ANNEX IVC. Draft Papers Received

c. Governance Case Study of Jordanian Customs

Governance Knowledge Sharing Program (GKSP)

Policy Initiatives and Reforms in the MENA Region

Review Workshop

Governance Case Study of Jordanian Customs

Draft Paper By

Riad Al Khouri

23-24 February 2004Beirut, Lebanon

The World Bank

ACKNOWLEDGEMENT

Whether for information, ideas, or both, I am grateful to the many people who helped me with this study. Most requested anonymity; others are cited but are in no way guilty of any errors or omissions in the study, for which I am entirely responsible.

EXECUTIVE SUMMARY [to be added]

CONTENTS

I. BACKGROUND

A. IntroductionB. The Jordanian economic crisis of the late 1980s

II. STAKEHOLDERS

III. IMPLEMENTATION OF REFORM

A. Reform of Jordanian Customs

1. Temporary Admission and Duty Drawback2. Customs on the Internet3. Intellectual Property Rights4. Automated System for Customs Data and Management5. The Single Administrative Document6. The Aqaba Special Economic Zone7. Standards and Metrology

B. Tariff and Fiscal Reform

IV. RESULTS OF THE REFORM

V. CONCLUSIONS AND LESSONS

BIBLIOGRAPHY

ENDNOTES

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I. BACKGROUND

A. Introduction

This case study of Customs reform in Jordan is about a partly governance-related initiative that has about a decade and a half of history. The reform of Customs in Jordan was first proposed seriously in the late 1980s in the wake of the major financial crisis that swept the country in 1988-9. The problem precipitating the reform was that in the new economic atmosphere in Jordan after that crisis, a Customs system that served mainly to enrich the state and ignore the wishes of the private sector was seen as inconsistent with what Jordanian business needed to become more efficient and form the basis for sustainable growth.

Since its inception as a state in the 1920s, Jordan has suffered from chronic trade deficits and a narrow export base. This has partly been due to the scarcity of natural resources, but a long-term crisis in agriculture, a small manufacturing sector, and the restrictive polices of the government, among other factors, also help to explain the country's trade imbalance. Jordan had thus relied on aid and remittances from abroad to support the balance of payments. However, after the drop in aid which began in the 1980s and the fall in remittances later in the decade, there was a realization that, for a small country such as Jordan, integration into the world market could offer the best prospect to overcome the limited scale of the domestic economy and help increase productivity through specialization.

Before the 1990s, trade policy was traditionally mercantilist, and the government depended on a wide range of high tariffs for revenue. Reforms seeking to better integrate Jordan into the world economy were then launched, and trade liberalization gained momentum in the mid- and late 1990s as tariff and non-tariff trade barriers were lowered. With the ascent to the throne of King Abdullah II in 1999, economic reforms and structural adjustment have accelerated, and greater progress has been achieved in modernizing the state and the economy through deregulation.

In the context of globalization in general, there is thus an attempt to apply polices to assist Jordanian producers who cannot be expected to succeed without a more open enabling environment. Overall tariff levels, the number of rates, and the degree of tariff differential afforded to different products and industries have been reduced to attempt to create an incentive regime conducive to outward-oriented growth.

In the area of trade reform, the government has taken a number of measures to reduce the amounts and variation in tariff rates, to simplify Customs procedures, and to abolish quantitative restriction for imports. Given the always-difficult budgetary situation, trade liberalization is being complemented by taxes applied to imports and domestically produced goods. The government intends to introduce further trade liberalization to achieve the objectives of trade reform.

The government has also removed import-licensing requirements for all products other than those with national security, health, safety, environmental, or religious dimensions. Customs Law has streamlined import valuation and Customs clearing procedures consistent with World Trade Organization (WTO) requirements. Accession to the WTO in 2000 was the culmination of the government's efforts to adopt various trade-related legislative reforms aimed at making its trade regulations compatible with WTO requirements. The government also committed itself to phase out bilateral trade protocols with many Arab and non-Arab countries that are inconsistent with WTO.

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The explicit objectives intended by Customs reform were to make the Customs Department more efficient in the eyes of the private sector after decades of bad governance practices that included excessive bureaucracy, lack of transparency, and corruption. In parallel, tariff rates were cut in Jordan in the 90s, a factor that had implications for reform of the Customs Department and so will also be discussed below.

B. The Jordanian economic crisis of the late 1980s

The outlook for the Jordanian economy changed drastically during the 1980s. Traditional sources of foreign exchange for the kingdom fell sharply after the drop in the price of oil in the mid-80s and the resulting regional economic slump. The slowdown in the economies of Gulf countries had severe repercussions on the Jordanian economy, which suffered from a substantial fall in aid and workers’ remittances, as well as in exports to the six Gulf Co-operation Council (GCC) economies.

By 1988, due to these developments, growth in Jordan slipped; and deficits in the current account, balance of payments, and budget widened. In 1989, net foreign reserves had collapsed to cover only 15 days worth of imports, and the Jordan dinar (JD) was devalued by about 45%.i

While borrowing and a drawdown of official reserves helped to delay adjustments in trade policy through mid-1988, critical shortages of foreign exchange left the country with no choice but to embark on a new foreign trade strategy. Since then, Jordan has been engaged in carrying out an economic adjustment and reform program. This has led to, among other things, important trade liberalization and changes in the fiscal system, including a significant evolution of the country’s Customs regime.

Until the late 1980s, Jordan relied heavily on neighboring Arab markets (in particular Iraq and GCC states) for most exports of agricultural produce and light manufactured goods. In 1988 those markets were the destination for 52% of total Jordanian exports. Given oil price trends and import substitution policies in those countries, the prospect for growth there was poor. ii At the same time, the contraction in net workers remittances, which peaked in 1984 at $984 million and fell to approximately $750 million in each of 1987 and 1988, meant that a new focus for Jordan’s external sector was required.

Jordan was correctly seen at the time as needing to “move towards a more outward oriented trade strategy to rectify the current imbalance in its foreign exchange position.” iii One problem then however was that the Jordanian Customs administration did not meet the demands of a range of local and foreign stakeholders who aspired to a more balanced external sector with stronger and more competitive exports. The reasons for that included the underdeveloped organizational structure of the administration and a substantial deficit in the qualifications of the Department’s employees. Customs procedures were very time-consuming and required a large number of staff to implement. The effects that evolved out of this problem included bureaucratic, non-tariff trade obstacles; an increasing susceptibility to corruption with negative consequences for trade and industry, e.g., through the lack of realization of domestic and foreign capital projects; losses of income; and unfair treatment of payment of Customs tariffs, because of a flawed collection system.

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II. STAKEHOLDERS

Since the second half of 1988, when a precarious debt position forced Jordan to seek assistance from the International Monetary Fund (IMF), the country has been engaged in carrying out an economic adjustment and reform program in collaboration with various international organizations and foreign governments. As part of its April 1989 Stand-by Arrangement with the IMF, Jordan adopted a medium-term, growth-oriented, macro-economic adjustment strategy to address structural weaknesses in the budget and the balance of payments and to facilitate the achievement of sustainable growth. Additional funding came from the World Bank in the form of a $150 million policy adjustment loan, and a similar amount from Japan.

Thus, from the end of the 1980s, the country’s main drivers of economic reform in general were foreign governments and lending agencies, though the demand for change was partly from the local private sector. Despite the later having an interest in such reform, it was mainly championed by outside actors, who created and sustained the momentum for it. Those who opposed reform were largely elements of the state bureaucracy.

The interplay of powerful outside forces allied to upper echelons of the regime pushing reform, with some bureaucrats and grass roots opposition against change affected the design of the reform, tending to make it Western-oriented in spirit and presentation. In any case, the reform was top-down, initiated by a government genuinely wishing to address a crisis by reforming governance, and only secondarily reacting to pressures from the private sector.

