A comparison of the customs procedures of India, United States of America and Singapore

Abstract

International trade has assumed great significance in the globalized world of today. Thegrowth and development of a nation has come to be linked with the extent of trade thatit is able to carry out in the international arena. Thus trade facilitation has become thekey to a country's success in the global arena.A vital component of trade facilitation is reducing die incidence of transaction costs inimports and exports. Several times the extent of transaction costs themselves determinethe industries' competitiveness in the international market. What is more, hightransaction costs are a deterrent to foreign investment coming into the country.In India, compliance with Customs formalities contributes a large proportion of thetransaction costs for importers and exporters. Available literature points out that despiteliberalization, Indian industry still has to face high transaction costs on account ofCustoms clearances. These costs arise due to delays in Customs clearances caused bycomplicated procedures that lead to involvement of considerable time and effort tocomply with the Customs formalities.This study is an attempt to gauge the efficiency of the Indian Customs procedures withrespect to service delivery to the trade as well as effectiveness in safeguardingGovernment revenue. A comparison is also made with the Customs functioning of twoof the large trading nations of the world equipped with modern facilities USA andSingapore, and to see whether Indian Customs can draw lessons from them. Whether theprocedures act as a deterrent to FDI is also attempted to be examined in this study.The findings of the study indicate that the Custom Houses vary in performance.Bombay and Nhava Sheva Customs take 8-9 days for clearing the import document (thebill of entry), whereas the figure for Chennai is 5.5 days and that for Bangalore is 2.1days. Further, filing of the Import General Manifest (IGM) is an extremely timeconsuming activity in each of the ports. Each bill of entry is assessed and the goodscovered by the same, physically examined. In the journey of the bill of entry, it is theprocess of assessment and not, as widely believed, physical examination of goods, whichtakes the maximum time. In case of exports as well, there is variation in performanceranging from less than 12 hours in Bangalore to 2 days in Chennai and 3-4 days inMumbai and Nhava Sheva. The sanction of drawback takes anywhere between 10 to 18days at various ports after the Export General Manifest (EGM) has been filed. The filingof EGM, however, like the filing of the IGM, is a time consuming activity (17 29 dayson average at the sea ports). The performance was found to be largely much lower thanthe performance standard which the Central Board of Excise and Customs has set, asevident from the Citizen's Charter. This adds to the transaction cost of the imports aswell as exports.However, an important finding of the study is that while much is made of thedelay in import clearance formalities by Customs, it is actually the importerhimself who is responsible for neatly a third of the time taken in such clearancebecause of delay in duty payments.The study also revealed that the procedures have performed questionably as far assafeguarding revenue too is concerned. Results also indicate that the perception of hightransaction and 'hidden' costs do deter foreign investors from investing in India. Thesurvey also revealed that the trade believes that there is significant scope forimprovement of Customs procedures.The study of US customs and that of Singapore reveal that these countries rely heavily ontechnology to enable electronic filing and system appraisal of entries. Further,information is sought for well in advance and fed in the tracking and analyzing systemsto assess the chances of a consignment carrying contraband or evading on duty. Onlysuch shipments that are thus identified are examined or subjected to thorough scrutiny.Further, there are strong deterrents against customs related offences and justice is quick.Of course, the reliance on customs for revenue in these countries is minimal but theyhave their own threats the US in respect of drugs and terrorists and Singapore toofrom drugs.Based on the international best practices and the realities of the Indian situation, studysuggests the u s e °f risk assessment techniques by Indian customs to identify riskyconsignments in advance. Only those consignments should be checked and theremaining be allowed to be self assessed by the importers. A profiling of importersshould be used to further segregate the risky and risk less or less risky imports. Selectiveaudit of the self-assessed entries should be done to check against abuse of the scheme.Any evasion detected in the post audit should be dealt with firmly with exemplarypunishment. The study also evaluates the working of such a scheme implemented on atest basis in select Customs formations.Greater reliance on tools of Information Technology and electronic filing of entrieswould bring about greater transparency in the system and is also likely to reduce thechances of corruption thereby reducing the element of hidden transaction costs.