Trade Facilitation in Zimbabwe

Introduction Traditionally customs administrations has been using the gatekeeper approach to control the country`s borders in an effort to protect the interest of the nation. This approach to compliance management is characterised by stringent customs controls. However, during the past decade, customs administrations have been swamped with pressure from the international trading community to place an increasing emphasis on the facilitation of trade. This was due to the increased complexity of international trade coupled by increased volume of trade, technological advances and globalisation. In order to meet this swelling call, international organisations such as the WCO, WTO1 and World Bank have been supporting the call for the abandoning of the traditional customs role of being the guardians at the gate (McGill, 1991) and achieve an appropriate balance between trade facilitation and regulatory controls through the use of risk management techniques. As a consequence, customs administrations have started to implement a more disciplined and structured approach to customs control based on intelligence led risk management so as to achieve an appropriate balance between trade facilitation and regulatory control (Widdowson, 2005; Widdowson & Holloway, 2011)

This paper seeks to examine and analyse approaches taken by customs administrations to effectively reconcile the seemingly paradox between trade facilitation and customs regulatory control. The paper is based on the comparison of compliance management strategies used in ZIMRA with the approach proposed by Widdowson (2004) in the Risk Based Compliance Management Pyramid. From the discussion it was observed that the compliance management approach being used by Zimbabwean Customs have similar approaches to the management of compliance as the Risk based Compliance Pyramid. However, the approach differs in that the Zimbabwean compliance strategy is not risk based. It is therefore important for the compliance intervention used by customs to commensurate with the associated elements of risk. According to Chapter 6, standard 6.5 of the WCO`s Revised Kyoto Convention the extent of customs controls required to ensure compliance with the laws and regulations should be proportionate to the level of assessed risk (WCO, 1999).

For example, the negotiations at the 2001 WTO Doha Ministerial Conference called for the consideration of trade facilitation as a major component of achieving trade efficiency.

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Trade Facilitation Trade facilitation refers to measures that are implemented by governments to make it easier, quicker and less costly for international trade (Grainger, 2007). The key objectives of trade facilitation is to help countries to lower costs of doing business and reduce the margin between domestic and international prices so as to benefit the country. According to WCO (2012), trade facilitation is one of the key factors for economic development of nations and is closely tied into national agendas on social well-being, poverty reduction and economic development of countries and their citizens. It is therefore important for countries to implement trade facilitation strategies so as to improve trade. Reasons for Increased Call for Trade Facilitation During the past decade, calls have been made by international trade players for countries to improve on their facilitation of trade. A number of factors have led to an increase in this call for trade facilitation. Firstly, following the lowering of the traditional trade barriers such as tariffs and quotas, the cost of non-tariff barriers have become more apparent and hence trade facilitation has become an important trade-impeding factor and has received increasing attention as a substantive non-tariff barrier to trade, especially for developing countries (Lee & Kim, 2012). These costs, include delays at the borders and hence an increased need for trade facilitation. It is estimated that it takes up to 9 days for cargo to pass through customs borders in Africa (Freund and Rocha, 2010). According to the World Bank, administrative hurdles (including customs and port delays) contribute to 75% of trade facilitation delays (Buyonge and Kireeva, 2007). Therefore it is logical to conclude that inefficient customs systems results in delayed and unreliable delivery and missed business opportunities (OECD, 2005). It is therefore important for customs administrations to introduce a risk management system in its process so as to reduce trade delays and improve facilitation (WCO, 2012). Research has also shown that trade facilitation is likely to have a positive effect on trade and economic growth of developing countries (Buyonge & Kireeva, 2007). Secondly, the overall increase in the volume and complexity of world trade, both in terms of the goods being traded and the globalisation of the world makes it essential for customs administrations to provide simple, predictable and efficient customs procedures; while simultaneously tackling increasingly complicated national and international requirements to ensure compliance with national laws, international agreements and meeting security challenges (Economic Commission for Africa, 2004; Grainger, 2007; Widdowson &
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Holloway, 2011). These considerations and the call to governments, by international organisations such as World Bank, World Trade Organisation and World Customs Organisation, to reduce trade costs have pushed the trade facilitation agenda into the forefront of public policy discourse (Economic Commission for Africa, 2004). Trade Facilitation in ZIMRA According to the Doing Business Report for 2012, Zimbabwe is one of the countries with the highest number of days required to export and import goods taking 53 days and 71 days to export and import goods respectively (World Bank, 2012). This means that there is a lot which the country needs to do in order to enhance trade facilitation. In this regard, customs authorities in the country should put in place mechanisms to enhance trade facilitation.

