A Single Window Customs Clearance System

Long before farm-raised salmon in Patagonian waters are processed, packaged and shipped to markets across the globe, companies must first comply with a myriad of logistical requirements, including approval by Chile’s fishing regulator Sernapesca, customs certification and an out of the way trip to the Port of Valparaiso for embarkation.

The sheer volume of paperwork and distances involved make the process of exporting goods unnecessarily burdensome, particularly for an industry that exports 95% of its production, says Carlos Odebret, CEO of SalmonChile, the country’s largest salmon trade organization.  

“We’re an industry dedicated to looking beyond our borders, and so the role of customs is tremendously important,” he said.

Chile sees itself as a business leader and model of economic stability in the region, but this image is belied by unwieldy customs procedures. Development agencies are fond of using Chile as a benchmark in Latin America for trade facilitation initiatives. And yet, according to a recent World Bank report, Chile’s clearance procedures “remain time consuming and cumbersome”.

Overall, Chile ranks 14th in the Global Enabling Trade Index 2012, up four positions from 2010 and top in the region. But the report says it takes 21 days to export goods from the country versus an average 18 days in Latin America and the Caribbean, 10.9 days in the OECD, and just six days in the United States.

According to World Bank estimates, a day’s delay reduces exports by around 1%. Therefore, given that Chile’s goods exports reached US$80.6 billion in 2011, every additional day of delay entails costs of some US$806 million. Halving the clearance time could, in theory, save the country around US$8 billion annually.

The report notes that, in spite of these problems, Chile has made significant strides toward modernizing its customs regime, including efficient procedures and little corruption, but clearly there is more to be done.

Jose Raúl Perales, executive director of the Association of American Chambers of Commerce in Latin America (AACCLA), says Chile stands out among its peers in terms of its customs management and port facilities. 

As part of the Pathways to Prosperity in the Americas initiative launched by the United States last year, member countries have been divided into subgroups including one concerned with promoting trade facilitation that is co-chaired by Chile and Costa Rica.

Chile has also achieved an advanced system of customs management aimed at simplifying procedures. In fact, Chile has reduced tariffs on almost all its imports and is considering a bill that would gradually eliminate the general import duty by 2015, which would be a tremendous incentive for trade.

Yet, despite these advances, considerable challenges remain. When compared to the developed economies of the OECD, Chile ranks near the bottom in terms of the expediency of moving merchandise. And there are still difficulties and limitations with the digitalization of procedures, as well as occasionally poor coordination between the various ministries, private agencies and the Armed Forces, says Perales.

“You may have a situation where you’re bringing in a good that appears on the Armed Forces control list,” Perales explained, “and they can detain that good without being fully cognizant of the rules and regulations in the Free Trade Agreement.” 

Single window system

To avoid these types of messy entanglements and reduce red tape, Chile is working on a single window system, known as the Integrated Trade System (Sistema Integrado de Comercio Exterior, or SICEX), which is designed to halve the average number of days required to clear customs.

The idea behind this, explained Alejandra Arriaza, technical manager at Chile’s National Customs Service in Valparaiso, is to provide government agencies, exporters and importers with an online process for coordinating the movement of goods in and out of the country. 

Chile has been working on an electronic trade facilitation system since 2004. It integrated some customs agencies in 2006 and created a website to provide information for exporters in 2008, but the government of President Sebastián Piñera has made the single window system a priority.

A presidential advisory committee was created to study this in November 2010 and, a year later, an international bidding process was launched for the design and implementation of SICEX. The winning bidder of the contract, announced in March this year, was a consortium comprised of the Spanish consulting firm Everis and eTrade services provider CrimsonLogic Panama.

In its first stage, the new system will incorporate 18 different government agencies by the end of this year, capping the export clearance procedure at 14 days. The second phase, scheduled to be up and running by mid-2013, will incorporate importers, and in 2014, the system will attempt to bring transport and logistics companies into the fold, a feat that Arriza says would reduce clearance times by several more days. 

