For discussion FCR(97-98)22

on 20 June 1997

ITEM FOR FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Government Secretariat : Trade and Industry Branch
Subhead A008XV Electronic data interchange system
HEAD 47 - INFORMATION TECHNOLOGY SERVICES DEPARTMENT
Subhead 001 Salaries

    Members are invited to approve -

  1. an increase in commitment from $127,324,000 by $35,817,000 to $163,141,000 under Subhead A008XV Electronic data interchange system for the acquisition of computer hardware and software by the Trade Department, Customs and Excise Department and Information Technology Services Department to handle electronic submissions of certificates of origin, production notifications and combined forms for outward processing arrangements, to computerise the processing of these trade documents and to establish a comprehensive database of registered factories; and

  2. an increase in the ceiling of the total notional mid-point salary value of non-directorate posts in the permanent establishment of the Information Technology Services Department from $364,902,9201 by $3,481,980 to $368,384,900 for the creation of seven posts for the design, development and implementation of the system.

1 This is subject to Members' approval to increase the total notional annual mid-point salary value of all non-directorate posts in the permanent establishment of the Information Technology Services Department to provide development support for another comuterisaion project in a separate submission [FCR(97-98)19] for the same meeting on 20 June 1997.



PROBLEM

We cannot achieve full efficiency in export licensing for the restrained textiles trade without extending the use of electronic data interchange (EDI) to cover trade documents supporting the issue of export licences; viz, certificates of origin (COs), production notifications (PNs) and combined documents for outward processing arrangements (OPA combined forms). We also need to strengthen control in issuing these trade documents.

PROPOSAL

2. The Secretary for Trade and Industry proposes to expand the existing Government EDI system to cover COs, PNs and OPA combined forms, to computerise the processing of these trade documents and to set up a comprehensive database of registered factories.

JUSTIFICATION

A step towards full EDI applications

3. Restrained Textiles Export Licence (RTEL) and CO are the two most important trade documents for export of textiles and garments to restrained markets. Exporters require RTELs to facilitate export and overseas customs clearance, and COs to certify that the manufacturing process conferring origin to a finished article took place in Hong Kong. In January 1997, we introduced EDI for RTELs, to enable the application for RTELs and the subsequent processing and approval through EDI.

4. In respect of the European Union and Norway, importing authorities require COs for customs clearing purpose. In support of the CO system, we provide flexibility to manufacturers under an OPA scheme allowing them to subcontract subsidiary manufacturing processes outside Hong Kong. Separately, we have introduced since July 1996 a PN system whereby manufacturers of cut-and-sewn garments for export to the United States, European Union and Norway have to lodge PNs with Trade Department (Trade D) three days before commencement of the major assembly work. The PN arrangement enables Customs and Excise Department (C&ED) to effectively inspect raw materials, component parts as well as the assembly work in operation.

5. With the above certification mechanism, traders currently have to make repeated visits to apply for the documents required. The extension of EDI to COs, PNs, and OPA combined forms will bring export licensing and certification for the restrained textiles trade a big step closer to an electronically linked, computerised and paperless environment with much improved efficiency. The design capacity of the proposed system when it comes into full operation is as follows -


Number of applications/factories maintained on the register

COs

539 000

PNs

547 000

OPA combined forms

675 000

Factory registrations

5 700

Better control

6. Apart from Trade D, there are at present five Government Approved Certification Organisations (GACOs)2 which issue COs under the law. The department and GACOs are currently operating separate and basically manual systems. Given the large number of manufacturers and the high volume of trade in the export of textile products, it is difficult and time-consuming to monitor production capacity, origin compliance and export performance through paper certification documents lodged with Trade D and the GACOs. The lack of a centralised and computerised certification system limits surveillance on suspected illegal transhipment and weakens export control. The establishment of a centralised database to capture production capacity and export performance of registered factories will greatly enhance Government’s capability in identifying trends and tendencies of malpractice, targeting suspicious factories, detecting illegal transhipment and enabling better focus and deployment of enforcement resources.

2 The five Government Approved Certification Organisations are the Hong Kong General Chamber of Commerce, the Chinese Manufacturers' Association of Hong Kong, Federation of Hong Kong Industries, the Indian Chamber of Commerce, Hong Kong and the Chinese General Chamber of Commerce, Hong Kong.

