Article 7.4: Risk Management
What is covered?
Article 7.4 of the TFA mandates WTO Members to undertake the arrangement and implementation of a risk-based management system for carrying out customs controls on all imports, exports and transit transactions.
This provision hence requires Members to ensure that customs administrations handle the nature of risks and compliance through a systematic application of risk management principles in trade transactions, so as to ease the process of releasing goods while at the same time ensuring the safety of the released merchandise.
However, the mandatory character of this Measure is qualified by the use of the expression “to the extent possible”, which induces a certain degree of flexibility for Members when complying with the provision. Therefore, while a Member shall be able to demonstrate that it has endeavoured to put in place Risk Management System but faced difficulties, the Member may implement the measure to the extent possible in terms of scope and/or geographical coverage on the basis of its resources and capacity to do so.
Ensuring a non-discriminatory approach to risk management
This Measure requires all Members to ensure that a risk management system is adopted in a way that does not allow unjustifiable discretion, arbitrariness or restrictions to international trade. This provision thus seeks to limit discretionary behaviour of customs officials with regards to risk assessment, as in many countries they have been found to follow an unaccountable system of consignments control and inspection, whereby the officer enjoyed full discretion to exempt a consignment for further investigation in a totally ad-hoc and arbitrary manner.
Treatment of high-risk and low-risk consignments
Another significant provision entailed by Article 7.4, that Members shall concentrate customs controls, and to the extent possible other relevant border controls, on high-risk consignments, while facilitating the release of low-risk ones as a means to quicken flows of international trade and reduce the costs of doing business. Therefore, the use of risk-based selectivity – according to a red/green channel criterion – will allow customs to converge their resources towards the high-risk shipments while allowing to expedite the release of goods which present low risk. In particular, through a systematic combination of timely assessment of collected customs information and intelligence using risk-profiling methods, customs authorities are expected to allow a faster release of goods “labeled” under the green channel, whereas they may provide for mandatory physical inspections of red channel-consignments which present high degree of risk and threat.
The Measure also specifies that – to the extent possible – WTO Members are called to apply the same high/low risk approach to other relevant border controls, so as to expedite the whole customs clearance and release process. Such comprehensive effort, although mitigated by the qualifying words “to the extent possible”, seeks to combine the need to make procedures swifter by consistent inter-agency consultations.
Finally, in this subparagraph there is also the possibility for Member countries to decide in a discretionary manner to inspect consignments on a random basis as part of their risk management systems. Therefore, in keeping up with the best customs practices, customs authorities of a country have the discretion to – may – apply random customs controls to any inspection should they wish to act more cautiously in occasional circumstances.
Lastly, the Measure requires WTO Members to base their customs risk management systems on an evaluation of the risk determined by a robust set of multi-variable selectivity criterions to operate the risk assessment and the eventual arrangement of inspections as safe and comprehensive as possible. Although not mandatorily disposing so, Article 7.4.4 suggests that such criteria may – among others – include:
- The Harmonized System code;
- Goods’ nature and description;
- Country of origin;
- Country from which the goods are shipped;
- Value of the goods;
- Compliance record of traders;
- Type of means of transport.
This conclusive part of Article 7.4 hence offers guidance as to which items the risk management system should concretely comprehend and what are the key reference areas of focus for identifying risky consignments.
What is not covered?
Although a modern, efficient and reliable risk management system is undoubtedly realized and enhanced through the extensive use of IT tools, the Measure does not require Members to put in place an automated customs risk-processing system. For the purpose of this Measure, WTO Members are also not necessarily required to establish a separate functional unit with a dedicated trained staff to administer the entire risk management process.
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