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COVID-19 and its impact on Customs and trade

17 June 2020
By Steven Pope, Vice President, Head of Go Trade, Deutsche Post DHL Group

The COVID-19 pandemic has changed our lives in ways that we never imagined. One thing, however, has become very clear; the continued importance of global trade and of initiatives supporting the smooth flow of goods across borders, especially essential goods to areas where they are most needed. Globalization, as Frank Appel our CEO recently stated, is here to stay.

At Deutsche Post DHL, the world’s largest logistics company and the world’s most international company, we have seen first-hand the impact of this pandemic on global trade as well as the ability of Customs officers to carry out their duties.

Most countries have taken steps to adapt to the new norm, and this has been reflected on the ground. The challenge going forward is how to minimize that impact and support a strong recovery once the situation improves. Customs has a key role to play here.

Those countries that have minimized bureaucracy and cost at the border have been able to benefit ahead of those that haven’t; and now there has never been a more important time to implement even the most basic reforms to support countries both from a health and safety as well as an economic perspective.

The COVID-19 pandemic has shown the importance of both the WCO Revised Kyoto Convention (RKC) and the WTO Trade Facilitation Agreement (TFA), including major concepts supported by these instruments: an all-digital clearance process, and efficient risk management.

Implementing modern risk-based Customs processes that balance the need for compliance with trade facilitation will help to ensure that essential goods reach their destination on time, compliance is maintained, and managing the clearance process remotely and digitally enables the health of Customs officers and importers/exporters to be protected.

If the global economy is to recover as swiftly as possible, it is key that countries implement both the RKC and the TFA so as to offer a clear foundation for Customs to play their part. Moreover, if all countries act now and push through even the most basic recommendations of the RKC and the TFA, they stand to benefit from the necessary change in supply chains that will come, following the COVID-19 pandemic.

Countries must act in the interests of sustainable economic growth, maintaining a proper balance between compliance and trade facilitation. Indeed, processes need to be transparent and consistent in execution.

Using the WCO’s example of issuing a joint statement together with the International Chamber of Commerce, Customs administrations and the private sector should engage with each other in order to gain a clear view of the challenges that both sides face, thereby enabling Customs to develop policies and processes that are fit for purpose.

If a clear balance is to be struck between managing compliance and supporting trade facilitation, both the public and private sector must play their part.

Of key importance is the need to have well developed continuity plans that enable Customs and other border agencies to operate outside of their normal environment, and to be able to rapidly adjust to changed circumstances.

Below are some key recommendations that have been already highlighted by the WCO, and from a private sector perspective, are essential if we are to come through this crisis as painlessly as possible.

Expedite critical goods: Expedited clearance of goods directly impacting or helping to alleviate issues or situations related to the coronavirus outbreak. Clear guidance has been given by the WCO. Additionally, the WCO website also provides guidance on the United Nations model agreement on expedited clearance of essential medical and emergency goods.

Risk management systems and pre-arrival processing: Encourage adoption of risk management systems and pre-arrival procedures, with a view to expediting the release of low-risk shipments upon arrival, and to minimize personal contact, which will protect both Customs officers and importers/exporters.

Whilst some measures will be implemented only on a temporary basis during the pandemic, many should become part of everyday operations, and the use of risk management should be a tool in every Customs administration’s armory.  Both risk management systems and risk profiling are key enablers for trade facilitation and assuring compliance. It also helps administrations to optimize the use of finite Customs resources.

Part of the risk profiling process must be the recognition and preferential treatment of AEO’s. For a business to become an AEO, they must undergo a rigorous audit process, giving the Customs administration a clear picture of their commercial activity and compliance record. Maximizing scarce resources and optimizing its ability to counter non-compliance should be top of the list of every Customs administration: not differentiating between AEOs and non-AEO’s is an inefficient use of resources, and adds unnecessary cost and delay to businesses that have invested heavily in compliance.

Minimize physical inspections: To more effectively employ limited inspectional resources, Customs authorities should reduce non-essential or non-time-sensitive physical inspections and administrative verifications, and focus instead on critical formalities and high-risk shipments.

Electronic filing: Digitalization has never been more important than now. In order to maintain social distancing, the electronic transmission of Customs declarations and associated documents is essential.

Care should be taken that the move towards digitalization does not replicate old paper-based manual processes. A move towards digitalization should lead to full paperless transaction without the need for printed copies of electronic declarations, manual instead of digital signatures, date stamps, and face to face approvals being applied instead of via email or electronic approval via the Customs clearance system.

Leaving manual processes in place not only leads to significant delays and costs, but in the current COVID-19 crisis places both Customs officers and importers/exporters at risk due to the need for unnecessary physical contact.

Extend deadlines for other paper-based processes: Other non-essential paper-based processes that are not considered critical to safety, health, and welfare should also receive extended deadlines.  Examples are permit processing, payment of fees, and other reporting and processes not directly related to the shipment clearance.

Tariff relief: This is something that has been communicated extensively by the WCO and is absolutely vital for assuring the swift delivery of essential medical products and equipment, pharmaceutical goods, and food items.

Duty and fee deferrals: Consider declaring a penalty and interest-free deferral on duty and fee payments for the duration of the crisis. E-payments for fiscal charges and reducing the need for paper-based payment protocols

Penalties and collections should be managed proportionally during this time, and be focused on the deliberately non-compliant as opposed to those not meeting deadlines for declarations because of delays directly linked to the COVID-19 pandemic.

Finally, standards need to be clearly defined with a phased in implementation period for any export/import restrictions. Training also needs to match implementation to ensure that Customs officers are not placed in a position where they are trying to enforce something without a clear understanding of what needs to be done.

From a private sector perspective, Customs administrations need to publish well defined and simplified guidelines as to the requirements, and to minimize the cost burden of inspections for export approval.

Not since the Second World War have we seen such widespread global disruption. It has tested us all and shown just how sensitive global supply chains are to disruption. However, it is also a time of opportunity.

Never before were the benefits of a modern risk-based digitalized Customs service with a balanced focus on trade facilitation and compliance so clear.

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