customs modernization handbook - isbn: 0821357514 · 246 customs modernization handbook box 11.1...

243

11TRANSIT AND THE SPECIAL

CASE OF LANDLOCKEDCOUNTRIES

Jean François Arvis

TABLE OF CONTENTS

The Principles of Customs TransitRegimes 246

Description of a Typical TransitOperation 247

Major International Transit Procedures:The Transport International Routier 254

Transit Facilitation Institutions 259

Operational Conclusions 263

Further Reading 264

References 264

LIST OF TABLES

11.1 Transportation Costs from Main WorldMarkets for Coastal and LandlockedCountries in Africa 245

11.2 General Provisions Applicable to CustomsTransit as Codified by InternationalConventions 247

11.3 Transit Procedures without FacilitativeMeasures 249

LIST OF FIGURES

11.1 Typical Transit Operation 252

11.2 The Sequence of the TIROperations 256

LIST OF BOXES

11.1 The Genesis of Transit Procedures in theMiddle Ages 246

11.2 General Requirements with Respect to Seals 248

11.3 ASYCUDA Customs Operations in Zambia 254

11.4 The SafeTIR 258

11.5 The Unique Consignment Reference Number 259

11.6 TTFSE Indicators 263

the country of transit, and to avoid the circum-stance that goods intended for transit are leaked tothe domestic market. Transit procedures should besimple so as not to generate excessive delays andcosts. A poor transit system constitutes a majorobstacle to trade. Many international organizationsand transport facilitation forums have identifieddysfunctional transit procedures as a major cost-increasing factor for landlocked developingcountries.

Based on material prepared by ECORYS N.V. and supported by agrant from the government of the Netherlands.

Customs transit refers to customs procedures underwhich goods are transported through countriesfrom one customs office to the other without payingimport duties, domestic consumption taxes, orother charges normally due on imports. Theseprocedures are intended to protect the revenues of

Transit most frequently refers to road transporta-tion to and from landlocked countries. However, it isuseful to make a distinction between national transitand international transit. International transit refersto crossing national borders. National transit occurswhen goods are transferred within national borders,from the first point of entry in the country to a loca-tion where customs procedures are undertaken (forexample, dry ports or inland container depots). Thetwo types of transit can be combined; in fact, this is astandard situation in many landlocked developingcountries. Imported goods arriving at national bor-ders from transit countries are most often shippedunder national transit to the main economic centers.The basic customs mechanisms are similar in bothcases; however, implementation is easier for thenational transit link.

Most transit takes place between landlockedcountries and countries with access to the sea. Insome instances, transit is simply from one countryto the destination country, and borders are crossedonly once. In other instances the transit shipmentcrosses several borders, as is the case when a ship-ment goes from the Netherlands to Russia, andcrosses Germany and Poland. In other cases thecargo originates and ends up in the same territory,but transits through a second country. For example,commodities destined for the northeastern part ofIndia that originate from other parts of India transitBangladesh, as all alternative Indian routes are muchlonger.1 When available, transit by rail offers a num-ber of advantages, including simpler customs transitmechanisms. Rail transit is widely used in centralAsia and is being rejuvenated in West Africa.

This chapter focuses on international transit. Thefirst section reviews the general principles of transitwhile the second section details a typical transitoperation. The third section reviews existing majortransit arrangements based on the Transport Inter-national Routier (TIR). The fourth section presentsvarious institutions set up to facilitate transit, suchas bilateral and regional agreements. The final sec-tion provides some operational conclusions.

The Case of Landlocked Developing Countries

Customs transit is only one part of a wider transac-tion range that includes many other participants

and procedures—cross-border vehicle regulations,visas for truck drivers, insurance, police controls,infrastructure quality, quality of available transportservices, and the organization of the private truck-ing sector. Even if transit procedures are made effec-tive and efficient, full trade facilitation will requirethat these issues be dealt with, too.

The interdependence of these issues is wellillustrated by the Action Plan issued by the Inter-national Ministerial Conference of Landlockedand Transit Developing Countries (August 2003)that notes, “An integrated approach to trade andtransport sector development is needed that takesinto account social and economic aspects, as wellas fiscal policy, as well as regulatory, proceduraland institutional considerations” (UN 2003 p. 4).These concerns will be returned to in the Imple-mentation Issues section of this chapter. However,the customs component is the principal bottleneckof transit and is a source of major inefficienciesthat affect many activities.

Costs of Transit Operations

The high logistics costs and the many developmen-tal problems faced by the landlocked countries ofthe world can be attributed to their geographicalfate. The importance of the transit facilitationagenda to these countries and to the countries oftransit stem from these circumstances.2 Indeed, outof 31 landlocked developing countries, 16 are clas-sified as highly indebted poor countries (HIPC),while 20 out of the 50 least developed countriesworldwide are landlocked.3 Research conductedby the World Bank and other organizations4

concludes that in typical landlocked countries,transport costs are 50 percent higher than in atypical coastal country, while the volume of trade is60 percent lower. Furthermore, a substantial part ofthe cost may be attributed to border crossing. It is

244 Customs Modernization Handbook

2. Faye and others (2004).

3. The 31 landlocked countries are distributed as follows:Europe—FYR Macedonia, Moldova; Asia/Caucasus—Afghanistan, Armenia, Azerbaijan, Bhutan, Kazakhstan, KyrgyzRepublic, Lao PDR, Mongolia, Nepal, Tajikistan, Turkmenistan,Uzbekistan; Africa—Botswana, Burkina Faso, Burundi, CentralAfrican Republic, Chad, Ethiopia, Lesotho, Malawi, Mali, Niger,Rwanda, Swaziland, Uganda, Zambia, Zimbabwe; SouthAmerica—Bolivia, Paraguay.

4. Limao and Venables (1999), Amjadi and Yeats (1995).1. Lakshmanan (2001).

Transit and the Special Case of Landlocked Countries 245

5. These can include customs documentation processing; immi-gration, insurance, and transit bond procedures; security inspec-tionsandweighstations;phytosanitaryandtrafficchecks. AWorldBank study conducted in July 2000 examined delays at selectedSouthern African border posts. Results showed that, for example,delays at Machipanda (Mozambique–Zimbabwe) amounted to24 hours, 36 hours at Beit-Bridge (South Africa–Zimbabwe),36 hours at Victoria Falls (Zimbabwe–Zambia) and 24 hours atKazungula (Botswana–SouthAfrica).

6. Although not easy to quantify, it is estimated that withinthe Southern African Development Community (SADC)region, border delays cost between US$48 million and US$60million per year in business revenues forgone (IntraAfricaLtd. 2001).

7. Amjadi and Yeats (1995).

estimated that the total cost of crossing a border inAfrica is the same as the cost of inland transporta-tion of over 1,000 miles (1,600 km) or the cost of7,000 miles of sea transport (11,000 km). Thisplaces landlocked countries at a great disadvantage.In comparison, the cost of crossing a border inWestern Europe is equivalent to only 100 miles ofinland transportation.

Table 11.1 compares the costs of importing acontainer into a few landlocked developing coun-tries with the costs of importing the same containerinto the neighboring transit country. In many casesthe costs for landlocked developing countries aresignificantly higher.

The differences in absolute transportation costsbetween countries, as well as the increase in trans-portation costs induced by borders, reflect directtransportation and legitimate fees. However, thesecosts are increased substantially by cumbersomecustoms transit procedures—excessive deposits,mandatory convoys, and gratuities to customs staffand police—without which these transit operationscannot be undertaken.

Transit operations often involve long delays thatsubstantially add to the transportation cost. Forinstance, a recent trade audit for Chad estimated

TABLE 11.1 Transportation Costs from Main World Markets for Coastal andLandlocked Countries in Africa(in US$ by TEU)

Origin

Destination Country Northern Europe Japan North America

Senegal $1,610 $4,100 n.a.Mali via Senegal $2,380 +48% $4,870 �19% n.a.

Ghana $1,815 $3,025 $2,460Burkina Faso via Ghana $2,615 �44% $3,835 �27% $3,260 �32%

Cameroon $1,520 n.a. n.a.Central African Republic via

Cameroon $2,560 �68% n.a. n.a.

Tanzania $1,380 $1,350 $2,000Rwanda via Tanzania $3,880 �181% $3,850 �185% $4,500 �125%Burundi via Tanzania $4,530 �228% $4,500 �233% $5,150 �157%Zambia via Tanzania $3,250 �135% $3,220 �138% $3,870 �93%

n.a.� not available.TEU � twenty-foot equivalent unit.Note: Percentage refers to the increase in transportation costs for the landlocked country compared to itscoastal country of transit.Source: UNCTAD 2003.

that, the trip from the sea gateway takes as long as amonth, due in large part to procedural delays.5 Theseinduced costs include the financial charges related tothe guarantees, the cost of transport equipment heldup by these transit procedures, as well as the require-ment to maintain high inventories. Poorly function-ing transit operations also increase the vulnerabilityof transported goods to theft.6

Transit procedures in landlocked countries affectexports and imports differently.7 The transit costsare somewhat less for exports than for imports.Exports frequently leave the country without pay-ing any duties, so countries are less worried about

revenue loss, thus making complex controls unnec-essary. Also, exporters are fewer than importers andare better equipped to deal with transit logistics.Therefore, for the most part, customs transit is animport concern.