7. We have been under increasing pressure from our trading partners to strengthen control of our licensing and certification systems and to improve enforcement efforts against illegal transhipment. The introduction of a computerised system in this area will underline our determination to combat abuses of the licensing and certification system.

Enhancing effectiveness and efficiency

8. Computerisation of the processing of COs, PNs and OPA combined forms will bring about more efficient, effective and trade facilitating services. The proposed computerisation project allows Trade D and GACOs to share a centralised database and a common processing system. This will provide streamlined and standardised procedures for processing CO applications without duplication of effort among certification organisations.

9. With the assistance of computer validation, traders will enjoy shorter turnaround time in obtaining the documents required. Moreover, the new system will simplify procedures to facilitate retrieval of data and information filed by traders. It will also be more convenient to traders as they would not normally need to submit supporting paper documents for validation purposes. (Please see also paragraph 26 below.)

FINANCIAL IMPLICATIONS

Non-recurrent expenditure

10. We estimate that the proposed system will give rise to non-recurrent expenditure of $49,924,000 over three years from 1997-98 to 1999-2000. This comprises $35,817,000 for the purchase of equipment for Trade D, C&ED and Information Technology Services Department (ITSD), and the employment of contract staff and implementation service required by ITSD; and $14,107,000 for in-house development staff of ITSD, Trade D and C&ED. Details of the non-recurrent expenditure are as follows -


($’000)


1997-98

1998-99

1999-2000

Total

Non-recurrent expenditure under Subhead A008XV Electronic data interchange system










(a) Computer hardware and software*

6,660

11,544

1,792

19,996

(b) Site preparation

800

500

0

1,300

(c) Start-up consumables

150

180

0

330

(d) Contract staff

4,787

5,088

1,316

11,191

(e)Implementation service

1,000

1,500

500

3,000

Sub-total

13,397

18,812

3,608

35,817






Other non-recurrent expenditure










(f) Staff costs





(i) Trade D

1,215

1,822

607

3,644

(ii) C&ED

700

1,050

350

2,100

(iii) ITSD

3,157

3,998

1,208

8,363

Sub-total

5,072

6,870

2,165

14,107

Total

18,469

25,682

5,773

49,924

* Including a 10% contingency.

11. As regards paragraph 10(a), $19,996,000 is for acquisition of file servers, workstations, printers, system and network control workstations, communication and network equipment, data lines, systems software, database systems and other supporting software for user departments and ITSD. It also includes database servers, EDI communication gateways, terminal servers and communication servers for linking up GACOs with Trade D and the cost of an off-site backing up system.

12. As regards paragraph 10(b), $1,300,000 is for site preparation work for installing the file servers, workstations, printers, communication and network equipment and data lines at user departments and ITSD.

13. As regards paragraph 10(c), $330,000 is for the acquisition of start-up consumable, such as printer toner and stationery, for user departments and ITSD.

14. As regards paragraph 10(d), $11,191,000 is for the employment of contract staff comprising 192.22 man-months3 of staff resources, to supplement ITSD staff in developing and implementing the system.

3 Including 18 man-months of Project Manager, 90.22 man-months of System Analyst, 60 man-months of Programmer and 24 man-months of Senior System Programmer.

15. As regards paragraph 10(e), $3,000,000 is for implementation service on EDI technology, system security and communication technology, and training of ITSD project team staff on their applications.

16. As regards paragraph 10(f)(i), $3,644,000 represents 72 man-months4 of Trade D staff cost to support system development and implementation, including system design, system testing, end-user training, preparation of operation manual and procedures, trial run and production set up. It comprises 42 man-months of staff resources to be met by redeployment of existing resources, and 30 man-months of staff resources to be financed with savings originally earmarked to be given up by the department.

4 Including 14 man-months each of Trade Officer, Assistant Trade Officer I and Clerical Officer I to be deployed from existing resources and 28 man-months of Senior Clerical Officer and 2 man-months of Senior Computer Operator to be Created in 1997-98 and 1998-99 respectively.

17. As regards paragraph 10(f)(ii), the $2,100,000 represents 32 man-months5 of C&ED staff cost to support system development and implementation. C&ED will meet the staffing requirement by redeployment of existing resources.

