（For the 13th WCO Asia-pacific Regional Heads of Customs Administrations Conference, Seoul, Kore）
By Mr. ZHU Gaozhang
Honorable Mr. Chairperson,
Honorable Secretary General, Mr. Mikuriya
Honorable Council Chairman, Mr. Martin Dun
Distinguished commissioners and DGs,
Ladies and Gentlemen,
Good morning.
It is an honor and great pleasure for me to be here to share with you my understanding of risk management, which is now widely considered as one of the cornerstones of the WCO’s “Customs in the 21
st Century” strategy. And China customs has also used this risk management philosophy as the key principle of its second phase strategy 2004-2010, and widely applied in all customs operations. The general theory for risk management is already there. The key is to establish a system that enables customs to allocate resources effectively and efficiently and focus on areas of highest risk. However, when it comes to actual understanding and application of risk management in customs environment, the scenario turns to be diversified. Some may think risk management is expensive and costly. Some think it is complicated to operate and manage in practice. Some would rather take it only as a theory or philosophy, and some just use it as a mere technical tool. All these reflect where we are in the work of risk management. In the next few minutes, I would like to focus on why and how to implement risk management, and communicate the vision of what I believe we need to do.
I would start with Today’s Ever-demanding Context As every one knows, Customs is one of the oldest government agencies that has long been the facilitator and guard of a nation’s trade and borders. However, when the world enters the 21
st century, the radically changing global context has imposed tremendous pressure on customs and made customs enforcement more and more complex and complicated. The international trade supply chain becomes more vulnerable to such increasing problems as drugs, terrorist attacks, commercial frauds, counterfeiting and illicit trafficking of nuclear and radioactive materials，etc. On the one hand, governments and traders worldwide demand that customs operate to their maximum to facilitate trade and contribute to the national competitiveness; but on the other hand, customs administrations have to strike as their duties require a balance between facilitation and security. What makes the life even harder for customs are the emerging issues including the international financial crisis, trade protectionism, decrease of customs revenue especially in developing countries, as well as global warming and environmental deterioration, which require customs administrations to play a greater and indispensable role in international trade and security.
How should customs administrations respond to those challenges and demands? Is 100% scanning or inspection the best solution? The answer is obviously clear. Then we have to find a way out, in another word why we need Risk Management.
Risks and even threats, whether we like them or not, exist in all customs procedures. They could be unpredictable, changeable and hard to identify. They are small in number, but dangerous and extremely harmful to the international community and trade. But with growing workloads and expectations as well as their very limited resources and tight budget, Customs administrations are no longer able to look after everything in all fields of its operations. What they are supposed to do is to find a best possible solution to ensure the highest level of customs enforcement and security. Let’s presume that goods in risk represent only 5% of the whole trade, while the rest 95% is thought to be regular and safe. Should we conduct 100% inspection or scanning or should we concentrate our limited resources on identifying the 5%? The answer is self-evident. Take Shanghai port of China for example. There are more than 10,000 containers bound for the US everyday. Can we imagine how many x-ray scanners, how many expert image analysts, and how many image processing equipments we need to conduct 100% scanning? From the above we can conclude that only by implementing risk management to reduce the risk to the minimum with the resources available can we achieve maximum effective enforcement, thus facilitation and security.
Therefore, I strongly believe risk management is the best solution and is the critical pillar and imperative for customs to fulfill its missions and roles in today’s ever-demanding context. This is even more important in the current economic climate when the business is more cautious about the costs of customs clearance, and customs constantly experience the lack of funding and resources.
Then, what approaches should we adopt in the present customs context. Personally I think,
Firstly the approaches should be appropriate and relevant.Proper risk management requires the assessment of a country’s individual risk profile and adoption of security measures appropriate to that profile. In terms of risk management, each country, big or small, developing or developed, is faced with different kinds of risks and has its own concerns, and different concerns result in different risk management approaches. There are no best and one-fits-all risk management approaches or models. Those which can help identify and eliminate risks are appropriate ones. Any models or standards which can not lead to the solution of problems can only be burdens for customs and world trade.
Secondly，the approaches should be compliance-orientedGoods do not move and commit customs offenses or crimes themselves. It is the clients that do. Therefore, customs should focus on clients, help them, educate them, and even force them to comply. Their compliance is a prerequisite of facilitation and security. In another word, 50% compliance means 50% facilitation, and 100% compliance leads to 100% facilitation. Therefore, different level of compliance enjoys different level of facilitation. As a result, compliance serves as the pivot of balance between security and facilitation, which is also what risk management shall focus on.
Thirdly, the approaches should be affordable.Risk Management is supported by comprehensive intelligence and information technologies and infrastructures. It may also involve re-engineering and streamlining of customs operations and management, which indeed needs not just visions and blueprints, but sufficient funds and resources. In this sense, especially considering the financial situation of the developing and less developed countries, we need a risk management that is affordable, cost-effective and easy-to-access. Without lowering the cost of the infrastructures, without properly sharing the key technologies, risk management will not be widely used as a beneficial management tool, but conversely, may become a burden that is hard to cope with.
Fourthly, the approaches should be Layered.We all know that there are two layers of risk management, one is operational and the other is strategic. Over the years, I believe, many countries, including China, have mainly focused on the operational level to mitigate risks at frontline. However, insufficient awareness of and attention to the risks still exist in modern customs management, such as policy changes, decision-making, and financial and human resources etc. When the international customs community is working to fulfill the tasks of 21
st Century Customs Strategy, it is much needed to adopt and undertake the layered risk management approach, of which the strategic aspects or risk management may enable us to be more visionary and responsive.
Fifthly, the approaches should be Partnership-based. The C21 emphasizes intelligence-driven risk management as part of major building blocks in its work plan. Effective intelligence-driven risk management should be that of sharing of information and working in unity among partners across government agencies, international intelligence and law enforcement agencies and the business sector. Therefore, partnership, in another word strong cooperation, underpins the informative, smart and efficient risk management system.
The WCO has done much in the past in promoting risk management. But as the center of world customs expertise, it is supposed to have a more important role to play in its capacity in assisting its members to develop and implement risk management.
It can, by making full use of its expertise, develop a clear, practical guidance or framework on how to understand, develop and implement risk management, deliver as many as possible recommended cases and best practices, and enable the Members to speak the same language, have the shared understanding, and use the common methodology for risk management. The ongoing efforts of the WCO in drafting a risk management Compendium is a good example.
It may make every effort possible to provide members with necessary resources and tailor-made solutions. The WCO should, based on its capacity building efforts, ensure that risk management is a key component of its capacity building program delivery, conduct comprehensive and needs-based diagnosis of the Members’ risk management practices, and solicit more funding and better allocate resources in this field.
It should continue to further strengthen its international partnership. Compared with its members, the WCO has its advantage in terms of building strong partnership on the international arena. The WCO may work closely with individual national government authorities, business sector and key international organizations including Interpol, the WTO, World Bank etc., promote the WCO and customs risk management concepts, instruments and tools, and improve information-sharing and best practices.
Ladies and Gentlemen,
Risk management, to my understanding, is simply to input less to achieve more. It is the best solution to the challenges and problems customs administrations all over the world are faced with in this ever-demanding international context. Well, we have done in the past, but we have more to do in the future. I am sure that by managing the risk we will and can successfully manage the future, and let us join our hands to together make the customs life and future a better one.
Thank you.