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LEGAL FRAMEWORK FOR
into force in 1974 and revised in June 1999), also known as the Revised Kyoto Convention, provides an excellent blueprint for such reforms (WCO 1997).
The Revised Kyoto Convention was developed to standardize customs policies and procedures world-wide. It embodies best practices of national legisla-tion around the world, and its implementalegisla-tion would enable countries to meet international com-mitments concerning trade and border procedures, including the rules of the World Trade Organization (WTO).1At the same time, the Convention enables each country to tailor its policies and procedures to meet its unique legal, political, cultural, and societal requirements. Other customs legislation, such as the Customs Code of the European Community (the EU Code), is closely aligned with the Convention (European Union 1992).
This chapter discusses the need to modernize customs legislation in the context of international legal standards and examines possible difficulties in its implementation and enforcement. The
chapter also briefly touches upon other legal instruments that complement existing interna-tional legislation. The first section focuses on the need for modern customs legislation. The second section provides a brief overview of the Revised Kyoto Convention. The third section discusses the process of preparing a modern Customs Code while the fourth section reviews the potential obstacles to a modern Customs Code. The fifth section discusses the process of enforcing customs law. The sixth section focuses on model legislation for intellectual property rights. The final section summarizes the main operational implications of the chapter.
The Need for Modern Customs Legislation
The realities of modern international trade have made it necessary to modernize customs legislation in many countries. Outdated customs laws con-strain social and economic progress by acting as significant nontariff trade barriers (box 3.1). They prevent effective revenue collection, discourage for-eign trade and investment, and potentially threaten social and national security.
1. For example, General Agreement on Tariffs and Trade (GATT) 1994, Articles V, VIII, and X, and Agreement on Implementation of Article VII of GATT 1994 (WTO Valuation Agreement).
GATT 1994 Article V discusses transit; Article VIII, fees and formalities; and Article X, publication and appeals.
BOX 3.1 An Example of Obsolete Customs Legislation
When Yugoslavia broke apart in the early 1990s, the newly independent republics inherited the Yugoslav Customs Code, which was, by socialist standards, considered to be relatively user oriented. However, the shortcomings of the Yugoslav Code became rapidly apparent.
Designed for foreign trade exchanges largely managed by the state or state-run entities, it did not envisage the rapid surge in the number of operators. Procedures that were designed for established corporations were no longer applica-ble. For example, deferred payment was no longer realistic until the reliability of new market entrants had been assessed. In addition, the old code was too detailed and quite bureaucratic. It went to the extent of determining the opening hours of customs offices, which was unrealistic in a rapidly changing economic environment. In an attempt to be user friendly, the old code arbi-trarily set the maximum time allowed for cus-toms to clear goods. In the new market econ-omy, customs had to deal with experienced
traders and novice importers within the same amount of time. As a result, officials did not have the time to properly examine suspicious transac-tions, as the prevailing impression was that, as all goods should be cleared in five hours, decla-rations could be held up by prolonged examina-tion of any one transacexamina-tion. Worse, the Yugoslav Code made it mandatory to inspect every con-signment, thus preventing the introduction of selective examinations.
From the penal side, the code made a distinc-tion between individuals and legal entities. In theory, penalties for legal entities that commit-ted customs fraud were higher than those for individuals. This did not make much sense in a market economy environment, and it led to numerous disputes when the smaller businesses started getting involved in duty evasion, as it was not clear if the company or an individual had committed the offense.
Source:Zarnowiecki 2003.
Outdated customs legislation typically includes one or more of the following characteristics:
• no comprehensive body of customs-related leg-islation that establishes the clear competence of customs
• noncore customs elements
• inadequate provisions for complying with inter-national commitments, including WTO agree-ments
• insufficient transparency and predictability reflected in the failure to provide basic informa-tion on matters such as rules, decisions, consul-tation mechanisms, and adequate appeals processes
• complex or redundant customs formalities that delay clearance and create opportunities for unnecessary discretionary interventions
• no provision for selective verification of cargo based on risk management, resulting in reliance on the 100 percent examination of consign-ments, which hinders customs from deploying its limited resources in an efficient and effective manner
• prohibition of advance lodgment of informa-tion or goods declarainforma-tion2 or post-clearance audits3
• no provision for automation or electronic com-munication
• ambiguous provisions that bestow customs offi-cers with excessive discretionary power
• inadequate authority for customs to achieve its enforcement and compliance goals.
