CSPCAR MODULE 6

STRATEGIC CUSTOMS PLANNING AND MANAGEMENT

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BEST PRACTICES FOR STRATEGIC PLANNING IN CUSTOMS ADMINISTRATIONS

COURSE AUTHOR Interamerican Development Bank (IDB) (www.iadb.org), through its Integration and Trade Sector (INT).

COURSE COORDINATOR Interamerican Development Bank (IDB) (www.iadb.org), through its Integration and Trade Sector (INT), the Institute for the Integration of Latin America and the Caribbean (INTAL) (www.iadb.org/es/intal), the Inter-American Institute for Economic and Social Development (INDES) (www.indes.org), the World Customs Organization (WCO) (www.wcoomd.org) and the General Secretariat of Central American Integration (SG-SICA) (http://www.sica.int/).

MODULE AUTHOR Selvin Antonio Lemus Martínez. Resident Advisor on Customs Administration at the Regional Technical Assistance Center for Central America, Panama and the Dominican Republic (CAPTAC-DR) EDUCATIONAL COORDINATION AND EDITING The Inter-American Institute for Economic and Social Development (INDES) (www. indes.org), in collaboration with the Economic and Technological Development Distance Learning Center Foundation (CEDDET) (www.ceddet.org) and Caribbean Customs Law Enforcement Council (CCLEC) (www.cclec.net).

Copyright ©2016 Inter-American Development Bank. This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives (CC-IGO 3.0 BY-NC-ND) (http://creativecommons. org/licenses/by-nc-nd/3.0/igo/legalcode). This document is the intellectual property of the Inter-American Development Bank (IDB). Any partial or total reproduction of this document should be reported to: BIDINDES@iadb.org Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB’s name for any purpose other than for attribution, and the use of IDB’s logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.

Note that the link provided above includes additional terms and conditions of the license.

The opinions expressed in this publication necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.

These materials have been revised in light of the ministerial decisions taken in the framework of the 9th World Trade Organization Ministerial Conference held in Bali, Indonesia, in December 2013. The adjustments were made in order to reflect a higher alignment between the course topics and the priorities identified in Bali’s Ministerial Declaration and decisions, where all IDB members participated.

Bali Ministerial Declaration and Decisions

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Table of contents List of Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 List of Text Boxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 General Module Aims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Questions to Guide Learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 UNIT I. ELEMENTS FOR STRENGTHENING STRATEGIC PLANNING IN CUSTOMS BASED ON WCO RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . 8 Learning objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 I.1. Strengthening strategic planning in customs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 I.2. Key elements for strengthening strategic planning in customs based on WCO recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 I.2.1. Involving the Private Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 I.2.2. Involving international organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 I.2.3. Establishing priorities in line with the customs administration’s capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 I.2.4. Involving all levels within customs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 I.2.5. Incorporating strategic requirements shared by all customs administrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 I.2.6. Reviewing the organizational structure of customs . . . . . . . . . . . . . . . . . 28 I.2.7. Appointing a team to manage the modernization process . . . . . . . . . . . . 31 I.2.8. Customs should participate in the definition of the policies they carry out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 I.2.9. Involving other government agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 I.2.10. Aligning capacity building with the strategic plan . . . . . . . . . . . . . . . . . . 38 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

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UNIT II. STRATEGIC RISK MANAGEMENT; A KEY COMPLEMENT TO STRATEGIC PLANNING IN CUSTOMS ORGANIZATIONS . . . . . . . . . . . . . . . . . 44 Learning objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 II.1. Introduction to risk management in the customs context: . . . . . . . . . . . . . . . 44 II.1.1. Main Customs Risk Management Drivers . . . . . . . . . . . . . . . . . . . . . . . . . . 45 II.1.2. Risk Management Planning and Control Cycle . . . . . . . . . . . . . . . . . . . . . . 48 II.2. Strategic management of operational risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 II.3. Actions to prevent and mitigate risks from an strategic point of view . . . . . 54 II.3.1. Actions to prevent and mitigate external risks . . . . . . . . . . . . . . . . . . . . . 54 II.3.2. Actions to prevent and mitigate operational risks . . . . . . . . . . . . . . . . . . . 55 II.3.3. Actions to prevent and mitigate change risks . . . . . . . . . . . . . . . . . . . . . . . 57 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

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Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

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List of Figures FIGURE 1.1. KEY ELEMENTS FOR STRENGTHENING STRATEGIC PLANNING IN CUSTOMS BASED ON WCO RECOMMENDATIONS FIGURE 1.2. CUSTOMS/PRIVATE SECTOR/OTHER GOVERNMENT AGENCIES RELATIONSHIP MODEL FIGURE 1.3. CUSTOMS MODERNIZATION CYCLE, THE WCO COLUMBUS PROGRAM FIGURE 1.4. SUGGESTIONS FOR PRIORITIZING PROJECTS AND STRATEGIC ACTION ACCORDING TO AVAILABLE RESOURCES FIGURE 1.5. SUGGESTIONS FOR INCORPORATING OPERATIONAL LEVEL STAFF IN THE STRATEGIC PLANNING PROCESS FIGURE 1.6. THE ROLES AND RESPONSIBILITIES OF CUSTOMS IN THE 21ST CENTURY ACCORDING TO THE WCO FIGURE 1.7. SUGGESTED RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND CAPACITY BUILDING FIGURE 2.1. MODEL OF THE ROLES OF A CUSTOMS ORGANIZATION FIGURE 2.2 - COMPARATIVE MODEL OF CUSTOMS RESOURCE MANAGEMENT FROM A RISK MANAGEMENT PERSPECTIVE FIGURE 2.3. RISK MANAGEMENT PLANNING AND CONTROL CYCLE FIGURE 2.4. RISK ASSESSMENT CATEGORIZATION FIGURE 2.5. HIERARCHY OF DEALING WITH RISKS FIGURE 2.6. EXAMPLE OF A RISK SIGNIFICANCE MATRIX WITH RESPONSE CRITERIA

List of Text Boxes TEXT BOX 1.1. RECOMMENDATIONS FOR INCORPORATING THE PRIVATE SECTOR IN STRATEGIC PLANNING TEXT BOX 2.1. MATRIX OF VARIOUS RISK CATEGORIES

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Glossary IDB: Inter-American Development Bank WB: World Bank CAPTAC-DR: Regional Technical Assistance Center for Central America, Panama and the Dominican Republic CIEN: National Economic Research Center (Guatemala)Â RTC: WCO Regional Training Center IMF: International Monetary Fund AEO: Authorized Economic Operator WCO: World Customs Organization ROCB: WCO Regional Office for Capacity Building RILO: WCO Regional Intelligence Liaison Office

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Introduction Throughout this course, we have studied the basic concepts, techniques and tools for customs strategic planning and management that will enable you to make efficient strategic plans in line with policy guidelines and which meet the needs of the sectors involved in the customs business.

In this module, we will focus on the best practices applied in customs around the world to guarantee a more efficient and robust strategic plan that can serve as an effective guide for customs reforms and modernization. In addition, this focus will also help you build on the knowledge already gained on this course.

A fundamental aspect that is often overlooked, but which could explain why even the best strategic plans fall short when put into action, is the effective management of risks customs may face when attempting to meet their strategic targets. As such, this module highlights the importance of this area, focusing on the external, operational and change risks that could affect strategic planning and customs managements.

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General Module Aims To understand and learn how to apply best practices for strategic management based on WCO instruments, tools and standards. When applied, these practices will assist customs administrations to define and design effective strategic plans and to mitigate the risks that may arise when putting these plans into action.

Questions to Guide Learning Which WCO instruments, tools and standards should be taken into account for strategic planning in customs administrations?

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UNIT I

ELEMENTS FOR STRENGTHENING STRATEGIC PLANNING IN CUSTOMS BASED ON WCO RECOMMENDATIONS

Learning Objectives 8

To understand 10 important elements that should be taken into account when creating strategic plans in customs administrations. This process is largely based on the experiences of many organizations that have been recorded by the WCO as a complement to strategic planning theories.

To understand the full range of technical assistance offered by the WCO to support strategic planning in customs.

I.1. Strengthening strategic planning in customs The ability to identify the governing principles of strategic planning, the tools available to support this process and the techniques for measuring expected results within the framework of implementing strategic actions and projects, is essential for effective and efficient strategic customs management, as seen in previous modules on this course.

However, the complex and constantly evolving world of customs leads us to the following question: what new elements can be added to current theories on strategic planning that would allow them to strengthen not only strategic planning but also strategic management in customs administrations?

It is precisely these elements that, presented as a range of practical activities, form part of a series of recommendations made by the WCO through various instruments, tools and standards, such as:

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The Diagnostic Framework; The strategic document entitled “Customs in the 21st Century”; The Capacity Building Development Compendium; The Risk Management Compendium; Other important reference documents covered in this module.

Additionally, suggestions will be made throughout the module based on the experiences complied by the WCO from the various studies carried out all over the world under its Columbus Program, which will be discussed later on in greater depth.

FURTHER INFORMATION: Let’s find out a bit more about the WCO Diagnostic Framework…

This is a tool used by the WCO to identify the degree to which its SAFE Framework of Standards is being implemented in customs administrations. In general, the findings provide a clear picture of the needs and progress of WCO members in terms of customs modernization.

This tool includes a series of questions and possible suggestions based on the experiences of various customs organizations and focuses on 7 key areas: Strategic management, resource management, legal framework, systems and procedures, information and communication technology, external cooperation, communication and partnerships, and integrity.

I.2. Key elements for strengthening strategic planning in customs based on WCO recommendations There are many important practices that we could mention when looking at how to strengthen strategic planning and management in customs. However, this module will focus on the implementation of 10 key elements and their practical and strategic impact. In turn, these 10 elements all depend on a key aspect of all strategic planning processes: the commitment of senior management to the strategic plan and its implementation.

These 10 elements are listed below in FIGURE 1.1.

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Source: Compiled by the author FIGURE 1.1. KEY ELEMENTS FOR STRENGTHENING STRATEGIC PLANNING IN CUSTOMS BASED ON WCO RECOMMENDATIONS

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Below, we will look at the best approach to each of these actions and how they can be used to improve strategic planning and management of customs modernization.

I.2.1. Involving the Private Sector “We know what the private sector needs...”; “Users don’t know what they want...”; “Our projects will be based on those implemented in other countries...”

You are probably familiar with these statements or will have heard others like them because customs often launch into strategic planning without stopping to consult or genuinely consider the main users of their services. As a result, these users are often surprised to see projects launched by customs that, in their opinion, will have no obvious positive impact. This situation can be avoided by incorporating user needs into the strategic planning process as a key source of information for defining the initiatives that should be implemented.

VERY IMPORTANT Experience has shown that one of the greatest advantages of this approach is that the more private sector involvement in strategic planning and implementation of actions and projects the more sustainable the strategic plan becomes, despite the constant changes to customs authorities in various countries from the region. As such, the private sector becomes an invaluable ally that must not be lost.

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Who are customs services provided for?

To answer this question, we only need recall that customs are a public service and that the extent to which they meet the expectations of importers, exporters, public service support entities and other users of customs services has a direct effect on their ability to increase customs revenue, facilitate legitimate trade and promote voluntary compliance.

