Transforming to global for prosperity, how should Customs?

Don A. Quartiere

In an age of globalization, geographic and regulatory barriers fall, electronic distribution explodes, inventory becomes obsolete, and focused competitors ferociously attack. Companies have to restructure or succumb to others. One ubiquitous government entity stands at the gates of international trade, Customs. When Customs executes strategically, it can stimulate and protect the economic interest of its trading regions; other scenarios exist. The Customs drivers in play could overcome the agency, hamper its modernization, and even put its relevance at risk as the world heads to, and reacts to the repercussions of, going global.

Transforming to global for prosperity, how should Customs?

Table of Contents Table of Contents.............................................................................................................2 Realizing a relevant e....................................................................................................3 Globalization, e-business, and e-government..............................................................3 An international trade value system.............................................................................4 Prosperity in a global economy....................................................................................4 Marketplaces converge, barriers contract and businesses transform ............................6 Global marketplaces.....................................................................................................6 Corporations adapt.......................................................................................................6 Productivity drives the U.S. economy, international traders drive productivity............7 E-government and e-business alignment.....................................................................7 International logistics services.....................................................................................8 International trade facilitation and national security.......................................................8 Embracing globalization: profits, capitalization, and competitive advantage.................9 Enabling success for all players...................................................................................9 A nations competitive position matters........................................................................9 Competitive advantages enable prosperity................................................................10 A Customs e-thinking scenario......................................................................................10 Classification of goods for U.S. importation.............................................................11 Reassembling the classification puzzle......................................................................12 Knowledge-empowerment for international traders..................................................12 Realizing the benefits of e-Customs knowledge management..................................13 Quantifying e-Customs advantages and benefits.......................................................13 Delivering e-Customs productivity...............................................................................15 Abbreviations and Acronyms........................................................................................16

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Transforming to global for prosperity, how should Customs?

Realizing a relevant e The U.S. is engaged in a new type of war against terrorism worldwide, demanding a new approach to fighting the continuous battles on all fronts. The highest priority of the U.S. Customs Service now -- and since the monstrous attacks of September 11 against our country -- is counter-terrorism.i The U.S. Customs Service is one of the primary enforcement agencies protecting the nations borders, deploying an extensive air, land, and marine interdiction force supported by an investigative division. It is estimated that in 2002 more than $9 trillion in goods and services will cross international borders. Analysts believe that by 2025 as much as 80 percent of the worlds GDP will be generated from cross-border trade in goods and services.ii The U.S. Customs Service enforces trade and tariff laws (2001 tariff collections were $20 billion) and is a pivotal component of every international traders supply chain. As Customs reinvents itself, it faces a continuum of options. At one end of the spectrum, it puts existing government services on the Internet. At the other, it transforms itself into an indispensable agent adding security and value to the economic interests of the nation it serves and earning a leadership position worldwide. Whatever the e is for Customs, it must first fulfill the mission of the agency and address the demands of the drivers acting upon it. By fulfilling the unarticulated demand of stakeholders in lieu of competitive substitutes, thereby obtaining competitive relevanceiii, Customs ensures its position as the preeminent agency guarding the nations borders and facilitating international trade. To obtain competitive relevance, Customs modernization must create a value proposition that is beyond compelling, it needs to be both unique and relevant to the U.S. Customs advisory councils, periodicals, organizations all have put forward recommendations on how to modernize Customs. The commonality is they articulate a solution to well-documented pains of the Customs stakeholder community today, not necessarily what the agency could mean to the nation tomorrow. Correcting these ills is a valid concern of good government, but does it require a transformation to e-Customs?
Globalization, e-business, and e-government

Businesses are leveraging what they learned and transforming to embrace the opportunities of a global marketplace. The increasing availability of global capital, coupled with advances in computing and communications technology, is serving to accelerate the processes of globalization. The barriers to globalization are coming down everywhere: not just in North America, Western Europe, and Japan, but also in the emerging giants of China, India, Brazil, and Russia. Possibly, the greatest advantages of e-government is not what government will bring to the constituents directly, but what the private sector will accomplish through the new
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government infrastructure. Customs modernization, depending on the strategic choices made by the agency, is in a position to deliver a compelling infrastructure. The delivery by private sector intermediaries of new e-business practices, based on e-government transformations, will spread efficiency gains to the economy as a whole in a manner not achievable through government.
An international trade value system