On the other hand, various foreign stakeholders with an interest in Jordan’s stability wanted these reforms, and the support at high levels in Jordan that they were able to marshal was considerable, especially under King Abdullah. There was thus no serious need or effort to build consensus or a need to compromise to be able to implement Customs reform, which nevertheless was implemented gradually in order to placate elements of the bureaucracy. In sum, the legitimacy of the reform and the power of the reformers to push it through were not in question, and the political and institutional processes by which affected groups influenced decisions about the reform were not significant or problematic.

An economic reform program supervised by the IMF and the World Bank remains in force in Jordan, with the main goal being sustainable growth. Measures have thus been adopted to reform the fiscal system, more specifically to implement tariff and tax reforms, and to dismantle trade barriers. At the same time, Jordan's application and eventual membership in the WTO led to and continue to result in measures assuring a more liberal and open foreign trade regime.

The constellation of stakeholders that proposed reform in the external sector was largely made up of foreign bilateral and multilateral aid and lending agencies, spearheaded by the United States Agency for International Development (USAID). In particular, the agency in late 1988 commissioned US consultants to examine details of procedures in Jordanian Customs as a first step to recommending changes there. iv The consultants, reporting to an interministerial group working on simplifying import and export procedures, helped to identify a number of problems.

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That group included representatives from among other bodies, the Ministry of Industry and Trade (MoIT) and the Ministry of Finance (MoF). The MoIT is concerned with promoting exports as an engine of development. MoIT is also involved in enforcing import regulations and oversees activities in the private sector at large. The MoF, under which the Customs Department operates, is concerned with import taxes and their effect on public revenue on the one hand, and on freedom of markets on the other.

The report’s findings pointed to serious problems in Jordanian Customs, including excessive numbers of procedures (e.g. import and export license requirements, too many signatures for Customs clearance, overly frequent sampling for standards checking), distrust among importers and Customs, leading to upward revisions in Customs valuation for some 90% of goods imports, and ineffective use of duty-drawback import procedures to promote exports. To complicate these problems, Customs personnel and facilities were concentrated in Amman, while most goods entered the country via Aqaba, Jordan’s only seaport. All of these problems added to the transactions costs of importing and exporting and thus impeded development of competitive exports.

Based on this research, USAID’s Private Services Development (PSD) project began in 1989 to tackle the problems of Customs. This was done through a Consultative Group (CG) methodology, which included the setting up of an informal entity bringing together representatives of Jordanian stakeholders concerned with Jordanian trade issues in general and Customs in particular. v Those participating in the CG included members of Jordan’s Chambers of Commerce and the Amman Chamber of Industry, as well as representatives of the public sector.

Customs was seen by many in the CG as crucial in any attempt to begin a process of change in Jordan's economy and policies. It was decided to start dealing with this issue by collecting a wide sample of "horror stories" from exporters and other businesses involved with the Customs Department and to present a selection of typical cases to the Prime Minister in support of suggested measures to deal with their problems.

Such an approach was feasible because in the late 1980s, Customs procedures overall still represented a bureaucratic nightmare. The most vociferous complaint of the private sector in that era related to excessive suspicion on the part of Customs purposes of calculating duty.

It was felt that such “horror stories” could induce the Prime Minister to take action to help deal with Customs. Otherwise, the CG secretariat noted, “the problems of exporters with Customs were so difficult to handle that directives emanating from sources other than the Prime Ministry and unsupported by widespread lobbying and pressure were felt to be inadequate by themselves in confronting the bureaucracy and others with a vested interest in the present system.”

At the same time, the CG in early 1990 decide to tackle selected issues that were not confrontational, i.e. not "anti-Customs" or "pro-business" and were capable of being handled relatively easily and quickly to help maintain the momentum of CG work. The issues chosen were the relatively unsatisfactory state of clearing agents’ work in Customs, as well as the bank guarantees imposed by the authorities on exporters.vi

The CG felt that this would probably be a difficult task. The subject involves many aspects of trade and production in the country, some of them directly related to exports and also linked to

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the government's ability to raise revenue locally. Therefore, the matter is extremely sensitive and was initially approached with caution. The fiscal situation in the country is such that a cut in revenue could not be justified to the government without an overriding advantage to be gained elsewhere.vii

The matter of Customs was thus approached within the context of long-term change and a fresh approach to economic problems. The revenue aspects of Customs and tariffs were very important in Jordan; and it was realized in the CG that it would take a great deal of effort to make changes in this field.

The CG decided to look into the general question of procedures in government departments impinging directly or indirectly on exports. Obviously, the whole matter of government procedures (Customs or otherwise) was and remains an important issue facing businesses in general and exporters in particular, and the CG felt that it should be addressed in the proper context.

The work of the CG fell into USAID/Jordan's strategy to help alleviate serious balance of payments problems through policy dialog and by assisting private sector manufacturing, agribusiness, and service industries to become the new engines of growth in the Jordanian economy. Economic developments in Jordan in the late 1980s confirmed the appropriateness of the shift in programming to the private sector, and USAID/Jordan put in place a comprehensive set of projects and activities, including PSD, to assist the private sector.

These programs were well received by the private sector and were increasingly gaining the acceptance and endorsement of government officials before the outbreak of the Kuwait crisis in August 1990 brought this activity to a standstill. Prior to that, PSD had focused on the achievement of a policy framework conducive to private sector growth, and improving the production and marketing capabilities of Jordanian enterprises: The work conformed to the Agency's trade development policy, which was designed to encourage countries like Jordan “to utilize international trade as a key instrument in the process of achieving broad based, sustainable economic growth, and place a greater reliance on complementary domestic competitive markets that support more open trade policies.”viii

Several other aid and lending institutions were also active in this regard in Jordan in the late 1980s, chiefly the World Bank and German Agency for Technical Assistance (GTZ), Germany’s official aid implementation organization

- The World Bank approved in 1989 a $150 million Industry, Trade-and Public Policy Adjustment Loan that will support the country's structural adjustment program. The loan included $1.8 million for technical assistance for industry and trade, and required that Jordan undertake policy reforms to create a more uniform, non-discretionary set of incentives across different sectors in the economy. These reforms included rationalizing the tariff regime and strengthening institutions that support industry and exports.

- GTZ: Jordan in co-operation with Germany completed in 1989 an in-depth analysis of current practices in the area of standards establishment and testing, then under MoIT but with a direct bearing on Customs. GTZ suggested that Jordan establish a single agency consolidating the measurement, standardization, testing, and quality functions. A result of this activity was the subsequent setting up of the Jordan Institute for Standards and Metrology (JISM), which now performs these functions, as discussed in Chapter III below.

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III. IMPLEMENTATION OF REFORM

A. Reform of Jordanian Customs

In any case, for all practical purposes the above foreign stakeholders and others suspended their activities in Jordan in or shortly after August 1990 subsequent to Iraq’s invasion of Kuwait. After the end of that crisis in 1991, they and other development organizations resumed their work in Jordan, in particular in the field of Customs reform.

This was especially true of GTZ, which returned to Jordan with a project for Modernization of the Jordanian Customs Administration. The project was approved by GTZ itself in 1993, and authorized by the Jordanian government early in 1995. The project, which is due to be completed at the end of 2004, is in partnership with the MoF, and the funding committed to the work is €3.1 million. The project has an implicit anti-corruption element in it, but explicitly is involved in civil service reform and management, and public service training.

The project aims to support the Customs administration in improving the basic conditions for trading. Main activities are the re-organization and decentralization of the Customs administration for modernized processing of trade, and the development and implementation of an extensive human resource management system. Core anti-corruption activities are the development of rules of internal procedure, an internal audit commission, and qualified evaluation and career systems; the improvement of the calculation system for required personnel; ensuring the utilization of the standard Customs forms; and the trial launch of open Customs warehouses.

However, whether concerning the GTZ project or others, Jordan’s Customs reform initiative has proceeded and been implemented gradually. For example the GTZ project took about a year and a half, from 1993 to early 1995, from its inception in Germany to the approval by the government in Jordan. At face value, this is somewhat strange, keeping in mind that the incremental costs of the reform were mainly financed by foreign aid. In other words, the Jordanian government, which was spending little on the reform project for an eventual high return should have been eager to adopt the new work. However, this does not take into account the pressure by the bureaucracy, however misguided or ill intentioned, to slow down the pace of change.

