Trading Places: How customs agencies must secure

Trading Places
How customs agencies must secure
trade in the digital world
INU
REV
YTIS
The world of trade is being transformed as consumers and businesses switch to digital media,
digital goods and ecommerce sites in place of physical goods traded from bricks-and-mortar
stores. As sophistication improves and prices fall, new digital design and manufacturing
techniques such as 3D printing are disrupting international trade supply chains based on
the movement of physical goods. The 3D printing market is set to quadruple over the next
decade to a $12 billion dollar industry¹, able to create complex goods ranging from body
parts (such as false teeth and hip replacements) and drugs to clothing and electronic devices.
This evolution poses significant challenges for customs agencies and border protection.
To stay relevant and effective customs agencies must adapt to this new reality.
They must plan, scope and build networks with a whole new set of stakeholders
and partners if they are to continue protecting their nations and citizens from
the harmful effects of illicit goods—delivering public service for the future.
The new supply chain reality
Manufacturers and customers
3D printers are creating goods directly for
customers, replacing the traditional supply
chain from manufacturer to local store;
Logistics
Servers, digital warehouses and internet
service providers (ISPs) are taking the place
of ports, warehouses and carriers; and
Facilitators
Payment service providers and online
marketplaces are taking over from
trade finance specialists and banks.
Traditional borders have changed too. A border is now defined by
the location of someone’s computer, wherever it is in the world.
Customs agencies will not be able to fulfil one of their main
responsibilities—protecting the borders—if they don’t adapt.
Agency Action
Some agencies understand the risks.
A report by the Australian Customs
and Border Protection Service noted:
“These technologies are likely to be
exploited by criminals to circumvent
import controls and will increasingly
shape our future economy and society
and, therefore, border management”².
In New Zealand, the Customs Minister
has also spoken of the challenge:
“I’ve asked everyone in Customs… to
start thinking about what does a new
world of 3D printing mean for us”³.
Physical supply chain
Manufacturer
Exporter
Bank
Logistics company
Importer
Payment service
provider
3D printer
Digital supply chain
Individual
2
Online
marketplace
Internet service
provider
Retailer/
Wholesaler
Breaking the chain
From DHL to AT&T
In a physical supply chain, agencies follow a “paper trail” and
assess risk as goods pass from manufacturer to warehouse
to store. In digital supply chains, fewer links exist. To protect
borders and secure revenue, modern customs agencies
must establish new ‘anchor points’. They must identify
the person uploading a file or the digital marketplace
involved, as well as the buyer downloading the file.
As digital files replace physical freight, the transport of goods
is evolving into the transmission of data, removing the role of
shippers and the logistical aspect of trade. Instead, ISPs can be
considered as the operators of these new digital trade lanes.
Failure risks substantial losses. It is estimated that 3D printing
could lead to a $100bn intellectual property loss annually⁴.
Although forecasts are not easily available, the loss of revenue
to customs and revenue agencies is also likely to be substantial,
reflecting the proportion of trade that will bypass traditional
borders as buyers trade and print digital designs locally.
Established manufacturers such as Airbus⁵, Ford Motor Company,
GE⁶ and Space X⁷ are turning to 3D printing technologies to cut
development time, reduce costs and improve quality. The use of
such technologies will only grow, according to Ford: “One day,
millions of car parts could be printed as quickly as newspapers
and as easily as pushing a button on the office copy machine,
saving months of development time and millions of dollars.”⁸
3D printers are now delivering more complex parts and
products, instead of basic prototypes. For example, a medical
device company has filed a patent infringement complaint to
the International Trade Commission (ITC) over a competitor’s
importation and sale of digital models, data and treatment
plans¹⁰. The complaint alleges that its competitor created a
3D data file in Pakistan and uploaded it to a server in Texas,
from where it created dental appliances using the file.
Such cases burden ISPs with unexpected demands and
responsibilities. The Institute for Homeland Security Solutions
has noted that they “may be in a good position to costeffectively prevent certain types of malicious cyber behavior”¹¹.
More recently, the Court of Justice of the European Union
ruled that ISPs might be ordered to block access to websites
containing material that infringes intellectual property.
Forward-thinking customs agencies are already exploring
the impact of digital supply chains. As manufacturing
technologies continue to develop, allowing people to
create illegal goods on 3D printers in their own garages,
the challenges for customs will only increase.
In their quest to identify and intercept illicit digital
goods, customs agencies must build partnerships
with these new infrastructure stakeholders. Agencies
should seek to gain digital intelligence by working with
ISPs, the ITC and intellectual property authorities to
develop a regulatory framework around the issue.
