The 2015 Customs Environmental Scan includes political, social, environmental, and administrative developments during 2014 that directly or indirectly related to Customs.
Macroeconomic Indicators
International trade slows
The World Trade Organization (WTO) reduced their forecast for world trade growth in 2014 to 3.1% (down from the 4.7% forecast made in April 2014). “International trade grew by only 2.8% in 2012 and 3.2% in 2013 in dollar terms, even as global GDP grew by 3.1% and 3.2%. When measured in terms of volume, trade is still growing faster than the world economy, but by a decreasing margin. Having soared from 40% of the world’s GDP in 1990 to a peak of 61% in 2011, trade has fallen back slightly to 60%, the same level as in 2008” (The Economist, 13 December 2014).
Peak Trade
Some economists think the slowdown in international trade growth is structural, and have accordingly accorded the term peak trade to describe this trend.
Major economies.
The US economy continued to strengthen with GDP growth of 2.4% in 2014 and unemployment rates under 6%. The European Union continued to feel the effects of deflation, unemployment exceeding 11%, and anemic economic growth. Japan introduced more fiscal stimulus to help prime economic growth. India and China both had economic growth of approximately 7.5% in 2014.
Rise of the US dollar.
The US dollar (USD) experienced a sharp appreciation against other currencies, particularly the Euro and the Japanese Yen. The USD rose to 1.19 Euro in January 2015, the highest in nine years. This will result in US exports becoming more expensive while European and Japanese exports will be less expensive. The rising USD may also have an impact on revenue collection for Customs administrations; depreciation of major currencies against the USD may improve Customs duty collection in these countries.
Oil prices plummet
The plunge in oil prices will have economic, fiscal, and geopolitical impacts. Countries that receive a substantial amount of Customs duties from oil imports may experience downward pressure on their overall revenue collection. Reduced oil prices will see a consequent reduction in transport costs, which may encourage trade. On the other hand, volatile oil prices have been identified as discouraging trade.
Oil exporters
may experience a decline in national income. Countries which consume a significant amount of oil may experience new opportunities for allocation of the ensuing savings previously spent on fuel. Decreased oil prices are harming the potential of new extraction techniques such as fracking (shale gas) that generally cost more than conventional oil production.
Trade Agreements
WTO Trade Facilitation Agreement (TFA).
With the recent adoption of the TFA’s Protocol of Amendment, the TFA is back on track. While implementation will likely take many years in developing countries, the process will positively impact donor funding for Customs reform and modernisation.
Free Trade Agreements (FTAs) or Regional Trade Agreements (RTAs).
FTAs as a whole continue to increase. For countries signing FTAs, this will impact the level of revenue collected. According to the WTO, “as of 8 January 2015, some 604 notifications of RTAs (counting goods, services and accessions separately) had been received by the GATT/WTO. Of these, 398 were in force. These WTO figures correspond to 446 physical RTAs (counting goods, services and accessions together), of which 259 are currently in force.” (WTO website, 2015).
There are currently two major RTAs being negotiated. The Transatlantic Trade and Investment Partnership (TTIP) is a proposed FTA between the European Union and the United States. The Trans-Pacific Partnership (TPP) is a proposed trade and investment agreement which currently counts Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam participating as negotiating partners.
Euroasian Economic Union (EEU).
The EEU, which succeeds the Eurasian Customs Union, became operational on 1 January 2015. The EEU Members are Russia, Kazakhstan, Belarus, and Armenia with Kyrgyzstan scheduled to join in May 2015. EEU Members have lifted some internal Customs barriers and harmonised some procedures. The agreement focuses on the free flow of capital, goods and services, and workforce throughout a common market with an estimated output of $2.4 trillion, comprising more than 170 million people.
Trade in Information Technology.
In late 2014, China and the US reached a deal which could lead to a proposed treaty on trade in information technology among a coalition of willing WTO Members (The Economist, 13 December 2014).
Tax revenue
Revenue Sharing.
The process in which one country collects the duties owed to another country will continue to have implications for Customs. In some regions, where Customs revenue still accounts for an important share of the national budget, this revenue sharing concern is one of the major obstacles to regional Customs integration.
Political, Social, and Environmental Influences
Security.
