Statement by Commissioner of Customs and Excise

Following is the full text of the statement by the Commissioner of Customs and Excise, Mr Timothy Tong Hin-ming, at today's (January 20) press conference:

The Customs and Excise Department (the Department) made significant achievements on various fronts in the past year, namely law enforcement, particularly in combating smuggling and selling of duty-not-paid cigarettes and fuels, facilitation of trade and enhancement of clearance services at the control points, etc.

Notwithstanding the present difficult situation of stringent resources and freeze on open recruitment, the quality of our services continues to be enhanced with the dedication and concerted efforts of Service members displaying our fine tradition of "Commitment and Excellence". The following is an account of our achievements in 2003, which covers four major areas:-

1. Vigorous Enforcement to Protect Lawful Interests;
2. Facilitation of Trade for the Benefit of Commerce and Industry;
3. Customs Co-operation to Fight against Transnational Crimes; and
4. Development in Internal Organisation and Enhancement of Quality Service

I. Vigorous Enforcement to Protect Lawful Interests

The Intelligence and Investigation Branch, through enhancing its abilities in intelligence collection and analysis, as well as risk management, took more effective enforcement operations in 2003. Moreover, we pooled the efforts of various sectors to jointly implement new operational measures. The move has proved to have positive synergistic effect in containing illicit fuel, illicit cigarettes and piracy activities.

(1) Revenue Protection

In February 2003, the Department, through internal reorganisation, set up the Revenue and General Investigation Bureau to protect revenue and combat illegal activities of illicit cigarettes and illicit fuel etc. During the year, the Revenue and General Investigation Bureau joined hands with other formations to pool resources and enhance the capability of combating illicit cigarettes and illicit fuel activities. The results were remarkable.

(A) Fight against Illicit Fuel

The economic adversity in the first half of 2003 led to an increased demand for illicit fuel due to its lower price. To tackle the illicit fuel problems, the Department has strengthened the enforcement actions and adopted the following multi-pronged strategy:-

1. enhancing enforcement capability through launching territory-wide operations by pooling resources from different bureaux within the Department and other government departments against illicit filling stations;
2. promoting the use of intelligence and carrying out intelligence-led operations against illicit filling stations;
3. adopting the diversifying strategy of "tackling the illicit fuel problem at source". This includes the "Marked Ultra-low Sulphur Diesel Verification Scheme on End-users" and the "Self-regulatory Scheme on the Bulk Sales of Duty-Paid Diesel Oil"; and
4. reinforcing boundary control against illegal importation of fuel. During the year, apart from mounting stringent enforcement operations against fuel smuggling activities involving the use of cross-boundary goods vehicles, the Department, in collaboration with the Police, the Fire Services Department and the Transport Department, also took a series of enforcement actions at boundary control points against fuel smuggling activities involving the use of light lorries with four-wheel drive and seven-seater private cars.

In 2003, the Department seized a total of 2.42 million litres of hydrocarbon oil with a total amount of $17 million in 1 259 hydrocarbon oil cases, representing an increase of 6 per cent in the quantity seized as compared with that in 2002. The duty potential was more than $9 million. The effectiveness of the enforcement actions against illicit motor spirit prompted by increased demand was the most significant. Furthermore, the Department smashed 897 illegal filling stations in 2003.

(B) Fight against Illicit Cigarettes

In 2003, the Department adopted the intelligence-led strategy during enforcement actions against illicit cigarettes, targeting on the backstage masterminds of illicit cigarette syndicates. As a result, the illicit cigarette activities in Hong Kong were kept under control and further improved. During the year, the Department effected a total of 43 544 cases with the seizure of 152.4 million sticks of cigarettes and the arrest of 4 540 persons. The total value of the seizure of illicit cigarettes was $230 million and the duty potential was more than $120 million. The number of cases effected and persons arrested were 92 per cent and 74 per cent respectively higher than those in 2002.

The effectiveness of the aforesaid strategy forced illicit cigarette syndicates to change their smuggling routes to evade Hong Kong and reduced the quantity of the cigarettes smuggled into Hong Kong each time, so as to avoid great losses upon interception by the Department. Besides, the approach of street-level illicit cigarette peddling has also been changed. The quantity of illicit cigarettes carried by individual cigarette peddler has been greatly reduced to minimise the loss upon arrest by the Department.

In view of the emerging trend of two-way permit holders involving in street-level peddling of illicit cigarettes in 2003, the Department enhanced intelligence collection and analysis on such illegal activities, as well as conducting vigorous raiding operations. Last October, the Department smashed, for the first time, an illicit cigarette syndicate in Tai Po headed by a two-way permit holder. The syndicate was also found to adopt the "one-stop" approach in arranging for Mainland women to peddle illicit cigarettes in Hong Kong and undertake storing and distribution work. During the operation, the Department seized 440 000 sticks of illicit cigarettes with a total value of $650,000, and arrested five female two-way permit holders.