The lessons of past globalization challenges have been internalized by the advanced economies of the world. It now takes only two to three years, for example, for the world economy to produce the same amount of goods and services that it did during the entire nineteenth century.iv International logistics enables globalization to be financially viable. International logistics activities are driven by a customers choice to buy a product in the competitive global marketplace. The financial rewards of global marketplaces require customer satisfaction with international logistics services. ix 1 Customer satisfaction demands continuous operational efficiency improvements. Operational improvements require a nation to better its productivity. All international logistics activities cross a nations border at some point and involve a Customs agency. Systems involved in international trade standardize as they interface to Customs making the agency the pivotal enabler, or barrier, to global trade productivity within the economic and Customs region. ix 2 The advanced economies of the world have only one choice as globalization moves forward - to determine what strategic focused role their economy will play and enable its execution in a competitive fashion. Economies, like Customs, have competition too. As a byproduct of globalization, the customer always has an acceptable choice.
Prosperity in a global economy

A great threat to the economic interest of an advanced economy will come if local companies deny the existence of globalization and refuse to, or cannot, adapt. To do so will put millions of jobs at risk in any advanced economy. Such companies will realize that standing still is no answer in a global economy, in which other once equivalent players are racing ahead, potentially in a different Customs region. ix 3
A multi-billion dollar U.S. retailer, responding to the e-CPs CBA Communication, distributing imports to a large number of nationwide outlets summarized the ACE advantages as: we would expect to see improved clearance times and uniformity in all ports which would benefit our supply chain and reduce the number of days for replenishment in our stores; improved Customs confidence in our ability as an importer to maintain a high degree of compliance; improved historical data accessed via the internet for our account to assist both Customs and the importer in managing our business more efficiently; and improved interfacing and exchanging of data with other government agencies.
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72% of the respondents to the e-CPs CBA Communication to U.S. importers rated to a great extent in importance to the efficiency of their supply chains a U.S. government agency providing uniform treatment of goods at the ports of entry upon arrival of the means of conveyance, 11% gave Customs effectiveness in meeting that need today the same rating.
2

A multi-billion dollar supplier of high technology equipment to U.S. marketplace commented on the e-CPs CBA Communication to U.S. importers Customs regulations should reflect the changes in business and transportation models currently in use, such as products being made to order vs. mass production of identical items..
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Transforming to global for prosperity, how should Customs?

Globalization and e-business are transforming the private sector; e-government needs to transform the public sector in order to obtain alignment with business and maintain efficiencies. ix 4 A Customs agency, through modernization into e-Customs, has an opportunity to enable a companys supply chains transition to a value chain, act as a neutral party delivering global trade parity to business, and promote the adoption of U.S.anchored components in constantly evolving operating models driven to an everincreasing level of operating efficiency. ix 5 Beyond the particulars of the e-Customs classification matrix scenario, a methodology is presented herein for ascertaining the e worthiness of any Customs modernization objective against the aforementioned objectives. A scale for ascertaining if the scenario adds to the competitive relevance of the Customs agency is also introduced. If indeed international operational efficiency is acting on private industry as outlined in this paper, the marketplace will support private industry intermediaries fulfilling the needs gap. When trade intermediaries deliver international trade logistics solutions without the benefit of Customs leadership and an innovative infrastructure to fill the unmet need, the segment of the economy that gain access to the benefits is smaller than if Customs were engaged. Furthermore, the intermediaries will be hard pressed to establish themselves beyond the immediate Customs region and truly reap the rewards of globalization their products and services assist others in achieving.

Regardless of the path a Customs agency chooses as it journeys towards modernization, one thing is certain the businesses of advanced economies will prosper embracing globalization. How private enterprise success transcribes itself onto the varying economic and Customs regions of the world will affect the prosperity of its nation states, in potentially dramatic ways.

69% of the respondents to the e-CPs CBA Communication to U.S. importers rated to a great extent in importance to the efficiency of their supply chains paperless e-filing for U.S. importation data requirements, 31% gave Customs effectiveness in meeting that need today the same rating.
4

48% of the respondents to the e-CPs CBA Communication to U.S. importers placed expedited and reliable cargo release for all modes of transportation with Customs pre-authorization of the importer, intermediaries, goods, shipper, and routing as one of the top five ACE advantages.
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Transforming to global for prosperity, how should Customs?

