New customs system needs to facilitate trade rather than just create more red tape.
Customs needs to be agile, modernised and take business interests into account. It is about attracting investors and not just looking to penalise them heavily for getting some procedure wrong.
Businesses that fail to take new trade facilitation rules into account could see their supply chains coming under significant pressure in the future.
At risk, in particular, is future business with US companies which already have to comply with stricter trade rules since the devastating 9/11 terrorist attacks heightened fears of security risks. The US now wants the rest of the world to modernise their customs systems as well. It means a paradigm shift is taking place in the customs world, including in South Africa, as the attention moves from compliance and enforcement to engaging with business in a trade partnership aimed at securing and controlling the supply chain. The South African preferred trader programme, for example, is based on the World Customs Organisation (WCO) Framework of Standards.
Businesses need to be aware of new provisions aimed at expediting the movement, release and clearance of goods, including goods in transit. Measures for effective co-operation between customs and other appropriate authorities on trade facilitation and customs compliance issues are also important, while further provisions for technical assistance and capacity building should also be on the radar.
However, this is a voluntary programme and at the moment many traders are adopting a wait-and-see approach. A new set of acts - the Customs Control Act and the Customs Duty Act - are only likely to become effective next year.
Associate Director for Customs and Global Trade at Deloitte, Ronnie van Rooyen, says simply doing nothing may not be the best approach. “Businesses are putting themselves at risk of doing less trade when dealing with a country that already complies with similar changes being adopted around the world.” South Africa’s customs unit essentially wants to sit with a business and find out about the supply chain before giving them a preferred trade ‘certificate’ and concessions, like inspection capabilities at their premises. But businesses are saying they want to see more benefits first.
“This is not necessarily good as it is always better to develop relationships, especially with those who will play a key role in the supply chain. If you know the SARS customs department is going to check, then it is surely better to make sure you comply before they come and check,” says Ronnie.
A problem is that many businesses do not have a strong enough voice to air their grievances. “I think something along the lines of a ‘preferred trader forum’ is needed, where these businesses can stand together and demand more benefits. Timing is key, however, as there is already a lot of fatigue after all the discussion around this topic. This is why so many businesses now just want to wait. We must also bear in mind that our Customs and Excise Act is very old – dating back to 1964,” says Ronnie.
According to the World Trade Organisation (WTO), world trade grew at 2.8% in 2014, which was below the forecasted 3.1%. Expectations of achieving a projected 3.3% in 2015 look bleak as many economies struggle to eke out more than 2% growth.
World merchandise exports grew by a moderate 0.6% in 2014 to 19 trillion dollars, according to the United National Conference on Trade and Development. Least developed economy imports grew by 8%, the data showed, while developed economy imports lifted 1.6%. Total growth in global imports of 0.5% was recorded.
The WTO has a trusted role in monitoring and regulating trade agreements, but has struggled to strike multilateral deals amid rising protectionism. India, for example, blocked new global customs rules in July last year when diplomats from 160 WTO member countries were supposed to approve the changes. According to Reuters, estimates indicate that the trade facilitation deal could add $1 trillion to the world economy and create 21 million jobs. But India first wanted to get what it wanted on its system of stockpiling and subsidising crops.
While anyone who flouts customs rules should rightly be penalised. The system should also make a country an attractive destination for investors. Yet at the moment, SA’s system “seems too complex” and focused on policing trade, rather than facilitating it. “We want to develop special economic zones and industrial development zones, but if you look at the customs and value-added tax legislation, it is draconian and not always aligned,” says Ronnie.
“Customs needs to be agile, modernised and take business interests into account. It is about attracting investors and not just looking to penalise them heavily for getting some procedure wrong. There should not be a lot of administration involved in getting it right. You need integration to really secure trade, but we are not there yet where we communicate and share information,” he explains.
The effect on businesses that do not have supply chains that meet these aspects in place could be immense, even though the changes are still in their infancy.
“SA is lagging behind in that its focus is more on compliance rather than on the security aspects, which the US is most interested in. For example, it wants to ensure no weapons of mass production are imported, or even anything that could aid in the development of these weapons. Europe and China are ahead of the pack, but the US is basically saying: if you want to trade with me, you must comply. If not, don’t trade with me,” says Ronnie.
“This can have an impact on trade today as there is a snowball effect if it is pushed all the way down the supply chain,” he concludes.