The Principles of CustomsTransit Regimes

Transit regulation aims to facilitate the transport ofgoods through a customs territory without pay-ment of duty and taxes in the countries of departureand transit. This is in accordance with the destina-tion principle of taxation, which states that indirecttaxes should only be levied in the country of con-sumption. Transit legislation should be provided inthe Customs Code. In the absence of such codifica-tion, transit can be regulated by a binding agree-ment between customs and the different partiesaffected by the transit operation. The core provi-sions for customs transit have been around forcenturies (box 11.1). They include the following:

• sealing of the shipment at the point where thetransit operation is initiated

• providing financial security to customs in thecountry of transit, which will guarantee the

payment of duties if the goods do not leave thecountry of transit

• using an efficient information system that allowscertification that the transit goods have effec-tively left the country of departure so that thesecurity can be released.

Over the years, transit provisions have been cod-ified by a number of international conventions, themost important being the General Agreement onTariffs and Trade (GATT) agreements on transit, theWorld Customs Organization (WCO) RevisedKyoto Convention, and the 1982 Geneva Conven-tion on the harmonization of frontier control ofgoods. Annex E, Section 1 of the Revised KyotoConvention is about transit and focuses in detail onapplicable customs formalities and seals, the essenceof which is reflected in the section of this chaptertitled “Description of a Typical Transit Operation”.Table 11.2 summarizes the key principles derivedfrom these international instruments. The actualcustoms transit regimes across countries varywidely. In many countries and regions the basictransit arrangements, such as guarantees, are poorlyimplemented and greatly penalize landlocked coun-tries. In other countries and regions, national tran-sit provisions have evolved into harmonized and


BOX 11.1 The Genesis of Transit Procedures in the Middle Ages

Today’s transit principles and procedures can betracked back to the trading revolution that tookplace in preindustrial Europe in the 12th and13th centuries. Seals, carnets, and guarantee sys-tems were designed at that time in major tradingcenters. Compared to other regions of the world,Western Europe was fragmented politically, witha multiplicity of tolls and charges. The develop-ment of inland transportation between majorcities stimulated creative solutions by the mer-chants and the rulers.

In 12th century southwestern France, thelocal guilds from Bordeaux were worried thatgrain might be exported from the city—where itwas needed—to other inland districts. Therewas, therefore, an export duty, which was differ-entiated according to the relations with the vari-ous “jurandes” of the region. The highest dutywas retained until the arrival note was returnedto the customs of departure with the signatureof the customs of arrival. The carrier kept twocopies, one of which was used to justify the legal

right to carry the goods and to establish their ori-gin. Customs brigades could inspect these notesalong the way. Rapidly, merchants asked for an“acquis à caution” (the expression is still used)system, whereby merchants would purchase anunderwritten guarantee instead of depositingthe duty.

In the Duchy of Milan in Northern Italy, anational transit system was available in the 14thcentury to facilitate the movement of importsinside the territory. Customs officers sealed ship-ments of goods at the main inland gateway ofthe duchy. Carnets were issued and could beproduced at checkpoints during the journey. Atthe final destination, Milan or another city, sealswere broken and duties paid. Local officers of thecentral office in Milan sent the information aboutshipments at the beginning and at the end oftransit.

Source: Adapted from Favier 1971.

regionally integrated transit regimes. The bestworking example is the TIR, detailed in the MajorInternational Transit Procedures section.

Article V of the GATT provides the freedom oftransit and determines that“[t]here shall be freedomof transit through the territory of each ContractingParty, via the routes most convenient for interna-tional transit, for traffic in transit to or from the ter-ritory of other Contracting Parties.” Further, itaffirms that “. . . except in cases of failure to complywith applicable Customs laws and regulations, suchtraffic coming from or going to the territory of othercontracting parties shall not be subject to any unnec-essary delays or restrictions and shall be exemptfrom Customs duties and from all transit duties orother charges imposed in respect of transit, exceptcharges for transportation or those commensuratewith administrative expenses entailed by transit orwith the cost of services” (Grosdidier 2004, p. 16).

The 1982 Geneva Convention covers transit facil-itation and recognizes the importance of transit forthe economic development of countries. It promotesjoint customs processing through the simplification

of customs procedures and the harmonization ofborder controls. It also draws heavily on the Euro-pean experience. Article 10 applies to goods in tran-sit:“contracting parties are bound to provide simpleand speedy treatment of goods in transit, especiallyfor those traveling under an international transitprocedure” (Grosdidier 2004, p. 24). Parties shouldalso facilitate, at the utmost, the transit of goods bycontainers and other vessels that provide adequatesecurity. Articles 4 to 9 posit the harmonization ofcontrol and procedures. Contracting parties arebound to provide staff and facilities that are compat-ible with the traffic requirement (Article 5),organizejoint border processing to ease controls (Article 7),and harmonize documentation (Article 9).

Description of a TypicalTransit Operation

Transit procedures should permit the movement ofgoods from the point of entry, into the customs terri-tory of the transit country, and finally to the countryof destination,without thepaymentof importduties,


TABLE 11.2 General Provisions Applicable to Customs Transit as Codified byInternational Conventions

Category Provisions

General • Freedom of transit• Normally no technical standards control• No distinction based on flag or origin ownership• No unnecessary delays or restrictions.

Customs diligences in transit • Limitation of inspection (especially if covered by an internationaltransit regime such as TIR)

• Exemption from customs duties• Normally no escort of goods or itinerary• No duty on accidentally lost merchandise• No unnecessary delays or restrictions.

In addition, when an international transit regime such as TIR is activeHealth and safety • The TIR regime applies to multimodal transport when some part of

the journey is by road• Flat rate bonds are used for transit goods• No sanitary, veterinary, or phytosanitary inspections for goods in

transit if no contamination risk.

Security offered by the carrier • Declarant to choose the form of security in the framework offeredby the legislation

• Customs should accept a general security from declarants who reg-ularly declare goods in transit in their territory

• On completion of the transit operation, discharge of the securitywithout delay.

Source: UN/CEFACT and UNCTAD 2002.

taxes, and other charges due on importation, andwithout being subject to other import regulations,such as health and safety inspections, applicable inthe transit country. In the absence of streamlinedoperations,the transit procedures can be daunting,assuggested in table 11.3.

Three Key Elements of a Transit Operation

Seals, guarantees, and efficient flow of documenta-tion are the underpinnings of transit.

Seals. There should be a physically secure mecha-nism so that goods present at the start of the transitoperation will leave the transit country in the samequantity, form, and status. The best and easiest wayto guarantee this is for customs to seal the truck8 toensure that goods cannot be removed from or addedto the loading space of the truck without breakingthis seal or leaving visible marks on the loading spaceof the truck. Seals and trucks approved for use in thetransit operation must, therefore, conform to well-specified criteria that guarantee their effective oper-ation and security. New transport seals are understudy and prototypes are already in use. One of theseseals includes a microchip that is activated whenbroken. When activated, these chips transmit a sig-nal, picked up via a satellite network, and send infor-mation to the organization or principal of the sealedcontainer, including information on the location ofthe container. Although the prices of such auto-mated seals are relatively high now, it is expected thatprices will decrease in the coming years. The require-ments for seals in the Revised Kyoto Convention arepresented in box 11.2.

Guarantees. Customs must be given a guaranteeto cover the payments of import duties, taxes, and

other charges due on importation in the transitcountry, to cover cases where goods do not leave thecountry when using the transit procedure. Thisguarantee is used to recover the duties and taxes dueif the transport forwarder does not pay the customsinvoice for these duties and taxes when requested (ifgoods cannot be proven to have left the country oftransit as specified in the transit regulation).

Documentation flow. To control the start andcompletion of a transit procedure, a monitoringsystem for the flows should be operational. This sys-tem could be based on paper documentation that isshipped between the customs post at the exit of thecountry, after validation of the transit transaction,and the customs post that controls the origin of thetransit shipment. Increasingly the transmission ofthese documents is done electronically. When thecopies of the documents match, the transit opera-tion is completed and the guarantee released. Whenthey do not match, the transit procedure is not com-pleted satisfactorily. The payment of the importduties, taxes, and other charges are due, and areincreased by a stipulated fine.