Technical reform was implemented by sequencing various components gradually. Some communication and outreach to those affected (including opponents), took place, as will be seen below. However, the building of institutional capacity needed to translate the reform into a real impact, and monitoring and evaluation to assess progress and make midcourse corrections, was limited. Once again, political and institutional processes operated in a way that some local stakeholders influenced the reform negatively during its implementation by slowing things down. However, that too was acceptable to the regime and the more diplomatic among the foreign proponents of reform, as it promoted gradualism and eventually resulted in some positive change. (The alternative would have been pushing reform too quickly and arousing opposition which could have resulted in failure.)

In this framework, a new Customs law was passed in 1998 aiming at developing and updating Customs procedures to satisfy WTO requirements. This law has since been amended, most recently in Law No. 16 of 2000. In that measure, significant changes were made in three articles regarding Origin of Goods, and major changes were also made in three other articles of

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the law to bring Jordan in line with WTO practice on Customs Valuation. The new system makes the valuation process better defined and more transparent. The new law restricts Customs officers' mandate to use arbitrary valuation but still rewards those who uncover invoice misreporting.

Apart from progress in the Customs Department itself, other changes took place during this period to reform and simplify Jordan’s external trade. In 1997, the MoIT issued new instructions waiving licensing requirements for most imported goods. However, about 43 items still require prior clearance, which is considered an import license, including some strategic food commodities, telecommunications products, certain electronics, and medical materials.

Imports from countries with which Jordan maintains trade protocols continue to require a license. (Jordan has such agreements with Syria, Lebanon, Saudi Arabia, Iraq, Yemen, Bahrain, Libya, Morocco, Sudan, Tunisia, Kuwait, Oman, Egypt and United Arab Emirates and Israel, from which imports are subject to an import license.)

A Prior Permission regime is also in force for certain products. According to the MoIT Import Instruction No. 1 of 1999, the import of some products is subject to restrictions and requires prior permission from the MoIT, and the regulation bans the import of plastic waste, passenger cars that use fuel other than gasoline, and motor vehicles used for transport of goods that are more ten years old. The decree also places import restrictions on live animals; plants and plant material; arms, ammunition and explosives; narcotics and drugs; human remains; pharmaceutical and chemical products; medicines and vaccines; and motorcycles (the use of which is restricted to firms only).

Goods imported from Lebanon, Syria, Iraq, Saudi Arabia, the Palestinian National Authority, and Israel must be accompanied by a Customs declaration from that country. Further, goods imported through the ports of these countries and entering Jordan by land or in transit therein by land to Jordan must have a Customs declaration from that country. For goods entering Jordan from other non-neighboring Arab countries, an Arab transit declaration is required.

1. Temporary Admission and Duty Drawback

Another area related to Customs that has been reformed and simplified in recent years is temporary admission and duty drawback schemes (TADD). Jordan adopted these to encourage imports of inputs that would be used to manufacture exports. Jordanian exporters have experienced varying degrees of difficulties in seeing their procedures through to completion.

Temporary Admission involves the entry of goods, raw materials, equipment or other item into the country with a freeze on duties, taxes and other fees for a period of one year renewable against a bank guarantee. The guarantee is released upon either re-exporting of the finished product, the equipment, and the goods, or surrendering these to Customs.

Duty Drawback involves the payment of all duties, taxes and fees on entry. These are subject to being reimbursed within a one-year renewable period either upon exporting a finished product or upon re-exporting the goods.

The TADD system had previously suffered from the kind of “horror stories” traditionally associated with Jordan’s Customs. One case cited in the mid-90s concerned a Jordanian shirt manufacturer imported 18,236 square meters of fabric under temporary admission. Upon re-exporting, he had a sixteen-meter surplus. Customs would not release the letter of guarantee

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and the exporter was confronted with the possibility of penalty payments in addition to payment of Customs duties on the original import.ix

As a result of such incidents, Jordanian exporters lobbied to see more flexibility in temporary entry administration, as well as a streamlining of the bureaucratic process, which leads to unnecessarily high inventories and costs associated with the resulting delays. A call was also made by local businesses that repetition of the procedure for every consignment could also be avoided should a blanket permit be issued to those manufacturing solely for export.

Reacting positively to this call by the private sector for TADD reform, in 1996, Customs, under pressure from the private sector and spurred by USAID consultants, introduced new regulations for these activities. A comparison of the old and the new TADD System Regulations showed that whereas the old system was slow and inefficient and concentrated procedures in the main Customs office, with the MoF disbursing drawback funds, the new system had the following advantages:

- The Temporary Admission office located at the individual Customs houses on the spot is authorized to complete transactions. These computerized and electronically linked offices can follow up on all matters with regard to export and import without the need for prior approval from the Customs. Cashiers of the Customs houses make drawback of duties and taxes on transactions that fall under the Duty Drawback System.

- Products manufactured from raw materials entering the country under Temporary Admission statutes can be directly exported through Customs houses without obtaining prior permission from the Customs Department if numbers of the temporary entry declarations are clearly stated on the export declarations and these are submitted within three months from the date of issue.

- The Customs transaction for Temporary Admission is directly completed by Customs houses on the spot without the need for obtaining the prior approval of the Customs.

- Export declarations for products using raw materials under the Temporary Admission status are also prepared at the same Customs houses.

- Drawback of Customs duties, fees and other taxes is made directly with the Customs without the need for the concerned parties to resort to the MoF to collect.

- All procedures can be completed without the need for obtaining a prior approval from the Customs as long as the producer has already obtained general approval to make use of the system.

However, such was the problem regarding the public standing of Customs Department that it felt the need to undertake a publicity campaign to make sure businesses were aware of the new regulation. For that purpose, a TADD awareness campaign was organized with USAID funding. As part of this work, a Focus Group (FG) of businesspeople for TADD Awareness met during 1996 and discussed aspects of the awareness campaign.

The FG consensus on the campaign in general was that Jordan was facing a new situation in the post-peace era, a treaty ending the state of war with Israel having been signed in October 1994. That, it was felt, would have to form the background to the campaign without mentioning political issues. The new situation required a new approach and both the form and the content of the campaign would have to reflect this.

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It should be stressed that there was little direct immediate impact of peace with Israel on the Customs regime in Jordan. However, insofar as change and development of Jordanian Customs was spurred and bankrolled by Western bilateral aid agencies, as well as multilateral organizations with important links to the US and its allies, then the peace treaty between Jordan and the Jewish state should be seen as a landmark in some reform efforts in the kingdom.

The FG suggested that such terms as "co-operation" between Customs and the private sector be used in the campaign. The topic of originality in the approach was stressed, given the current situation prevailing between the private sector and the Customs, and the need to give the impression of positive change. The FG was unanimous in concluding that such an approach would have to be continued to allow the campaign in general to have an impact.

The important point made by this exercise was that it was one of the first occasions where Customs was seen as aggressively pursuing publicity for its reform. Though this would probably not have been done without financial and technical support from USAID, the example of the development of TADD within Customs reform in Jordan nevertheless indicates a change in attitude by the Jordanian government in general and the Customs Department in particular.

2. Customs on the Internet

In the same vein of outreach, and within Jordanian Customs’ approach to reach an international level, the Department established an Internet website in co-operation with GTZ and Jordan’s National Information Center.

Through this site, Customs’ avowed aims are to enhance its role in cargo movement facilitation between Jordan and other countries, to increase the Department’s contribution in investments promotion and development, and to exchange information and data that would serve the national economy.

Customs provides users with the facility to use the Internet site, which contains general information about Customs, location of Customs houses, laws and regulations, bylaws and instructions, and the Customs tariff. The site is generally user-friendly and successful, though its still needs to be developed to bring it up to the higher standards currently available on the Internet.

