A Regulator’s View – LogiSYM April 2019

Hi, I’m from the Government, and I’m here to help you!

Now, before you roll around on the floor laughing, just hear me out.

Please.

Because, I think Government regulators do help you.

I’m a lifelong regulator, a Customs guy, whatever that means these days. Most of my working career has been spent refining customs declaration reporting and management and the integration of controls. In the early 80’s (that’s 1980’s, not 1880’s) I wielded a rubber stamp with the best of them, marking and attesting that documents had been presented to Customs, and the face of entry appeared to be correct.

While I was doing that, I wondered about the value of the whole process and watched as people around me stamped and signed away. Some of them were competing to see who could stamp the most declarations in a day. Would you call that an early form of trade facilitation? It certainly wasn’t border control!

Others, like myself looked for and found declaration errors, as the job description said we were supposed to, but the managers soon made clear we weren’t actually meant to do that.

Thankfully, in short order a customs system upgrade enabled electronic submission of declaration attachments, so we were no longer required to do this menial and mindless franking. More importantly the customs brokers no longer had to present mounds of paper at customs houses. Progress! And wonder of wonders release was given through the system, albeit manually. To the surprise of some, the regulatory world didn’t burn down overnight!

Other changes followed, driven by Government adoption of; e-processing, risk management and targeted inspections, the beginnings of single window processing, automated release, linking cargo reporting and goods declaration, and importantly the decoupling of formal declarations from place of import – which allowed brokers and logistics providers to consolidate and work nationally. Gradually as these changes flowed, import and export reporting and management became a 24*7 activity.

By the early nineties I’d gravitated into Customs systems development and management. I witnessed Australia’s first EDI import declaration submission. Hallelujah, the beginning of the slow death of data re-input for customs. At one time or another I was the business owner for a range of customs import and export management systems. I developed links with the business community and the customs software development houses. After all, if you don’t understand the business, how can you regulate it?

In any case, I came to understand that we were all interested in the same things: the who, what, when, where, why and how of a trade transaction. I also came to appreciate that in the life of a trade transaction the regulators role had a very short duration. Shock, horror – we weren’t the centre of the universe! We had roles to play, but while we could delay and stop things, it was better for everyone when we found other ways to manage.

Somehow or another I did more and more training for visiting Customs administrations and ended up making multiple annual trips to the World Customs Organization, developing their data model and expanding it to cover a greater range of controls. Standardization, harmonization and integration became my catchcries. This was and remains a global initiative. Pushed by many people from all corners of the world now and made more important by the Bali Trade Facilitation Agreement (TFA) of 2013. Let’s not forget the venerable Convention on the Contract for the International Carriage of Goods by Road and Revised Kyoto Conventions that began pushing trade facilitation concepts a few decades ago, with Bali they came of age.

Metrics like the Logistics Performance Index (LPI), Trading Across Borders reports and Time Release Studies attracted Government attention. Ministers understand that businesses look at comparative performance and the regulatory environment when making investment decisions. Rate poorly in these measures and your neighbour might just end up with the business instead of you. This is a wonderful thing for reform minded regulators, providing tools to point out to decision makers where improvement is needed. These metrics also make it clear that if you stand still you will fall behind.

It is rather illuminating to look at the correlation between the highest LPI performing countries and the Bali TFA. The top performing countries were all there or thereabouts before the TFA was even drafted, and their compliance to TFA articles is generally over and above the mere words of the articles. In this case intent matters.

Bit by bit, step by step, customs and other border operators got out of the way and began to focus interventions on the things that mattered. Rather than taking blanket approaches, issues like drugs and weapons, sanitary and phytosanitary controls and so on are identified as border risks and quite rightly dealt with there. Many other controls, well, they can be managed elsewhere without loss or danger and in many cases with better outcomes.

Mind you, uptake of trade facilitation around the world remains patchy, as late comers to the party strive to understand what needs doing and take short-cuts to catch up. As ever with any change the human element comes into play. Some people will never fully accept change and seek to re‑introduce manual procedures, others will do the minimum to appear to change. Over time as younger regulators come through and point out obvious inefficiencies and anomalies things do change and improve.

Now we are in a world where the language of regulation is changing. Electronic processing and the sheer pace and volume of international trade have fundamentally changed the picture. Only the archetypical ostrich would tell you that every piece of paper must be viewed, or that every shipment must be checked. Good news for the logistics sector and trade in general.

Key discussions now include: AEO programs and their mutual international recognition possibilities, common language, joint controls, voluntary compliance, pre-arrival reporting and clearance as the norm rather than the exception, release on minimal documentation, management by audit and so-on. All largely aimed at improving the flow of trade, by replacing direct interventions with other control mechanisms. The next time a regulator discusses some future initiative with you it may be because they genuinely want your perspective and input. Heck, there’s stuff online that I authored around 15 years ago describing reporting management. It just may have stayed the distance because we consulted industry, at every step of the way.

A lot of the changes are made possible by regulators using information to understand their trade communities and categorizing them by behaviour and historical risk. Essentially there are four main types of behaviours exhibited by traders:

1. Voluntary compliance – Knows what to do, has repeatable processes and believes the long-term reputational risk outweighs any short-term benefit from illicit behaviours. These traders and service providers are the key beneficiaries of AEO schemes.
2. Educated compliance – Mostly knows what to do and would prefer to comply but lacks the full information necessary to comply. These traders and service providers can be educated to meet requirements and in-time achieve voluntary compliance.
3. Assisted compliance – Don’t really understand the requirements of their roles and don’t really care about accuracy. They possibly depend on regulators picking up their errors and fixing them, and if it’s not picked up – great! These people and companies need to be monitored and trained. If their behaviours don’t change, they will be penalized.
4. Deliberately non-compliant – This group includes criminals and those seeking to bypass controls or avoid revenue payments. Regulators problem children, who will be continually checked at the border and over time penalized, possibly imprisoned and driven out of the business.

Leading countries like Singapore are being very clear about the behaviours they want from traders and service providers, others will follow suit. Expect more and more regulators to be increasingly public about the government responses different behaviours attract. It’s a good development, as it lets business understand what is wanted and what to do to get favoured treatment. As a regulator, I see these things as good for business, providing clarity of requirements and certainty of treatment. No more arbitrary decisions!

I look forward to the day when staff at a logistics centre will look up and see people in unfamiliar uniforms coming towards them, and wonder “Who are they?” and “What are they doing at my place of business?”

So, I’m from the Government, and I’m here to help you!

You can laugh now if you still want to.