The vision and mission statement of ZIMRA include elements of trade facilitation. This is exhibited through its processes and procedures which have been simplified. ZIMRA has also introduced a raft of strategies so as to enhance trade facilitation such as risk based inspections, automation of processes and electronic lodgement of bills of entries, use of nonintrusive inspection methods, one stop border at Chirundu and advance cargo information among others. The major reason for the implementation of these strategies is to reduce cargo delays at ports of entry and enhance trade facilitation.

However, even though ZIMRA has introduced a number of initiatives in order to improve on trade facilitation, cargo delays are still being met. This is due to a variety of reasons, chief among them being lack of institutional capacity within border agencies, need for increased controls at border points so as to raise revenue and a plethora of government agencies interested in carrying out inspections. This has led South Africa during the Zimbabwe/ South Africa Joint Cooperation Commission in October 2012, urging Zimbabwe to streamline border controls so as to enhance facilitation of trade and travel (Herald, 2012).

Introducing trade facilitation may result in increased vulnerability and lead to unexpected costs for developing countries if the systems are adopted without full recognition of their institutional, management and other limitations. This may lead to decrease revenue collections and general fall in compliance levels. There is therefore a need for customs

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authorities to introduced risk management so as to deal with the risks associated with trade facilitation.

Risk Management Customs administrations are encumbered with the need to meet dual objectives of ensuring the reduction of unnecessary trade delays as well as to enforce regulatory control. This has been compounded by the expanded customs mandate, increased customs workload, a sharp reduction of resources and technological advances that have revolutionised global trading practices (Widdowson, 2005). This has seen customs administration introducing risk management techniques so as to have a sharper ability to identify high risk cargo and travellers as well as to efficiently utilise the scarce resources and target them on high risk and low compliant traders (Gordhan, 2007; Widdowson and Holloway, 2010). Due to limited resources, customs administrations cannot check on each and every consignment, carrier or traveller hence the need for some form of risk management whether formally or informally to be introduced. Risk management helps customs administrations to increase the efficiency of their operations and help to streamline their operations and processes so as to reduce the regulatory burden on the commercial sectors (Widdowson, 2005). Risk Management in ZIMRA Zimbabwe Custom`s risk management framework is guided by the ZIMRA corporate Enterprise Risk Management (ERM) policy. ZIMRA`s ERM policy framework guides and directs the customs division`s risk management strategy. The strategy recognizes the expanding responsibilities facing Customs require a more sophisticated understanding of the risk and how scarce resources can be better utilized towards those areas deemed high risk while facilitating trade in other areas which are lower risk (Widdowson, 2004; Ojo, 2009). This thinking is based on the premise that there are too many violators, too many laws to be enforced and not enough resources to get the job done (Sparrow, 1994: p ix). The Customs division`s risk management framework is benchmarked against chapter 6 standard 6.3 of the WCOs Revised Kyoto Convention and Standard 4 of the WCO SAFE Framework of Standards which calls for the establishment of a risk management system. Customs Head office sets the overall division Risk Management plans with Regional, Station and Unit Heads establishing risk management plans for their functional areas, which reflect the overall Divisional plan. Risk management in customs is automated and is operationalized
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through the ASYCUDA System where the risk parameters are supposed to be regularly updated. Though a risk management strategy is in place in customs, risk management is not practised as staff members lack training on risk management. In most cases risk parameters and profiles are not updated regularly as required. This is compounded by the fact that some processes and stations are still manual and do not benefit from the automated system. Most of the Regional and station risk committees and liaisons are un-operational with little or no information sharing between the stations and across divisions. This has rendered the risk management system ineffective. There is therefore need for training of staff members on risk management and increase in intra division communication and information sharing. There is also need for the head office risk management team to play a coordinating role in updating risk parameters in the ASYCUDA system.

As can be seen from the discussion, the Customs Division is expected to provide extensive trade facilitation while ensuring that the international movement of goods and persons are appropriately controlled. The extent of controls put in place by customs to ensure regulatory compliance is a function of the assessed level of risk; hence the risk management framework feeds into the compliance management strategy which customs applies.

Compliance Management The primary objective of customs is to ensure regulatory control and trade facilitation in such a manner that it will sustain confidence in the system (EU, 2010). However, some clients due to ignorance, carelessness or deliberate actions as well as weaknesses in the administration fail to comply with the regulations. It is therefore important for customs administrations to have in place strategies to cure non-compliance. Literature is awash with a number of compliance management strategies which regulators can utilise in dealing with compliance issues. The Risk Based Compliance Management Pyramid is one of the well-known compliance strategies proposed by Widdowson (2004) which draws together the various elements of a risk management style to provide a structured logical framework to the management of compliance in customs administration. The following are the key elements of the pyramid:

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Legislative base Client service Compliance assessment Enforcement / Recognition

The elements of the risk based Compliance Management Pyramid with be discussed and compared with the compliance management strategy in use at the Zimbabwe Revenue Authority. Compliance Management in ZIMRA Compliance management in ZIMRA was generally managed at operational level with no organisation wide strategy. This was mainly due to lack of understanding of the importance of a risk based compliance management strategy. Levels of compliance in ZIMRA are generally low with high incidences of evasion and general non-compliance. The ZIMRA compliance management strategy entails the use of various approaches to the management of non-compliance and is based on the following pillars: Use of the law Warning Monitoring Assisting Encouraging and Informing

In the following section, the pillars of the ZIMRA Compliance Strategy will be analysed and compared with Widdowson`s (2004) Risk Based Compliance Management Pyramid.

