Knowledge of Customs Affairs

          I was asked at a conference in Durban in recently whether Customs clients will in the future have to write a Customs exam as proof of knowledge. While this is true for clients wanting to attain the SARS Customs PTA (Preferred Trader Accreditation), it is not true for all Customs clients. Well, not at this stage anyway.

          But it does not mean that if you are not participating in the SARS PTA that you do not need to know more. SARS is increasingly contacting traders, importers and exporters directly. This may be part of a concept known as the Customs-to-Business Partnership. More about this can be found on the WCO (World Customs Organisation) website The concept requires a lot more interaction between Customs and business going forward. It may also have to do with the greater level of accountability that the new Customs legislation places onto traders.

          When Customs do contact you directly, officials expect you to have an understanding of what they are talking about. The Customs Clearing Agent is no longer the sole provider of information to the authorities. This is most prevalent when SARS conducts post-clearance inspections of your books. SARS generally goes two years back in your records. However, in the new Customs legislation SARS audits will go back three years.

          The consequences of not having Customs knowledge may result into incorrect duty assessments. It can cause a lot of pain and financial heartache to resolve issues which arise. A lack of knowledge also causes frustration on the part of Customs officials who find themselves going in circles between the Trader and the Customs Clearing Agent. By the time payment is demanded, very short lead times are provided. Leniency in this regard is also harder to come by.

          So, what do you need to know and where will you find the information? We can take a leaf from the SARS Customs External Guide on Accreditation (SC-CF-07 dated 22 November 2012, which can be found at under “Find Publication”, section 7.3 of the document). SARS requires Traders to have knowledge in the following areas of business:

1)      General issues;

2)      Accreditation legislation and audit (for PT clients);

3)      Tariff Classification;

4)      Valuation;

5)      Rules of Origin;

6)      Prohibited and Restricted Goods and Import Control;

7)      Penalty Provisions and Risk;

8)      Appeals process;

9)      Internal Controls; and

10)    Integrity (also covered);

These are the minimum areas of Customs knowledge that you should have today. The 9 or 10 pages of summaries are a good start to increase your Customs knowledge. We will in any event be discussing these in the blogs which follow.

            Finally, there are a number of Customs Training Providers which offer various forms of Customs training to Traders and Clearing Agents alike.

Elements of Self-Compliance

            Compliance is not about one or two things which if done correctly, assure you a pass. It is also not something that you do in isolation from your LSP (Logistics Service Provider). It is also not something that is simply passed onto a third party LSP believing that they are the sole providers of the respective legislative compliances.

            One of my former colleagues in SARS Customs, a National Customs Consultant would ask me a very basic question time and again. He would ask… “Who is the only person who knows exactly what is in the container at time of arrival in South Africa?” My initial response was… “The importer”. He always clarified the question with another… “Who actually saw the goods being packed?” He explained… “Not the transporter, not the clearing agent, not Customs and not even the importer. It is the supplier”. To add, even if the transporter packed the goods, only the supplier will know the exact nature and characteristics of the goods which were packed.

The importer has a material interest in knowing exactly what is being received for a multitude of reasons. Core to these reasons is so that all parties can be advised on how to meet various commercial and legislative requirements. This makes compliance a joint effort between you and your Logistics Service Providers. The more they know about your product, the better off you are.

            There are a number of elements, or layers if you like, which may be applied to ensure that you consistently achieve the highest level of compliance. While the following is a non-exhaustive list, they include:

1)      Knowledge of Customs affairs.

2)      Advance research of import & export requirements.

3)      Business implementation with your LSP.

4)      Product implementation with your LSP.

5)      Customs Clearance Instructions.

6)      Supporting documents.

7)      Customs licenses, registrations and rulings.

8)      Post audits and re-alignment.

9)      Knowing your rights.

These elements will be discussed in the blogs which follow.

Compliance Economics: 80/20 or 100%?

          Most business people today know about the Pareto principle, commonly referred to as the 80/20 Rule. It was named after the Italian economist Vilfredo Pareto. Pareto discovered that 80% of the land was owned by 20% of the population. He also observed that 20% of the pea pods in his garden contained 80% of the peas.

          The principle is relevant to many aspects of our modern business world today. For example: 80% of sales come from 20% of the customers; 80% of the customer complaints come from 20% of the customers; and so forth.

          The principle also applies to risk management. For example: 80% of the crime comes from 20% of the criminals; and 80% of Customs non-compliance comes from 20% of the Customs client base.

          Most Customs compliance efforts by the authorities today are geared toward the 80/20 Rule. The concept, also spurred on by WCO (World Customs Organisation) is geared ‘in part’ toward trade facilitation.

          In the Customs environment, identifying risk requires pre-and post-audit data, knowledge of one’s client base, a study of market trends combined with current legislative mechanisms and, of-course, a bit of sixth sense. Once validated, place the information into a database containing a series of formulae. What do you have? A Customs risk engine. The objective is to comply with the 80/20 Rule and to facilitate trade. It also allows Customs authorities to utilise resources more efficiently.

          One industry expert explains this with an example. If a hundred fish swam toward a shark, the shark could not possibly eat all the fish at once. The shark will need a system to help it decide which ‘non-compliant’ fish to bite. The balance of the ‘compliant’ fish are allowed to swim past, un-affected.

