TRANSIT AND THE SPECIAL CASE OF LANDLOCKED COUNTRIES

TRANSIT AND THE SPECIAL CASE OF LANDLOCKED COUNTRIES 11 Jean François Arvis TABLE OF CONTENTS The Principles of Customs Transit Regimes 246 Description of a Typical Transit Operation 247 Major International Transit Procedures: The Transport International Routier 254 Transit Facilitation Institutions 259 Operational Conclusions 263 Further Reading 264 References 264 LIST OF TABLES 11.1 Transportation Costs from Main World Markets for Coastal and Landlocked Countries in Africa 245 11.2 General Provisions Applicable to Customs Transit as Codified by International Conventions 247 11.3 Transit Procedures without Facilitative Measures 249 LIST OF FIGURES 11.1 Typical Transit Operation 252 11.2 The Sequence of the TIR Operations 256 LIST OF BOXES 11.1 The Genesis of Transit Procedures in the Middle Ages 246 11.2 General Requirements with Respect to Seals 248 11.3 ASYCUDA Customs Operations in Zambia 254 11.4 The SafeTIR 258 11.5 The Unique Consignment Reference Number 259 11.6 TTFSE Indicators 263 Customs transit refers to customs procedures under which goods are transported through countries from one customs office to the other without paying import duties, domestic consumption taxes, or other charges normally due on imports. These procedures are intended to protect the revenues of Based on material prepared by ECORYS N.V. and supported by a grant from the government of the Netherlands. the country of transit, and to avoid the circumstance that goods intended for transit are leaked to the domestic market. Transit procedures should be simple so as not to generate excessive delays and costs. A poor transit system constitutes a major obstacle to trade. Many international organizations and transport facilitation forums have identified dysfunctional transit procedures as a major costincreasing factor for landlocked developing countries. 243

244 Customs Modernization Handbook Transit most frequently refers to road transportation to and from landlocked countries. However, it is useful to make a distinction between national transit and international transit. International transit refers to crossing national borders. National transit occurs when goods are transferred within national borders, from the first point of entry in the country to a location where customs procedures are undertaken (for example, dry ports or inland container depots). The two types of transit can be combined; in fact, this is a standard situation in many landlocked developing countries. Imported goods arriving at national borders from transit countries are most often shipped under national transit to the main economic centers. The basic customs mechanisms are similar in both cases; however, implementation is easier for the national transit link. Most transit takes place between landlocked countries and countries with access to the sea. In some instances, transit is simply from one country to the destination country, and borders are crossed only once. In other instances the transit shipment crosses several borders, as is the case when a shipment goes from the Netherlands to Russia, and crosses Germany and Poland. In other cases the cargo originates and ends up in the same territory, but transits through a second country. For example, commodities destined for the northeastern part of India that originate from other parts of India transit Bangladesh, as all alternative Indian routes are much longer. 1 When available, transit by rail offers a number of advantages, including simpler customs transit mechanisms. Rail transit is widely used in central Asia and is being rejuvenated in West Africa. This chapter focuses on international transit. The first section reviews the general principles of transit while the second section details a typical transit operation. The third section reviews existing major transit arrangements based on the Transport International Routier (TIR). The fourth section presents various institutions set up to facilitate transit, such as bilateral and regional agreements. The final section provides some operational conclusions. The Case of Landlocked Developing Countries Customs transit is only one part of a wider transaction range that includes many other participants 1. Lakshmanan (2001). and procedures cross-border vehicle regulations, visas for truck drivers, insurance, police controls, infrastructure quality, quality of available transport services, and the organization of the private trucking sector. Even if transit procedures are made effective and efficient, full trade facilitation will require that these issues be dealt with, too. The interdependence of these issues is well illustrated by the Action Plan issued by the International Ministerial Conference of Landlocked and Transit Developing Countries (August 2003) that notes, An integrated approach to trade and transport sector development is needed that takes into account social and economic aspects, as well as fiscal policy, as well as regulatory, procedural and institutional considerations (UN 2003 p. 4). These concerns will be returned to in the Implementation Issues section of this chapter. However, the customs component is the principal bottleneck of transit and is a source of major inefficiencies that affect many activities. Costs of Transit Operations The high logistics costs and the many developmental problems faced by the landlocked countries of the world can be attributed to their geographical fate. The importance of the transit facilitation agenda to these countries and to the countries of transit stem from these circumstances. 2 Indeed, out of 31 landlocked developing countries, 16 are classified as highly indebted poor countries (HIPC), while 20 out of the 50 least developed countries worldwide are landlocked. 3 Research conducted by the World Bank and other organizations 4 concludes that in typical landlocked countries, transport costs are 50 percent higher than in a typical coastal country, while the volume of trade is 60 percent lower. Furthermore, a substantial part of the cost may be attributed to border crossing. It is 2. Faye and others (2004). 3. The 31 landlocked countries are distributed as follows: Europe FYR Macedonia, Moldova; Asia/Caucasus Afghanistan, Armenia, Azerbaijan, Bhutan, Kazakhstan, Kyrgyz Republic, Lao PDR, Mongolia, Nepal, Tajikistan, Turkmenistan, Uzbekistan; Africa Botswana, Burkina Faso, Burundi, Central African Republic, Chad, Ethiopia, Lesotho, Malawi, Mali, Niger, Rwanda, Swaziland, Uganda, Zambia, Zimbabwe; South America Bolivia, Paraguay. 4. Limao and Venables (1999), Amjadi and Yeats (1995).