On the other hand, to combat passengers' abuses of duty-free concessions, Customs officers at control points have since February 2003 been using the computer workstations, which are linked to the computer system of the Immigration Department, and the identity card scanning device to verify whether an incoming passenger travelling on a Hong Kong identity card has spent 24 hours or longer outside Hong Kong for ascertaining their eligibility for duty-free concessions. The use of the system and device has proved to be very effective, resulting in the detection of a total of 4 511 cases of abuses of duty-free concessions, involving a total of 1.08 million sticks of cigarettes. Under the Compounding Scheme, fines totalling $2.7 million were paid in respect of 645 cases involving over 350 000 sticks of cigarettes altogether. We plan to install additional computer workstations and identity card scanning devices in 2004-05 to provide more efficient verification services.

(2) Anti-narcotics

The ever-increasing passenger and vehicle traffic at the land boundary control points remains the greatest challenge to the Department on anti-narcotics operations. During the year, the Department's anti-narcotics enforcement capability was enhanced through various measures such as increasing the Customs detector dogs establishment, introducing high-tech equipment, strengthening intelligence-based risk management, flexible deployment of resources and enhancing international co-operation.

In 2003, the Department seized 12.7 kilograms of heroin, 12.2 kilograms of ketamine, 51 141 tablets of ecstasy, 18 kilograms of cannabis, 3.9 kilograms of "ice", 7.3 kilograms of cocaine and 29 680 tablets of other psychotropic substance. Eight drug distribution centres were smashed and 725 drug offenders were arrested, of whom 66 were charged with drug trafficking offences.

To circumvent Customs interception, drug offenders have been using a variety of drug trafficking tactics. During the year, drug trafficking tactics detected by the Department included not only internal concealment of drugs, but also concealment of liquid cocaine in cotton-padded waistcoat, concealment of cocaine in bottles of talc powder, concealment of "ecstasy" in boxes of toys, and ketamine sealed in tinfoil packages.

Heroin remains the predominant drug of abuse in Hong Kong, followed by ketamine. The trend on psychotropic substance abuse, once on a spiral rise, has continued to be contained. According to the data released by CRDA, there were a total of 12 753 drug abusers in Hong Kong in the first three quarters of the year, representing a notable decline of 15.7 per cent as compared with the figure in the same period of 2002. There were only 3 832 psychotropic substance abusers, representing a considerable decrease of 13.4 per cent from the figure in the same period of last year. This was believed to be largely attributable to the Government's vigorous enforcement actions and the preventive education and publication on drug abuse.

On combating international drug trafficking activities and stemming the flow of drugs coming to Hong Kong, the Department has taken pre-emptive measures by establishing a global network with overseas customs administrations and enforcement agencies. During the year, notable results were achieved on the front of cross boundary and international cooperation. Seizures of 100.3 kilograms of heroin, 1.15 million tablets of "ecstasy", 1 070 kilograms of "ice", 20 kilograms of herbal cannabis, 20 000 kilograms of potassium permanganate (the chemical precursor of cocaine) and 13.36 million pills containing pseudoephedrine (the chemical precursor of "ice") were effected in the Mainland, Australia, Guam, Japan, the Philippines, Turkey, Taiwan and Mexico. Furthermore, 36 drug offenders of various nationalities were successfully netted in the Mainland and overseas in connection with the above drug seizures.

(3) Anti-piracy

On the anti-piracy front, the Department detected 10 341 copyright cases during the year and arrested 1 289 persons in the operations. About 6.22 million pirated compact discs worth $136 million were seized.

Under Customs' vigorous enforcement action, the room for piracy activities has shrunk. At the manufacturing level, pirates now turn to operate small-scale workshops using computers and CD writers to replicate pirated discs inside industrial or domestic flats to evade Customs detection. At retail level, pirates could only adopt stealthy modus operandi such as through "self-service" at unmanned stalls and "pre-order sale" by displaying disc inlaid card folders inside the shop (i.e. customers pay first at the shop but collect the discs later at somewhere else with the receipt) to sell a small amount of discs.

In applying new technologies to tackle internet piracy and other computer crime, we have established the Computer Forensic Laboratory in August 2002 to process digital evidence gathered from the Internet and other computer-related offences. Since the establishment of the Computer Forensic Laboratory, the Department has used more than $6.6 million to procure the necessary equipment. So far, the Computer Forensic Laboratory has handled a total of 119 cases.

