The World Bank A__APRIL 2002 NUMBER 67 PUBLIC SECTOR Best practices in customs reform- lessons from Morocco Morocco offers useful guidance for other countries contemplating customs reform. Trade can be a powerful tool for creating despite trade liberalization, customs services wealth and jobs, and governments try to continued to generate a substantial share develop it by reforming trade policies. But of budget resources. the benefits of new trade policies often fail In the 1990s Morocco's trade policies were to materialize because weaknesses in cus- strongly influenced by its agreementwith the Successful trade toms administration keep transaction costs European Union, its agreement with the high and because tariff barriers and com- World Trade Organization, and the Multi- policy reform often mercial legislation hinder the growth of fiber Agreement. These agreements, and their exports. effects on industry and on budget resources, requires customs In recent years many countries have tried led the Customs and Indirect Taxes Admin- to reform their customs services. Although istration to carefully examine its procedures. reform some reforms have been successful-such In addition, the private sector-having been as those in Argentina, Namibia, the Philip- called on to become Morocco's engine of eco- pines, and Turkey-many need reinforce- nomic growth-became vocal in requesting ment if new trade policies are to bear fruit. that customs services facilitate rather than The most common obstacles are insufficient hamper trade. Better customs services were government commitment, inadequate ini- increasingly considered crucial to enhancing tial diagnosis, and poor use of information the international competitiveness of Moroc- technology. Morocco's success in overcom- can producers, particularly given the ing these obstacles offers useful lessons for increased competition resulting from trade other countries interested in reforming their liberalization. customs services. Morocco's customs reforms were based on the principles of the World Customs Orga- Crafting Morocco's reforms nization. A code of conduct for customs work- Customs duties are an important source ers established new rules for professional of revenue for Morocco's national budget. ethics. In addition, the International Mon- They accounted for 4.2 percent of GDP in etary Fund and bilateral partners provided 1995-just before tariffs started being dis- technical assistance. mantled under an agreement with the Euro- The reforms had high-level political sup- pean Union, Morocco's main trading port, enabling the director of the Customs partner, to abolish customs duties by 2010. Administration to make the changes needed In 1996-2000 annual revenue from customs to facilitate trade while safeguarding bud- duties fell to 3.6 percent of GDP, while rev- get revenue. A small but effective reform enue from the value added tax (VAT) on unit was instrumental in achieving both imports rose to 3.3 percent of GDP. Most of objectives and in motivating staff. For exam- the decline in import tariffs was offset by a ple, new performance bonuses for customs nearly 25 percent increase in imports-so, officers-based on objective evaluations- FROM THE DEVELOPMENT ECONOMICS VICE PRESIDENCY AND POVERTY REDUCTION AND ECONOMIC MANAGEMENT NETWORK appear to have helped stem corruption. Simplfied procedures and selective controls Moroccan traders are pleased with the Customs procedures were simplified and outcomes of the reforms. A survey in the computerized. A simplified declaration first half of 2001, conducted with World replaced the former sheaf of forms, and a Bank support, found that 93 percent of summary declaration was designed for exporters and 66 percent of importers had imports and exports of goods falling under few or no problems with trade procedures. several tariff headings. In addition, a doc- In addition, these companies indicated that ument delivered directly by the Chamber the average processing time for customs and of Commerce, Industry, and Services expe- port services had dropped from 5.5 days dites the transit of goods. in 1997 to 2.0 days at the end of 1999-mak- To simplify procedures for importers, the ing processing times in Morocco faster than Customs Administration set up clearing cen- Moroccan traders in countries such as Bolivia, India, and the ters in approved companies and established Philippines, and even the Republic of Korea clearing areas and warehouses outside the are pleased with the and Thailand (figure 1). Moreover, a recent customs perimeter to decongest ports and survey by the Customs Administration indi- airports and smooth the flow of commer- outcomes of the cates that processing times have since fallen cial operations. The Customs Administra- even more: in October 2001, 85 percent tion also introduced a national clearing reforms of declarations filed with customs offices credit system for traders that deal with sev- were processed in just under an hour and eral customs bureaus and empowered local a half. customs offices to clear goods at the premises of approved importers. Key elements of the reforms Selective customs controls-essential for Morocco's reforms were the result of a timely and transparent clearance-were intro- shared vision between public and private duced for passengers and freight in the form actors determined to work together to tackle of "green" (clearance without inspection) corruption and improve customs proce- and "red" (inspection required) channels in dures. The reforms also benefited from international airports. These risk-based con- trade facilitation initiatives that began in trols are Uly computer-controlled. In the first the mid-1980s. Four main areas were halof 2001,85 percent of operations were addressed-areas crucial for all countries processed through the green channel, and committed to customs reform. the Customs Administration sought to raise this to 90 percent by the end of 2001. In line with this selectivity and with the new defini- FIGURE 1 AVERAGE PROCESSING TIME FOR CUSTOMS CLEARANCE, tion of dutiable value-established in 2000 VARIOUS COUNTRIES as the transaction value, based on agreements Number of days with the World Trade Organization-post- 12 clearance verification was instituted and penalties were increased. 10 In addition, the Customs Administration 8 restructured its operations to give greater importance to its central tasks of policy 6 design and management, and has set up regional centers for day-to-day management and customs activities in the field. 