## INTRODUCTION

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---

### Current Situation
- Since late 2015, and in response to the sharp drop in global oil prices, Iraq has undertaken reform initiatives to diversify the economy and increase the effectiveness of non-oil revenue collection. In October 2020, the Iraqi government released a new roadmap (the white paper).
- The Iraqi revenue system is based on two main sources: extractive industries (mainly petroleum), income taxes and customs. Those sources represent at least 98 percent of total government revenue.
- Customs duties, the only duty and tax collected by GCA, represent merely 1.5 percent of total government revenue and are minuscule compared to the size of imports (around USD 36 billion).
- Effective tariff rate is under 2.6 percent while the average tariff rate is 10 percent, indicating potential for significant improvement.
- Government revenues from 2016 to 2020 (USD Billions):
  - 2016: Total receipt 82; Extractive revenues (oil & others) 60; Other revenues (income taxes & others) 21.5; Customs duties 0.5; % of customs duties to total tax receipt 0.60%
  - 2017: Total receipt 66; Extractive revenues (oil & others) 57; Other revenues (income taxes & others) 8; Customs duties 1; % of customs duties to total tax receipt 1.5%
  - 2018: Total receipt 77; Extractive revenues (oil & others) 65; Other revenues (income taxes & others) 10.5; Customs duties 1.5; % of customs duties to total tax receipt 2%
  - 2019: Total receipt 89; Extractive revenues (oil & others) 79; Other revenues (income taxes & others) 9.2; Customs duties 0.8; % of customs duties to total tax receipt 0.9%
  - 2020: Total receipt 57; Extractive revenues (oil & others) 49; Other revenues (income taxes & others) 7.2; Customs duties 0.8; % of customs duties to total tax receipt 1.4%
- Information obtained by the STX is limited largely because of inadequate data availability: GCA apparently has difficulty to benefit from ICT support in compiling data.

### Technical Assistance Provided
- Remote TA assignment by a short-term expert (STX), Mr. Djamel Bouhabel, from January 17 to February 4, 2021 to the General Customs Authority of Iraq (GCA).
- Main objective: advise GCA on development and effective application of customs assessment processes based on international standards and best practices.
- Tasks addressed:
  - Review implications of legal framework, organizational issues, management, ICT, SOP, and training and trader’s enlightenment on determination of origin, tariff classification and valuation.
  - Advise on development and effective application of customs assessment processes based on international standards and best practices.
  - Draft inputs to a strategic plan regarding assessment processes.
  - Identify further TA beneficial in relation to valuation, rules of origin, and tariff classification.
- STX presented international standards in customs valuation processes (Appendix I) and WTO standards (Appendix II) and emphasized the importance of trade data accuracy in guiding investment priorities.

### Key Findings — Overview
- GCA has authority to verify, audit and examine declared origin, tariff classification and value for duty and, if necessary, re-determine value based on customs valuation, determination of goods’ origin, and tariff classification (stipulated by Customs Act (1984) Article 62; re-determination based on Articles 62 to 74).

### A. Assessment of Customs Value
- Legal framework:
  - Assessment of customs value is based on an outdated legal and regulatory framework. The Customs Act (1984) Article 34 uses the Brussel Definition of Value (BDV) as a basis for assessment.
  - BDV treats customs value as the price at which the goods would be sold; essential elements: price, time, place, quantity, and commercial level.
  - BDV can artificially inflate cost of imported goods and is not in line with international standards. Iraqi authorities should consider the “transaction value” outlined in the WTO Valuation Agreement.
- Operational process:
  - Assessment is completed by one or two units depending on the case. Process starts with the customs affairs unit at the border crossing point (BCP) reviewing admissibility and then physical inspection. Unresolved cases are referred to the “valuation determination unit” at GCA HQ.
  - Assessment of customs value for imported cars represents significant difficulty.
- Value database and sanctions:
  - Declared import value accepted if it does not exceed the value stored in the value database by five percent; otherwise declared value is rejected and subject to a fine at a fixed amount of 750,000 Iraqi Dinars, and the value database’s data will be used for duty calculation. This practice is known as “minimum price”.
  - GCA HQ Value Database Committee manages and updates the value database.
  - GCA applies unique and arbitrary fixed rates for insurance and freight cost which also comprise customs value: 1.25 USD per ton for insurance and 2,500 USD for freight cost.
- Risks and recommendations:
  - The “minimum price” practice is not in conformity with international standards; value database should be used for risk management, not as minimum prices.
  - Current practice likely reduces under-invoicing but may encourage over-invoicing used to transfer hard currency abroad.
  - GCA anticipates that implementation of ASYCUDA world with interface with Central Bank may offer a comprehensive solution.
  - STX advised GCA to start discussions with the Iraqi tax administration on cross-border profit shifting and develop a joint approach using international standards and good practices.