(4) Anti-counterfeiting

In 2003, we cracked down trademark counterfeiting through persistent and focussed raids at the known black spots for selling counterfeit goods as well as launching intelligence-led operations to cut down the source and syndicate activities. We detected 771 cases involving offences under the Trade Descriptions Ordinance and arrested 747 persons in 2003. Total seizures amounted to 36.81 million pieces of counterfeit goods at a total value of around $254 million, representing about four-fold and a 21 per cent increase respectively as compared with the seizures and corresponding total value in 2003.

New Measures to Combat Counterfeit Goods

With the sustained development of the tourism industry and the implementation of the "Individual Visit" scheme for Mainlanders, the number of visitors coming to Hong Kong is on the increase. Under this trend, the Department deems it necessary to further step up intellectual property rights protection to promote Hong Kong as a "Shopping Paradise".

In this connection, the Department will join hands with other government departments and related organisations to roll out a series of measures for intellectual property rights protection and organise various promotion activities. Participating departments and public sector organisations include the Intellectual Property Department, the Travel Industry Council of Hong Kong, the Hong Kong Tourism Board and the Consumer Council. Besides enhancing enforcement, the Department will set up an "Alliance on Protection of Intellectual Property Rights" with the copyright and trademark industries to further enhance mutual co-operation and jointly combat piracy and counterfeiting activities. The Intellectual Property Department will also re-introduce the "No Fakes Pledge" scheme and invite more retail outlets, including those in the travel industry, to join the scheme and pledge to sell genuine goods so as to boost the confidence of local consumers and visitors in shopping in Hong Kong. The Department deeply believes that the above initiatives help sending a positive message to the tourists and the local shoppers: Hong Kong is a "Shopping Paradise for Genuine Goods" at all times.

(5) Anti-smuggling

Smuggling of general merchandise between Hong Kong and the Mainland is still a matter of concern for both sides. The number of detected smuggling cases in 2003 is 278 and the worth of seizures amounted to a total of $520 million. High-value and small-size goods such as hard disks, electronic and electrical appliances, vehicle parts and mobile phones were the hot items smuggled to the Mainland while meat, textiles, counterfeit goods and duty-not-paid motor spirit, etc. were the hot items smuggled from the Mainland to Hong Kong. Syndicates attempted to evade Customs examinations by smuggling small quantity of goods in each trip, making use of false compartments in lorries and altered compartments in containers or mixing the smuggled goods with legitimate import and export goods, etc. With advanced equipment and accurate intelligence analysis, offenders can hardly flee from the Customs examinations.

Protection of Endangered Species and International Recognition

We have also taken an active role in fighting against smuggling of Endangered Species and have made significant achievements. On 13 October 2003, Customs officers effected the largest smuggling case of elephant tusks in the past decade. During a biltz check on a container vehicle in Kwai Chung Container Terminals, 1 932 kilograms (i.e. 275 sticks) of elephant tusks valued at $2.6 million were seized inside the 20-feet container which were declared to be containing wood crafting. In May 2003, the Department was awarded a certificate of commendation by the Secretary-General of the Convention on International Trade in Endangered Species of Wild Fauna and Flora, in recognition of the seizure of 506 kilograms (i.e. 81 sticks) of elephant tusks valued at about $1 million in October 2002. Hong Kong is the first region so awarded since the establishment of the commendation system in 2002.

(6) Anti-illegal Textile Transhipment

In the past year, the Department conducted 976 blitz checks against illegal clothing or textiles, which involved 26 163 clothing or textile consignments. With the use of intelligence analysis and risk management, a total 395 cases of illegal clothing or textile transhipment were detected and goods worth $54.23 million were seized.

On factory-based enforcement activities, Customs officers conducted 63 628 consignment checks, 1 160 consignment and factory inspections and 261 audit checks.

In 2003, altogether 805 companies/persons were prosecuted for involvement in illegal transhipment and/or false declaration of origin of clothing or textiles. Offending goods valued at around $127 million were seized.

(7) Implementation of "Closer Economic Partnership Arrangement" (CEPA)

Government representatives of the Mainland and the Hong Kong Special Administrative Region signed the "Closer Economic Partnership Arrangement" (CEPA) and the six CEPA Annexes on June 29, 2003 and September 30, 2003 respectively. In regard to the aspect of "Trade in Goods", the Mainland has agreed that imported goods of Hong Kong origin, which are under the 374 Mainland product codes and meet the CEPA Rules of Origin, are eligible for zero tariffs starting from January 1, 2004. For other products under the Mainland product codes, the Mainland has also agreed that Hong Kong manufacturers may apply for zero tariffs in respect of their goods which meet the CEPA Rules of Origin on or before 1 January 2006.