Legislative Framework One of the major objectives of a customs administration is to ensure regulatory compliance. Consequently, the foundation of an effective compliance regime must be the establishment of an appropriate legislative framework (Widdowson and Holloway, 2005) which provides the necessary basis in law for the achievement of customs objectives. Scholars argue that in order to encourage voluntary compliance with customs law, there is need for a predictable and transparent customs law so as to ensure that traders and travellers are aware of the rules.

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In Zimbabwe stakeholders are involved in the formulation of new legislation and proper regard of the stakeholder`s interests are catered for through liaison meetings with clearing agency associations and joint liaison committees with other government agencies. However, the Zimbabwean customs laws are out-dated as they were promulgated in 1996 that some provisions of the law do not meet the requirements of the Revised Kyoto Convention of which Zimbabwe is a member. It is therefore important for Zimbabwe to update its customs laws by implementing the model SADC customs law or provisions of Revised Kyoto Convention. This would result in the simplification of the laws so as to ensure easy compliance.

Client Service The second pillar in the Risk Based Compliance Management Pyramid is client service. According to Widdowson (2004) client service are initiatives that are designed to ensure that those that are being regulated know what the rules are. This is meant to ensure that the public is provided with the means to achieve certainty and clarity and be aware of their rights and obligations so as to enhance voluntary compliance. The strategies under this pillar include: Clear administrative guidelines Consultation and cooperation Formal rulings Education and awareness Technical assistance and Clear appeal mechanisms

Zimbabwe customs uses a well-developed, client service approach with most of the elements in the Risk Based Compliance Management Pyramid being undertaken. The strategies used by ZIMRA include the following: 1. Assisting - The customs division helps and supports individuals and organisations that are endeavouring to comply with regulation through the provision of training to clients such as customs clearing agents and traders, conducting advisory visits to traders and provision of trader manuals on a variety of customs issues such as the ASYCUDA Trader manual, Customs Valuation Guide and the Containerisation

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Manual. Customs laws and procedures are generally available to traders and are available on the ZIMRA website. 2. Encouraging - customs undertakes a number of activities aimed at encouraging compliance. These include targeted campaigns promoting compliance in high-risk areas through workshops and educational meetings and acknowledgement of compliance with rewards and incentives such as taxpayer appreciation awards. 3. Informing - customs provides information to its varied clients in a variety of formats including newsletters, publications, hotlines, front counter services and online information and services through social media like Facebook and Twitter.

Compliance Assessment The third tier of the pyramid discusses the elements of compliance assessment which include risk-based physical and documentary checks, audits and investigations. The strategies at this level are designed to determine whether a trader is in compliance with Customs law or not with the level of regulatory scrutiny reduced for clients with less risk. Companies that are considered to represent a high risk, and those for which no risk assessment has been undertaken, are likely to be selected for higher levels of intervention and control. Regulatory intervention available for customs administrations may include strategies such as: documentary checks physical examinations, including X-ray scanning post clearance audit Investigations

Compliance assessment at ZIMRA is based on the risk assessment in the ASYCUDA system where imports and exports are selected either for physical inspection or documentary check based on the risk level of the importer, origin, description of the goods among other criterion used. However, the risk parameters in the ASYCUDA system are still under development and hence compliance assessment is not well developed. This has resulted in deferent compliance assessment strategies being used for similar goods imported by the same importer from the same country but coming through a different port of entry. The following are the strategies used by ZIMRA:

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1. Post Clearance Audits - The main objective of audits is to help ensure that traders report their importations to customs on time and accurately and that they pay the right amount of tax. PCA are based on entries selected to the blue lane in the ASYCUDA system. If errors are found during PCA, adjustments to revenue are made and further education is provided to assist traders to comply with their obligations.

2. Inspections and examinations - ZIMRA carries inspections of all bonded warehouses, transit sheds and other free-zones. Sanctions are imposed on noncomplying behaviour such as fines and ultimately revocation of licences. 3. Investigations investigations are carried out for all suspected non-compliance. Identified non compliers are made to pay penalties or are prosecuted.

Enforcement / Recognition At the peak of the risk-based Compliance Management Pyramid, customs administrations have to deal with strategies which are designed to address identified non-compliers and recognised compliers through the use of enforcement and recognition strategies.