Some recommendations of how the private sector can be incorporated in strategic planning in customs administrations are presented below in TEXT BOX 1.1.

TEXT BOX 1.1 - RECOMMENDATIONS FOR INCORPORATING THE PRIVATE SECTOR IN STRATEGIC PLANNING RECOMMENDATION

DESCRIPTION

IDENTIFY KEY PARTNERS

Initially, it is important to identify the right partners to involve in this process; those that best represent the main business sectors and have a notably positive approach to change and continuing development. These partners will act as ambassadors between customs and the private sector, minimizing resistance to change when modernization initiatives are launched.

FORMALIZE THE PARTNERSHIP

It may also be good practice to formalize the partnership through a Mutual Cooperation Agreement (although this is not compulsory) for the reform and modernization of the customs system, or a similar agreement. This would help define the scope and responsibilities of both parties and would solidify the partnership, making it less likely to fall apart.

Involve the corresponding sectors in the design stage by asking them for suggestions and improvements. This will help all participants feel part of the strategic plan. In terms of rules, the following should be considered: SUGGESTIONS NOT COMPLAINTS: ask partners to present suggestions and not complaints; this way, their contributions can be used to guide the customs management team in the strategic planning process.

INVOLVEMENT FROM THE OUTSET WITH CLEAR RULES

• HOW WILL THEY CONTRIBUTE: It is also important to ask partners to think about how they could help implement the proposed solutions since, in the end, they stand to benefit most from a transparent and efficient customs service.

• MODERNIZATION SHOULD START WITH THEM: The private sector must be willing to integrate, making suggestions through professional associations and not as individual entities. These group proposals should be prioritized and should recall that customs administrations have limited resources.

• THEY WILL NOT GET EVERYTHING THEY WANT EXACTLY HOW THEY WANT IT: It is important to explain that not all the proposals made by these partners can be considered, at least not in the way they are presented.

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RECOMMENDATION

DESCRIPTION

GIVE PARTNERS ADVANCED NOTICE ABOUT THE STRATEGIC PLAN AND WHAT IS EXPECTED OF THEM

The various professional associations or committee of representatives from the main sectors should be informed of the strategic plan for customs reform and modernization before it is launched, and of the level of support required from them to implement the plan.

TRACKING AND CONTINUING DEVELOPMENT

CAPACITY BUILDING IS ALSO THEIR RESPONSIBILITY

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OPERATIONAL COMMITTEES

Regular meetings should be set up with the various professional associations or the representative committee to evaluate progress, challenges, potential reorientation and cooperation needs within the framework of implementation of the strategic plan. We should not forget that many professional associations or guilds carry significant political weight and can therefore become key partners for securing funding and/or support from high-level national authorities and international organizations to overcome any challenges that may arise along the way.

Private-sector involvement in training strategy is essential since the best administration and management practices have emerged precisely from this sector.

Partners can also provide the first-hand knowledge of foreign trade operations that so many customs officials lack, but which is extremely useful in their line of work. The private sector has all this and more to contribute to capacity building among customs staff.

Committees should be set up to coordinate with business owners, transport companies, agents, banks, port and airport operators and other representative organizations at local, regional and national level. This will allow for the mutual exchange of knowledge and best practices, leading to more efficient customs services and increased voluntary compliance within the private sector, among many other benefits.

By following these recommendations, we will be able to include as many of the needsspecific initiatives proposed by the private sector as possible, and to forge lasting private-sector partnerships to support strategic planning in customs. This will not only help ensure a user-orientated approach to customs management, but will also help to minimize resistance to change from the private sector when reform and modernization projects are launched.

Private-sector involvement in customs modernization is so important that the WCO itself works with a representative body known as the Private Sector Consultative Group (PSCG)1. This group was set up in 2006 to advise the WCO on the implementation, progress and other related aspects of its Framework of Standards to Secure and Facilitate Global Trade (SAFE Framework). At the request of the Secretary General of the WCO, this group can also advise the organization in other matters. It is made up of 21 companies and associations from all around the world that represent a range of international-trade interests. It has produced influential reference documents, such as a report entitled “AEO Benefits�, proving to be a valuable partner in the international trade development.

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More information available at http://www.wcopscg.org/

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FURTHER INFORMATION: Studies suggest that the relationship between female business owners or traders and customs is distorted by the limitations placed on these women, which have a lesser effect on their male counterparts and are especially common to women who work in cross-border or small-scale trade. Insufficient education, and in some cases even illiteracy, hinders comprehension and fulfillment of customs processes, exposing these women to potential extortion or violence.

In light of this, private-sector inclusion in the planning of customs activities must consider the needs and characteristics of the diverse range both business men and women who interact with customs in a direct or indirect manner.

For further reading on the topic of gender in logistics, facilitation and customs management, we recommend the guidance note published by the World Bank in April 2012, entitled “Gender Dimensions of Trade Facilitation and Logistics�.

One suggested way to structure the relationship between customs and the private sector to validate, implement, track and continually improve the customs strategic plan is presented in FIGURE 1.2. This model identifies 3 levels of coordination (Political, Technical and Operational), each with its own specific responsibilities. It covers many previous suggestions for incorporating the private sector, yet also includes other public institutions that form part of the logistic chain, which will be discussed in detail at a later stage.

Source: Compiled by the author

FIGURE 1.2 - MODEL OF THE RELATIONSHIP BETWEEN CUSTOMS, THE PRIVATE SECTOR AND OTHER GOVERNMENT BODIES

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As can be seen, local committees should deal with more operational matters in order to improve coordinated border management, as established by the WCO, and to guarantee the implementation of new modernization initiatives.

However, certain situations are beyond the reach of these local groups. In these cases, local committees should refer to technical panels or groups which, in turn, should offer new solutions and initiatives based on targets that have been strategically designed for customs. These technical panels should be made up of middle management from customs, the private sector and other State agencies in order to achieve an adequate level of decision making and proposals. These proposals should be based on advanced technical content in order to support the planning of solutions to specific problems. In terms of initiatives, these must be designed to improve implementation of the strategic plan.

The third level of the support chain for validation, implementation, tracking and continuing development is a political group made up of senior management from both the public and private sectors involved in foreign trade. As such, this committee will be sufficiently representative as to have a positive influence on decisions that allow for desired strategic targets to be met.

All three of these levels require active participation from key government agencies, including customs, and from trade, industrial and service sectors, trade operators and other agents in trade operations, whose primary role should be to ensure compliance with the provisions of the strategic plan.

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We should bear in mind that the key purpose of these working groups is not simply to establish agreements, but to ensure the practical application of these agreements, which is the biggest challenge in this type of partnership. As such, special attention should be given to tracking the agreements which are made.

Partnerships between customs and the private sector established by pillar 2 of the WCO SAFE Framework of Standards can take various different forms beyond the Authorized Economic Operator; such as: cooperation to strengthen transparency and ethics in customs since, for example, many corrupt practices require activate participation from foreign trade support entities, importers, exporters and other agents involved in international trade. In this respect, a good practice within these partnerships could be the joint definition and implementation of an anticorruption strategy as one of the strategic targets for customs modernization. This strategy would require active participation from both parties and, above all, support from the corresponding country’s governing authorities to ensure effective and sustainable results.

Finally, it is important to take into account that private sector should accommodate their own logistic processes based on new customs initiatives, including those that allow them take advantage of such initiatives, therefore its involvement from the start of the strategic process is highly important.

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CASE STUDY 1 In Guatemala, under the leadership of Carolina Roca as Superintendent of the Tax Administration in 2006, one of the most successful cooperation agreements ever seen in this country was signed between customs, the private sector and other government agencies.

And it is precisely this remarkable event that will be explored in this case study.

The idea of this partnership emerged when the Superintendence of the Tax Administration got in touch with a group known as the “Coalition for Transparency”. This group was formed by a strategic partnership between the Guatemalan Chamber of Commerce, the National Economic Research Center (CIEN) and the Guatemalan chapter of Transparency International (Acción Ciudadana), with the mission of promoting transparency and fighting corruption.

Initially, the Superintendence of the Tax Administration signed a collaboration agreement with the Coalition for Transparency to implement a transparency and anticorruption project within the Guatemalan customs system.

Under this agreement, various initiatives were jointly designed and launched by the two parties, including organization of the “First National Meeting for Customs Modernization and Transparency”. This event served as a platform from which the Superintendence of the Tax Administration (SAT), the Coalition for Transparency and various government agencies, foreign trade operators and donor organizations went on to create the “Integrity Pact”. This pact mainly focused on promoting transparency and integrity in customs, but also led to the creation of 4 committees that would track the commitments assumed by all parties to the pact. (Committees on transparency, operations, procedures and standards, and user services and security) In order to make the most of this huge step forward for Guatemalan customs, in 2007 work began on the revision of strategic and operational plans in order to create the “Customs Modernization Plan”.

This document was drafted according to the specific organizational structure of Guatemalan customs and the committees set up under the Integrity Pact were responsible for tracking its progress.

The members of the Integrity Pact would then go on to validate the 2008-2011 SAT Strategic Plan for Customs, being the leading partner in this reform and modernization process. The scope of the Cooperation Agreement initially signed to fight anti-integrity practices was extended under this process and this group became a technical and political watchdog for compliance with the actions and projects set out in the strategic plan for Guatemalan customs.

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This exercise was so beneficial for Guatemalan customs that it ensured greater durability for the projects backed by this public-private partnership: In 2008, Roca resigned from the role of Superintendent of the Tax Administration and was succeeded by Rudy Villeda. Based on the previous agreements made under the Integrity Pact, the new head of the SAT decided to continue with the pre-defined modernization initiatives. This was a contributing factor in the smooth transition between these two leaders and, as a result, the customs modernization plan for this country continued in effect throughout Villeda’s term as Superintendent.

CONCLUSION This is a clear example of how much the private sector can do in terms of offering technical-political support to customs for the sustainability and continuity of strategic plans and to regulate results in the framework of their implementation.

On the other hand, the importance of formalizing partnerships between customs and the private sector to solidify cooperation in the reform and modernization of customs systems should also be stressed.

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Finally, something we have to keep in mind is that sustainability on the relationship Customs – Business depends of political situations in our countries make it vulnerable to change, however, Customs should strive to keep it active despite of ups and downs.

Therefore, customs should not begin defining strategic targets and action plans for modernization without taking private-sector opinions into account, through collaboration with key partners in this sector. Likewise, these partners are also essential for the contribution they can make to achieve strategic targets and the active role they can play in implementing and tracking actions and projects relating to the sustainability of the reform and modernization process. A very broad range of partnerships can be forged between customs and the private sector: from presenting improvement proposals to training customs staff and promoting integrity in customs administrations. This cooperation can also be applied to other fields, meaning the partnership is not only mutually beneficial for both parties but can also be of benefit to the country as whole.

I.2.2. Involving international organizations Any strategic plan for customs reform and modernization should be based on two fundamental principles: the implementation of international standards and the incorporation of good practices employed in countries with more experience in this field.

These are the two greatest benefits to be gained by customs administrations from involving international organizations in their strategic planning process, since the

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technical support that these organizations can offer is invaluable for guiding customs staff who are directly involved in this process.

International organizations that tend to support strategic planning processes include the IMF, IDB, WB and various donor administrations; such as Spanish customs, U.S. customs and Canadian customs, among others. However, the WCO, as the only international organization dedicated specifically to the world of customs, is the main partner that customs administrations should look to when beginning a strategic planning process.