Hong Kong has put in place a control system on CEPA Rules of Origin to ensure goods claiming for tariff concessions comply with the CEPA Rules of Origin. The system is managed by the Trade and Industry Department (TID) and enforced by our Department. Under the system, goods of Hong Kong origin for export to the Mainland must be covered by a CEPA Certificate of Origin (CEPA CO) issued by the TID or one of the five Government Approved Certification Organizations in order to enjoy zero tariff concessions.

The scope of enforcement undertaken by the Department includes factory inspection, consignment checks, costing checks, blitz checks at control points and investigations. We have made internal redeployment of existing staff to cope with the above enforcement duties.

For effective implementation of CEPA, Hong Kong Customs and the Mainland Customs have set up an information exchange mechanism under which information on CEPA CO can be transmitted to the Mainland Customs via on-line mode for their clearance inspection of the goods.

(8) Control of Rough Diamonds

The Certification Scheme for Rough Diamonds (Certification Scheme) was developed by the "Kimberley Process" in an international forum with a view to stopping the use of "conflicting diamond" trade as the money source for fuelling armed conflicts, activities of rebel movements and illicit proliferation of armament. Hong Kong joined the Certification Scheme for the purpose of ensuring its interest as a trading hub of diamond in this region. The Certification Scheme came into operation on January 2, 2003. Both the certification and registration systems have been administered by the Trade and Industry Department and enforced by our Department. In 2003, Customs officers conducted 762 checks on imported and exported rough diamonds.

(9) Strategic Trade Control

To ensure that there is no blockage of free flow of advanced technology for legitimate commercial and research use while at the same time to prevent Hong Kong being used as a conduit for the proliferation of weapons of mass destruction, it is necessary for Hong Kong to maintain a comprehensive and stringent control over the import and export of strategic commodities. In 2003, Customs officers examined 124 141 packages of imported and exported cargo, checked 3 009 import and export permits and completed 251 case investigations. Altogether 51 persons/companies were prosecuted, resulting in total fines of $2.28 million. Strategic commodities worth $2.71 million, including IP network applications platform and liquid crystal polymer, etc. were seized.

Chemical Weapons (Convention) Ordinance was passed by the LegCo and gazetted in July 2003. The Ordinance will be effective in early 2004 and be enforced by our Department to facilitate full implementation of the Chemical Weapons Convention in Hong Kong. The implementation of the Ordinance itself has reflected Hong Kong's determination to facilitate the Central Government in complying with the above international convention. This will help sustain Hong Kong's international reputation in the control of trade in strategic commodities and to ensure Hong Kong's continuous access to the scheduled chemicals of the international convention for local uses in industrial, medical, research and trading areas.

(10) Consumer Protection

Our role in consumer protection is to ensure that toys, children's products and consumer goods supplied on the market are reasonably safe; the fineness of gold and platinum on jewellery are correctly marked; and goods sold to consumers are of the weights and measures they pay for.

We prosecuted two persons and three companies for supplying toys and children's products which did not meet the prescribed safety standards or specifications. Products involved included battery-operated toy lanterns, railway track and platform toys, pull-back vehicles, toy mobile phones and marbles. One person and one company were prosecuted for supplying unsafe consumer goods which included facial cream and antiperspirant. Moreover, two persons and three companies were prosecuted for failing to comply with the Gold and Platinum Marking Orders and 28 persons and four companies for selling goods short of purported weight or using defective or inaccurate weighing equipment in trade. Besides, the Department continued to organise seminars for leading department stores, chain-shops, small and medium enterprises to promote traders' awareness in complying with the Toys and Children's Safety Ordinance and the Consumer Goods Safety Ordinance.

(11) Involvement of Mainland Visitors in Customs-Related Offence

Criminal syndicates continued to recruit Mainland visitors holding two-way permits to take part in illegal activities involving illicit cigarettes, illicit fuel, pirated compact discs, counterfeit goods, dangerous drugs, etc. In 2003, the Department prosecuted 1 825 Mainland visitors who committed offences in Hong Kong, representing a more than two-fold increase, when compared with 570 Mainland visitors prosecuted in 2002. However, out of a total 8 416 583 Mainlanders visiting Hong Kong during the same period, the number of Mainlanders being prosecuted is about 0.02 per cent.

Ninety-six per cent of Mainland visitors arrested by the Department entered Hong Kong by holding social visit or business visit endorsements, others byendorsements for group tour. Up till now, only two Mainland visitors entering Hong Kong by joining the "Individual Visit" scheme were arrested by the Department for involvement in the sale of illicit cigarettes or piracy activities. On the other hand, 93 per cent of Mainland visitors prosecuted were involved in the sale of illicit cigarettes and illicit fuel.