A solid and modern legal framework is the founda-tion of effective customs operafounda-tions. Such a frame-work should provide for customs-related legislation to accomplish the following:
• establishes the competency of customs authori-ties to administer and enforce customs laws, develop administrative regulations, adjudicate or settle cases, and make decisions on customs administrative matters
• promotes transparency and predictability (for example, timely dissemination of information,
advance rulings, independent audit, appeals processes)
• provides for modern customs systems and pro-cedures (risk management, audit-based control, and adequate automation)
• simplifies customs procedures (simplified decla-ration, advance lodgment, and so forth)
• encourages cooperation with other customs administrations and with other governmental organizations
• provides for partnership with the private sector (formal consultations, for example)
• promotes customs integrity (clear rules that do not allow excessive discretion, unambiguous specifications of customs’ officers authority and obligations, and so forth)
• provides for penalties proportional to the grav-ity of the offense (that is, penalties should be sufficiently strong to deter customs violations and promote compliance but should not be unjustly severe, especially when violations are minor—from the revenue and enforcement per-spectives—and nondeliberate)
• is accessible to the public
• meets international standards.
The Revised Kyoto Convention
Since its inception in 1952,4 the World Customs Organization (WCO) has been working to develop modern principles that would buttress effective cus-toms administrations by examining cuscus-toms poli-cies and practices worldwide, cooperating with its member administrations, and working with trade communities and international agencies. The early efforts for simplifying and harmonizing customs procedures culminated in the Kyoto Convention, which was adopted by the WCO in 1973 and entered into force in 1974. Globalization, rapid transforma-tion of internatransforma-tional trade patterns, and advances in information technology (IT) since then have com-pelled the WCO and its members to review and update the Convention. The resultant revision of the Convention, known as the Revised Kyoto Con-vention, reflects the economic and technological
2. An essential basis for intelligence-based risk management.
3. An important element for the effective implementation of the WTO Valuation Agreement.
4. Established as the Customs Cooperation Council (CCC) in 1952; the current name, the World Customs Organization, was adopted in 1994.
changes and incorporates best practices of member administrations. The Revised Kyoto Convention was adopted by 114 customs administrations attending the WCO’s 94th Session in June 1999.
Elements of the Revised Kyoto Convention
The Convention is an international instrument designed to standardize and harmonize customs policies and procedures worldwide. Customs processes based on national customs legislation that are consistent with the Convention will enable customs to process imports, exports, and interna-tional travelers more smoothly. Elimination of divergent customs procedures and practices around the world will permit international businesses to meet their customs obligations effortlessly. Addi-tionally, the Convention can serve to implement customs-related principles developed by the WTO, such as Articles V, VIII, and X of the GATT of 1994.
The Convention consists of the Body of the Convention, the General Annex, and the Specific Annexes.5The main Body of the Convention is a concise 14-page document that sets forth in its Pre-amble the key principles of modern customs administrations, and refers to the General Annex and Specific Annexes that are constituent parts of the Convention. The Articles of the Convention provide clear rules of accession to and administra-tion of the Convenadministra-tion. The Preamble of the Con-vention states the following as guiding principles:
(a) application of customs procedures and prac-tices in a predictable, consistent, and transpar-ent manner
(b) provision of information on customs laws, reg-ulations, procedures, and practices
(c) adoption of modern techniques, such as risk management and maximum practicable use of IT (d) cooperation, where appropriate, with other national authorities, other customs administra-tions, and the trade community
(e) implementation of relevant international stan-dards
(f) provision of easily accessible administrative and judicial review to affected parties.
The General Annex contains the core customs poli-cies and procedures, and the Specific Annexes cover the individual customs procedures and practices relating to import, export, transit, processing, and enforcement measures. The Convention mandates countries to accede to the provisions in the General Annex and requires them to automate data systems, cooperate on trade, implement risk management techniques, and create a mechanism to maintain and update the Convention. The Specific Annexes contain recommended practices. In addition to these legal documents, there are detailed guidelines and best practices to assist countries in understand-ing how to implement the Convention.
