Measuring-Up Customs: A Trade Compliance Cost Perspective

Abstract

Customs administrations play a prominent role in international supply chain operations. Customs administrations are responsible for the collection of import taxes, the enforcement of prohibitions and restrictions as well as the collection of statistics (amongst many other functions that may vary from one country to the next). Increasingly customs administrations are called-upon to help underpin the nation’s economic competitiveness. Three observable themes can be associated with this objective: trade facilitation; the administration of protective tariffs and procedures that provide for duty deferment and refunds; and the collection of tax revenue required by the state to pursue its objectives. The costs incurred by businesses when complying with customs requirements and any other trade and border related measures – referred to in this paper as trade compliance costs – cuts across each of these policy themes.

Although there is an established literature in compliance costs within the field of tax, there is less of an understanding within the narrower context of trade or customs. Currently researchers and policy makers rely on indirect assessment methods, such as macroeconomic modelling and broad comparative indexes and surveys, such as the World Banks Doing Business and the World Banks Logistics Performance Index. Detailed customs diagnostic studies, though prevalent, are not ordinarily found within the public domain and not easily accessible to researchers.

To help gain a better understanding or trade compliance costs a detailed case-study of UK meat importers was conducted. It has revealed a number of interesting findings. One of the key findings is that transactional trade compliance costs alone (those associated with import clearance through the port and excluding physical inspection related costs) can easily equate to 40-80% of the onward UK haulage costs and 18-50% of the liner ocean rates. Most of these costs are outside the direct influence of the customs administration. The scale of customs related compliance costs, whether good or bad, is often skewed by the performance of other border agencies as well as the operational practices and arrangements between agents and importers, shipping lines and port operators.

Concluding the paper, the author argues that good performance management systems require a detailed understanding of how the customs administration is viewed by its users. Trade and customs compliance cost might be a particular good unit of analysis for this purpose. However, if any comparison to the compliance cost tax literature is to be made, significantly more research is required. The quest for understanding trade and customs compliance costs also has implications for the training of customs officers and their relationship with the business community.

Keywords: customs administration, international supply chain, trade compliance costs