How does the WCO support capacity building in customs administrations who are members of this organization?

Within the framework of the strategic planning process, the WCO supports customs administrations through its Columbus program and under the key premise of “creating a strategic plan WITH customs not FOR customs”. This approach is vital for successful implementation of such plans since it allows customs to fully engage with the strategic actions and projects defined in them.

FURTHER INFORMATION: Let’s find out a bit more about the WCO Columbus program…

According to the WCO, this program is the largest and most comprehensive capacity-building initiative ever seen, supporting full implementation of the Framework of Standards to Secure and Facilitate Global Trade (SAFE Framework). The Columbus program has three stages and is designed to build capacities over the entire customs modernization cycle. (see FIGURE 1.3.)

Source: WCO

FIGURE 1.3. CUSTOMS MODERNIZATION CYCLE, THE WCO COLUMBUS PROGRAM

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The WCO has issued the following key data about this program: High demand for joining the program from WCO members Standardization and comprehensive proposal for identifying and addressing capacity-building needs Made-to-measure solutions for each country based on comparative analysis Linked with WCO instruments, tools and good practices: Capacity Building Diagnostic Framework Capacity Building Development Compendium Management Development Program Guidelines for Implementation of the AEO Programs Guidelines for Risk Management in Customs Integrity Program The Columbus program is implemented and monitored by the WCO through its Capacity Building Department and the WCO regional network, made up of its Regional Offices for Capacity Building and Regional Training Centers2.

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In a nutshell, the WCO supports and guides customs from the very beginning of the strategic planning process by organizing workshops with customs management teams. The WCO helps these teams to define and review the vision, mission and values of their organizations, and to identify country-specific priorities and how they can be addressed within the framework of international standards and good practices for customs.

It is important to note that when WCO support is received, the customs administration in question organizes workshops that take place over the course of one working week, during which all members of the customs management team leave their daily duties aside to focus exclusively on strategic planning. These workshops are delivered by two WCO-accredited experts in customs modernization who use their experience in this field to help the participants. At the end of these workshops, an action plan is drawn up for both the design and implementation of the custom administration’s definitive strategic plan.

The WCO also helps customs administrations to track the implementation of their strategic plans. When specifically requested by the customs administration in question, the WCO may play a central role by coordinating implementation and both the technical and financial support that the administration could receive from other organizations. In this role, it helps to avoid duplication or overlap of this type of assistance which, far from contributing to customs modernization, could prevent the deIn the Americas and the Caribbean, the WCO has a Regional Office for Capacity Building (ROCB) in Buenos Aires, Argentina; a Regional Training Center (RTC) in Santo Domingo, Dominican Republic; and a Regional Intelligence Liaison Office (RILO) in Chile.

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sired results of the actions and projects launched under the strategic plan from being achieved. This often occurs when customs administrations decide to launch projects that they see being run in other countries or that are imposed by the government and are not, as a result, defined by the customs administrations themselves. All too often, this leads customs administrations to neglect their own strategic plan.

The involvement of international organizations, such as the WCO, in strategic planning processes sends a very positive message to national authorities and international donor institutions alike. It boosts the creditability of customs administrations and allows for a greater level of cooperation in the implementation of its actions and projects.

In other words, the technical support provided by the WCO throughout the strategic planning and management process facilitates the incorporation of international customs standards and good practices and generates a higher level of confidence in this process among national agencies, private sector and international organizations.

In turn, this increases the possibility of the customs administration receiving further support for its reform and modernization process.

CASE STUDY 2 In 2007, the Nicaraguan customs launched a complete transformation of its services. This process began with an update of its mission and vision which led to the creation of a new strategic plan.

As such, in 2009, the General Director of Nicaraguan customs, Edy Medrano, asked the WCO for technical support to create a report on the diagnosis carried out by this organization on its members that assessed the challenges, opportunities and obstacles associated with the SAFE Framework of Standards. This project was completed in May 2009, over the course of 15 days, by WCO experts from Chile and Guatemala.

The resulting report contained a series of recommendations that were sent to Nicaraguan customs for consideration and potential implementation. As a result, and based on the firm dedication of this customs administration to continuing to implement the WCO SAFE Framework of Standards, it once again asked the WCO for help to create a strategic plan to introduce the recommendations from this report.

Interestingly, before the release of the WCO diagnosis mission for this country, the IDB and Nicaraguan customs had already agreed on the allocation of USD 500,000 of financial support to modernize the customs service. However, these funds were not awarded at the time because Nicaraguan customs did not have a definitive strategic plan in which its priorities were clearly defined.

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It was at this point, in July 2010, when the WCO provided Nicaraguan customs with the necessary support to create a strategic plan which, among other features, focuses on just 3 key projects for the country, in light of the resources available to customs at the time. Once the plan was complete, customs reapplied to the IDB for release of the technical cooperation funds to finance implementation of these 3 key projects.

The most interesting thing about this case study is that the IDB required from WCO to certify it had collaborated with Nicaraguan customs on the development of its strategic plan before the funds could be released. Once the WCO certified that this had indeed been the case, the IDB released the funds to Nicaragua in a clear display of its support for the projects defined in this plan.

CONCLUSION Three key aspects arise from this case study, which are directly related to the recommendations proposed in this module:

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1. The benefit of involving international organizations, such as the WCO, in strategic planning in customs administrations, since it was this support that ensured Nicaraguan customs received the IDB funding.

2. The importance of defining a strategic plan based on the customs administration’s current and foreseeable resources, in order to achieve the best implementation results. (See the following section) 3. The role played by donor organizations in supporting the modernization of customs systems, as seen in this case through the involvement of the IDB.

I.2.3. Establishing priorities in line with the customs administration’s capacity When embroiled in a strategic planning process, we often want to have everything ready in record time and make the mistake of taking on too much too quickly, when current and foreseeable capacity is simply unable to cope with such commitments. In this case, capacity refers to the quantity and quality of human and financial resources and the ability to involve the private sector and to coordinate operations with other government agencies.

Experience shows that many customs administrations throughout the world tend to be influenced by innovative projects that have been successful in other countries and, as a result, attempt to implement similar projects, which in the majority of cases is not that easy. Sometimes, the groundwork required for these projects is not put in and, as such, they become very vulnerable in terms of sustainability. On top of this,

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other projects are often being worked on at the same time, which only serves to increase the overall workload and put the implementation of all projects being planned at risk, due to a failure to prioritize work.

An additional element to understand the context under which customs may address their reform and modernization challenges, it is the reduced resources dedicate to innovation and project development, since the experience says that only 10% or less of the time and 15% or less of budget is allocated to this kind of activities, since attention to recurrent tasks occupy most of resources of the customs services.

PRACTICAL EXAMPLE: One of the clearest and most common examples of projects being implemented when the customs administration is not properly prepared can be seen in the case of single window projects, which have become very popular in customs in the Americas and the Caribbean.

In some cases, when we hear the term “Single Window” we immediately think of an advanced computer system that simplifies and streamlines business processes. As a result, projects often focus on developing a software application even when this simply automates the same bureaucratic and time-consuming processes that are already in place or, and which is even worse, these processes are adapted to the limitations of this new software instead of being the other way round.

Therefore, in these cases it is best to start by improving these processes and then to design a computer system that will be able to support the improvements. This helps to all the involved public agencies to get higher ownership with their business processes.

In this respect, it is important that small customs administrations with significant limitations, such as many of those in the Americas and the Caribbean, work on very few projects at a time in the same year (some can go longer than one year), since this will lead to more substantial results than if many parallel projects are planned, yielding poor results as they exceed the custom administration’s capacity at the time. This is not to say that needs and potential actions to address them should not be identified; but rather that prioritization is the key to, little by little, achieving significant results.

In this context, to prevent strategic planning from going beyond the customs administration’s resources and capacities, strategic plans need to consider the human and financial resources that planned actions and projects will require. In addition, management indicators should be established as reference points for effectively measuring the extent to which the strategic targets are fulfilled, as referred to in detail in module 4 of this course.

FIGURE 1.4 presents the steps that customs should follow to strike a balance between human, technological and physical resources versus the projects to be implemented.

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Source: Compiled by the author

FIGURE 1.4. SUGGESTIONS FOR PRIORITIZING PROJECTS AND STRATEGIC ACTION ACCORDING TO CUSTOMS RESOURCES

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While it is advisable that projects are prioritized according to the current and foreseeable capacity, it is also important that the actions prioritized within these projects combine two fundamental types of results: a. Results for today (Early victories): these require the inclusion of actions offering short-term results arising from customs management and that, above all, respond to the political interests that affect, to a greater or lesser degree, all customs administrations. This will boost confidence and support for achieving goals that focus more on the technical rather than the political aspect of the projects.

Here is an example to clarify this concept:

Imagine that one of the priority projects identified by your customs administration is to substantially improve the management of its business processes. This is clearly a rather lengthy project; therefore, in order to deliver results for today, processes should be identified that have a greater impact in terms of time, cost and simplification on one or more professional associations which have a significant influence on the rest of the private sector. In addition, the substantial improvement of said processes should not be so complicated for the customs administration. Once the processes have been selected according to these criteria, the next step is to prioritize the actions designed to improve them (experience shows that choosing more than 2 processes is not advisable). This will enhance credibility in the eyes of all the State sectors and institutions involved, in order to continue to substantially improve other business processes.

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b. Results for tomorrow: normally these are more associated with the technical part of strategic planning and should focus on structuring the medium- and longterm actions that will be taken.

Once again, let’s look at a practical example:

Continuing with the previous example, to define the results for tomorrow in this case, we should begin with a complete diagnosis of the customs administration’s business processes, including all internal areas and external users involved. At the same time, research should be carried out into best practices and standards related to these processes, and into the corresponding user needs. Based on this research, an action plan for the substantial improvement of business processes can then be drawn up, including the medium- and long-term milestones to be achieved.

In short, customs administrations should take on commitments that they are able to fulfill and which do not exceed their capacities in terms of resources and the abilities of their staff because this could lead to serious problems in terms of meeting strategic targets.

It is best to have fewer projects with enough resources to achieve substantial and sustainable results, as opposed to planning multiple projects all at the same time without having enough resources to ensure they are properly implemented. One situation that makes an even greater case for this approach is the fact that customs, as a public institution, should aim to strike a balance between achieving short-term results (results for today) and medium- or long-term results (results for tomorrow).

This is mainly due to the need for public institutions to regularly present the results of government actions and policies.

I.2.4. Involving all levels within customs There are a number of reasons why involving staff at all hierarchical levels in the strategic planning process is vital for successful implementation of the resulting plan.

The first is due to the importance of a strong connection that must be felt by all customs employees with the actions and projects defined in the strategic plan. This can only be achieved if all staff are given the chance to make proposals that will be considered during the planning process.

All too often, strategic planning processes are carried out by a specific group or, at best, through exercises involving middle and senior management; however, let’s stop and consider the following questions: Which part of customs would you go to if you wanted to know how customs worked in a particular country? Would management be the best place to get this information?

