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Customs Measures to Save Our SMEs

25.05.20 11:00
The COVID-19 pandemic has and will continue to have major disruptive effects on supply chains. Companies of all sizes have adapted as supply and demand dynamics have shifted, markets have opened and closed, and customers have changed purchasing requirements. Formidable logistical challenges deriving from constant fluctuations in volume and routing have been exacerbated by both the creation of new customs measures and adherence to old paper-based practices that do not fit the ‘new normal’ in which businesses must now operate. Maintaining supply chains and logistics is critical in addressing the pandemic and delivering essential goods, such as medicines and foods.

Small and medium sized enterprises (SMEs) have been hit particularly hard by the customs situation in many countries. Delays at the border, increased transport costs, and opaque and constantly changing regulations have compounded other difficulties faced by SMEs, including reduced demand, liquidity shortages and difficulties accessing emergency finance. Given SMEs form critical links in global supply chains, policymakers must prioritise saving SMEs both to ensure the delivery of essential goods and services and to rebuild shattered economies.

Addressing the major customs bottlenecks, adopting best practices and taking concrete measures designed specifically with small businesses in mind must accordingly be given high priority by customs authorities. This paper, drawing on the collective experience of the International Chamber of Commerce’s global network of 45 million businesses operating in over 100 countries, seeks to identify the most common and pressing customs problems and offer practical suggestions for their resolution.

Major customs issues faced by small business during COVID-19

The pandemic has both exacerbated existing challenges and created new ones. While their precise nature and extent varies in each jurisdiction, the most common and serious problems that have particularly affected SMEs include:

1. Continued requirements for paper-based documentation, fulfilment of which can entail physical danger for employees and/or non-compliance with health regulations. Adherence to paper-based processes places small business in an impossible position, impedes the flow of essential goods, and hampers economic growth.

2. Short window of opportunity to clear goods. Reduced customs offices’ opening hour, fewer staff working on account of sanitary restrictions and continued reliance on paper-based documentation has created long delays at borders and a shorter period during which to clear goods. This has manifestly increased costs for importers, exports and logistics operators, increased incidences of non-clearance and created consequent congestion of storage facilities, which has impeded the flow of both essential and less essential goods.

3. Reduced ability to pay fiscal charges on imports. Unprecedented financial pressures on SMEs deriving from the stalling of the economies have reduced their ability to pay fiscal charges on imports. Goods are consequently being held for clearance and eventually having to be forfeited to warehouses, with the consequence that many importers have been unable to complete compliance document or access cash for duty payments. SME’s financial difficulties are therefore directly leading to facilities and storage facilities becoming congested with resultant increased demurrage and other storage costs.

4. Slow classification of “essential services”. While governments were mostly quick to recognise “essential goods,” there has been slower classification of “essential services” (which should embrace all logistics services plus ICT, financial services and retail). Goods trade can occur only through a wide range of enabling services. Without clear or internationally consistent guidance on what constitutes “essential services”, many small businesses have been unable to continue working or seize opportunities as markets have begun to open up.

5. Uncoordinated government messaging. While COVID-19 naturally requires action by many agencies, especially health and economic ministries, there are many instances where customs agencies have not been involved in the development, refinement or dissemination of domestic health regulations. And the proliferation of health measures at a sub-national level can easily fly under the radar for foreign traders. Not all customs agencies have been informing key stakeholders as well as they could have of changes to national and sub-national regulations that implicate trade. As a consequence, there have been many instances of goods traders and logistics operators only finding out about newly imposed restrictions once at the border, clogging up supply chains and causing hassle for customs agencies.

Best practice for customs agencies to help small business

While balancing the need for robust sanitary measures, the global business community has identified the following actions that would significantly unclog borders, keep trade flowing and ease pressures on SMEs so that they can continue working and contribute to the recovery:

1. Adopt a risk-based approach to customs clearance. Major health challenges notwithstanding, customs agencies must take a holistic, risk-based compliance management approach to ensure an optimal balance between ensuring compliance and minimising disruptions. Risk-based approaches such as bypass clearance controls for critical supplies, enhanced use of pre-arrival processing and post-clearance audit methods and simplifying clearance for low-value shipments could help facilitate trade without elevating health and other risks.