Due to acts of terrorism and violent extremism, several governments moved to increase data collection for security purposes, such as requiring the submission by airlines of API and PNR data.
Narcotics Smuggling.
The international trade in illegal narcotics continued. Several countries in Latin America are softening drug laws. Two US states (Oregon and Alaska) and one city (Washington, DC) joined Colorado and Washington State in introducing legalisation of recreational and medicinal marijuana. This trend is important for Customs given that marijuana is one the most significant drugs in terms of seizures.
Cross-border e-commerce.
Cross-border e-commerce is increasing at an astonishing rate around the world due to a combination of factors such as continuously advancing internet technology, economic development in developing countries, and expansion of express delivery services and mobility of labor force. In particular, increases in cross-border e-commerce in Asia are noticeable. Cross-border e-commerce accounts for 10 to 15 percent of total e-commerce volume, depending on the region. By 2025, Asia may account for some 40 percent of the cross-border volumes and Europe may account for about 25 percent, followed by North America at 20 percent. A dramatic increase in cross-border e-commerce impacts Customs administrations in terms of revenue collection, supply chain security, and allocation of Customs resources.
Open data and “democratic knowledge
The social demand on public sector transparency is increasing, including in the fields of taxation and trade. Some administrations have launched or are launching initiatives to share data and policy simulation engines with the general public. Some experts and policymakers (i.e. EU, UNCTAD, and the World Bank) are advocating for the exploration of firm-level data to support reflection on trade and Customs policies. The concept of “firm-level data” is also increasing. Customs administrations maintain crucial databases (ACS) related to international trade and will be asked to contribute.
Impact of Ebola.
To halt the spread of the virus, the countries most affected by the Ebola virus disease implemented quarantines in areas where risk of infection is high while neighboring countries imposed restrictions on the movement of people and goods, including border closures. These measures, in turn, have reduced internal and regional trade, transport, and tourism. In particular, it is anticipated that there has been great damage to informal trade, which experts estimate ranges from 20 to 75 percent of GDP for West African countries.
Wildlife smuggling.
Many endangered species, such as elephants, rhinos, tigers, and jaguars, face extinction in the near future due to the illegal trade in wildlife.
Tobacco Control
Customs administrations and other revenue agencies continued to collect billions of dollars annually in taxes on tobacco products which are used to fund many government services. Evidence shows that tobacco taxation is a core tool in reducing the prevalence of smoking, and thus reducing tobacco-related diseases such as cancer, heart disease, stroke, bronchitis and emphysema. Approximately 6 million people were killed globally in 2014 by cigarette related diseases.
A growing number of countries (Australia, Ireland, UK, and France) have adopted plain (standardized) packaging of cigarettes. Preliminary data is being reported from Australia since the passage of its plain packaging law in December 2012. The Australian Bureau of Statistics reported that the December 2014 quarter showed a 2.9% decrease in tobacco consumption and a 12.2% reduction from December 2013 to December 2014. Australian Customs and Border Protection reported in its most recent annual report (2013-2014) decreases from 2012-2013 to 2013-2014 in several illicit cigarette trade indicators, including the level of tobacco seized (down from 183 to 178 tonnes); the number of cigarettes seized (down from 200 to 147 million of sticks); and duty evaded (down from 151 to 139 million Australian dollars).
Climate Change.
2014 was the warmest year on record. 9 out of the 10 warmest years ever came in the last decade. Atmospheric carbon dioxide (CO2) concentrations, which were 280 parts per million (ppm) in the pre-industrial era, are now 400 ppm. Extreme weather events due to human induced climate change are increasing, necessitating fast Customs clearance of natural disaster relief goods. A recent agreement between China and the United States commits for the first time both countries to emission reductions.
Administrative Influences
Corruption.
Customs corruption continues to be a problem as evidenced by NGO and media reports. The G20 has placed corruption on its agenda for discussion. The WCO continues to promote performance measurement contracts (PMC) as a tangible measure for reducing corruption.
Organizational risks to Customs.
Several Customs administrations and tax authorities are merging into revenue authorities in Eastern Europe. This follows the major wave of the establishment of revenue authorities in Africa in the 1980s and 1990s following advocacy by the IMF. Small countries frequently merge two fiscal authorities in order to save administrative costs.
Source : World Customs Organization
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