WCO CAPACITY BUILDING. (Item II on the Agenda) SUMMARY

Transcription

1 WORLD CUSTOMS ORGANIZATION ORGANISATION MONDIALE DES DOUANES Established in 1952 as the Customs Co-operation Council Créée en 1952 sous le nom de Conseil de coopération douanière CAPACITY BUILDING COMMITTEE - 1 st Session - HC0002E1b Brussels, 2 September WCO CAPACITY BUILDING (Item II on the Agenda) SUMMARY Purpose of document The purpose of this document is to provide relevant background information, the current situation, challenges and opportunities of the WCO Capacity Building agenda for the work of the Capacity Building Committee. The paper provides a brief description of the WCO Capacity Building development process, reference documents and strategies as a framework for the first Committee Session. The paper references four documents and these are attached. Annex I is the 2003 WCO Capacity Building Strategy, Annex II is the Customs in the 21st Century blueprint, Annex III is the 2008 Operational Strategy, and Annex IV is the Terms of Reference for the Capacity Building Committee. Action required of the Capacity Building Committee The Capacity Building Committee is invited to take note of the development process of the WCO Capacity Building Agenda, its key policies, strategies, the Terms of Reference and mandate for its work and current challenges and opportunities. For reasons of economy, documents are printed in limited number. Delegates are kindly asked to bring their copies to meetings and not to request additional copies. Copyright 2010 World Customs Organization. All rights reserved. Requests and inquiries concerning translation, reproduction and adaptation rights should be addressed to copyright@wcoomd.org.

2 HC0002E1b The Development Process of WCO Capacity Building 1. Since its establishment in 1952, as the Customs Cooperation Council, the World Customs Organization has been involved in the provision of training and technical assistance to its Membership. The Organization has a long tradition in this area and one of its long-standing successful initiatives is the WCO Fellowship Programme, which is in its 25 th year and will hold its 52 nd and 53 rd sessions in the fall of The 53 rd session will target for the first time the Spanish-speaking middle managers. 2. However, designing and developing the current WCO approach towards capacity building, which includes calling for support beyond the traditional training and technical assistance to achieve sustainable results in holistic organizational reform and modernization initiatives, only began in the nineties and beginning of this century. 3. The first attempts to further develop WCO support to Members occurred in the framework of the former WCO Customs Reform and Modernization (CRM) Programme. The 99 th /100 th Council Sessions held in June 2002 were pivotal to the current capacity building strategy. As an outcome of the policy discussions around the Doha Development Agenda, Members declared a mandate to review the WCO s role in this area and convened the High-Level Working Group on Capacity Building 1 to provide guidance. 4. A key product of WCO Members work at this time was drafting a comprehensive strategy for the sustainable ongoing development of 2003 Strategy, Customs and Border Management Services to meet the demands of Member Governments (Annex I to this document) 2. From this, the WCO Capacity Building Strategy has set the principles and the framework of the WCO capacity building operational programmes. 5. On a parallel development, the WCO convened the High Level Strategic Group (HLSG) on the Framework of Standards to Secure and Facilitate Global Trade (SAFE) to respond to the security threats arising after the terrorist attacks in The development of the SAFE Framework of Standards occurred in conjunction with an increased demand for the WCO to provide technical and modernization assistance as well as supporting the implementation of the SAFE Framework of Standards. The Council Sessions in June 2005 then approved both the SAFE Framework of Standards and the creation of a specialized Directorate within WCO Secretariat to manage and coordinate the delivery of capacity building assistance. 6. In the following meeting of the HLSG, held in Miami in October 2005, the Members decided to launch a global capacity building programme to support implementation of the SAFE Framework of Standards. On 26 January 2006, International Customs Day, the Columbus Programme was launched as the flagship programme of the newly established Capacity Building Directorate. 7. The Directorate took into account the pre-existing instruments such as the 2003 Capacity Building Strategy, the WCO Customs Diagnostic Framework, a small pool of experts with some experience, and the WCO tools as the basis for its development. However, many challenges were faced in the setting up and further development of the Directorate and the capacity building programmes. 1 In 1999 the Council Session had established another High Level Work Group on Training and Technical Assistance (TTA) that had held three meetings before In 2003, the WCO Secretariat decided to incorporate the work of TTA in the portfolio of the HLWG on Capacity Building, which became officially known as the HLWG on Capacity Building, Training and Technical Assistance. 2 The WCO Capacity Building Strategy was approved in the 101 st /102 nd Council Sessions, held in June

3 HC0002E1b 8. The Columbus Programme became the largest Customs capacity building initiative on record and it is still increasing over time. It has already accomplished diagnostic missions to 113 Member countries and over 80 Customs administrations have received further assistance in the implementation phase or have reported progress by their own efforts. 9. The WCO Secretariat has developed the infrastructure and standard operating procedures for processing requests for assistance, funding, accrediting and allocating experts, as well as ensuring the delivery of assistance. 10. The Columbus Programme provided a unique opportunity to the WCO as it was the first time in its history the organization had the chance to visit so many Members in a short time. Therefore, it was able to draw a global picture of the Member administrations and get a better understanding on the diversity of support required to develop Customs services. The Programme also indicates the scale of the challenge (for example, see Trends and Patterns reports on the Member s website). 11. It should also be noted that although the Columbus Programme essentially began as the implementation tool for the SAFE Framework of Standards, the analysis of its findings provides an accurate starting point for the implementation of all WCO policies and tools. A further significant iteration was the publication of Customs in the 21 st Century blueprint (Annex II), which is an excellent complement to the holistic WCO Diagnostic Framework. 12. In 2008 a Capacity Building Operational Strategy was approved by the Council (Annex III to this document). This is a living document that guides the Directorate s day-to-day work. The Operational Strategy presents the results of analysis and outlines an ambitious, dynamic, but pragmatic approach to meet the implementation goals in the long term. 13. The Operational Strategy re-emphasizes the need for individual Members to take responsibility and ownership for their own development, as well as creating and managing their own capacity development programmes and ensuring donor coordination at the national level. This approach has proven successful in attracting both donor funding and development support from the wider Membership. 14. Another achievement of the capacity building development process is the establishment of a regional infrastructure for the delivery of capacity building assistance. This consists of so far 5 Regional Offices for Capacity Building (ROCB) the 6 th one about to open - and 22 Regional Training Centers (RTC) established across all regions. Although the implementation of the regionalization strategy faces some challenges that require further attention, the infrastructure is already available and serves as a building block for development. 15. The WCO Capacity Building organizational development process has positioned the WCO as a committed and respected provider in the capacity building field, through the development of expertise and resources and a network of partners within the donor community. The WCO has successfully organized and delivered two Global Donor Dialogue meetings on Customs capacity building. The Secretariat has also acquired experience with the development of business cases and donor interaction that is gradually being transferred to regional structures and national administrations. 16. The Global Donor Dialogue meetings on Customs Capacity Building provided two key messages to the international community : - Financial resources to fund Customs reform and modernization are available whenever there is a well designed project proposal supported at government level; 3.

4 HC0002E1b - Leadership and management development should be considered essential in any organizational development process, if sustainability and continuous improvement are to be met. 17. The WCO has also developed a number of other operational capacity building programmes that are currently available to support Members : (i) (ii) (iii) (iv) The PICARD 3 Programme a partnership between Customs and Universities to support research and development; The Leadership Development Programme a response to the Global Donor Dialogue meetings that is also based on the PICARD educational standards; The Integrity Programme that brings a practical and incremental implementation approach to dealing with Customs ethics and conduct, currently subject to several pilot initiatives; The WCO Learning and Education Programme builds on WCO experience of training and technical assistance and includes WCO E-Learning, the Fellowship and Scholarship Programme, the Internship Programme and management of the training network with the RTCs. 18. The WCO is continuously developing tools and instruments related to Customs Capacity Building standards and best practices. Two particular tools play an important part supporting the implementing the WCO Capacity Building strategy, these are the Capacity Building Compendium and the Diagnostic Framework. 19. The creation of the Capacity Building Committee is regarded as the final building block of the WCO Capacity Building development process. It will institutionalize capacity building as a long-term priority and an important area within the WCO. 20. The Committee aims at increasing Members influence and engagement in the capacity building agenda. It will also serve as a platform for further partnerships and promotion of international cooperation. The Terms of Reference for the Capacity Building Committee is reproduced as Annex IV. 21. It is important to highlight that there are still Customs capacity building challenges and opportunities to be dealt with. Some of these are included as specific topics for discussion in the Agenda of this first Session, while others will arise as part of discussions under broad topics. 22. One challenge for the Capacity Building Committee is how to maintain momentum and consistency of the development programmes while at the same time, ensuring flexibility to meet the established and eventual new goals and objectives arising from a continuous changing environment. How do Members keep the Customs development programmes aligned with Government development priorities? 23. The Columbus Programme was originally designed to support the implementation of SAFE Framework of Standards. Although there are many examples of progress, there is still a need for development for many Administrations. 3 Partnership in Customs Academic Research and Development (PICARD). 4.

