people, craft, and goods crossing a border will break the law or how they will do so-say, by entering a country illegally, smuggling drugs, or not paying tariffs.

And it is not feasible to manually check every person, craft, and good that enters or leaves a country. Instead, countries must develop methods that identify cross-border activities or transactions with the potential to pose risk. With their experience managing borders, customs administrations are uniquely positioned to conduct risk management-enabling them to make effective interventions in the supply chain without constraining legitimate trade. This note describes how risk management has become part of the culture, policy and operational practice of the New Zealand Customs Service, supported by a standardized methodology and strong intelligence efforts. New Zealand operated an inspection-based customs function for 150 years before initiating a modernization program in the 1990s.

The program had important implications for risk management. Risk management became an integral part of customs practice and was slowly integrated with the administration's culture. Page 2 of 4 The New Zealand Customs Service's risk management system enables it to manage large volumes of border crossings with limited resources. It enabled Customs to significantly improve performance in facilitating trade and evidence positive cost-benefit outcomes when introduced with other measures such as automation, pre-arrival processing and post-clearance audit. New Zealand's risk management system encompasses a culture of problem-solving and accountability for decisions, a standard methodology for identifying and assessing risk, and an intelligence function that applies this methodology.

This note highlights the fundamental principles and processes guiding the system, offering lessons for governments reforming their trade facilitation functions. Between its inception in 1840 and the 1970s, the New Zealand customs administration relied on a paper-based border management system that required 100 percent compliance: everything that entered the country was examined. Goods were processed in days, not hours, and developing competent customs officers took years of training. As New Zealand's economy began diversifying in the 1980s, the customs administration had to deal with a growing number of trade partners and a wider range of imports. The decade also saw the growth of containerized shipping and the beginning of cargo transported by air. To avoid harming the increased and diversified trade flows, the customs administration had to process imports more quickly. At the time the administration needed 10 days to process imports, requiring reference checks against at least 60 documents. The changes in trade patterns, combined with the new ability to automate, led to changes in customs clearance- moving the system for processing imports away from physical inspection toward risk management. In 1981 Customs introduced its first computer system, CASPER (Customs and Statistics Processing of Entries and Retrieval), which automated trade processing and provided a technical platform for randomly sampling imports for compliance and for running national alerts on high-risk goods.

CASPER was operational for 16 years, but by the early 1990s, the system was nearing the end of its useful life. It was costly to maintain and operate and very difficult to modify. It also limited the customs administration's ability to adapt to changing market and economic conditions. CASPER's limited functionality-combined with pressures facing the New Zealand Customs Service-drove the need for change. Pressures included minimizing operating costs due to a decline in government funding, maintaining the quality of border protection, minimizing the risk to revenue collection, increasing assistance to the business community, and supporting Page 3 of 4 New Zealand's economic growth. As shown in the chart below, import and export transactions continued to grow throughout the 1990s: The need for change led to the Customs Modernization (CusMod) program of the 1990s. CusMod reflected a transformation in how the New Zealand Customs Service conducted its business and in the work performed by customs officials. A two-year project, CusMod involved more than just developing new information systems. It took a holistic approach to protecting borders. The customs administration reviewed its entire operations, including its strategies, the types of staff required, processes for improvements, and the required technology. CusMod enabled New Zealand Customs to integrate goods, craft, passengers, and intelligence systems and develop better ways of identifying and mitigating risks. Major operational improvements resulted, such as much faster goods handling and increased flexibility and responsiveness. Work processes were improved and information systems were implemented that empowered staff to manage their work more effectively.

CusMod enabled a number of compliance and validation checks to be automated and transaction histories to be maintained. LEGISLATIVE FRAMEWORK Customs also adopted new legislation in 1996 (The Customs and Excise Act) to provide an effective regulatory framework for the management of risk, and to support a range of key measures which have been introduced over time to facilitate trade, and ensure effective compliance. Import & Export Transactions 1990-2000 0 200 400 600 800 1000 1200 1990 1993 1996 1999 2000 volume (1000s) Import Entries Export Entries Page 4 of 4 Instructions: Read the case study above carefully. Then, identify TWO (2) issues or problems that existed from the case. Based on the issues identified provide at least ONE (1) tool and/or programme for each issue or problem developed by the World Customs Organization (WCO) that could have been or be applied or implemented in solving or mitigating the issues or problems. You should provide an analytical review of the WCO selected tool and/or programme and explain how the application or implication of such would have improved the New Zealand Customs Administration position or situation(s) Ensure you select appropriate tools and/or programmes fitting the issue or problem identified.