By NEIL HARTNELL Tribune Business Editor THE Customs Department's "serious institutional and operational limitations", particularly an information management system more than 20 years-old, are undermining the Bahamas' trade competitiveness and ability "to attract high levels of foreign direct investment", the Inter-American Development Bank (IDB) has warned. An IDB report on a proposed $16.5 million project to upgrade Customs, and prepare the Bahamas for a more liberalised trade environment, said the Department's reliance on outdated information technology and manual systems created the opportunity for fraud, data entry errors and the wrong rate of duty to be applied, all of which cost the Government revenue. This, the IDB added, often resulted in duty exemptions being incorrectly applied, while also handicapping the private sector in impeding the free-flow of physical goods into and out of the Bahamas. Such problems are not insignificant, given that this nation was said to have exported $709.7 million worth of goods in 2011, and imported some $2.859 billion. And the IDB warned that they could also undercut "the major engine for economic growth" in the Bahamas, namely FDI. The report, which has been obtained by Tribune Business, warned that these problems, together with "weak control and enforcement", undermined the Government's revenue collection ability, given that Customs collected 50 per cent of the total. Noting that the Bahamas' open economy gave it a trade-to-gross domestic product (GDP) ratio of 129.2 per cent, the IDB report added that the absence of a government unit/department dedicated to trade matters was also in danger of compromising this nation's World Trade Organisation (WTO) accession and negotiations over other trade agreements. None of the problems identified in the IDB report will be 'news' to those who regularly deal with Bahamas Customs, especially brokers, major importers and the private sector at large, or students of this nation's approach to trade issues. Yet the report provides a cogent summary and analysis of how weaknesses in both areas could harm the Bahamas' efforts to modernise and integrate its economy more successfully with that of the world in a liberalised trade environment. Noting that the Bahamas had already signed on to the Economic Partnership Agreement (EPA) with the European Union (EU), and had begun the accession process to full WTO membership, the IDB report said CARICOM was also negotiating on this nation's behalf for a new trade agreement with Canada. Yet, given this backdrop, the IDB warned: "These trade engagement developments may be hindered by serious institutional and operational limitations at the Bahamas Customs Department (BCD) and other trade related institutions. "At BCD, some of the main problems include: An obsolete Information and Communication Technology (ICT) management system to support modern Customs operational processes, given that the current information system, Customs Automated System (CAS), was designed in the late 1980s; very limited use of risk analysis model and its system (Trade Information Management System - TIMs); an outdated institutional/operational framework and business processes; a functional organisation structure and human resources model and management; inefficient cargo clearance and entry passenger processing; weak border control coordination and lack of an enforcement strategy; and a strained relationship with the private sector." The reference to the "strained" private sector relationship is likely, at least in part, to reflect the ongoing Customs battles in Freeport that have come 'thick and fast' over the past view years. These have included arbitrary practices linking renewal of Grand Bahama Port Authority (GBPA) licensees' over-the-counter bonded goods letters to being in full compliance with the National Insurance Board (NIB) and providing documentation of all bonded purchases the previous years, and impositions over the use of 'bonded vehicles'. And the relationship with businesses in Nassau, too, has been similarly strained. As to the consequences of all this, the IDB report said: "These problems typically affect any country's competitiveness performance and business climate and, if not resolved in the Bahamas, could also hinder the ability of the country to enhance its international trade performance and to attract high levels of foreign direct investment, which is the major engine for economic growth. "Moreover, the current cumbersome, manual and lengthy procedures, together with a legacy IT system at Bahamas Customs, produce a twofold impact. "It allows for frequent data entry errors, and provides an opportunity for improper classification/valuation and incorrect and unaccountable use of government exemptions, and negatively affects the time and cost of movement of goods across borders. "All the above, together with contraband practices, due to weak control and enforcement, affect the revenue collection capacity, considering that currently Bahamas Customs is the main source of revenue, collecting 50 per cent of the total." Apart from the woes at Customs, the IDB report said the absence of a dedicated international trade unit within the Government was another barrier to successfully negotiating WTO entry, and maximising the benefits from this and future revised trade deals with the US and Canada. "The institutional platform for international trade, which has the exclusive responsibility for trade matters, is underdeveloped and understaffed, relying on other ministries and institutions to carry out its work, making the negotiation and implementation of trade agreements, including the accession to the WTO, extremely challenging," the IDB said. Reforms, it acknowledged, were being driven by the Bahamas' commitments under the EPA, as well as WTO accession requirements. Moreover, Customs had already agreed with the World Customs Organisation (WCO) to bring its administration and operations into line with "good international practices that will secure and facilitate trade". To help achieve this, the IDB is providing $15 million of the necessary $16.5 million financing deemed necessary to create an International Trade Unit within the Ministry of Finance. Other objectives include enhanced alliances with the private sector, through initiatives called Trusted Traders and Authorised Economic Operator Programmes. "To implement structural reforms, the Government of the Bahamas has requested an investment programme that will improve the facilitation of trade while strengthening the collection of revenue and border protection by the enhancement and modernisation of Customs operations and the international trade institutional platform," the IDB report said. "As a result, the Bahamas Customs Department will have an upgrade of its operational procedures and a cutting edge automated system to balance trade facilitation and control."