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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.
To guide administrations in developing strategic and operational frameworks for e-commerce or enhance existing frameworks, the WCO developed a Framework of Standards on Cross-Border E-Commerce[3] as well as other guidance material further enriching the Framework such as definitions of certain terms used in the instrument, technical specifications, flow charts, business models and case studies, brought together into an E-Commerce Package. Some of the key provisions of the Framework are presented below.
RISK IDENTIFICATION
Given that each administration has its own priorities, the nature of the risks need to be established with other relevant government agencies as well as ways to identify shipments of illicit or prohibited/restricted goods purchased via e-commerce channels. Moreover, Customs should, where appropriate, share information related to these risks with other Customs administrations, in order to assist them in improving their ability to determine risk indicators and analyse risks.
ADVANCE ELECTRONIC DATA
The existence of de minimis reporting thresholds means that shipments falling under a certain value are exempted from some documentation. The identity of the receiver is required, but that of the buyer, which may differ from the receiver, may not be required, especially in cases of consolidated manifest-based simplified clearances. This makes it harder to screen importers for wrongdoing. Nor is the HS commodity code required in all cases; a written description is deemed sufficient. This somewhat incomplete information or the unavailability of advance electronic information constrains Customs authorities’ ability to analyse risks and target suspicious shipments.
The key to ensuring effective and efficient management of cross-border e-commerce lies in access to timely and accurate information, ideally from its source. The Framework stipulates the exchange of advance electronic data for effective risk management between Customs and parties to a transaction, as well as the use of data analytics and other cutting-edge technologies to identify suspicious transactions, including the use of non-intrusive inspection (NII) equipment during inspections.
As key intermediaries in the cross-border e-commerce chain, e-platforms/marketplaces, express carriers and postal operators could play a significant role in providing timely and accurate advance electronic data to Customs, carrying out due diligence on their customers (sellers/buyers) and on goods being sold/bought and conveyed, making consumers, the public and other stakeholders aware of the various regulatory requirements, and mutually exchanging risk profiles, where possible.
This may require establishing an electronic interface with the Customs IT system, and the realignment/adjustment of business processes to effectively meet the new regulatory requirements, based on the Framework’s standards.
PLACI
A lot of shipments are transported across borders by postal operators or by express courier services using the air transport mode. To deal with the security threats associated with air cargo and mail, some countries now request what is called “Pre-loading Advance Cargo Information (PLACI)”[4] to be submitted to them for all air shipments, prior to loading onto the aircraft. The WCO adopted standards for the submission of PLACI by various entities in the air cargo supply chain, including postal operators and express courier services, and added them to its SAFE Framework of Standards to Secure and Facilitate Global Trade in 2015.
POSTAL CONTEXT
Given the largely manual processing environment in the postal sector and the lack of electronic advance data (EAD), there are greater challenges in terms of timely and effective risk management of potential risks (e.g., safety and security), as well as efficient release and clearance.
In order to assist Customs administrations and postal operators in moving forward with EAD implementation, the WCO and the UPU have developed, among other tools, joint Guidelines on the Exchange of Electronic Advance Data between Posts and Customs[5] and a joint WCO-UPU Customs-Post EDI Message. Going forward, the WCO and the UPU are developing joint WCO-UPU guidelines on data capture and data quality in the international mail environment.
While continuing to support Customs and postal operators in moving towards EAD, the UPU and the WCO also jointly train their Members in order to strengthen their capacity in effectively tackling drugs and related risks in the mail mode. For example, they recently conducted joint regional workshops focused on safety, security and opioids/drugs around the word.
DATA ANALYTICS
Some Customs administrations are already using data analytics tools, artificial intelligence and machine learning to better deal with risk assessing the many packages they are faced with every day. This best practice with regard to the application of data analytics in risk assessment, prediction and targeting continues to be shared through WCO committees and publications, in order to help other administrations leapfrog technological advancements.
In this arena, there are also potential collaboration opportunities between Customs administrations and logistics operators to leverage synergies and domain expertise. For example, an MoU should be signed between Customs and express couriers and postal operators for curbing illicit trade, for the identification of potential risks or unusual and suspicious patterns, and for implementing controlled deliveries.
Customs administrations should also share relevant information, where possible, with trusted e-commerce stakeholders to ensure the most effective partnership between public and private sector targeting efforts. For example, sharing information on repeat offenders with e-commerce stakeholders enables them to close offenders’ accounts and remove their products.
Also, to some extent, sharing non-nominal information on concealment methodology, routing or sensitive goods with e-commerce stakeholders could enable them to identify potentially risky shipments and report such to Customs.
INTER-AGENCY COOPERATION
Customs’ cooperation with other relevant agencies is particularly important for identifying and interdicting illicit and non-compliant goods moving through e-commerce channels. The Framework also encourages Customs administrations to work with other relevant government agencies to establish procedures for analysing and investigating illicit cross-border e-commerce activities, with a view to preventing and detecting fraud, deterring the misuse of e-commerce channels, and disrupting criminal organizations.
The dynamic e-commerce environment often requires real-time response or intervention by all relevant government agencies (including ministries and agencies responsible for agricultural, food and environmental safety) to ensure that legitimate goods are rapidly cleared and risks effectively managed with minimal intervention and delay.
Additionally, governments should establish cooperation frameworks between and among various national agencies through relevant electronic mechanisms, including a Single Window, as appropriate, in order to provide a cohesive and coordinated response to safety and security risks stemming from cross-border e-commerce, thus facilitating legitimate trade.
Cooperation between Customs administrations and other law enforcement agencies, with the support of relevant e-commerce stakeholders, should be enhanced, enabling them to carry out joint investigations at the national and international level. This cooperation may further extend to the exporting country where the relevant parties are located.
PARTNERSHIP WITH THE PRIVATE SECTOR
Customs administrations should work in partnership with e-vendors/platforms/marketplaces to detect online transactions of illicit goods, to detect and combat Customs fraud, and to strengthen efforts (e.g., legislative frameworks) to initiate appropriate actions against parties who engage in online trade in contraband.
Another potential way forward could be to expand and promote authorized economic operator (AEO) programmes in the e-commerce environment as a means to further enhance supply chain security. Currently, most AEO programmes are not open to e-commerce platforms or marketplaces and to postal operators.
COMMUNICATION
There is clearly a need to disseminate information on safety and security risks as well as the responsibilities associated with cross-border e-commerce through comprehensive awareness-raising, communication, and education and outreach programmes targeting the different actors in the industry, e-platforms/marketplaces, carriers, and the public.
CONCLUSION
Customs administrations are urged to implement the Framework of Standards on Cross-Border E-Commerce, and can count on the support of the WCO Secretariat while doing so. They are also encouraged to share their experiences on the standards contained in the Framework that they have decided to implement.
Indeed, with not only revenue, but also national security and safety at stake, it is more than time for Customs authorities across the globe to take forceful action.
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