2. Move swiftly from paper to electronic documentation requirements. At a time when physical contacts should be limited to the greatest extent possible, customs agencies should flex rules requiring physical documents. Governments should accept digital signatures for the purposes of customs debts and guarantees. Relatedly, governments should implement the UNCITRAL Model Laws on Electronic Commerce (1996) and Electronic Signatures (2001). Wealthier governments should assist developing countries in adaptation.

3. Increase customs office opening times. In order to deal with clogged borders and long processing times – including for essential goods – customs must remain open for longer than their usual operating hours.

4. Allow deferred payment and/or reduction of customs duties for SMEs. Many traders, especially small businesses, are facing severe cash flow problems and difficulties operating due to lower demand and longer customs processing times. Governments should ease the burden on companies by extending the payment of all customs duties, taxes and fees – starting with a 90 day extension, subject to further review as appropriate – similar to the tax deferrals many countries are implementing to improve business cash flow.

5. Clearly and quickly define “essential services”. Financial services, ICT services, retail and distribution, and transportation and logistics services are all examples of critical enablers of trade in goods essential to an effective response to COVID-19. Customs agencies should adopt a clear definition of essential services for the purposes of customs clearances so as to reduce uncertainty, ensure an effective health response and stimulate economic activity.

6. Improve communication with stakeholders. Rapidly changing regulatory environments, lockdowns and quarantine rules have dramatically complicated operations and raised costs. While many health regulations are necessary to combat COVID-19, governments should give as much advance warning as possible so as not to disrupt or raise the cost of the flow of essential goods and services across borders. Further, customs and lead regulatory agencies should cooperate both on policy development and messaging to ensure that domestic and foreign businesses receive consistent, timely and fulsome information. A dedicated customs helpdesk for SMEs could also assist. Chambers of commerce should be used to disseminate information about critical changes.

7. Private sector consultation in the design and implementation of health measures. While restrictive measures (such as “lockdowns” and partial border restrictions) may have some place in responding to the health crisis, governments that have consulted with the private sector in advance of implementation have managed to design more effective and less obstructive measures. Private sector groups, such as chambers of commerce, can help governments understand the impact of potential measures on SME and design appropriate policies.

8. Create Authorised Economic Operator (AEO) programs. Establishing accredited importers and exporters based on compliance records can facilitate trade in times of crisis by reducing physical and documentary inspection of goods, quickening border clearance times, and lowering costs. Small business especially benefit from such systems.

9. Expedite implementation of the Trade Facilitation Agreement. Prioritise trade facilitation reforms. WTO and World Bank studies have shown that trade facilitation reforms can have an outsized impact on the ability of MSMEs to trade internationally. We urge all WTO Members to commit to rapid implementation of the Trade Facilitation Agreement and encourage the utilisation of innovative partnership models—such as the Global Alliance for Trade Facilitation—to enable identification of reforms that can provide the greatest benefits to MSMEs.

An international agenda for customs agencies to help small business

1. Work multilaterally to develop a common definition of “essential services”. Business would benefit enormously from a uniform international definition of both “essential goods” and “essential services”. Governments should immediately begin discussions, ideally through global forums such as the WCO and/or the WTO, to give business greater certainty irrespective of the region in which they are operating.

2. Notify measures to WTO and WCO as quickly as practicable. Governments should go beyond the minimum notification requirements of WTO law to ensure trade restrictive measures are reported in real time – every day matters in responding to the economic fallout from COVID-19. Equally, governments can greatly assist small business by informing the WCO of customs measures to enable it to robustly report on measures taken globally.

3. Share lessons learned on pandemic preparedness via the WCO with private sector input. Governments should also share lessons learned and best practices so that governments can learn from one another. Discussions convened by the WCO and involving the Private Sector Working Group could greatly assist in identifying contemporary problems, quick fixes and more systemic methods for building long-term capacity.

4. Coordinate with neighbours. Governments with land borders should try to align their customs regulations so far as possible. This could speed up cross-continental trade, reduce the costs of transportation and compliance, and ease the administrative burden on customs agencies (e.g. if it is known that a neighbouring country has the same customs requirements they may adopt expedited procedures for vehicles who have already crossed those borders).