A reengineered external trade procedure

In Sri Lanka there is a great hype about export development and much expert advice on macro and micro economic policy measures encompassing fiscal policy issues, trade agreements, tariff concessions, trade promotion in immerging markets and so on, but seldom have we heard from them of the need to facilitate trade to increase exports.

There is a popular argument as to whether only affluent countries implement trade facilitation measures or whether those countries have become wealthy as a result of facilitating trade. Countries such as Ireland, Thailand, Malaysia, the Philippines and Vietnam, which have implemented trade facilitation measures, have not only become partners in value chains but also exporters of industrial products that require short lead-times, sometimes as short as four to five days for order processing (see figure 1).

Contrary to the developments in trade in such countries, there hasn’t been a significant change in our export mix for the past four decades and our trade seem to be either complacent, or helpless to change the system that suffers from a legacy of years of control-oriented approach towards trade and industry.

During the past three decades, successive governments in Sri Lanka have relaxed import, export and exchange control requirements and taken measures to simplify and standardise external trade procedures and related documentation.

Furthermore, the recent decision of the Government to introduce a Single Electronic Window (SEW) to replace manual external trade procedures is highly commendable. Nevertheless, unless the current control-oriented system is revamped, application of ICT on the present procedure would not make a significant impact on the economy.

The author of this article produced a comprehensive concept paper on reengineering the export and import procedure of Sri Lanka and submitted it to the Director General Customs, the Sri Lanka Export Development Board and the Ceylon Chamber of Commerce in mid February 2011. It proposes making a few changes in the present system by introducing some of the best practices recommended by international agencies involved in trade facilitation and through reengineering the processes.

Certain countries in the European Union including the United Kingdom and also Hong Kong and Singapore have applied such measures for many years successfully. Sri Lanka needs to be ahead of the other Asian countries that have yet not embraced such best practices in order to widen our export base and become a trading hub in the region.

The key features of the proposed system

The proposed system could be operated through the Customs computer system or through an independent SEW. Accordingly, when cargo space on vessels is being reserved by the shippers and space is being confirmed by the ships’ agents, Customs would receive a copy of the updated Cargo Engagement List. Customs can share this information with other relevant authorities. They would receive information on the import consignments through cargo manifests submitted to them by ships’ agents.

This is similar to the system applied on imports to the USA and the EU, where they have made it obligatory for the exporters and the shipping lines to provide Customs in the importing country to provide advance information on the shipments, 24 hours prior to loading of cargo to the vessels. The importers in those countries too are required to provide similar information 24 hours prior to the arrival of the respective vessels.

This requirement is also known as 10+2, details of which are available in the websites of US and EU Customs, etc. There is also the concept of ‘Authorised Economic Operators (AEO), where special facilities are granted to them when clearing their consignments.

In the UK and Hong Kong, both importers and exporters are granted 14 days to submit Customs declarations, while Singapore grants three days to submit declarations after clearing the consignments.

This facility permits traders not only delayed submission of the declarations but also pay Customs dues after using the goods for the intended purpose, thus relieving them of tying up capital until they have earned an income from the imported goods. The Sri Lanka Customs Ordinance also provides for submission of post-shipment declarations.

In the proposed system it is suggested that all regular exporters be permitted to submit Customs declarations within four working days/seven calendar days after shipment. If however anyone is found guilty of a fraudulent activity by the law enforcement, they are to be blacklisted and subject to stringent punishments.

Once Customs and other authorities receive the finalised cargo manifests and Customs declarations, Customs would reconcile data between the two documents to ensure that the declarations have been submitted correctly and within the stipulated time period.

System to operate in a paper free environment

The message exporters would send the shipping lines to reserve cargo space may also be considered a Pre-Shipment Declaration (PSD). It could be sent to the ships’ agents/Customs/licensing authorities through the SEW.

Until such time a fully-integrated system is established, an Electronic Document (eDocs) could be used to transmit the necessary shipment data. An eDocs could be completed on a personal computer or a laptop, signed electronically and transmitted as portable document (PDF) that can automatically be converted to a machine readable language such as Extensible Mark-up Language (XML) or EDI. These documents can be transmitted securely through the web or the internet.

The Ceylon Chamber of Commerce (CCC) has been using such an Electronic Certificate of Origin (eCO) since July 2007. All documents in the system would carry a ‘Unique Consignment Reference’ (UCR) number as proposed by World Customs Organisation. This would assist interoperability, re-use of data and cargo tracking.

