24x7 Clearance: A distant dream or sweet reality?

Indranil Das | July 2016 Issue | The Dollar Business

If you talk to a foreign trade enthusiast, one concern that will inevitably find its way into the conversation is that India still needs to do a lot to improve ease of doing business for investors and members of the EXIM fraternity, and not to say, delay in Customs clearances at various ports would perhaps be a prime case in point. The government seems to be well aware of the fact and as such, has initiated a slew of reforms including 24x7 Customs Clearance facility being extended to 19 seaports and 17 air cargo complexes. This should perhaps go a long way towards alleviating turnaround times at ports and make life easier for Indian and foreign exporters and importers. For cargo handlers, shipping lines and air cargo operators this is a boon, as it allows them to expand their operations and become more cost effective.

Need for Speed

While Customs and clearance mechanisms have become much more efficient over the last few years, there was a time when Customs clearances was a major headache for the EXIM community. There were rumours of rampant corruption and deliberate delays along with red-tapism that Indian system was once well known for. Importers were made to run from pillar to post to get clearances while their perishable import items lay rotting in ill-equipped warehouses. Exporters suffered demurrages due to lack of clearances at the port of origin, while at the same time earning a very bad name for failing to adhere to their promises of timely delivery of products to their overseas customers.

However, with foreign trade gaining importance in the country’s economy it was but imperative that steps needed to be taken to mitigate these issues. The problem though did not lie solely with officialdom. There was a lack of infrastructure – rather there still is – in terms shipping berths, loading and unloading equipment, inspection and warehousing facilities, as well as a lack of coordination and communication within statutory bodies. All this exponentially increased the woes of our EXIM community, while at the same time increasing transaction costs to a level where their products were no longer competitive in overseas markets. In the face of a global slowdown and India’s declining exports, there was an urgency to address these issues, and the government took the ‘24x7
Clearance’ route to help the community regain confidence in the government’s intent.

Feasible?

Now that 24x7 Customs Clearance has been extended to major seaports and airports, and has been warmly embraced by all in the trading community, the question that needs to be answered is: Are we equipped enough to provide a 24x7 Customs Clearance? The challenges are many. Not only will the Customs Department have to operate 24x7, so will all those who are involved in foreign trade – and that would include the respective banks, custodians, carriers and freight forwarders, etc. Working 24x7 would mean staffing these various organisations to work in shifts, and that has its own economic costs.
This move would also mean that not only floor level employees, but even senior officials of these departments will have to work in shifts.
In many countries across the globe, cargo clearance is done only during normal working hours and on normal working days. However, this is only possible in developed economies because they have adequate infrastructure for clearance and have systems & structures that allow them to clear cargo without creating a logjam. In countries like India, which lack adequate infrastructure and resources, 24x7 Customs Clearance makes complete sense. But feasibility in terms of various resources remains a big question. A good start could therefore be to extend the timings of Customs clearance at seaports and airports so as to reduce congestion during peak hours that is commonly observed between 2pm and 6pm during the day.

Thinking Long Term

Atul Kumar Saxena, President, Indian Importers Chambers of Commerce & Industry says, “The biggest problem with Indian Customs is that the system doesn’t work all the time. Every other day there is a break down and then there are issues like the appraiser taking a lot of time to evaluate Customs Duty on a consignment. Besides, non tariff barriers like FSSAI are a big challenge.” He also believes that while the government takes decisions with the right intent, implementing agencies find loopholes in the system to undermine the policy initiatives. Some deadline should be shared with India’s import-export stakeholders as far as putting to practice the much-talked about Customs Single Window Clearance. All that we are told is that it’s still a work in progress and will remain so until the beginning of FY2017-18. As per CBEC Circular 10/2016, dated March 15, 2016, online clearance under Single Window Project has been rolled out so far only at main seaports and airports in Delhi, Mumbai, Kolkata and Chennai. As can be imagined, the Single Window Clearance system – envisaged to reduce delays and costs in foreign trade – is not an easy objective to achieve, given that it calls for importers and exporters to electronically lodge their Customs clearance documents at one point only with the Customs, with the guarantee that required permission(s), if any, from agencies (PGAs) such as Customs and the Department of Plant Protection, Quarantine and Storage (DPPQ&S), Food Safety Standards Authority of India (FSSAI), Drug Controller (CDSCO), Animal Quarantine (AQCS), Wild Life Crime Control Bureau (WCCB) and Textile Committee would be obtained online without the importer/exporter having to separately approach these agencies.

Many in the industry, including ports and logistics operators, believe that the long-term solution to the problem is to build physical and electronic infrastructure to reduce both delays and transaction costs at ports. Anthony van der Hoest, Cluster Manager – Logistics, Port of Amsterdam says, “We have a digital port community system, which we call Portbase. Most of the Customs related processes have been automated and it has helped to speed up the Customs formalities. We also have authorised economic operators, which are the companies, e.g. terminal operators, that have been certified by Customs to carry out tasks which used to be done by the Customs authorities and it has helped to improve things in a big way in the last few decades.”
Julian Michael Bevis of the Maersk Group too feels that airports and seaports in Singapore, New York or London are able to operate 24x7, as they have been able to execute the technology to enable exchange of information 24x7 and thereby reduce the cost of cargo clearance and the overall cost of logistics.

Easier Said Than Done

While 24x7 Clearance is a step in the right direction, policymakers may now want to pay heed to its implementation. Many would recall that four years back (in September 2012), CBEC had run the 24x7 Customs Clearance facilities on a pilot basis at a few customs houses at some major ports for only select categories of merchandise. However, the exercise wasn’t adopted on a large scale thereafter, because the pilot test itself was a big failure. Issues like as absence of officials from inspecting agencies (like such as FSSAI, the Directorate of Plant Protection Quarantine and Storage – DPPQS, Assistant Drug Controller – ADC, etc.), lack of interest on the part of EXIM stakeholders to use port facilities coupled with non-availability of CHAs during the night, and added costs for all stakeholders that the round-the-clock system called for, were to be blamed.

In India, today, documentation and transactions costs have been lowered through electronic document exchange systems, logistics costs remain high compared to those in developed nations. But a round-the-clock facility (as difficult as it sounds to be implemented) will mean perhaps the biggest on-ground change for India’s exporters and importers.

To make this promise a reality, manpower and other resource allocations will have to be centrally and regionally planned to avoid a repeat of the failure that this initiative was way back in 2012.