Marketplaces converge, barriers contract and businesses transform

Global marketplaces

Industry by industry, national and regional markets are aggregating into a set of markets that operate without regard to national boundaries, increasing the business opportunities and the market capitalization of successful global players. As a manifestation of international marketplaces, the subjects of logistics, supply chain, and e-business are at the forefront of concern for business executives. However, most companies will face significant challenges in navigating the complex regulatory, financial, and logistics environment created from international trade.v ix 6. A recent study by AMR Research provides some insight into why companies are actively pursuing business-to-business e-commerce activities in the global marketplace. The potential financial benefits range up to $465 billion annually. CSC Consulting predicts that the North American automobile industry Source: Corporate Strategy in a Globalizing World, McKinsey Quarterly 1998 alone could reap an annual benefit of up to $80 billion, on average, $5,000 per vehicle, if it masters collaborative product development and transforms supply chains into value chains.vi 7
Figure 1

Corporations adapt

Successful companies have a corporate mission and viable strategy in order to realize their market penetration and profitability objectives. Many of the strategies in place today for companies accelerating towards global were built on the requirements of the past: in a world of closed national economies, not open global markets.vii Marketplace driven events that cause the worlds largest companies to adapt their corporate strategies affect the economic interest of advanced economies in significant ways. New waves of corporate strategies will emerge, as the strategies of pre-global markets grow stale reflecting a fresh focus. Globalization often allows growth that is consistent with strategy, opening up larger markets for a focused strategy. Unlike
65% of the respondents to the e-CPs CBA Communication to U.S. importers selected account-centric nationwide management of an importer and its intermediarys activities as one their top three ACE advantages.
6

The supply chain model focuses on activities that get raw materials and subassemblies into a manufacturing operation smoothly and economically. Value-chain analysis looks at every step from raw materials to the eventual end-user, right down to disposing of the packaging after use. The goal is to deliver maximum value to the end user for the least possible total cost. That makes supply-chain management a subset of the value-chain analysis.
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Transforming to global for prosperity, how should Customs?

broadening domestically, expanding globally is likely to leverage and reinforce unique positions and identity.viii Companies accelerated e-business plans in a globalized economy will have the greatest impact on three key areas: supply chains transitioning to value chains; logistics systems becoming a key competitive advantage; and the transformation of operating modelsix 8.

Productivity drives the U.S. economy, international traders drive productivity

Figure 2

Source: U.S. Bureau of Economic Analysis, McKinsey analysis

A component of the economic health of a nation depends on what happens to the productivity growth rate, the main determinant of how fast the economy can grow. At issue is whether the near doubling of US productivity growth rates during the late 1990s, from 1.4 percent (1972 95) to 2.5 percent (19952000), can continue.x

The primary sources of the productivity gains of 1995 to 1999 were managerial and technological innovations in only six highly competitive industries: wholesale trade, retail trade, securities, semiconductors, computer manufacturing, and telecommunications. These six sectors accounted for virtually all of the net productivity acceleration and 74 percent of all positive contributions. x Of these six productivityleading sectors, all are leading U.S. international traders with the exception of securities and commodity brokerages.
E-government and e-business alignment

To succeed in e-government, agencies will need to learn to see the citizen as their customer, which represents a radical cultural change for many organizations. Becoming a customer-centric organization will require a change in resource allocation priorities and a thorough review of business processes. ix 9 10 Governments are not chasing profits, yet they can deliver a competitive advantage to the businesses operating within their region that do. A byproduct of globalization is increased competitive pressure between trading regions, as they drive to continuously improve operational efficiency. The governments of trading regions have always played a role in
100% of the respondents to the e-CPs CBA Communication to U.S. importers stated globalization affected their business practices, 83% to a great extent.
8

86% of the respondents to the e-CPs CBA Communication to U.S. importers rated to a great extent in importance to the efficiency of their supply chains periodic payment capabilities, 7% stated Customs effectiveness in meeting that need today was at a great extent where 44% placed it at no extent.
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66% of the respondents to the e-CPs CBA Communication to U.S. importers rated periodic payment against a time delineated grouping of entry summaries one of their top five ACE advantages.
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enabling the success of the private sector operating within its region, through the facilitation of legitimate international trade and protection of borders. E-government is about government/private sector synergy driving productivity and the regions economy. Globalization, e-business, along with the tragic events of September 11th places the Customs agencies of the advanced Domestic trade is a subset of international trade economies at a crossroad. Customs agencies are choosing 11 the challenging path of transforming into an e-Government agency in order to better effectiveness and efficiency ix 12. Through modernization, Customs can play a key role in enabling the businesses operating in its region of control to succeed in the global marketplace as it enhances how the nations borders are protected.
International logistics services