3. Intellectual Property Rights

With Jordanian accession to the WTO and the agreement on Trade Related Intellectual Property Rights (TRIPS), patent, copyright and trademarks protection was strengthened through Article 13 of the law of 2000.

The fight against border crossing trafficking of counterfeit or pirated goods is an increasingly important aspect of Jordan’s international trade, especially considering that several of Jordan’s neighbors are not WTO members nor are they TRIPS-compliant. Given the accession of Jordan to the WTO and the Euro-Jordan Association Agreement, it is a new and significant task for Customs to contribute to the protection of the IPR to the extent possible.x

This essential new obligation for the Customs services, based on the Agreement on the Establishment of the WTO, European Union rules, and experiences from other Customs, has proven to be a challenge for Jordanian Customs as well other government departments. Nevertheless, there are indications that the situation regarding piracy in the country has

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improved, partly as a result of the work of Customs.xi

A complication in this process is illustrated by a problem of the Software industry concerning deficiencies in the regulatory environment (which nevertheless has improved markedly over the past few years). For example, inspection by the Ministry of Information (MoI) of imported software has caused unnecessary and costly delays for local firms. In 1999, regulations published by MoI and by Customs supposedly halted the practice of forwarding IT-related software to the MoI for censorship.

However, this practice is still hindering business procedures for software importers, as well as causing financial losses in the industry. Progress had been made on this issue in the past, but authorities have now resumed the previous regime of software inspections. xii That the MoI has now been abolished and replaced by the Higher Council for the Media may be a step in the right direction in this regard, but previous changes in this respect have proven to be erratic.

In any case, it is clear that enforcement of copyright laws in the country will have a significant impact on the local software development industry and the level of support offered by multinationals. For example, in January 2002 Customs seized 41,000 copies of pirated computer software in one of the biggest hauls since the start of enforcement of intellectual property laws in Jordan. xiii However, all this is clearly not to say that Customs reform has solved all the problems of IPR protection in Jordan.

4. Automated System for Customs Data and Management

A key project for modernizing and upgrading the efficiency of the Customs system launched in 1998 involves computerization of procedures and data through introduction of an Automated System for Customs Data and Management (ASYCUDA), the international standard for Customs clearance and information. This system plays a vital role in government implementation of economic and fiscal policy by providing accurate, timely data.

UNCTAD’s ASYCUDA is a Customs computer application program with client-server architecture. A number of client modules have been designed and operate on PC workstations alongside other application such as word processing Each workstation may be used either connected to the Customs server, via a direct line or telephone modem or independently, without any connection. Users achieve connection to a message handler in the server and not to the operating system. Standard messages are passed between the client and the server, so it is not possible to transfer a virus or to hack the program. The system functions as follows:

a. Preparation of declarations

One of the ASYCUDA modules is designed to assist declarants with the preparation of declarations. It provides them with exactly the same reference data as is used by Customs, including the tariff, the rate of foreign currency exchange and all necessary codes used on the declaration. Alternatives are suggested if invalid codes are used and if the declaration is incomplete. b. Validation of declarations

When the declarant has completed preparation of his declarations, he obtains a connection with the Customs server and transfers them electronically. Declarations are first checked against Customs files and cannot be registered until they are complete and valid; once this has

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occurred the declarant may obtain a printout of each registered declaration so Customs have clean and tidy documents to process. c. Calculations of duties and taxes

The registered declaration presented to Customs will include calculations of the foreign currency conversion and of the various taxes and fees; there is even an automatic facility to apportion freight and insurance charges for each commodity. d. Determining the risk for each declaration

There is a selectivity module, which allows Customs to concentrate more upon high-risk declarations. This module selects a percentage of declarations at random and a further percentage according to programmed criteria, for example if the value is outside of the normal gauge for the commodity or if the importer is known to have previous offences. These criteria will be programmed so that the skills and knowledge of the most experienced officers will be available to juniors. The random element will be set each day by management who will seek to match workload to available resources. e. Accounting for revenue

The system contains an accounting module, which ensures that the correct amount of money is paid for each declaration. A receipt is produced and the accounting ledgers are written automatically; there is even a pre-payment facility to allow declarants to pay a lump sum of money, which is then assigned automatically to each declaration when processing is complete. f. Clearance control

A special release order is employed by the system to ensure that goods are not released until the declaration has been fully processed and all taxes have been paid. g. Management control and management data

There are a number of facilities that allow management to monitor and control processing. The functions that each user performs on the system are recorded. A variety of system reports enable management to analyze results, monitor exemptions and, for example, to determine the revenue yield of each tariff commodity h. Information and statistics

Trade statistics and other information may be extracted from the system thereby allowing government to properly plan the economy This information is available on a timely basis, within a few days of the event ASYCUDA affects Customs processing as the role of the clearing agentsxiv changes. They are expected to prepare a full and complete declaration rather than a generalized description of the goods. Instead of carrying this around the office and negotiating for the best rate of duty, they are committed to their declaration from the outset and monitor its progress from their own offices. Declarants prepare declarations offline, using computer workstations located in their own offices or on Customs terminals located in a keying bureau. When the Customs file server is available they connect online for the few minutes necessary to transfer the declarations to

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Customs. At this point, the Customs server checks the declaration and then registers those that are satisfactory. The server also checks the declarant's computer files and automatically sends any new updates such as a tariff change. The declarant prints out one copy of the declaration, which should then be signed, attached to supporting documents and presented to Customs reception. He is not allowed to pursue the declaration around the Customs office but instead is able to monitor progress using his own workstation. This enables declarants to prepare many more declarations than at present. The computer for inspection and/or check of documents selects declarations. They are dispatched from reception to the appropriate Customs processing teams responsible for these functions When Customs are satisfied with these selected declarations they are manually "assessed" on the computer. Green lane declarations are not selected and are assessed automatically; they are subjected to selective post clearance checking of documents. If the declaration is incorrect or fraudulent it is dealt with by the "query section," which is responsible for amending the declaration on the computer. A fresh print of the amended declaration will be produced and must be signed by the declarant. Query section maintains a record of errors and any that are found to be serious, regular or fraudulent attracts a penalty. After assessment, the processed declarations may be sent for archiving. Declarants monitoring their workstations see that their declaration has been assessed. If they are using the pre-payment account facility, the duties will automatically have been debited from the lump sum of money paid earlier to the cashier or authorized bank. For these declarations, the release order is available from the system directly after assessment. If declarants are not using the pre-payment facility, the release order will not be available until they have paid the declaration. The computer terminal located in the cash office ensures that the correct amount of money is paid for each declaration, after which a release order becomes available from the system. The declarant prints two copies of the release order and produces them to the officer controlling the release of the goods. This officer may check the computer to determine that the order is not forged and will then authorize release. Declarants are not allowed into the Customs office and not able to interfere with Customs officers as they work. Declarants are committed to their declaration because, after they have registered it on the computer, they will not be able to amend it without consulting query section. They will not be able to predict which declarations will be inspected and which officers will be responsible for processing. One aim of introducing the system is to release staff from tedious clerical work so that they are free to concentrate upon worthwhile tasks. Customs staff will no longer be burdened with splitting invoices into commodities, calculating freight and insurance charges, and calculating and assessing duty. They are organized into processing teams responsible for checking computer-selected declarations to ensure that they are truthful, correct, and conform to supporting documents. Other officers are organized into specialist intelligence teams to research and target high-risk traders and consignments.xv

Training and assistance have been provided so that staff will have confidence in using the new system. We should seek to work more systematically by using risk-based control. These aim to discourage dishonesty, by applying properly targeted control measures and by imposing severe

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penalties, while encouraging honesty, by allowing compliant declarants to benefit from privileges, which will enable them to attain more rapid clearance. Once the new procedures become familiar, staff feels more professional because are able to offer an improved service to the public while achieving better results. ASYCUDA is used in many different countries and can it be suitable for Jordan's own requirements. The Jordanian project team has adapted the system to the Jordanian environment by using the translation utility to modify the system to Arabic; subdividing the tariff for Arab preferences rate of duty and supporting documents etc; building the tariff and control files with Jordanian data; adapting the printouts and reports to Jordanian standards; configuring the declaration and system functions to Jordan's requirements; and building the communications network enabling the system to function nationally. The project team will be able to modify the system further as circumstances change. They will not be dependent upon outside programmers; this is Jordan's own system, with the advantage of complying with all international standards. The system reduces the staff actually required to process declarations. Work has devolved to declarants and much of the tedious clerical work can he carried out by the computer itself. In addition, some staff savings will be made through improved targeting of resources. Customs will have access to accurate historical declaration data; but intelligence teams will be needed to analyze this data to find patterns of suspicious trading, for example: consignments that are inappropriate to the trading style of a business or where the costs of shipment exceed any likely profit from sales.

