Customs cut fraud by inspecting goods abroad

Import duties depend on an honest declaration of a shipment's value and tariff category, checked at the border by a customs official. In many developing countries that official and the importer share a community, an industry, sometimes a personal relationship -- structurally the same person who has to police an under-declared shipment today may need that importer's goodwill tomorrow.

Starting in the 1980s and spreading through the 1990s and 2000s, dozens of governments instead began contracting independent, often foreign, private inspection firms to verify a shipment's declared value and tariff classification in the exporting country, before the goods or paperwork ever reached the importing country's border -- moving the checkpoint to a person and a place with no local relationship to be captured by.

Moved the check to the exporting country before the importer relationship exists, so an independent firm records true values and border officials can't under-declare.

Local customs officials shared community and industry ties with importers, creating pressure to under-report.

Foreign inspection firms had no local ties and staked global reputation on accuracy, aligning incentives.

Recording true values before shipment made later under-declaration require contradicting an independent report.

Revenue gains traced specifically to reduced import fraud, not general growth.

When a check is compromised by the checker's relationship to the checked, move the check upstream to where that relationship doesn't exist.

Dean Yang's cross-country analysis of the reform found that countries adopting pre-shipment inspection saw large increases in import duty collections while other tax revenues stayed comparatively flat -- evidence the gain traced specifically to less import-fraud, not to unrelated economic growth -- with the resulting revenue improvement in a typical program's first five years estimated at roughly 2.6 times the program's own cost, driven by documented declines in the falsification of import documentation, undervaluation and misclassification.