II. Faciliation of Trade for the Benefeit of Commerce and Industry

The Department endeavours to combat smuggling activities and maintains smooth flow of people and cargoes at various control points in order to maintain Hong Kong as an important trading, transportation and logistics hub in Asia. In 2003, the Department cleared a total of about 20 million twenty-foot equivalent units (TEUs) cargo containers, 13.19 million cross-boundary vehicles and 153 million passengers at the control points.

(1) Land Transport

In 2003, 13.19 million cross-boundary vehicles and 116 million passengers were handled at the land boundary control points. There was a slight growth in the throughput of cross-boundary goods vehicles in 2003. Comparing with 2002, the average number of goods vehicles passing through the three vehicular land boundary control points in 2003 increased by 2 per cent, reaching 27 272 vehicles per day. The increase in both the number of cross-boundary passengers and goods vehicles is lower than that in 2002 because of the SARS outbreak in the first half of 2003, but the number of cross-boundary passenger and goods vehicles gradually increased in the second half of 2003.

Under limited facilities at the control points, the optimal use of the resources during the night period proves to be conducive to the cross-boundary transport. Since 1 October 2002, the total number of lanes for clearance of goods vehicles between midnight and 7am at Lok Ma Chau Control Point has been increased from two to three. As a result, the daily average throughput of goods vehicles between midnight and 0700 hours rose from 1 028 in 2002 to 2 097 in 2003, representing an increase of 104 per cent.

The Department has constantly acquired equipment and streamlined procedures in a bid to enhance the clearance efficiency and speed up the cross-boundary passenger and cargo flow:-

1. Automatic Vehicle Recognition System
   In order to speed up the clearance of cross-boundary vehicles, we have installed and put into operation a total of 42 sets of the Automatic Vehicle Recognition System (AVRS) at the three land-boundary control points since May 2003. With AVRS, the Department is able to achieve higher accuracy in clearance and reduce the average clearance time for each goods vehicle by three seconds.
2. Vehicle X-Ray Inspection System
   The Department has installed a Vehicle X-Ray Inspection system at the northbound lane and another at the southbound lane at Lok Ma Chau control points in January and February of 2003 respectively. The two systems have largely strengthened the Department's capability and efficiency in the inspection of vehicles and cargo. The inspection time for each goods vehicle has been shortened greatly from the previous three - four hours to less than 20 minutes. This has largely reduced the impact of cargo inspection on the industry. As at the end of last year since the operation of the two systems, they have detected a total of 38 smuggling cases involving seizures worth a total of $124.3 million, playing a significant role in fighting and deterring smuggling activities.
3. Unified Road Cargo Manifest
   After careful study and consultation with the industry, and having made reference to the existing laws and modes of operation on both sides, as well as working on the basis of seeking common ground while maintaining differences, Hong Kong Customs and the Mainland Customs jointly designed a mutually acceptable paper-based road cargo manifest for the convenience of cross-boundary transportation industry and cross-boundary truck drivers. The manifest has been put on trial for six months in the industry since January 1, 2004, during which members of the industry only need to complete one set of information for submission to both Hong Kong and Mainland Customs for clearance, thus saving time for duplicate completion.
4. "Customs Clearance Cubicle"
   "Customs Clearance Cubicle" has proved to be very effective since its trial operation at the Arrival Hall of HK-Macau Ferry Terminal in November 2002. The Department has contemplated to extend the "Customs Clearance Cubicle" to other control points in phases for enhanced efficiency in passenger clearance and protection of passenger privacy of passengers undergoing baggage examination. At present, "Customs Clearance Cubicles" have been set up in HK-Macau Ferry Terminal, Lok Ma Chau, Man Kam To and Sha Tau Kok control points.

(2) Air Cargo Services

The volume of air cargo movements continues to increase. In 2003, 2.64 million tonnes of air cargoes were processed at the Hong Kong International Airport (HKIA), representing an increase of 6.6 per cent when compared with 2002. To facilitate cargo transhipment, the Department has provided the following one-stop clearance services:-

1. Air-land Intermodal Transhipment Service

   Currently, a total of three air cargo operators1 have launched the air-land intermodal transhipment service for the transshipment of cargoes from HKIA to various designated points in the Mainland. Air transhipment cargoes, which have been cleared by Customs at the HKIA before loading onto a specific truck with a seal attached, will normally not be examined again at the land boundary check point if the seal is intact.

   In 2003, 4 996 tonnes of air-land intermodal transhipment cargoes were cleared under the speedy clearance facilitation arrangement, representing a rise of over three times2 than that of 2002. In addition, the New Express Cargo Terminal will commence operation in the second quarter of 2004. Another express cargo operator will also provide air-land intermodal transhipment service. Its northbound and/or southbound transhipment cargoes will then be centrally cleared at the New Express Cargo Terminal. The movement of transhipment cargoes between the two places will therefore be further enhanced.
2. Air-sea Intermodal Transhipment Service
   In line with the operation of the Marine Cargo Terminal (MCT) at the Hong Kong International Airport, we have provided a one-stop clearance service for air-sea intermodal transhipment cargoes in and out of the Pearl River Delta. In 2003, 45 654 tonnes of transhipment cargoes were handled by the MCT.