Post-clearance control teams follow up and visit traders suspected of regular undervaluation or of claiming end-used exemption inappropriately. In addition, improved targeting of suspect consignments involves increasing the effectiveness of controls; for example, it may be necessary to inspect the contents of every box not just a sample of boxes, in a particular consignment.

Other benefits of the system are that Data obtained for each company will be made available to improve control of internal

taxation. These departments will be able to calculate accurately the size of each business when they know precisely the quantities of raw materials, components and resalable goods imported by each.

Customs will be able to review the tariff more efficiently. For example, where a relatively high tax rate is applied to a commodity, but does not earn sufficient yield, it may be lowered until the yield improves.

Introducing a fully integrated tariff will result in increased equity of decision-making and improved transparency. Initially, some of these decisions will be disputed but all results of appeal will be re-programmed into the tariff. Eventually, the tariff will settle down and the number of disputes will be significantly cut.

The Jordan project team had to build the system and adapt it to Jordanian requirements. The Jordan team successfully integrated with the GTZ team, which had prepared the foundations for the work.

5. The Single Administrative Document

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Within its continues plans for simplification of procedures and updating work to meet international standards, Customs started since 1998 the use of the Single Administrative Document (SAD), which conforms in content and layout with international forms. Clearance procedures have been reformulated and can be undertaken by clearance teams who can complete the procedures taking no more than two signatures. SAD replaced 8 previously used declarations.

The advantages of SAD are that it: Conforms to EU declarations and those of other developed countries. Is simple to fill and implement Helps in abstracting statistical data, which in turn leads to better economic planning Can be easily automated and used in ASYCUDA Gives more confidence to the trader by allowing him to fill all necessary information

himself Allows one Customs officer to complete a declaration in one step.

6. The Aqaba Special Economic Zone

In 2001, the government converted the Aqaba port and surrounding area into a separate Customs area, the Aqaba Special Economic Zone (ASEZ). This has created a new situation for Jordanian Customs, with the setting up of a separate Aqaba Special Economic Zone Authority (ASEZA) and its own Customs Commissioner.

This change was not without its teething difficulties, as will be discussed below, but an interesting contrast between the reform in Customs and that in ASEZ is that the Jordanian head of state King Abdullah, who rules as well as reigns, has been directly involved in championing change in Aqaba’s new regime. For example, the king in mid-2002 paid two surprise visits in less than a week to the Customs in Aqaba to check on measures taken to facilitate and ease Customs procedures. The King directed Customs officials in charge of the food control unit “to take rapid and practical steps to facilitate tests on imported food samples and ease procedures for businesspersons and investors.”

The King also chaired a meeting during the second of the above-mentioned visits on ways to ease Customs procedures, during which the Director of the Economic and Development Department at the Royal Courtxvi presented a plan to streamline Customs procedures as requested by the King during his earlier visit to Aqaba. Recommendations included conducting a study on standardizing clearance procedures, which is to be completed in 60 days. The plan recommended increasing the number of technicians and accrediting Customs lab technicians as well as those of the Aqaba Health Department to conduct tests on food and other products. This upgrade was to have been in place in 15 days.

The King ordered a comprehensive study of the Customs infrastructure at the ASEZ and a review of all procedures concerning the clearance of goods, including health and specifications tests. The study was due to be completed in a week, in accordance with the King's directives. He met with citizens who were at the Customs Department to conduct business. They expressed their concerns about the standard of public services in the ASEZ. Minister of Health, Minister of Trade and Industry, ASEZA Chief Commissioner, Customs Director General, and Director of the JISM attended the meeting.

During the visit, the King checked on the health unit and a cargo and clearance center that function under the ASEZ. The center is computerized, which has helped in speeding up

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clearance procedures. The King stressed the time factor as vital to investments in Jordan, emphasizing that speed of change and reform was vital for Aqaba to succeed as a development pole. He said the ASEZ should serve as a model of quality performance in expediting business and investment matters.xvii

This aggressive approach to Aqaba’s Customs in particular contrasts with the more gradual and relaxed strategy adopted for reform of Jordanian Customs (from which ASEZA Customs were now a separate entity). Aqaba's Customs Directorate from the start of 2001 to end-August 2003 thwarted close to 2,400 smuggling attempts, and during the same period about 13,600 Customs violations were filed with fines amounting to around JD2 million. xviii (It is interesting to compare this figure with that for the rest of the country in 2001, which has a total of 1340 apprehended smuggling cases.)

Over-enterprising Jordanians and others who were eager to profit from ASEZ’s free zone status and shop there in order to resell their duty-free purchases in other parts of the country were responsible for many of these violations. However, the uncertain attitude of the government did not help in resolving this issue. The Cabinet in November 2001 raised from JD50 to JD100 the value of goods a visitor is eligible to take out from ASEZ, thus revising its decision shortly before that to slash the initial allowance of JD200 down to JD50. The Cabinet spokesperson said the new ceiling “is a reasonable amount of money for each visitor” wishing to benefit from the Customs-free haven. The government decision to increase the value of goods allowed to leave Aqaba with each passenger was triggered by a call from ASEZ merchants and visitors, who had criticized the 75% cut. That decrease came following complaints by Amman merchants who charged that illicit trafficking out of Aqaba was hurting their businesses. According to the Prime Minister “the government took the decision [to cut the ceiling from JD200 to JD50] to curb smuggling from Aqaba to other governorates”. He insisted that the cut was not meant to target individuals or families visiting the Red Sea resort. xix

However, important the above issue might have been politically, in terms of economics the smuggling issue was not a major one. Early in the life of the Aqaba special zone, ASEZA Commissioner for Customs Ahmad Rifai said smuggling was not yet a problem, and so far only two containers containing coats had been found in violation of the Customs regime. xx

Over two and a half years later, he re-iterated this view.xxi

Clearly, the existence of ASEZ has introduced a new element into the Customs system in the kingdom. At the same time, both the country’s central executive as well as ASEZA officials have been contrasting ASEZ Customs Department with that of the rest of Jordan. One theme among several in this exercise is that ASEZ should serve as a model for Jordanian Customs, and this debate has continued with proponents and critics of ASEZ contrasting the two systems in different lights.xxii Nevertheless. Efforts to curb trafficking from ASEZ to other parts of Jordan have managed to cut down smuggling operations. The strategy of curbing the zone's trafficking revolves around "post-audit" checkups of traders' records and inventories in warehouses, as well as setting up five permanent police posts along an open stretch of land 20 kms to the north of the 375-square kilometer zone. Other measures include round-the clock "secret policing" operations in which plainclothes Customs officers patrol the port city in search of violators, in addition to reinforcing Customs booths at entry and exit points with qualified personnel.xxiii

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7. Standards and Metrology

According to Jordan’s Customs Law, some products require laboratory or other testing before they can enter the country. In the event they do not meet the required standards, they will be re-exported. In particular cases the Director of Customs may decide to destroy the goods.

