By Analyst
Electronic commerce and the Electronic
Data Interchange for the Custom Department was the subject of a seminar organised by U.N.E.S.C.A.P. together with SRILPRO, the trade facilitation arm of the Sri Lanka Export Development Board. The Minister of Trade made the usual speech, full of platitudes about the changing world and how useful electronic commerce will be and so forth.

But has the Minister done enough to facilitate trade, a pre-condition to the introduction of electronic data interchange.

Former Minister of Trade Lalith Athulathmudali, the brilliant administrator that he was, realised that the problems faced by the private sector should be brought before the bureaucracy in an open forum for discussion. He realised that there must be inter-action between the bureaucracy and the private businessmen for their mutual understanding.

So he set up the Exporters Forum, a quarterly meeting of top government officials of all government departments connected in some way or other with trade. He borrowed the institution from South Korea where it was very successful in promoting understanding between business and the bureaucracy. But the present government has allowed this institution to lapse into oblivion, perhaps because it was an innovation of the previous government.

Surely any good practices and institutions should be continued. Our bureaucracy neither understands nor has any appreciation of the ways of the private sector. They assume that the private sector businessmen are dishonest and that controls are necessary to ensure that they don't rob the nation of its foreign reserves. Their economic naivette and deep suspicion of businessmen can be dispelled by more inter-action between them.

The bureaucracy is not familiar with the operation of a free market economy since we have lived for too long under a controlled economy. The bureaucracy has to change over from administrative controls to market oriented policies using market forces as signals to induce the required reactions from business. For example, the price of a commodity can be controlled not by imposing a price control order but by intervening in the market to increase the supply. The bureaucracy has fared poorly in trading in open markets and prefer state monopolies.

Time and time again controls have proved to be failures. Whenever they catch a private sector business violating the regulations in some new and unusual way not visualised previously by the bureaucracy, the tendency is to close the loophole by tightening the regulations, imposing new burdens on everybody rather than successfully prosecuting the errant businessman. Our ministers place too much faith on new laws when what is needed more is the enforement of the laws already in existence. But no new law will make any difference whatever the field it covers because the machinery for implementing the law has broken down.

There is a total break-down in the functioning of the public service. A business has abused the duty free concession. It should be obvious to any policy maker that we cannot have duty free shopping enclaves in a highly taxed economy where the administrative machinery is both inept and corrupt. Yet there are moves to open a duty free complex in the city perhaps to benefit crony businessmen.

Trade Facilitation
The authorities don't seem to realise that electronic data interchange and electronic commerce can grow only in an economy where international trade is conducted according to the usual methods prevailing in free market economies. For example the trend towards automatic data transmission in the export-import trade requires the tackling of the issue of negotiability of documents used in such trade. The trend towards automatic data transmission involves a reduction in the number of documents presently used in international trade. The present set of documents involves repetition of the same data in several documents

The United Nations has done much to promote the simplification of documents and a reduction in their number, through its programme of trade facilitation. Locally SRILPRO was set up to promote trade facilitation.

Background
A trade transaction involves the movement of goods in one direction from the seller to the buyer and a movement of money in the other direction from the buyer to the seller. There are ancillary contracts with bank, insurance companies, freight forwarders and carriers. The seller wishes to be certain of receiving payment - while the buyer has to be certain of receiving the goods he ordered.

Various intermediaries need to be certain they can perform their service efficiently and be assured of their remuneration. Over the years the trade has developed customs and practices relating to the obligations of the various parties to the transaction. There is the Uniform Customs and Practices Code. There is also a body of international law governing the obligations of the shipping and airline and the marine insurance terms. But since goods cross frontiers between countries, the national goverments of the seller and buyer have also sought to regulate the trading transaction.

This is done on the basis of the information provided by the traders themselves. Government officials, say they must have acceptable evidence for each step of the transaction - that the goods have been correctly defined classified and valued for duties and taxes and that satisfactory evidence is kept for later verification. These considerations of the authorities and of government officials, are completely different from the commercial considerations of the traders.

