Revenue maximisation versus trade facilitation: The contribution of automated risk management

Abstract

Customs administrations in developing economies are most frequently confronted by two seemingly mutually exclusive objectives: revenue maximisation and trade facilitation. The goal of maximising revenue most often implies a strengthening of customs controls, while trade facilitation suggests a  more rapid release of goods. This paper demonstrates that, by using targeting techniques based on the calculation of a score derived from results of previous controls, these two objectives can be reconciled. The simulations presented are formulated on one year of anonymous customs declarations and modelled accordingly. The results show that: (1) the volume of control-oriented declarations can be drastically reduced by only slightly impacting the results with regard to offences detected: 80 per cent of offences could have been detected by focusing on just 30 per cent of the declarations that had been identified as high risk (i.e. with the highest score); and (2) simulations suggest that the use of this type of targeting techniques would have drastically increased (up to 100 per cent) the volume of offences recorded by targeting declarations that did not undergo a physical examination in place of targeted declarations without a conclusive result.