5 HC0002E1b 24. Without neglecting the original Columbus Programme design, new priorities and objectives must also be recognized. For example, it is imperative that the WCO adhere to the building blocks of the Customs in the 21 st Century paper. A logical progression is to capture the building blocks within the WCO Capacity Building agenda. Therefore, it is pertinent to question the future shape of the Columbus Programme, how to ensure a seamless expansion into a new programme incorporating the 21 st Century building blocks and what would be the next steps necessary for transition? 25. Overcoming the difficulty of securing financial resources to fund reform and modernization currently appears to be in hand but needs constant attention. A greater challenge to commencing and completing operational programmes is securing appropriate human resources for delivery. The WCO is taking steps to increase and better manage the pool of experts, however, the long-term challenge is how to ensure sustainability of access to experts and consistency in their delivery. The Capacity Building Committee meeting panel agenda item on the benefits of engaging on international cooperation and capacity building provides an excellent platform for this discussion. 26. Other issues for consideration of the committee would be : - How to further develop the regional infrastructure to optimize capacity building delivery? How to engage with Membership to ensure support for the next steps towards regionalization? How to ensure ownership and sustainability of the regional structures? - Closer scrutiny by the donor communities due in part to the global financial crisis, has introduced requirements to establish a result based management framework, including indicators to measure progress. A question for the committee is how will new and existing Customs modernization programmes meet the current and future requirements in this regard? - All developments in the WCO Capacity Building agenda were and are possible thanks to the engagement of many donor Customs Administrations, both in the form of financial resources or human resource expertise. The Committee may choose to evaluate how to keep the capacity building momentum going and ensure the continuity of the support, particularly during financial crisis periods? How to attract new partners to play a role as a provider of capacity building? How to make the entire agenda attractive to new commitments? x x x 5.

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7 Annex I to HC0002E1b Annex to SP0124E1 Capacity Building in Customs A Customs Capacity Building Strategy prepared by the World Customs Organization on behalf of the international Customs community 4 1. Introduction Customs administrations around the world play a vitally important role in the implementation of a range of critically important government policies and contribute to the achievement of a number of national development objectives. In addition, as Customs is often the first window through which the rest of the world views a country it does much to shape the perceptions of the key individuals and organizations involved in making important trade and foreign investment decisions. Without an efficient and effective national Customs administration, governments will not be able to meet their policy objectives in respect to revenue collection, trade facilitation, trade statistics, and the protection of society from a range of social and national security concerns. Customs contribution to national development is potentially enormous and can make a significant difference to the lives of many impoverished people throughout the world. As such, well-designed and targeted capacity building investments focussed on improving the efficiency and effectiveness of Customs administrations can deliver significant dividends for governments and donors alike and allow developing countries to take advantage of the many development opportunities provided by the expanding global trading system. Unfortunately, to date at least, many capacity building initiatives in Customs have failed to meet their desired objectives. This strategy reflects the views of the international Customs community and presents a case for a more focussed, co-ordinated and well-resourced approach to undertaking capacity building in the Customs administrations of developing and least-developed countries The Case for Comprehensive Capacity Building in Customs While the core roles and responsibilities of Customs have remained essentially the same for many years, the manner in which Customs administrations discharge these roles and responsibilities has changed significantly in recent times. The drivers for this change can be summarized as : 4 The WCO has organized two sessions of the High-Level Working Group on Capacity Building with the participation of our Members, international organizations including the WTO and the World Bank, donors, and representatives of the private sector in September 2002 and March This paper is based on the outcome of these meetings, contributions from other stakeholders and our own research. 5 This Strategy is an attempt to respond to the WTO Doha Ministerial Declaration in November 2001 where the role of capacity building is highlighted in Customs-related areas. It will be a contribution to the WTO Ministerial Conference in Cancun in September I/1.

8 Annex I to HC0002E1b Annex to SP0124E1 globalization and continued growth in the level of international trade; heightened international awareness (and quantification) of the costs associated with complying with inefficient and outdated border formalities; increased investment by the private sector in modern logistics, inventory control, manufacturing and information systems, leading to increased expectation for Customs to provide prompt and predictable processing of imports and exports; increased use and availability of new information and communication technologies; greater policy and procedural requirements directly associated with international commitments (such as accession to the WTO); increased international competition for foreign investment; proliferation of regional trading agreements which significantly increase the complexity of administering border formalities and controls; increased workload and government expectations, with static or decreasing financial and human resource allocations; increased awareness of the importance of good governance and sound integrity within Customs services; and following the terrorist attacks of 11 September 2001, a significantly heightened awareness of the need for Customs administrations to play a more meaningful role in protecting society from a range of threats to national security. As a result of these drivers for change there has been a growing realization, both amongst the business community and within major international financial institutions, of the importance of sound Customs administration to the economic and social prospects of developing countries. It is now clearly understood that a well-performing and ethical Customs administration can make a major contribution to effective revenue mobilization 6 and can assist governments to facilitate trade and investment and increase confidence in the quality and integrity of government institutions. As traditional barriers such as tariffs have progressively been reduced, trade facilitation reforms that address non-tariff barriers to trade are becoming increasingly important. Following the Uruguay Round of multilateral trade negotiations, developing countries took on an unprecedented range of obligations, many of which relate directly to Customs. However, unlike traditional market access obligations, the elimination or reduction of a range of non-tariff barriers is not a simple or inexpensive task for many developing countries. The potential benefits that could be realized through such activities are, however, significant. 7 6 In contrast to most industrialized countries where Customs duty makes a negligible contribution to total government revenue, many developing and least-developed countries still depend on Customs for up to 50% or more of government revenue. 7 The OECD has estimated that time delays, paperwork and compliance related to border crossing costs between 5-13% of the value of the goods involved. A recent study estimated that reducing the cost of international trade transactions by just 5% by 2006 could add $US 154 billion or 0.9% to the Asia Pacific Economic Co-operation region s GDP each year. The same report concluded that Customs reforms in Singapore, Thailand and the Philippines are estimated to yield a $US3.9 billion increase in real annual income. I/2.

9 Annex I to HC0002E1b Annex to SP0124E1 Committing appropriate resources to undertaking practical capacity building initiatives in the Customs administrations of developing countries therefore represents a sound and cost-effective economic investment for governments and donor organizations. Moreover, it can assist Customs to make a more meaningful contribution to a range of national development objectives such as revenue collection, trade facilitation, community protection, foreign investment, national security and ultimately poverty reduction. Indeed, as every single international shipment of goods is subject to Customs control and processing at the time of import and export, Customs is uniquely positioned to successfully coordinate, consolidate and simplify border-related regulatory formalities on behalf of all government stakeholders. Moreover, it is the only government agency capable of successfully responding to the need to facilitate trade while at the same time collecting all revenue due and protecting society from a range of social and national security threats. While there is now widespread agreement amongst the donor community that more attention needs to be paid to improving the capacity of Customs administrations in many developing countries, there is far less agreement on how such improvements should be designed, resourced and implemented. What has been missing to date is a broad and comprehensive strategy designed to mobilize international support, increase co-ordination and co-operation between all stakeholders, and provide a sound framework for practical and sustainable capacity building in the Customs administrations of the developing world. This strategy is designed to fill this development vacuum. 3. What Does Capacity Building Mean in the Customs Context? In the Customs context, capacity building is commonly understood to mean developing or acquiring the skills, competencies, tools, processes and resources needed to improve the capacity of the administration to carry out its allotted functions and achieve its objectives. It is a broad and comprehensive process involving all aspects of Customs administration and cannot be tackled successfully on a narrow technical or single-issue basis. By way of example, the effective implementation of the WTO Valuation Agreement requires much more than simple government agreement. It usually involves legislative change, the creation of new administrative infrastructure, the development and implementation of new systems and procedures, and a significant increase in the skills and knowledge of national Customs officials. While there is no universally accepted model for modern Customs administration, the international Customs community believes all capacity building activities in Customs should be focussed on increasing Customs performance in respect of each of the key principles outlined in the Revised Kyoto Convention. The following principles are therefore based heavily on the Convention : Integrity Transparency Accountability Predictability Customs administrations should be free of corruption and strive to uphold the highest levels of integrity. Customs laws, regulations, administrative guidelines and procedures should be made public and provided to clients in an easily accessible manner. Customs administrations should be accountable for their actions through a transparent and easily accessible process of administration and/or judicial review. Customs laws, regulations, administrative guidelines and procedures should be applied in a stable and uniform manner. I/3.