Transit and the Special Case of Landlocked Countries 245 TABLE 11.1 Transportation Costs from Main World Markets for Coastal and Landlocked Countries in Africa (in US$ by TEU) Origin Destination Country Northern Europe Japan North America Senegal $1,610 $4,100 n.a. Mali via Senegal $2,380 +48% $4,870 19% n.a. Ghana $1,815 $3,025 $2,460 Burkina Faso via Ghana $2,615 44% $3,835 27% $3,260 32% Cameroon $1,520 n.a. n.a. Central African Republic via Cameroon $2,560 68% n.a. n.a. Tanzania $1,380 $1,350 $2,000 Rwanda via Tanzania $3,880 181% $3,850 185% $4,500 125% Burundi via Tanzania $4,530 228% $4,500 233% $5,150 157% Zambia via Tanzania $3,250 135% $3,220 138% $3,870 93% n.a. not available. TEU twenty-foot equivalent unit. Note: Percentage refers to the increase in transportation costs for the landlocked country compared to its coastal country of transit. Source: UNCTAD 2003. estimated that the total cost of crossing a border in Africa is the same as the cost of inland transportation of over 1,000 miles (1,600 km) or the cost of 7,000 miles of sea transport (11,000 km). This places landlocked countries at a great disadvantage. In comparison, the cost of crossing a border in Western Europe is equivalent to only 100 miles of inland transportation. Table 11.1 compares the costs of importing a container into a few landlocked developing countries with the costs of importing the same container into the neighboring transit country. In many cases the costs for landlocked developing countries are significantly higher. The differences in absolute transportation costs between countries, as well as the increase in transportation costs induced by borders, reflect direct transportation and legitimate fees. However, these costs are increased substantially by cumbersome customs transit procedures excessive deposits, mandatory convoys, and gratuities to customs staff and police without which these transit operations cannot be undertaken. Transit operations often involve long delays that substantially add to the transportation cost. For instance, a recent trade audit for Chad estimated that, the trip from the sea gateway takes as long as a month, due in large part to procedural delays. 5 These induced costs include the financial charges related to the guarantees, the cost of transport equipment held up by these transit procedures, as well as the requirement to maintain high inventories. Poorly functioning transit operations also increase the vulnerability of transported goods to theft. 6 Transit procedures in landlocked countries affect exports and imports differently. 7 The transit costs are somewhat less for exports than for imports. Exports frequently leave the country without paying any duties, so countries are less worried about 5. These can include customs documentation processing; immigration, insurance, and transit bond procedures; security inspectionsandweighstations;phytosanitaryandtrafficchecks. AWorld Bank study conducted in July 2000 examined delays at selected Southern African border posts. Results showed that, for example, delays at Machipanda (Mozambique Zimbabwe) amounted to 24 hours, 36 hours at Beit-Bridge (South Africa Zimbabwe), 36 hours at Victoria Falls (Zimbabwe Zambia) and 24 hours at Kazungula (Botswana SouthAfrica). 6. Although not easy to quantify, it is estimated that within the Southern African Development Community (SADC) region, border delays cost between US$48 million and US$60 million per year in business revenues forgone (IntraAfrica Ltd. 2001). 7. Amjadi and Yeats (1995).