Principal and Guarantor

The principal is the owner of the goods, or his rep-resentative, such as the carrier, which is mostoften the case. The principal initiates the transitprocedure and is responsible for following thetransit procedures—providing guarantees and thenecessary documentation. Companies that wantto act as a principal (or agent) making use of thetransit procedure must be registered; must obtaina guarantee to cover the transit operations; mustuse a transit customs document and bill of lading;must present the goods and declaration at thecustoms offices of departure, transit, and destina-tion; and must be responsible for sealing the tran-sit vehicle.


8. For illustrative purposes trucks are focused on; however, thesame applies for other modes of transport, such as wagons,barges, and so forth. In practice, the procedures may be simpli-fied for trains.

BOX 11.2 General Requirements with Respect to Seals

“The seals and fastening shall:

a) be strong and durable;b) be capable of being affixed easily and quickly;c) be capable of being readily checked and iden-

tified;d) not permit removal or undoing without

breaking or tampering without leaving traces;

e) not permit use of more than once, exceptseals intended for multiple use (e.g. electronicseals);

f) be made as difficult as possible to copy orcounterfeit.”

Source: Revised Kyoto Convention, Annex E1.www.wcoomd.org.


TABLE 11.3 Transit Procedures without Facilitative Measures

Documentation Charges Comments

Sea transport

Unloading in port

Inspection and clearanceby customs

Loading of vehicle

Formation of a convoy

Road transport in transitcountry

Controls en route

Customs inspectionupon exit from firstcountry

Border inspections(vehicle)

Transfer to other truck

Customs inspection uponentry in the destinationcountry

Other inspections uponentry into secondcountry

Arrival at destination

Bill of lading

Invoice to determine value,classification, and weightthat permit the calculationof the duties to beguaranteed

Transit declaration

Copy of transit document

Transit declaration(Beginning of a nationaltransit link)

All documents

All

Sea freight

Port charges

Guarantee(deposit)

Convoycharges

Road transportcharges

Transfercharges

Guarantee(deposit)

Costs of damageor loss

Deposit equal to part ortotal amount of duties,taxes, and other chargesdue on importation incountry of departure

Seals applied

Noncompliant withgenerally agreedprinciples, may lead toinappropriate practices

Noncompliant withgenerally agreedprinciples. Transit often isimpeded by a number ofroad checks (police andcustoms) involvingpayments of gratuities

Seals are checked. If thetransit operation can becleared, a copy of thetransit document is sent tothe central customs officeand then the guaranteecan be discharged

Driver’s license andinsurance of vehiclechecked. If invalid, changeof operator needed

Noncompliant withgenerally agreedprinciples. Cargo can bedamaged, lost, or stolen

Deposit equal to part ortotal amount of duties,taxes, and other chargesdue on importation insecond country

Security, health checks,involving several stops.Control of seals

Seals broken; duties paid;guarantee discharged

Source: Author.

A guarantor is a private or legal person whoundertakes to pay jointly and separately with thedebtor (in most cases, the principal) the amount ofduties and taxes that will become due when a transitdocument is not discharged properly. A guarantormay be an individual or firm or other body that iseligible to contract as a legal third person. Normallyit is a bank or insurance company. Guarantors mustbe authorized by customs, which usually publishes alist of financial institutions that are authorized toact as guarantors.

Guarantees

The guarantees acceptable by customs are definedby the regulations of the transit country. Within theopen options of financial securities, the choice is theexclusive responsibility of the principal. A guaran-tee can be provided by a bank (in the form of abond) or as a form of insurance by a guarantor thatcan be reinsured internationally by well-known andreliable insurance companies. Nonguarantee formsof security, such as deposits, may still be in place insome transit countries, although they are obviouslynot recommended. A principal may also be its ownguarantor. This is a common practice for rail trans-port, and grants customs access to more directrecourse mechanisms.

There are two categories of transit guarantee:

• An individual guarantee covers only a single tran-sit operation effected by the principal concerned.It covers the full amount of duties, taxes, andother charges for which the goods are liable.

• A comprehensive guarantee covers several tran-sit operations up to a given reference amount,which is set equal to the total amount of dutiesand other charges that may be incurred withrespect to goods under the transit operations ofthe principal during a period of at least oneweek.

Ingeneral,thecalculationof theguarantee isbasedonthe highest rates of duties and other charges applica-ble to the goods, and depends on customs’ classifica-tion of the goods. The amount covered by the com-prehensive guarantee is 100 percent of the referenceamount. If the principal complies with certain crite-ria of reliability, the amount of guarantee to be

specified to the guarantors may be reduced by cus-toms to 30 percent of the reference amount. In case ofmovement of high-risk goods, customs can beallowed to calculate the guarantee at a percentage thatis related to the risk of nonclearance. Internationaltransit regimes such as the TIR allow for furthersavings.

Customs will only address its claim to the guaran-tor for the full amount if debtors do not meet theirobligations. When goods are unlawfully removedfrom the transit procedure the debtor is deemed tobe one of the following:

• the person who unlawfully removed the goodsfrom the transit procedure

• any persons who participated in the unlawfulremoval of the goods or who were aware orshould reasonably have been aware of theremoval of the goods

• any persons who acquired or held the goods, andwho were aware or should reasonably have beenaware that they had been removed from the tran-sit procedure

• the principal.

If the goods have not been unlawfully removedfrom the procedure, but one of the obligations orconditions of using the transit procedure arebreached, the debtor is the person who breached theobligation or condition.

Applicable Documents and Flows

A transit procedure requires a transport document,a bill of lading, and the transit customs document.The transit customs document can contain fourcopies:

• Copy 1 is validated by the customs office of entryin the country of transit and forwarded to thecentral customs office (CCO) of the country oftransit. This will permit later reconciliationwhen the transit is completed, and will also servestatistical purposes. These documents can betransferred daily.

• Copy 2 accompanies the transit shipment to thecustoms office of exit from the country of tran-sit. This copy will be retained by customs as thebasis document for any succeeding customsdestination—warehousing, importation in free


circulation, or inward processing—at whichpoint the fiscal responsibility will be taken overby the consignee.

• Copy 3 also accompanies the shipment to thecustoms office of exit. This copy, after beingcompleted (signed and stamped) by that cus-toms office, is sent to the CCO. The CCO verifiesthe completion of the transit procedure by com-paring Copy 1—which it kept at the start of theoperation—and Copy 3. If Copy 3 is not receivedwithin a period of typically six weeks from thevalidation date of the document, the CCO willinitiate an investigation.

• Copy 4 also accompanies the shipment to thecustoms office of exit. This copy, after beingcompleted (signed and stamped) by that cus-toms office, is returned to the principal or hisagent and gives proof that the procedure hasbeen completed, even before the CCO confirmsclearance of the operation.

In a situation in which the transit operation is notcompleted satisfactorily, the taxes and duties calcu-lated at the initiation of the transit operation wouldbe due from the principal. If only one border iscrossed, this becomes a simple matter—the princi-pal owes the full amount of the taxes and dutiesalready calculated at the outset. When more thanone border has been crossed, a decision needs to bemade as to which duties and taxes are due, that is,the duties and taxes applicable in the country ofdeparture, the country or countries of transit, orthe country of destination. To solve this issue, thetransporters using the transit procedure arerequired to file a notification of border passingwhen they enter a new country of transit and whenthey enter the country of destination. When a tran-sit operation is not completed within a specifiedtime, the customs office of entry will ask everyintended customs office at the borders of the coun-tries of transit and destination whether they havereceived a notification of border passing for thatspecific transit procedure.

Clearance of a Transit Procedure

The clearance of the procedure is formally basedon the administrative confirmation by the CCOthat it has received Copy 3 of the transit customs

document. If this administrative procedure fails,the principal or agent should present Copy 4 ofthe transit document or be offered the possibilityto deliver alternate proof to clear the regulation.Such a request from the CCO should be madewithin six weeks after the validation date of thedocument.

Principals or agents in possession of Copy 4 ofthe transit customs document who do not receiveany request from the CCO within six weeks of thedate of validation can consider the transit proce-dure complete and can close the files.

Principals or agents not in possession of Copy 4of the customs transit document who receive arequest for further investigation on the clearance bythe CCO within six weeks can present alternateproof. Such proof should always include officialstamps and signatures from the customs office ofdestination. One of the following might serve asalternate proof:

• a signed copy of Copy 2 of the customs transitdocument

• a signed copy of the documents of the customsprocedure succeeding the transit regime (con-firming that a customs debt is not related to thetransit procedure).

Figure 11.1 depicts a Legitimate Transit Operation.

Nonclearance of the Transit Procedure

If the CCO cannot formally clear the customs tran-sit document, the nonclearance leads to a customsdebt for the debtor. Although parties other than theprincipal can be debtors, the principal will always bejointly liable.