Enforcement In dealing with identified non-compliers, customs will encounter two situations, i.e. compliance and non-compliance. Non-compliance ranges from innocent mistakes to blatant fraud and if the non-compliance nears the fraudulent end of the spectrum, some form of sanction will be applied such as administrative penalties or, in the more severe cases, prosecution and licence revocation. Even from ancient times, compliance management has always been an issue with governments taking measures to enforce compliance with customs laws. For example, in Kautilya`s Arthasastra written 2000 years ago, Indian rulers used various compliance measures such as use of spies to detect fraud and the use of penalties for evasion (Asakura, 2003).

According to the ZIMRA compliance strategy there are some compliance failures for which the most appropriate regulatory response is for the Division to take more traditional enforcement action. Actions that customs may take include prosecutions seeking the imposition of penalties, court action seeking injunctions or enforceable undertakings. The
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non-compliance enforcement strategy being used by ZIMRA is based on Ayres and Braithwaite (1992) pyramid of enforcement responses, with strategies in place being graduated from formal warning, sanctions and administrative penalties and prosecution. Non compliers are persuaded to comply through the issuance of a formal warning letter and if the non-compliance persists, graduated penalties ranging from administrative penalties to criminal prosecution for habitual non compliers such as blatant fraud. A typical graduated penalty system used by ZIMRA is depicted below:

Table 1: ZIMRA Graduated Penalty System Type of Non-Compliance Behaviour Revenue shortfall caused by a tax payer following advice from the Authority or general administrative practice under the Customs and Excise Act Self-Disclosure before being notified that an intervention will be undertaken. First Offender Second Offender Third Offender This will include taxpayers who have carried over poor compliance behaviour from the past. Fraud and Evasion Enforcement Strategy Do nothing

Warning 100% of the duty due 100% of the duty due a) 100 - 300% of the duty paid value or b) Forfeiture of goods or c) Prosecution a) 300% of the duty paid value or b) Forfeiture of goods or c) Prosecution

As can be seen from the above table, the customs enforcement strategy places more reliance on a heavy handed approach to compliance management with administrative penalties of up to three times the duty or forfeiture of the goods. This strategy may be based on the contention that compliance strategies based solely on persuasion and self-regulation are likely to be exploited (Ayres and Braithwaite, 1992) but if offenders are detected with sufficient frequency and punished they and other violators will be deterred from future violations (Gunningham, 2010 ). However, though the ZIMRA compliance strategies include use of criminal prosecution, this strategy is rarely used with less than 1% of all intentional and habitual non-compliance being prosecuted. The major reason for the non-use of prosecution may lie in that Zimbabwean courts are lenient in prosecuting tax offenders and that there is a lot of interference in the court system that convictions are difficult. As a result of this ZIMRA relies mostly on administrative penalties. Though the enforcement approach used by ZIMRA
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may appear to be harsh, clear appeal mechanisms are provided as recommended in Chapter 10 of the Revised Kyoto Convention on the Harmonisation and Simplification of Customs Procedures and enshrined in the ZIMRA Client Charter.

Recognition For recognised compliers, strategies customs may use include such things as increased levels of self-assessment, reduced regulatory scrutiny, less onerous reporting requirements, periodic payment arrangements, simplified procedures, and increased levels of facilitation. According to Widdowson (2004), the principal focus of the recognition strategies is the achievement of future compliance, and ensuring that an appropriate balance exists between incentives for compliance and sanctions for non-compliance.

ZIMRA uses a variety of recognition strategies, though they are not well developed. The following are the strategies in use: Taxpayer Appreciation ZIMRA holds an annual taxpayer appreciation day where compliant clients are publicly honoured. Authorised Economic Operators customs has recently introduced Authorised Economic Operator concept where registered operators who are deemed compliant would not be subjected to onerous inspections and are assured of an express clearance at border points through self-assessment.

Though customs have the above strategies in its quiver, they are not well developed that there implementation is not smooth. This could be as a result of legislative limitations in which these strategies are not provided in the law. The implementation of the AEO concept failed to kick off due to lack of adequate support and the current year taxpayer appreciation day may not even take off due to a variety of reasons.

Conclusion In order for countries to achieve trade facilitation, there is need for customs administrations to introduce a risk based compliance management system so as to achieve a balance between regulatory control and facilitation. Though there is increased call for trade facilitation in the world, the implementation of trade facilitation strategies is not as high in developing countries as in the developed world. This is as a result of institutional limitations and the need
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to enhance revenue collections through increased regulatory controls. Countries such as Zimbabwe have low levels of facilitation due to out-dated legislations and for security fears. As can be seen from the above discussion, the implementation of a risk management system may go a long way in bridging the gap between facilitation and control.

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Reference

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