### B. Assessment of Tariff Classification
- Historical context:
  - Until 2016 a flat tariff duty rate of five percent applied. In 2016 multiple tariff rates were introduced ranging from zero to 80 percent. Since 2018 tariff structure simplified to four rates: 0, 10, 15, and 30 percent.
- Process and capacity issues:
  - Goods classification before import declaration is needed by other government agencies. “The State Company for Iraqi Fairs and Commercial Services” confirms goods classification in applications; import declarations and supporting documents must contain Iraqi goods classification code based on Harmonized System (HS).
  - Once declaration placed, classification assessed in two phases:
    - Phase 1: BCP assesses classification; reviewed by HQ’s “Tariff Verification Unit”. Assessment follows General Rules for the Interpretation of the HS.
    - Phase 2: Desk transactional audit at tariff verification unit reviews that calculation of customs duties and related charges are accurate; purpose is not to ensure accuracy of tariff classification assessment.
  - Both phases lack coherence, uniformity, and clear procedures on the General Rules for the Interpretation of the HS, resulting in significant inconsistencies and many reassessments.
- Enforcement and collection:
  - A fine at a fixed amount of DI 750,000 is imposed for discrepancies between declared and assessed tariff classification.
  - Collection of debts after recalculation raises concerns: lack of staff (the tariff verification unit at HQ had 80 customs officers), manual and outdated procedures, difficulties to track non-compliant importers, delays in audits (unit currently reviewing 2018 and 2019 declarations), and statutory extinctive prescription limiting customs action penalty to 3 years (Article 253 of the Customs Act (1984)).
- Technical capacity:
  - No customs or certified independent laboratories are in place to ensure assessment accuracy; some cases require full lab analysis to determine goods’ composition.

### C. Assessment of Goods’ Origin
- Documentation and practice:
  - All exports to Iraq need valid certificates of origin authenticated and legalized by Iraqi representatives in export countries (Customs Act (1984) Article 31). In case of non-compliance, goods can be released with an appropriate guarantee.
  - These documents are transmitted by Iraqi representatives in export countries to the General Commission for border crossings in Iraq (Law No. 30 (2016) and Decree of application No. 453(2019)).
- Preferential trade and operational reality:
  - Iraq decided to withdraw from all free trade agreements it had acceded to, except one with Jordan; declarations applying to preferential tariff rates are almost non-existent and there is no substantial need to examine goods’ origin.
  - Consular visa may authenticate the document but does not assure contents; Iraqi representative offices unlikely have capacity to check certificate contents.
  - No GCA unit is accountable for the objective of certificate of origin and determination of goods’ origin, except for goods coming from Jordan. Goods’ origin information may be used only to comply with trade statistics which applies non-preferential rules of origin.
- Reference:
  - WTO Agreements on Trade in Goods - Rules of Origin (1994) may be a reference.

### Related Issues
- Cross-cutting finding: legal and regulatory framework is obsolete and needs modernization. Iraq needs urgently a new legal and regulatory framework governing customs, modernizing organization and procedures, and empowering customs to conduct necessary control and penalty clauses with sufficient deterrent effects to improve trader compliance and customs revenue collection performance.
- GCA explained a bill revising the Customs Act (1984) entailing modern customs principles is to be submitted to the parliament for approval by mid-2021 (STX could not obtain the draft bill and did not assess its contents).