10 Annex I to HC0002E1b Annex to SP0124E1 Facilitation & Control Client Service Standardization Simplification Minimum Intervention Information & Communication Technology Co-operation & Partnership Continuous Improvement Compliance Improvement While ensuring proper enforcement of Customs laws and regulations, Customs administrations should strive to facilitate the processing and clearance of legitimate trade by risk management. Customs administrations should continually strive to improve the level of service they provide to clients. Customs laws, regulations, administrative guidelines and procedures should, where appropriate, be harmonized with internationally agreed standards. Customs laws, regulations, administrative guidelines and procedures should be simplified to the extent possible so that Customs clearance can proceed without undue burden. Customs administrations should apply sound risk management systems, and audit-based controls to identify high-risk activities, people, cargo and conveyances and limit the level of Customs intervention. Customs administrations should make maximum use of information and communication technology to facilitate the adoption of the principles outlined in the Revised Kyoto Convention. Customs should strive to develop co-operative relationships with all stakeholders including government agencies, the private sector and other Customs administrations. Customs should establish standards of performance and implement systems and procedures which strive to continually improve the efficiency and effectiveness of all business processes. Customs should work with clients to assist them to improve their level of voluntary compliance. In addition, all Customs reform and modernization efforts should be focussed on establishing or strengthening the management and administrative capacity of Customs administrations. 4. Six Lessons Learned from Previous Capacity Building Activities Research by the WCO Secretariat, Member administrations and donor organizations in recent years has identified a range of factors that contribute to the success or otherwise of capacity building initiatives. These lessons are summarized as follows : 4.1. The Need for Sustained High-Level Political Will and Commitment Research conducted by several international organizations has identified the critical importance of high-level political will and commitment to the successful conduct of capacity building programmes. 8 Without such commitment, maintained over the longer term, capacity building efforts are likely to be unsuccessful, regardless of the quality of their design and implementation. As such, the international Customs community believes high-level political commitment should be 8 See World Bank PREM notes series, April 2002, No. 67, OECD Development Centre, Technical Paper No. 175, April 2001, and WCO Policy Commission document, SP0119. I/4.

11 Annex I to HC0002E1b Annex to SP0124E1 regarded as a prerequisite or fundamental criterion for determining whether to support and fund capacity building activities in Customs. While it is relatively easy for senior government officials to indicate their wholehearted support and commitment for Customs reform and modernization programmes, experience has shown that it is much more difficult for governments to demonstrate that degree of commitment through the allocation of appropriate human and financial resources. 9 The international Customs community believes that the prime responsibility for capacity building rests with governments and that they must be prepared to match donor funding and technical support with their own commitment of human and financial resources. Moreover, given the high level of political change and volatility in many countries, greater attention needs to be paid to obtaining bipartisan political support for capacity building initiatives. Without such support it is unlikely that the improvements achieved will be sustainable or resilient to policy and/or environmental changes The Need for Greater Ownership and Participation of Customs Personnel Feedback obtained by the WCO from a number of Member administrations indicates that many capacity building programmes have failed to adequately address the need to obtain the full participation and commitment of Customs officials. As a result, many Customs personnel have had little personal stake in, or commitment to, the organizational and administrative reforms being promoted through various capacity-building activities. Such participation needs to be obtained well before the implementation of any capacity building programmes. Where appropriate, local Customs personnel should be involved from the earliest stage of the capacity building initiative, including the diagnostic stage, to identify capacity building needs. Appropriate attention should also be paid to ensuring relevant information is conveyed throughout the course of the capacity building intervention. To successfully address this problem, special attention needs to be paid to involving local Customs officials at all levels in the formulation, design, implementation, monitoring and evaluation of capacity building efforts. Where practical, capacity building initiatives should be under the overall direction of local Customs personnel and senior officials should be actively involved in the promotion and communication strategy. Implementation teams and project support groups may assist in this endeavour. In essence, capacity building initiatives should be seen as being driven by the government, the head of the Customs administration and his/her senior management team, with the involvement of, and in close co-operation with, the trade. Customs consultants, technical specialists and in-country advisors need to focus on ensuring adequate local participation and ownership, and such objectives should be clearly articulated in the design and development of project proposals and other documentation. In this connection, pursuing appropriate regional approaches may provide a useful opportunity for participants to exchange experience with other Customs officials and administrations which often face a range of similar problems The Need for Accurate Diagnosis of Capacity Building Needs and the Development of Country-Specific Responses Experience suggests that one of the critical success factors associated with the conduct of effective capacity building initiatives is the accurate diagnosis and analysis of developmental 9 A relatively long and stable tenure of Directors General of Customs is desirable for a strong leadership by senior management. I/5.

12 Annex I to HC0002E1b Annex to SP0124E1 needs. While Customs administrations throughout the world face similar strategic challenges and perform similar regulatory functions, their individual circumstances, operating environments, administrative competencies, resource availability and development ambitions vary greatly. As such, it is vitally important that appropriate account is taken of these factors during the analysis, design, development and implementation of individual capacity building interventions in developing countries. The international Customs community is concerned that many of the capacity building programmes that have been undertaken in the past were based on an inaccurate or insufficiently comprehensive assessment and analysis of needs. There are many factors that contribute to this situation, including : lack of a high-quality diagnostic tool focussed specifically on Customs which could provide a sound model or framework for comprehensive assessment and analysis of capacity building needs; limited pool of adequately experienced and qualified Customs specialists and consultants competent to undertake diagnostic assessments; diagnostic assessment results being driven by the requirements, competencies or objectives of donors or training and technical assistance providers rather than the recipient administrations; and insufficient attention being paid to mission-critical but non-customs-specific issues such as sound public sector management and administration competencies, strategic planning, change management, external co-operation, management information and the collection and analysis of base-line statistics. In order to overcome these problems, more attention needs to be paid to thoroughly analysing the needs and circumstances of recipient Customs administrations. In addition, to increase the quality and scope of diagnostic assessments, greater attention needs to be paid to the selection, training and qualifications of Customs specialists engaged to conduct in-country assessments. The WCO s Customs Capacity Building Diagnostic Framework will provide a comprehensive tool kit for undertaking assessment missions and will assist Customs specialists to focus on all aspects of Customs administration rather than simply the areas in which they enjoy particular professional expertise. Capacity building programmes should respond to country-specific needs and be designed to fit the individual political, economic and social circumstances of each Customs administration. In Customs, as elsewhere, it is clear that one size does not fit all. In other words, it requires situational solutions The Need for Realistic Government and Donor Expectations In reviewing many capacity building projects and other activities that have been conducted during the past decade, the WCO identified few that met or exceeded their stated developmental objectives. While this is disappointing, given the quantum of funding and technical assistance that has been provided to many Customs administrations, it seems likely that many initiatives were evaluated against somewhat unrealistic and overly ambitious expectations. Moreover, in many cases the capacity building inputs were either inappropriate or insufficient to ensure the transformations expected. I/6.

13 Annex I to HC0002E1b Annex to SP0124E1 Undertaking comprehensive reform and modernization programmes in the Customs administrations of developing countries is a difficult and challenging task. The international Customs community believes that expectations need to be realistic and calibrated to take account of the scale and scope of the problems to be overcome and the quantum of resources allocated to the task. Likewise, and closely linked to the problems associated with ensuring the accurate diagnosis of needs (described above), capacity building inputs need to be accurately targeted to the problems they are expected to overcome. For example, research undertaken by the WCO has indicated that the vast majority of capacity building activities undertaken around the world have concentrated on the provision of training and/or technical assistance inputs. While such inputs can play a valuable role, capacity building inputs should also have been directed at a range of more broadly focussed management, administrative, procedural and infrastructure related issues in order to produce the desired results. Moreover, even when anecdotal evidence suggests that significant progress has been made as a result of a particular capacity building programme, there is usually a lack of objective base-line data upon which meaningful comparison can be made. The WCO s Customs Capacity Building Diagnostic Framework addresses this problem in some detail and should provide a sound basis for improving the quality of base-line data obtained at the start of any capacity building intervention. Likewise, the WCO s Time Release Study methodology should be regarded as a fundamental tool for the collection and analysis of Customs operational performance The Need for Adequate Human and Financial Resources to be Devoted to Capacity Building Initiatives Customs administrations in many developing countries typically face enormous pressure to maximize revenue collections. To achieve this, particularly in an operating environment characterized by poor levels of voluntary compliance, Customs officials often resort to high levels of documentary and physical inspection to verify the value, classification and origin of goods. This results in significant delays in Customs clearance and creates an operating environment that is vulnerable to corruption. At the same time, Customs administrations also face significant pressure from the private sector and trade-related government agencies to expedite the processing and clearance of goods. This can only be achieved by reducing the level of resource-intensive documentary and physical examination. While experience in a wide range of industrialized countries has proved that such apparently competing demands and objectives can be successfully managed by an efficient and effective Customs administration, the scale and the scope of the improvements necessary to achieve this in many developing and least-developed countries are extensive. Having reviewed a wide range of case studies, the WCO has concluded that the quantum of human and financial resources devoted to achieving such fundamental changes has often been inadequate to achieve the changes required and in many cases, even when improvements have been made, they have proved unsustainable in the longer term. By way of example, many Customs capacity building projects have devoted substantial attention to implementing communication and information technology systems. While the international Customs community fully supports such activity, it is concerned that such projects are often under resourced relative to the scale of the changes being contemplated. The information technology industry typically works on an implementation : post-implementation support ratio of 1:4. In other words, 25% of the costs associated with 10 The WCO Time Release Study is currently being automated to facilitate its use by consultants and WCO Member administrations. Funding for the automation project was provided by the World Bank under the Global Facilitation Partnership for Transport and Trade Initiative. I/7.