Agencies must act now and develop strategies to limit
illicit trade, guard against revenue loss, maintain quality
standards, prevent the manufacture of illegal weapons and
protect intellectual property. By anticipating supply chain
shifts, monitoring internet activity—for example by analysing
social media to identify illicit trade risks—and co-operating
with ISPs and security agencies within data privacy limits,
agencies can plan for digital supply chains with confidence.
Practically, agencies should seek details of the origin, destination
IP addresses and size and type of data transferred—within
data privacy limits. They should also build connections
to the data centers that harbour this information and
employ big data analytics to assist in identifying and
capturing illicit trade. In addition, agencies must take an
overview of trade, assessing online trade activity, as well
as individual transactions, in order to identify risks.
From banks to PayPal
Securing the digital future
Short-term trade finance, such as letters of credit
facilitated by banks, enables traditional supply
chains. The World Trade Organization estimates that
80 to 90 percent of world trade relies on such tools,
including trade credit and insurance/guarantees9.
Although some customs agencies are exploring their role
in the digital era, not all agencies have grasped the threat
posed by 3D printing and the digital delivery of goods.
But as supply chains evolve, new forms of finance
are taking their place. Customs agencies seeking to
monitor illicit trade must work with payment networks
such as PayPal and digital marketplaces, as these
start to replace traditional bank intermediaries.
In digital trade, traded files reach their destination in a
matter of seconds. The processing of customs duties can be
formalised at the point and time of sale, through a credit
card company or online payment service such as PayPal—
making letters of credit and guarantees a thing of the past.
The range and sophistication of goods created with
digital technology will only grow. A new cast of data
centers, ISPs, 3D printer manufacturers, digital file
designers, trade finance facilitators, virtual storefronts
and online buyers will support this evolution.
The traditional supply chain is broken. Now, customs
agencies must build links with a new set of stakeholders
if they are to secure trade successfully. By taking urgent
action, customs agencies can set the agenda and take
a leading role in how we secure the new digital supply
chain—delivering public service for the future.
Customs agencies must also re-imagine the border.
For example, agencies must decide whether the
physical location where a designer uploads a digital
file should now count as its country of export.
3
References
Contact Us
¹ ‘3D printing moves from prototypes to
production’, 30 April 2014, IDG News
Service, © IDG, via Factiva
James Canham
² Australia Customs 2012-2013 Annual
Report, http://www.customs.gov.au/
aboutus/annualreports/2013/p1a.html
Connect with us to learn more on delivering
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³ Maurice Williamson, Minister of Customs,
New Zealand, in Radio New Zealand
National interview, 12 April 2013, http://
www.3ders.org/articles/20130412-nzcustoms-minister-3d-printers-pose-athreat-to-border-security.html
⁴ ‘Gartner Reveals Top Predictions for IT
Organizations and Users for 2014 and
Beyond’, 8 October 2013, http://www.
gartner.com/newsroom/id/2603215
⁵ ‘Airbus had 1,000 parts 3D printed to meet
deadline’, http://www.bbc.co.uk/news/
technology-32597809
⁶ ‘3D Printing Gives GE Jet Engines
a Boost’, http://3dprintingindustry.
com/2014/08/11/3d-printing-ge-jet-engine
⁷ ‘SpaceX Launches 3D-Printed Part to
Space, Creates Printed Engine Chamber’,
http://www.spacex.com/news/2014/07/31/
spacex-launches-3d-printed-part-spacecreates-printed-engine-chamber-crewed
⁸ Ford’s 3D-Printed Auto Parts Save
Millions, Boost Quality, https://media.
ford.com/content/fordmedia/fna/us/en/
news/2013/12/12/ford_s-3d-printed-autoparts-save-millions--boost-quality.html
⁹ World Trade Organization, https://www.
wto.org/english/thewto_e/coher_e/
tr_finance_e.htm
¹⁰ ‘ITC Issues Public Version of Opinion
In Certain Digital Models, Digital Data,
And Treatment Plans For Use In Making
Incremental Dental Positioning Adjustment
Appliances (337-TA-833)’, http://www.
itcblog.com/itc-issues-public-version-ofopinion-in-certain-digital-models-digitaldata-and-treatment-plans-for-use-inmaking-incremental-dental-positioningadjustment-appliances-337-ta-833
Global Managing Director, Customs
james.canham@accenture.com
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¹¹ ‘The Role of Internet Service Providers
in Cyber Security’, Institute for Homeland
Security Solutions, June 2011, http://
citeseerx.ist.psu.edu/viewdoc/download?doi=
10.1.1.473.2323&rep=rep1&type=pdf
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