Customs Reform and Modernization Program

1. CustomsReform and Modernization Program José Eduardo Gutiérrez Geneva, May 2001

2. Index • Background • Customs Reform • Technical Cooperation • Capacity Building related to Trade facilitation • Main Results • Conclusions

3. 1. Background • In the last 10 years, Bolivian Customs had received US$5.6 millions to support five programs for the modernization of customs administration. However, progress was scant and customs was regarded corrupted, politicized and inefficient. • In 1997, the Bolivian Government required assistance from the IMF to elaborate a Reform Program. A IMF mission concluded that the Bolivian Customs Administration was not able: • to improve its service to facilitate trade • to establish adequate control over the private sector that is involved in the customs procedures • to reduce the physical inspection of goods, which were mainly based on discretional criteria of the customs officials • to eliminate “ad honorem” personnel • to improve general equipment • to improve the legal and normative structure, (Customs Law of 1929) • to have an integrated customs information system

4. 1. Background • The IMF recommended an strategy to improve the custom administration, based on: • Modern legislation, and • Simple procedures • In this context, a program lead by an international customs expert initiated his work at the beginning of 1999. • Despite, this new effort, customs administration did not change at all. • The Bolivian Government decided to give an additional and critical support to the reform process by enacting the new General Customs Law (No. 1990) in July of 1999. • The Law gives financial autonomy to the Bolivian Customs from the Ministry of Finance.

5. 2. Customs Reform (PROMA) • In this context, and based on IMF recommendations, the PROMA program was elaborated. • Objectives • To facilitate trade • To improve collection of trade taxes • To reduce corruption • Following the IMF recommendations PROMA: • Executed a Contingency Plan financed by NN.UU., with a cost of US$2.4 millions, used for: • implementation of a customs police force (COA) US$1.8 millions • implementation of a special inspection unit (UTISA) US$0.4 millions • improvement of customs administrations equipment US$0.2 millions • Elaborated a general 5-year Plan

6. Financing: 5-year Plan Cost and Components(US$ millions)

7. 3. Technical Cooperation • Technical cooperation of IMF, WB, IADB, NDF, Japanese Cooperation and Andean Corporation is mainly for: • Implementation of the Civil Service Program in the customs administration • Institutional strengthening • Automation of customs procedures (Automated System for Customs Data-ASYCUDA) • Implementation of Ex post control • Implementation of customs valuation in accordance of the WTO valuation Agreement • Once the personnel selection process is concluded, the Bolivian Customs Administration is going to need assistance in establishing a permanent customs training program to ensure the sustainability of the reform process.

8. 4. Capacity Building • Prerequisites—developed with the international cooperation: • Simple, transparent customs procedures • Computerized transactions, on-line • Simple ex post controls • Highly qualified personnel • Appropriate equipment and infrastructure

9. 4. Capacity Building Facilitating Procedures Objectives • To reduce the time it takes for goods to be released. • To be applicable consistently to all customs operations. • To give a useful tool to customs personnel and traders. Results • The new import procedure, establishes that at most 20% of all goods can be physically inspected. • 38 new customs procedures for ASYCUDA implementation: • Imports • Exports • Transit • Deposits • Free Zones

10. 4. Capacity Building Ex-post controls Objectives • To determine non-compliance with customs procedures. • To recommend sanctions against evaders in order to deter non-compliance • To introduce risk • Results • Ex post control procedures

11. 4. Capacity Building Personnel • Objectives • Civil service and Training. • Improve human resources management. • Results • All positions open to public competition. • 10,000 candidates, hired 270. All personnel will be hired until mid 2001. • Improvement of the housing conditions at the borders. • Draft version of Ethics Code.

12. 4. Capacity Building Appropriate infrastructure and equipment Objectives • To facilitate trade operations • To improve trade controls • To help traders • Results • New privatization of customs deposits strategy, based in the improvement of the infrastructure. Bits out until end 2001. • Investment bank hired for new privatization

13. 5. Main results • Customs collections up 11% in nominal terms, 25% in efficiency terms (i.e. taking into account decrease in tariff rates) in 2000. • Implementation of ASYCUDA, export module until end of may 2001. • New, shorter judicial procedure has resulted in 70 jail sentences (none is serving time in jail, due to judicial system), 20 people in preventive detention. • New customs police highly credible: 1,710 operations since October 1999. • UTISA: 18 inspections since August 1999 allowed recuperations of approximately US$12.0 millions. • Training in customs administration for judges, prosecutors and lawyers.

14. 6. Conclusions • Lessonslearnt • Institutional reform efforts need time to produce results. • During that time, these types of reforms need constant support from several public and private institutions, since institutional reforms touch many vested interests. • The success of one institutional reform depends on the success of other institutional reforms: positive reinforcement. • Besides these difficulties, institutional reforms are possible. • Without political consensus it is difficult to implement a institutional reform.

15. 6. Conclusions • Lessonslearnt • Credibility is a necessary condition to ensure successful of a reform program and transparency is a key element. • Economic agents adjust their behavior to the new rules, taking in account the credibility of the reform program. • It is necessary to analyze the consequences of penalizing customs offences, specially, when the judicial power is weak. • It is dangerous to give to a weak judicial system, the last say about the grade of punishment of tax evaders.