International traders have responded to the increased demand for logistics services that arises from e-commerce by adopting a variety of methods including the development of software applications in order to automate logistics. ix 13 It is estimated for that by 2000 worldwide sales of software, hardware and services used in electronic logistics had reached US$ 277 billion, and they are expected to reach US$ 1 trillion by 2005.xi While these figures appear to be on the high side, they nevertheless provide a useful indication of the importance being given to the issue of logistics in e-commerce. Technology plays a critical role in providing systems that can enhance the ability of logistics service providers to satisfy customer demands in the global marketplace. The main weakness of the efforts to develop applications for improving logistics is the general lack of integration between the various applications used for different logistics functions. ix 14 Another factor that impedes the effectiveness of e-logistics services is the existence of a multitude of constraints brought about by inefficient trade facilitation.

International trade facilitation and national security Since the attacks of September 11, government officials have put emergency measures in place to protect U.S. borders and seaports from terrorist threats. But several officials have said the levels of manpower deployed are unsustainable and that a new and permanent security apparatus must be developed that somehow doesnt impede the free flow of trade that is so essential to the health of the nations economy.xii
Gartner defines e-government as: the continuous optimization of service delivery, constituency participation and governance by transforming internal and external relationships through technology, the Internet and new media.
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11% of the respondents to the e-CPs CBA Communication to U.S. importers stated that to a great extent the capabilities provided today by Customs through ACS are effective at enabling their company to maintain parity supply chain practices with competitors that manufacture outside the U.S. and export finished product into the U.S. marketplace.
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31% of the respondents to the e-CPs CBA Communication to U.S. importers placed doing business with Customs online via the internet as opposed to in person as one the top five ACE advantages.
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33% of the respondents to the e-CPs CBA Communication to U.S. importers stated a capability to complete Customs and Participating Government Agency (PGA) requirements via an Internet based system interfaced to ACE as one the top five ACE advantages.
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Transforming to global for prosperity, how should Customs?

The reach of the U.S. Customs Service will be extended beyond the borders of the U.S. as an outgrowth of the war on terrorism. In an attempt to prevent terrorists from using international cargo as a vehicle to attack the U.S., a growing number of government officials and business interests are trying to extend maritime security to the foreign loading docks and seaports where the cargo originates.xiii E-Marketplaces enable sellers to trade with unknown The U.S. Customs Service will buyers, but force exporters to manage frequent xiv extend beyond the nations borders shipments to foreign destinations. The Customs Modernization Act of 1999 places responsibility for Customs compliance with the shipper, greatly increasing corporate liability. The U.S. Customs Service could deliver security advantages that aid the firms conducting trade as well as the national interests of the U.S. Homeland security, as applied to commercial cargo today, is like a puzzle with pieces missing. Reaching into the data flow that precedes the cargo, from its release to the point of origin, is one of the missing puzzle pieces. Only by Customs encouraging earlier and continuous supply chain information communication, for the expedited realization of Customs benefits, and delivering leading practice supply chain advantages can the international trade community put the facilitation and security puzzle together.

Embracing globalization: profits, capitalization, and competitive advantage

Enabling success for all players

The subjects of logistics, supply chain, and e-business are at the forefront of concern for business executives. Consider that United Technologies, whose six divisions manufacture products as diverse as helicopters, elevators and air conditioners, established a goal in 1997 of reducing its supply chain costs by $750 million over four years. The company ended up saving more than $1 billion through centralized procurement and inventory reduction.xv Although some firms have made notable progress and are reaping rewards, others have not. Customs modernization will have the greatest effect on those companies in the process of migrating towards being globalized; other companies, except those challenged by denying globalization, will benefit from e-Customs to an every increasing scale as they are motivated by the marketplace towards realizing globalization.
A nations competitive position matters

With relative unit labor costs on the rise in the U.S. since 1995, and export prices steadily decreasing worldwide in the most competitive economic and Customs regions, every effort is being made by international traders to ensure their companys competitiveness in the global marketplace. U.S. international trading companies have shown a willingness to change their operational procedures, including moving business outside the Customs
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region, in order to remain competitive with foreign companies. Customs policy and practices are a component of an international traders competitiveness. ix 15 Small and midsize players bear a heavy portion of a competitive disadvantage. Indeed, an annual survey by the National Association of Manufacturers of its small and midsize members found that the proportion that export at least 25% of their output peaked at 8.8% in 1998 and has since plunged to 3.8%, less than in 1993. The trade group finds the export decline especially worrisome because exports helped drive the record-long U.S. expansion that followed the recession of 1990-1991.xvi
Competitive advantages enable prosperity

