Cutting costs in trading with Russia Critical success factors

1. Cutting costs in trading with RussiaCritical success factors Peter Wilmott Director Intertek Customs Advisory Services

2. Trade Facilitation • Trade facilitation is • Easier means cheaper • Therefore trade facilitation cuts costs in trading with Russia MAKING INTERNATIONAL TRADE EASIER

3. Customs, and other strange practices • Trade facilitation is not just about Customs • But without Customs’ willing participation and leadership, trade facilitation will not happen • Customs are the premier border agency, with unparalleled international networks, norms and standards • Getting Customs ‘right’ will deliver immediate and larger benefits than other facilitation initiatives

4. Issues • Identifying critical success factors mean dealing with issues: • Procedures • Information Technology • Integrity • Integration • The tendency of governments to interfere

5. Basic principles • Adam Smith, 1776: • Four canons of taxation: • Equity, certainty, convenience, efficacy • Joseph Stiglitz, 1980: • Economic efficiency, administrative simplicity, flexibility, transparency, fairness • These principles apply to all government-run compliance regimes, and not just to tax collection

6. Procedures • These are the means by which government agencies secure compliance of international traders with their legal obligations • Procedures imply • The provision of information to traders • The submission of traders’ data to government • Acceptance by traders of responsibility for their acts, including payment of duties and taxes • Government decisions on ‘clearance’ or ‘closure’

7. Procedures - analysis • For the lowest compliance costs: • Information on traders’ obligations must be available, clear, timely and unambiguous • Data must be collected from traders by procedures that are efficient, non-burdensome and predictable • The consequences of traders’ declarations must be unambiguous, fair, predictable and consistent • Government decisions must be timely, clear, fair and effectively enforced

8. Information Technology • The best use of IT • Aids efficiency and certainty in communicating with traders • Gives government effective tools for managing risk, assessing and collecting duties and taxes, and producing statistics and management information • Simplifies data collection and the taking and communication of administrative or legal decisions

9. IT - analysis • IT by itself does not deliver trade facilitation • Large, expensive administrative systems quickly become inflexible, out of date and unfriendly to business needs; smaller, agile systems attuned to business practice do not • System specification is a vital step in procuring efficient and effective IT systems, and requires intensive dialogue between owners and users, whether private or public sector • Joined-up, modern and business-friendly systems cut costs and promote trade facilitation – other systems don’t

10. Integrity • In countries where corruption in government agencies is a major issue, trade facilitation is virtually impossible • Corruption is not just about financial inducements – it can involve political power and favouritism, or simple prejudice • Lack of integrity increases uncertainty and arbitrariness in control systems, and thus raises costs • Integrity issues can be tackled only with political will and leadership at the highest levels

11. Integrity • This is not just a moral issue – it has a direct impact on business costs • Corruption in administrative systems is the enemy of fairness, transparency, certainty and predictability, and encourages businesses to develop compensating behaviour that consolidates corrupt practices • If significant corruption is present, dealing with it is a top priority, before other cost-cutting exercises

12. Integration • This means managing administrative systems so as to maximise cooperation with traders and use their data and processes in a joined-up way • Integrating different agencies’ systems requires agencies to talk to each other and act in concert • Integration requires a deep understanding of business concerns and processes

13. Government interference • Even with the best systems in the world, government intervention can destroy trade facilitation initiatives: • Instructions to boost short-term revenue collections cut across consistent and predictable management routines • Political favouritism removes objectivity from systems • Public servants are not necessarily the best placed to understand the impact of their own decisions

14. Government interference • Conclusions: • There must be a long-term policy framework to support shorter term decisions and variations • If short-term needs require change to systems and procedures, it is essential to communicate with business and minimise disruption and lack of predictability • Governments should not interfere without good reason - “if it ain’t broke, don’t fix it!”

15. Economic efficiency, administrative simplicity, flexibility transparency, fairness Are Russia’s border processes yet as good as they could be? What simplification, deregulation or harmonisation would bring benefits? Do non-transparent procedures and arbitrary decisions harm business interests and discourage investment? Measuring performance A wide range of reform activities, and indeed the organisation of this conference, show that the Federal and local authorities understand the challenge and are prepared to act. Their priority must now be to encourage business to join them in solving problems and setting priorities, against a background of objective and measurable programmes.

16. Conclusion • Trade facilitation is not rocket science, but a simple discipline applied to government rule-making and business processes that cuts costs by eliminating inefficiency in the supply chain • The key to making international trade cheaper and easier is dialogue and mutual understanding, leading to better trade control systems • This presentation has suggested some critical success factors in this process

17. Conclusion • Just to repeat, they are • Equity • Certainty • Convenience • Efficacy • Easy to say, difficult to practice. But Adam Smith’s principles still apply, two centuries later