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FEATURE STORY June 11, 2018

A New Way of Managing Risk for Customs in Montenegro: 80% Reduction in the Inspection of Excise Goods

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STORY HIGHLIGHTS

  • The Montenegro Customs Administration used to inspect 100% of imported excise goods, which resulted in long delays for businesses and a low detection rate of illegal cargo.
  • To streamline their inspection procedures and find the right formula for the clearance of goods, the Montenegro Customs Administration asked the World Bank Group’s Western Balkans Trade Logistics Project for assistance in establishing a risk-based approach to customs. Since implemented, this approach saved over 40,000 hours in customs clearance.
  • Improving Montenegro’s import controls on excise goods was an important step towards strengthening the business environment for all firms, including potential foreign investors.

Washington, 25 June 2018: Trebjesa is the leading brewery in Montenegro. The company produces four different lager beers under the brand name "Nik": Nikšićko pivo, Nik Gold, Nik Cool, and Nikšićko tamno. Nikšićko pivo is the most popular beer in the Montenegro. It is also exported and has grown in popularity in the region (Croatia, Slovenia, Albania and Bosnia and Herzegovina) and worldwide (France, Germany, Switzerland, Canada and England). Further, the Trebjesa brewery also bottles imported beer at its facility to sell on the domestic market in Montenegro.

The Montenegro Customs Administration used to consider excise goods, like beer, high-risk products. This was because some shippers declare a lower value or quantity of goods to reduce customs duties. For the Customs Administration, this posed a risk of a significant loss of revenue. Like many other countries, it mandated 100% inspection of these imported goods. This high level of control caused serious delays for businesses since the examination of goods could take several hours. While at the same time, the detection rate of irregularities – such as undervaluation, under declaration of quantity, misclassification - was very low.

“Companies involved in legitimate business expect customs authorities to do two things. To combat the grey economy in illegal goods trade and to reduce the frequency of controls, as both factors can negatively impact the time and costs of doing business,” said Ljiljana Filipovic, Vice President, the Chamber of Economy of Montenegro.

Complicating matters, business hours for the Montenegro Customs Administration were 7:00 AM to 3:00 PM. With every inspection taking up to seven hours, shipments arriving towards the end of the working day had to wait until the next business day to be processed. For goods arriving after 3:00 PM on a Friday, clearance would be delayed even further - to Monday morning. This entire process led to unpredictable delivery times and frustrated customers.

“The former operating model was restrictive and expensive. If our trucks reached the terminal before 8:00 AM, they would only be cleared around 3:00 PM, which meant we lost a full working day. The brewery was then faced with two options: send the trucks back to the warehouse and wait for the next working day to deliver to customers, or pay additional (double) daily allowances to unload the goods. If the trucks arrived after 8:00 AM, they would be cleared the next business day, which meant handling fees were much higher,” said Vladimir Gardasevic, Transport and Customer Service Manager, Trebjesa.

A new risk-based inspection system

To streamline their inspection procedures and find the right formula for the clearance of goods, the Montenegro Customs Administration asked the World Bank Group’s Western Balkans Trade Logistics Project, a regional program funded by the European Commission, for assistance in establishing a risk-based approach to customs. This support was subsequently continued by the Trade Facilitation Support Program (TFSP), a global program that provides support for countries seeking assistance in aligning their trade practices with the World Trade Organization Trade Facilitation Agreement.

The Project supported the Customs Administration in establishing a five-step process for identifying and addressing risks:

Step 1: Risk identification: What are all the potential risks associated with excise goods?

Step 2: Risk analysis: What is the cause, level, and source of each of these risks?

Step 3: Risk evaluation: How frequent or likely are these risks? How would they impact revenue?

Step 4: Risk treatment: Which risks can be tolerated, and which need to be addressed?

Step 5: Risk monitoring and review: Over time, does the level of these risks change? How should policies be adjusted?

By using this four-step processes, a new risk management electronic system and appropriate records of compliance, the Customs Administration could identify in advance which cargo warranted inspection and which could be automatically cleared. When evaluating risk, the Customs Administration considered factors including the product classification, the country of origin, the value of the goods, information about the trader, and the mode of transportation, among others.


"Together with the World Bank Group team we implemented a more disciplined and structured approach to managing risk."
Vladan Jokovic
Director General, Montenegro Customs Administration

“Together with the World Bank Group team we implemented a more disciplined and structured approach to managing risk”, said Vladan Jokovic, Director General, Montenegro Customs Administration. “The nature and frequency of inspection should be proportionate to the level of risk attributed to it and take into account all relevant factors. The objectives of controlling the global supply chain, while facilitating legitimate trade are mutually-reinforcing, as both stimulate cross-border trade and ensure a more effective trade flow, thus contributing to sustainable, fair and inclusive economic growth.”

Saving Montenegrin businesses time and money

Previously, 100% of excise goods were inspected. Now, just 19% of excise goods warrant inspection. Risk factors were also further monitored and adjusted, which led to a further reduction to 14%. With fewer shipments to inspect, customs agents are now more efficient and more likely to spot illegal cargo. Montenegrin traders also spend less time and money on the clearance of their goods, since the average release time for goods was reduced by 70%. This in turn benefits the consumer through faster delivery times and lower-priced goods.

“The new risk management system implemented by the Customs Administration has reduced our direct costs, such as terminal handling fees, no additional allowances for workers, truck occupancy, etc. More importantly, we can now guarantee delivery times for our customers which has led to improved relations and a better image for the brewery,” said Vladimir Gardasevic, Transport and Customer Service Manager, Trebjesa

Trebjesa has used the money it has saved to invest in its people and the local community, specifically for capacity building for staff, a corporate social responsibility campaign to highlight the negative effects of drinking and driving, and to support local NGOs that work on environmental protection.

Improving Montenegro’s import controls on excise goods is an important step towards strengthening the business environment for all firms, including potential foreign investors. Attracting and retaining a diverse set of foreign direct investment (FDI) linked to international markets and global value chains is central to Montenegro’s plan for growth and development. Such “efficiency-seeking” investments can be difficult to attract, as they tend to require locations with competitive environments where business is conducted in a predictable, cost-efficient and reliable way. Despite the high standards, these investments can have tremendous returns for the host country. Over the long term, efficiency-seeking FDI can contribute to technology and knowledge transfers, export diversification, increased global competitiveness and higher quality jobs for the citizens of Montenegro. In this way, facilitating trade by streamlining Montenegro’s customs processes is deeply connected to the country’s vision for the future.

According to Emanuel Salinas, World Bank Country Manager for Bosnia and Herzegovina and Montenegro, “Ultimately, all efficiency-seeking investors are exporters, and for them, trade facilitation reforms are particularly important.”


Results data

  • The percentage of excise goods that the system would assign to physical examination dropped by over 80% (from 100% to 14.36%) during the time period 2016-2017.
  • The average release time has been reduced by 70% (from 48,639 hours to 6,986).

 

 

# of declarations checked

Average time to release (hours)

Total duration of inspections (hours)

A

Before (100% physical check)

32,426

1.5

48,639

B

After (14.36% physical check)

4,657

1.5

6,986

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TFSP is funded by nine donor partners: Australia, Canada, the European Union, the Netherlands, Norway, Switzerland, Sweden, the United Kingdom and the United States


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