### A. Appeal Mechanism — Findings and Required Actions
- Appeal mechanism regarding decisions on customs valuation, determination of goods’ origin, and tariff classification has been reinstated after over a decade of suspension and is stipulated under the Customs Act (1984), Articles 74 to 77.
- Current customs clearance procedures, mostly based on predeterminations, and the ban on logging an appeal once imported goods are still under custody of the customs administration, leave very little room for contesting decisions relating to customs value, rules of origin and tariff classification.
- Discrepancies between Iraqi customs appeal mechanism and international standards include:
  - Eligible time period for appeal after the original decision is made by GCA.
  - Eligibility of judicial appeal as last resort after the administration appeal was once placed.
  - Possibility of release of goods with guarantee while the appeal case on that goods continues.
  - Who handles the appeal in the GCA.
  - Who bears the cost.
- Recommended actions:
  - Revise customs law to align appeal mechanism with international standards.
  - Develop associated SOPs after legal modification.
  - Provide proper training and awareness raising for both GCA staff and traders.

### B. Use of Information and Communications Technology (ICT)
- Current selection:
  - GCA recently selected ASYCUDA World for its customs clearance ICT system.
- Expected benefits once properly introduced and used:
  - Accurate trade data.
  - Improved flow of information.
  - Reduced manual workload.
  - Streamlined procedures.
  - Targeted control.
  - Strengthened compliance, national uniformity in interpretation of laws, increased efficiency and transparency, and demotivated corruptive practices.
- Implementation timeframe and project length:
  - Implementation expected to start in the second quarter of 2021.
  - A total of 84 months was planned for the entire project to be implemented.
- Lessons and requirements:
  - Strong capacity in project management and procurement management is important.
  - United Nations Conference on Trade and Development will provide ASYCUDA software free of charge and likely provide TA experts whose contract would be based on the number of days bound in the country.
  - Beneficiary responsibility includes preparing infrastructure (e.g., data server center building), procuring ICT equipment and supporting software/middleware, arranging telecommunication services.
  - Government level procurement authority intervention can add time for procurement clearance and delay progress, inflating TA experts’ costs.
- Change management and monitoring:
  - Well planned awareness-raising and training for customs officers and traders’ staff are imperative.
  - Monitoring of readiness during preparation and post-launch use is important to maximize ICT effects.
  - Optional components (e.g., e-payment, manifest, transit, warehousing) require engagement of stakeholders such as commercial banks, maritime transport agents, container terminal operators, cargo freight forwarders.
- Legal and process alignment:
  - Customs law revision must be realized along with the ASYCUDA installation; delays in law revision may prevent activation of modern procedures.
  - Business process engineering (BPR) should be conducted along with ASYCUDA installation to avoid retaining obsolete procedures and to prevent automation of redundant/unnecessary processes.
  - Interface considerations:
    - Interface with tax administration should be considered in addition to other trade-related government agencies.
    - A new tax administration ICT system project exists in Iraq; synergy and collaboration should be sought between the two projects.
    - Development and management of tax identification number should coincide with ASYCUDA installation project.
    - Reporting to the treasury system is usually an integral part of the project.

### C. Risk Management — Findings and Roadmap
- Current practice and problems:
  - GCA does not assess compliance risks to target high-risk declarations with respect to customs valuation, rules of origin and tariff classification.
  - Current practice requires a 100 percent documentary verification and physical inspection.
  - Consequences: overstretched human resources, costly trade transactions, shallow controls, limited feedback from physical inspections, uncertainty about staff performance and integrity.
  - Lack of ICT capabilities for selectivity based on risk management explains this situation.
- Recommended approach during ASYCUDA World installation:
  - Reframe control approach to targeting based on risk management.
  - Develop risk profiles by commodities, traders, origin and their combinations.
  - Create mechanism to set selectivity criteria in ASYCUDA World, improved by:
    - Accurate control result reporting.
    - Intelligence reports.
    - KPIs.
  - Apply similar approach to targeting PCAs.
  - Develop risk management processes and internal procedures and create a dedicated unit in GCA’s organizational structure.
  - For the medium term, explore advanced approaches like data mining, advance electronic information, and Authorized Economic Operator program.

