Facilitating Trade:
Improving Customs Risk Management Systems
In the OIC Member States
8
2 Conceptual Framework
Customs reform is a central aspect of trade facilitation: The modernization of customs practices
supports improving regulatory enforcement, increasing revenue collection whilst facilitating
trade. The automation of customs procedures and single-window approaches has drastically
improved process performance and reduced time and costs for traders. Risk management is
another element of modern customs practices that contribute both to increasing the
effectiveness of customs control and simplifying formalities and procedures for trade.
Governments worldwide increasingly use risk-based compliance management for Customs and
other purposes such as food safety.
Risk management as a conceptual approach for customs control is not a new concept as such.
The use of IT has evolved in the past years due to increased IT abilities to support risk
management.
2.1 Customs Risk Management Framework (CRMF)
2.1.1 Definition
According to the WCO Risk Management Guide, customs risk “is the potential for non-
compliance with Customs laws.” Anything that prevents a CA from achieving its objectives would
be considered the main risk. Because a risk also takes into consideration the consequences of
specific events, it needs to be differentiated from uncertainty:
 Uncertainty is the lack of complete certainty, that is, the existence of more than one
possibility. The “true” outcome/state/ result/value are not known. Measurement of
uncertainty is a set of probabilities assigned to a set of possibilities. For example, - There
is a 70% chance this trader will be non-compliant with the customs procedures next
year, and 30% chance it will be compliant in the same period.
 The risk is a state of uncertainty where some of the possibilities involve a loss,
catastrophe, or another undesirable outcome. Measurement of Risk is a set of
possibilities each with quantified probabilities and quantified losses. For example, there
is a 60% chance the trader to use double invoices to avoid customs duties of $1 million
in next three years.
Hence, the two essential risk elements are: (1) the probability that something will happen and
(2) the consequences if it happens. Both elements define the importance of specific risk for an
organization such as customs administrations. The importance of the risk and associated risk
level are the highest if the probability of an event to happen, and the negative consequences of
this event are both high.
Customs Risk Management (CRM) , according to the WCO Risk Management Guide, is the
systematic application of management procedures and practices which provide Customs with
the necessary information to address movements or consignments which present a risk. The
CRM is a means of CAs to improve trade facilitation processes by replacing full physical
examinations of documents and shipments with planned and targeted working method
determining the level and type of inspections. The objective of CRM is the effective selection of
high - risk shipments and traders for control while allowing lower or risk-free trade to pass
freely and with minimum waiting times.
2.1.2 Types of Customs Risk
CAs objectives continuously evolve, including the primary role of revenue collection and other
objectives such as protection of public health, environmental protection, consumer protection,