Where a debt arises due to nonclearance, theguarantor should be informed about such debtwithin a period of 12 months. If customs does notinform the guarantor within the set terms, customscan no longer collect a debt from the guarantor.Further, a debt can only be collected from the guar-antor when the State collector has failed to collectthe debt from the fiscal debtors.

According to international standards, any partysubject to the payment of a debt, as stated in a for-mal decision by its authority, has the right to file


that party’s motivated objections to such formaldecision. Reasons for objection might be alternateproof of clearance; incorrect determination ofvalue, classification, or debt; designation of thedebtor; and so forth. An objection can be filedwithin a certain period (in general, four to sixweeks) after the authority has validated the formaldecision.

The debt that arises from nonclearance of goodsamounts to what would be the total of applicableduties if the products had been declared for freecirculation in the country of departure. In addition,interest and fines may be due. The fines and interestare most often stipulated in the transit regulations.These relate only to the fiscal debt. If nonclearanceis the result of criminal offenses, criminal legislationshould specify a fine schedule. Interest becomes dueon the debt from the date that nonclearance isestablished, or from 20 days after the date of valida-tion of the transit customs document.

Implementation Issues

International experience shows that many develop-ing countries could not develop smooth transit

regimes. There are several bottlenecks to over-come in implementing the previously describedmechanisms.

Availability of guarantees. The availability ofactual guarantees constitutes the bottleneck for cus-toms transit in most developing countries. This dif-ficulty may reflect the immaturity of the financialsystem in the country and the unwillingness ofinternational financial institutions to guaranteetransit transactions in particular countries. For cus-toms, the calculation of the guarantee may be aproblem when the value on which it is based cannotbe determined properly. In developing countries,the carrier tends to provide undervalued invoices tolimit the value of the guarantee (or deposits). Thus,the nondischarge of the security might not be anefficient deterrent of fraud.

Quality of transport services. The quality of trans-port services in the transit country can also be amajor constraint. Large operators are more likely toprovide guarantees for customs and may be eligiblefor comprehensive guarantees. The extreme case isthat of railway companies, which are usually notsubject to deposits or guarantees. Alternatively, as isoften the case in Africa, some guarantee may be


Copies 2, 3, and 4 Copy 4

Copy 1 Copy 2

Country of transit

Issueguarantee

Guarantee

• Check seals• Take copy 2

• Issue transit documents• Affix or check seals• Take copy 1

Point of departurePoint of entry

Central customs officeinformation systems

Activateguarantee

Discharge ofguarantee

Reconcile copies

If copies not cleared

If copiescleared

FIGURE 11.1 Typical Transit Operation

Source: Author.

available but not at an accessible cost for the averageoperator. Also, the vehicle might not meet the cus-toms requirement for a secure transit.9 Hence, theneed for convoys arises.

Convoys. Customs often suspects—as the resultof experience—the presence of fraudulent practicesin transit operations. In reaction, customs oftenresorts to the use of convoys that accompany thetransit vehicle during the transit trip, accompaniedby police and a customs official. Convoys causedelays as well as additional costs, borne by the prin-cipal, but do not fully eliminate all risk of fraud andcorruption.

Corruption. Transit operations are vulnerable tofraud and extortion because they take place over anextended period of time, over long distances, andoften with minimal supervision. One method toreduce corruption is to ensure that tamper-free sealsare applied. It is also recommended that the transitoperation be concluded at a level higher than theexit station, leading to the importance of creatingthe CCO and ensuring that it is well staffed and itsoperations periodically audited.

Weak enforcement. Independent of the corrup-tion problem, enforcement in transit is not easy,as customs is not in a position to check consign-ments all over the territory. Conversely, otheragencies involved in fighting national fraud areless concerned with transit. In most industrializedcountries, fraud in transit is treated as smug-gling and is subject to heavy penalties, includingseizing of the truck and shipment, as well as finesthat can amount to three times the value of theshipment.

Lack of standard documentation. Because a transitoperation normally involves at least two countries,the use of standard customs forms will facilitate theoverall operation. Standard forms will prevent hav-ing to use new customs forms upon entering a newcountry, which certainly adds to the complexity ofthe operation and causes delays at border crossingpoints. Using standard documentation will also

facilitate the use of information technology forinformation exchange.

Computerization and Information Technologies

A number of developing countries have developeddifferent Electronic Data Interchange (EDI) sys-tems adapted to their needs. Within the variety ofsoftware employed, ASYCUDA (Automated Systemfor Customs Data) has proved particularly popular(see chapter 13). Automation brings a number ofpositive changes for transit operations. Some appli-cations are virtually all-inclusive. For instance, theEuropean Union has developed a New Com-puterized Transit System (NCTS), which is fullycomputerized.

More directly applicable to developing econo-mies, the UN Conference on Trade and Develop-ment (UNCTAD) has developed transit add-ons tothe ASYCUDA. The MODTRS (transit) modulehandles transit documents in conjunction withother modules of the ASYCUDA++ functions. Themodule can be adapted to all types of transit andcan, therefore, electronically handle the TIR carnet.Within customs in the transit country, the systemelectronically informs the exit post of the arrival of ashipment within a plausible time frame. When theexit post closes the transit information, the infor-mation is keyed in and the guarantee is automati-cally released.

In developing transit economies that havebegun implementing EDI, it is likely that the tran-sit operation will not be automated at first. Goodsin transit will enter the country through the maingateway (port or airport), whose transit processeswill likely be computerized according to priority.Most often, they will exit through a faraway borderpost where EDI has not yet been deployed. Yet,transit is likely to benefit from automation as itbrings about a more efficient and centralizedinformation system overall. For instance, even ifthe transit information is sent by traditionalmeans to the CCO, the use of EDI already carries alot of potential (this promise is exhibited byGhana’s expansion of its automated GCNet opera-tions to the border post with Burkina Faso). ASY-CUDA can be adapted to suit the specific needs ofits different users, and it provides customs with avariety of functions that support its activities andincrease its efficiency (box 11.3).


9. If the truck cannot be sealed by customs, customs may con-sider, as an alternate option, limiting transit traffic to specifictransit corridors where each truck carries a special transit signaffixed to it or time limits are set for transporting the goodsfrom the customs office of departure to the customs office wherethe goods will leave the transit country. Customs can then patrolthese special transit corridors and concentrate inspections ontrucks with the special transit signs.

Major International TransitProcedures: The TransportInternational Routier

The previous section describes a set of proceduresspecific to the country of transit. Internationaltransit procedures stipulate the harmonization ofcountry-specific procedures and documentation,as well as an internationally accepted guaranteesystem. Hence, an international regime facilitatestransit further, compared to a chain of nationalprocedures. The Transport International Routier(TIR) is a best practice that sets the standardin this domain and is discussed in detail in thissection.

The TIR Convention: General Principles

The TIR Convention, based on the UN CustomsConvention on the International Transport ofGoods under Cover of TIR Carnets (1960), is notonly one of the most successful international

transport conventions, but also the only existinguniversal customs transit system. In this sense, itserves as a benchmark for any future effectiveregional transit frameworks and deserves adetailed examination.

The TIR Convention allows the temporary sus-pension of customs duties, excise duties, andvalue added taxes (VAT) payable on goods origi-nating from or destined for a third country whileunder transport across the territory of a concretecustoms zone. Such suspension remains in placeuntil the goods either exit the customs territoryconcerned, are transferred to an alternative cus-toms regime, or the duties and taxes are paid andthe goods enter free circulation. The TIR specifiesfive main pillars:

• Secure vehicles. The goods are to be transportedin containers or compartments of road vehiclesconstructed so that there is no access to the inte-rior when secured by a customs seal, so that no


BOX 11.3 ASYCUDA Customs Operations in Zambia

Zambia has implemented the ASYCUDA transitmodule between Chirundu at the border withZimbabwe and Lusaka, using the Wide Area Net-work (WAN). This transit system calculates thetotal duties and taxes as the guarantee amount,which is deducted from the bond as security.Once a transit document is processed and sent tothe destination office, the record at the departureoffice remains outstanding and is acquitted onlywhen all items have been fully cleared or havemade an exit at the destination office. The avail-ability of the WAN between the two ports andenhancements in ASYCUDA++ have, respectively,resulted in instantaneous data flow and efficiencyin management of transits.

Transit guarantees. To carry out transit opera-tions, a declarant needs to have a Transit Guaran-tee Account. Transit Guarantee Accounts havebeen set up on the accounting module of ASY-CUDA (MODAAC) by customs for all licensedagents. For the account to operate, the maxi-mum authorized guarantee should be specified.This is the amount from which the suspendedduties and taxes will be deducted as bond tocover the movement of transit goods. Once thisamount is exhausted, no further transits can beprocessed.