2 Increased use of information technology Bolivia, India, Korea, Rep. of, Morocco, Philippines, Thailand, By the end of 2000 the Customs Adminis- 1999 1999 1998 1999 1998 1998 tration's computer system performed all rou- tine functions in customs departments and Source: Morocco, Ministry of Industry and World Bank 2002. extended selective services to approved com- PREMNOTE 67 APRIL 2002 panies and companies with whom it had inputs wasted in the production process is agreements. The system is based on SOFIX, validated immediately, and even when addi- the software developed by the French cus- tional wastage levels are requested, these toms service as an alternative to SYDONIA, issues are settled within two months. developed by the United Nations Confer- Exporters are authorized to sell 15 percent ence on Trade and Development and used of their total production domestically upon by many customs administrations. payment of duties and taxes. Finally, the The computer system has an open archi- Customs Administration automatically dis- tecture, which allows information managers charges low-value balances to expedite the to modify it without having to rely on out- settlement of disputed operations. side experts. The system allows information The process of providing customs guar- to be exchanged with users, so traders can antees has been simplified, reducing financ- obtain free estimates of duties and taxes ing charges for importers. In addition, New procedures payable when goods are imported and enter companies that export at least 85 percent of data on releases for their customs-related their sales and combine storage, transfor- are more flexible, accounts as soon as the accounts are settled. mation, and utilization functions can now Customs departments immediately authen- benefit from a free system of bonded ware- secure, and ticate these documents. Traders can also houses. This system, under customs control, find out in real time, as soon as a declara- suspends duties and taxes on materials, transparent tion is filed, the progress of their customs equipment, and goods intended for export. operations and the status of their imports To facilitate and ensure the security of under special import regimes. Thus traders transactions, field office directors now play can ascertain which accounts have not a greater role in managing clearing opera- cleared, enter data in-house on statements tions for nongovernmental organizations for uncleared accounts, monitor payments benefiting from tax- and duty-exempt of duties and taxes, and even monitor clear- imported donations. ing times. A telephone hotline is available for traders who need help with the system Enhanced transparency and partnerships The Customs Administration, Port Oper- with the private sector ations Office, Association of Shipping The Customs Administration has become Agents, and a service company have agreed more responsive to the needs of the private to exchange data on imports arriving at the sector, as indicated by more widely available port of Casablanca, through which 80 per- customs information and documents, newly cent of Moroccan imports pass. The agree- created consultative committees with the ment covers communications and document private sector, and streamlined customs pro- exchanges on manifests, data entered at ship- cedures for certified companies. ping agencies, and transmission of data to An easy-to-use, regularly updated Web the customs computer system. site (www.douane.gov.ma) has made cus- toms operations more transparent and elim- Improved management of special customs mated nonstandard applications of the procedures customs code. Users can download customs The management of special import regimes, forms, track clearing operations, and access particularly for goods admitted on a tem- detailed customs data. The Customs Admin- porary basis, used to be problematic. New istration has also created a hotline for procedures are more flexible, secure, and reporting attempted or actual corruption transparent. A computer-assisted facility by public officials. allows for better monitoring of the tempo- In addition, the Customs Administration rary admission system, and a new regula- has set up a consultation process (Comit6s tion has been adopted on settling customs Consultatifs) that works with the private sec- operations with responsible ministries and tor to resolve potential problems. At the professional associations. The amount of national level this process is overseen by the PREMNOTE 67 APRIL 2002 director of customs, who also functions as comes from imports-a task that requires arbitrator for issues not resolved at lower lev- procedures similar to those used to manage els. To ensure that this process remains fully customs duties. Finally, the Customs Admin- attuned to private sector concerns, the pri- istration will have to be an active advocate vate sector should be allowed to initiate such for easing port procedures, without which consultations, something that currently can goods will not flow fluidly across Moroccan be done only by government representatives. borders. Companies that furnish the required guarantees can receive personalized cus- Further reading toms guarantees; these companies are Barbone, Luca, Arindam Das-Gupta, Luc selected based on criteria such as their struc- De Wulf, and Anna Hansson. 1999. ture, size of investment, annual sales, and "Reforming Tax Systems: The World Morocco's reforms number of employees. By March 2001, 15 Bank Record in the 1990s." Policy companies had entered agreements defin- Research Working Paper 2237. World must continue ing how their customs guarantees would be Bank, Washington, D.C. processed and discharged, simplifying clear- Morocco, Ministry of Industry, Commerce, ance procedures and lowering the cost of Energy, and Mines and World Bank, doing business. Middle East and North Africa Region and The Customs Administration conducts Private Sector Development and Infra- periodic surveys to learn about traders' con- structure Vice Presidency, Investment cerns, gather their suggestions, and evalu- Climate Unit. 2002. "Morocco Manufac- ate the reforms. The results of the surveys, turing at the Turn of the Century: Results which have high response rates, are then of the Firm Analysis and Competitiveness published. As noted, recent surveys show Survey." Casablanca and Washington, that the reforms are greatly appreciated. D.C. Continuing the reform process This note was written by Luc De Wuif (former The plan to eliminate, by 2010, customs Lead Economist, Middle East and North Aftica duties on imports from the European Union Region) and EmileFinateau (Public Sector Man- implies that Morocco's reforms must con- agement Specialist, MiddleEast and North Afica tinue. The Customs Administration will have Region). to carefully manage rules of origin to ensure Ifyou are interested in similar topics, consider that the correct customs duties are paid on joining the Tax Poicy and Tax Administration goods originating from third countries. It Thematic Group. Contact Michael Engeschalk will retain responsibility for levying the value (x8 7764) or click on Thematic Groups on added tax-nearly 60 percent of which PPLEMnet. This note series is intended to summarize good practice and key policy find- ings on PREM-related topics. 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