THE MAGAZINE

Security Saves Time

By Robert Elliott

The authors of Doing Business 2007: How to Reform waded into their research more than two years ago expecting to find that stepped-up security measures would have slowed the pace of global trade. Instead, they found that the time it took to turn around imports and exports worldwide was shaved by 1.4 days.

“The dramatic increase in the requirements to meet security standards means customs agencies have been forced to reform,” says Caralee McLiesh, a lead author and cofounder of the Doing Business project. “That has ended up reducing the average time to comply with the requirements to import and export.” And that, McLiesh notes, has been “better for business.”

The report, which was published jointly by the World Bank and the International Finance Corporation, examined quantitative indicators on business regulations and the protection of property rights across 175 economies, from Afghanistan to Zimbabwe. The authors found that as governments have been forced to pay closer attention to streamlining trade administration and upgrading systems to enhance security, the result has been better risk management techniques, more use of advanced demand information (ADI), and better customs administration reforms. These methods have more than offset the anticipated delays associated with more detailed inspections and the additional paperwork brought on by new security regulations.

During the course of 2005 and 2006, 19 economies reduced the time it takes to complete requirements to trade across borders. One of the most outstanding advances was made by Serbia, which cut the time to complete administrative requirements for exporters by 21 days, and for importers by 32 days. Another standout was Pakistan, where it currently takes 19 days to import, as opposed to 39 days in 2004.

In addition, Serbia initiated a border cooperation agreement signed by Albania, Croatia, and Hungary, which brought about uniform customs forms, reducing paperwork and processing time. Serbia also implemented a new customs code allowing for cargo declarations to be filed electronically. It then implemented new risk management software as a part of its customs inspection. As a result of the risk targeting, the percentage of shipments that had to be physically inspected dropped from 100 percent to 8 percent.

Risk management techniques have been employed by other countries. Coupled with after-clearance audits, they give countries the ability to gear their inspections towards higher-risk cargo. In Tanzania, more than 90 percent of cargo headed for the capital city Dar es Salaam is risk-assessed before it reaches the port. After-clearance audits have meant Egyptian, Jordanian, and Romanian customs officials can quickly give importers their cargo, which is then checked at the warehouse.

Globalization of systems has also helped. Software installed in Hamburg or Sydney can be applied in Baku, Azerbaijan, and Colombo, Sri Lanka. Electronic filing has cut delays in numerous ports. In Pakistan, a new customs clearance process allows traders to pay their tariff and port fees electronically, and to file cargo declarations before shipments arrive. In Colombia, Kenya, Syria, and Tanzania, traders submit customs declarations before goods arrive at borders. Some traders have remarked that the avoidance of face-to-face confrontations with customs officials has cut down on bribes.

Faster cargo handling has helped reduce port congestion, leading in turn to lower costs for traders. Port congestion surcharges can range between $60 and $500 per 20-foot container. In the Jordanian port of Aqaba, port infrastructure investment has resulted in the elimination of the $150 congestion surcharge.

Set apart from the positive examples are many straggling nations that still neglect to use risk management software or ADI, and have antiquated customs procedures. Some of the most difficult places to trade remain Rwanda, Uzbekistan, Niger, the Kyrgyz Republic, and Kazakhstan. McLiesh says a lack of political will has prevented these governments from installing the relatively simple and inexpensive security measures that would improve their commerce.

“It does take political focus and commitment,” McLiesh points out. “What security has done is bring some of that focus and commitment to this area, which otherwise is very often underrepresented in the governmental agenda for reforms,” she explains.

The Doing Business authors expect the trend towards faster world trade via security-inclined reforms to continue. Many countries are working on it: Australia is revamping its customs procedures, Taiwan is introducing electronic processing of applications, and Pakistan is upgrading its infrastructure. “We are aware of many other countries embarking on such reforms,” says McLiesh. “It seems to be a sustainable trend, and we expect it to continue.”

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