Departure office—Chirundu. Submissions of allentries to customs is done through Direct TraderInput (DTI). The bureau is situated within the

customs premises and is managed by a privatecontractor. Chirundu is one of the major entrypoints, with a high volume of traffic. From incep-tion, sufficient DTI terminals were available tocope with business volume. The declarations aresent to a specialized transit declaration desk,which generates a transit document (T1). Whenissuing the T1, the equivalent suspended dutiesand taxes (the bond) is deducted from the guar-antee. With the WAN in place, the T1 is automat-ically transmitted through the ASYCUDA mes-sage manager module (Gateway) to bothChirundu and Lusaka. Finally, the release order isgenerated as proof that the consignment hasbeen released after full compliance with the rele-vant transit requirements.

Destination office—Lusaka. The declarantreports to the transit counter at the customsoffice and files the copies of the documentsissued by the departure office. The transit officerwill access the list, T1, transmitted on the com-puter. The details on the computer are comparedwith the information on the hard copy of the T1.If the information is correct and consistent withthe physical consignment, the T1 is validatedand the status of the transit document ischanged to validated. The bond is then creditedback to the Transit Guarantee Account.

Source: UNCTAD 2003.

goods can be removed or added during the tran-sit procedure, and so that any tampering will beclearly visible.

• International guarantee valid throughout the jour-ney. In the situation in which the transport oper-ator cannot pay for the customs duties and taxesdue, this system ensures that the customs dutiesand taxes at risk are covered by the national guar-anteeing system of the operator.

• National associations of transport operators.National associations control access to the TIRprocedures by transport operators and issue theappropriate documents and manage the nationalguarantee system.

• TIR carnets. This is the standard internationalcustoms document accepted and recognized byall members of the TIR Convention.

• International and mutual recognition of customscontrol measures. The countries of transit anddestination accept control measures taken in thecountry of departure.

In essence, TIR operations can be carried out in par-ticipating countries by a truck operator member ofa national association, with the network of nationalassociations acting as guarantor.

The TIR system has been a success. The num-ber of TIR carnets issued rose from 3,000 in 1952to 2.7 million in 2001. The main reason for itssuccess to date is that all parties involved (cus-toms, other legal bodies, transport operators, andinsurance companies) recognize that the systemnot only saves time but also money, due to its effi-ciency and reliability. The TIR Convention is sim-ple, flexible, and cost reducing, and ensures thepayment of customs duties and taxes that are aresult of the international transport of goods.Furthermore, it is constantly being updatedaccording to the latest developments, mainly con-cerning fraud and smuggling. The TIR is usedmostly in European countries but is also used intransit operations in Central Asia, the Caucasus,the Maghreb, and in some parts of the MiddleEast.

Insurance and Issuance of TIR Carnets

In countries using the TIR, the national guaranteeingassociation is recognized by the customs administra-tion of the country. In most cases it is an associationthat represents the transporters. The association

guaranteespaymentwithinthatcountryof anydutiesand taxes that may become due in the event of anyirregularity occurring in the course of the TIR trans-portoperation. Theamountpayable isamaximumofUS$50,000 for normal carnets and US$200,000 fortobacco and alcohol carnets.The national guarantee-ing association is not a financial organization; there-fore, its obligations are usually backed by insurancepolicies provided by the market. The InternationalRoad Transport Union (IRU) can help nationalguaranteeing associations find such services.

There are three types of carnets, each of whichcontains two sheets for each country of departure,transit, and destination:

• The regular TIR carnet.• The multimodal TIR carnet, which was intro-

duced in 1987, and specifically caters to therequirements of regional and intercontinentalmultimodal transport. This carnet contains anadditional sheet identifying the persons whocompose the transport chain.

• The tobacco/alcohol TIR carnet, which becamean integral part of the TIR Convention in1994.

The transporter should execute a contract with thenational guarantee association, which would includethe obligation to meet all requirements set in the TIRConvention; to return the used TIR carnet after com-pletion of the TIR transport; and to pay any amountof duties, taxes, and other charges on first demand ofthe national guarantee association.

To ensure the security of the revenues, the TIRsystem is only applicable to containers or road vehi-cles with load compartments to which there is nointerior access after a customs seal has secured it. Iftampering does take place, it will be clearly visible.

The Sequence of the Transit OperationUnder TIR Cover

A TIR transport is an international transport opera-tion. It is a transit operation of goods, across one ormore borders, of which only a part of the transit hasto be made by road. The transit operation itselfinvolves the movement of goods from one country(country of departure) to another country (countryof destination), through a third country (transitcountry). All countries involved should be activemembers of the TIR Convention.


The customs office in the country of departureadministers the seals. Both the country of transit andthe country of destination accept the control meas-ures taken in this country. Thus, at customs offices enroute (at border points between countries of depar-ture and transit, and between countries of transit anddestination), only the seals and containing body areinspected. The goods are not inspected unless irregu-larities are suspected. Such spot checks should be theexception. The customs office of the destinationcountry removes the seals and controls the goods.

During this transit process, various steps can bediscerned regarding the issuance of the carnet aswell as the insurance situation. To illustrate thefunctioning of the system, an outline of a TIR trans-port from Rotterdam (the Netherlands) to Moscow(Russian Federation) follows. This procedure is alsodepicted in figure 11.2.

Step 1. TIR Carnet Presented at the CustomsOffice of Departure The truck driver shouldpresent the TIR carnet at the customs office ofdeparture in Rotterdam. Before loading the goods,

customs will check the TIR certificate (stating thatthe loading space of the truck fulfills the require-ment of construction and can be sealed properly bycustoms) and customs will seal the loading spaceafter loading has been completed. The customsoffice of departure will then validate the TIR carnet(put customs stamps on the manifest, and on eachof the sheets for the countries that will be transitedbetween the Netherlands and the Russian Federa-tion, two copies for each of these countries). Cus-toms removes one sheet of the TIR carnet and for-wards this copy to the Dutch CCO. The rest of theTIR carnet is returned to the truck driver, who canleave Rotterdam en route to the exit customs office.

Step 2. TIR Carnet Presented at the CustomsOffice of Exit of the Departure Country TheNetherlands is a Member State of the EuropeanUnion (EU), which is a customs union, so no cus-toms formalities need to be fulfilled at the internalborder between the members. Therefore, thecustoms office of exit of the EU is, in this example,situated at the Polish–German border.


Departurecountrynational

association

IRU

Info oncarnet

Insurance

Carnet

Claim duties Claimduties

If copy not cleared

Reconcile copyand clear

Central customs officeinformation systems

Copy 2Copy 11. Issuecarnet.

4. Check seals.Take copy 2.

3. Check seals.Take copy 1.

2. Affixseals.

5. Break seals.Discharge carnet.

Country ofdestination

Country oftransit

Country ofdeparture

Dis

char

ged

carn

et

If no

car

net,

clai

m d

utie

sTransitcountrynational

association

FIGURE 11.2 The Sequence of the TIR Operations

Source: Author.

The truck driver presents the TIR carnet at theGerman customs office of exit in Frankfurt(Odder), Federal Republic of Germany. Germancustoms inspects the Dutch customs seals andwhether the loading space of the truck is still intact.If no irregularities are found, German customsremoves a copy from the TIR carnet and stamps thesecond copy in the TIR carnet. The TIR carnet isreturned to the truck driver, who is allowed to leavethe EU and drive to the Polish customs office at thesame border. German customs forwards the copy itremoved from the TIR carnet to the Dutch CCO.

Copies from the TIR carnet received from thecustoms offices of departure and exit are com-pared at the Dutch CCO. If no irregularities aredetermined, duties are not payable. However, ifthe second copy does not arrive at the CCO, goodsare considered to have remained in the EU and theduties and taxes applicable in the EU become due.The principal of the TIR carnet (that is, the trans-porter) is obliged to pay these duties and taxes. Ifthe principal is not willing to pay or cannot paythese duties and taxes on demand of customs, thenational guaranteeing association must pay thedemanded amounts.

Step 3. TIR Carnet Presented at the CustomsOffice of Entry of the Transit Country The truckdriver presents the TIR carnet to the Polish customsoffice at the Polish–German border. Polish customsinspects the Dutch customs seals and whether theloading space of the truck is still intact. If no irregu-larities are found, Polish customs removes a copyfrom the TIR carnet and stamps the second copy inthe TIR carnet. After completion, the TIR carnet isreturned to the truck driver, who is allowed to leavethe Polish customs office and drive to the Russ-ian–Polish border. Polish customs forwards thecopy it removed from the TIR carnet to the PolishCCO.

Step 4. TIR Carnet Presented at the CustomsOffice of Exit of the Transit Country The truckdriver presents the TIR carnet at the Polish customsoffice of exit at the Russian–Polish border, and theprocedure that took place at the German border isrepeated.