Customs policies, procedures, and technology supporting the continuously reliable flow of legitimate goods, on parity or exceeding the advantages delivered by other Customs regions, allow companies to achieve operational parity with foreign competitors. ix 12 16 In an age of globalization, Customs agencies have competition. Industry is commonly segmented for varying statistical purposes (e.g., by sales, market size, profits, trade value/volume). The major players in each industry ensure that their interests are represented at trade gatherings, spoken of and about in publications, and segregated out by the government agencies including Customs agencies. Thousands of other companies are affected by the same business realities.

A Customs e-thinking scenario The scenario put forth in this section communicates an e-Customs advantage. It is based on delivering advantages promoting
89% of respondents to the e-CPs CBA Communication to U.S. importers would be willing to provide additional product and order information (e.g., manufacturer/product number/HTS, electronic order or release) to Customs to pre-qualify goods, suppliers, and the trips routing for expedited border clearances.
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prosperity through productivity gains involving open trade between countries, while providing an opportunity for Customs to fulfill its strategic goal of simulating and protecting a countrys economic interests.
Classification of goods for U.S. importation

The import and export classification of goods used by the U.S. are based on the Harmonized Tariff System (HTS) enacted by most countries around the world. The standardized portion of the HTS assigns 6-digit codes for general categories; the U.S. International Trade Commission (USITC) defines commodities at a finer level to 10 digits maintaining In the age of globalization, Customs agencies have competition standardization within the 6-digit framework, this effort then becomes the U.S. HTS enforced by the U.S. Customs Service for import classification. Importers in the U.S. are held responsible by the U.S. Customs Service for mapping the imported product, usually referenced by a product code, to the HTS of the U.S. The many millions of business product codes in existence today uniquely identify a particular good by a recognized scheme at the level required for commerce (e.g., model ABC HP power drill). The U.S. HTS classifies all imported goods to around 15,000 numbers for the purposes of administrating government programs and calculating the applicable duty, fees, and taxes (e.g., Machine tools including machines for nailing, stapling, gluing or otherwise assembling for working wood for drilling for woodworking that are used or rebuilt a.k.a. the power drill). Once a product is classified against the U.S. HTS, the importer must concern themselves with any and all Participating Government Agency (OGA) requirements and/or additional classifications that might apply. For many products no such requirements would exist. When they do, its possible that several PGA classifications can be mapped to single U.S. HTS number and/or product (e.g. multiple controlled chemicals being a component of a imported product). Not to oversimplify the import process, classification of goods for importation into the U.S. ranges from looking up the product description and assigning a single HTS to requiring a qualified team experienced with the product and applicable importing program to determine the most appropriate U.S. HTS classification. How U.S. international traders address the issue of classification varies significantly from company to company, based on perceived need and exposure constrained by time and financial resources. Some classify goods with internal teams of experts, others trust a trade intermediary with experience in its product line, and a small segment of companies contract out a full-time compliance team of professionals to handle the classification. In accordance to the regulations of the U.S. Customs Service, an importer could request a binding ruling letter ensuring the goods are properly classified and removing a future

28% of the respondents to the e-CPs CBA Communication to U.S. importers stated that to a great extent the capabilities provided by ACE would increase their companys ability to compete in the global marketplace.
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challenge by the U.S. Customs Service over the classification. Many companies request binding rulings. Exportation of goods from the U.S. requires a similar process, yet less challenged by governmental regulations. The U.S. exporter must associate the product with one of about 8,000 Schedule B numbers for the purpose of creating export statistics. The Schedule B number is based on the same 6-digit HTS framework used to produce the U.S. HTS; only the U.S. Census Bureau, not the USITC, governs it. Beyond the 6-digit HTS framework adhered to by the USITC and the U.S. Census Bureau, there is no further relationship between the U.S. HTS used for importation and the Schedule B for exportation. In 2001, U.S. Census Bureau international trade in goods and services statistics summarize the millions of trade transactions in a dollar value in excess of 927 million for exports and 1.2 trillion for imports, over 2.1 trillion in international trade crossing the borders of the U.S. The World Trade Organization (WTO) declares the U.S. transacts over 11% of the worlds exports and 19% of its imports. U.S. product classifications and binding rulings for international trade are private only to the trading party. There is no effort made to aggregate the classifications and make it accessible to the global trading community.
Reassembling the classification puzzle