### D. Post-Clearance Audit (PCA) — Gaps and Preparation
- Legal and operational gaps:
  - The Customs Act (1984) does not provide legal basis for PCA.
  - GCA lacks legal authority to ask traders for supporting documents after import clearance.
  - Traders are not obliged to keep business records relating to import.
  - GCA currently controls all declarations at importation and does not conduct PCA.
- Legal and programmatic reforms needed:
  - Customs law revision should create legal basis empowering GCA to conduct PCA, recuperate duties if discrepancies are found after import clearance, and oblige traders to retain clearance-related documents for certain years with substantive penalties for non-retention.
  - Develop PCA objectives and prioritization, examples include:
    - Replacement of certain documentary verification at importation.
    - Verification of appropriateness of ASYCUDA World selectivity criteria.
    - Assessment of business agreements impacting customs value (e.g., commission and royalty).
    - Inventory check of bonded warehouse.
    - End-use verification for certain duty/tax exemption programs.
    - Assessment of compliance capacity for Authorized Economic Operator in future.
    - Verification of import eligibility (e.g., certificate and license).
- Preparatory actions (in parallel with law revision):
  - Organize awareness raising and training for GCA staff and traders.
  - Create perhaps three to four PCA teams strategically and geographically allocated with means of transport.
  - PCA teams should have knowledge on customs valuation, rules of origin, tariff classification, corporate books (inventory records, financial transaction records, corporate accounting software) and audit skills.
  - Define policy between desk audit and site-visit audit.
  - Place utmost attention on integrity, recognizing vulnerability of on-site audits to collusion and corruption.
- Collaboration:
  - PCA will benefit from collaboration with domestic tax administration (training on reading corporate books and audit skills, exchange of high compliance risk profiles, taxpayer and importers registration management).
  - Such collaboration will help tackle informal economy, ghost traders, fake invoices, duplication of packing lists, etc.

### E. Training and Communication
- Current state:
  - GCA does not have a comprehensive training strategy, training plan and capacity for customs valuation, rules of origin, and tariff classification.
  - There is no dedicated training center or institute for customs officers; some voluntary experienced officers provide occasional and incremental basic training.
- Training design principles:
  - Develop training plan and training material carefully in the context of Iraq with clear objectives:
    - Training for daily operations.
    - Awareness-raising as part of change management.
    - Training to develop new SOPs.
    - Preparation for new ICT system.
  - Align training plan with new law and new ICT system.
  - Avoid sharing international practice information to ordinary staff unless awareness raising is the objective.
  - For staff developing “Iraqi regulations”, international standards training in workshop form to create deliverables (e.g., detailed gap analysis, work plan) is advisable.
  - Consider development partners or WCO e-learning as temporary resources.
- Trader education:
  - Trader education and information approaches help improve trade compliance without increasing administrative costs.
  - Recommended actions include development of detailed guidance, organizing information sessions (particularly for new importers), and setting up a support line.

### Summary of Recommendations and Next Steps (Box 1)
- Revise and align the country’s outdated customs, legal and regulatory framework more closely with international standards and recognized best practices.
- Iraq needs to officially adhere to the principles of the international convention on the HS Convention, and follow the implementation guidelines of the last version of the HS Nomenclature Edition (shall enter in force on January 1, 2022).
- Valuation of imported goods must be based on the WTO Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (1994).
- Appeal mechanism has to be modernized in alignment with the international standards.
- Iraq should use the principles of the WTO Trade Facilitation Agreement (2013) as a template to modernize its border and customs procedures, even before formal WTO membership.
- GCA needs to prepare a comprehensive information technology (IT) strategy that provides a clear road map regarding the ASYCUDA Word implementation; decide whether to implement additional applications such as Cargo Control, E-Manifest, E-payment, warehousing and transit.
- Improve capacity of trade compliance officials (customs valuation, rules of origin, and tariff classification) and develop a training plan and training materials.
- Establish regular and structured communication channels between HQ and the BCPs to help uniform delivery of customs programs.
- Conduct a customs thorough diagnostic, prepare a comprehensive strategic plan and management capacity development, and create a Modernization Project Office (MPO) responsible for managing and monitoring all reform activities and coordinating technical assistance and donor support.

