Customs authorities worldwide have, in recent years, implemented modernization programs that are fundamentally changing the relationship with the trade community. Perhaps the most powerful aspect of this change is the shift of responsibilities from Customs to traders. In the past, having goods cleared Customs signaled the end of the import or export process. Customs compliance was checked by Customs authorities at the border. Should there be any discrepancy in the documentation, the shipment would stay "stuck in Customs" for as long as it takes to resolve the discrepancy. But in a world of global supply chains and lean inventories, having goods "stuck in Customs" for a simple query became unacceptable to the trade community.

Customs have been under intense pressure to facilitate and accelerate the clearance of the goods. The trade demanded a separation between the clearance and the release of the goods. Traders argued that goods could be released on arrival while compliance matters could be resolved later. Customs, in many countries, have responded with risk management practices introducing fast and simple clearance at the frontier supported by audit-based controls at the trader's premises. This gives the trade initially a quick release of the goods and subsequently the responsibility to ensure that all compliance requirements are met. Traders must therefore integrate Customs management in their business processes. By moving compliance checks away from the physical border to the company's office, Customs have gained a clear visibility of the physical, documentary and financial supply chain. Global traders have exchanged fast Customs clearance against higher compliance responsibilities.

Customs clearance has evolved from being the end of the Customs transaction to the beginning of the import or export management process. This transfer of responsibilities from Customs to the trade is a source of risk for both the trade and Customs. For traders, these compliance responsibilities cross the company horizontally affecting all departments involved in a transaction.  By introducing audit-based controls, Customs authorities can follow an entire transaction from quotation to payment. The business must demonstrate a full audit trail from the initial commercial contract through to the payment. For instance, Customs officers could look at the inventory management system to see the imported products being booked into inventory, as well as the financial system to check the value paid to the supplier. During audit-based controls, Customs will use the business records to look at the four basic principles of Customs management: classification, valuation, the determination of the taxable base, or the origin of the goods.

Customs management is not just about compliance, it can deliver powerful benefits to the business. Customs duties have a direct impact on the cost of the goods sold and the cash flow. Most countries wanting to attract foreign investments, in particular manufacturing, have initiatives to mitigate this impact. They do that with a range of Customs procedures. Some of these will delay the tax point and benefit the cash flow; some will reduce the amount of duty paid while others will remove duties completely. Customs planning is the strategic use of these procedures to generate substantial savings and efficiencies.

Customs planning is likely to result in additional compliance requirements; however, a company that has acquired the necessary knowledge to manage Customs risk would, at the same time, have prepared the business for Customs planning.

Finally, Customs laws and regulations have not only changed to adapt to the evolution of world trade but also to world events. Since 9/11, global threats and supply chain security has been the focus of new rules adding a new dimension to Customs risk.

International trade has its own jargon inherited from history, cultural mix and trends. It is not uncommon to find several words to describe the same process. To reduce the possibilities of confusion and bring harmonization, the World Customs Organization (WCO) has produced a set of terminology and definitions that will be used throughout the chapters.

Furthermore, principles and practices are based on the Revised Kyoto Convention, the agreement governing international Customs management. As most major trading nations are members of the WCO, these principles and practices will be common worldwide. However, their translation into national legislation, availability and day-to-day execution will vary between countries.

Customs compliance cannot be confined to a desk at the back of the warehouse anymore. It must be a multidisciplinary exercise. In this new Customs environment, traders must produce, collect, verify and manage a whole trail of documents and data to feed what we can call the compliance chain. All these changes bring new risks and opportunities. Competitive advantage can be gained, lost or simply missed.

The above is taken from the introduction to Truel's book, A Short Guide to Customs Risk, available from Gower Publishing.

Source: International Trade Instrument