246 Customs Modernization Handbook revenue loss, thus making complex controls unnecessary. Also, exporters are fewer than importers and are better equipped to deal with transit logistics. Therefore, for the most part, customs transit is an import concern. The Principles of Customs Transit Regimes Transit regulation aims to facilitate the transport of goods through a customs territory without payment of duty and taxes in the countries of departure and transit. This is in accordance with the destination principle of taxation, which states that indirect taxes should only be levied in the country of consumption. Transit legislation should be provided in the Customs Code. In the absence of such codification, transit can be regulated by a binding agreement between customs and the different parties affected by the transit operation. The core provisions for customs transit have been around for centuries (box 11.1). They include the following: sealing of the shipment at the point where the transit operation is initiated providing financial security to customs in the country of transit, which will guarantee the payment of duties if the goods do not leave the country of transit using an efficient information system that allows certification that the transit goods have effectively left the country of departure so that the security can be released. Over the years, transit provisions have been codified by a number of international conventions, the most important being the General Agreement on Tariffs and Trade (GATT) agreements on transit, the World Customs Organization (WCO) Revised Kyoto Convention, and the 1982 Geneva Convention on the harmonization of frontier control of goods. Annex E, Section 1 of the Revised Kyoto Convention is about transit and focuses in detail on applicable customs formalities and seals, the essence of which is reflected in the section of this chapter titled Description of a Typical Transit Operation. Table 11.2 summarizes the key principles derived from these international instruments. The actual customs transit regimes across countries vary widely. In many countries and regions the basic transit arrangements, such as guarantees, are poorly implemented and greatly penalize landlocked countries. In other countries and regions, national transit provisions have evolved into harmonized and BOX 11.1 The Genesis of Transit Procedures in the Middle Ages Today s transit principles and procedures can be tracked back to the trading revolution that took place in preindustrial Europe in the 12th and 13th centuries. Seals, carnets, and guarantee systems were designed at that time in major trading centers. Compared to other regions of the world, Western Europe was fragmented politically, with a multiplicity of tolls and charges. The development of inland transportation between major cities stimulated creative solutions by the merchants and the rulers. In 12th century southwestern France, the local guilds from Bordeaux were worried that grain might be exported from the city where it was needed to other inland districts. There was, therefore, an export duty, which was differentiated according to the relations with the various jurandes of the region. The highest duty was retained until the arrival note was returned to the customs of departure with the signature of the customs of arrival. The carrier kept two copies, one of which was used to justify the legal right to carry the goods and to establish their origin. Customs brigades could inspect these notes along the way. Rapidly, merchants asked for an acquis à caution (the expression is still used) system, whereby merchants would purchase an underwritten guarantee instead of depositing the duty. In the Duchy of Milan in Northern Italy, a national transit system was available in the 14th century to facilitate the movement of imports inside the territory. Customs officers sealed shipments of goods at the main inland gateway of the duchy. Carnets were issued and could be produced at checkpoints during the journey. At the final destination, Milan or another city, seals were broken and duties paid. Local officers of the central office in Milan sent the information about shipments at the beginning and at the end of transit. Source: Adapted from Favier 1971.

Transit and the Special Case of Landlocked Countries 247 TABLE 11.2 General Provisions Applicable to Customs Transit as Codified by International Conventions Category General Provisions Freedom of transit Normally no technical standards control No distinction based on flag or origin ownership No unnecessary delays or restrictions. Customs diligences in transit Health and safety Security offered by the carrier Limitation of inspection (especially if covered by an international transit regime such as TIR) Exemption from customs duties Normally no escort of goods or itinerary No duty on accidentally lost merchandise No unnecessary delays or restrictions. In addition, when an international transit regime such as TIR is active The TIR regime applies to multimodal transport when some part of the journey is by road Flat rate bonds are used for transit goods No sanitary, veterinary, or phytosanitary inspections for goods in transit if no contamination risk. Declarant to choose the form of security in the framework offered by the legislation Customs should accept a general security from declarants who regularly declare goods in transit in their territory On completion of the transit operation, discharge of the security without delay. Source: UN/CEFACT and UNCTAD 2002. regionally integrated transit regimes. The best working example is the TIR, detailed in the Major International Transit Procedures section. Article V of the GATT provides the freedom of transit and determines that [t]here shall be freedom of transit through the territory of each Contracting Party, via the routes most convenient for international transit, for traffic in transit to or from the territory of other Contracting Parties. Further, it affirms that...exceptincases of failure to comply with applicable Customs laws and regulations, such traffic coming from or going to the territory of other contracting parties shall not be subject to any unnecessary delays or restrictions and shall be exempt from Customs duties and from all transit duties or other charges imposed in respect of transit, except charges for transportation or those commensurate with administrative expenses entailed by transit or with the cost of services (Grosdidier 2004, p. 16). The 1982 Geneva Convention covers transit facilitation and recognizes the importance of transit for the economic development of countries. It promotes joint customs processing through the simplification of customs procedures and the harmonization of border controls. It also draws heavily on the European experience. Article 10 applies to goods in transit: contracting parties are bound to provide simple and speedy treatment of goods in transit, especially for those traveling under an international transit procedure (Grosdidier 2004, p. 24). Parties should also facilitate, at the utmost, the transit of goods by containers and other vessels that provide adequate security. Articles 4 to 9 posit the harmonization of control and procedures. Contracting parties are bound to provide staff and facilities that are compatible with the traffic requirement (Article 5), organize joint border processing to ease controls (Article 7), and harmonize documentation (Article 9). Description of a Typical Transit Operation Transit procedures should permit the movement of goods from the point of entry, into the customs territory of the transit country, and finally to the country of destination, without the payment of import duties,