The U.S. Customs Service could establish a classification matrix for use as a reference tool by the international trade community. Via varying routes, an association could be established between a companys product and numerous other codification schemes used for its identification and country level classification. Governmental binding rulings and other relevant information Customs could provide the could then be linked to the product entry. No proprietary and/or infrastructure empowering sensitive data would exist within the classification matrix, just world-class intermediaries normalized and aggregated classification cross-references and statistics. Due to the redundant effort involved in international trade product/HTS classifications, its likely many entries in the classification matrix would have multiple HTS numbers for the same product. After all, its a reference tool for aiding in the classification of goods in global trade and should reflect all classifications aiding the importer in making their final determination. The responsibility for properly classifying goods remains with the international trader.
Knowledge-empowerment for international traders

Interfacing the classification matrix to the international trade community could be realized through a combination of electronic messages and an Internet portal interface. The tools would have the capability to search, review, and download results in commonly available desktop office formats. The Customs agencies provide the process and technological platform empowering the marketplace to construct solutions. It is anticipated that international traders would welcome the advancement.

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Extending the classification matrix to partnering countries exponentially increases the benefits to international traders while increasing global trade security through product knowledge ennoblement.
Realizing the benefits of e-Customs knowledge management

International trade stakeholders could realize benefits from the classification matrix, each from a different perspective and with varying business consequences. Realizing the classification matrix, along with similar styled e-Customs initiatives, could drive down the interaction costs of international trade. Changes in interaction costs can cause entire industries to reorganize and dramatically.xvii For the purposes of this paper we focus on the benefits to the international traders as opposed to potential changes to the international trade intermediarys in order to better serve the increased market size.
Quantifying e-Customs advantages and benefits

Using the classification matrix as an e-Customs example, advantages derived from the business product cross-referenced to an HTS classification and other PGA classifications, than normalized and aggregated for the international trading community, include: Easing the goods classification by international traders New services by trade intermediaries utilizing the classification matrix infrastructure at Customs A Customs trade facilitation and classification mechanism aiding the importing and exporting country, one capable of future implementation in an environment with international jurisdiction The capacity to perform inter-company comparisons and verifications by Customs of business product classification reducing miss-classifications prior to and/or after final entry filing by the trading partner Pre-clearance Customs awareness of inbound business products enhancing national security and supporting dynamic allocation of Customs resources based on anticipated demand Table 3 (upcoming landscape page) goes on to map the classification matrix advantage against the globalization factors brought forth in this paper affecting the international trade E-government needs to transform community. The table reflects the impact of the to obtain alignment with business Customs advantage against a globalization delineated international trade community, Customs drivers and the business strategic goals.

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E-Customs Advantage International traders Service intermediaries Financial intermediaries Transportation intermediaries U.S. Customs Service Participating Government Agencies Competition driven operational efficiency Stopping terrorists and preventing terrorism Enacting the Customs Modernization Act Enforcement of federal PGA laws Expansion of trade value and volume Adoption of e-Commerce Steadily declining duty rates Wholesale trade Retail trade Semiconductors Telecommunications Computer manufacturing Strategic match xviii Competitive advantage xviii Management information xviii Business risk of not executing xviii Customer satisfaction xviii Complements strategic IT architecture xviii Business objectives Businesses primarily driving U.S. productivity Customs agency drivers Stakeholders

Classification Matrix

Don A. Quartiere Table 3: e-Customs advantage impact to varying perspectives of the international trade community

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None -

International Supply Chain Operational efficiency Globalized Accelerating globalization Early globalization Deny globalization Lack of harmonization of tariff classifications xix Limited use of automation and technology xix Disparate documentation requirements xix Customs valuation of goods challenges xix Outdated trade procedures xix Cooperation between customs administrations xix Businesses state of globalization International elogistics impediments