The answer to these questions can be found in a conversation held in 2010 with Mr. Ernani Checcucci, the then acting WCO Deputy Director of Capacity Building and former Director General of customs in Brazil, who is now the new WCO Director of Ca-

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pacity Building. We discussed these questions with Mr. Checcucci and agreed that the first point of call for anyone who wants to find out about customs is, in fact, the operational area; that is, employees working at borders, ports or airports. This covers all staff whose daily work in operations gives them a genuine insight into what really goes on at customs, including those responsible for managing and supervising customs offices.

This is an example of how multiple goals can be achieved through involving operational-level staff in the strategic planning process. Indeed, making the most of their practical experience, which can be highly useful for defining strategic actions and projects, is just as important as achieving the above-mentioned sense of association with the strategic plan. The inclusivity of this planning process is essential for tackling the inevitable resistance to change that will occur when the strategic plan is implemented. This problem can also be dealt with through an effective communication strategy directed at all levels of the organization.

Our suggestions for how to incorporate all levels of the organization in the strategic planning process are as follows:

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Source: Compiled by the author

FIGURE 1.5 - SUGGESTIONS FOR INCORPORATING OPERATIONAL-LEVEL STAFF IN THE STRATEGIC PLANNING PROCESS The above mainly focuses on what is referred to as the design and creation of the customs strategic plan; since its implementation, tracking and continuous improvement require the previously mentioned actors to take on different roles, which is part of the customs strategic management process.

Therefore, it is important to focus on the development of a robust strategic planning process that is shaped around and appropriately linked to the resource allocation process and to the process of ensuring everyone at the customs administration is duly informed and feels part of the strategic plan.

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One situation that is often seen in public institutions in general is that the strategic plan is imposed on the organization by an external authority (for example, a ministry) or, in other cases, it is imposed by general management on the rest of the organization. In the customs context, this means that the required documents are prepared but little thought is given to strategic planning or the development of a suitable longterm outlook for customs that involves staff at all levels and that, in addition, links strategic planning to resource allocation (human, physical, financial, equipment, etc.) and to ways of measuring performance.

This is why, in order to achieve a strong sense of association at all level of the organization and to reduce internal resistance to change, customs staff at all levels must be assigned a specific role in the strategic planning process. This needs to be an inclusive plan that is clearly communicated at all levels. It should contain aspects derived from the experiences of operational staff and the needs of the main users of customs services (importers, exporters, economic operators and the government). Armed with such a plan, customs will be better equipped to overcome the challenges that tend to arise in the implementation stage and that affect the communication and management of change on both an internal and external level.

I.2.5. Incorporating strategic requirements shared by all customs administrations According to the WCO, 21st-century customs must fulfill a range of specific roles that go beyond merely collecting taxes (see FIGURE 1.6). However, tax collection remains the primary goal of customs in developing countries since these taxes represent a large part of the State budget. As a result, this situation is not likely to change until the economy in these countries has grown enough for substantial internal taxes to be raised.

Having said that, in many developing countries tax collection is not the most important role of customs. In these cases, the main concern of customs is security and/or protecting society due to the specific circumstances of the country or region.

To a varying degree, the trade facilitation is one of the key priorities of countries all over the world in search of greater national competitiveness, especially after the adoption of the WTO Trade Facilitation Agreement (Bali Agreement) reached in December 2013. In the majority of cases, customs service are the main source of statistics on foreign trade; another key function of modern customs administrations.

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Source: Compiled by the author based on the WCO Strategic Document “Customs in the 21st Century” FIGURE 1.6. THE ROLES AND RESPONSIBILITIES OF CUSTOMS IN THE 21ST CENTURY ACCORDING TO THE WCO In terms of the above-mentioned roles, various specific strategic requirements are asked of customs by external agents; these basically reflect how society perceives the work done by customs. Therefore, it is very important that these requirements are included in one way or another in any customs administration’s strategic plan.

As such, and based on the WCO Capacity Building Compendium, these strategic requirements are listed below so you can see what they are and take them into account in your customs administration’s strategic plan. a. Transparency: The trade and public require clear, published rules and procedures which are consistently applied to a common standard. These need to be supported by an extensive information service to clarify understanding in advance of movement and an appeals system which can fairly resolve disputes and misunderstandings. b. Minimal interference: Legitimate trade and passenger traffic can reasonably expect minimum interference from customs. This comes from simplicity of regulation and procedures, the use of advance information, speed of clearance and ease of payment and recovery of monies. c. Security: In addition to the international requirement to protect society from terrorism and organized crime, it is the task of customs to protect legitimate trade,

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the environment, the national heritage and provide a visible presence which inspires public confidence. d. Partnership: Customs must be encouraged and supported in the development of effective internal and external relationships which allow other government departments, the trade and public to influence their operations. Furthermore, customs should be responsive to legitimate demands from economic operators and to be coordinated with the activities of all border management agencies. This will eliminate duplication and minimize bureaucracy. e. Professionalism: Legitimate trade and passenger traffic can also reasonably expect to be dealt with by customs staff who are experts at their jobs, have a service mentality and a high level of personal and professional integrity.

Instead of simply listing these requirements, it is important to know exactly how they can be incorporated into strategic planning processes in customs. Therefore, we have included the following practical suggestions for how this can be done.

In terms of transparency and professionalism, these must feature in the institution’s statement of core values. These values must be promoted at all levels of the institution and incorporated into its code of ethics.

In addition, these core values, together with the mission and vision of the customs administration, form the philosophy under which its strategic guidelines are drawn up.

On the other hand, security and minimal interference are requirements that should be incorporated in one way or another in the customs administration’s strategic targets, under which the actions and projects designed to increase security and minimize interference should be defined.

Lastly, the formation of partnerships is a business strategy that will help customs to meet their strategic targets, as recognized in the WCO strategic document “Customs in the 21st Century”. This document suggests that thanks to its international nature, customs play a key role in boosting competitiveness, combating smuggling and fraud, and protecting the logistics chain. All this highlights the importance of forming strategic partnerships that enable customs to enhance the coordination and integration of controls in order to achieve better overall results in all the above-mentioned fields, benefitting both customs and the country as a whole.

Therefore, customs administrations which are in the process of modernizing their services should bear in mind that tax collection, security, protecting society, trade facilitation and generating statistics on foreign trade are, according to the WCO, essential roles that all modern customs must fulfill. In addition, we should not forget that both legitimate trade and passenger traffic can expect to receive a quality service based on transparency and professionalism. In addition, an appropriate level of security can also be expected, alongside increasingly lower levels of interference in legitimate trade operations. Strategic partnerships with the private sector, other government departments and customs organizations, which boost integration and coordination of work, are the key to achieving these goals.

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I.2.6. Reviewing the organizational structure of customs As stated in the World Bank’s Customs Modernization Handbook (2005, part I, page 36)3, an ideal organization is not static. It should have a degree of flexibility that allows it to continually modify its structure to address new challenges, changes in workload, geographical expansion, competition, the introduction of new technology and innovation, and changes in applicable legislation. This applies to both private and public sector organizations, and a customs administration is no exception.

However, experience shows that customs administrations often embark on strategic planning processes that do not include a critical review of their organizational structure, which should focus, above all, on analyzing service efficiency and effective achievement of strategic targets.

In other words, customs will often come up with strategic projects and actions to rectify certain shortcomings or to simply improve performance and modernize services.

However, the strategies designed to achieve these results do not usually include the adaptation of their organizational structure. This adaptation would, however, allow for better resource management, essential training about key projects and, in general, would prevent a non-customized approach to implementation that later translates into poor results for both the administration as a whole and those responsible for managing these projects.

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IMPORTANT! The review of a customs administration’s organizational structure in light of its strategic priorities does not necessarily have to lead to the elimination, creation or modification of organizational areas or hierarchal levels. In the majority of cases, what actually needs to be reviewed is: potential duplication or lack of definition of roles; the quality and quantity of resources allocated to existing areas; the financial resources available for implementing the projects set out in the strategic plan; and the chain of command in key areas, among other aspects that prevent effective communication, coordination and production of the desired results. Furthermore, in many cases effective allocation and management of resources, including continuing professional development for staff, allows for better resolution of problems that, even if the organizational structure was modified, would still continue affect the achievement of strategic targets.

Consult the complete versiĂłn of this Handbook through the following link: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2005/02/03/000090341_20050203145443/ Rendered/PDF/31477.pdf 3

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Which strategic organizational areas are essential for a modern customs administration?

The answer to this question cannot be found in any international standards or good practices for customs published to date. As explained in the previous section, the organizational structure of a customs administration will be defined by its specific priorities and both its individual and national context. However, based on experience, we have identified various administrative and financial elements, and also some relating to more specialist areas that have contributed to improving results in modern customs administrations. These elements are: a. Risk management and intelligence: Accepting that 100% control over the international movement of goods is simply impossible, modern customs are increasingly turning to risk-based management, as recommended by the WCO. In light of the specialist knowledge required for data collection and analysis, and for control and intelligence tasks, a specially trained team needs to be appointed to make sure this work is properly performed, even when risk management is an element that affects all areas of the organization. b. Customs-private sector, customs-public sector and inter-customs partnerships: As we all know, customs must coordinate on a national level with private and public institutions, and with other customs and organizations on an international level, without forgetting the important relationship with donor organizations that provide essential financial support for national and regional customs initiatives. This is why modern customs administrations all over the world have created specific departments responsible for the handling, administration and development of these relationships, for the good of customs and the country as a whole. These modern administrations will often have departments dedicated to international affairs or international relations, or similar departments with different names, which all work toward strengthening customs-private sector, customs-public sector (Coordinated Border Management) and inter-customs relationships. Ideally, strategies for developing or maintaining these relationships should be established taking government policy into account and seeking to increase awareness of the importance of customs in meeting wider-reaching government targets. c. Strategic planning: Many customs throughout the world have a strategic planning department that is either run directly by customs or, in the case of integrated institutions in which at least customs and internal taxation are managed by the same administration, a single strategic planning department may be in place for the administration as a whole.

However, there are many customs administrations that either have no such department or whose planning department is limited to merely supporting the definition of strategic plans. In addition, these departments play a minimal role in customs management and are not involved in assessing, improving or redefining current practices or in ensuring effective resource allocation.

This is why it is so important for strategic planning departments to be manned by staff with knowledge and experience not only on planning methods and tools but also of the world of customs, and who have the skills to assist other key areas

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to create effective annual operational plans, in addition to providing essential support in any other customs management tasks. d. Information technology: “... Customs must take advantage of new and emerging technologies to enhance, amongst others, processing, risk management, intelligence and non-intrusive detection” (WCO document “Customs in the 21st Century”, section 14, paragraph f). In light of this, it is vital to have staff working exclusively on researching new technologies and on developing and maintaining applications that support customs management, facilitate procedures and ensure information is properly communicated and processed, among many other tasks.

The vast majority of customs administrations throughout the world use new technology to facilitate legal trade and to fight customs fraud and smuggling. In some cases, this service is outsourced by customs administrations, who then simply define, direct and control the service that is provided.

e. Managing the modernization process: For the majority of customs administrations, modernization is a primary concern; however, they often lack a specific person or department responsible for managing this process. It is very important to have at least one person in charge of managing the changes brought about by modernization; something we will discuss in greater detail below. (See section 1.2.7.)