(3) Maritime Transport Service

1. Sea-land-sea Intermodal Transhipment Service
   To cope with the demand for sea-land-sea intermodal transhipment service from the industry, we have offered a special clearance arrangement. Containers imported from the Pearl River Delta via the MCT will be transported to the Kwai Chung Container Terminals for subsequent re-export to overseas destinations. Customs seal will be affixed to the containers required for checking. Examination will then be conducted upon the arrival of containers to the Cargo Examination Compound in Kwai Chung. Since the introduction of the service in August 2002, the number of containers transhipped via the MCT has been increasing. In 2003, 2 484 re-export containers were handled by the MCT.
2. Container Security Initiative

   In the aftermath of the September 11 attacks on the US, the US Customs has introduced new measures to address the potential risks of terrorist attacks through ocean-going containers. These included the Container Security Initiative (CSI) brought out on January 2002. After consultation with local export and shipping industries, the Hong Kong Customs and the US Customs signed a Declaration of Principles on 23 September 2002, signifying Hong Kong's participation in CSI.

The CSI Pilot Scheme was duly rolled out on 12 May 2003. 37 Customs officers within the Department were deployed and eight US Customs officers were stationed in Hong Kong to handle the job. The eight US Customs officers do not have enforcement power in Hong Kong.

During the implementation of the Pilot Scheme, the Hong Kong Customs and US Customs maintained close co-operation. Customs officers from both sides would conduct preliminary pre-screening on the submitted cargo information and select suspicious containers. When such was identified by either party, both parties would carry out a joint discussion and exchange relevant information. With mutual cooperation, the Customs on both sides had a fuller picture of the information of the local consigners and the US consignees, and mobile X-ray scanning systems and portable ion-scanners for the detection of chemical weapons, explosives and narcotics, as well as explosive detection dogs etc., could be used to examine the selected high-risk containers.

During the first six months of implementation of the Pilot Scheme, the CSI Cargo Selectivity Unit processed cargo information of 1 200 US-bound ships. Meanwhile, there were a total of 555 471 containers transported to the US from Hong Kong, of which 207 431 containers having cargo information submitted by local shipping agents and forwarders were processed by us, representing about 37.34 per cent of the total number of HK-to-US containers. Since the implementation of CSI, not a single container was delayed and failed to be exported to US as scheduled. Since the results of the Pilot Scheme were satisfactory, the Hong Kong and the US Customs have extended the Scheme by six months

(4) Other Trade Facilitation Measures

The Department rolled out the following services in 2003 for trade facilitation: -

1. Open Bond System

   The Open Bond System (OBS) was implemented on 1 April 2003. Under the new system, Customs officers no longer attend bonded warehouses to supervise the movement, storage and processing of dutiable goods therein. Instead, the Department has adopted risk management principles to monitor warehouse activities under the OBS. Monitoring measures included strict licensing system, regular inspection and annual audit, etc. The new system was well received by the industry. Apart from facilitation to the trade, this operation mode significantly reduced compliance costs of the industry and enhanced their competitiveness.

   Since the implementation of the new system, warehouse operation has been found normal and no trace of revenue fraud has been found. The Department will continue to keep close watch on the warehouse operation, allocate resources flexibly and step up supervision on high-risk traders so as to protect revenue from dutiable goods.
2. Electronic Data Interchange - Manifest (EMAN)
   To step up facilitation for the trading community and enhance the Government's efficiency, we joined with the Trade and Industry Department and the Census and Statistics Department to embark on developing the EMAN system. The system provides a one-stop channel for the carriers to submit electronic manifests in respect of cargo transported by rail, ocean, river and air, which then disseminates the manifest data received to different government departments for various purposes. The first phase of EMAN has been running smoothly since its operation in April 2003. The participation rate of the carriers is on a gradual increase, of which the increase is most noticeable among the air and rail carriers. In view of this, the Government intends to firstly implement the comprehensive electronic submission of cargo manifests in these two sectors of carriers in the short run. Consultation with the industry is now underway. Besides, the Government has unfolded the second phase of system improvement, which is scheduled to be completed in 2005, in order to enhance the backend systems' efficiency in processing cargo manifests. The system will considerably streamline the process of trade control and enhance Government's ability in monitoring the import and export of cargoes and compiling related statistics upon completion of the system improvement.
3. Study on Implementation of Electronic Data Interchange - Road Manifest (ROMAN)
   The Government has developed the operation mode after considering the feasibility study for ROMAN. The mode aims to establish a mechanism for the trading community to provide essential cargo information to the Department in advance via service provider(s) for speedy customs clearance for cross- boundary goods vehicle at land boundary control points and shorter waiting time so as to foster the trade and logistics development. The Government has also sought advice from the service provider(s) on the operation mode and consultation with the industry is now underway.