Forty of the contracting parties to the existing Convention must ratify the Protocol of Amend-ment for the Revised Convention to enter into force. Thus far, 35 contracting parties have ratified it6 while others are in the process of completing their national procedures.7 Many countries have already reviewed their national legislation based on the Revised Kyoto Convention, without waiting for its formal entry into force.
Overview of the Convention
The Convention presents a comprehensive set of over 600 legal provisions outlining basic principles for all customs procedures and practices.8
The General Annex The General Annex stipu-lates the core principles for all customs procedures and practices to ensure that these are uniformly applied by customs administrations. These princi-ples include the following: (a) standardization and simplification of goods declaration and supporting documents, (b) minimum necessary control, (c) risk management and audit-based control, (d) fast
5. The WCO gives the text of the Body of the Convention and the General Annex and Specific Annexes on its Web site. The full legal text of the Convention and the implementation guidelines can be purchased from the WCO at www.wcoomd.org/ie/
En/Topics_issues.
6. Algeria, Australia, Austria, Belgium, Bulgaria, Canada, China, Czech Republic, Denmark, European Community, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Republic of Korea, Latvia, Lesotho, Lithuania, Morocco, Netherlands, New Zealand, Poland, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Uganda, United Kingdom, and Zimbabwe.
7. The Council of the European Union, for its 15 member states, in March 2003, and the President of the United States in May 2003, approved the Convention.
8. These provisions include Standards, Transitional Standards, and Recommended Practices. Standards must be implemented within 36 months of ratification, while Transitional Standards have a 60 month implementation period. Reservations are per-mitted to recommended practices in Specific Annexes.
track procedures for authorized persons and enti-ties, (e) coordinated interventions with other agen-cies, (f) maximum use of IT, (g) transparency and predictability, and (h) availability of appeals processes.
The General Annex covers the main customs functions in its Definitions, Standards, and Transi-tional Standards, all of which have the same legal value. The Convention mandates the acceptance of the General Annex for accession. No reservations are permitted. The General Annex is divided into 10 chapters.
Chapter 1: General Principles. This chapter expresses the two driving principles of the Conven-tion, which are the simplification and harmoniza-tion of customs procedures. It stipulates that the provisions in the General Annex must be imple-mented in national legislation in the simplest possi-ble form and that customs administrations should cooperate with the trade community.9
Chapter 2: Definitions.This chapter provides the definition of terms related to the different level of obligations and the structure of the Convention.
Chapter 3: Clearance of Goods.This chapter artic-ulates various provisions aimed at simplifying clear-ance procedures.10 It prescribes the obligation of customs to establish customs offices and designate business hours; the qualification of declarants, their rights, and their duties; the creation of simplified information requirements for goods declarations and other documents; and the establishment of expeditious procedures for examination, assess-ment, and collection of duties and taxes, and release of goods. It stipulates coordinated intervention with other government agencies and customs agencies11 and establishes procedures to be applied in cases of inadvertent errors and minor offenses.12
Chapter 4: Duties and Taxes.This chapter out-lines provisions aimed at achieving transparency, predictability, and simplification of customs’ rev-enue collection procedures that require national legislation to specify conditions, timing, and meth-ods of duty and tax payment.13 It provides for deferred payment and repayment.14
Chapter 5: Security. This chapter contains the basic principles necessary to achieve transparency, predictability, and simplicity of customs practices pertaining to security (that is, pledges, guarantees, and the like to secure correct payment of duties).
National legislation must enumerate the cases in which security is required and must specify the forms of security and the amount of security.15It also advocates that the amount of security must be as low as possible and must not exceed the amount that is potentially chargeable for payment of duties and taxes. In addition, it recommends that security should be discharged as soon as possible.16
Chapter 6: Customs Control.This chapter first states that all goods entering or leaving customs territory are under customs’ control.17It then out-lines recommended customs procedures to enhance customs control, based on modern tech-niques and technologies such as the use of risk analysis and risk management, audit-based control, cooperation with other customs administrations and the trade community, IT, and e-commerce.18
Facilitation of international trade is one of the most important objectives of the Convention, and modern customs procedures are the key to achiev-ing this goal. Risk management, for example, expe-dites the clearance of legitimate shipments while maintaining appropriate border control by identi-fying high-risk cargo. It entails a shift from 100 percent examination of documents and con-signments to selective inspections. Such a program will enable a customs administration to optimize the use of its resources and allow the establishment of a fast-track program in which approved traders with good compliance records (as “authorized
9. Standards 1.2–3.
10. For example, Standard 3.12 states that information required on goods declarations must be limited to data neces-sary for assessment of duties and taxes, compilation of statis-tics, and application of customs law, and Standard 3.38 limits samples drawn for examination purposes to the smallest possi-ble quantity.