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f. Authorized Economic Operator: There are currently many customs administrations involved in these programs. They basically consist in forming strong partnerships between customs and the private sector in order to facilitate legitimate trade and to safeguard the logistics chain, in accordance with the WCO SAFE Framework. Customs are not usually that familiar with either of these areas; therefore, administrations that decide to launch this type of initiative should create a special department to generate knowledge and gain experience of these programs in order to guarantee success.

FURTHER INFORMATION: In the majority of developing countries, the Ministry of Finance is the government department that relies most on customs. This automatically shifts the primary focus of these customs administrations toward tax collection. However, this does not necessarily have to be the case, especially if we consider the changes currently occurring in the world of customs due to the evolution of control and facilitation responsibilities. For example, in countries in which the facilitation of trade is one of its main priorities, customs is usually under the supervision and control of the Ministry of Trade or Economy; on the other hand, in cases such as the USA, where security is the primary focus, customs falls under the Department of Homeland Security. This shows that there is no set rule relating to the government agency to which customs is attached, but rather that this relationship is determined by the particular situation in each country.

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As confirmed in the WCO SAFE Framework and the WCO document “Customs in the 21st Century�, all these areas are unavoidable for modern customs. As such, they merit special attention when reviewing organizational structure so as to incorporate them in specialized customs departments in order to guarantee better implementation results.

In summary, customs administrations should review their organizational structure as part of the strategic planning process in order to determine if strategic reform and modernization targets can be achieved under the current structure. It is very common for this to be left out of the planning process and for the strategic plan to only include innovative projects which often end up being managed by different organizational areas. As a result, they tend to fail due to, among other things, a lack of focused leadership from just one or a small number of areas within the organization.

That said, it is vital that topics such as risk management, private-sector, public-sector and inter-customs relationships, management of modernization, strategic planning, IT and authorized economic operator programs are all addressed in specialist terms by organizational areas within customs, since they are practically unavoidable for modern customs administrations, according to the WCO.

I.2.7. Appointing a team to manage the modernization process We have already discussed various practical elements that are important over the entire strategic planning process; including, the definition of priorities according to capacity, involvement of customs staff at every hierarchical level and review of the organizational structure.

All these elements boil down to a single aspect that forms the basis of any organization: human resources. Even the best strategic plan is doomed to fail without seniorlevel support, good management, tracking and the necessary quantity and quality of resources.

During a strategic customs modernization process, actions and projects are usually implemented by the existing organizational departments. This means that in addition to their daily duties, staff in these areas must also perform the tasks set out in the strategic plan; increasing their workload and leading to delays. This focus is misplaced and lacks a sense of integration with other customs administration units, which, among other things, causes implementation problems.

You may well be familiar with the situation described in the previous paragraph. In response, one of the good practices put forward by the WCO and other organizations involved in supporting customs modernization processes -for example the IMF, IDB and the WB- is to appoint a specialist team to manage this process or, at the very least, a single person to do this work, in order to effectively distribute the workload and responsibilities arising from the strategic plan.

This team should play a central role in the planning, implementation and, above all, tracking and continuous improvement of customs management. It should also have

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the full support of the General Director, basically acting as their representative before other internal organizational units and before external institutions, in order to obtain the best results in the most effective way.

Some aspects that should be taken into account when identifying and appointing the modernization management team are: a. Ideally, the team should be made up of staff from different departments within the customs administration, who are proven leaders and, as such, can influence discussion-making processes with minimal resistance to change. Therefore, it is preferable that they are chosen from among the existing customs staff. b. A reform and modernization “champion� should be identified to lead the management team; however, the ultimate team leader will always be the Customs General Director. c. The modernization management team should report to the General Director and not to a secondary unit. This will ensure the team has sufficient authority to make substantial changes to decision-making process, up to a certain point that should be agreed in advance with the General Director. d. Ideally, team members should have a high level of knowledge and experience of project management, leadership, decision-making, change management and negotiation, among other desired skills.

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e. The main duties of the team should include: acting as the main link between the General Director and the teams appointed to implement strategic projects, and reporting on progress and on risks or challenges that could affect implementation of the strategic plan. f. This team should act as the primary support unit for areas carrying out modernization actions and projects, advising them on how best to achieve their targets and, above all, seeking to integrate the actions of each different area as poor communication is often one of the main causes of delay or failure during the implementation stage.

In summary, experience shows that the complexity of the world of customs and the multiple tasks that customs administrations perform often make it hard to ensure that strategic management and responsibilities are evenly distributed throughout all customs departments. Therefore, based on the experience of various customs administrations from around the world, the best way to overcome this challenge is to appoint a special team to take on this responsibility. This team should have the full support of the General Director, report directly to this person, represent them before other internal organizational areas and its members should have basic project management and strategic planning skills. As such, this team will be able to directly support all areas of customs and to ensure full and effective integration of the work carried out in each administrational area.

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I.2.8. Customs should participate in the definition of the policies they carry out Customs administrations are often responsible for following government policy that they have had no part in defining. This often causes implementation problems and leads to inconsistencies in the policies implemented by customs on behalf of other government agencies.

Given its significant role in the collection of taxes, as mentioned before, customs administrations in many countries operate under the control and supervision of the Ministry of Finance or the Department of the Treasury. This often makes it difficult for customs staff to ensure sufficient priority is given to targets that are not related to tax collection, such as trade facilitation, protecting society and national security, among others.

As such, considering that the responsibilities of customs have changed considerably in recent years and that some of these responsibilities must be shared with other government agencies, it is vital that customs administrations are able to play an active role in defining the policies that they are then responsible for implementing.

How can customs administrations ensure they have a say in the definition of government policies?

Customs administrations should establish clear goals, targets and performance indicators that reflect their broad range of responsibilities. They should also focus on raising awareness among top-level national authorities and on seeking out strategic partnerships in the private sector to support their goals and targets.

This is done by increasing awareness among high-level authorities but it is not such an easy task especially when national policies focus more on tax collection, as is often the case in the majority of developing and least developed countries; however, the goals and targets of customs administrations go far beyond simply collecting taxes, as mentioned in section 1.2.5 of this document.

In the case of integrated administrations (internal taxation and customs), policy definition or external review is often only carried out by the most senior management of the administration. However, in the majority of cases, the directors of these institutions are usually from an internal taxation background and lack customs experience.

Therefore, the interests of customs are often overlooked in high-level government meetings.

The benefits of customs administrations playing a more active role in the definition of the policies they go on to implement are as follows: a. More direct government support for definition of targets not only for tax collection but also for the other roles performed by customs administrations. b. Closer collaboration between customs and other government agencies to improve coordinated border management.

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c. Development of a strategic plan that supports the implementation of a national strategy. d. Greater durability of customs initiatives. e. Greater possibility of immediately addressing challenges in strategic customs management when these require decisions that go beyond the areas of responsibility of the customs administration. f. Greater awareness among international and donor organizations of the results that a customs administration is capable of achieving if given the chance to play a more direct role in managing support from superior authorities for customs modernization processes. This could, in turn, attract more financial resources for priority customs projects.

These are just a few examples of how useful it can be for customs administrations to push for a more active role in the definition of policies which they go on to apply.

There are, however, many more benefits that translate into greater certainty for customs authorities about the path they should follow, instead of continuing to be more reactive than proactive. Being reactive often leads to unnecessary costs, insufficient allocation of resources and, in short, a series of complications that prevent customs from reaching the desired level of modernization.

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It is difficult for customs administrations to implement policies that they were not involved in defining. This often means that the customs administration is not properly prepared to implement these policies as, in order to do so, it often has to modify procedures or adapt systems, which usually means making changes to its strategic plan. Therefore, customs administrations should seek to raise awareness among superior authorities of this situation, in order to participate in discussions about issues that affect them. Securing a place at these discussions also has other benefits for customs administrations, such as: the opportunity to receive more direct project implementation support; closer collaboration with other government agencies for better coordinated border management; the alignment of its strategic plan with the country strategy; greater durability of customs initiatives; greater possibility of overcoming any challenges when implementing their strategic plan and, last but not least, greater awareness among international and donor organizations of the results that can be achieved, encouraging more technical and financial support for customs initiatives. As such, it is very important that customs administrations do everything possible to win themselves a place at high-level government meetings.

CASE STUDY 3 From 2007 onward, when Rafael Correa became the new president of Ecuador, the country’s customs service underwent a series of big transformations thanks to a group of young entrepreneurs who won over the president with their proposal for customs reform and modernization. The president was so impressed with this proposal that he appointed one member of the group, Santiago León, who was

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around 30 years old at the time, as the General Director of Customs.

To go about this task, Mr. Leรณn Abad surrounded himself with the rest of the group who had designed the proposal, making them his most trusted advisers within Ecuadorian customs and appointing them to key roles within this administration.

This strong show of leadership set in motion a series of groundbreaking ideas that were launched throughout Ecuadorian customs, which, due to their innovative nature, were met with a certain amount of resistance in both internal and external sectors.

A very common issue in customs administrations led the General Director to attend a high-level government meeting, with the sole intention of resolving this issue.

However, Mr. Leรณn Abad decided to make the most of situation to ensure that President Correa and the other government officials realized the importance of inviting customs to participate in this type of meeting, as a technical agency directly involved in national productivity. President Correa then asked Mr. Leรณn Abad why he did not always take part in these meetings and asked him to do so from then on.

This allowed Ecuadorian customs to greatly improve inter-institutional relationships and cooperation and, above all, to gain direct support from the president for many of its future initiatives.

A clear example of the importance of this relationship can be seen in 2010, when customs decided to update its IT management system.

After looking at all possible alternatives, the final budget remained rather high and exceeded the capacity of Ecuadorian customs at that time. However, making the most of these meetings, the matter was brought up for discussion and after hearing how this initiative would benefit the country, President Correa himself approved the acquisition of the new IT management system that customs had chosen.

This would have been a highly bureaucratic process and perhaps not even possible if not for this direct relationship established with high-level government officials that created the opportunity to present the initiative directly to such people.

CONCLUSION Securing a place at meetings in which government policy is defined and reviewed has multiple benefits for customs, especially with regard to policies that they are required to implement. As we saw in this case study, it also offers the chance to speak directly with high-level officials and to request occasional support for certain initiatives when this would be difficult to gain under other circumstances or at least at the precise moment when it is needed. Often the cost of not gaining this type of support in due time is very high and is usually unquantifiable for customs administrations.

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A final important aspect of this case study is how customs have to make the most of any opportunities that arise to show how important it is to include them in the definition of policies that affect their work.

I.2.9. Involving other government agencies Talking about strategic planning for customs modernization without mentioning the role played by other government agencies that participate in the control of crossborder trade is a frequent problem that we see in many countries.

Although this situation does allow customs to make headway modernizing many administrative or support processes, it is not conducive to reforming most business processes and, therefore, is not seen as the most appropriate way to modernize customs systems.

This is basically because while innovative initiatives may be applied in customs, other government agencies may not progress at the same rate or in the same direction.

This lack of coordination represents a significant disadvantage for importers and exporters alike leading, in general, to the desired levels of national competitiveness never being achieved.

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Trade facilitation, security, protecting society and combating smuggling are the key drivers for coordination between government agencies, since these areas are linked with national strategy and are not only the responsibility of a single agency.

