63650 Russian Federation Customs Development Project: Measurable Progress Kimberly Johns, Jens Kromann Kristensen and Gerard McLinden Considerable progress has been achieved through the CDP Key Messages and this was borne out by a recent comparison of internal The Russian Federation Customs project-related indicators with external customs and trade- Development Project (CDP), launched in 2003, related indicators conducted in late 2010. The analysis has been helping reform and modernize the reflected positive trends and revealed congruence between country’s Federal Customs Service. the two sets of indicators - the examination of external indicators provided a more detailed picture of overall Reforms under the CDP have resulted in progress and validated the results seen in the internal project improved performance: both customs clearance indicators. times and rent-seeking incidents have been reduced. CDP Activities and Results - Internal Project Indicators However, despite major progress in critical areas, global rankings such as the World The CDP helped improve the enforcement capacity and Economic Forum’s Enabling Trade Index and the efficiency of the Federal Customs Service through activities World Bank’s Logistics Performance Index targeted at improving business processes and procedures. The suggest there is still significant room for further activities included implementation of new integrated IT improvement in customs administration. processing systems and human resource management reforms; electronic declarations were also piloted in some Customs Development Project areas. In the pilot regions including Central and Northwestern Customs locations, the project exceeded end of project targets The Russian Federation’s Federal Customs Service, with the in all but one area (enforced compliance)1. support of the World Bank, launched the Customs Development Project (CDP) in 2003. This project focused on Two surveys commissioned by the Russian Customs Service improving the efficiency and effectiveness of customs in 2006 and 2009, targeting both stakeholders (users) and operations in the central and northwestern regions of Russia, Federal Customs Service employees, revealed the positive by: impact of reforms (Figures 1 and 2). In the 2009 survey, 61% of stakeholders stated that modernization had simplified Simplifying border procedures and customs procedures - a significant increase from 50% in the 2006 administration in accordance with international best survey. In both surveys, 60% of the employee respondents practices; stated that the modernization of information systems had simplified procedures. Increasing taxpayer compliance with the customs code and promoting the timely transfer of collected revenues to the Federal budget; and Increasing transparency and reducing opportunities 1 The results are based on the aggregate values of the two pilot for rent seeking. locations. The underlying data show some differences between the different project pilot sites. The data are provided by the Russian Federal Customs Service in accordance with the performance monitoring arrangements. ECA Knowledge Brief Figure 1: Stakeholder and Employee Perceptions of the Logistics Performance Index (LPI)3, the Doing Business Impact of Modernization on Customs’ Procedures Trading Across Borders Index, and the World Economic (2006 and 2009) Forum Enabling Trade Index (ETI). These sources measure customs efficiency and the burden of regulation using varying 70% definitions and methodologies4. These data also revealed positive trends in the performance of Russian Customs 60% Service and in customs regulations. The results of the 50% comparative analysis in three areas - customs regulations, quality and efficiency, and transparency and corruption - are 40% detailed below. 30% Customs Regulations 20% Both the BEEPS and the LPI for the Russian Federation 10% showed improvements in firms’ perceptions of customs and 0% trade regulations over the project period. The 2008 BEEPS showed that customs and trade regulations became less of a Procedures Procedures Complicates Complicates Procedures Procedures Simplifies Simplifies problem for Russian firms - on average, 59% of firms stated that customs and trade regulations were not an obstacle to doing business in 2008, an increase from 51% in 2005. For this indicator, the Russian Federation is on par with the average for the ECA region. The LPI showed that over 55% Stakeholders Customs Employees of respondents identified regulations related to logistics as 2006 2009 “improved or much improved” over the 2005-2008 period. Source: JSC Russian Public Opinion Research Center, 2009 The results from both sources complement those of the stakeholder survey (Figure 2) which showed increased stakeholder satisfaction with customs. The results provided evidence that the burden on users to comply with customs regulations and procedures has decreased over time, with no corresponding increase in the