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WCO: E-commerce security and safety concerns require forceful action

A timely article that will be covered in depth at GTDW China Trade Development Week in June, Shanghai to address the issues and solutions around small parcels and ecommerce along with the impacts on customs and how to counter the impact of illicit trade through new innovations & tech. VIEW PROGRAM: http://bit.ly/GTDWChina2410


We invite attendees from Customs & Tax Authorities, Ministries of Trade/Economy/Finance, IP, Police & Judiciary Authorities, Heads of Brand Protection, Heads of Trade & Customs Compliance to register for this capacity building event for FREE.

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The flow of consignments delivered by postal operators or express courier services, sometimes over borders, is increasing at a rapid rate. Most of the consignments are small and generally of “low value.” The fact that the value is low often means not only are they exempt from duties, but also that only minimal information is required to be provided when the goods enter a country. The situation compromises Customs enforcement capacities to protect society from security and safety risks. As the WCO recently published guidance material under its E-Commerce Package, this article looks at how we can reconcile the need to secure our borders and facilitate e-commerce by putting adequate measures and tools in place.


E-commerce has come a long way since Michael Aldrich created online transaction processing in 1979. The term refers today to the buying and selling of goods or services using the internet, and the transfer of money and data to execute these transactions. From a Customs perspective, it is used to refer to the sale of physical products online, including illicit ones.


Driven by the increase in internet users worldwide as well as smartphone and mobile penetration, e-commerce has revolutionized the way businesses and consumers market, sell and purchase goods, providing a vast choice of products as well as advance shipping, payment, and delivery options. There are now even specific terms to refer to mobile-commerce (M-Commerce) and social media commerce (S-Commerce – integrates social media into e-retail sites and adds e-commerce functionality to social networks. Approximately 18% of e-commerce takes place via social media).


Today, it is widely recognized that the growing e-commerce sector is beneficial to economies, providing new growth engines, developing new trade modes, driving new consumption trends, and creating new jobs. It has especially opened up growth opportunities to micro, small and medium-sized enterprises (MSMEs) in terms of wider access to foreign markets by lowering entry barriers and reducing operational costs.


Today, it is widely recognized that the growing e-commerce sector is beneficial to economies, providing new growth engines, developing new trade modes, driving new consumption trends, and creating new jobs. It has especially opened up growth opportunities to micro, small and medium-sized enterprises (MSMEs) in terms of wider access to foreign markets by lowering entry barriers and reducing operational costs.


Cross-border business-to-consumer (B2C) e-commerce is expected to grow by 27% between 2018 and 2019. A large part of this trade consists of consignments delivered by postal operators or express courier services, sometimes over borders. Most of the consignments are small and generally of “low value,” although the definition of this low value varies from country to country.


According to the International Post Corporation (IPC) survey, 84% of cross-border goods bought online are classified under Universal Postal Union (UPU) terminology as packets travelling in the letter-post stream weighing up to 2 kg, and 83% of the total packets transported by postal operators (parcel-post and express mail service products) are valued under 100 US dollars.


The fact that the value is so low means not only are they exempt from duties (being below de minimis thresholds), but also that only minimal information is required to be provided when the goods enter a country. The exponential increase in the number of such shipments, whether they are transported by postal operators or express courier services, presents a number of new challenges to governments and businesses alike.


Low value does not mean low risk. The same risks associated with traditional trade apply to e-commerce, at the same time there are new risks associated with safety and security. But today’s enforcement capacities and regulatory frameworks were not designed to deal with a world where millions of businesses and individuals engage in billions of micro-transactions, often resulting in shipments of small parcels from small businesses  or individuals to other small businesses or individual consumers.


In such circumstances, many shipments containing goods that are prohibited or which infringe the law pass undetected. When flagged for review, shipments can be held up for hours, or even days. But e-commerce merchants who compete on timely delivery are anxious to keep merchandise moving. The pressing question is how to effectively manage this time-sensitive flow of goods without straining control operations as well as the capacity of logistics service providers, and without creating complex procedures and a heavy workload for small businesses and individuals who have limited capacity to meet complex trade regulations.


A pertinent question, therefore, arises: how can we reconcile the need to secure our borders and facilitate small business trade in an increasingly digital world?


SAFETY AND SECURITY RISKS

As revenue collection is still a priority for many Customs administrations, revenue-related issues are often raised Customs representatives when discussing the impact of e-commerce development on their administrations. However, one should not forget that e-commerce is also creating safety and security risks.


Vendors may split and/or under-value consignments to keep the value of an individual shipment below the specified reporting threshold. Goods may also be shipped in containers via air or sea, placed in bonded warehouses, and then exported in small quantities below the de minimis threshold once an e-commerce order is received.


These low-value orders can be consolidated and shipped in truckloads. No advance notice is required and the driver can simply present a paper manifest to Customs at the border. If, according to the manifest, every shipment on the truck meets the de minimis criteria, then no formal entry is required, and no Harmonized System (HS) commodity codes need appear on that document. The carrier is responsible for preparing the manifest based, in part, on information received from the foreign shipper(s). That information may well be incomplete, a common problem with e-commerce shipments.


More and more seizures of illicit substances and goods in the mail segment are being reported to the WCO. Some of the goods illicitly traded are extremely harmful to society, such as drugs, arms and ammunition, chemical substances, explosives, prohibited food, plants, animals and their parts, and intellectual property rights (IPR) infringing goods.

As reported in the WCO Illicit Trade Report[1], the number of seizures of psychotropic substances/drugs and counterfeit items transported via regular, express mail and parcels continues to grow.  The amounts transported are rather small compared to other modes of transport, but the number of seizures made using this mode is huge in comparison to other modes, as the statistics for 2017 show.


This mode of transport was used in:

9% of psychotropic substance reported seizures;

2% of cocaine reported seizures;

8% of IPR infringing product reported seizures.


The 2019 OECD Report[2] on Trends in Trade in Counterfeit and Pirated Goods further indicates that “small parcels sent by post or express courier are a prime and growing conduit for counterfeit goods”. From 2014 to 2016, small parcels accounted for 69% of Customs seizures, up from 63% from 2011 to 2013.


This element of e-commerce exists due to the perceived anonymity offered by some internet platforms, the ease of sale and purchase, the fragmented and direct nature of selling and buying, confidence in supply due to efficient delivery solutions, the inadequacy of legislative frameworks, and a belief that enforcement agencies will not follow up or intercept small or low value shipments. New methods are also being utilized, including the use of social media and person-to-person encrypted chats, to facilitate illicit trade.


E-COMMERCE PACKAGE

Existing legal and regulatory frameworks, systems and procedures were designed to support business-to-business (B2B) transactions and are not fit to deal with the new realities – B2C transactions and C2C transactions. Some of the Customs procedures are not designed to enable risks to be measured or to accommodate small enterprises and consumers, whose trade operations are more sporadic than large and mid-size companies, and whose trade compliance capacities are more limited. They may not enable Customs to undertake proper risk assessments on the ever-increasing number of parcels.