5 Including 8 man-months of Chief Trade Controls Officer and 24 man-months of Senior Trade Controls Officer.

18. As regards paragraph 10(f)(iii), the $8,363,000 represents 148.25 man-months6 of ITSD staff cost for the development and implementation of the system, including system analysis, design, implementation and testing, project control and monitoring, change management, quality assurance and control, tendering, procurement, site preparation and technical support. This requires the creation of one Senior Systems Manager post, one Systems Manager post, three Analyst/Programmer I posts and two Analyst/Programmer II posts in 1997-98 and an increase in the total notional annual mid-point salary value of ITSD from $364,902,920 by $3,481,980 to $368,384,900.

6 Including 2 man-months of Chief Systems Manager, 12.65 man-months of Senior Manager, 20.1 man-months fo Systems Manager, 65.5 man-months of Analyst/Programmer I, and 48 man-months of Analyst/Programmer II.

Recurrent expenditure

19. We estimate that the annually recurrent expenditure for the proposed system for 1998-99 to 2002-03 will be as follows -


($’000)


1998-99

1999-2000

2000-01

2001-02

2002-03

Recurrent expenditure












(a)Maintenance of hardware and software

2,828

3,043

3,043

3,043

4,115

(b)Consumable

0

300

300

300

300

(c) Contract staff

1,346

1,795

1,795

1,795

1,795

Sub-total

4,174

5,138

5,138

5,138

6,210







Other recurrent expenditure












(d) Staff cost






(i) Trade D

976

1,301

1,301

1,301

1,301

(ii) C&ED

262

350

350

350

350

(iii) ITSD

2,331

3,526

3,526

3,526

3,526

Sub-total

3,569

5,177

5,177

5,177

5,177

Total

7,743

10,315

10,315

10,315

11,387

20. As regards paragraph 19(a), the expenditure is for acquisition of software licences and maintenance of computer equipment in user departments and ITSD. As existing terms and conditions of the computer bulk contract allow a special discount for some items for the first four years, there will be an increase in the maintenance cost in 2002-03.

21. As regards paragraph 19(b), the expenditure is for consumables, such as printer toner and stationery, for user departments and ITSD.

22. As regards paragraph 19(c), the expenditure is for employment of contract staff to supplement ITSD staff in providing maintenance and on-going support for the system. It comprises 24 man-months of staff resources for 1998-99 and 32 man-months8 of staff resources each year for 1999-2000 and onwards.

23. As regards paragraph 19(d)(i), the expenditure is to meet 36 man-months9 of staff cost in Trade D for on-going maintenance and technical support of the system in 1998-99 and onwards, including administration, management, operation and maintenance of the system.

24. As regards paragraph 19(d)(ii), the expenditure is to meet 6 man-months10 of staff cost in C&ED for the administration, management, operation and maintenance of the system. C&ED will meet the staffing requirements by redeployment of existing resources.

25. As regards paragraph 19(d)(iii), the expenditure is to meet 63.79 man-months11 of staff cost in ITSD for maintenance and on-going support of the system for 1999-2000 and onwards.

7 Including 9 man-months each of Systems Analyst and Programmer and 6 man-months of Senior Systems Programmer.

8 Including 12 man-months each of Systems Analyst and Programmer and 8 man-months of Senior Systems Programmer.

9 Including 12 man-months each of Senior Clerical Officer, Senior Computer Operator and Computer Operator II.

10 Including 1.2 man-months of Chief Trade Controls Officer and 2.4 man-months each of Senior Trade Controls Officer and Trade Controls Officer.

11 Including 1 man-month of Chief Systems Manager, 3.2 man-months of Senior Systems Manager, 7 man-months of Systems Manager, 37.59 man-months of Analyst/Programmer I, 12 man-months of Analyst/Programmer II and 3 man-months of Computer Operator I.

12 Including 2 Clerical Officers I, 10 Clerical Officers II and 8 Clerical Assistants.

Cost benefit analysis

26. The proposed system will derive significant economic and efficiency benefits, but these are not readily quantifiable in money terms. To retain our competitiveness as an international business centre, Hong Kong cannot afford to lag behind in the use of electronic trading methods, especially for common international trade documents like COs. With the establishment of a comprehensive database of registered factories, we will be in a better position to monitor factory production and combat illegal transhipment by making use of up-to-date factory information on-line. We may reduce the time taken to match or verify information from typically half a day to minutes. The proposed system will also shorten the turnaround time for CO processing from two to 1½ working days, reduce the time and resources spent by traders on travelling and queuing, provide instant response and virtually extend the operating hours of user departments for receipt of applications for the relevant trade documents.