14 Annex I to HC0002E1b Annex to SP0124E1 implementing a new information technology system should be devoted to implementation itself and 75% to post-implementation hardware and software support. Research conducted by the WCO has found that in many of the cases reviewed the ratio was closer to the reverse. As a result, many Customs administrations in the developing world are unable to adequately support their current information technology infrastructure and are unlikely to obtain government support to migrate to later versions of the same product. This problem is compounded by the fact that implementation of new information technology systems typically involves a significant amount of non-it-based business process re-engineering. Many successful capacity building initiatives often specify the involvement of high-quality Customs advisors to assist local officials to implement project objectives. Placing skilled advisors in developing countries often represents a significant proportion of the costs associated with capacity building projects. As a result, many capacity building projects deliberately limit the number and duration of short and long term advisors assigned to particular projects. The international Customs community is concerned that in many cases the advisors are appointed for inadequate periods and that insufficient attention is paid to post-implementation support and assistance. As a result, improvements made are sometimes not maintained in the longer term. Indeed, in a number of cases, Customs administrations have had a succession of medium to large scale capacity building projects one after the other, all designed to address similar institutional needs. In order to redress these problems, capacity building initiatives should : incorporate significantly longer implementation timeframes; make better provision for post-implementation support; incorporate adequate provision for short- and long-term in-country advisors; and include mechanisms for the provision of additional support and long term funding provisions (particularly in the case of communication and information technology based interventions) The Need for Enhanced Co-operation and Coherence One of the perennial problems facing all capacity building recipients and providers is the poor level of co-ordination and communication between national, regional and international donors leading to duplication of effort in certain areas and little or no attention to other strategically important areas of Customs administration. Despite recent improvements designed to increase the level of co-ordination and coherence in capacity building delivery, ensuring effective co-ordination between different donors continues to plague international capacity building efforts. For example, the WCO Secretariat was recently involved in discussions with one Member administration where six different national and international donor organizations were all offering significant capacity building programmes to the administration. In such cases, the WCO may be able to play an important co-ordination and facilitation role. To achieve real improvement in this area, Member governments and Customs administrations must take a more active and strategic approach to meeting their capacity building needs. Moreover, governments need to avoid the temptation of accepting donor assistance simply I/8.

15 Annex I to HC0002E1b Annex to SP0124E1 because it is available and play a more strategic and positive role in determining the needs and shaping the direction of the reform efforts. In addition, existing vehicles for such co-operation such as the Integrated Framework for Trade- Related Assistance to Least Developed Countries, should be utilized 11 to ensure greater coherence in the identification of needs and the deployment of appropriate capacity building expertise and resources. 5. Capacity Building Needs and Challenges In early 2003 the WCO conducted a comprehensive survey of Member administrations to determine the key capacity building needs, barriers and challenges facing its Member Customs administrations. The results of this survey, complemented by data obtained from additional consultations, is summarized as follows : WCO Member administrations identified six key building blocks which were considered essential prerequisites for effective and comprehensive capacity building in Customs. The building blocks were identified as : sufficient political will, leadership and stakeholder support to ensure sustainability of capacity building initiatives; adequate long-term resourcing and access to sustainable funding; a fully functioning civil service which provides the basic infrastructure necessary to administer national laws and international commitments; a sound legal framework and a functioning judicial system; adequate remuneration and employment conditions for Customs officials; and a broad climate supportive of change and improvement. Each of these issues was regarded by WCO Members as fundamentally important for successful capacity building. While it was acknowledged that some of the above-described issues are out of the direct control of Customs personnel, it was emphasized that without these building blocks in place it would be difficult to achieve meaningful and sustainable improvement. As such, in assessing the capacity building needs of particular administrations it is vital that appropriate attention be paid to these issues. The WCO has included a Readiness Assessment tool within its Customs Capacity Building Diagnostic Framework for this purpose. Where it is determined that one or more of these fundamental building blocks is not present, or at least not to some realistic threshold level, then capacity building programmes such as those conforming to the model described in this document may be inappropriate. In such cases, and particularly where normal border controls and infrastructure are not present or viable 12, then recourse to some form of emergency measures might be appropriate. For example, in cases where revenue collection vital to the functioning of the government is at risk and established capacity building solutions are not viable in the short to medium term, a number of 11 Agencies participating in the Integrated Framework include the World Bank, IMF, International Trade Centre, UNCTAD, UNDP and the WTO. The WCO makes a contribution in providing experts for diagnostic missions upon request. 12 For example, during or immediately following periods of civil war or international conflict. I/9.

16 Annex I to HC0002E1b Annex to SP0124E1 governments and international financial institutions have resorted to the adoption of preshipment inspection (PSI) regimes. While acknowledging the reasons why governments have decided to employ such regimes, the WCO and its Member administrations have traditionally been concerned about their longer-term effects on capacity building of Customs, because PSI regimes have often been viewed as a substitute for Customs rather than as a stopgap measure. Instead, the WCO recommends that the service of private companies be employed in a complementary capacity to support Customs activities while concerted efforts are made to establish the infrastructure necessary to manage Customs in a more sustainable manner. As such, it is critical that comprehensive capacity building programmes, conforming to the models described in this document, be conducted simultaneously with the use of preshipment inspection. Through the capacity building survey, Member Customs administrations identified seven priority areas of capacity building assistance. While responses varied significantly in terms of detailed requirements, Members highlighted the following areas as of particular relevance. Members require capacity building assistance to : prepare and implement modern Customs legislation; develop and/or improve systems and procedures to accommodate changes required to comply with international and regional commitments; strengthen strategic and operational planning capacity; strengthen the management and leadership competency of Customs personnel; analyse, design and implement effective organizational and administrative structures; implement or improve communication and information technology systems and infrastructure; review and improve Customs systems and procedures to bring them in line with modern practice (as outlined in the Revised Kyoto Convention and other WCO instruments); improve the level of co-operation, communication and partnership with external stakeholders including other government agencies and the private sector; improve the level of integrity; and obtain appropriate infrastructure, technical aids and equipment and human and financial resources. In addition, in analysing the responses that were received to the WCO Capacity Building Survey it was clear that many Customs administrations had defined their capacity building needs according to their current government priorities. As a result, a great deal of attention was paid to identifying capacity building needs associated with ensuring that implementation of the WTO Valuation Agreement does not have a detrimental impact on revenue collection. Related to this issue, many administrations were anxious to obtain assistance to deal with the perception of widespread valuation fraud. As described elsewhere in this document, dealing successfully with this issue will require significant investment in a wide range of Customs system and procedural improvements. Due to the current focus on heightened national security concerns, Customs administrations also identified capacity building needs associated with implementation of the WCO Resolution on Security and Facilitation of the International Trade Supply Chain. Respondents agreed that capacity building assistance was required to : I/10.

17 Annex I to HC0002E1b Annex to SP0124E1 improve the level of co-operation and communication with other government agencies involved in trade, transport and national security; improve physical security and surveillance over Customs-controlled areas; obtain timely submission of relevant import/export data in order to identify high-risk cargo and conveyances (legal, procedural and IT implications); improve inspection and examination capabilities (including enhanced human competencies and deployment of appropriate technical aids such as scanners); improve Intelligence capacity, including exchange of information with other national and international agencies; establish co-operative agreements with the Trade; improve integrity; and implement the provisions of the Revised Kyoto Convention. While the above capacity building needs were highlighted in connection with implementation of the Resolution, a number of respondents correctly identified the significant degree of overlap between these issues and the wider capacity building needs identified earlier in the paper. 6. Roles and Responsibilities of Potential Stakeholders and Partners As described above, the scale and scope of the capacity building challenges facing the Customs administrations of the developing world are enormous. To achieve meaningful and sustainable improvement in efficiency and effectiveness, many Customs administrations will require the concerted and co-operative effort of all stakeholders including : governments; Customs administrations; the private sector; key international organizations; international financial institutions, regional development banks and national assistance agencies; WCO Member administrations from developed countries; and the WCO Secretariat. Each of the above groups has an important role to play in undertaking capacity building in Customs. A brief summary of their potential contribution follows Governments The key responsibility for capacity building rests with individual governments. Governments must establish the sound administrative infrastructure necessary for effective Customs administration I/11.