Copies from the TIR carnet are received from thecustoms offices of departure and exit and are com-pared at the Polish CCO. If no irregularities are

found, duties are not payable. If Polish customs doesnot receive the documents or if irregularities areobserved, the duties are payable. Polish customs canturn to the guaranteeing Polish national associationfor payment of the demanded amount. The Polishassociation will then recover this amount from itsDutch counterpart.

Step 5. TIR Carnet Presented at the CustomsOffice of Entry in the Country of DestinationThe truck driver presents himself or herself and theTIR carnet at the Russian customs office at the Russ-ian–Polish border and performs the controls thatwere described for leaving the German exit borderbefore sending the driver and the transit truck toMoscow. This part of the journey is identical to anational transit operation. Russian customs files thecopy it removed from the TIR carnet to monitor theclearance.

Step 6. TIR Carnet Presented at the CustomsOffice of the Country of Destination The truckdriver presents himself or herself along with the TIRcarnet at the customs office in Moscow. Russiancustoms inspects the Dutch customs seals andwhether the loading space of the truck is still intact.If no irregularities are found, Moscow customsremoves a copy from the TIR carnet and stamps thesecond copy in the TIR carnet. After completion, theTIR carnet is returned to the truck driver. The TIRtransport operation is now complete. Moscow cus-toms forwards the copy it removed from the TIRcarnet to the Russian customs office of entry.

The copy of the TIR carnet received from theMoscow customs office at the Russian customs officeof entry is compared to the copy of that specific TIRcarnet in the files of that customs office. If no irregu-larities are found, duties are not payable. However, ifthe second copy does not arrive at the Russian cus-toms office of entry, goods are considered to be in freecirculation in Russia and the Russian duties and taxesbecome due. The principal of the TIR carnet (thetransporter) is obliged to pay these duties and taxes. Ifthe principal is not willing to pay or cannot pay theseduties and taxes on demand of Russian customs, theRussian national guaranteeing association must paythe demanded amounts. The Russian national guar-anteeing association will recover this amount, via theDutch national guaranteeing association, from theDutch principal of the TIR carnet.


Step 7. TIR Carnet Discharged by Customs of theCountry of Destination After discharge, the prin-cipal or holder returns the TIR carnet to the DutchNational Guaranteeing Association. The DutchNational Guaranteeing Association returns the TIRcarnet to the IRU for control and archiving.

Advantages of the TIR System

The TIR system was devised to facilitate (under cus-toms control) to the maximum extent possible, theinternational movement of goods. The system pro-vides transit countries with adequate guarantees tocover customs duties and taxes at risk. TIR is awin–win arrangement between the public sectorand the private sector. The counterpart of the sim-plification of procedures is the exercise of moreresponsibility by the private sector through thenational associations.

For the transport industry the benefits includethe following:

• Goods can move across international borderswith minimum customs interference.

• The delays and costs of transit are reduced.• The documents are simplified and standardized.• There is no need to make customs guarantee

deposits at transit borders.

Customs authorities enjoy benefits, too:

• Duties and taxes at risk during internationaltransit movements are guaranteed up toUS$50,000 (with a higher maximum for alcoholand tobacco).

• Only bona fide transport operators are permit-ted to use TIR carnets, thus increasing the relia-bility of the system.

• Disputes can be arbitrated through nationalassociations (the one in the country of transitand the transporter’s national association).

• The system facilitates customs control and docu-mentation.

• Use of central clearance points allows more effi-cient use of customs personnel.

However, in 1992, the TIR system had been endan-gered by its eastward expansion, especially in theformer Soviet Union, where massive fraudoccurred. A guarantee system that can collapse inthe final leg of the journey is not secure. Fortu-nately, Russian customs reacted to address the issue,aided by a proper tracking system backed byadequate investigation and enforcement mecha-nisms. As a response to this crisis, the IRU devel-oped an electronic backup of the TIR carnets calledSafeTIR that makes tracking easier (box 11.4).

Another reponse to this type of tracking problemis provided by the the Unique Consignment Refer-ence Number (UCR) of WCO. The WCO has beenworking for several years on the implementation ofthe UCR. The UCR has a broader customs purposethan transit; however, it constitutes a consistentinformation system for tracking consignments.Therefore, it can provide a reliable tool for customsagencies willing to facilitate legitimate transit whilekeeping control of the movement of goods in tran-sit. From the carrier perspective, the UCR has anumber of potential benefits, beginning with thefact that a single UCR is created and used by theexporter irrespective of the number of transit coun-tries (box 11.5).

Experience also shows that the TIR mechanismsremain difficult to implement in some countries forthe same reasons that make a national-based systeminefficient, such as the unavailability of an efficientguarantee system. If the private sector is not wellorganized, the national association may not bestrong enough. Even when a credible associationemerges, quite often it is not in a position to set up


BOX 11.4 The SafeTIR

SafeTIR is a control system that aims at electroni-cally confirming the termination of a TIR trans-port at the customs office of destination and val-idating the certification of the terminationdemonstarted by a customs stamp affixed to aTIR carnet. SafeTIR provides the status of the TIRcarnet to customs and the TIR carnet issuingassociation with a confirmation, directly from the

customs authorities, of the final or partial termi-nation of the TIR carnet, mainly to enable com-parison of this confirmation to the paper-basedtermination. The electronic confirmation shouldreach the guarantee chain without delay.

Source: IRU, available at www.iru.org.


BOX 11.5 The Unique Consignment Reference Number

UCR is a unique reference number that may berequired at any point during the customs proce-dure. It should (a) be applied to all internationalgoods moving under customs control, (b) beused only for tracking, audit, and reconciliationpurposes, (c) be truly unique at the internationallevel, and (d) be issued at the beginning of thetrade process.

The objective of the UCR is to define ageneric mechanism with sufficient flexibility tocope with the most common scenarios of inter-national trade. UCR is making maximum useof existing supplier, customer, and transportreferences.

UCR is a 35-digit alphanumeric code boundto the consignment. The agreed on structureconsists of the following:

• a first character for the year over a 10-yearperiod

• two-digit country ISO code identifying thenationality of the supplier

• 32 characters used as the national identifyingcode of the supplier plus a transaction codecreated by the supplier.

Source: Guidelines on Application of Informa-tion and Communication Technology (Kyoto Con-vention, General Annex, Chapter 7, Appendix 9.)

the guarantee system due to the underdevelopmentof the local financial infrastructure and the unwill-ingness of international insurance companies toprovide a cover given their perception of politicaland commercial risk. In other instances, politicaltension between countries makes the mutual recog-nition of carnets elusive, as is too often the case inCentral and Western Asia.

Attempts to Duplicate TIR Success Elsewhere

Due to the enormous success of the TIR system, itsconcept has been the basis for attempts to establishbilateral and multilateral agreements betweencountries elsewhere, such as in Asia, Africa, andSouth America. However, none of these initiativeshave been successful yet. A main reason for this hasbeen the absence of a common regional guaranteesystem. The internationally agreed on and recog-nized guarantee system is one of the core elementsof the TIR system, and in its absence TIR-like sys-tems will not be successful. On occasions, evenwhen such a system is included within a transitagreement, the failure to implement it fully jeopard-izes the efficiency of the regional transit regime. Forexample, the Economic Community of WestAfrican States’ (ECOWAS’) 16 member statessigned, in June 1982, a convention for the establish-ment of an ECOWAS Inter State Road Transit Sys-tem commonly known as TRIE (Transit RoutierInter-États). Chambers of commerce are assumingthe role of national associations. However, the TRIEhas been largely ignored, and about 70 percent of

the transit procedures in the ECOWAS region stillstem from bilateral accords and national regulationsand practices. These are, for the most part, inwardlooking and protectionist rather than supportive ofthe free movement of goods (N’Guessan 2003).Practical implementation shortfalls are often at theroot of the failure of regional or internationaltransit agreements.10

Transit Facilitation Institutions

Active cooperation between and among transit andlandlocked countries can help ease trade barriers.Such regional and bilateral cooperation can pro-mote an integrated approach to transit that goesbeyond customs transit issues. Many agreementshave a strong focus on the transit infrastructure,and also deal with visa, permit, and vehicle regula-tion issues. This section presents a selection of suchagreements and their accompanying institutionalarrangements, and highlights those factors thathave contributed to their successes or shortfalls insupporting transit.

Bilateral Agreements

Bilateral transit agreements are key building blocks ofcustoms harmonization initiatives. In the absence ofTIR-like conventions, bilateral agreements are

10. Regional TIR-like mechanisms are under consideration inCentral Africa, Central Asia (under the leadership of the AsianDevelopment Bank), and in Western Asia.


needed to make transit possible. They are also neededas a basis for regional agreements. In practice, bilat-eral agreements have strategic importance for devel-oping landlocked economies.

