Study Guide

Professor Widdowson (2020) summarises this framework as follows: 

In essence, the framework is based on the legislation and associated processes and procedures which represent the regulatory requirements for which Customs has administrative responsibility. This includes all aspects of their direct regulatory responsibilities, including the import, export and transit of goods, as well as any matters that are administered on behalf of other agencies, such as health, agriculture, taxation, environment, statistics and in some cases, immigration. In order to ensure compliance with such requirements, there is firstly a need to make certain that members of the trading community are aware of their rights and responsibilities, by providing them with the necessary information and support to comply.

It is then necessary to assess levels of compliance through the use of various techniques such as data screening, documentary checks, non-intrusive inspection, audit and investigation, the result of which will be the identification of either compliance or non-compliance. Where non-compliance is identified, the reason for non-compliance must be established by assessing the relevant risk, leading to the identification of appropriate risk mitigation strategies, which may involve revisiting the legislative base, processes and procedures, information and support, or compliance assessment techniques, or may require some form of enforcement action.

In situations where compliance is identified, the appropriate response is to actively recognise the compliant behaviour. In practice, the level of compliance identified will form part of a continuum from criminal behaviour and fraud through to voluntary compliance. The relevant response will therefore depend on the trader’s position on the compliance continuum. Enforcement strategies for identified non-compliers include warnings, penalties and other sanctions, while recognition strategies for compliers include increased levels of self-assessment, reduced regulatory scrutiny, and increased levels of facilitation.

 Let us look at each of these aspects of the model in a little more depth. 

Legislative base 

The risk to be managed by any government agency is the risk to the achievement of its fundamental objective — that is, the risk of non-compliance with the laws for which it has administrative responsibility. Since the primary role of Customs administrations is to ensure compliance with the law, the starting point in any regulatory regime must be the establishment of an appropriate legislative framework. 

Legislation exists to give effect to government policy. It must reflect accurately the wishes of the government, the policy intent, and the international obligations taken on by the government.  The legislation must also fully support the customs compliance strategy. 

For example, where the strategy is based on a self-assessment regime, with compliance measured through post-transaction audit, the legislation must support that approach. It will require some or all of the following elements: 

There is considerable guidance provided by the RKC, the HS Convention, the SAFE Framework of Standards, the Valuation Agreement and the Trade Facilitation Agreement — all of which inform the content of Customs legislation and of the Regulations that support and expand the legislation. As well as providing detailed guidance on matters such as tariff, valuation and clearance procedures, they also provide guidance on the nature of Customs legislation, which is to be clear, simple and accessible. 

Processes and Procedures 

The next section of the Framework expands and supports the legislative base by providing the practical detail on how the law is to be applied, and how those regulated by the law can be compliant with it. As Professor Widdowson's (2020) article explains: 

Information and support 

Customs has a responsibility to ensure that the international trading community has a clear understanding of its rights and responsibilities. There is a need for people to know what the rules are — if they do not, how can they be expected to comply? Customs authorities are increasingly recognising the need to provide meaningful advice to those being regulated. This is often referred to as a policy of 'informed compliance', which involves the use of a range of 'client service' initiatives designed to ensure that those being regulated know what the rules are. 

The manner in which regulatory requirements are publicised will vary depending on the circumstances, but a logical starting point is to provide comprehensive information on the administration’s website. This should include, as a minimum, the legislation itself; details of any rulings, decisions and determinations that help inform the way in which the law is interpreted; a clear overview of relevant processes and procedures; administrative guidelines and explanatory material such as factsheets that serve to clarify such processes; and details of where further information may be obtained, including available learning packages. (Widdowson 2020). 

The need for assistance to traders also underpins the Trade Facilitation Agreement, and the wealth of explanatory materials provided by the Harmonized System Committee are designed to assist traders and brokers to apply the classification rules of the HS Convention correctly. 

Compliance assessment 

The modern Customs service has a wide range of compliance assessment tools available to exercise Customs control in accordance with Chapter 6 of the General Annex. Because Customs has a responsibility to enforce the law, it must determine whether those being regulated are complying with the law. 

During this process, other documents directly linked to the cargo being cleared may be called for to validate the authenticity and correctness of the declaration. These documents may include packing lists or documents related to the trade transaction, such as orders, contracts or conditions of payment. Review of these documents may clarify questions arising from the initial documentary examination. 

Physical examination/search 

If the documentary review indicates that the movement is satisfactory and no discernible risks are present, a physical examination is not normally necessary. If the documentary check indicates a need for physical examination, the extent of that examination will depend on the type of goods and the suspected Customs offence. 

The physical examination of goods and the search of commercial means of transport are undertaken to verify the nature and/or the relationship between the goods/means of transport and the documents presented. Customs authorities may also carry out checks to ensure that the means of transport fulfil technical conditions laid down by certain international agreements for the international transport of goods. Where exercised, such physical examinations or searches should be carried out as rapidly as possible. 

There are two levels of physical examination: 

The level and nature of physical examination should be determined by the information available on the consignment, the Customs procedure under which the goods are declared, provisions in international agreements, and any special nature of the goods (e.g., perishable cargo, live animals, dangerous goods, jewels, antiques, works of art, etc.). Other relevant factors include urgency, location, and the resources available to conduct the examination. If it is not possible during the physical examination to determine the tariff classification of the goods, samples may be drawn in order to expedite the release of the goods. 

Identification of goods 

To allow goods subject to certain Customs procedures — e.g., transit, transshipment, temporary admission, warehousing, inward processing, etc. — to enter or move through the Customs territory without paying duties and taxes, specific measures are required to ensure their identification. These measures may include affixing seals, stamps, perforations or identification marks, describing the goods, or making reference to samples, plans, sketches, or photographs. 

In cases of temporary storage, warehouses or free zones, Customs may require the trader to identify the type of goods being stored as well as the location of the storage facility. Such facilities should be appropriately secured and supervised, and in all cases, Customs will retain the right to enter and examine the facility and take stock of the goods periodically. 

Audit 

A common form of compliance assessment in any regulatory environment is through the use of audit. There are a number of different audit approaches available to Customs, including desk audits, transaction-based audits, and systems-based audits. The nature of the potential risk identified by Customs when selecting a company for audit will generally dictate the approach adopted. 

Desk audits are generally used to further examine an unusual transaction that falls outside established parameters or normal patterns for a particular type of company or transaction. The desk audit approach may simply involve contacting the company concerned and asking it to provide additional information to support the data declared in the transaction — for example, commercial documentation to support a declared value, such as invoices, contracts and trade catalogues. 

Transaction-based auditing involves testing transactions identified as a potential risk. This approach is often used for small traders, such as those who import goods on an infrequent basis. Auditors verify information provided by the company by referral to all available related documentation — for example, comparing import declarations against company purchase orders, buying or selling contracts, suppliers' invoices, bills of lading, air waybills, bank statements or guarantees.