Customs authorities in Latin America and the Caribbean (LAC) can leverage new technologies and innovations to boost their digital transformation and streamline foreign trade logistics. This, in turn,can help improve competitiveness and bolsterthecountries´economicgrowth.
The pandemichighlightedthe importance of trade and foreign trade logistics. In March 2020, COVID-19transformeddaily life as we knew it.Yet,trade hasprimarilywithstood thedisruptions caused by international transportation restrictions and social distancing policies.It has even grown substantially in some areas,such as e-commerce andonlinetrade, for instance. According to anAmazon report,itsinternational net sales increased by 28.3percentbetween the first half of 2019and the same period in 2020.
Byshining the spotlight onthe opportunitiesbrought bydigital transformation, the pandemic has putcustoms authoritiesand their response capacities to the test.The urgent need to clear the critical goods needed to respond to the health emergency while keeping regular trade flows movingforcedauthoritiesto transition todigitalcustomssystems almost overnight.
Even before the pandemichit, LAC waslaggingNorth America, Europe, and Asia in implementing the commitments it had taken on under the World Trade Organization’s Trade Facilitation Agreement, according to 2019 data.Therefore, the region needs to create efficiencies in its international trade logistics.
LAC’s economic recovery dependsmainlyonhowits foreign trade logisticsperform, which rests on the appropriate physical and digital infrastructure and related transportation services.
Innovating and transforming customs administration through technology
In response to these challenges, the new IDB publicationLogistics in Latin America and the Caribbean: Opportunities, Challenges, and Lines of Actiondiscusses some of the technologies thatthe region’scountries could implement to innovate and transformtheircustoms administration.
Theoptimization, automation, and digitization of customs and border processesare among the areasthatnewtechnologies address.These factors are the cornerstones of modernization and lay the groundwork for generating the high-quality data needed to implement robustandeffective risk management systems.
For example,the ability ofcustoms to obtain, process, and analyze large amounts of quality datais keyto strengthen regional value chains and make themagile and secure. Automation also requires other innovative components,such as electronic signatures and authentication mechanisms for internal and external users.
Another ingredient in the recipe for effectiveandefficient customs is thetraceability of goods.New technologies like radio frequency identification systems (RFID), the Internet of Things (IoT), geolocation tools, electronic seals for container and trailer doors, and OCR license plate readers make it possible to track cargo, vehicles, and the people driving them.
These systems can be deployed at critical points such asproduction centers, bonded warehouses, androad corridors that connect land border crossings,seaports,andairports. One example is the systemdeveloped inBrazilto track and trace cargo vehicles, packaging, and products by integrating thisdatawith electronic tax documents.Likewise, physical traceability can be accompanied by digitally documented data from each transaction.
The data that customs authorities capturehas immensevaluefor customs and border risk managementbydigitizingand associatingthemwithfreightand transportation documents (cargo manifests, bills of lading, customs declaration data, and electronic invoices). Once the dataiscaptured, artificial intelligence, machine learning, and big data tools allowthe processing and analysis oflarge volumes of informationto identifypatterns and potentially risky or fraudulent operations.
CoordinatedBorderManagementbased on the use of newtechnologies
For the benefit of supply chains and foreign trade logistics, it is alsoessentialthat theuse ofnew technologiesiscarried out inthecontext ofCoordinated Border Managementbetween customs andother authoritiesinvolved in border processes.
This coordination is streamlined with interoperability between authorities and economic operators throughSingleWindows forForeignTrade(SWs) orPortCommunitySystemsto reducetimes and costs for operators and increasecontrolcapacities. For example,theadoption ofaSW system in Costa Ricais associated with a 1.4 percentage-point increase in the exports of companies that used the system compared to those that did not.
There is also an opportunity to promote and strengthen regional value chains through interoperability initiatives between customs systems and other border entities. These includetheCentral American Digital Trade Platform (PDCC)and theCADENAapplication, which uses blockchain to facilitatedata exchangefrom companies whose reliability has been certified, such as authorized economic operators.
Finally, these components would not be effective without functional infrastructure at the entry and exit points of goods at land borders, seaports, and airports. Likewise, the effect would not be the same if the infrastructure did not include advanced technological entry, exit, inspection, and monitoring systems. The Mexican customs authority’sCustoms Technological Integration Project (PITA)is an example ofacomprehensive technology-basedborder infrastructure intervention. The customs authorities ofNicaragua,Costa Rica,andPanamáare following suit and implementing border crossing reform processesthat cover border facilities andinclude theuse of cutting-edge technologies, with support from the IDB.
IDB support forthe modernization ofcustoms and bordermanagement
Throughthe Trade and Investment Division of the Integration and Trade Sector of the IDB, we support an innovative agenda of projects to modernize customs and border managementin LAC.Two examples of these are the digital transformation and automation projects for the customs authorities ofColombiaandPeru, includingsmart traceabilityplansfor cargo and vehicles. We are also providing support for regional initiatives involving the use of blockchain to exchange data between eight customs offices inLACand the application of artificial intelligence to improve customs risk management in several countries,among other projects.
LAC countries should embrace the availability of new technologies, the fast-track innovation induced by the pandemic,and the support of international organizations, such as the IDB, to expedite the digital transformation of their customs administrations.