18 Annex I to HC0002E1b Annex to SP0124E1 and must ensure that the human and financial resources allocated to Customs are commensurate with its potential contribution to the achievement of national development objectives. Experience demonstrates, however, that this is often not the case. Customs administrations in many developing and least-developed countries are under-resourced, poorly equipped, and inadequately remunerated. Moreover, governments rarely place sufficient priority on Customs reform and modernization during consultations and negotiations with international financial institutions and donor organizations. As donor organizations lend money to governments and not to individuals or international organizations, it is vital that governments build convincing business cases for capacity building in Customs and actively seek the necessary funding support. Governments are also uniquely positioned to direct and co-ordinate the capacity building efforts of other stakeholders, including the donor community. In some cases, governments have been content to allow donors or capacity building providers to dictate the direction of reform and modernization efforts and have shopped around for assistance rather than taking a strategic approach to obtaining support Customs As Customs in most countries is the key agency associated with border control and facilitation, it has the responsibility to provide value-for-money services to the community it serves. Customs understands the environment in which it operates and has day-to-day contact with other government agencies and the private sector. Customs administrations should take a strategic approach to identifying their capacity building needs and should take responsibility for setting the direction and content of their improvement programmes. Many capacity building initiatives require a relatively small amount of money and can be accommodated within existing human and financial resources without necessarily resorting to external funding or assistance. Customs administrations should also allocate appropriate resources to support productive capacity building initiatives and be more active in promoting their developmental needs to government and other stakeholders. Moreover, Customs administrations should make better use of capacity building offered by donor organizations to ensure improvements achieved are maintained and further developed The Private Sector The private sector has an important role to play in capacity building. In many cases, private sector corporations are the prime beneficiaries of any improvements achieved through capacity building initiatives in Customs. For most businesses, speed of delivery, predictability and a secure supply chain are vital for their business survival. As such, the private sector should use its influence with governments to direct necessary resources to Customs reform and peak industry bodies to generate and sustain support for sound capacity building initiatives. Likewise, it should participate, wherever possible, in such activities. Where appropriate, the private sector could also augment capacity building assistance provided by donors either through the provision of training and technical assistance or via direct funding support. In order to develop viable mechanisms for private sector involvement, individual corporations and relevant industry bodies will need to take a long-term view and avoid narrow sectional interests. A sound and fully functioning Customs administration is an asset to all stakeholders, and opportunities to participate in reform and modernization initiatives should be viewed from this perspective. The private sector also has a responsibility to support Customs capacity building efforts by participating in consultative fora and by adopting modern and ethical business standards. I/12.

19 Annex I to HC0002E1b Annex to SP0124E International Organizations and Financial Institutions International organizations have, and will continue to play, an important role in supporting the capacity building efforts of Customs administrations. International organizations are able to generate global agreement to international agreements and standards and can support such efforts through targeted training and technical assistance programmes. Organizations such as the WTO, the OECD, UNCTAD, the UNDP and the World Economic Forum are all active in formulating and delivering a range of Customs-related capacity building initiatives. In addition, peak private sector bodies such as the International Chamber of Commerce have been active in establishing recommendations for modern and effective Customs administration. International financial institutions such as the World Bank and the International Monetary Fund play a vitally important role in the formulation and provision of capacity building assistance. Many developing and least-developed countries do not have the financial or human resource capabilities necessary to undertake comprehensive capacity building programmes. International and regional financial institutions can play an important role by providing guidance and access to appropriate funding for productive capacity building initiatives. Increasingly, international financial institutions are working together through initiatives such as the Integrated Framework for Trade-Related Technical Assistance to Least-Developed Countries to ensure assistance is well designed and effectively targeted to meet key developmental needs. Likewise, the Global Facilitation Partnership for Transportation and Trade (GFP) is a key World Bank programme aimed at bringing together all interested parties, public and private, national and international, to achieve significant improvements in transport and trade facilitation. The Partners will work together to design and undertake specific programmes towards meeting this objective, making use of their respective comparative advantage in the subject matter in a co-ordinated fashion. 13 It is important for international financial institutions to recognize the critical value of Customs to the economic, social, fiscal and trade ambitions of nations and to emphasize Customs as a key component of their country-specific development programmes Regional Organizations Regional development banks provide guidance and funding to assist Customs administrations to undertake various capacity building activities. In many cases, the assistance that is provided is directly related to complementary regional initiatives. Assistance is generally provided to Customs administrations through bilateral partners, international organizations or private sector consultants. For example, the WCO has been involved in capacity building programmes funded by the Asian Development Bank and the Inter-American Development Bank where its Customs-related expertise is able to add value to regional initiatives. Likewise, the WCO has worked in close cooperation with organizations such as the APEC Sub-Committee on Customs Procedures and is currently pursuing closer relationships with a range of organizations, including COMESA, ASEAN and the Commonwealth Secretariat Bilateral Donors National development assistance agencies also provide a valuable source of funding and technical assistance for capacity building in Customs, particularly in cases where the recipient country enjoys close historical ties and/or is of strategic importance to the donor country. Increasingly, national agencies are undertaking joint projects with international organizations and international 13 The WCO has been working with the World Bank in enhancing GFP activities with more focus on Customs. I/13.

20 Annex I to HC0002E1b Annex to SP0124E1 financial institutions to ensure limited resources are used most effectively. Agencies such as the United States Agency for International Development (USAID), the UK Department for International Development (DFID), The Japan International Co-operation Agency (JICA), the Agence Française de Développement, and the national agencies of Germany, Denmark, Sweden, Korea, the Netherlands, Australia and New Zealand have been generous in funding Customs-related activities in the past WCO Member Administrations In many cases, successful capacity building programmes in Customs rely heavily on access to highly skilled and qualified Customs expertise. While some of this expertise is available through international organizations such as the WCO and through the private sector, the pool of available personnel is extremely limited. In order to adequately resource capacity building initiatives undertaken in developing and least-developed countries, the continued contribution of developed country Member administrations is required. The WCO Capacity Building Diagnostic Framework will guide national experts and thus serve as quality control of advisory service. In addition, Member administrations will need to continue to be actively involved in supporting bilateral assistance programmes and providing policy guidance to the WCO Secretariat. 7. The Role of the WCO The WCO s mission is to enhance the efficiency and effectiveness of Customs administrations, thereby assisting them to contribute successfully to national development goals particularly in the areas of trade facilitation, revenue collection, community protection and national security. In order to fulfil this mission, the WCO pursues three main capacity building strategies : Firstly, through its conventions, other instruments and best-practice approaches the WCO provides an internationally agreed series of models for effective Customs administration. Secondly, the WCO provides a forum for international co-operation and the exchange of information and experience between Member administrations, other international organizations and the private sector. Thirdly, through its training and technical assistance programme it provides a range of high-quality capacity-building opportunities in areas of organizational competence. In addition, the WCO is actively involved in : improving the quality of, and access to, its high-quality training and technical assistance programmes through the development and implementation of an e-learning-based distance education programme; 14 promoting the importance of efficient and effective Customs administrations at various international fora and to key donor organizations; 15 re-developing its Customs Reform and Modernization programme to make it more accessible, flexible and responsive to WCO Members needs; 16 and 14 The first e-learning module on Customs control will be ready by the end of June The WCO has energetically stressed the importance of Customs in economic and social development and the need for capacity building at various international fora, including the WTO, the OECD, various UN agencies, and non-governmental organizations such as the World Economic Forum. It has also vigorously advocated the case for Customs reform to the IMF, the World Bank, regional development banks (including the Asian Development Bank and the Inter-American Development Bank) and other donor organizations, including the Commonwealth Secretariat. I/14.

21 Annex I to HC0002E1b Annex to SP0124E1 improving the level of co-operation and coherence in the delivery of international capacity building efforts; 17 identifying opportunities where delivery of capacity building activities can be outsourced to Member administrations and, where appropriate, private sector consultants; exploring means of better co-ordinating capacity building assistance through the development of appropriate regional mechanisms. 18 In addition, based on the need to focus its limited resources on those areas of most strategic value, the WCO is developing a comprehensive Customs Capacity Building Diagnostic Framework which will serve as a key tool in identifying needs and in developing effective capacity building programmes in Member administrations. An outline of the Diagnostic Framework follows. 8. Funding Options Given the scale and scope of the capacity building needs and challenges identified in this paper, it is clear that the quantum of financial support required to achieve meaningful and sustainable capacity building results will be significant. The international Customs community has identified only four possible sources of funding support for capacity building initiatives. These are : Self funding by national governments; Loans and grants from international and regional financial institutions and other donor organizations; Voluntary contributions by private sector corporations and peak industry bodies; and User fees or service charges. All of the above sources of funding for capacity building have advantages and disadvantages, some of which are summarized below. Funding Sources Advantages Disadvantages Self Funding High level of local ownership No conditionality applied by external agencies High degree of flexibility in Inadequate quantum of support Lack of sustainability Vulnerable to policy and political changes 16 The WCO High-Level Working Group on Capacity Building has intensively reviewed the past WCO capacity building activities, including the Customs and Modernization programme. This resulted in the development of a Customs Capacity Building Diagnostic Framework by the Secretariat (see Section 9 below). 17 The WCO has delivered joint technical assistance with the WTO and the Commonwealth Secretariat. It has been working as executing agency for the UNDCP African Seaport Project and the USAID Programme of Technical Assistance in Valuation for Sub-Saharan Countries. In addition to providing experts to the diagnostic missions for the Integrated Framework (see footnote 8 above), the WCO is currently working with the World Bank on enhancing the GFP activities with more focus on Customs capacity building (see footnote 10 above). It is also discussing the delivery of country-specific capacity building activities for Customs with the Commonwealth Secretariat. 18 Taking into account the increased importance of regional trade arrangements, the WCO is developing a regional approach for capacity building, including assistance for regional groups to base their Customs procedures on international standards. I/15.