248 Customs Modernization Handbook BOX 11.2 General Requirements with Respect to Seals The seals and fastening shall: a) be strong and durable; b) be capable of being affixed easily and quickly; c) be capable of being readily checked and identified; d) not permit removal or undoing without breaking or tampering without leaving traces; e) not permit use of more than once, except seals intended for multiple use (e.g. electronic seals); f) be made as difficult as possible to copy or counterfeit. Source: Revised Kyoto Convention, Annex E1. www.wcoomd.org. taxes, and other charges due on importation, and without being subject to other import regulations, such as health and safety inspections, applicable in the transit country. In the absence of streamlined operations, the transit procedures can be daunting, as suggested in table 11.3. Three Key Elements of a Transit Operation Seals, guarantees, and efficient flow of documentation are the underpinnings of transit. Seals. There should be a physically secure mechanism so that goods present at the start of the transit operation will leave the transit country in the same quantity, form, and status. The best and easiest way to guarantee this is for customs to seal the truck 8 to ensure that goods cannot be removed from or added to the loading space of the truck without breaking this seal or leaving visible marks on the loading space of the truck. Seals and trucks approved for use in the transit operation must, therefore, conform to wellspecified criteria that guarantee their effective operation and security. New transport seals are under study and prototypes are already in use. One of these seals includes a microchip that is activated when broken. When activated, these chips transmit a signal, picked up via a satellite network, and send information to the organization or principal of the sealed container, including information on the location of the container. Although the prices of such automated seals are relatively high now, it is expected that prices will decrease in the coming years. The requirements for seals in the Revised Kyoto Convention are presented in box 11.2. Guarantees. Customs must be given a guarantee to cover the payments of import duties, taxes, and 8. For illustrative purposes trucks are focused on; however, the same applies for other modes of transport, such as wagons, barges, and so forth. In practice, the procedures may be simplified for trains. other charges due on importation in the transit country, to cover cases where goods do not leave the country when using the transit procedure. This guarantee is used to recover the duties and taxes due if the transport forwarder does not pay the customs invoice for these duties and taxes when requested (if goods cannot be proven to have left the country of transit as specified in the transit regulation). Documentation flow. To control the start and completion of a transit procedure, a monitoring system for the flows should be operational. This system could be based on paper documentation that is shipped between the customs post at the exit of the country, after validation of the transit transaction, and the customs post that controls the origin of the transit shipment. Increasingly the transmission of these documents is done electronically. When the copies of the documents match, the transit operation is completed and the guarantee released. When they do not match, the transit procedure is not completed satisfactorily. The payment of the import duties, taxes, and other charges are due, and are increased by a stipulated fine. Principal and Guarantor The principal is the owner of the goods, or his representative, such as the carrier, which is most often the case. The principal initiates the transit procedure and is responsible for following the transit procedures providing guarantees and the necessary documentation. Companies that want to act as a principal (or agent) making use of the transit procedure must be registered; must obtain a guarantee to cover the transit operations; must use a transit customs document and bill of lading; must present the goods and declaration at the customs offices of departure, transit, and destination; and must be responsible for sealing the transit vehicle.

Transit and the Special Case of Landlocked Countries 249 TABLE 11.3 Transit Procedures without Facilitative Measures Documentation Charges Comments Sea transport Sea freight Unloading in port Bill of lading Port charges Inspection and clearance by customs Invoice to determine value, classification, and weight that permit the calculation of the duties to be guaranteed Transit declaration Guarantee (deposit) Deposit equal to part or total amount of duties, taxes, and other charges due on importation in country of departure Loading of vehicle Seals applied Formation of a convoy Convoy charges Noncompliant with generally agreed principles, may lead to inappropriate practices Road transport in transit country Road transport charges Controls en route Noncompliant with generally agreed principles. Transit often is impeded by a number of road checks (police and customs) involving payments of gratuities Customs inspection upon exit from first country Copy of transit document Seals are checked. If the transit operation can be cleared, a copy of the transit document is sent to the central customs office and then the guarantee can be discharged Border inspections (vehicle) Driver s license and insurance of vehicle checked. If invalid, change of operator needed Transfer to other truck Transfer charges Noncompliant with generally agreed principles. Cargo can be damaged, lost, or stolen Customs inspection upon entry in the destination country Transit declaration (Beginning of a national transit link) Guarantee (deposit) Deposit equal to part or total amount of duties, taxes, and other charges due on importation in second country Other inspections upon entry into second country All documents Security, health checks, involving several stops. Control of seals Arrival at destination All Costs of damage or loss Seals broken; duties paid; guarantee discharged Source: Author.