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Low - Medium High -

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Delivering e-Customs productivity Most of these traditional international trade intermediaries are themselves affected by transformations driven by globalization, competitive pressures, the Net and Information Technology (IT). Intermediaries are making significant investments in customer relationship management, with the aim of providing excellent levels of customer service as a differentiator in the marketplace. Governments should consider partner sourcing rather than Internet-enabling existing services as a means of increasing service levels and achieving greater efficiency. The role of partners will range from replacement government agencies completely (privatization), to competing with other intermediaries and government agencies themselves, to acting as an additional channel through which constituents can interact and transact with governments.xx Transforming Customs to e-Customs involves trade intermediaries. The Customs agency could position itself in a manner that promotes change throughout the industry in a positive fashion for the economic interest of the nation, as the U.S. transformation from manual to an automated Customs environment did through the Automated Commercial System (ACS) in the 1980s. The transformation of Customs could heavily influence and facilitate the direction taken by intermediaries by: Increasing the capacity of intermediaries to bundle their services with eCustoms deliverables as part of a value proposition that would not be otherwise possible Expanding the marketplace for intermediaries to service as the Customs agency reaches beyond the boundaries of the nation Enable applications run by intermediaries to access government infrastructure to interact with Web services provided by various departments and agencies Provide the constituent base with new ways of interacting with the government ACS led a global transformation of Customs agencies by standardization and harmonization of the interests serving international traders; the U.S. Customs Service drove this competitively relevant undertaking, and could do so again.

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Abbreviations and Acronyms

ACS APEC B2B B2C CBA e-CP G2B G2C G2G GATT GDP HTS IT NAFTA PGA PFI UPS U.S. USITC WTO Automated Commercial System Asian Pacific Economic Cooperation Business-to-Business Business-to-Customer Cost Benefit Analysis e-Customs Partnership Government-to-Business Government-to-Constituent Government-to-Government General Agreement on Tariffs and Trade Gross Domestic Product Harmonized Tariff System Information Technology North American Free Trade Agreement Participating Government Agency Primary Focus Industry United Parcel Service United States United States International Trade Commission World Trade Organization

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Robert C. Bonner (U.S. Customs Commissioner), Speech to the 2001 National High Intensity Drug Trafficking Areas Conference Chris Gillis, 2002, Global Alliance for Trade Efficiency, American Shipper, January iii Andrew Razehi, 2001, In search of competitive relevance, Forum, June 2001 iv Aart Kraay, David Dollar, 2002, Spreading the Wealth, Foreign Affairs, January/February v Daniel Gilmore, 2000, Global Trade Management: Part 1, META Group, February 15 vi Michael J. Bauer, Charles C. Poirier, Lawrence Lapide, PhD, and John Bermudez, 2001, E-Business: The Strategic Impact on Supply Chain and Logistics, Council of Logistics Management vii Lowell L. Bryan, Timothy G. Lyons, James Rosenthal, 1998, Corporate Strategy in a Globalizing World, McKinsey Quarterly, Number 3 viii Michael E. Porter, 1996, What Is Strategy?, Harvard Business Review, November - December ix 2002, CBA Communication to U.S. importers, e-Customs Partnership, January (received qualitative responses from 29 importers representing 8.09% all U.S. 2001 imports at $92.74B with distribution across 10 industry groups) x Josep Isern and Maria Isabel Rios, 2002, Whats Right with the U.S. Economy, The McKinsey Quarterly, Number 1 xi M. Coleman, Software gets its hands dirty, Investors Business Daily, 5th of January xii Bob Edmonson, 2001, Cargo Security Puzzle, Journal of Commerce, December 17-23 xiii Daniel Machalaba, 2002, U.S. Seeks to Extend Cargo-Security Efforts to Foreign Ports Where Shipments Originate, The Wall Street Journal, January 7 xiv Stacie McCullough Kilgore, Laurie M. Orlov, Eroica Howard, Jonathan LaChance, and Taichi Nakashima, 2000, Delivering The Global Goods, Forrester, August 2000 xv Bill Mongelluzzo, 2001, The New Completion, Journal of Commerce, December 17-23 xvi Timothy Aeppel, 2002, U.S. Dollar, strong despite the recession, Tests the Integrity of U.S. Manufacturers, The Wall Street Journal, January 22, 2002 xvii John Hagel III and Marc Singer, 2000, Unbundling the Corporation, The McKinsey Quarterly, Number 3 xviii Marilyn Parker and Robert J. Benson, 1990, Information Economics, IBM Corporation and Washington University xix 2001, E-Commerce and Development Report 2001, United Nations Conference on Trade and Development xx Andrea Di Maio, 2001, E-Government Services: A Matter for Intermediaries, GartnerGroup, 24 May 2001
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