*Source: IMF content unit 1irqea2021003 - Report produced by the STX based on desk review and discussions with GCA departments (January 17 to February 4, 2021).*

### INTRODUCTION _________________________________________________________________________________ 5

### INTRODUCTION

### Current Situation
- Since late 2015, and in response to the sharp drop in global oil prices, Iraq has undertaken reform initiatives to diversify the economy and increase the effectiveness of non-oil revenue collection. In October 2020, the Iraqi government released a new roadmap (the white paper).
- The Iraqi revenue system is based on two main sources: extractive industries (mainly petroleum), income taxes and customs. Those sources represent at least 98 percent of total government revenue.
- Customs duties, the only duty and tax collected by GCA, represent merely 1.5 percent of total government revenue and are minuscule compared to the size of imports (around USD 36 billion).
- Effective tariff rate is under 2.6 percent while the average tariff rate is 10 percent, indicating potential for significant improvement.
- Figure 1. Government Revenues from 2016 to 2020 (USD Billions):
  - 2016: Total receipt 82; Extractive revenues (oil & others) 60; Other revenues (income taxes & others) 21.5; Customs duties 0.5; % of customs duties to total tax receipt 0.60%
  - 2017: Total receipt 66; Extractive revenues (oil & others) 57; Other revenues (income taxes & others) 8; Customs duties 1; % of customs duties to total tax receipt 1.5%
  - 2018: Total receipt 77; Extractive revenues (oil & others) 65; Other revenues (income taxes & others) 10.5; Customs duties 1.5; % of customs duties to total tax receipt 2%
  - 2019: Total receipt 89; Extractive revenues (oil & others) 79; Other revenues (income taxes & others) 9.2; Customs duties 0.8; % of customs duties to total tax receipt 0.9%
  - 2020: Total receipt 57; Extractive revenues (oil & others) 49; Other revenues (income taxes & others) 7.2; Customs duties 0.8; % of customs duties to total tax receipt 1.4%
- Information obtained by the STX is limited largely because of inadequate data availability: GCA apparently has difficulty to benefit from ICT support in compiling data.

### Technical Assistance Provided
- Remote TA assignment by a short-term expert (STX), Mr. Djamel Bouhabel, from January 17 to February 4, 2021 to the General Customs Authority of Iraq (GCA).
- Main objective: advise GCA on development and effective application of customs assessment processes based on international standards and best practices.
- Tasks addressed:
  - Review implications of legal framework, organizational issues, management, ICT, SOP, and training and trader’s enlightenment on determination of origin, tariff classification and valuation.
  - Advise on development and effective application of customs assessment processes based on international standards and best practices.
  - Draft inputs to a strategic plan regarding assessment processes.
  - Identify further TA beneficial in relation to valuation, rules of origin, and tariff classification.
- STX presented international standards in customs valuation processes (Appendix I) and WTO standards (Appendix II) and emphasized the importance of trade data accuracy in guiding investment priorities.

### Key Findings
- GCA has authority to verify, audit and examine declared origin, tariff classification and value for duty and, if necessary, re-determine value based on customs valuation, determination of goods’ origin, and tariff classification (stipulated by Customs Act (1984) Article 62; re-determination based on Articles 62 to 74).

A. Assessment of Customs Value
- Legal framework:
  - Assessment of customs value is based on an outdated legal and regulatory framework. The Customs Act (1984) Article 34 uses the Brussel Definition of Value (BDV) as a basis for assessment.
  - BDV treats customs value as the price at which the goods would be sold; essential elements: price, time, place, quantity, and commercial level.
  - BDV can artificially inflate cost of imported goods and is not in line with international standards. Iraqi authorities should consider the “transaction value” outlined in the WTO Valuation Agreement.
- Operational process:
  - Assessment is completed by one or two units depending on the case. Process starts with the customs affairs unit at the border crossing point (BCP) reviewing admissibility and then physical inspection. Unresolved cases are referred to the “valuation determination unit” at GCA HQ.
  - Assessment of customs value for imported cars represents significant difficulty.
- Value database and sanctions:
  - Declared import value accepted if it does not exceed the value stored in the value database by five percent; otherwise declared value is rejected and subject to a fine at a fixed amount of 750,000 Iraqi Dinars, and the value database’s data will be used for duty calculation. This practice is known as “minimum price”.
  - GCA HQ Value Database Committee manages and updates the value database.
  - GCA applies unique and arbitrary fixed rates for insurance and freight cost which also comprise customs value: 1.25 USD per ton for insurance and 2,500 USD for freight cost.
- Risks and recommendations:
  - The “minimum price” practice is not in conformity with international standards; value database should be used for risk management, not as minimum prices.
  - Current practice likely reduces under-invoicing but may encourage over-invoicing used to transfer hard currency abroad.
  - GCA anticipates that implementation of ASYCUDA world with interface with Central Bank may offer a comprehensive solution.
  - STX advised GCA to start discussions with the Iraqi tax administration on cross-border profit shifting and develop a joint approach using international standards and good practices.