250 Customs Modernization Handbook A guarantor is a private or legal person who undertakes to pay jointly and separately with the debtor (in most cases, the principal) the amount of duties and taxes that will become due when a transit document is not discharged properly. A guarantor may be an individual or firm or other body that is eligible to contract as a legal third person. Normally it is a bank or insurance company. Guarantors must be authorized by customs, which usually publishes a list of financial institutions that are authorized to act as guarantors. Guarantees The guarantees acceptable by customs are defined by the regulations of the transit country. Within the open options of financial securities, the choice is the exclusive responsibility of the principal. A guarantee can be provided by a bank (in the form of a bond) or as a form of insurance by a guarantor that can be reinsured internationally by well-known and reliable insurance companies. Nonguarantee forms of security, such as deposits, may still be in place in some transit countries, although they are obviously not recommended. A principal may also be its own guarantor. This is a common practice for rail transport, and grants customs access to more direct recourse mechanisms. There are two categories of transit guarantee: An individual guarantee covers only a single transit operation effected by the principal concerned. It covers the full amount of duties, taxes, and other charges for which the goods are liable. A comprehensive guarantee covers several transit operations up to a given reference amount, which is set equal to the total amount of duties and other charges that may be incurred with respect to goods under the transit operations of the principal during a period of at least one week. In general,the calculation of the guarantee is based on the highest rates of duties and other charges applicable to the goods, and depends on customs classification of the goods. The amount covered by the comprehensive guarantee is 100 percent of the reference amount. If the principal complies with certain criteria of reliability, the amount of guarantee to be specified to the guarantors may be reduced by customs to 30 percent of the reference amount.in case of movement of high-risk goods, customs can be allowed to calculate the guarantee at a percentage that is related to the risk of nonclearance. International transit regimes such as the TIR allow for further savings. Customs will only address its claim to the guarantor for the full amount if debtors do not meet their obligations. When goods are unlawfully removed from the transit procedure the debtor is deemed to be one of the following: the person who unlawfully removed the goods from the transit procedure any persons who participated in the unlawful removal of the goods or who were aware or should reasonably have been aware of the removal of the goods any persons who acquired or held the goods, and who were aware or should reasonably have been aware that they had been removed from the transit procedure the principal. If the goods have not been unlawfully removed from the procedure, but one of the obligations or conditions of using the transit procedure are breached, the debtor is the person who breached the obligation or condition. Applicable Documents and Flows A transit procedure requires a transport document, a bill of lading, and the transit customs document. The transit customs document can contain four copies: Copy 1 is validated by the customs office of entry in the country of transit and forwarded to the central customs office (CCO) of the country of transit. This will permit later reconciliation when the transit is completed, and will also serve statistical purposes. These documents can be transferred daily. Copy 2 accompanies the transit shipment to the customs office of exit from the country of transit. This copy will be retained by customs as the basis document for any succeeding customs destination warehousing, importation in free

Transit and the Special Case of Landlocked Countries 251 circulation, or inward processing at which point the fiscal responsibility will be taken over by the consignee. Copy 3 also accompanies the shipment to the customs office of exit. This copy, after being completed (signed and stamped) by that customs office, is sent to the CCO. The CCO verifies the completion of the transit procedure by comparing Copy 1 which it kept at the start of the operation and Copy 3. If Copy 3 is not received within a period of typically six weeks from the validation date of the document, the CCO will initiate an investigation. Copy 4 also accompanies the shipment to the customs office of exit. This copy, after being completed (signed and stamped) by that customs office, is returned to the principal or his agent and gives proof that the procedure has been completed, even before the CCO confirms clearance of the operation. In a situation in which the transit operation is not completed satisfactorily, the taxes and duties calculated at the initiation of the transit operation would be due from the principal. If only one border is crossed, this becomes a simple matter the principal owes the full amount of the taxes and duties already calculated at the outset. When more than one border has been crossed, a decision needs to be made as to which duties and taxes are due, that is, the duties and taxes applicable in the country of departure, the country or countries of transit, or the country of destination. To solve this issue, the transporters using the transit procedure are required to file a notification of border passing when they enter a new country of transit and when they enter the country of destination. When a transit operation is not completed within a specified time, the customs office of entry will ask every intended customs office at the borders of the countries of transit and destination whether they have received a notification of border passing for that specific transit procedure. Clearance of a Transit Procedure The clearance of the procedure is formally based on the administrative confirmation by the CCO that it has received Copy 3 of the transit customs document. If this administrative procedure fails, the principal or agent should present Copy 4 of the transit document or be offered the possibility to deliver alternate proof to clear the regulation. Such a request from the CCO should be made within six weeks after the validation date of the document. Principals or agents in possession of Copy 4 of the transit customs document who do not receive any request from the CCO within six weeks of the date of validation can consider the transit procedure complete and can close the files. Principals or agents not in possession of Copy 4 of the customs transit document who receive a request for further investigation on the clearance by the CCO within six weeks can present alternate proof. Such proof should always include official stamps and signatures from the customs office of destination. One of the following might serve as alternate proof: a signed copy of Copy 2 of the customs transit document a signed copy of the documents of the customs procedure succeeding the transit regime (confirming that a customs debt is not related to the transit procedure). Figure 11.1 depicts a Legitimate Transit Operation. Nonclearance of the Transit Procedure If the CCO cannot formally clear the customs transit document, the nonclearance leads to a customs debt for the debtor. Although parties other than the principal can be debtors, the principal will always be jointly liable. Where a debt arises due to nonclearance, the guarantor should be informed about such debt within a period of 12 months. If customs does not inform the guarantor within the set terms, customs can no longer collect a debt from the guarantor. Further, a debt can only be collected from the guarantor when the State collector has failed to collect the debt from the fiscal debtors. According to international standards, any party subject to the payment of a debt, as stated in a formal decision by its authority, has the right to file