22 Annex I to HC0002E1b Annex to SP0124E1 Funding Sources Advantages Disadvantages utilization of funding Limited external monitoring Loans from Donors Continuity of funding External monitoring of performance Access to external advice and guidance Debt to repay Sometimes lengthy negotiation process Conditionality applied Limited local ownership Limited flexibility in utilization of funding Grants from Donors No debt incurred Particularly useful for short-term projects or infrastructure acquisition Limited flexibility in utilization of funding Lack of predictability and sustainability Private Sector Contributions Contributes to shared sense of responsibility and potential for partnership approach Potential for conflicts of interest Lack of predictability and sustainability User Fees and Charges Predictable and sustainable funding Benefits of improved performance channelled directly to beneficiaries Increased cost to traders Cost of administration of scheme Potential for income to be diverted to national budget In an attempt to identify potential sources of funding to assist Member administrations to fund the capacity building requirements associated with implementation of the WCO Resolution on Security and Facilitation of the International Trade Supply Chain, the WCO Secretariat recently commissioned a comprehensive research study into potential funding mechanisms. 19 The report concludes that there are three main sources of funding : payment by the users; private sources; and public sources. It outlines the advantages and disadvantages of each and provides a number of alternative scenarios that offer potential for long-term financing. It also identifies the potential benefits to be gained from establishing national and/or international development funds based on the collection of fees associated with individual container movements. The proposals outlined in the research study deserve further investigation and will be analysed by the WCO Secretariat and relevant working groups in the coming months. At the WCO level, there is significant potential to expand the current level of voluntary contributions to the Customs Co-operation Fund (CCF). To facilitate this process, the WCO is currently developing a range of marketing and promotion products and will emphazise the importance of the Fund in bilaterial discussions with Member administrations. Moreover, it is examining the feasibility of establishing a regional approach to capacity building designed to increase the quantum of funding provided at the regional level. 19 Dulbecco, P. and Laporte, B. How to Finance the Security of the International Supply Chain? A Global Approach for the Public Good, Centre d études et de recherches sur le développement international, April I/16.

23 Annex I to HC0002E1b Annex to SP0124E1 9. Developing a Customs Capacity Building Diagnostic Framework In recent years, governments, donors and Member administrations have increasingly looked to the WCO to provide sound advice and direction on the diagnosis of Customs needs and the content, focus and methodologies needed to effect real and sustainable improvement in the Customs administrations of the developing world. In effect, they have been looking to the WCO to provide a comprehensive guide or road map on how to achieve effective modernization of Customs administrations in the developing world. Fortunately, unlike some other areas of public administration, the basic building blocks for improving the efficiency and effectiveness of Customs already exist. The WCO maintains a range of internationally agreed conventions, instruments and best-practice approaches that collectively provide a sound blueprint for modern Customs administration. The International Convention on the Simplification and Harmonization of Customs Procedures (Revised Kyoto Convention), the Harmonized System Convention and the Arusha Declaration on Integrity in Customs are examples of the internationally agreed standards that are currently available to guide sound capacity building initiatives. However, there is currently no standardized and comprehensive approach available for identifying and addressing Customs capacity building needs. Likewise, many previous efforts have been narrow in focus and have had little linkage to WCO instruments, tools and best-practice approaches. This had led to poorly diagnosed and conceived capacity building interventions. The WCO s Customs Capacity Building Diagnostic Framework brings together in one clear and concise document all key elements and foundations necessary to establish an efficient and effective Customs administration. It provides a comprehensive and standardized methodology for the diagnosis of needs and the design and development of appropriate capacity building programmes. It promotes WCO conventions, instruments and best-practice approaches, as well as a range of relevant materials provided by other organizations. 20 It is designed to be a practical capacity building tool and will be of use to WCO officials, Member administrations, donor organizations and anyone involved in designing and implementing Customs-related capacity building initiatives. It includes a readiness assessment tool and a series of ten chapters that cover all the core components of a comprehensive capacity building programme. The ten components cover : Leadership and strategic planning Information technology Customs systems and procedures External co-operation and partnership Organizational and institutional framework Change management and continuous improvement Legal framework Good governance Resources (human, financial and physical) Management information and statistics 20 For example, the content of the ICC Customs Guidelines and Columbus Declaration provide some useful input into the Framework. I/17.

24 Annex I to HC0002E1b Annex to SP0124E1 The Diagnostic Framework includes a comprehensive assessment tool or checklist for each of the above-described components. In addition, it includes practical guidance on how to conduct diagnostic assessments ensuring maximum objectivity, as well as the active participation of stakeholders including local Customs officials. The Framework is designed to identify individual developmental strategies that are appropriate to the social, cultural, political and economic needs and circumstances of recipient Customs administrations. To ensure that the Diagnostic Framework leads to the design, development and implementation of sound programmes, it includes guidelines on how to design, implement and monitor capacity building initiatives. The guidelines include specific sections on : Preparation of action plans, project proposals and costing schedules; Identification of project objectives, input/activities, outputs, performance indicators, assumptions, etc.; development of a logical framework; implementation advice including input/activity sequencing, project management, stakeholder participation and programme support; and monitoring and evaluation guidelines. The Customs Capacity Building Diagnostic Framework has already been completed and is available in draft form. It will continue to be refined and developed as a result of feedback obtained during a series of pilot tests that have been conducted in recent months. 10. Recommendations for Change Based on the conclusions of this Customs Capacity Building Strategy, the international Customs community strongly recommends that future capacity building initiatives directed at improving the efficiency and effectiveness of Customs administrations be based on the following recommendations : Governments, international organizations, regional and international financial institutions and donor agencies recognize the significant contribution that Customs administrations make to national development objectives and commit appropriate human, financial and technical resources to comprehensive capacity building initiatives in Customs administrations around the world. Governments take primary responsibility for the initiation, direction and resourcing of capacity building efforts. Governments maintain their commitment in the longer term and take responsibility for ensuring the sustainability of capacity building initiatives. Greater attention be paid to the accurate diagnosis and analysis of capacity building needs and interventions be tailored to the cultural, political, social and economic situation of individual Customs administrations. The WCO should finalize its Capacity Building Diagnostic Framework as soon as is practically possible and make it available to the international Customs community. Greater attention be paid to improving the selection and competencies of Customs specialists engaged in the conduct of diagnostic study missions and in the design of capacity building interventions. Action will be required by the WCO, national Customs administrations and a range of organizations involved in sourcing Customs specialists for capacity building missions. The WCO could play an important role by ensuring Customs specialists are adequately skilled in the use of its Diagnostic Framework and by using its extensive Member network to source appropriately skilled and experienced Customs specialists. I/18.

25 Annex I to HC0002E1b Annex to SP0124E1 Donor organizations and the international Customs community commit to achieving a greater degree of co-ordination and coherence in the delivery of capacity building assistance. To achieve significant improvement in this area, Member governments and Customs administrations must take a more active and strategic approach to meeting their capacity building needs. Governments must avoid the temptation to accept donor assistance simply because it is available and play a more strategic and positive role in determining the needs and shaping the direction of the reform efforts. Existing vehicles for international and inter-agency co-operation such as the Integrated Framework for Trade-Related Assistance to Least-Developed Countries and the Global Facilitation Partnership for Transport and Trade, should be supported by all members of the international Customs community to ensure greater coherence in the identification of needs and the deployment of appropriate capacity building expertise and resources. Greater use be made of existing regional organizations and fora to ensure the cost-effective deployment of scarce capacity building resources. Where possible, capacity building interventions conducted on a regional or sub-regional basis should complement or be aligned with existing programmes and developmental opportunities. The modalities for such an approach will have to be established. However, the WCO s regional network may provide an appropriate vehicle for undertaking such a co-ordination role. The WCO should conduct a feasibility study into the efficacy of developing a regional approach to capacity building. Customs personnel in recipient administrations be actively involved in the formulation, design, implementation, monitoring and evaluation of capacity building initiatives. Donor agencies must specify the level of participation required by local Customs personnel, and recipient administrations must be prepared to allocate high-quality personnel to such work. Donor expectations should be realistic and calibrated to take account of the scale and scope of the problems to be overcome and the quantum of resources allocated to the task. To ensure adequate sustainability of any improvements achieved, greater attention needs to be paid to non-customs technical issues, such as management, administration, strategic planning and change management. In addition, capacity building initiatives need to incorporate significantly longer timeframes, make better provision for post-implementation support, include adequate provision for in-country advisors and identify suitable long-term financing arrangements, particularly for information technology acquisitions. All stakeholders including governments, Customs administrations, the private sector, regional and international organizations, donor agencies and the WCO commit to a new and more effective approach to undertaking capacity building in Customs based on the observations and conclusions described in this Strategy. In order to achieve a significant improvement in quality and quantity of capacity building support provided to the Customs administrations of the developing world, each stakeholder will need to commit to adopting the recommendations described above. 11. Conclusions Customs administrations around the world play a vitally important role in the implementation of a range of critically important government policies, and contribute to the achievement of a number of national development objectives. Without an efficient and effective national Customs administration, governments will not be able to meet their policy objectives in respect to revenue I/19.