The Control Department of JISM is responsible for testing procedures. JISM, which had existed previously, was instituted as an autonomous body under the Standards and Metrology Law 22 of 2000. JISM is an administratively and financially independent institution established to play a leading pro-active role in protecting the health and safety of Jordanian citizens and the environment, to act as a major partner to the private sector in enhancing the quality and competitiveness of Jordanian products through development of national standards and guidelines on conformity assessment practices that are harmonized with international ones and through active participation in the work of international standards and conformity assessment procedures, and to facilitate trade with Jordan and pave the way for Jordanian exports to international markets by entering into global mutual and multilateral mutual recognition agreements to get international recognition for Jordanian conformity assessment systems and results.

JISM is responsible for all Customs checks, except those on pharmaceuticals (medicines, veterinary medicines, serums and vaccines) and foodstuffs, which come under the responsibility of the Ministry of Health, and the Ministry of Agriculture, respectively. In evaluating conformity, JISM avails itself of all the relevant international guides and recommendations and adheres to the Code of Good Practice for the Preparation, Adoption and Application of Standards. JISM is also responsible for ISO certification, which is requested by an increasing number of Jordanian enterprises. JISM grants also the Jordanian Quality Mark for national products.

Partly through the help of GTZ, and also by virtue of a positive attitude by Jordanians running the MoIT and JISM, this initiative has proven to be one of the smoother changes to take place in and around the process of Customs reform.

B. Tariff and Fiscal Reform Business in Jordan consistently complain that too much discretionary power is vested in point-of-entry Customs authorities, tending to impede the flow of goods through excessively high assessments. Whether or not this is a carryover from a time when duties were so high as to encourage evasion is immaterial in the context of Customs regimes such as Jordan’s moving towards a more competitive stance in the world economy. It is easy to claim that tariff protectionism inhibits or precludes the flow of goods, but that is not directly a governance related issue. However, the trend in Jordan over the past decade has definitely been towards an overall cut in tariffs, and this has important implications for Customs, including a governance dimension.

An important aspect of the Customs regime that was being changed alongside reform within the Customs Department in the 1990s was that the tariff structure as a whole was being reviewed. When the economic crisis erupted in 1988, Jordan was not a member of the General Agreement on Tariffs and Trade, and the country still had high tariffs for purposes of protection and/or revenue generation.

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However, by the late 80s, “rationalization of the tariff structure to promote efficiency in resource use” xxiv was being proposed by international donors to achieve a policy framework that “restores confidence, and leads to higher private sector investment.”xxv

Actual tariff cuts and other reforms began in the mid-90s, in the wake of the peace treaty with Israel and the subsequent runup to WTO membership. Jordan’s WTO entry in 2000, the earlier entry into a partnership agreement with the EUxxvi, and the later ratification of a free trade agreement with the US have meant that the kingdom was and is cutting tariffs, and that it is committed to further trade liberalization.

Jordan started using the Harmonized System (HS) tariff nomenclature in 1994, and the HS 96 nomenclature has been in use since 1997. According to the Law on Unifying Import Fees and Taxes, No. 7 of 1997, the ceiling on all duties was lowered to 40%. All additional Customs taxes, fees and duties on regular imports have been abolished. However, certain luxury goods and automobiles carried additional Customs taxes, fees and duties.

Jordan's maximum tariff rate was eventually set at 30%, except for two products namely: manufactured tobacco and substitutes, for which the tariff rate was fixed at 70-100%; and alcoholic beverages, for which the tariff rate was set at 180%.

Most supplementary Customs taxes, fees and duties on regular imports have been abolished. However, automobiles and certain imported luxury goods (tobacco, alcohol, etc.) are still charged additional sales taxes, which have also been cut. The ceiling on all duties was brought down to 30% in 2000. Commodities now fall under one of five different tariff rates: zero, 5%, 10%, 20% and 30%, with the exception of tobacco and alcoholic beverages, which are subject to a tariff of up to 180%, and unwrought gold, which is subject to a 0.5% tariff rate.

Also in the area of Customs duties, the government adopted a number of further measures in 1999-2003 complementary to those taken previously in the mid-90s, with the aim of supporting the liberalization of foreign trade, promoting investments, and upgrading the competitiveness of Jordanian economy in general and domestic industries in particular. To boost Jordan’s attractiveness to investors and strengthen export competitiveness, the government in 2003 cancelled Customs duties on 492 imported capital goods.

As a result of these adjustments, the structure of domestic revenues has been changed since 1992 as government tax revenue generation was shifted from income-based to consumption-based levies and from tariffs to sales duties. In that context, the government has undertaken several measures in the past decade to reform the tax system.

The General Sales Tax (GST) introduced by Law 6 in 1994 and emended by Law 18 in 2000 levies rates whose range is from 0% up to 20% based on the Cost, Insurance, and Freight value for the consignment of the goods. In general, the tax totals 13% for goods. Some staple goods are exempted, while a GST of 20% was imposed on some capital goods. In 1995, the GST law was amended and the tax rate was raised from 7% to 10%. The law of 2000 further amending GST came into force in 2001, effectively converting the duty into a value added tax (VAT). According to this new law, VAT at 13% was imposed on wholesale and retail trade where taxable sales amount to JD250000 or more annually.

A new Income Tax law was passed in 2001 and became effective in 2002. According to this, the number of brackets for individuals was reduced from 6 to 4 and the top rate cut from 30%

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to 25%. The tax rates imposed on companies were kept the same, except for insurance and financial companies whose rate was cut from 35% to 25%. In addition, the profit distribution tax of 10% was eliminated.

Thus, the combined share of income taxes and Customs duties has sharply decreased as a percentage of GDP from 10.3% in 1992 to 6.3% in 2002. GST has compensated this loss to the treasury as its percentage in relation to GDP jumped from 4.5% to 9% in the two comparison years. GST now accounts for 34% of total domestic revenues, JD604 million in 2003 compared to JD511 m in 2002, while projected revenues from taxes on income and profits were JD201 million in 2003 compared to around JD196 million in 2002. Taxes on foreign trade, mostly in the form of Customs duties, were projected at JD190 million, down from JD220 million. Overall, tax revenues were expected to reach JD1074 million in 2003 (up from JD1000 million in 2002) while non-tax revenues were projected at JD690 million.

In short, and as can also be seen in a dramatic fashion in the table below, the Jordanian government is no longer so dependent on tariffs to generate revenue. While studies on the magnitude and determinants of tax evasion in Jordan are scarce, the corruption and governance aspects of evading foreign trade taxes appear to be decreasing due to the dismantling of trade barriers in the context of the kingdom’s trade liberalization strategy.

Table Customs tariff revenue as a percentage of GDP1998 1999 2000 2001 2002 2003 (budgeted)5.1 4.8 4.3 3.6 3.2 2.5

Source MoF Government Finance Bulletin, Vol. 5, No 10, November 2003

Taking into account the chronic budget deficit and the lack of sizable non-tax revenues, further lowering of the tax rate poses a real challenge. Jordan’s tax reform is facing the difficult task of having to compensate for rapidly declining revenues from falling Customs duties due to trade liberalization. In this regard, it is worth noting that the government cut both the personal and the corporate income tax rates in 1996 and 2002.

In a globalized world economy, the increasing mobility of international firms and the progressive liberalization of capital flows have stimulated competition among governments to attract foreign direct investment, often through tax incentives. In Jordan, the new Investment Law for 2003 No. 68, as its previous versions, relies on import duty exemptions in promoting domestic and foreign investment.

Regarding changes in tax and tariff rates, the normal pattern of the predominance of foreign over local forces in some aspects of the reform process in Jordan is reversed. Progress of important proposed laws or changes in existing measures is regularly reported in the news media, and the general public as well as business lobbies react at different levels ranging from newspaper comment and opinion to presentations or protests by specific interest groups, e.g. the Chamber of Commerce regarding the laws concerning the sales tax or the Customs tariffs.