252 Customs Modernization Handbook FIGURE 11.1 Typical Transit Operation Guarantee Activate guarantee If copies not cleared Issue guarantee Copy 1 Central customs office information systems Reconcile copies Copy 2 If copies cleared Discharge of guarantee Copies 2, 3, and 4 Copy 4 Issue transit documents Affix or check seals Take copy 1 Check seals Take copy 2 Source: Author. Point of entry Country of transit Point of departure that party s motivated objections to such formal decision. Reasons for objection might be alternate proof of clearance; incorrect determination of value, classification, or debt; designation of the debtor; and so forth. An objection can be filed within a certain period (in general, four to six weeks) after the authority has validated the formal decision. The debt that arises from nonclearance of goods amounts to what would be the total of applicable duties if the products had been declared for free circulation in the country of departure. In addition, interest and fines may be due. The fines and interest are most often stipulated in the transit regulations. These relate only to the fiscal debt. If nonclearance is the result of criminal offenses, criminal legislation should specify a fine schedule. Interest becomes due on the debt from the date that nonclearance is established, or from 20 days after the date of validation of the transit customs document. Implementation Issues International experience shows that many developing countries could not develop smooth transit regimes. There are several bottlenecks to overcome in implementing the previously described mechanisms. Availability of guarantees. The availability of actual guarantees constitutes the bottleneck for customs transit in most developing countries. This difficulty may reflect the immaturity of the financial system in the country and the unwillingness of international financial institutions to guarantee transit transactions in particular countries. For customs, the calculation of the guarantee may be a problem when the value on which it is based cannot be determined properly. In developing countries, the carrier tends to provide undervalued invoices to limit the value of the guarantee (or deposits). Thus, the nondischarge of the security might not be an efficient deterrent of fraud. Quality of transport services. The quality of transport services in the transit country can also be a major constraint. Large operators are more likely to provide guarantees for customs and may be eligible for comprehensive guarantees. The extreme case is that of railway companies, which are usually not subject to deposits or guarantees. Alternatively, as is often the case in Africa, some guarantee may be

Transit and the Special Case of Landlocked Countries 253 available but not at an accessible cost for the average operator. Also, the vehicle might not meet the customs requirement for a secure transit. 9 Hence, the need for convoys arises. Convoys. Customs often suspects as the result of experience the presence of fraudulent practices in transit operations. In reaction, customs often resorts to the use of convoys that accompany the transit vehicle during the transit trip, accompanied by police and a customs official. Convoys cause delays as well as additional costs, borne by the principal, but do not fully eliminate all risk of fraud and corruption. Corruption. Transit operations are vulnerable to fraud and extortion because they take place over an extended period of time, over long distances, and often with minimal supervision. One method to reduce corruption is to ensure that tamper-free seals are applied. It is also recommended that the transit operation be concluded at a level higher than the exit station, leading to the importance of creating the CCO and ensuring that it is well staffed and its operations periodically audited. Weak enforcement. Independent of the corruption problem, enforcement in transit is not easy, as customs is not in a position to check consignments all over the territory. Conversely, other agencies involved in fighting national fraud are less concerned with transit. In most industrialized countries, fraud in transit is treated as smuggling and is subject to heavy penalties, including seizing of the truck and shipment, as well as fines that can amount to three times the value of the shipment. Lack of standard documentation. Because a transit operation normally involves at least two countries, the use of standard customs forms will facilitate the overall operation. Standard forms will prevent having to use new customs forms upon entering a new country, which certainly adds to the complexity of the operation and causes delays at border crossing points. Using standard documentation will also 9. If the truck cannot be sealed by customs, customs may consider, as an alternate option, limiting transit traffic to specific transit corridors where each truck carries a special transit sign affixed to it or time limits are set for transporting the goods from the customs office of departure to the customs office where the goods will leave the transit country. Customs can then patrol these special transit corridors and concentrate inspections on trucks with the special transit signs. facilitate the use of information technology for information exchange. Computerization and Information Technologies A number of developing countries have developed different Electronic Data Interchange (EDI) systems adapted to their needs. Within the variety of software employed, ASYCUDA (Automated System for Customs Data) has proved particularly popular (see chapter 13). Automation brings a number of positive changes for transit operations. Some applications are virtually all-inclusive. For instance, the European Union has developed a New Computerized Transit System (NCTS), which is fully computerized. More directly applicable to developing economies, the UN Conference on Trade and Development (UNCTAD) has developed transit add-ons to the ASYCUDA. The MODTRS (transit) module handles transit documents in conjunction with other modules of the ASYCUDA++ functions. The module can be adapted to all types of transit and can, therefore, electronically handle the TIR carnet. Within customs in the transit country, the system electronically informs the exit post of the arrival of a shipment within a plausible time frame. When the exit post closes the transit information, the information is keyed in and the guarantee is automatically released. In developing transit economies that have begun implementing EDI, it is likely that the transit operation will not be automated at first. Goods in transit will enter the country through the main gateway (port or airport), whose transit processes will likely be computerized according to priority. Most often, they will exit through a faraway border post where EDI has not yet been deployed. Yet, transit is likely to benefit from automation as it brings about a more efficient and centralized information system overall. For instance, even if the transit information is sent by traditional means to the CCO, the use of EDI already carries a lot of potential (this promise is exhibited by Ghana s expansion of its automated GCNet operations to the border post with Burkina Faso). ASY- CUDA can be adapted to suit the specific needs of its different users, and it provides customs with a variety of functions that support its activities and increase its efficiency (box 11.3).