III. Customs Co-operation to Fight Against Transnational Crimes

In 2003, the Department continued to participate actively in the Asia-Pacific Economic Co-operation Sub-committee on Customs Procedures (APEC/SCCP) and World Customs Organization (WCO). We also took part in the promotion of anti-terrorism.

During the year, bilateral co-operation conferences were held between the Department and its counterparts from Macau, Mainland and Korea. Significant achievements were made.

We maintained very close contact with our Mainland counterpart to suppress transnational crimes such as illegal smuggling of drugs and illicit cigarettes, etc. through frequent exchanges of intelligence and regular joint operations. Cases effected on the Mainland and in Hong Kong during the year through exchanges of intelligence are as follows:-

On the Mainland

• The seizure of 3.14 million of VCDs, 20 tonnes of treated oil and 1 000 used tyres on board three Mainland vessels respectively.
• The seizure of 56 grams of heroin with the arrest of two drug offenders on the Mainland.

In Hong Kong

• Three detected cases involving drugs, motor spirit and fresh pork, valued at a total of $110,000.

  In addition, we maintained a close working relationship with overseas Customs administrations and law enforcement agencies to combat transnational crimes. Some significant cases in 2003 as a result of exchanges of intelligence are as follows: -
• The seizure of about 16 million sticks of counterfeit cigarettes from two containers by the Italian Customs Agency.
• The seizure of 20 kilograms of herbal cannabis with the arrest of a South African drug offender in Nagoya Airport by Japan Customs.
• The seizure of 20 000 kilograms of potassium permanganate (the chemical precursor of cocaine) in Turkey.
• The seizure of a total of 157 kilograms (about 530 000 tablets) of "ecstasy" and a batch of 183 kilograms of powder containing "ecstasy" estimated to be used in the manufacture of 620 000 tablets of "ecstasy" in Australia. During the two operations, the enforcement agencies concerned arrested six suspects in Malaysia and seven suspects in Sydney, Australia respectively.
• The seizure of 100 kilograms of heroin powder with the arrest of three drug offenders in Sydney, Australia. The batch of drugs was seized from a container departing from Hong Kong by sea consignment.
• The seizure of 13.36 million tablets of pills containing pseudoephedrine (the chemical precursor of "ice") with the arrest of nine suspects in Mexico.
• And "ice" manufacturing workshop was smashed in the Philippines with the seizure of 1 070 kg of "ice" and the arrest of five drug offenders.

IV. Development in Internal Organisation and Enhancement of Quality Service

(1) Establishment of Ports and Maritime Command

The Department re-organised the Ship Search and Cargo Command to become the Ports and Maritime Command on February 10, 2003. The Command consists of six divisions and has an establishment of 730 officers.

With the establishment of the Ports and Marine Command, the Department is able to develop a set of comprehensive and unified operational strategy to fight against sea smuggling activities. We also enhanced the flexibility of resources deployment, resulting in a more distinct distribution of operational functions among formations. Meanwhile, four high-speed pursuit craft were procured to assist our Customs fleet to reinforce the enforcement capability and effectiveness in anti-smuggling activities at sea.

(2) Effectiveness in the Establishment of the Intelligence and Investigation Branch

Since its establishment in mid-2002, the Intelligence and Investigation Branch has continued to effectively promote the use of intelligence and risk management in Custom's operations. During the year, the Branch has conducted a number of territory-wide operations and intensive investigations by pooling resources from various bureaux, which have been proved effective in containing the problems of smuggling, illicit fuel, illicit cigarettes and copyright piracy.

In the past year, with the aid of intelligence, the Department conducted a total of 78 territory-wide large scale operations against illegal activities involving illicit cigarettes, illicit fuel and copyright piracy. In addition, the Intelligence Bureau issued 16 794 pieces of strategic and specific operational intelligence to Customs officers of various operational and investigation units in 2003, which assisted them in planning and taking appropriate enforcement actions. During the period, with the aid of intelligence, 2 588 cases were detected, 2 289 persons were arrested and the total value of detained goods amounted to $170 million.

In March 2003, the Intelligence Bureau introduced a "Single Trader Database" with a view to providing more detailed traders and business information to frontline officers, enhancing their enforcement effectiveness and facilitating trade. In addition, the Intelligence Bureau endeavours to develop Risk Profiles and Risk Priority Setting Engine. The Electronic System for Cargo Manifests is expected to be introduced to the Electronic Data Interchange (EDI) System in 2005, which will build up and speed up the Department's risk-profiling capability in cargo clearance process, so as to achieve a higher targeting accuracy and facilitate the import/export and re-export of cargoes.