IV. RESULTS OF THE REFORM

Jordan has improved its Customs by adopting ASYCUDA-based information technology, simplifying procedures, increasing transparency in dealing with the public, speeding duty refunds, and ensuring EU-consistent documents and a green channel for certain imports. However, some problems remain, including inconsistent application of rules, tariff rates,

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testing and inspection, and fines. Accelerated training has played an important role to improve professionalism, and Jordan is now the World Customs Union designated regional representative for MENA. xxvii

More specifically, Jordan Customs has to its credit made many positive achievements over the past few years, including

Establishing a Suggestions and Complaints Sections and a Free Call system Seeking to apply the egovernment model, modernizing the web site of Customs on the

Internet, and applying a training plan on egovernment for Customs officers Accepting credit cards in collecting Customs revenues from passengers at the Airport

Customs Office Delegation of Authority to Customs houses outside Amman, and focusing on border

offices in applying computerized systems Enhancement of the Temporary Admission system through a refund office for

passengers at the country’s main airport, Amman’s Queen Alia International, providing brochures for passengers to explain Customs regulations

Training: 247 training courses were conducted for 2297 employees, as well as more than a hundred seminars, and workshops in 2001, a typical recent year. ASEZA Customs also conducted about 50 training courses in 2003.

The department has refunded duties due to the private sector for several years. Combating Smuggling: The efficiency of the Directorate of Combating Smuggling has

been increased. It is now supplied with new machinery and weapons. Special training courses for employees were conducted and organized by the Special Forces School of the Jordanian Armed Forces. This had a great impact on increasing its fighting and logistic competency.

Taken together, the above list shows that Customs in Jordan has made impressive progress over the past few years. However, nobody, least of all the Customs Department itself, feels that such achievements are the sign of a radical solution to the problems of Customs in Jordan.

V. CONCLUSIONS AND LESSONS

Traditionally, a major complaint of businesses in Jordan has been the uncertainty and high cost of dealing with government administrations. The process of making, changing, enforcing and applying laws is unfavorable to business, while overregulation creates opportunities for corruption. However, Jordan has heeded the need for change in recent years by stepping up efforts to boost government performance. The main thrust has been on increasing the bureaucracy's responsiveness, and the system has demonstrated limited transparency.

Jordan's economy has been making some progress over the last fifteen years through the implementation of comprehensive reforms and restructuring programs supervised by the IMF and the World Bank, and supported by aid from the US, the EU and Japan. Customs has shared in this progress

However, the nature and scope of the problem of Customs in Jordan remain structural, technical, and even societal. On the structural level, the problems appears to be on its way to being solved as Customs role as a cash cow and a focus of corruption have diminished drastically over the past few years. Jordan is currently considering merging Jordan Customs, General Sales Tax Department and Income Tax Department. This integration could allow

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better synergy and tax collection, as well as streamline the government bureaucracy.

On the technical level, reform was aiming to achieve greater efficiency in the Customs Department by tackling such fundamental problems as widespread bureaucratic delay through computerization. There is no doubt that some progress has been achieved in this respect. However, insofar as this problem has not been dealt with in a radical manner, the reform partly consists of window-dressing gestures. Foe example, installing computers and electronic systems in a situation where people have difficulty in using them is counter-productive. Trying to overcome this difficulty by training may provide partial solutions to the problem, but the fault may lie in the design and implementation of an inappropriate system to begin with, won the one hand, and with deep societal habits that cannot be overcome by simple training over the short term.

There is clearly a long way to go to develop a system that is as efficient as that found in developed countries, although aspects of Customs’ operations are starting to have a more progressive look to them. For example, from 2004, Jordanian Customs started a new service under which the importers can begin the clearing procedures before the arrival of the goods at Aqaba port. Importers and traders can start the clearing procedures at three main Customs offices in Amman, Aqaba, and Queen Alia International Airport. Department Director General Mahmoud Qteishat said the new service aims at helping importers receive their incoming goods at the shortest possible time. He indicated that the new system is bound to reduce the storage costs and ease the pressure on the Aqaba warehouses.

Noting that the new system is optional, the Customs chief said importers benefiting from it should submit their requests at least five days before the expected date of the arrival of goods at the Customs offices assigned to handle these procedures. Qteishat pointed out that, should the new system prove successful, Customs might “offer more facilities for clearing imports.” He noted that the new system runs in harmony with the provisions of the Kyoto Treaty on facilitating and simplifying Customs procedures. xxviii

On the societal level, the country’s weak social capital and heritage of corruption disguised as success are still major obstacles to sustained growth coupled interacting with good governance. Though the results of some Customs reform so far have been encouraging, clearly much remains to be done in this respect.

For example, the application of deeper due diligence to all participants in international trade transactions is now being presented as a possible goal for Jordanian Customs. In modern Customs practice, a primary objective of risk management is a concentrated effort to identify and encourage low risk shipments. By the elimination of these shipments from the workload, Customs can direct its limited resources to find and intercept shipments that may present revenue, health, safety or security risks.

To achieve this goal, Customs must work in partnership with honest participants in the international trading system. Both sides must do their part. Informed, voluntary compliance eliminates the need for inspecting every shipment every time. To be voluntarily compliant, the international trade community participants must develop and implement documented systems of self-regulation. This ensures that the businesses exercise reasonable care or due diligence. There are three key elements essential for associated businesses in an international transaction to qualify as low risk:1. A history of apparent compliance.2. A compliance audit by Customs or an independent organization fully qualified and

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accredited to conduct a Customs compliance audit.3. A functional, documented due diligence system.

A due diligence system simply put is a documented process to ensure that the company is taking reasonable steps for compliance with international trade related laws and procedures. A full circle due diligence process (FCDD) is where each participant in the cross border transaction (Freight Forwarders, Customs Brokers, Exporters, Customs, Importers, Transporters, Warehouse Operators) is exercising due diligence. The FCDD process provides the highest achievable level of confidence to Customs that a particular shipment crossing the border is compliant with the law and therefore does not need inspection.

In the past, the emphasis in developed countries’ Customs has been on the application of the low risk process for importers. Now, the application of documented low risk applies to the entire supply chain. In light of the need for heightened security, there are two choices: back to the trade-stifling application of increased inspections or develop increased self-regulated security by businesses under Customs guidance.

The FCDD method is expanding due diligence applications primarily regulated by Customs. Through heightened international co-operation Customs-to-Customs, the risks at each end of the supply chain and the intermediate participants such as transporters are measured.

The emphasis is on self-regulated compliance through industry associations. The limited resources of Customs are then used to spot check the ability of the specific industries to self-regulate member companies. Customs can then extrapolate the risks associated with the industry-assured compliance in their overall risk calculations for any specific shipment. The partnership of industry and Customs significantly increases the supply chain security of international transactions.

By closing the circle around the Customs transactions where each participant is exercising a due diligence approach in their business transactions (including checks on the partner participants) Customs, with high confidence, can continue to permit the seamless flow of legitimate international trade. The benefit to Customs is better ability to manage the risk assessment process. With limited resources, Customs efforts can then be directed to the shipments presenting higher risk of non-compliance.

A documented due diligence system is part of the mandatory requirements for a low-risk rating by US Customs. The recognition and application of an informed, voluntary compliance strategy has resulted in payment of all duties and taxes due Customs at the 99% level through voluntary compliance.xxix Whether Jordan can aspire to this remains to be seen, but it is certainly worth trying to examine new cost-effective ways to enhance the country’s Customs performance in order to boost the Jordanian foreign sector as a whole.

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A main lesson learned from an examination of governance enhancement in Customs in Jordan over the past decade and a half is the perhaps obvious one that extensive foreign assistance is needed to implement such change. The US administration alone allocated $456 million in assistance to the kingdom in its budget for 2005.xxx This relatively large amount, equal to roughly five percent of the kingdom’s GDP, is more than matched by total aid from other sources, notably the European Union states and Japan. Moreover, the trend in this respect is up, with the kingdom receiving far more foreign assistance now than it did a decade or so ago.

Governance reform efforts in general and in Customs in particular have not been deprived of this foreign largesse. However, more could be forthcoming to finance Specific technical assistance at the business association level xxxito develop documented due diligence procedures include help for:

• Developing industry specific due diligence models compliant with international best practice and specific to national legislation

• Training member companies in the due diligence process, hands on mentoring at the individual company level in developing company specific due diligence documentation to confirm compliance processing and self auditing.