While it is understandabe that the government must be satisfied that the trader is paying the correct duty, our government has gone beyond such a consideration. Ever since Independence in 1948 we have had exchange control and import control restrictions. Exchange control seeks to prevent false invoicing by traders to spirit away foreign exchange. In a free market economy the flight of capital is prevented by the state following prudent economic and financial policies which make it uneconomic for people to spirit away capital. Although we are said to have freed trade transactions from exchange control and to have accepted obligations under Article 8 of the IMF import trade is still stifled and saddled with onerous restrictions.

Although the Exchange Control department of the Central Bank is said to have relaxed controls, what they have done is to introduce more or less identical restrictions under the Import Control Regulations - the voice of Jacob but the hand of Esau. So, an Import Control department circular has prescribed what models of payment are permitted for trade, how documents used in international trade, have to be drawn up, and how such documents should be despatched from the seller to the buyer.

Importers are required to comply strictly with such restrictions. Unless the importer complies meticulously with te circular, he will not be able to clear his goods from the harbour to his stores. If there is the slightest deviation from the laid down procedures, the importer must run to his bank which is the authority enforcing these regulations. Not all banks are customer friendly. Some prefer to comply with the rules strictly and avoid using any discretion granted to them.

The authorities do not realise that the banks are an ancillary party to the commercial transaction. They are not the honest umpire that the authorities assume. So when there are discrepancies in the documents, the importeer has to go to his bank and plead for a shipping guarantee or indemnity which will cost him upto 1% of his invoice. If the Customs insist on a detailed verification of the cargo, then he will have to pass customs overtime and also transport the customs officials to his warehouse and thereafter the customs officials to his warehouse and thereafter take them to their homes, however far they may be.

Excessive Documents
While the trend in international trade is to reduce and simplify documents, we find the Sri Lanka Customs doing the exact opposite, demanding a variety of documents in addition to the commercial invoice. They ask for letter of Credit copy to check the value of the consignment against the value provided in the letter of Credit. They want the Bill of Lading, the Packing list, and even the certificate of Registration of the business, and here we are talking of moving to paper-less documents without taking any steps to reduce the number of paper documents.

Under Electronic Data Interchange, data is to be transmitted through electronic machines whereas the Customs Department do not even accept fax copies of documents. When the letter of credit document is submitted to the Customs and there are discrepancies in the date for shipment, for presentation of documents etc. they insist on amendments to the letter of Credit being effected before permitting the clearing of the goods causing unnecessary expenses and delay to the consigence. But it is the practice in international trade for the negotiating bank to contact the opening bank for acceptance of such discrepancies like "late shipment" or "late presentation" and if the opening bank accepts them, the matter is treated as O.K. without formal amendment to the Letter of Credit.

But the customs insist that the letter of credit be amended and even back dated causing unnecessary costs and delays to the importer. If there is the slightest discrepancy in the value of the letter of credit and the shipments under it, and even if the discrepancy is due to the fluctuations in the exchange rate from the time of opening the letter of credit to the receipt of goods or date of shipment, they insist on amendments to the letter of credit. Discrepancies in the L.C. value and the invoices drawn under it, may be due to fluctuations in freight charges. The difference may be a small even negligible amount, but the customs will not allow it without regularising it.

Relax controls and liberalise
All these are unnecessary controls applied without understanding of the customs and practices of international trade. The government has interferred far too long in the trade documentation this preventing our traders from falling in line with the changing practices in international trade. The terms of payment and the method of payment are matters that should be left to the importer and exporter.

They are commercially determined according to the nature of the trade, the degree of competition and the credit worthiness and reliability of the buyer and seller. Government meddling while achieving little or nothing has merely added to costs and delays in clearing the cargo. Removal of such restrictions will facilitate faster clearance of cargo and impose less costs on importers and ultimately on consumers. Faster clearance of cargo leads to less congestion in the port and a faster turnaround of ships calling at our ports. The economies and cost savings that arise from such speeding up are likely to be substantial.

