A recent operation where counterfeit goods were netted and contraband goods impounded in Mombasa point to a problem that must be soberly dealt with right from the roots.
We need to ask ourselves where the rain began beating us. We need to quickly interrogate the system and the regulators therein, before any import is done.
We need to understand the role of all players in the supply chain, from the importer to the clearing agents and government agencies.
There are three major players in the chain; the first one is the importer, who does the purchase from the country of exportation. Their role and objective is to meet demand and make profit.
They will normally engage a clearing agent who will advice and generate the requisite documentation for smooth entry of the goods.
Role of customs
The role of the clearing agent is consultative and he will be paid agency fee normally at the tail end of the process.
In between the importer and his agent is the regulator – Kenya Revenue Authority.
Curiously the customs department only releases goods after all other agencies have done their part, the role of customs and border control is to facilitate trade, ensure security and finally secure taxes.
Back to the core issue, what is illicit trade? Illicit trade encompass the following, counterfeit cargo that kill the local industry, contraband cargo that not only compromise security but is also dangerous for local use, substandard cargo that can be catastrophic and concealment, undervaluation in the customs procedures that compromise tax collection.
WTO rule of evaluation
The trigger to illicit trade is a loophole in the rules of engagement. If the customs department can stick to the rules of the game in the World Trade Organisation valuation methods by insisting on demonstrable transaction value where customs value arrived at within the WTO rule of valuation rather than the now famous bench mark of ‘between’.
The trader therefore comes up with ways to bypass the harsh payment demand by purchasing cheap substandard goods to take care of the new levies that do not give room for tax collection against the purchase power.
The forced values in the name of benchmarks only aggravate an already bad situation coupled with corruption to allow for the lower benchmark since the customs officer has an option of between rather than demonstrable transaction value.
It therefore becomes cheaper to bring in substandard cargo where duty payable remains same irrespective of purchasing power.
The other government agencies are left to play along since it is obvious that the power to compromise is in how much rather than compliance. The rot in the system is encouraged by the fact that the consumer at the tail end is left unprotected due to the belief that all agencies do what is expected of them as should be the case.
Classification of goods and services
To stop the vice, all the players in the chain must begin to do what is right. Customs officers must revert to a clear rule of engagement as the best practice. The customs agents should be trained on the technical aspects of classifications of goods and tariff.
On the other hand, importers must embrace honest sharing of information and purchase documents like it is envisaged in the WTO rules of engagement.
The intention and sprit of government agencies should be to reduce the vise rather than to punish the culprits. Giving targets based on the number of culprits or goods apprehended as an appraisal to regulators is only acting to encourage rather than deter illicit trade.
A case in point is when a department of KRA is appraised on revenue raised on offenses rather than companies or importers made to comply with the law.
This only makes the department more corrupt since they then agree on cost sharing with the culprits and encourage for more none compliance at the expense of trade and compliance.
Meaningful engagement
As players in the logistics and supply chain we need to bring to fore the weakness in the system to for us to fight illicit trade. It is time the walls between the private sector and the government agencies are brought down for meaningful engagement.
There can be no progress in the fight against illicit trade if fair competition is not encouraged.
It is time cargo owners, customs agents and regulators came up with ways to end illicit trade.
The public should be encouraged to shun products that are suspect and consequently work with enforcers to arrest distributors.
The road to realizing an illicit trade free zone is by drawing a map where all players fit with equal measure of measurable responsibility in the process of importation.