(3) Staff Training

We recognise staff as the greatest assets of the Department and therefore attach great importance to training.

In the year, the Department delivered 290 in-house basic, technical, refresher and specialist training courses, offering 8 100 training places to our officers. The Department also sent 95 officers overseas to receive training, including one directorate grade officer, two Senior Superintendents and one Principal Trade Controls Officer who received training on administration and management skills at renowned universities in USA and the UK. Apart from learning the best practice from other overseas customs administrations and organisations, such training enabled the officers to gain much wider overseas exposure. At the same time, the Department also organised specialised courses on investigation and valuation techniques, intelligence analysis, risk assessment and narcotics control for overseas Customs officials.

The Department is actively training up outstanding management officers and preparing the succession arrangements for the management. We have specially designed a Customs Management Development Course lasting more than three weeks for Assistant Superintendents and Chief Trade Controls Officers. The speakers included celebrated university professors, experienced training consultants, overseas Customs officials and senior management personnel of the Department. Thirty Assistant Superintendents and nine Chief Trade Controls Officers have taken the course. They consider that the course has enriched their knowledge of public administration and management, leadership skills and new Customs development, and has also brought them new thinking.

(4) Efficiency Savings

Under the Efficiency Savings programme, we have delivered total savings of $36.6 million in 2003-04, equivalent to 1.8 per cent of our operating expenditure, involving the deletion of 73 posts and reduction in general departmental expenditure.

In 2004-05, though new funds can be obtained for executing new duties, we still need to deliver net savings of $34.46 million, equivalent to 1.83 per cent of our operating expenditure, through the deletion of 87 posts and reduction of general departmental expenditure. The posts to be deleted are mainly General and Common Grade posts responsible for internal administration and support, as well as Trade Controls Officer Grade posts responsible for the exercise of textile quota control which will be cancelled in early 2005. The deletion of these posts will not have a significant impact on our major services and frontline enforcement. In addition to the deletion of posts, we will also adopt a series of measures to enhance our productivity and efficiency for maintaining the effectiveness of our operation and the provision of quality service.

On the other hand, while keeping the non-essential general departmental expenditure to the minimum to meet the saving target, we will ensure that essential spending to support the Department's various functions and activities are maintained at the meet-the-appropriate-demand but not excessive level so that its operation will not be adversely affected and its quality of service will not be lowered.

(5) Customs manpower plan to meet operational needs

In the next few years, the Department will face numerous challenges arising from manpower planning. On one hand, the Department has to minimise expenditure by means of various enhanced productivity measures to meet the Government's target of reducing public expenditure. On the other hand, following the continued growth of cargo and passenger flows across the land boundary, the implementation of new measures such as shortening the clearance time for cross-boundary vehicles and passengers, "Individual Visit" scheme for Mainlanders visiting Hong Kong, Mainland-HK Closer Economic Partnership Arrangement, as well as the construction of new border crossings such as Shenzhen Western Corridor and East Rail - Lok Ma Chau Spur Line, etc which will be completed successively in the next few years, the Department has to ensure sufficient manpower to cope with the increasing workload. The Department is now considering a number of feasible options with a view to utilising manpower resources effectively, so that we can fully perform our duties and provide efficient services to the public under the current retrenchment in expenditure. Moreover, we are actively exploring with various policy bureaux the possibility of increasing manpower to replenish natural wastage and ensure sufficient highly professional officers to perform various law enforcement duties.

Conclusion

Since taking up the Commissioner post on September 29, 2003, I have visited most of our major Formations, talked to many colleagues, and learnt a lot about the daily operations of the Department. During the visit, I felt by heart the high level of professionalism and dedication displayed by every member of my staff. Through our concerted efforts, we have achieved great strides in our services. Internally, we have further improved our organisation structure and striven for the highest cost-effectiveness in the provision of quality services.

Looking ahead, the Department will continue to combat copyright piracy, illicit cigarettes, illicit fuel and drugs, and to cooperate with all parties concerned to achieve optimum cost-effectiveness with limited resources. Moreover, we will proactively work in line with the development of CEPA, taking all necessary measures to facilitate the cargo flow in and out of Hong Kong, which include improving facilities at the control points, simplifying clearance procedures, developing relevant IT projects, maintaining close liaison with our Mainland counterparts and entering into partnership with the industry, so as to develop Hong Kong into an international and regional transportation and logistics hub.

End/Tuesday, January 20, 2004

Customs & Excise Department

Departmental Achievements

Summary of Statistics, 2003