At a time when we propose to make massive investments in Expressways to improve the speed of internal transport of goods from and to the port, how can we ignore much simpler changes which cost nothing by way of investment. The consignees should be encouraged to clear goods during the night and on holidays if we want to reduce the congestion on the roads. But it is no encouragement if they are required and called upon to pay extra charges by way of customs overtime and additional port charges.

In short the government must provide a 24 hour service for cargo clearance to consigners/consignees without imposing extra charges. Shift work for government employees in the customs and the port will obviate the need for extra payments by way of overtime.

The government should do away with restrictions on payaments as it has undertaken to do under Article 8 of the IMF rules. The duty of the Customs official should be to implement the Customs Ordinance and collect the proper duty and taxes. Presently they are the authority to enforce all manner of regulations on payments procedures which are best abolished. Exporters have by and large been given adequate freedom perhaps because of the importance of exports to the economy.'

But over 50% of the value of exports consists of imported inputs. So retrictions on imports affect exports as well. They make it difficult for exporters to honour contracts in time if their manufacturing is slowed down by slow delivery of import cargo.

It also increases the amount of working capital required making it difficult for them to expand turnover. In any case why control only payments for imports when false invoicing can be resorted to by exporters as well. Should the authorities be concerned only with false invoicing on imports. Flights of capital cannot be stopped by restrictions as we have had in the past 50 years. Such controls never stopped businessmen from acquiring flats abroad or educate their children abroad.

In a free market economy the only way to stop capital flight is for the government to provide the necessary confidence to the business class that their wealth is safe in their own country. Prolonged depreciation of the currency, lack of law and order, excessive corruption, make businessmen lose confidence in the future of the economy. Foreign investors have already lost confidence in the future of our economy judging from the collapse of the stock market.

Killings of businesmen is on the rise. There seems to be selective justice by the police, only for party men and party supporters. The Opposition has been deprived of the right of peaceful association. The right to peaceful protest is a part of the freedom of association and it has been taken away from the Opposition. It’s only a matter of time before the right of dissent is completely quashed. The journalists have always felt the heat which is now increasing. The most sacred right of the people - the franchise has been taken away. So capital flight by businessmen will increase with more adverse consequence to the economy as the foreign reserves tumble in the not too distant future.

To return to the subject of excessive documents required because of government regulations. It is running contrary to the trend towards automatic transmission of data through electronic means. These documents are too complicated and often contain both too many and unnecessary data. The same data is repeated in many documents.

The requirement laid down by the government for documents to move through the banking system also causes too much delay and imposes unnecessary costs.

Automatic Data Transmission
With automatic data transmission growing in other countries. We need to use standard trade data. The advantages of non-paper documents must be stressed. There will be fewer errors since data would be transmitted through machines. There will be a better cash flow management to business with consequential financial savings. A non-negotiable transport document on the lines of the Airways Bill used in air freight, must be introduced however heretical it may sound. Our traders have never benefitted from the transferability of the Bill of lading owing to government restrictive regulations which require them to be drawn in favour of the local bank. Regulations also require the despatch of documents only through the banking system, giving the banks a secure source of profit at the expense of the consumers.

In electronic data transmission we are hoping to do away with paper documents. It has been estimated that 7 - 10% of the value of goods traded are involved in paper work. If we add the extra paper work and bank charges caused by our restrictive government regulations another 3 - 4% must be added.

If we are to move to electronic date interchange for international trade transactions we must remove these regulations by repealing the circular issued by the Controller of Imports. This is a matter within the purview of the Minister of Trade who is wont to make lofty and extravagant speeches mouthing the platetitudes of modernisation and globalisation. He should revitalise SRILPRO and ask the facilitation committee to get ahead with their work so that the council on Electronic Data Interchange can take-over from where they leave off.