26 Annex I to HC0002E1b Annex to SP0124E1 collection, trade facilitation, trade statistics, and the protection of society from a range of threats to national security. Well-designed and effectively targeted capacity building investments focussed on improving the efficiency and effectiveness of Customs administrations can deliver significant dividends for governments and donors alike, and allow developing countries to take advantage of the many development opportunities provided by the expanding global trading system. To improve the quality and relevance of Customs capacity building initiatives, governments, Customs administrations, donors and all sections of the international Customs community need to draw lessons from the successes and failures of the past and commit to a range of new approaches and practical strategies. The key lessons to emerge, together with suggestions for improvements in the design, development and implementation of capacity building initiatives, are articulated in this document. The WCO s Customs Capacity Building Strategy is designed to provide a pragmatic response to identifying and addressing the capacity building needs of Customs administrations in the developing world. Likewise, the WCO s internationally agreed conventions, instruments and bestpractice approaches provide the building blocks necessary for sound Customs administration. The much-needed road map is therefore now available for undertaking successful capacity building initiatives in Customs. It is now up to all stakeholders to commit themselves to the practical implementation of the principles and suggested actions contained in this strategy. x x x I/20.

27 Annex II to HC0002E1b Annex II to SC0090E1a CUSTOMS IN THE 21 ST CENTURY Enhancing Growth and Development through Trade Facilitation and Border Security June 2008 II.

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29 Annex II to HC0002E1b Annex II to SC0090E1a INTRODUCTION 1. During the 50 th Anniversary of the World Customs Organization, in 2002, the leaders of national Customs administrations reflected on the main issues impacting on the effective and efficient functioning of Customs in the future. In the first 8 years of the 21 st Century, Customs has been faced with considerable and at times contradictory demands arising from the globalization of trade. On the one hand, there is a need for effective security and control of international supply chains while on the other hand, there are increasing demands for greater facilitation of legitimate trade. 2. The leaders of the world s Customs administrations recognize their responsibilities to develop a new strategic perspective and policies that will shape the role of Customs in the 21 st Century. A blueprint for the management of trade and borders and the role of Customs should embody ambitious aspirations and yet be balanced by pragmatism. The challenges are many: the globalization of business and trade; development and poverty reduction; complex new governance rules; international terrorism; environmental protection; and the increase in trans-national threats. Equally, the opportunities for bold, proactive and innovative responses are just as numerous: a global Customs network; better management of borders; a strategic framework with globally beneficial objectives; a deepening Customs understanding of supply chains and their management; leveraging new technology; and the strengthening of Customs partnerships not only with trade but also with other border, law enforcement and other relevant government agencies. 3. Taking advantage of these opportunities will enable Customs to protect the fiscal and financial interests of the state, to protect national economies from illicit movement of goods, to support the international trading system by creating level playing fields for business, to enhance national competitiveness, to facilitate legitimate trade, and to protect society. 4. The benefits of an adaptable, strategically focused Customs administration are immense and include reduced compliance costs for legitimate traders, more effective and efficient targeting of high-risk movements, and greater confidence and mutual recognition among Customs administrations of each other s programmes and controls. FAST-CHANGING LANDSCAPE 5. International trade is a key driver for economic growth and development. It raises living standards in both developed and developing countries, contributes to the reduction of poverty as well as creates a more stable, secure and peaceful world. International trade is governed by the rules of the regional and multilateral trading systems, preferential trade arrangements and national governments. New developments are driven by a combination of factors including fast-evolving information and communications technology (ICT), advances in transportation methods and trade liberalization. 6. The global trade landscape is complex, fluid and highly sensitive to external drivers. These include: (a) (b) Increased volumes and complexities of international trade: International trade has increased annually by 8 % from 2002 to At the same time, there has been a proliferation of regional trade agreements and accompanying complex preferential rules of origin; New business models and requirements: Just-in-time distribution, low inventory retention and multi-modal transport are resulting in innovative methods of moving goods across borders and increase pressures on supply chains. Business also II/1.

30 Annex II to HC0002E1b Annex II to SC0090E1a demands protection from unfair international trading practices such as the smuggling of goods, under-invoicing, origin fraud, tariff misclassification and IPR infringements; (c) (d) (e) (f) (g) Increased security threats and organized crime: International trade supply chains are vulnerable to exploitation by terrorist groups. A disruption of supply chains by terrorists could bring international trade to a standstill. Organized crime syndicates operate through fluid networks and engage in illegal activities such as the evasion and avoidance of duties and taxes; cross-border fiscal fraud; the smuggling of drugs, dangerous, harmful and prohibited goods; money laundering; and trade in counterfeit goods; A new approach to the border : New measures are emerging for the end-to-end management of the movement of goods across borders such as the WCO SAFE Framework of Standards to Secure and Facilitate Global Trade and other initiatives; Demands from society: Society regards the smuggling of goods, especially that of prohibited and dangerous goods, such as weapons and narcotics, across borders as a serious threat. Society expects Customs to ensure that goods meet certain quality and safety standards. Society is also concerned with threats to public health, its fauna and flora, as well as the environment; New trading patterns: Approximately 50 % of world trade takes place between connected parties; and Increase in revenue fraud: There is an increase in threats related to duty and tax evasion and avoidance. CHALLENGES FOR GOVERNMENTS The central challenge that states face is to ensure that globalization becomes a positive force for all the world s people Recent developments have created new demands and perspectives on the role of the modern state. They have also resulted in a recognition of the collective responsibility of states to build a more peaceful, prosperous and just world, as nations and societies become increasingly interconnected and interdependent. Global challenges transcend borders and demand global responses. In addition to cooperation at a global level, states are also increasing cooperation at regional level by establishing and developing Customs unions, free trade areas (FTAs) and economic partnership agreements (EPAs). 8. The strategic drivers and new trans-national and national challenges have increased the demands on, and the responsibilities of, states in the 21 st Century. According to the UN, globalization does not reduce but rather redefines the role of the state and the necessary state responses at the national, regional and international levels. Some of the key responsibilities of states include: (a) Promoting socio-economic development: Ensuring the proper management of social and economic development by developing and implementing appropriate socioeconomic policies; 21 UN Millennium Declaration. II/2.

31 Annex II to HC0002E1b Annex II to SC0090E1a (b) (c) (d) (e) Creating the conditions for economic growth: Ensuring a level playing field and nurturing an efficient international trading system, which is critical to economic growth and the collection of state revenues; Controlling borders: Ensuring secure borders is one of the oldest functions of the state. Carrying out this responsibility in a very open world is more important and challenging than ever. States are recognizing that international trade and economic integration raise new global security challenges that have to be addressed internationally so that common solutions can be developed; Providing security: The concept of providing security, also one of the core functions of the state, has expanded from the traditional notion of military and political national security to also include national economic security; and Protecting citizens: Protecting citizens against threats such as contaminated food, unsafe toys and consumer products, fake medicines and other counterfeit products also provide new imperatives for Customs. 9. Governments require agencies of the state, including Customs, to be service-oriented and meet the expectations of societies and businesses. In other words, Customs administrations need to ensure the performance of their tasks, while listening to the expectations of their stakeholders. 21 ST CENTURY CUSTOMS: A NEW DYNAMIC ROLE 10. The role of Customs is to control the movement of goods and thereby secure the state s interests and safeguard revenue collection. The key aims have been to ensure compliance with state policies and laws applicable to the cross-border movement of goods, to combat smuggling, and to secure borders, whilst ensuring the facilitation of legitimate trade. 11. Although much of this role will remain the same, the responsibilities in relation to the international movement of goods have broadened, and will continue to broaden, from the traditional role of collecting duties and taxes on international trade in support of the fiscus, to include executing controls and other activities that serve a wider set of government objectives. The rationale for Customs performing an extended role derives from the following: the fact that goods crossing the border are subject to Customs supervision; the indepth specialist skills that Customs have that are required to perform these roles; and from the general understanding and know-how of Customs with respect to international trade, supply chains and traders. Furthermore, Customs administrations not only administer trade but also possess the unique know-how and positioning to manage crises associated with the cross-border movement of goods. 12. The common globally accepted mission of Customs is to develop and implement an integrated set of policies and procedures that ensure increased safety and security, as well as effective trade facilitation and revenue collection. This is achieved through efficient and effective use of tools and information in dealing with the international movement of goods, conveyances and people connected with the goods. 13. The objectives that underpin the mission are: (a) (b) Promoting certainty, predictability and security of the international movement of goods and people accompanying goods by establishing clear and precise standards; Eliminating duplication and delays in international supply chains such as multiple reporting requirements and inspections; II/3.