B. Assessment of Tariff Classification
- Historical context:
  - Until 2016 a flat tariff duty rate of five percent applied. In 2016 multiple tariff rates were introduced ranging from zero to 80 percent. Since 2018 tariff structure simplified to four rates: 0, 10, 15, and 30 percent.
- Process and capacity issues:
  - Goods classification before import declaration is needed by other government agencies. “The State Company for Iraqi Fairs and Commercial Services” confirms goods classification in applications; import declarations and supporting documents must contain Iraqi goods classification code based on Harmonized System (HS).
  - Once declaration placed, classification assessed in two phases:
    - Phase 1: BCP assesses classification; reviewed by HQ’s “Tariff Verification Unit”. Assessment follows General Rules for the Interpretation of the HS.
    - Phase 2: Desk transactional audit at tariff verification unit reviews that calculation of customs duties and related charges are accurate; purpose is not to ensure accuracy of tariff classification assessment.
  - Both phases lack coherence, uniformity, and clear procedures on the General Rules for the Interpretation of the HS, resulting in significant inconsistencies and many reassessments.
- Enforcement and collection:
  - A fine at a fixed amount of DI 750,000 is imposed for discrepancies between declared and assessed tariff classification.
  - Collection of debts after recalculation raises concerns: lack of staff (the tariff verification unit at HQ had 80 customs officers), manual and outdated procedures, difficulties to track non-compliant importers, delays in audits (unit currently reviewing 2018 and 2019 declarations), and statutory extinctive prescription limiting customs action penalty to 3 years (Article 253 of the Customs Act (1984)).
- Technical capacity:
  - No customs or certified independent laboratories are in place to ensure assessment accuracy; some cases require full lab analysis to determine goods’ composition.

C. Assessment of Goods’ Origin
- Documentation and practice:
  - All exports to Iraq need valid certificates of origin authenticated and legalized by Iraqi representatives in export countries (Customs Act (1984) Article 31). In case of non-compliance, goods can be released with an appropriate guarantee.
  - These documents are transmitted by Iraqi representatives in export countries to the General Commission for border crossings in Iraq (Law No. 30 (2016) and Decree of application No. 453(2019)).
- Preferential trade and operational reality:
  - Iraq decided to withdraw from all free trade agreements it had acceded to, except one with Jordan; declarations applying to preferential tariff rates are almost non-existent and there is no substantial need to examine goods’ origin.
  - Consular visa may authenticate the document but does not assure contents; Iraqi representative offices unlikely have capacity to check certificate contents.
  - No GCA unit is accountable for the objective of certificate of origin and determination of goods’ origin, except for goods coming from Jordan. Goods’ origin information may be used only to comply with trade statistics which applies non-preferential rules of origin.
- Reference:
  - WTO Agreements on Trade in Goods - Rules of Origin (1994) may be a reference.

### Related Issues
- Cross-cutting finding: legal and regulatory framework is obsolete and needs modernization. Iraq needs urgently a new legal and regulatory framework governing customs, modernizing organization and procedures, and empowering customs to conduct necessary control and penalty clauses with sufficient deterrent effects to improve trader compliance and customs revenue collection performance.
- GCA explained a bill revising the Customs Act (1984) entailing modern customs principles is to be submitted to the parliament for approval by mid-2021 (STX could not obtain the draft bill and did not assess its contents).

A. Appeal Mechanism
- Appeal mechanism regarding decisions on customs valuation, determination of goods’ origin, and tariff classification has been reinstated after over a decade of suspension and is stipulated under the Customs Act (1984), Articles 74 to 77.
- Current customs clearance procedures, mostly based on predeterminations, and the ban on logging an appeal once imported goods are still under custody of the customs administration, leave very little room for contesting decisions relating to customs value, rules of origin and tariff classification.

