Development Discussion Papers Another Path to Customs Reform: Mexico’s Second Inspection

Customs reform in the 21st century for developing countries will principally be the redefinition of public and private sector roles. As customs moves from physical control to documentary compliance, the private sector can and will play a larger role in customs administration. The widespread use of Pre-Shipment Inspection (PSI) and Mexico’s innovative privatized second inspection illustrate these trends. This paper examines Mexico’s recently introduced Second Inspection which is privatized and provides a check on the government’s physical inspection. The Second Inspection is uniquely poised to improve both physical control and documentary audit in Mexico’s customs by defining Rough Justice in customs. Rough Justice is a recognition of the limitations of time and space in customs operations and is an approach that promotes systematic but selective review of contents and documents. Unlike PSI services, Mexico’s Second Inspection builds the capacity of a government’s customs administration. In addition to reviewing the operation of the Second Inspection, the paper concludes with several observations about administrative reform of customs. The two most important conclusions are that administrative reform should promote accountability first and efficiency second, and that appropriate administrative redundancy promotes accountability. Mexico’s Second Inspection has promoted accountability by providing a layer of administrative redundancy. This paper was prepared for the symposium on Innovations in Trade Administration: Customs in the 21st Century held by the Harvard Institute for International Development (HIID), and the International Tax Program, Harvard Law School, in Cambridge, Massachusetts, November 1415, 1996. Stephen B. Peterson is a Research Fellow at the International Tax Program, a Project Associate with HIID, Harvard University, and a public management specialist who has advised governments in Eastern Europe, Africa and the Middle East on expenditure and revenue administration. He is currently chief of party of a financial reform project providing technical assistance to the Government of Ethiopia. HIID Development Discussion Paper no. 632 1 ANOTHER PATH TO CUSTOMS REFORM: MEXICO’S SECOND INSPECTION