# **Box 3. Customs Role in International Trade Facilitation in China**<sup>**21**</sup>

Given the sheer volume of trade handled by the port of Shanghai and the large presence of Fortune 500 Companies, a need for customs and port reforms was acknowledged. The China ‘eport’ project was initiated in 1999 in keeping with the Chinese Customs Guidelines.

Chinese customs focuses on enhancing enforcement transparency by informing people in advance of changes in rules and regulations and frequent interaction with businesses with a view to provide high quality services. China is pressing ahead with an information based clearance system. Implementing the “Integrated Clearance System” project includes a “5 plus 2” days rule for all cargo clearances, and declaring Shanghai a “sleepless” port. For expediting clearance, measures such as advance customs declaration with release upon arrival of goods, fast clearance for particular sectors, special measures for high-tech industries, EDI implementation, have been adopted. The underlying philosophy is to adopt measures that facilitate trade, enhance security and promote domestic and international development.

Shanghai port and customs have enhanced the security of international trade through the installation of the Global Positioning Systems, introduction of large-scale container scanning equipment and round-the-clock supervision and control at check points. The port authority also <u>provides a “goods arrival report” to ensure conformity with the CSI.</u> The need for customs modernization and reform normally arises from the identification of common barriers to the free flow of goods. Such barriers include the discriminatory power of the customs officials, lack of transparency and accountability of customs officials, ambiguous and unpredictable customs rules, scarce use of technology, lack of coordination between ports and customs, limited access to rules and regulations, time delays in obtaining VAT refunds etc<sup>22</sup> .

The basic elements of a successful Customs reform are clear. Effective customs reforms have to extend to human resource development, building capacity of management and administration, addressing integrity, and investments in ICT infrastructure. Three very important ICT requirements for customs reform include paperless transactions, a single window approach and cooperation for cross border exchange of data. Philippines, for example, faced several difficulties in the implementation of the revised Kyoto protocol arising from inadequate infrastructure to perform pre-arrival processing and absence of a mechanism to allow release through deferred payment. Its weak security and enforcement mechanism was further emphasized by the lack of screening machines and manual inspection of cargoes.

There is also need to evolve effective inter-agency co-operation since procedural requirements often begin prior to arrival of goods in customs. Use of Pre Shipment Inspection (PSI) has often turned out to be expensive with the wrong incentives and generated mixed results. Pakistan<sup>23</sup> outsourced customs valuation functions to PSI companies, which was not cost-effective and more of a short-term solution. Successful

> 21 See Presentation by <u>Shanghai Customs Administration</u> 22 For experience of Bangladesh with Customs reform, refer to paper presented at Dhaka conference.

> 23 See TF and Customs reform case study of <u>Pakistan</u> by Mansoor Ahmad

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