In Sri Lanka only tea and a few other items are subject to special licenses or permits to export those. For such items, until all relevant authorities are linked through the SEW, the authorities could receive data and transmit their approvals to the Customs/shippers, using eDocs.

The PSD could as far as possible combine data requirements of transport service providers, Customs, licensing /permit issuing authorities and others authorities issuing various certificates such as GSP, animal health and phytosanitary.

In the proposed system, in the case of exports, supporting documents such as the invoices, bills of lading, licenses and permits would not be required to be presented to Sri Lanka Customs with the exception of the packing lists. A packing list may be called for, if cargo were to be examined by Customs. Other documents would not be required as the data requirements could be captured through information submitted to the Customs database.

The information on the containers/trucks that enter the ports may be presented and captured at the port gates through magnetic media. If such facilities are unavailable, a hard copy of a Cargo Dispatch Note (CDN) would have to be submitted at the port gates.

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Benefits of implementing the proposal

With high speed clearance of cargo and the possibility of increasing the efficiency of our entire trading system (buy-ship-pay), the opportunities to attract Foreign Direct Investment (FDI) to manufacture and export electronic products such as laptops and other electrical items, high fashion garments and high value agricultural products would be attracted to Sri Lanka and our entrepreneurs could become partners in value chains that require short lead-times which could lead to supply products not only to neighbouring countries, but to all parts of the world, in the manner Singapore, Hong Kong, and Dubai do.

Sri Lanka has many advantages over other countries in the region to achieve the status of a trading hub that would increase foreign exchange earnings to the country through trade. With the expansion of the export base into new areas, there would be employment opportunities for knowledge-based industries. Increased trade would also increase the demand for logistics services and employment opportunities in that field.

With the proposed system being implemented, Customs would turn to a service-orientated public service from the control-driven service and once a service-oriented culture is established, it will adapt to the required level of bureaucracy.

Simultaneously, Customs would become more proactive rather than being reactive after declarations have been submitted. The trade would also be expected to live up to highest standards of integrity that would help to change the business culture of the country.

Furthermore, as the new system will operate in a paper free environment, it would not only eliminate unproductive paperwork but also reduce the opportunities for corruption. The new system would also help Customs to provide precise foreign trade statistics as the declarations it receives would be based on actual quantities exported rather than submissions based on speculated amounts they do under the current system.

Implementation process

Implementation of the proposed system essentially requires the approval and patronage of the top administrators in the Government. At operational level it is recommended to establish ‘task forces’ in all export related institutions including within trade chambers to assist in fine-tuning the proposal.

Such an approach would help to share the ownership of the proposal with all concerned, which would also help smooth implementation of the system. Once a decision is taken to introduce the proposal, an awareness programme needs be launched to inform all concerned on how to reap the benefits of the system.

After implementation of the new system on the export sector for six months, a similar system could be introduced to simplify the import procedure, extending facilities to AEO – trustworthy importers.

Implementation of the proposed system need not be delayed until all institutions are linked through a SEW, as the system could be implemented with the available ICT applications and human resources in the respective institutions.

Once the new system has been implemented by Customs, all other institutions involved in the import/export procedure including the ports/airport authorities can also be expected to follow the example set by Customs, which would help to reap the fullest benefits of the proposed changes in the import and export system.

 

(The writer was a Consultant/Chief Technical Advisor in Trade and Transport Facilitation and e-Business projects in six countries in Asia and Africa since 1981, on behalf of UN/ITC, UNCTAD/World Bank, CFTC-Commonwealth, the GTZ and the ADB. He is a member of the United Nations Centre for Trade Facilitation and Electronic Commerce – UN-CEFACT –  Working Group on Trade Facilitation and was a member of the Working Group on UN-Electronic Documents. He designed an electronic Certificate of Origin for the Ceylon Chamber of Commerce in 2007, which was replicated by many countries in the world. He is a member of the country reference group for the UN-CEFACT Trade Facilitation Implementation Guide Project, and a member of UN-Next of UN-ESCAP. During his tenure at the Sri Lanka Export Development Board – from where he retired as Director – he caused the Government to appoint the SRILPRO – Sri Lanka Trade Facilitation Committee, of which he was Secretary from 1980 to 1999, during which period many trade facilitation measures were introduced in Sri Lanka. He can be reached via [email protected], [email protected] or tel 011-2715072 or 0777068658.)