254 Customs Modernization Handbook BOX 11.3 ASYCUDA Customs Operations in Zambia Zambia has implemented the ASYCUDA transit module between Chirundu at the border with Zimbabwe and Lusaka, using the Wide Area Network (WAN). This transit system calculates the total duties and taxes as the guarantee amount, which is deducted from the bond as security. Once a transit document is processed and sent to the destination office, the record at the departure office remains outstanding and is acquitted only when all items have been fully cleared or have made an exit at the destination office. The availability of the WAN between the two ports and enhancements in ASYCUDA++ have, respectively, resulted in instantaneous data flow and efficiency in management of transits. Transit guarantees. To carry out transit operations, a declarant needs to have a Transit Guarantee Account. Transit Guarantee Accounts have been set up on the accounting module of ASY- CUDA (MODAAC) by customs for all licensed agents. For the account to operate, the maximum authorized guarantee should be specified. This is the amount from which the suspended duties and taxes will be deducted as bond to cover the movement of transit goods. Once this amount is exhausted, no further transits can be processed. Departure office Chirundu. Submissions of all entries to customs is done through Direct Trader Input (DTI). The bureau is situated within the customs premises and is managed by a private contractor. Chirundu is one of the major entry points, with a high volume of traffic. From inception, sufficient DTI terminals were available to cope with business volume. The declarations are sent to a specialized transit declaration desk, which generates a transit document (T1). When issuing the T1, the equivalent suspended duties and taxes (the bond) is deducted from the guarantee. With the WAN in place, the T1 is automatically transmitted through the ASYCUDA message manager module (Gateway) to both Chirundu and Lusaka. Finally, the release order is generated as proof that the consignment has been released after full compliance with the relevant transit requirements. Destination office Lusaka. The declarant reports to the transit counter at the customs office and files the copies of the documents issued by the departure office. The transit officer will access the list, T1, transmitted on the computer. The details on the computer are compared with the information on the hard copy of the T1. If the information is correct and consistent with the physical consignment, the T1 is validated and the status of the transit document is changed to validated. The bond is then credited back to the Transit Guarantee Account. Source: UNCTAD 2003. Major International Transit Procedures: The Transport International Routier The previous section describes a set of procedures specific to the country of transit. International transit procedures stipulate the harmonization of country-specific procedures and documentation, as well as an internationally accepted guarantee system. Hence, an international regime facilitates transit further, compared to a chain of national procedures. The Transport International Routier (TIR) is a best practice that sets the standard in this domain and is discussed in detail in this section. The TIR Convention: General Principles The TIR Convention, based on the UN Customs Convention on the International Transport of Goods under Cover of TIR Carnets (1960), is not only one of the most successful international transport conventions, but also the only existing universal customs transit system. In this sense, it serves as a benchmark for any future effective regional transit frameworks and deserves a detailed examination. The TIR Convention allows the temporary suspension of customs duties, excise duties, and value added taxes (VAT) payable on goods originating from or destined for a third country while under transport across the territory of a concrete customs zone. Such suspension remains in place until the goods either exit the customs territory concerned, are transferred to an alternative customs regime, or the duties and taxes are paid and the goods enter free circulation. The TIR specifies five main pillars: Secure vehicles. The goods are to be transported in containers or compartments of road vehicles constructed so that there is no access to the interior when secured by a customs seal, so that no

Transit and the Special Case of Landlocked Countries 255 goods can be removed or added during the transit procedure, and so that any tampering will be clearly visible. International guarantee valid throughout the journey. In the situation in which the transport operator cannot pay for the customs duties and taxes due, this system ensures that the customs duties and taxes at risk are covered by the national guaranteeing system of the operator. National associations of transport operators. National associations control access to the TIR procedures by transport operators and issue the appropriate documents and manage the national guarantee system. TIR carnets. This is the standard international customs document accepted and recognized by all members of the TIR Convention. International and mutual recognition of customs control measures. The countries of transit and destination accept control measures taken in the country of departure. In essence, TIR operations can be carried out in participating countries by a truck operator member of a national association, with the network of national associations acting as guarantor. The TIR system has been a success. The number of TIR carnets issued rose from 3,000 in 1952 to 2.7 million in 2001. The main reason for its success to date is that all parties involved (customs, other