“The absence of a unified system is a problem because it involves physically going to several different places before a product can be exported or imported,” said Paulina Nazal, head of Market Access at the Foreign Ministry’s Department of International Economic Affairs (Direcon). 

“Exporters and importers tell us all the time that if there was an integrated system where they could get all the necessary certificates in one place, it would make their job much easier.”

Seasoned customs broker Alan Smith, who heads the National Association of Customs Brokers (ANAGENA), also believes the single window system will improve procedures that he says can, at times and for some specific products, be a bureaucratic nightmare.

However, he points out that the SICEX system, as it is currently designed, does not incorporate private companies such as freight forwarders, shipping lines, port terminals, customs warehouses, insurance surveyors and local trucking firms. Even if these companies were included in the system at a later date, he is dubious that they can all be successfully brought under the umbrella of one system. 

“The problem with all these private actors in the logistics chain is that each has its own procedures and different costs for services,” Smith said. “There is no authority that can regulate this aspect of services, so we don’t think this will change easily.” 

But there are other ways to speed up the customs process. One feature of the current import system allows for advance clearance up to a week before arriving at port, shaving potentially days off the time it takes to clear customs. Given such time-saving devices, Smith disputes that clearance procedures average anywhere near 21 days, as the World Bank indicates.

“We estimate the number to be somewhere between 10 and 14 days,” he said. Around 80% of all cargo has left the pier within 48 hours of arrival, while another 20% – usually agricultural products – requires additional inspection, but the average time for that cargo to clear is between 3 to 4 days.

In general, exporters of perishable items have few complaints about customs procedures, which include inspection by the Agriculture and Livestock Service (SAG). The paper trail occasionally causes “some minor delays when demand is high,” according to Ronald Bown, president of the Chilean Association of Fruit Exporters (ASOEX), but nothing that can’t be fixed with a little tweaking.

In reality, however, there are other obstacles that companies face in achieving smoother import and export procedures, which a single window can’t fix.

Infrastructure bottleneck

The challenges faced by fruit exporters are fairly representative of the country’s infrastructure limitations. The Ministry of Agriculture recently reported that more than 90% of all produce is exported from the ports of San Antonio and Valparaiso. In fact, around 70% of all exports and imports move through these two ports, creating a bottleneck and occasional issues with the movement of merchandise.

While there have been efforts to develop ports in Iquique and Punta Arenas, the fact remains that Chile has a complicated geography.

Beyond this, however, Chile’s institutions need updating, says AACCLA’s Perales.

Over the past decade, while the country was busily signing free trade agreements, notably with the United States in 2003, modernizing its customs procedures and port infrastructure wasn’t considered a necessary part of negotiations because there was already a very good system in place – imports had been electronically processed since 1997 and exports followed shortly after in 2000. Since then, the US has penned free trade agreements with Peru and Colombia as well as Central American countries, all of which contain commitments addressing trade facilitation.  

“One of the things Chile doesn’t have with the United States that countries in Central America do is a chapter on capacities to modernize customs and allow for the faster movement of goods,” noted Perales. “Part of that was because Chile came first, but part of it was the Chileans had already done a lot of the leg work before the agreement was in place, and in the minds of US and Chilean negotiators Chile did not have a need to develop its institutions.”

Nevertheless, export-based industries have high hopes that a single window system will solve many of their problems. The salmon industry was developed almost entirely for export with nearly 400,000 tons of frozen and fresh salmon sent annually to markets in Japan, the European Union, Brazil and the United States. Given the diversity of its markets, SalmonChile’s Odebret says the incorporation of customs services and technology under a unified system is the best way to simplify the export process.

“We expect this will considerably reduce the amount of paperwork required to export,” Odebret said. “It’s inconceivable that fresh salmon could take 12 days to export, if it did it wouldn’t be fresh.”

Aaron Nelson is a freelance journalist based in Santiago