27. In more concrete terms, the proposed system will bring about the following benefits -

  1. realisable savings of about $5.2 million per annum mainly through the deletion of 20 posts in Trade D12 ; and

  2. notional savings of about $1.6 million per annum of a total of five man-years of staff resources in Trade D and C&ED.

28. A cost benefit analysis showing the costs and benefits of the proposed system is at the Enclosure. Members will note that the proposed system will not break even on the quantifiable costs and benefits alone. The justification for the system lies in the substantial economic benefits which Hong Kong will derive from the faster processing of trade documents and our ability to safeguard the integrity of our export control system.

Impact on fees and charges

29. The implementation of the proposed system, based on current projections of the volume of COs and the mode of operation with GACOs, will increase the cost of each CO by about $32. In addition, Tradelink will collect a charge for using the Community Electronic Trading Service (CETS). Trade D will shortly discuss with GACOs on how far the additional cost could be absorbed through streamlining of existing procedures and rationalisation of division of work between Government and GACOs with a view to reducing the impact of the increased costs on charges. We will also discuss with Tradelink the scope for reducing its CO charge taking into account the possible economies of scale to be achieved with the full EDI development on both RTELs, COs and other export control documents.

30. In any case, to encourage the use of the CETS, and similar to the cases of RTEL and Trade Declarations (TDECs), Government intends to maintain a price differential between paper and EDI applications so that the combined Government/GACOs and Tradelink charges will not be more than the charge for paper submission.

Implementation plan

31. We need to computerise the processing of COs, PNs and OPA combined forms and introduce EDI as soon as practicable to facilitate submission of applications through electronic means. We expect to process, together with GACOs, these documents through the new computer system and make use of the centralised database of registered manufacturers by July 1998. Present indications are that traders may start to send in their applications through the EDI facilities by July 1999. The target date for full EDI is July 2001.

Consultation

32. We have consulted the Textiles Advisory Board. They are supportive of the proposal. We have also briefed GACOs of the scope of the project and their continued involvement in issuing COs under the EDI environment.

BACKGROUND INFORMATION

33. Most textile exports to restrained markets require the support of COs. At present, an exporter may apply to either Trade D or one of the GACOs for issue of COs. GACOs reimburse Government for the centralised services provided on the basis of the number of COs issued.

34. Government entered into an agreement with Tradelink in December 1992, requiring the company to provide a CETS in Hong Kong. As part of the agreement, Government undertook to use the CETS for a range of Government trade-related documents including RTELs, TDECs and COs. In March 1997, Members approved an increase in commitment by $62,854,000 to $127,324,000 under Subhead A008XV to take forward the EDI system for RTELs and TDECs [FCR(96-97)117]. We are now studying whether to cover Cargo Manifests and Dutiable Commodity Permits under the EDI system. Depending on the outcome of the studies, we may seek Members’ approval of funding separately.

Trade and Industry Branch
June 1997


Enclosure to FCR(97-98)22

Cost-Benefit Analysis for the Proposed EDI and Computerisation Project



1997-98
($’000)

1998-99
($’000)

1999-2000
($’000)

2000-01
($’000)

2001-02
($’000)

2002-03
($’000)

Cost








Non-recurrent








Expenditure


13,397

18,812

3,608




Staff cost


5,072

6,870

2,165




Sub-total


18,469

25,682

5,773




Recurrent








Expenditure


-

4,174

5,138

5,138

5,138

6,210

Staff cost


-

3,569

5,177

5,177

5,177

5,177

Sub-total


-

7,743

10,315

10,315

10,315

11,387

Total Cost

(A)

18,469

33,425

16,088

10,315

10,315

11,387

Savings








Realisable savings

(B)

-

998

2,645

3,393

5,193

5,193

Notional savings

(C)

-

749

1,425

1,506

1,630

1,630

Total savings

(D = B + C)

-

1,747

4,070

4,899

6,823

6,823

Net Savings








Net savings

(E = D - A)

(18,469)

(31,678)

(12,018)

(5,416)

(3,492)

(4,564)

Net cumulative savings


(18,469)

(50,147)

(62,165)

(67,581)

(71,073)

(75,637)


Last Updated on 5 August 1999