Figure 2: Percentage of Stakeholders Viewing Customs perception of difficulty of applying these new procedures by Authorities Work Positively (2006 and 2009) customs’ employees. The changes in regulations and procedures, such as the electronic submission of declarations and implementation of IT processing solutions, appear to Overall Satisfaction with have improved the customs’ experience for users. These Customs results were confirmed by the stakeholder survey that showed increased satisfaction2 (compared to 2006) with the work of Satisfaction with Customs the Russian Customs Service, particularly in the assessments at Import of exports (Figure 2). Satisfaction with Customs The survey results also revealed a steep decline in requests at Export for additional payments (bribes) during customs encounters: in 2009, 87% of users did not experience “direct or indirect hints about additional payment”, a near two-fold increase 0% 20% 40% 60% 80% 100% from the 2006 value of 44%. This reduction may be attributable to a decreased interaction with customs 2006 2009 employees due to streamlined IT systems and the adoption of a “code of conduct” for customs’ employees that raised awareness about the contribution individual officials can have in establishing a climate of integrity. Trends in External Customs Indicators To validate the progress seen in internal project indicators, 3 external customs-related indicators were consulted. Four The LPI includes two indices - an international ranking and a primary data sources were examined: the Business domestic index; the latter includes specific indicators on institutions and Environment and Enterprise Performance Survey (BEEPS), performance, including indicators on clearance times and percentage of physical inspections. 4 One caveat is that external indicators are measured at the country 2 Satisfaction is defined as the percentage of respondents evaluating the level, whereas the internal project indicators only reflect the work of the customs’ bodies positively. performance of the customs posts in the pilot regions. ECA Knowledge Brief Quality and Efficiency payments by customs “often or nearly always” in 2010. Only the ETI “transparency of Border Administration”8 indicator Similar to the results of the stakeholder survey, the LPI showed a negative trend from 2008-2010 (Figure 3) in this reveals differences in satisfaction with imports and exports. respect. These differences among external indicators may be In 2010, 70% of respondents stated that clearance and due to the different methodologies used to measure the delivery of exports was “often or nearly always” efficient, indicators. compared to 27% of respondents who said the same for imports5. These values correspond to the internal project data: Global Rankings versus Individual Indicators export clearance times are shorter than import clearance times due to additional controls placed on imported goods Three of the four external sources used ranking systems to associated principally with revenue collection and community compare customs performance across countries. These protection. rankings often conceal important differences in the values of the underlying indicators on which the rankings are based. The internal project indicators showed a temporary increase For example, while the ETI global rank for the Russian in physical inspections in 2009 (returning to lower levels in Federation was 103 among 118 countries in 2008 and fell to 2010), a fact which was also captured by ETI. The values for 114 among 125 countries in 2010, the overall ETI score for the efficiency of customs administration as measured by the the Russian Federation improved from 3.25 to 3.37 (on a ETI fell in 2009, but partially recovered in 2010. Another scale of 1-7, with 7 being the highest score) over the same positive trend was seen in the efficiency of import-export period. One issue with the ETI results was that the number of procedures6 (Figure 3). countries in the index changed over time so it was difficult to measure the change for a particular country by rank alone9. Figure 3: Trends in ETI Border Administration While the overall rank is important for comparing a country Indicators for the Russian Federation (2008-2010) to the rest of the world, it may not be the best indicator to measure progress made by a country’s customs service over 4 time. 3.7 3.6 3.5 3.2 3.1 Figure 4: Trends in Overall ETI and Border 2.9 3 Administration Index for the Russian Federation 2.8 2.7 2.6 2.5 (2008-2010) 2.5 3.37 3.4 3.29 2 3.25 3.2 3.2 Efficiency of Efficiency of Transparency of 2.99 3.0 Customs Import-Export Border 2.82 Administration Procedures Administration 2.8 2.6 2008 2009 2010 2.4 2.2 Source: World Economic Forum, 2008-2010 2.0 Transparency and Corruption 2008 2009 2010 Corruption is one area where results vary across the external ETI Overall Index indicators. The BEEPS results showed a 45% reduction in bribe frequency from 2005-2008 - the percentage of Russian ETI Border Administration Index firms stating that informal payments were frequent7 when Source: World Economic Forum, 2008-2010 dealing with customs decreased from 11% in 2005 to 6% in 2008. The BEEPS results complement the results of the internal stakeholder survey which also revealed fewer negative experiences, such as having to make additional payments to customs officials. On the other hand, the LPI showed that 73% of respondents were asked for informal 8 This score is a composite of two indicators: the World Economic Forum (WEF) “irregular payments in exports and imports” value from the WEF’s 5 http://info.worldbank.org/etools/tradesurvey/mode2a.asp?countryID=98 Executive Opinion Survey and the Corruption Perceptions Index from 6 This score is a composite of seven indicators, including the “efficiency of the Transparency International. The Corruption Perceptions Index captures clearance process” from the LPI and six indicators from Doing Business: time to administrative corruption, not corruption specifically in customs and trade. 9 import goods, documents to import goods, cost to import goods, time to export In the ETI, five countries were added in 2010 (Iceland, Georgia, Botswana, goods, documents to export goods, and cost to export goods. Serbia, and Montenegro) that were not included in previous rounds. Similarly, 7 This value includes the percentage of firms making payments/gifts certain countries in the 2008 index (such as Moldova and Uzbekistan) were not “frequently”, “usually” or “always” to deal with customs/imports. ranked in 2010. ECA Knowledge Brief Conclusion respect to increasing efficiency and reducing opportunities for rent-seeking, over the similar period (Table 1). The overall results are encouraging. Despite the fact that the values of the internal project indicators and external measures The external indicators provide a different view of the are derived using different methodologies, they tell a similar reforms and details on aspects of customs and trade not story. Both the CDP internal indicators and the external measured by the internal CDP indicators. They help shed indicators show that the Russian Federation has made strides light on other areas where there is ample opportunity to in customs reform and modernization, specifically with continue and expand efforts to increase the efficiency and effectiveness of the Russian Federal Customs Service. Table 1: Summary of Indicators and Trends over Time Baseline Most Recent Indicator Trend Value (year) Value (year) Customs Development Project Indicators Percentage of Import Declarations Selected for Physical Inspection 30% 6.6% ↑ (2003) (2010) Percentage of Non-Energy Export Declarations Selected for Physical Inspection 15% 1.6% ↑ (2003) (2010) Average Customs Clearance Times at Vehicle Customs Checkpoints 45 min (2003) 16.6 min ↑ (2010) Average Customs Clearance Times in Lodging 40 hours 7 hours ↑ (2003) (2010) Compliance Gapa 40% 16.8% ↑ (2004) (2009) Rate of Enforced Compliance in Tax and Duty Collectionb 1% 1.97% ↑ (2003) (2009) Selected Indicators from External Sources BEEPS: Customs and Trade Regulations are Not a Problem in Doing Business 51% 59% ↑ (2005) (2008) BEEPS: Bribe Frequency for Customs/Imports 11% 6% ↑ (2005) (2008) LPI: Overall Score (Rank) 2.37 (99) 2.61 (94) ↑ (2007) (2010) LPI: Customs Score (Rank) 1.94 (136) 2.15 (115) ↑ (2007) (2010) WEF Overall ETI: 3.25 3.37 ↑ (2008) (2010) WEF ETI Border Administration Indexc 3.20 2.99 ↓/↑ (2008) (2010) WEF ETI Efficiency of Customs Administrationd 3.70 3.61 ↓/↑ (2008) (2010) WEF ETI Efficiency of Import-Export Procedures 2.79 2.87 ↑ (2008) (2010) WEF ETI Transparency of Border Administration 3.12 2.50 ↓ (2008) (2010) a Measured by the use of mirror statistics with the EU. b Measured by the ratio of additional revenues to total revenue collected by the Federal Customs Service. c Although the overall trend from 2008-2010 is negative, the trend from 2009-2010 is positive. d Although the overall trend from 2008-2010 is negative, the trend from 2009-2010 is positive. Note: Upward arrows in the trend column reflect positive changes, while red downward arrows reflect negative changes. Source: Russian Customs Federation; BEEPS 2008; World Bank Logistics Performance Index 2007, 2010; World Economic Forum, 2008-2010. About the Authors Kimberly Johns, Consultant, and Jens Kromann Kristensen, Senior Public Policy Specialist, are with the Poverty Reduction and Economic Management Sector Unit of the Europe and Central Asia Region of the World Bank. Gerard McLinden is a Senior Trade Facilitation Specialist with the International Trade Department of the Poverty Reduction and Economic Management Network of the World Bank. “ECA Knowledge Brief” is a regular series of notes highlighting recent analyses, good practices and lessons learned from the development work program of the World Bank’s Europe and Central Asia Region http://www.worldbank.org/eca