• Developing self-regulation and certifications of member companies of international trade associations in the exercising of due diligence xxxii

Applying such methodologies and making them succeed in enhancing governance and reforming Jordan’s Customs is of course a tall order. The process is also an expensive one. The irony of course is that Customs now has less money to spend than it did in the glory days when its role as a source of revenue for the government was supreme. In such a situation, foreign aid may be an option.

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BIBLIOGRAPHY

Amman Chamber of Commerce: www.Ammanchamber.org.jo

Amman Chamber of Industry: www.aci.gov.jo

Achievement of Market-friendly Initiatives and Results (AMIR) Program/USAID - "Baseline Efficiency Study of Jordanian Customs, " August 1998- "Economic Impact and Implication for Jordan of the US-Jordan Free Trade Agreement", Final Report, February 2001- "WTO Post-accession and Compliance Overview for Jordan", Final Report, October 2002

Customs Department: www.Customs.gov.jo

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ad-Dustour Arabic daily, Amman, "Border regulations issued for IPR protection" 31 August 2000

German-Arab Chamber of Commerce, Trade for Peace in the New Middle East, Cairo, 1995

Hekala W “Facilitation Of Cross Border Trade through Risk Management,” AMIR/USDAID, unpublished, 2003

Jordan Times daily, Amman “Aqaba launched as special economic zone” Jordan Times daily, Amman, 18 May 2001- “Cabinet raises to JD100 value of goods allowed out of ASEZ”, 5 November 2001

Kawar News, corporate newsletter, "Strategy to cut down smuggling operations from ASEZ" Amman, First Quarter, 2002

al Khouri, R “The Regulatory and Policy Framework for Exports in Jordan: a Survey and Proposal for Change” for the USAID Private Services Development (PSD) project, unpublished, Amman, March, 1990- “The Regulatory and Policy Framework for Exports and Foreign Investment in Jordan: a Survey and Proposal for Change” for the USAID Private Services Development (PSD) project, unpublished, Amman, July, 1990- "Trade Policies in Jordan, Lebanon, and Saudi Arabia" in Hoekman and Kheir-El-Din (eds) Trade Policy Developments in the Middle East and North Africa (World Bank Institute, Economic Research Forum, 2000)- “Free Zones and Qualifying Industrial Zones in Jordan” Arab Bank review, Vol.2, No. 2, October 2000- “The Aqaba Special Economic Zone: Perspective and Prospects”, Friedrich Ebert Foundation, Jordan, 2001- “Cultural Industries in Jordan” the World Intellectual Property Organization, Geneva, 2003 (to be published)

McCue, C, “Import-Export Procedures in Jordan”, Arthur Young/USAID, Amman, December, 1988

Ministry of Finance, Government Finance Bulletin, Vol. 5, No 10, Amman, November 2003

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Petra (Jordan News Agency) Amman “Cabinet raises to JD100 value of goods allowed out of ASEZ” Jordan Times daily, Amman, 5 November 2001 - “King urges review of Aqaba Customs procedures” 19 July 2002- “Customs offers new service from tomorrow” 31 December 2003 - “Three states buy half of Kingdom's exports” 5 February 2004

ar-Ra’i Arabic daily, Amman “US allocates $456 million in aid to Jordan next year” 5 February 2004

The Services Group (TSG) “Aqaba Freeport and Special Economic Zone” for the Economic i The JD at the beginning of 2004 was worth about $1.4, which was roughly its rate at end-1989.ii Fifteen years later, Jordan’s merchandise exports are going to new destinations. A little over half of the country's exports last year went, in order of importance, to the United States, Iraq, and India, according to figures released by Jordan’s Ministry of Industry and Trade (MoIT). During the first eleven months of 2003, Jordan's exports to the US accounted for almost 29% of the value of the kingdom’s exports of goods; exports to Iraq ranked second at almost 13%; and those to India were third at close to 9%. Petra (Jordan News Agency) Amman “Three states buy half of Kingdom's exports” 5 February 2004iii United States Agency for International Development (USAID) Jordan “Statement of Work, Export Trade and Productive Investment Project” unpublished, Amman, November, 1989 iv McCue C, “Import-Export Procedures in Jordan”, Arthur Young, December, 1988v al Khouri, R “The Regulatory and Policy Framework for Exports in Jordan: a Survey and Proposal for Change” for the USAID Private Services Development (PSD) project, unpublished, Amman, March, 1990vi Ibidvii al Khouri, R “The Regulatory and Policy Framework for Exports and Foreign Investment in Jordan: a Survey and Proposal for Change” for the USAID Private Services Development (PSD) project, unpublished, Amman, July, 1990viii USAID op citix German-Arab Chamber of Commerce, Cairo, Trade for Peace in the New Middle East, 1995, p 30x I am indebted to Helmuth Berndt, GTZ expert working with the Jordanian Customs Department interviewed in December 2003, for his thoughts on IPR and Customsxi For details of this issue, see for example al Khouri “Cultural Industries in Jordan” the World Intellectual Property Organization, Geneva, 2003 (to be published)xii "Border regulations issued for IPR protection" ad-Dustour, Amman, 31 August 2000xiii al Khouri “Cultural Industries in Jordan” the World Intellectual Property Organization, 2003 (to be published)xiv See the comment in Chapter I above by the PSD CG on clearing agents xv Intelligence gathering still appears to be a relative weakness in the Customs system, and the USAID AMIR program has recommended that Jordan Customs create a distinct and more capable intelligence function.xvi Khaled Wazani, formerly Director of Customs and seen by some as the first reformist in that positionxvii Petra (Jordan News Agency) Amman “King urges review of Aqaba Customs procedures” 19 July 2002xviii Information supplied by ASEZ Customs Commissioner Ahmad Rifai, interviewed by the author December 2003xix “Cabinet raises to JD100 value of goods allowed out of ASEZ” Jordan Times daily, 5 November 2001xx “Aqaba launched as special economic zone” Jordan Times daily, Amman, 18 May 2001xxi Interview with Ahmad Rifai, ASEZA Commissioner for Customsxxii Proponents of ASEZ speak of its “centers of excellence” – including its Customs - as examples for the rest of the country to follow; others play down this line of thinking as exaggerated.xxiii "Strategy to cut down smuggling operations from ASEZ" Kawar News, corporate newsletter, Amman, First Quarter, 2002xxiv USAID op citxxv Ibidxxvi The EU-Jordan Association Agreement has some important reform implications for Jordanian Customs, as can be seen for example from the Jordan Euro-Med Partnership Country Strategy Paper 2002-6, and National Indicative Program, 2002-4. xxvii Trade Investment and Development in MENA W.B 2003xxviii Petra (Jordan News Agency) Amman “Customs offers new service from tomorrow” 31 December 2003xxix Hekala W “Facilitation Of Cross Border Trade through Risk Management” xxx “US allocates $456 million in aid to Jordan next year” ar-Ra’i 5 February 2004

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Consultative Committee, Aqaba Task Force, April 2000

United States Agency for International Development (USAID) Jordan “Statement of Work, Export Trade and Productive Investment Project” unpublished, Amman, November 1989

U4 Utstein Anti-Corruption Resource Center www.u4.no

World Bank, Jordan Development Policy Review, 2002, "A Reforming State in a Volatile Region", Washington, November 2002- "The Hashemite Kingdom of Jordan: Sources of Growth" Draft Report, October 2001- “Trade Investment and Development in MENA,” 2003

xxxi That Jordanian Customs is now taking greater notice of business associations is certainly a step in the right direction. For example, regular meetings with the country’s main export group, the Jordan Exporters Association (JEA), have proved to be valuable to both sides in airing problems and helping to resolve disputes. (Information obtained from Halim Aburahme, general manager of the JEA, interviewed by the author in December 2003.)xxxii Hekala op cit

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