The scope of bilateral agreements is usuallypractical and reflects a balance between the inter-ests of the two countries, which are not always inaccordance with general principles of customstransit (convoy practices , for example). It usuallyincludes preferred route and freight sharingagreements, as well as the location of warehousesof the landlocked countries.11 However, somecore customs transit issues, such as guaranteeprocedures, are usually left out of the bilateralagreements.

Together the Indo-Nepal Treaty of Trade and theTreaty of Transit govern transit operations betweenthe two countries. Both treaties, which are renewedevery five years, go into great detail in outlining thespecific procedures required for the transit ofNepalese imports and exports through India. TheTransit Treaty includes specific points of entry andexit, a description of the 15 mutually agreed ontransit routes to and from Calcutta and Haldia, adescription of the warehouses and open spacesprovided, and detailed guidelines on the simplifiedadministrative procedures involved in the importor export of Nepalese goods via India. TheNepalese–Indian example includes a number ofelements that can help facilitate transit operationsbetween the two countries:

• a clear description of import and export proce-dures

• simplified customs administrative requirementsand documentation (in this case, the CustomsTransit Declaration)

• a reliable guarantee framework (backed by thegovernment of Nepal)

• a clear distribution of responsibilities and dutiesamong the different stakeholders

• customs support infrastructure (warehouses, theprovision of dry ports)

• a description of the agreed on transit routes.

Regional Agreements

The last few decades witnessed a proliferation ofregional agreements between or involving develop-ing countries. A number of them have direct impli-cations for customs transit:

• the already-mentioned Transit Routier Inter-Etats (TRIE) in the ECOWAS, the only examplebeyond TIR of an agreement dedicated only totransit

• the Association of Southeast Asian Nations(ASEAN) Framework Agreement on the Facilita-tion of Goods in Transit

• the Greater Mekong Subregion (GMS) Agree-ment for Facilitation of Cross-Border Transportof Goods and People

• Economic Cooperation Organization (ECO)Transit Framework Agreement—formed byAfghanistan, Azerbaijan, Iran, Kazakhstan,Kyrgyz Republic, Pakistan, Tajikistan, Turkey,Turkmenistan, and Uzbekistan

• Common Market for Eastern and SouthernAfrica (COMESA) agreement on single adminis-trative document.

Except for the TRIE, these regional agreements tendto lay down broad goals and policy directions.Actual customs transit facilitation may be depend-ent on other existing agreements or procedures. A2001 UNCTAD report points out “there has notbeen any shortage of measures and initiatives toimprove facilitation of transit traffic. COMESA,EAC, . . . and SADC all have various measures thatare in place to address transit facilitation. Unfortu-nately, the major problem has been poor implemen-tation.” (InfraAfrica Ltd. 2001, p. 45)

To achieve a significant impact on customstransit, regional agreements should address, directlyor through related mechanisms, the followingcomponents:

• Common customs documentation and procedures.The use of common procedures and documents,such as carnets or Single Administrative Docu-ment (SAD), are now available in many regionsor sub-regions.

• Cooperation between authorities, or one-stopborder posts. Within Africa, a number of initia-tives have been discussed over the years on

11. Efficient dry ports, such as Ngaounderé in Cameroon orBirgajn at the Indo–Nepalese border, are also part of this frame-work of bilateral facilitation.

one-stop border posts. Unfortunately, thesehave not been translated into concrete effectivemeasures.

• Regional customs guarantee system. So far, theguarantee system has proven to be the most elu-sive objective.

That regional agreements can work in the presenceof political will is illustrated by the successful intro-duction of the COMESA Yellow Card or Third PartyRegional Motor Vehicle Insurance Scheme. Thisscheme allows prepurchase of insurance, honoredby all participants, in local currency at the point oforigin. This means, for example, that a trucker trav-eling from Zimbabwe to Uganda who has to tra-verse Zambia, Tanzania, and Kenya does not need tostop at each border post to purchase insurance, butuses the Yellow Card to gain access and coverage.According to COMESA, the Yellow Card has, sinceits inception, generated revenue worth US$2 mil-lion, with only US$200,000 worth of claimsprocessed. In theory, transit guarantee schemes arenot that much more difficult to implement than thisinsurance scheme.

Transit Corridors

In transit corridors all relevant stakeholders aim towork together to ensure efficient and secure transitalong specific routes, to the benefit of landlockedand transit countries.

The potential strength of transit corridors liesprimarily in the possibilities they offer in con-fronting the concerns and interests of all relevantstakeholders, public and private, who can focus onpolicies and initiatives to cater to specific routes andborder crossings. Transit corriders thus offer thepossibility of tackling transit in a holistic manner(institutional, administrative, and infrastructure),initiating and effecting changes that may otherwisebe difficult to obtain at a wider national or regionallevel. In this sense, promoting specific transit docu-mentation or introducing harmonized bordercrossing procedures for specific routes are more eas-ily attainable objectives that, once in place, can beexpanded to national levels. The quality of the gov-ernance structure of the corridor is of criticalimportance in achieving those objectives. Transitcorridors benefit greatly from the involvement ofprivate sector stakeholders.

An UNCTAD document, “Strategies for Land-locked and Transit Developing Countries,” pointsout that “experience shows that most effective facil-itation measures concentrate on trade and trans-port corridors linking inland origins/destinationsin landlocked countries with entry/exit seaports incoastal countries” (UNCTAD 2003, p. 13). In prac-tice, the experience with transit corridors has beensomewhat mixed. Yet, there have been someencouraging initiatives and results that provide abasis for further developments in the field of tran-sit. The following examples illustrate the potentialbenefits conveyed by transport corridors for cus-toms transit.

Walvis Bay Development Corridor. The WalvisBay Development Corridor (now Trans Kalahari)became operational in late 1999. The driving forcebehind the project was the Walvis Bay CorridorGroup (WBCG), a public–private partnership. InNovember 2003 the Trans Kalahari Corridor Mem-orandum of Understanding was signed. It intro-duced a new single customs administrative docu-ment, which until then had been in use on a pilotbasis. This new simplified approach provides astreamlined and effective tool for managing cus-toms transit transactions throughout Namibia,Botswana, and South Africa and will replacethe cumbersome set of procedures involving up to10 national documents in each country transited.

Northern Corridor. This corridor provides a life-line through Kenya to the landlocked economies ofUganda, Rwanda, Burundi, and the landlockedareas within the Democratic Republic of Congo.The corridor is governed by the Northern CorridorTransit Transport Coordination Authority, whichaims to help harmonize and simplify the proceduresinvolved in transporting goods within the region.Significant achievements accomplished so farinclude the following:

• Simplification of port clearance procedures.• Documentary simplification, achieved through

the creation of the Road Transit Customs Decla-ration (RTCD), which is meant to be the singleadministrative document attached to a ship-ment through the corridor. However, in practicethe RTCD is often copied at the border ontoanother RTCD issued by the next country, anillustration of how difficult it may be to changeold habits.



• The use of the COMESA Customs DeclarationDocument by Northern Corridor countries.

• Reduction by half of the transit time betweenMombasa, Kenya, and Bujumbura, Burundi,from over 30 days to about 15 days. Some unnec-essary border formalities along the corridor havebeen removed.

TRACECA. TRACECA is an EU-initiated pro-gram, launched in 1993, to develop a transport cor-ridor on a west-east axis from Europe, across theBlack Sea, through the Caucasus and the CaspianSea to Central Asia (a modern Silk Road). It aims toharmonize the legislative base in the transport andtransit sectors of its member states12 and places agreat emphasis on infrastructure development andimprovement. During its 10-year existence,TRACECA has implemented 53 projects and chan-neled over US$120 million in infrastructure invest-ment and technical assistance.

A key tool in the execution of this project was aborder audit whereby the transit procedures at 70designated TRACECA border crossing points (in all14 countries) were observed and recorded into adatabase. This comprehensive set of data has beenthe basis upon which subsequent recommendationson harmonized procedures at border crossings havebeen put forward.

The Program of Trade and Transport Facilitationin Southeast Europe

The Trade and Transport Facilitation in SoutheastEurope (TTFSE) regional program, supported bythe World Bank, the EU, and bilateral partners, wasset up in 1998 upon the request of the region’s coun-tries and the Southeast European Cooperative Ini-tiative. Its aim is to create a framework that will helpto reduce transport costs, fight corruption, and helpcustoms administrations gradually align their pro-cedures with EU standards. The countries includedin this program are Albania, Bosnia and Herzegov-ina, Bulgaria, Croatia, Romania, Serbia, and thelandlocked Moldova and Federal Yugoslav Republicof Macedonia. Since most of the trade flows arebound to or from the EU and the majority of the

countries involved fall within the TIR system, it isalready built on a strong transit base.