          Also applicable to this discussion is the concept of non-intrusive interventions. The UNECE (United Nations Economic Commission for Europe) goes into more detail about this. The document can be found at the following link: .

            So, what does this mean for the average trader, importer and exporter? Do you apply the 80/20 Rule when conducting annual self-compliance audits, or do you aim for a 100% coverage? Do you audit every single document passed throughout the year?

          Well firstly, understand that any contravention found by the authorities immediately becomes part of the assessment criteria which gets built into the Customs risk engine. Once you are on the Customs radar it is difficult to escape it. Secondly, understand the industry that you are in. If you are in the clothing and textile industry you should know by now that Customs interventions (at present) are at an all-time high. Expect to be targeted for possible undervalued foreign purchases. Thirdly understand the relative size of your company and the volume of trade you are involved in, in relation to the market. If you are a smaller operator, then expect to attract more attention relative to the size of your operation. If for example you trade in 10 x shipments per annum and 1 x shipment gets stopped by Customs, it will equate to 10% of your trade. You are generally advised to conduct 100% compliance audits. Larger operators who for example trade in several thousand shipments annually may, relative to their size and particular industry be less severely affected.

          With the new Customs legislation it is becoming more apparent that an approach by the authorities toward zero defects is the desired outcome.

          While there is no one size that fits all to the 80/20 question, the answer may depend on how smartly you conduct your compliance approach.

Who’s Responsibility Is Self-Compliance?

          Well, it may depend on who you ask. As an importer or exporter the concept of Customs self-compliance is implied to be ‘you’ off-course. But is this really the case? Are you the only role-player affecting your compliance levels? What about the concept of accountability, and who is held financially liable when things go wrong?

          The answer to these questions will once again depend on who you ask. It will also depend on the specific circumstances in each particular situation. But, what I am referring to is how your company views compliance at large. What is the corporate culture of your organisation toward compliance, and what is the culture of your industry?

            From a SARS perspective, the first basic assumption is that people and companies want to be compliant. They want to do the right thing and are seeing to practice compliance at their own free will.

          People are hence given the benefit of the doubt by an organisation (SARS) who would otherwise be seen as draconian in nature. This aspect forms one of their first considerations when talking about risk.

          So, allow me to answer the big question by saying that… compliance is everyone’s responsibility. Compliance is something that must be practiced on every level of the organisation all the time. You may from time to time for example ask how your boss sees compliance, and your boss’s boss, and so on.

          You will also need to start looking around you, at your suppliers, and your supplier’s suppliers. Question how they see compliance.

          Also ask yourself how their compliance levels affect your own. Are you or any of your suppliers participating in the SARS PT (Preferred Trader) accreditation program?

          Who is supporting you and your organisation if you are involved in such a program?

          Are your overseas suppliers or buyers participating in a foreign Customs accreditation program and how do your own compliance levels affect theirs in turn?

          Will you at some point fall out of favour by a foreign buyer if you are not participating in the local Customs accreditation scheme?

          If you do not participate in the PT scheme, do you or your company conduct periodic audits and reviews of your Customs documents?

          Do you make use of independent third party auditors for your Customs work?

          Finally, how is legal liability treated versus commercial liability? And, if there is a difference, what does the Customs legislation say?

          While the answers to these questions will depend on your particular circumstances, this blog will explore the matter in some depth, while at the same time not being too technical.


Self-Compliance at SARS

          The concept of self-compliance can be said to fall within the realm of social psychology.  When someone is influenced to act or to react in a particular way it is often because they were ‘socially’ influenced to do so.  This technique is also referred to as social persuasion.

          SARS (South African Revenue Services) have become experts at using the technique of social persuasion.  They do so through their marketing activities.  Their message is clear: help us (by paying your taxes) to help you (to finance roads, hospitals and the like).

          Of course, you may argue that there is also a… or else (you will be penalised) undertone to the message.  The approach is therefore one of social influence and subtly induced fear.

          It is not difficult to see the fruits of this concept in action when you visit your local SARS branch office during filing season.  Hordes of people line the building corridors, out the front door and even into the street at some centres.  Taxpayers are ready and eager to pay their dues, or simply to finalise their yearly tax affairs.

          It is admirable on the part of SARS to use social coercion to call citizens to duty.  It is equally admirable for South African citizens to react positively to the call of duty.  It is also evidence of a system that works.

          But how does it work for corporate compliance, and in particular, in the realm of Customs affairs?  Well, outside of the usual risk targeting and compliance techniques there is a newer form of social persuasion taking place at SARS Customs.

          It is called the PT (Preferred Trader) accreditation system.  Similar systems are being used the world over.  In the United States it is called C-TPAT (Customs-Trade Partnership against Terrorism) and in the European Union it is called the AEO (Authorised Economic Operator).

          There are a number of reasons why Customs authorities are implementing such systems.  For one, it stems from international trade law developed by the WCO (World Customs Organisation) namely the SAFE (Safe Framework of Standards) and the RKC (Revised Kyoto Convention).  This was originally spurred on by the “9/11” twin tower attacks in the US and the need to enhance global supply chain security.

          While such systems can be classed as a method of persuasion (i.e. getting corporates to act and behave in a certain way), there are more reasons why self-compliance is growing in importance for the Customs client.

          The advent of the new Customs legislation is a primary example.

          What this all means is that self-compliance must become more than just being persuaded to act.  It must be built into every element of your Customs business activities.