Guatemala:

1. Guatemala: Process of Customs Modernization and transparency 2004.2007

2. GUATEMALA The largest economy in Central America, recent regional FTA with US, EAA with Europe and CA Customs Union under negotiation

3. SUPERINTENDENCE OF TAX ADMINISTRATION • Internal revenue and Customs integrated • High degree of autonomy • Board of Directors chaired by Minister of Finance • Directors appointed by Executive Branch, proposed by University Presidents and Deans and Professional Associations • Superintendent with highly independent executive powers • 2% of collections for SAT budget • Budget approval by SAT Board of Directors • HR own regime

4. CUSTOMS: BEGINNING 2004 • Tax collection oriented • General perception of extensive corruption and discretionary practices • HR: No policy, weak training. • Procedures were not designed, documented or aligned to institutional objectives • Weak IT development (systems, telecom, infrastructure & security ) • Operations centered in clearance. Procedures for arrival, security, a posteriori-control and audits weak or non existent. Manifest arriving with or after merchandise, mostly paper based. • Red channel for imports: 70- 80% • Exports: declarations transmitted AFTER cargo departure, lack of manifest and declarations cross check capacity, physical examination 0%, lack of transit control, extended simulated exports, • Inadequate infrastructure and equipment

5. REDESIGNING CUSTOMS • WCO ASSESSMENT AND RECOMENDATIONS • NEW VISION: International standards, facilitation and legal enforcement • Highest priority on Customs • Balance between trade facilitation and tax collection • Holistic approach • Transparent procedures and IT application • Reliable employees • Association with partners • INTERNATIONAL COOPERATION • WCO • Canada Customs • AID • World Bank • International Monetary Fund

6. PROCEDURES & IT • NEWelectronic manifest (except land border. Exports: 24 h prior to departure compliance in progress. Imports 24 h prior to arrival sea transport, 8 h air cargo) • NEW electronic customs import declaration (DUA-GT), integrated to manifest • Electronic Non-fiscal Permit system for exports match DUA-GT • Risk Analysis Management System for import operations, decreasing discretionarily practices, increasing effectiveness. Less than 30% targeting 10% on physical inspection. • A posteriori-verification by private contractor, paid by SAT • Contract for inspections of arrival petroleum products, paid by SAT

7. PROCEDURES & IT • Reengineering and IT solution (workflow and new data bases) for customs operation under implementation (SAQB´E) • Control of petroleum product imports, oil extraction and exports being reengineered with OTA cooperation • International and Local Transit control procedures and IT application underway. • Communications Security International Certification awarded in 2006 • New Customs Brokers’ regulations, including mandatory training and standardized test (UG) to get SAT license • New IT equipment and development • Infrastructure improvements

8. CUSTOMS SECURITY Project “Safe Port” in progress: • Improved SAT control in Primary Customs Area (sea ports) • Scanning of bar-Coded Seal information upon arrival, and loaded to SAT system • Closed Circuit TV Cameras installation • Public INTERNET access to images of some CCTV points • Port Authorities in process of installing X Ray equipment (Puerto Barrios is been implemented already) • Customs/Port information integrated

9. ANTI-SMUGGLING • Decreasing the unlawful distribution and commercialization of petroleum products from Fiscal Warehouses and Free trade zones • High impact cases presented by SAT to attorney general • Petroleum product operation • Chicken parts re-export • Customs Agents • SAT Employees • Participation in massive anti-contraband operations, coordinated with other government agencies • Initial measurement and identification of contraband practices

10. HUMAN RESOURCES • New, improved HR hiring process, partially by private HR specialist • New HR management system, including IT applications under development • Training programs provided by Guatemalan universities with international trainers and professors • All customs employees (800) will attend a 1 to 3 month-full time course (diplomado) 3 cycles up to now (410) • Recent replacement of 100% of customs operations personnel in the 3 sea ports and 1 land border by the trained new employees • 200 new positions for Customs in 2006 • New post and salary structure in 2007, beginning the establishment of the Tax & Customs Career Path

11. INTEGRITY • Integrity program designed under WCO model. Canada cooperation • Voice Stress analysis test • Replacement of a high proportion of administrators and employees in most customs for new-trained personnel • Agreement with “Coalition for Transparency” –Local NGO-: • Policy making and dissemination /Canada cooperation • Third party administration of CT/SAT Complaint Center for Tax and Customs Service

12. BUILDING SUPPORT • Regional Public-Private Committees for operational solutions • First Public-Private sector Conference on customs modernization and transparency:(16 parties) • National customs modernization and transparency consensus agenda • Integrity Pact: organizations of public sector, importers, exporters and private providers of international trade services. • Second Conference: Customs 2008-2011 • Agenda with private sector agreed with indicators

13. INTEGRATING CHANGE: CARGO AND EXPRESS • Simplification and integration of Electronic Manifest and Customs Electronic declaration in a single transmission by the operator, including classification using 4 digit harmonized system • Electronic payment • Risk Analysis applied for selecting type of control in order to reduce the percentage of inspection by customs officers (10%-20%) • GATT is applied for merchandise valuation (price and freight) • Dispatch time reduced to 1 hour or less • INITIAL RESULTS: • TIME REDUCTION • Increased control • Paperless environment • - Increased collections

14. OPOSITION AND CHALENGES • Inside and outside: those benefiting from status quo • General measures, oriented to eliminate worst practices not to punish specific taxpayers • Few big cases of fraud and smuggling • Previous information on new measures • Institutional weakness of General Attorney Office and Judiciary System • Private sector do not know customs norms and procedures, requested immediate-very specific solutions to their day to day problems. Initial distrust • It is easy to blame customs. Too many participants in the supply chain

15. OPOSITION AND CHALENGES • Lack of coordination within SAT divisions • Lack of confidence in employees at the beginning. Insiders • Lack of communication experience and ability • Security: employees attacked, threats

16. What has worked in our specific case? • Having our own financial source and get TECHNICAL knowledge, information and experience from SPECIALISTS of international organizations and OTHER CUSTOMS administrations. WB loan. • Learning from best custom practices (custom to custom) • Building the right “challenge team “ • Starting with measures that can be internally controlled, easy to implement with high impact on the service delivery • No big announces of reform at the beginning, let private sector experience initial results BUT SELECT a highly visible action to build credibility and send message of strength

17. What has worked in our specific case? • Building support from the private sector. Inviting, visiting. • Political support from the President and Minister of Finance is PRECONDITION • Comprehensive, massive interventions (No pilot projects) • DO NOT STOP

18. COST OF REFORM • WB LOAN US$ 10.0 EQUIPMENT AND SYSTEMS • SAT US$ 10.0 SYSTEMS, THIRD PARTY INSPECTIONS, TRAINING, INFRASTRUCTURE, EQUIPMENT • US, CANADA OMA US$ 0.5 TECHNICAL ASSISTANCE LIFE LOSS, ATTACKS, INTIMIDATION , THREATS, ENEMIES AND FEAR

20. Average import duties1990/2007 6.1% 80% tariff positions less than 5% duties

21. Service indicators

22. RESULTS • Facilitation: Decreased release time, less physical inspection • Free trade: Duties average from 5% to 2.2% • Collections: Increased in both, internal and foreing trade. • Seizures: Increase

23. CONCLUSION: Facilitation and control in customs are sides of the same coin… Custom modernization is positive to all participants: economic growth, trade facilitation, investment attraction, competitiveness, tax collection It is A LONG TERM PROCESS,very difficult to implement, but possible