legal bodies, transport operators, and insurance companies) recognize that the system not only saves time but also money, due to its efficiency and reliability. The TIR Convention is simple, flexible, and cost reducing, and ensures the payment of customs duties and taxes that are a result of the international transport of goods. Furthermore, it is constantly being updated according to the latest developments, mainly concerning fraud and smuggling. The TIR is used mostly in European countries but is also used in transit operations in Central Asia, the Caucasus, the Maghreb, and in some parts of the Middle East. Insurance and Issuance of TIR Carnets In countries using the TIR, the national guaranteeing association is recognized by the customs administration of the country. In most cases it is an association that represents the transporters. The association guarantees payment within that country of any duties and taxes that may become due in the event of any irregularity occurring in the course of the TIR transport operation. The amount payable is a maximum of US$50,000 for normal carnets and US$200,000 for tobacco and alcohol carnets. The national guaranteeing association is not a financial organization; therefore, its obligations are usually backed by insurance policies provided by the market. The International Road Transport Union (IRU) can help national guaranteeing associations find such services. There are three types of carnets, each of which contains two sheets for each country of departure, transit, and destination: The regular TIR carnet. The multimodal TIR carnet, which was introduced in 1987, and specifically caters to the requirements of regional and intercontinental multimodal transport. This carnet contains an additional sheet identifying the persons who compose the transport chain. The tobacco/alcohol TIR carnet, which became an integral part of the TIR Convention in 1994. The transporter should execute a contract with the national guarantee association, which would include the obligation to meet all requirements set in the TIR Convention; to return the used TIR carnet after completion of the TIR transport; and to pay any amount of duties, taxes, and other charges on first demand of the national guarantee association. To ensure the security of the revenues, the TIR system is only applicable to containers or road vehicles with load compartments to which there is no interior access after a customs seal has secured it. If tampering does take place, it will be clearly visible. The Sequence of the Transit Operation Under TIR Cover A TIR transport is an international transport operation. It is a transit operation of goods, across one or more borders, of which only a part of the transit has to be made by road. The transit operation itself involves the movement of goods from one country (country of departure) to another country (country of destination), through a third country (transit country). All countries involved should be active members of the TIR Convention.

256 Customs Modernization Handbook The customs office in the country of departure administers the seals. Both the country of transit and the country of destination accept the control measures taken in this country. Thus, at customs offices en route (at border points between countries of departure and transit, and between countries of transit and destination), only the seals and containing body are inspected. The goods are not inspected unless irregularities are suspected. Such spot checks should be the exception. The customs office of the destination country removes the seals and controls the goods. During this transit process, various steps can be discerned regarding the issuance of the carnet as well as the insurance situation. To illustrate the functioning of the system, an outline of a TIR transport from Rotterdam (the Netherlands) to Moscow (Russian Federation) follows. This procedure is also depicted in figure 11.2. Step 1. TIR Carnet Presented at the Customs Office of Departure The truck driver should present the TIR carnet at the customs office of departure in Rotterdam. Before loading the goods, customs will check the TIR certificate (stating that the loading space of the truck fulfills the requirement of construction and can be sealed properly by customs) and customs will seal the loading space after loading has been completed. The customs office of departure will then validate the TIR carnet (put customs stamps on the manifest, and on each of the sheets for the countries that will be transited between the Netherlands and the Russian Federation, two copies for each of these countries). Customs removes one sheet of the TIR carnet and forwards this copy to the Dutch CCO. The rest of the TIR carnet is returned to the truck driver, who can leave Rotterdam en route to the exit customs office. Step 2. TIR Carnet Presented at the Customs Office of Exit of the Departure Country The Netherlands is a Member State of the European Union (EU), which is a customs union, so no customs formalities need to be fulfilled at the internal border between the members. Therefore, the customs office of exit of the EU is, in this example, situated at the Polish German border. FIGURE 11.2 The Sequence of the TIR Operations Insurance IRU Carnet Info on carnet Departure country national association 1. Issue carnet. Claim duties Copy 1 Transit country national association Central customs office information systems Claim duties If copy not cleared Reconcile copy and clear Copy 2 Discharged carnet If no carnet, claim duties 2. Affix seals. 3. Check seals. Take copy 1. 4. Check seals. Take copy 2. 5. Break seals. Discharge carnet. Country of departure Country of transit Country of destination Source: Author.