*Report produced by the STX based on desk review and discussions with GCA departments (January 17 to February 4, 2021).*

### 24. In addition to clarification of appeal mechanism, discrepancies between Iraqi customs

### 24. In addition to clarification of appeal mechanism, discrepancies between Iraqi customs

### A. Appeal mechanism — findings and required actions
- International conventions (Revised Kyoto Convention General Annex Standard 10.1, WTO customs valuation agreement Article 11, WTO Trade Facilitation Agreement Article 4) describe a modern appeal mechanism designed to improve predictability, accountability, and uniformity.
- Discrepancies between Iraqi customs appeal mechanism and international standards include:
  - Eligible time period for appeal after the original decision is made by GCA.
  - Eligibility of judicial appeal as last resort after the administration appeal was once placed.
  - Possibility of release of goods with guarantee while the appeal case on that goods continues.
  - Who handles the appeal in the GCA.
  - Who bears the cost.
- Recommended actions:
  - Revise customs law to align appeal mechanism with international standards.
  - Develop associated SOPs after legal modification.
  - Provide proper training and awareness raising for both GCA staff and traders.

### B. Use of Information and Communications Technology (ICT)
- Current selection:
  - GCA recently selected ASYCUDA World for its customs clearance ICT system.
- Expected benefits once properly introduced and used:
  - Accurate trade data.
  - Improved flow of information.
  - Reduced manual workload.
  - Streamlined procedures.
  - Targeted control.
  - Strengthened compliance, national uniformity in interpretation of laws, increased efficiency and transparency, and demotivated corruptive practices.
- Implementation timeframe and project length:
  - Implementation expected to start in the second quarter of 2021.
  - A total of 84 months was planned for the entire project to be implemented.
- Lessons and requirements:
  - Strong capacity in project management and procurement management is important.
  - United Nations Conference on Trade and Development will provide ASYCUDA software free of charge and likely provide TA experts whose contract would be based on the number of days bound in the country.
  - Beneficiary responsibility includes preparing infrastructure (e.g., data server center building), procuring ICT equipment and supporting software/middleware, arranging telecommunication services.
  - Government level procurement authority intervention can add time for procurement clearance and delay progress, inflating TA experts’ costs.
- Change management and monitoring:
  - Well planned awareness-raising and training for customs officers and traders’ staff are imperative.
  - Monitoring of readiness during preparation and post-launch use is important to maximize ICT effects.
  - Optional components (e.g., e-payment, manifest, transit, warehousing) require engagement of stakeholders such as commercial banks, maritime transport agents, container terminal operators, cargo freight forwarders.
- Legal and process alignment:
  - Customs law revision must be realized along with the ASYCUDA installation; delays in law revision may prevent activation of modern procedures.
  - Business process engineering (BPR) should be conducted along with ASYCUDA installation to avoid retaining obsolete procedures and to prevent automation of redundant/unnecessary processes.
  - Interface considerations:
    - Interface with tax administration should be considered in addition to other trade-related government agencies.
    - A new tax administration ICT system project exists in Iraq; synergy and collaboration should be sought between the two projects.
    - Development and management of tax identification number should coincide with ASYCUDA installation project.
    - Reporting to the treasury system is usually an integral part of the project.

### C. Risk Management — findings and roadmap
- Current practice and problems:
  - GCA does not assess compliance risks to target high-risk declarations with respect to customs valuation, rules of origin and tariff classification.
  - Current practice requires a 100 percent documentary verification and physical inspection.
  - Consequences: overstretched human resources, costly trade transactions, shallow controls, limited feedback from physical inspections, uncertainty about staff performance and integrity.
  - Lack of ICT capabilities for selectivity based on risk management explains this situation.
- Recommended approach during ASYCUDA World installation:
  - Reframe control approach to targeting based on risk management.
  - Develop risk profiles by commodities, traders, origin and their combinations.
  - Create mechanism to set selectivity criteria in ASYCUDA World, improved by:
    - Accurate control result reporting.
    - Intelligence reports.
    - KPIs.
  - Apply similar approach to targeting PCAs.
  - Develop risk management processes and internal procedures and create a dedicated unit in GCA’s organizational structure.
  - For the medium term, explore advanced approaches like data mining, advance electronic information, and Authorized Economic Operator program.

