Trade Facilitation in Zimbabwe

IntroductionTraditionally 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).

1 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.

1 | P a g e

Trade FacilitationTrade 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 FacilitationDuring 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 &

2 | P a g e

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 ZIMRAAccording 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 non-

intrusive 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

3 | P a g e

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

facilitation.

Risk ManagementCustoms 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 ZIMRAZimbabwe 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 WCO’s 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

4 | P a g e

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:

5 | P a g e

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 FrameworkOne 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.

6 | P a g e

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 ServiceThe 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

7 | P a g e

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 AssessmentThe 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:

8 | P a g e

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 non-

complying 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 / RecognitionAt 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.

EnforcementIn 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

9 | P a g e

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 Enforcement Strategy

Revenue shortfall caused by a tax payer following advice from the Authority or general administrative practice under the Customs and Excise Act

Do nothing

Self-Disclosure before being notified that an intervention will be undertaken.

Warning

First Offender 100% of the duty dueSecond Offender 100% of the duty dueThird OffenderThis will include taxpayers who have carried over poor compliance behaviour from the past.

a) 100 - 300% of the duty paid value or

b) Forfeiture of goods orc) Prosecution

Fraud and Evasion a) 300% of the duty paid value or

b) Forfeiture of goods orc) 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

10 | P a g e

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.

RecognitionFor 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.

ConclusionIn 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

11 | P a g e

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.

12 | P a g e

Reference

Asakura H, (2003), World History of the Customs and Tariffs, World Customs Organisation,

Brussels

Ayres, I, and J Braithwaite, (1992). Responsive Regulation: Transcending the Deregulation

Debate, Oxford University Press, New York.

Braithwaite, J. (1985). To Punish or Persuade: Enforcement of Coal Mine Safety, Albany

State University of New York Press.

Buyonge C & I Kireeva (2007),Trade Facilitation In Africa: Challenges And Possible

Solutions, World Customs Journal, Volume 2 Number 1, Brussels

Economic Commission for Africa (2004), Trade Facilitation, Africa Trade Policy Centre

Briefing Number 1

European Union (2010), Compliance Risk Management Guide for Tax Administrations,

available at: http://ec.europa.eu/taxation_customs/resources/documents//taxation/

tax_cooperation/gen_overview/Risk_Management_Guide_for_tax_administrations_en.pdf ,

retrieved on 23 October 2012

Freund C & N Rocha (2010), What Constraints Africa`s Exports, WTO Staff Working paper

ERSD-2010_07, available at: http://www.wto.org/english/res_e/reser_e/ersd201007_e.pdf,

retrieved on 28 October 2012

Gordhan P (2007), Customs in the 21st Century, World Customs Journal, Volume 1, Number

1.

Gunningham N (2010), Enforcement and Compliance Strategies, in Baldwin R, M Cave, M

Lodge (eds), The Oxford Handbook of Regulation, Oxford University Press, Oxford.

Herald (2012), “Streamline Border Controls, Zim Urged”, The Herald, 30 October 2012,

Harare.

Lee H & Kim CS (2012), The Impact of Trade Facilitation on the Extensive and Intensive

Margins of Trade: An Application for Developing Countries, Journal of East Asian Economic

Integration Vol. 16, No. 1, pp 67-96

13 | P a g e

McGill D, (1991), The Guardians at the Gate – The History of the New Zealand Customs

Department, Silver Owl Press for the New Zealand Customs Department

OECD (2005). The economic impact of trade facilitation, Working Party of the Trade

Committee, OECD Trade Policy Working Paper No.21.

Ojo M, (2009), Responsive Regulation: Achieving the Right Balance Between Persuasion

and Penalisation, MPRA Paper Number 15543, available at: http://mpra.ub.uni-

muenchen.de/15543 retrieved on 20 October 2012

Sparrow M (1994), Imposing Duties: Government's Changing Approach to Compliance,

Praeger Publishers, Westport

WCO (1999), International Convention on the Simplification and Harmonization of Customs

Procedures (as amended), Customs Co-operation Council (World Customs Organization),

Brussels.

WCO (2007), WCO SAFE Framework of Standards, Brussels

WCO (2012), What is Customs Procedures and Facilitation? Available at:

http://www.wcoomd.org/home_pfoverviewboxes_pfoverview.htm, retrieved on 28 October

2012

Widdowson D & S Holloway (2011), Core Border management Disciplines: Risk Based

Compliance Management, in McLinden G, D Widdowson and T Doyle (eds), Border

Management Modernization, World Bank Publications, Washington DC

Widdowson, D (1998), ‘Managing Compliance: More Carrot, Less Stick’ in: Chris E & A

Greenbaum (eds), Tax Administration: Facing the Challenges of the Future, Prospect,

Sydney.

Widdowson, D (2004), Managing Risk in the Customs Context, in, Luc De Wulf & Jose B

Sokol (eds) Customs Modernization Handbook, World Bank Publications, Washington DC

Widdowson, D (2005), International Trade Facilitation: The Customs Imperative,

presentation to the APEC Workshop on the WTO Trade Facilitation Negotiations, Kuala

Lumpur, March 2005.

14 | P a g e

World Bank (2012), Trading Across Borders, Doing Business Report 2012, available at:

http://www.doingbusiness.org/reports/global- reports/~/media/GIAWB/Doing

%20Business/Documents/Annual-Reports/English/DB12-Chapters/Trading-Across-

Borders.pdf

15 | P a g e