Customs Tender Debacle

Import News from the Importers Institute

The Importers Institute today lodged a petition with Mr John Luxton, Minister of Border Protection, asking him to prevail on the Customs Service to defer a new system, scheduled to be implemented by the end of this month, and to consult with users. The petition was signed by some of New Zealand's largest Customs brokers, who together submit a substantial proportion of all entries. We are concerned that there is a real probability of disruption to trade.

Background

The New Zealand Customs service is the only Customs department in the world to process virtually all import entries electronically. A growing number of exports are also being processed in a paperless mode. These innovations won New Zealand Customs the deserved accolade of being among the best in their field.

The Importers Institute asked Customs last year to adopt the technologies used in commerce, namely, Internet email. We were concerned that the old EDI dial-up infrastructures would cease to be supported, as the Internet became more prevalent. We were also concerned about having detailed data of our imports and exports (like who buys what from whom and at what price) held in database in Sydney, owned by AT&T, an American company. At least, we didn't give it outright to the French intelligence.

Customs used to operate an old Cobol-based mainframe system, known as "Casper." With Y2K approaching, the Service wisely decided to replace it with a more modern system and the taxpayers duly obliged with more than $20 million. We hoped that a system commissioned in 1997 would have considerable e-commerce functionality, but this was not to be. Like the Police's INCIS, the current system could be described as "Casper with Windows."

The Importers Institute asked Customs to implement an open solution in-house and, if contractors had to be used, to ensure that there was more than one, to allow for the benefits of competition. At this point, Customs made a decision not to conduct an open tender, but instead went into something called a "tender by invitation". For reasons that are still unclear, Customs decided to keep this exercise secret from the Importers Institute and brokers in general.

Customs did consult with CBAFF, an association of Customs brokers, but that association did not inform its members until after the final decision was made. CBAFF was appointed a sales agent for one of the tenderers -- a company called ECN. This company was previously unknown in international trade EDI circles, had no track record in that area and it did not even have the necessary hardware or software.

Customs awarded an exclusive contract to ECN. CBAFF offered to sell the ECN service at a price marginally lower than that available to non members, such as importers and the majority of brokers. It can do this, because ECN pays CBAFF a commission.

The contract between ECN and Customs required Customs to use its "best endeavours" to ensure that ECN had a complete revenue monopoly from 30 September. Customs complied by advising users that, from midnight on September 30, the AT&T facilities will be disconnected.

This will require brokers to purchase new software and pay the significantly higher costs charged by ECN. We estimate the potential additional aggregate cost to be at least $330,000 p.a. In some cases, the new software that brokers need to link to ECN does not yet exist.

The Customs Service said that it wants to have its own email messaging service operating within the next twelve months. We support that aim.

ENDS

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