11. Transitional Standard 3.4 outlines joint operations at com-mon borders by neighboring customs administrations, and Transitional Standard 3.5 advocates coordinated inspections of goods with other government agencies.
12. Standard 3.39 stipulates that customs must not impose sub-stantial penalties for inadvertent errors and errors without evi-dence of fraud or gross negligence.
13. Standards 4.1–3, 5–11, 13.
14. Standards 4.15–24.
15. Standards 5.1–2.
16. Standards 5.6–7.
17. Standard 6.1.
18. Standards 6.3–8 and Transitional Standard 6.9.
persons”)19 can obtain the release of cargo with minimum customs intervention. Likewise, the introduction of audit-based control complements risk management and is an essential element of the effective implementation of the WTO Valuation Agreement (WTO 1994c and 1994d). Other cus-toms administrations and the trade community are indispensable partners for an effective risk-management program because they can be con-sulted about latest trade practices.
Chapter 7: Use of Information Technology. Appli-cation of IT is another important requirement of the General Annex to simplify and harmonize cus-toms procedures and facilitate trade. This chapter obligates customs administrations to apply IT to support operations where it is cost-effective and effi-cient for customs and for the trade community.20 The chapter mandates new or revised national legis-lation to provide for electronic alternatives to paper-based documentation requirements, electronic as well as paper-based authentication methods, and the right of customs administrations to retain informa-tion and, as appropriate, share it with other customs administrations through electronic means.21It also states that customs administrations must develop information technology in consultation with all rel-evant parties.22The Guidelines for this chapter pro-vides some information that might help customs determine how to improve the services it provides to its clients and trading partners through the use of information and communication technologies.
Chapter 8: Relationship Between Customs and Third Parties.This chapter provides for third par-ties, and states that persons or entities will have the option of doing business with customs directly or through a third party.23Third parties will have the same rights as parties on whose behalf they act.24
Chapter 9: Customs Information, Decisions, and Rulings.This chapter lists key principles for cus-toms to achieve transparency and predictability of
their procedures and practices, through the publi-cation of laws, regulations, judicial decisions, and administrative rulings. Implementation of the stan-dards outlined in this chapter is critical for meeting the requirements of Article X of GATT 1994.25For example, it stipulates that information pertaining to customs law must be readily available and that any changes must be made available well in advance of the changes entering into force.26 Customs administrations must provide “as quickly and as accurately as possible” specific information requested by an interested party as well as any information they consider pertinent to the party without sacrificing confidentiality.27Adverse cus-toms decisions must provide reasons and must advise of the right of appeal. Furthermore, customs administrations must issue binding rulings upon request.28
The guidelines to this chapter provide detailed information for administrations to set up their pro-cedures for publication of information. They include quality and clarity of information, trade consultation, exhibitions, enquiry offices, availabil-ity of tariff information, liabilavailabil-ity of information provided, explanation of the concept of freedom of information, procedures for issue, and notification and annulment of binding rulings by customs.
Chapter 10: Appeals in Customs Matters. The right of appeal also ensures transparency and pre-dictability of customs procedures and practices. It protects individuals against decisions of customs that may not be in compliance with national laws and regulations. It also safeguards against omis-sions by customs. Furthermore, the reviews of chal-lenged decisions or omissions and subsequent ver-dicts by a competent authority guarantee uniform application of the laws and regulations. The provi-sions in chapter 10 provide for a multistage appeal process and an independent judicial review as a final avenue of appeal. Specifically, chapter 10 requires national legislation to provide for a right
19. “Authorized persons who meet criteria specified by the Cus-toms, including having an appropriate record of compliance with Customs requirements and a satisfactory system for man-aging their commercial records.” (Transitional Standard 3.32).