FURTHER INFORMATION: The WCO establishes better coordinated border management as one of the building blocks for 21st-century customs (WCO Document: “Customs in the 21st Century�, section 14, b). This entails coordination and cooperation among all relevant authorities and agencies involved in border security and regulations on the cross-border flow of passengers, goods and conveyances. According to the WCO, it represents two fundamental aspects for strengthening corporation between government agencies for better border management: the first, recognition of customs as the chief agency on national borders in terms of control over the circulation of goods; the second, introduction of an electronic single window as a key tool for streamlining border processes through one-stop presentation of all documents required by customs, who then send on the relevant information to other government agencies.

The Inter American Developing Bank promotes this topic in the region in different ways, being one of these, delivering an online course oriented to stress on the importance of an effective coordination among public agencies acting at border to streamline cross-border movement of goods, means of transport and people.

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That said, customs must attempt to involve institutions dedicated to controlling the import and export of illegal goods, institutions dedicated to health regulation and protection, and indeed all agencies involved in import and export activities, including clearance. In addition, agencies that do not play a direct role in these activities but that could provide customs with valuable information to help strengthen its approach to risk management should also be involved.

The same applies here as in section 1.2 on private-sector involvement in strategic planning, as proposals from other government agencies involved in controlling foreign trade should also be considered by customs. Likewise, customs should also actively request such proposals and encourage these agencies to participate in the implementation, tracking and continuous improvement of actions and projects set out in its strategic plan.

A good practice for establishing this relationship, as mentioned in section 1.2, is to set up local and/or regional committees to discuss matters such as coordination or to come up with alternative solutions to any problems a specific agency may face. These local committees should be led by customs, as the chief agency for customs control.

Participation from all other agencies massively contributes to simplifying customs management at ports or borders, even leading to “one-stop border� agreements or other initiatives.

Despite all this, the impact of these local groups is limited to their specific operational area. Therefore, it is best to replicate these relationships between customs and government agencies at high political levels to ensure optimal results for initiatives involving more than one agency. In a number of countries, high-level committees are frequently formed between customs, other government agencies and representatives from the private sector at which customs reform and modernization is discussed at a strategic level (See FIGURE 1.2).

Single window projects are a good example of initiatives that require a high level of cooperation and coordination, which has been identified by the WCO as a key aspect of coordinated border management. This type of initiative requires a high level of process simplification, maximum reduction of paperwork and, as a result, the use of new technologies in all agencies involved in the cross-border movement of goods, passengers and conveyances. In many cases, this leads to a series of complications that delay results since not all participating agencies have the same technical capacity. Results may also be delayed when the initiative is headed by an agency that does not outrank the participating agencies and is unable to supervise and support implementation.

This is why in many countries, such as Korea, this type of initiative has been directly led by the highest governing authorities, facilitating, among other things, inter-institutional management.

Finally, it is important to stress how a good practice for private-sector involvement in strategic planning can also be applied at a political level4 to promote active contribution from other government agencies in customs modernization, especially when such participation proves difficult to achieve.

4

See section I.2.1.

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Therefore, the division of controls performed at borders among various government agencies creates the need for customs to involve these agencies in their strategic planning. While these agencies could become valuable partners for customs reform and modernization, they could also present a big obstacle for streamlining and simplifying the flow of goods, passengers and conveyances through the country. Therefore, it is vital that from the very beginning of the strategic planning process, these agencies are duly considered and that they make an effort to actively participate in the implementation and tracking of actions and projects defined within the strategic plan for customs reform and modernization. This should occur at both the highest levels of management and at a local level in coordination and cooperation at borders, ports and airports.

I.2.10. Aligning capacity building with the strategic plan

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When we talk about capacity building in customs administrations, we are not just referring to training, but also, among other things, to technical support and the development of instruments and tools that help customs staff at all levels to learn new skills or build on existing ones. These skills equip them to influence, design and manage policies in compliance with national requirements and regional and international obligations (WCO document: “Operational Strategy and Vision of the World Customs Organization 2009-2012�) so that customs can take charge of their own reform and modernization processes.

It is important to begin by explaining what capacity building for customs means as its definition will help us to understand why all strategic planning processes should be supported by an effective capacity-building strategy. Basically, capacity building contributes to developing the most important factor in the design and implementation of the strategic plan; the customs staff.

As we have said before, the best strategic plan is useless if it cannot be properly implemented. In fact, lots of articles and books have been written about this and some even suggest that it is better to have a well-implement yet mediocre strategic plan than an excellent strategic plan with little chance of effective implementation. This highlights the importance of implementation and, as we mentioned before, human resources are the most important element in this task, from the point of view of both quantity and quality.

It is important to know that this course is part of a Capacity Building Program developed by the IDB which is available for Bank’s members at the region. Get more information about such program by watching the video you can find through the following link: https://www.youtube.com/watch?v=mmYd2kJY1FQ

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FURTHER INFORMATION: Does your customs administration have an organizational unit specifically dedicated to capacity building? It is highly likely that the answer is NO. In 2005, the WCO set up its own capacity building department with the key mission of assisting all members (180 around the world until April 2016, from which 31 are from the Americas and the Caribbean) to implement the SAFE Framework of Standards and other WCO Tools, Instruments and standards.

This department offers technical assistance through qualified experts, develops tools and guidelines for training and maximizing the potential of customs staff, supports fund-raising initiatives and the formation of strategic partnerships with other international organizations and donor institutions who also support capacity building in WCO member counties.

Training is often seen in customs administrations, especially those in developing countries, as an ongoing need to be resolved. As such, courses are often provided that focus on eliminating the individual needs of each administrative area without any type of tracking and, even more worryingly, without an overall training strategy aligned with the general strategic plan. And what is more, staff is very rarely provided with any technical assistance or tools apart from a computer program (and at times not even this) that would allow them to do produce much better work.

This causes a disjuncture between the strategic plan and the capacity building projects launched for customs staff which, despite helping to resolve certain issues in day-to-day customs operations, will not adequately contribute to the continuous improvement of business processes and, as a result, to the customs modernization process.

In light of this, it is advisable that a capacity building strategy be included within the framework of the strategic planning process. This strategy should basically ensure that when a new initiative is proposed, according to the customs administration’s strategic plan, there is already a team in place that is able to independently take charge of its design and implementation.

This strategy should cover at least the following elements: All levels of the customs administration should be considered in the strategy and, in addition, it should cover development of both relevant technical skills and general management skills, such as: leadership, resource management, project management, negotiation, etc.

The private sector and other government agencies should form part of the target group of this strategy. This will contribute to minimizing resistance to change and will also boost effective implementation of strategic plans. On the other hand, the experience and knowledge contributed by these two sectors will help to strengthen capacity building in customs, making this a two-way relationship.

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Identification of key customs staff for capacity building, who should work exclusively on designing and implementing training programs.

Needs diagnosis based on the strategic plan, taking gender differences into account and focusing on the specific technical and managerial weaknesses identified at each customs administration in order to create a suitable capacity building program.

Creation of a capacity building program based on the customs administration’s strategic plan, which should focus on preparing staff to overcome challenges that may arise when implementing strategic actions and projects (proactive rather than reactive measures). Furthermore, it is important that this program promotes gender equality in terms of equal access to capacity building for all customs staff.

Working with international organizations, other customs administrations and donor institutions to secure the technical and financial support required to implement this program. This will also help to increase knowledge of good practices and international standards among custom staff, who can then go on to apply these practices and standards in the projects in which they are involved.

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The final product that we are looking to achieve, based on the strategic plan and the organization’s specific needs as identified in an internal survey, should be a national capacity-building plan designed to prepare customs staff, as far in advance as possible, to best implement strategic actions and projects. FIGURE 1.7 presents the suggested relationship between strategic planning and capacity building.

Source: Compiled by the author

FIGURE 1.7. SUGGESTED RELATIONSHIP BETWEEN THE STRATEGIC PLAN AND CAPACITY BUILDING

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An important feature of capacity building programs that include training sessions or courses is that men and women have equal access to the activities on offer.

In our society, women are nearly always responsible for family care (bring up children, looking after disabled or elderly family members, housework etc.). This often makes it difficult for women to attend activities held outside of office hours and in places other than their regular place of work; or for them to complete work or assignments at home.

Therefore, the situation and needs of female employees should be taken into account when designing training programs in order to encourage equal participation in the same. By watching the following video, you will see the importance the world is recognizing through the United Nations to the participation of woman in trade related activities. https://www.youtube.com/watch?v=8LsnAXRj_DA Luckily for customs, in addition to the World Customs Organization, there are various international organizations, customs administrations and donor institutions dedicated to supporting capacity building in customs administrations in developing and least developed countries. For example, the Inter-American Development Bank, which has worked closely with the WCO in the Americans and the Caribbean and has become one of its most active partners in this region. We could also mention the International Monetary Fund which contribute through its Regional Technical Assistance Centers, (CAPTAC-DR in the case of Central America, Panama and the Dominican Republic; and CARTAC for the English speaking Caribbean countries and Belize) to institutional strengthening and modernization of customs administrations in this region.

As for donor customs administrations, U.S. Customs, Canadian Customs and Spanish Customs have been the most active in supporting capacity building. As discussed above, customs administrations should invest in building technical and managerial skills at all levels, developing a specific strategy based on the strategic plan for reform and modernization and the specific needs identified internally in each administration in order to prepare staff for future challenges and to address current training and support needs.

This strategy should lead to the creation of a work program that includes international organizations, other customs administrations and donor institutions that support capacity building in customs in developing and least developed countries. In addition, we should not forget about the private sector and other government agencies, which should be duly informed in advance of the implementation of a project and, on the other hand, can also contribute to capacity building for customs staff.

This alignment with other organizations will help pave the way for good practices and international standards to be applied in customs administrations in order to create a stronger focus on business process reform. As a result, it will also lead to better, more substantial results for customs and the country as a whole.

As discussed above, customs administrations should invest in building technical and managerial skills at all levels, developing a specific strategy based on the strategic

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plan for reform and modernization and the specific needs identified internally in each administration in order to prepare staff for future challenges and to address current training and support needs. This strategy should lead to the creation of a work program that includes international organizations, other customs administrations and donor institutions that support capacity building in customs in developing and least developed countries. In addition, we should not forget about the private sector and other government agencies, which should be duly informed in advance of the implementation of a project and, on the other hand, can also contribute to capacity building for customs staff.

This alignment with other organizations will help pave the way for good practices and international standards to be applied in customs administrations in order to create a stronger focus on business process reform. As a result, it will also lead to better, more substantial results for customs and the country as a whole.

SUMMARY We have taken a close look at 10 key elements that should be taken into account when both defining and implementing the strategic plan, highlighting the vital importance of support from superior authorities and maximum commitment from the customs administration itself. These 10 key elements are:

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1. Involving the Private Sector 2. Involving international organizations 3. Establishing priorities in line with capacity 4. Involving all levels within customs 5. Incorporating strategic requirements shared by all customs administrations 6. Reviewing the organizational structure of the customs administration 7. Appointing a team to manage the modernization process 8. Participation by customs in defining the policies it carries out 9. Involving other government agencies 10. Aligning capacity building with the strategic plan Together, these elements strengthen customs management and boost the success of actions and projects defined in strategic plans for customs reform and modernization, thereby placing customs administrations in a much better position to fulfill their strategic targets.