### D. Post-Clearance Audit (PCA) — gaps and preparation
- Legal and operational gaps:
  - The Customs Act (1984) does not provide legal basis for PCA.
  - GCA lacks legal authority to ask traders for supporting documents after import clearance.
  - Traders are not obliged to keep business records relating to import.
  - GCA currently controls all declarations at importation and does not conduct PCA.
- Legal and programmatic reforms needed:
  - Customs law revision should create legal basis empowering GCA to conduct PCA, recuperate duties if discrepancies are found after import clearance, and oblige traders to retain clearance-related documents for certain years with substantive penalties for non-retention.
  - Develop PCA objectives and prioritization, examples include:
    - Replacement of certain documentary verification at importation.
    - Verification of appropriateness of ASYCUDA World selectivity criteria.
    - Assessment of business agreements impacting customs value (e.g., commission and royalty).
    - Inventory check of bonded warehouse.
    - End-use verification for certain duty/tax exemption programs.
    - Assessment of compliance capacity for Authorized Economic Operator in future.
    - Verification of import eligibility (e.g., certificate and license).
- Preparatory actions (in parallel with law revision):
  - Organize awareness raising and training for GCA staff and traders.
  - Create perhaps three to four PCA teams strategically and geographically allocated with means of transport.
  - PCA teams should have knowledge on customs valuation, rules of origin, tariff classification, corporate books (inventory records, financial transaction records, corporate accounting software) and audit skills.
  - Define policy between desk audit and site-visit audit.
  - Place utmost attention on integrity, recognizing vulnerability of on-site audits to collusion and corruption.
- Collaboration:
  - PCA will benefit from collaboration with domestic tax administration (training on reading corporate books and audit skills, exchange of high compliance risk profiles, taxpayer and importers registration management).
  - Such collaboration will help tackle informal economy, ghost traders, fake invoices, duplication of packing lists, etc.

### E. Training and Communication
- Current state:
  - GCA does not have a comprehensive training strategy, training plan and capacity for customs valuation, rules of origin, and tariff classification.
  - There is no dedicated training center or institute for customs officers; some voluntary experienced officers provide occasional and incremental basic training.
- Training design principles:
  - Develop training plan and training material carefully in the context of Iraq with clear objectives:
    - Training for daily operations.
    - Awareness-raising as part of change management.
    - Training to develop new SOPs.
    - Preparation for new ICT system.
  - Align training plan with new law and new ICT system.
  - Avoid sharing international practice information to ordinary staff unless awareness raising is the objective.
  - For staff developing “Iraqi regulations”, international standards training in workshop form to create deliverables (e.g., detailed gap analysis, work plan) is advisable.
  - Consider development partners or WCO e-learning as temporary resources.
- Trader education:
  - Trader education and information approaches help improve trade compliance without increasing administrative costs.
  - Recommended actions include development of detailed guidance, organizing information sessions (particularly for new importers), and setting up a support line.

### Summary of recommendations and next steps (Box 1)
- Revise and align the country’s outdated customs, legal and regulatory framework more closely with international standards and recognized best practices.
- Iraq needs to officially adhere to the principles of the international convention on the HS Convention, and follow the implementation guidelines of the last version of the HS Nomenclature Edition (shall enter in force on January 1, 2022).
- Valuation of imported goods must be based on the WTO Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade (1994).
- Appeal mechanism has to be modernized in alignment with the international standards.
- Iraq should use the principles of the WTO Trade Facilitation Agreement (2013) as a template to modernize its border and customs procedures, even before formal WTO membership.
- GCA needs to prepare a comprehensive information technology (IT) strategy that provides a clear road map regarding the ASYCUDA Word implementation; decide whether to implement additional applications such as Cargo Control, E-Manifest, E-payment, warehousing and transit.
- Improve capacity of trade compliance officials (customs valuation, rules of origin, and tariff classification) and develop a training plan and training materials.
- Establish regular and structured communication channels between HQ and the BCPs to help uniform delivery of customs programs.
- Conduct a customs thorough diagnostic, prepare a comprehensive strategic plan and management capacity development, and create a Modernization Project Office (MPO) responsible for managing and monitoring all reform activities and coordinating technical assistance and donor support.

*Source: IMF content unit 1irqea2021003 - 24. In addition to clarification of appeal mechanism, discrepancies between Iraqi customs*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1irqea2021003.pdf_