20. Standard 7.1.
21. Standard 7.4.
22. Standard 7.3.
23. Standard 8.1.
24. Standard 8.4.
25. Article X of GATT 1994, Publication and Administration of Trade Regulations, requires publication before enforcement of all laws, regulations, judicial decisions, and administrative rul-ings affecting imports and exports as well as measures that impose a new or more burdensome requirement, restriction, or prohibition on imports, or on the transfer of payments.
26. Standards 9.1–2.
27. Standards 9.4–6.
28. Standards 9.8–9.
of appeal in customs matters and gives anyone affected by a customs decision such a right.29An initial appeal will be made to the customs, and the appellant has a right to further appeal to an inde-pendent authority and finally to a judicial author-ity.30Compliance with the Standards in chapter 10 is an essential step toward meeting the require-ments of Article X of GATT 1994.31
Specific Annexes There are 10 Specific Annexes covering individual customs procedures and prac-tices. Acceptance of the Specific Annexes is not obligatory for accession to the Convention. How-ever, the WCO recommends that contracting parties at least accept the Specific Annexes on importation for home use,32those for export, and those regard-ing formalities prior to lodgment of goods declara-tion,33as well as those for warehouses,34transit,35 and processing.36Reservations are permitted in Rec-ommended Practices in the Specific Annexes, but contracting parties must review their reservations every three years.
Guidelines One of the outstanding features of the Convention is the existence of comprehensive implementation guidelines that have been devel-oped to provide, in the General Annex and Specific Annexes of the Convention, detailed explanations of all chapters, except for the chapter on Defini-tions. These guidelines are not part of the legal text of the Convention, but are rather designed to offer explanations of the provisions of the Convention, and to provide examples of best practices or meth-ods of application and future developments. They must be read in conjunction with the legal text con-tained in each chapter of the annexes. The guide-lines are constantly updated to provide information on new and modern practices.37
Preparing a Modern Customs Code The Revised Kyoto Convention can serve as a guid-ing principle for preparguid-ing a modern Customs Code. While countries can sign on to the Conven-tion as a means to modernize a Customs Code, it is, in fact, not the only way to implement a modern one. Another option would be a phased introduc-tion of the principles and practices contained in the Convention, taking into account the local environ-ment and capacity.
Obligations Under the Revised Kyoto Convention Contracting parties are obligated to bring into force, nationally, the standards, transitional stan-dards, and recommended practices that they have accepted. Standards must be implemented within 36 months of ratification, while transitional stan-dards have a 60-month implementation period.
Such regulations are not necessarily restricted to customs legislation and may apply to official notifi-cations, charters, or ministerial decrees, or similar instruments. Customs administrations are obliged to ensure that their regulations are transparent, predictable, consistent, and reliable.
Contracting parties’ national legislation must include at least the basic rules from the General Annex, with detailed regulations for their imple-mentation; no reservations are permitted. In
29. Standards 10.1–2.
30. Standards 10.4–6.
31. Article X of GATT 1994, Publication and Administration of Trade Regulations, also requires appeal procedures. Members must “maintain or institute judicial, arbitral or administrative tribunals or procedures for the purpose,inter alia, of the prompt review and correction of administrative action relating to Cus-toms matters” providing for uniform, impartial, and reasonable administration of laws, decisions, and rulings affecting import and export.
32. Annex B: The minimum specific requirements for the clear-ance of goods for home use (chapter 1), the requirements for the clearance of goods for home use that were exported and are being re-imported in the same state (chapter 2), and the circum-stances and conditions in which relief from import duties and taxes may be granted for certain goods declared for home use (chapter 3).
33. Annex C deals with outright exportation as opposed to tem-porary exportation.
34. Annex D: Customs procedures for warehousing (chapter 1) and in free zones (chapter 2). These procedures facilitate trade by waiving or deferring payments of duties and taxes.
35. Annex E outlines customs procedures and practices related to goods traveling through multiple customs offices within a single customs territory (national transit) or multiple customs territories (international transit). These provisions on interna-tional transit provide for technical and operainterna-tional means to meet requirements set out in GATT Article V.
36. Annex F describes customs procedures and practices that a country might use to promote its economy and trade by provid-ing total or partial relief of duties and taxes.
37. For example, the guidelines for chapter 7 were revised in March 2003 to take account of developments in the area of information and communication technology since 1999.