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In this context, it is important to understand that customs administrations cannot singlehandedly fulfill all requirements from both the government and society alike; therefore, it is vital that suitable partnerships are established with the private sector, international organizations and other customs administrations in order to create capacity building opportunities for customs staffs and also, in general, to guarantee the support required for customs administrations to achieve their strategic targets.

In their strategic plan, customs administrations should make sure that programs and projects are defined according to their technical and operational capacity and/or that they are able to manage. These programs and projects should also allow for the diverse roles to be fulfilled attributed to 21st-century customs, these being: tax collection, security, protecting society and producing foreign trade statistics.

Last, but by no means least, strategic planning processes should also cover organizational elements that are vital for a customs administration to effectively carry out its work, such as: organizational structure, appropriate communication of strategic plans, change management and strategies for capacity building among staff. All these should be aligned with the programs and projects defined in the customs administration’s strategic plan so as to enhance implementation capacity and transparency which, in turn, supports fulfillment of strategic targets.

In light of all this, consideration of the 10 practical elements presented in this unit, which have been used extensively by customs administrations all over the world and reflect the work done by the WCO through developing instruments, tools, standards and studies, will doubtlessly strengthen strategic planning and management in customs.

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UNIT II

STRATEGIC RISK MANAGEMENT; A KEY COMPLEMENT TO STRATEGIC PLANNING IN CUSTOMS ORGANIZATIONS

Learning Objectives 44

To generate a high level of awareness about the importance of incorporating risk management into customs management and strategic planning processes as a means of foreseeing and preparing for circumstances that could have a negative impact on the customs administration’s ability to achieve its strategic targets.

To develop the ability to identify and analyze the various types of risks that a customs administration may face during the implementation of its strategic plan and to establish ways to prevent and mitigate these risks from the moment the plan is designed. This will allow customs to react more effectively to risks according to the calculated impact of each individual risk and the possibility of it occurring.

II.1 Introduction to risk management in the customs context This topic will be approached from the perspective established by the WCO in its Capacity Building Development Compendium; more specifically, in Chapter 3 of this publication, which focuses on strategic risk management.

As we all know, the dynamics of the world of customs on a national and global level are becoming more and more complex. As a result, risks become unavoidable and

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begin to change all the time, threatening the ability of many customs administrations to achieve their expected results.

One of the actions modern customs can take in response to this trend is to develop a transparent and effective Risk Management system that allows them to justify the reasons behind their actions, what they do and what they choose not to do, and the costs associated with these decisions.

Risk management should be considered as a necessary complement to strategic management in order to guarantee it is embedded throughout the entire organization.

To undertake this, we must first look at the characteristics of a suitable risk management system: Management is aware of the potential impact of the risks on meeting organizational targets.

The risks are continually, explicitly and systematically identified and assessed.

The accepted levels of risk are continually reevaluated.

The control measures are designed to maintain the levels of risk considered as acceptable.

II.1.1. Main Customs Risk Management Drivers Before going into any further detail about the strategic management of risks on customs, we will first take a look at the main drivers or reasons behind the need to apply effective risk management in customs and what all customs administrations should bear in mind when putting this management into practice: 1. The constantly growing volume of foreign trade that increases the daily workload of customs administrations.

2. The decline in human resources in customs administrations and the loss of talent is an increasingly common problem in Latin American and the Caribbean and other regions throughout the world.

3. Reduced customs duty rates caused by the proliferation of bilateral and multilateral international trade agreements, while governments in developing and least developed countries continue to rely on the taxes collected at customs.

4. Constant changes in customs authorities in the majority of developing or least developed countries, which in most cases lead to changes in customs policy.

5. New business models used by both legitimate traders and those who choose to operate outside the law.

From a functional point of view, there are many reasons why customs should adopt a transparent, efficient and effective means of managing risks. Below, we will look at 2 of the most important.

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6. Striking the right balance between facilitation and control We often hear people say: “The more we facilitate trade, the harder it becomes to regulate.”

You have probably heard this before as well; however, we do not think this statement is necessarily true. Today, many customs administrations all over the world have been able to significantly facilitate trade while also managing to effectively regulate the flow of passengers, goods and conveyances through the country. In this case, the key phrase is “Facilitation of legitimate trade”, which leads us to the challenge of identifying legitimate trade. This can only be done when customs has developed an effective risk management system.

The pressure to facilitate legitimate trade is intensified by events such as the global crisis that erupted a few years ago. This type of event creates the need for greater flexibility in the movement of goods from one place to another with a substantial reduction of associated costs and risks.

What references are available to customs to help establish this balance?

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The WCO has developed various tools to achieve this balance between facilitation and control, the most successful of which being the “SAFE Framework of Standards to Secure and Facilitate Global Trade” (the SAFE Framework), adopted by the WCO Council in 2005. It consists of a series of international standards designed especially to seek out effective controls to safeguard the logistic supply chain and to secure and facilitate trade according to 4 core elements: a. The harmonization of advanced electronic information requirements; b. A risk management approach to address security threats; c. The use of non-intrusive technology to verify the origin of high-risk cargo at the request of the receiving nation; d. Benefits that should be offered to businesses who meet minimal supply chain security standards and best practices.

The first two are applied via two basic pillars: customs-to-customs and customs-tobusiness partnerships. Each of these pillars has a corresponding set of standards that, when applied, can help customs to significantly facilitate global trade without compromising on controls to identify and combat bad trade practices.

7. The evolution of the role of customs The role played by customs in the management of national customs systems has changed a lot over the years. When compared to global trends, the Americas and the Caribbean still have a long road ahead in this respect. However, it is still best to plan head for these changes and to prepare for when customs administrations in this region become the main agency responsible for all cross-border operations and problems.

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In the previous unit, we covered the main roles of customs in the 21st century according to the WCO. These roles are presented again in FIGURE 2.4 in order to show how they are prioritized in different countries.

Source: WCO

FIGURE 2.4. MODEL OF THE ROLES OF A CUSTOMS ORGANIZATION This figure shows what the WCO discovered from the experiences of many countries around the world: that the priority given to each of these roles usually depends on the specific circumstances of the country. Therefore, when national security and protecting society are seen as top priorities, other roles, such as tax collection and facilitation, are not so important; on the other hand, in countries where tax collection and trade facilitation are seen as the most important roles, less attention is paid to security and protecting society.

All these drivers plus others that are not mentioned above require a strong reaction from customs in order to address them in an effective and appropriate manner without significantly affecting trade facilitation. This is why customs in the 21st century need to invest in effective risk management in order to modernize their services and controls.

As you can see, the two elements that have just been presented have led to big changes in the way customs operate, shifting away from a traditional focus on purely technical-customs matters to move into new areas that allow goals and targets to be met without having a limiting effect on trade.

As seen in FIGURE 2.5, customs resources need to be more effectively managed in order to satisfy the needs of main users, the private sector and the government. In response to this, risk management is one of the best ways to ensure resources are managed as effectively and efficiently as possible.

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EFFECTIVE RISK MANAGEMENT

FIGURE 2.2. COMPARATIVE MODEL OF CUSTOMS RESOURCE MANAGEMENT FROM A RISK MANAGEMENT PERSPECTIVE

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II.1.2. Risk Management Planning and Control Cycle The following figure 2.1 shows the risk management planning and control cycle. It is important to stress that there is no fixed starting point and that all actions are interconnected with each other.

Source: WCO Capacity Building Development Compendium

FIGURE 2.3. RISK MANAGEMENT PLANNING AND CONTROL CYCLE

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Below is a brief summary of what each of the elements in this cycle entails, according to the WCO Capacity Building Development Compendium. a. Identify and assess risks The assessment of risks should comprise both the likelihood of something happening, as well as the probable impact on customs if it does actually happen. A categorization of high/medium/low may be sufficient, and should be the minimum level of categorization (this results in a 3x3 risk matrix as seen in FIGURE 2.2).

A more detailed analytical scale (“5x5”) may be appropriate, and is commonly used in this type of assessment. There is no absolute standard for the scale of risk matrices the organization should reach a decision about the level of analysis that it finds most practicable for its circumstances. Color (“Traffic Lights”) can be used to further clarify the significance of risks.

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Source: WCO Capacity Building Development Compendium

FIGURE 2.4. RISK ASSESSMENT CATEGORIZATION After all this, you are probably thinking: What is the single most important thing about this risk assessment?

It is not the absolute value of an assessed risk which is important; rather it is whether or not the risk is regarded as tolerable, or how far the exposure is away from tolerability, which always makes a big difference when making decisions about how each risk should be handled. b Access control measures Top management regularly discusses and formulates control measures for selected risks. Several other parties within the organization, such as a control department,

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internal auditors and sometimes even a Chief Risk Manager, play an important controlling and advisory role in this process. c. Align and determine actions The definition and alignment of actions, based on assessment of the corresponding risks, is also carried out by the top management. In this respect key words are: making choices, establishing priorities, establishing links between involved levels and areas within the organization, viewing things from a broader perspective, and clarifying the effects of choices. d. Define objectives Risk assessment must be in line with the objectives set out in the strategic plan, the budget and the daily operation of the customs administration. In defining the objectives, it is possible that more than one risk is relevant to more than one strategic objective. For example, insufficient funds must be covered by mitigating actions chosen by top management. e. Evaluation and monitoring

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All identified risks are evaluated and monitored throughout the year via implementation/control reports and indicators. These reports provided the basis upon which, when required, top management will make the necessary adjustments in order to guarantee that risks are properly managed.

This assessment identifies risks that may have significant political implications or that may have a negative influence on customs operations. f. Integration of levels of Risk Management The management of risks at the strategic, tactical and operational levels needs to be integrated, so that the levels of activity support each other. In this way, the risk management strategy of the organization will be monitored from the top and will become embedded in the normal working routines and activities of the organization.

All staff should be well aware of the relevance of risk to the achievement of their objectives.

As seen in FIGURE 2.5, managers at each level need to be equipped with appropriate skills which will allow them to manage risk effectively, and the organization as a whole needs assurance that risk management is being implemented in an appropriate way at each level of organizational functioning.

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Source: WCO Capacity Building Development Compendium

FIGURE 2.5. RISKS TREATMENT HIERARCHY

II.2. Strategic management of operational risks In this section we will look at strategic risk management from three different perspectives that are applied in the world of customs and contribute to robust customs management for reform and modernization.

The first approach focuses on risks that can prevent a customs administration from meeting its strategic targets but which are not directly attributable to the work performed by customs. These risks are events or circumstances that occur outside the world of customs but that can have an impact on customs administrations. We will refer to these as “Organizational Risks”.

On the other hand, the second approach focuses on risks that could affect customs as a direct result of its work as a national agency responsible for complying with and enforcing customs-related laws and regulations, including all legal provisions related to controlling the flow of goods, passengers and conveyances through the country.

These risks will be referred to as “Operational Risks”.

Finally, it is important to recognize the existence of a third category of risks which may jeopardies the efforts of meeting the customs strategic objectives, such risks are called “Change Risks”. These types of risks are mainly product of decisions made by high-level authorities of Customs to pursue new endeavors beyond current capacity of the administration.

To understand the different types of strategic risks that should be assessed, take a look at the risk assessment guidelines presented below in TEXT BOX 2.1. However,

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it is important to remember that these guidelines must be adapted to the particular circumstances of each country, which can sometimes increase or reduce the impact that a specific risk might have on a specific customs administration.