The design and implementation of the TTFSEwas based on a participatory methodology to ensurea sense of ownership among the various stakehold-ers involved—national agencies, customs officials,and transport operators. The TTFSE programbuilds on a number of regional mechanisms:

• a high-level Regional Steering Committee con-vening all countries twice a year to facilitatecooperation and experience sharing

• a regional Web site presenting all requirementsand procedures of border agencies

• public–private working groups interacting quar-terly

• regional conventional and distance-learningprograms to harmonize the quality of transportservice providers

• paired local project teams gathering all borderagencies at pilot border crossing points withinteractions across the border

• indicators that monitor border crossing times.

This customs modernization initiative has beenimplemented at a number of selected border crossingpoints and inland clearance terminals with a consid-erable degree of success. The program’s progressreport for 2002 highlights the significant reduction inwaiting time, the establishment of a transparent andpublic customs performance monitoring system (seebox 11.6), and the visibly improved dialogue amongcustoms administrations within the region.

The success of this program so far can be attrib-uted to reliable funding from the World Bank andvarious other donors, strong commitment by thenational governments involved, direct participationof all stakeholders, extensive use of informationtechnology, the introduction of human resourcesprograms, and the emphasis on close and meticu-lous monitoring to fine-tune and identify changingneeds and priority areas.

Two key ingredients of the success of TTFSE as atransit facilitation initiative have been the develop-ment of joint border facilities and the monitoring ofindicators. TTFSE has a harmonized set of indica-tors (box 11.6). Joint processing allows all customsand noncustoms (veterinary, phytosanitary) proce-dures to be carried out in a single stop in a commonborder processing zone.

12. Armenia, Azerbaijan, Bulgaria, Georgia, Kazakhstan, KyrgyzRepublic, Moldova, Mongolia, Romania, Tajikistan, Turk-menistan, Turkey, Uzbekistan, and Ukraine.


Operational Conclusions

Customs transit is, in a sense, straightforward as it isbuilt on proven principles: secure the cargo, providea guarantee mechanism, and use a centralized flowof documentation. Customs transit is vulnerable topoor institutional frameworks. Transit operationsare extended in space and time and are, therefore,exposed to inefficient bureaucracy and to corruptpractices. The guarantee system needs a minimumdegree of sophistication of the local financial infra-structure, which is not always available in develop-ing countries. Transit cannot work without a certainamount of trust between customs and the privatesector, which means cultivating a mature andorganized private sector.

While transit facilitation is a bottleneck to thedevelopment of a number of developing countries,this is precisely where the reforms face the mostdaunting challenges. In many countries inadequatepractices or procedures, such as convoys, are deeplyentrenched. Here are some important operationalconclusions.

Customs transit is only one part of a widerrange of policy issues that involves many otherparticipants and procedures, including cross-border vehicle regulations, visas for truck drivers,insurance, and police controls. The quality ofinfrastructure is also a major concern for manylandlocked countries. Even if customs transit pro-cedures are made effective and efficient, full tradefacilitation will require that these other issues bedealt with. Some measures can be taken at thenational level while others require some form ofregional cooperation.

The existence of an efficient guarantee system,which is adhered to by customs authorities andproves not too cumbersome for exporters–importersand transport operators, is a prerequisite for transitoperations. The TIR and its network of nationalguaranteeing associations propose the best currentreference system. So far there is no convincing exam-ple of a fully functioning guarantee system availableto transporters in developing countries. In part, thisis because financial institutions have not been in aposition to propose products similar to the TIRinsurance in the development context. A workingguarantee system is also dependent upon customsenforcement and information systems.

Transit is dependent upon customs informationsystems within the country of transit. Customsshould be able to efficiently track the transit flows inand out of the country. Information processing andautomation, particularly the implementation of e-transit modules in information technology systems,will ultimately facilitate transit.

Customs modernization programs shouldencompass transit. The following components arecrucial for a transit module:

• harmonization of procedures at the regionallevel, for example, single documents

• development of enforcement capabilities beyondthe border to enhance the credibility of customstransit provisions

• consideration of the feasibility of joint borderprocessing

• monitoring of indicators of transit performance,as in TTFSE.

BOX 11.6 TTFSE Indicators

Agreed to by all participating countries, the set ofindicators has allowed both general performanceand the real time impact of the different pilot siteinitiatives to be monitored. To improve the effi-ciency and relevance of this initiative, the pro-gram has tried to institutionalize the collectionprocedures at each of the pilot sites, relying onlocal computer applications or simple measure-ment techniques to obtain most of the key fig-ures automatically. An important feature of tran-sit-related indicators is that the design of theindicators and the data collection involve both

public agencies and the private sector (truckingindustry). Transit related indicators include thefollowing:

• Trucks cleared in less than 15 minutes• Irregularities per number of examinations• Truck examinations• Average border exit time• Average border entry time• Surveyed occurrences of corruption.

Source: TTFSE report 2002 at www.ttfse.org.

Transit facilitation institutions such as corridoragreements promote active cooperation betweenand among transit and landlocked countries, andare a pivotal element in helping reduce or removephysical, administrative, and institutional barriersto trade. Transit agreements are important in form-ing and shaping such cooperation, either at thebilateral, subregional, or regional level. In practice,such agreements promote an integrated approachto transit that goes far beyond customs transit, andtackles issues such as infrastructure, visas, permits,and insurance.

Public–private cooperation will bring decisivecontributions to transit cooperation. It is recom-mended that appropriate frameworks, such asNational Trade and Transport Facilitation Com-mittees, be set up and be strengthened (UNECE2000). Regular exchange of information betweenpublic agencies and stakeholders will help to iden-tify where the shortfalls lie in border crossing pro-cedures. Furthermore, basic transit provisions,including guarantees, work considerably betterwith a mature and organized transport sector.Reforms in this sector go far beyond customsreform. Public policies must foster the emergenceof modern operators, and phase out transit activi-ties by obsolete equipment and informal opera-tors, with whom efficient transit provisions arevirtually impossible.

Further Reading

Global Facilitation Partnership.www.gfptt.org.Grosdidier de Matons, Jean. 2004. “Facilitation of Transport and

Trade in Sub-Saharan Africa: A Review of Legal Instru-ments.” SSATP Working Paper No. 73. Washington, D.C.: TheWorld Bank.

International Road Transport Union. www.iru.org.UN/CEFACT (United Nations Centre for Trade Facilitation and

Electronic Business) and UNCTAD (United Nations Confer-ence on Trade and Development). 2002. “Compendium ofTrade Facilitation Recommendations.” ECE/TRADE/279.February.

UNCTAD. 2003.“Strategies for Landlocked and Transit Develop-ing Countries to Plan and Implement Sustainable Trade andTransport Facilitation Initiatives.” Issue Note by the SecretaryGeneral of UNCTAD. Document UNCTAD/SDTE/TLB/2003/2. July 23.

References

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Grosdidier de Matons, Jean. 2004. “Facilitation of Transport andTrade in Sub-Saharan Africa: A Review of Legal Instru-ments.” SSATP Working Paper No. 73. Washington, D.C.: TheWorld Bank.

InfraAfrica Ltd. 2001.“Review of Progress in the Development ofTransit Transport Systems in Eastern and Southern Africa.”Prepared for the Fifth Meeting of Governmental Expertsfrom Land-locked and Transit Developing Countries andRepresentatives of Donor Countries and Financial andDevelopment Institutions. Document UNCTAD/LDC/115.New York. July 31–August 3.

Lakshmanan, T. R. 2001. Integration of Transport and Trade Facil-itation: Selected Regional Case Studies. Washington, D.C.: TheWorld Bank.

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UN (United Nations). 2003. “Almaty Programme of Action:Addressing the Special Needs of Landlocked DevelopingCountries within a New Global Framework for Transit Trans-port Cooperation for Landlocked and Transit DevelopingCountries.” Adopted by the International Ministerial Confer-ence of Landlocked and Transit Developing Countries andDonor Countries and International Financial and Develop-ment Institutions on Transit Transport Cooperation in Almatyon August 28–29, 2003. www.un.org/special-rep/ohrlls/imc/Almaty%20Programme% 20of%20Action.pdf.

UN/CEFACT (United Nations Centre for Trade Facilitation andElectronic Business) and UNCTAD (United Nations Confer-ence on Trade and Development). 2002. “Compendium ofTrade Facilitation Recommendations.” ECE/TRADE/279.February.

UNCTAD (United Nations Conference on Trade and Develop-ment). 2003.“Strategies for Landlocked and Transit Develop-ing Countries to Plan and Implement Sustainable Trade andTransport Facilitation Initiatives.” Issue Note by the SecretaryGeneral of UNCTAD. Document UNCTAD/SDTE/TLB/2003/2. July 23.

UNECE (United Nations Economic Commission for Europe).2000. “Creating an Efficient Environment for Trade andTransport—Guidelines to Recommendation No. 4, NationalTrade Facilitation Bodies.” Document ECE/TRADE/256.Geneva.