32 Annex II to HC0002E1b Annex II to SC0090E1a (c) (d) (e) Supporting the international trading system by creating level playing fields for business at global, regional and national levels; Strengthening cooperation between Customs administrations as well as between Customs and business and Customs and other government agencies by creating meaningful and beneficial partnerships; and Providing Customs administrations with the capacity to promote regulatory compliance in a manner that facilitates legitimate trade. 14. Globalization and the other strategic drivers necessitate a new approach to managing the movement of goods through international trade supply chains and across borders. This requires the development of a New Strategic Direction for Customs. The building blocks for the New Strategic Direction are: (a) Globally networked Customs: The new challenges of the 21 st Century demand a new concept of Customs-to-Customs cooperation. There is a need for closer real-time collaboration between Customs administrations and between Customs and business in facilitating legitimate trade and undertaking Customs controls. The new requirement is to create, in partnership between the various stakeholders of the public and the private sectors, a global Customs network in support of the international trading system. The vision of this network implies the creation of an international e-customs network that will ensure seamless, real-time and paperless flows of information and connectivity. Mutual recognition is an important enabler. This includes mutual recognition of Customs controls and Authorized Economic Operator (AEO) programmes. The concept of networked Customs is critical for the 21 st Century model of managing seamless end-to-end international supply chains. End-to-end supply chain management enables risks to be assessed in more depth and managed earlier where necessary, it reduces the need to intervene with goods in the choke point of the port of arrival, and it allows for the tracking and tracing of goods throughout supply chains. The basic operation relies on secure, real-time exchange of information between business and Customs and between the Customs administrations in a supply chain starting with the export administration. This will require: (i) (ii) (iii) (iv) (v) Internationally standardized data requirements for export, transit and import and the implementation of the WCO Unique Consignment Reference number as part of a Cross-Border Data Reference Model; Interconnected systems and aligned Customs databases to enable the electronic exchange of data between Customs administrations as early as possible in the international movement of goods; Mutual recognition and coordination protocols between exporting, transit and importing administrations to eliminate unnecessary duplication of controls in international supply chains; Standards to enable the development of a system of mutual recognition for AEOs; and A set of rules governing the exchange of information between Customs administrations, including rules on data protection. II/4.

33 Annex II to HC0002E1b Annex II to SC0090E1a (b) Better coordinated border management: This entails coordination and cooperation among all the relevant authorities and agencies involved in border security and regulatory requirements that apply to passengers, goods and conveyances that are moved across borders. Governments also need to explore more effective solutions to border management. The establishment of better coordinated border management for the cross-border movement of goods requires: (i) (ii) The recognition of Customs or the agency responsible for the Customs function as the lead front-line administration at national borders for controlling the movement of goods. According to the UN Trade Facilitation Network, Customs administrations are usually best suited to develop integrated procedures for processing goods at points of entry; and The introduction of the electronic Single Window concept that allows a trader to provide all necessary information and documentation once to the designated agency that, in turn, distributes the information to all relevant agencies. (c) Intelligence-driven risk management: The expanding responsibilities and opportunities facing Customs administrations require a more sophisticated understanding of the risk continuum. It is well understood that scarce resources need to be targeted to the higher end of the risk continuum. The challenges facing Customs administrations are two-fold: how best to apply the rapidly expanding body of knowledge of risk management to identity and mitigate risk at the operational level, and how to apply this knowledge of risk management beyond the operational level and in the management of Customs administrations. The key to this will be the building of feedback learning loops that will allow Customs administrations to integrate risk-related activities and to learn from past decisions to enable them to build an organization that is forward-looking, with more sophisticated predictive capacity, rather than being merely responsive. (d) (e) (f) (g) Customs-Trade partnership: Customs in the 21 st Century should enter into strategic pacts with trusted economic operators. Customs needs to understand the concerns of business, while business needs to know the requirements of Customs. Most importantly, there is a need to translate this relationship into a partnership that results in mutually beneficial outcomes. Implementation of modern working methods, procedures and techniques: Demands regarding the rapid movement of goods, combined with complex regulatory requirements, require modern innovative approaches. These include audit-based controls undertaken away from the border, moving from transaction-based controls alone to using systems-based controls where the level of risk allows, as well as moving away from paper-based systems. There is also a need to review existing procedures on the basis of international conventions (including the WCO Revised Kyoto Convention) and international best practice. Enabling technology and tools: Customs must take advantage of new and emerging technologies to enhance, amongst others, processing, risk management, intelligence and non-intrusive detection. Enabling powers: In order to address these challenges, Customs administrations require appropriate legislative provisions that strengthen enforcement powers, the provision of advance information and the sharing of information domestically and internationally. These powers are necessary, in particular, in order to combat organized crime more effectively. More needs to be done to increase the safety of Customs officers. II/5.

34 Annex II to HC0002E1b Annex II to SC0090E1a (h) A professional, knowledge-based service culture: The future orientation of Customs requires moving towards a knowledge-based and customer-orientated model. Staff competencies need to support timely customer-focused processes and services that minimize the administrative burden on legitimate trade. Training and organizational culture should support high levels of integrity, demonstrating consistency, transparency, honesty and fairness. Effective change management and leadership skills also need to be developed. (i) (j) Capacity building: Customs administrations need to ensure that they have the capacity and skills across all dimensions of the operating model to perform all Customs functions most efficiently and effectively. It also goes without saying that the concept of Networked Customs relies on professional and competent Customs administrations, and that intensified and focused capacity building efforts are required to achieve this objective. The Columbus Programme of the WCO is an ambitious international effort to build Customs capacity. Some of the challenges that need to be addressed include how to manage scarce resources to deliver sustainable capacity building, how to promote effective performance criteria, monitoring and follow-up, how to avoid duplication of efforts and how to manage impediments in the recipient country. Leadership from both developed and developing-country Customs administrations as well as a true partnership are critical to ensure sustainable capacity building. Integrity: The fight against corruption remains an important task that should be undertaken over the years to come. The WCO Arusha Declaration will remain the reference document for all Customs administrations. All the efforts of the Columbus Programme could be undermined and even eliminated without integrity. FUTURE ROLE OF THE WCO 15. The WCO is an inter-governmental organization representing its Members at global level. In order to address the challenges facing Customs, the WCO needs a new supportive strategy that includes: (a) Strengthening the value proposition offered by Customs to support the international trading system, facilitate international trade and enhance safety and security at the border by: (i) (ii) (iii) Developing an improved understanding of the challenges confronting Customs and formulating options to address these challenges; Creating awareness amongst stakeholders of the new role and responsibilities of Customs; and Developing and maintaining standards and instruments that are responsive to the needs of WCO Members; (b) (c) Representing the Customs community s point of view at global level and strengthening relationships with other international organizations by establishing and maintaining high-level and technical relationships with relevant international organizations (e.g. the WTO, UN and specialized agencies, IMO, the World Bank and the IMF) to promote Customs and the role of the WCO; Providing sustainable Customs capabilities through capacity building: II/6.

35 Annex II to HC0002E1b Annex II to SC0090E1a (i) (ii) Developing a clear line of sight between the global Customs mission and implementation at national level; and Developing efficient, effective and responsive Customs administrations that can execute a wide variety of border and supply chain controls; and (d) Repositioning the WCO Secretariat to support its Members by: (i) (ii) (iii) (iv) Building a policy, research and strategy capacity that identifies and disseminates high quality analysis of global trends and developments; Supporting existing and introducing new mechanisms for good governance and accountability, including governance in relation to regional structures; Promoting implementation of WCO instruments by monitoring implementation and compliance by Members and developing a better understanding of implementation challenges; and Reviewing revenue options to sustain WCO operations. CONCLUSION 16. The fast-changing global environment demands that governments and Customs leaders respond to these changes. The challenges are formidable and it is imperative for the international trading system that they are addressed. 17. This visionary statement by global Customs leaders is aimed at meeting the requirements of governments, citizens and other stakeholders. The New Strategic Direction for Customs in the 21 st Century foresees Customs administrations playing a new and dynamic role in providing their governments with a unique set of capabilities to achieve their respective programmes. For decades to come, Customs will remain a vital force for security and the enhancement of the economic well-being of nations. The WCO has already created an important platform through the adoption of the SAFE Framework of Standards and a range of international instruments for sharing information, increasing standardization of the regulatory requirements of managing international trade, strengthening risk management and detecting fraud and other threats. There is a need to build on this by developing further standards for combating counterfeiting and other forms of illicit activity. 18. An indispensable pillar of any global ambition will always be the development of the capacity of developing states and societies. The WCO has developed the most comprehensive programme to date for sustainable capacity building of Customs administrations world-wide. It epitomizes sincere partnership and must reflect the inextricable link between developed and developing countries and their economies. This partnership is based on a new understanding of global interdependence and must foster a spirit of solidarity, mutual help and respect and active cooperation. x x x II/7.

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37 Annex III to Doc. HC0002E1b Annex I to Doc. SP0273E1a The Capacity Building Operational Strategy and Action Plan Overview of the World Customs Organization III.