TEXT BOX 2.1. MATRIX OF VARIOUS RISK CATEGORIES Identifying Risks RISK CATEGORY

EXAMPLES / SITUATIONS TO CONSIDER

1. External (arising from the external environment, not wholly within the organization’s control, but where action can be taken to mitigate the risk) (This analysis is based on the “Pestle” model – see the Strategy Survival Guide at www.strategy.gov.uk)

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1.1 Political

Change of government, cross cutting policy decisions; machinery of government changes

1.2 Economic

Ability to attract and retain budgetary allocations of government staff to implement customs projects; effect of the global economy on the domestic economy

1.3 Socio cultural

Impact of regional agendas or of the Customs Union; change in the expectations of external agents involved in foreign trade

1.4 Technological

Obsolescence of current systems; cost of producing best technology available, opportunities arising from technological development

1.5 Legal

Requirements/laws which impose new obligations on customs.

1.6 Environmental

Infrastructure, equipment, facilities, inter-connections

2. Operational (relating to existing operations – both the provision of current services and building and maintaining capacities and capability) 2.1 Service provision 2.1.1 Service/product failure

Failure to provide the service to the user without set terms

2.1.2 Project delivery

Fail to deliver on time/budget/specification

2.2 Capacity and capability

2.2.1 Resources

Financial (insufficient funding, poor budget management, fraud) HR (staff capacity/skills/ recruitment and retention), Information (adequacy for decision making; protection of privacy) and physical assets (loss/damage/ theft)

2.2.2 Relationships

Service partners (threats to commitment to partnerships/clarity of roles), customers/service users (satisfaction with the service provided), accountability

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EXAMPLES / SITUATIONS TO CONSIDER

2.2.3 Operations

Overall capacity and capability to provide the service

2.2.4 Integrity

Confidence and trust that stakeholders have in the organization

2.3 Risk management performance and capability 2.3.1 Governance

Regularity and propriety, compliance with relevant requirements, ethical considerations

2.3.2 Planning

Failure to identify threats and opportunities

2.3.3 Resilience

Capacity of systems, accommodation or IT to withstand adverse impacts and crises (including war and terrorist attack). Disaster recovery and contingency planning

2.3.4 Security

Of physical assets and information; of the trade supply chain

3. Change (risks created by decisions to pursue new endeavors beyond current capacity) 3.1 Performance targets

New PSA (Public Service Agreement) targets challenges the organization’s capacity to deliver/ ability to equip the organization to deliver

3.2 Change programs

Programs for organizational or cultural change threaten current capacity to deliver as well as providing opportunity to enhance capacity

3.3 New projects

Making optimal investment decisions/prioritizing between projects that are competing for resources

3.4 New policies

Policy decisions create expectations where the organization has doubts about delivery

Source: WCO Capacity Building Development Compendium

By applying the Risk Management Planning and Control Cycle before-mentioned in this Unit, it is needed to identify the risks faced or to be faced (probably) by customs based on its strategic objectives to determine to what extend such are tolerable. For those non-tolerable actions to prevent of mitigate them must be defined. One or some responsible areas should monitor timely such risks, establishing specific objectives and indicators.

The following figure shows how to assess risks based on the probability of occurrence versus the impact of such risks if they did arise. As stated in the first part of this module, the purpose of this assessment is to determine whether a risk is tolerable or not. Additionally, the following figure provides some suggested response criteria that may be adopted by the customs administration depending of the level of likelihood and impact of the risks.

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Source: WCO Customs Risk Management Compendium

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FIGURE 2.6. EXAMPLE OF A RISK SIGNIFICANCE MATRIX WITH RESPONSE CRITERIA

II.3. Actions to prevent and mitigate risks from an strategic point of view Is it possible for a customs administration to avoid exposure to risks?

Considering that risks are part of our daily work, the answer has to be NO. Indeed, one of the biggest risks is actually to deny the possibility that something could happen, leaving the organization completely unprepared in the event that it does occur.

This means that customs need to be constantly assessing existing and potential risks, as these are in constant flux. At times, over the course of just one day, various interconnected risks may arise but which manifest or are presented in a different way.

We will now look at some accions recommended to prevent or mitigate risks mainly based on the 10 good practices on strategic planning learned in the Unit I of this module. This is not a comprehensive list but it may helps as reference to customs.

II.3.1. Actions to prevent and mitigate external risks a. Involve international organizations in the strategic planning process and the execution in order to attract resources needed to implement institutional plans.

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b. Strengthen managerial capacities at customs, with the objective of making effective decisions to react when external risks appear. c. Incorporate risk management in the planning of strategic targets; d. Involve private sector in the strategic planning process requesting help to secure required social-politic support. e. Encouraging involvement of other government agencies in the risk-related element of strategic planning, as the exchange of quality information is the key to more comprehensive and effective risk management. This also applies to exchanging information with other customs. If this is not included as a strategy in the strategic plan, it will be difficult to secure resources for its implementation. f. Establish policies for an effective communication of results and accountability to the society to show the performance of customs in a massive way.

II.3.2. Actions to prevent and mitigate operational risks a. Firstly, customs administrations should bear in mind that the incorporation of risk management must start from the definition of strategic targets. Therefore, it is advisable that at least one strategic target focuses on defining the type of risk management to be applied, the indicators for measuring the extent to which this target is fulfilled, the risk policy and the strategies to ensure compliance with this policy. For example, exchange of information with other government agencies, private-sector partnerships, incorporation of intelligence techniques, exchange of information with other customs administrations, use of non-intrusive inspection equipment, etc.

How can this all be put into practice? One strategic target that could be defined for certain customs administrations, especially for those in developing or least developed countries, could be to increase the level of voluntary compliance in a certain area of national importance. This would lead to a series of performance targets being drawn up in relation to this field and to due consideration of the resources and commitments required to meet this target.

b. In terms of organizational structure, customs must create the conditions required to support risk management at all levels. This should begin with the definition of government policy followed by the definition of the staff/departments that will be directly responsible for ensuring transparent, efficient and effective risk management in customs.

A good practice in this case would be the creation of a specific risk management department within the organization that is active at both a central level and also has decentralized units at ports, airports and border crossings. This department would ideally report directly to the General Director and not to any intermediaries, giving it the power to make the most appropriate decisions and to immediately address any obstacles that may arise.

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c. Another important aspect of effective risk management is the existence of a regulatory and legal framework that offers sufficient authority to customs so that they may, among other things: gather and exchange information; physically inspect goods, conveyances, passengers and facilities; confiscate goods with due cause; etc. These are just some of the powers that a customs administration needs to effectively manage risks. As such, legal frameworks should be reviewed and customs should lobby for the appropriate changes to be made. This could be one of the activities a customs administration might cover in its strategic plan, without forgetting that this is usually a long and complicated process. d. A good suggested practice is the creation of an internal risk management committee that would be in charge of and make decisions about risk management, in order to increase the transparency of the adopted control measures.

In general, these committees should be made up of staff from different areas in customs and be presided over by the General Director.

e. Capacity building among customs staff to carry out better risk analysis and equipping customs with state-of-the-art technology that supports the management of risk analysis, detection and handling. This should be aligned with the custom administration’s strategic plan to ensure allocation of the required resources.

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We often ask ourselves, how should initiatives like this be approached? Well, the existing level of knowledge about risk management at your customs administration will determine the exact nature of training that will be required. However, the following recommendations are indispensable in this case: It is also vital to begin by raising awareness at all levels of the organization about the importance of risk management for customs.

Customs staff should receive training about foreign trade practices as there is often a lack of this type of knowledge in customs yet it is essential for analyzing risks and defining control measures.

The third important area is that related to the technical skills required for risk management, such as statistics/mathematics, profiling, detection, handling risks, intelligence, information management, using supporting technology for risk management, etc.

f. Regular assessment of risk management results using performance targets and measuring the degree to which risk management contributes to meeting strategic targets. This should be done by top management and the internal risk management committee by assessing the strategic indicators established for each target, leading, when necessary, to the application of appropriate corrective measures. g. Establish priorities in line with current and projected customs administration’s capacity. This would avoid tha the owe customs administration may put itself under risk of internal collapse, for instance. h. Strengthen managerial capacities at customs, with the objective of making effective decisions to react when external risks appear.

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II.3.3. Actions to prevent and mitigate change risks a. Search for participating in the decision-making scenarios where such decisions may impact to customs. b. Involve private sector and international organizations in the strategic planning process with the object of protecting customs in somehow from decisions that may jeopardies the achievement of its strategic objectives. c. Strengthen managerial capacities at customs in order to improve the decisions make on the management of the customs administration. d. Regular assessment of risk management results using performance targets and measuring the degree to which risk management contributes to meeting strategic targets.

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SUMMARY Risk management is the ideal complement to strategic planning in customs administrations and new reasons are emerging everyday for it to be embedded in the day-to-day operations to improve customs management as a whole. These reasons include, for example, the increasing quantity and complexity of foreign trade operations versus the declining number, and often quality, of customs staff.

Therefore, an appropriate level of commitment is required from all levels of management and the entire organization needs to be aware of and involved in risk management.

Strategic risk management must focus on the organization and the way it is led and managed, as well as on the performance of control and facilitation tasks.

The WCO recommends basing risk management on a planning and control cycle comprised of the following stages: identification and assessment of risks, assessment of control measures, aligning and determining actions, defining targets, and assessing and monitoring the actions taken.

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In this unit we have looked at customs risk management from three different perspectives: organizational risks, operational risks and change risks.

To the identification and analysis of these types of risks the content of TEXT BOX 2.1 can be used as a guide to identify and analyze organizational risks. This table is from the WCO Capacity Building Development Compendium, and as such its content is in line with international good practices.

Regarding operational risks, it is important to consider two significant challenges in the world of customs today: the first, the ability to strike a balance between facilitation and control; the second, the diverse range of roles that 21st-century customs administrations are excepted to perform, not just on their own behalf, but also for other government agencies.

In this respect, it is extremely important that customs adopts recommendations based on the 10 strategic planning elements learned in Unit I of this module in order to improve operational, external and change risk management.

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Bibliography WORLD BANK (2005): Customs Modernization Handbook. Washington, D.C. Edited by DE WULF, L. and SOKOL, J. B. WORLD BANK INTERNATIONAL TRADE DEPARTMENT (2012): Gender Dimensions of Trade Facilitation and Logistics. Washington, D.C. KATE HIGGINS. WORLD CUSTOMS ORGANIZATION (2009): Capacity Building Development Compendium. Chapter 3. Brussels, Belgium. Capacity building tool.

WORLD CUSTOMS ORGANIZATION (2010): Risk Management Compendium. Brussels, Belgium. Capacity building tool.

WORLD CUSTOMS ORGANIZATION (2007): Customs in the 21st Century. Brussels, Belgium. WCO Strategic Document WORLD CUSTOMS ORGANIZATION (2008): The Operational Strategy and Vision of the World Customs Organization 2009-2012. Brussels, Belgium. WCO Strategic Document WORLD CUSTOMS ORGANIZATION (2006): Customs Capacity Building Diagnostic Framework. Brussels, Belgium. Customs Diagnosis Tool.

WORLD CUSTOMS ORGANIZATION (2007): SAFE Framework of Standards to Secure and Facilitate Global Trade. Brussels, Belgium. International standards.

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