FCR(1999-2000)24

For discussion
on 25 June 1999

ITEM FOR FINANCE COMMITTEE


CAPITAL WORKS RESERVE FUND
HEAD 710 - COMPUTERISATION
Government Secretariat: Trade and Industry Bureau
Subhead A008XV Electronic data interchange system
HEAD 31 - CUSTOMS AND EXCISE DEPARTMENT
Subhead 001 Salaries
HEAD 47 - INFORMATION TECHNOLOGY SERVICES DEPARTMENT
Subhead 001 Salaries

    Members are invited to approve -

  1. an increase in commitment from $163,141,000 by $31,691,000 to $194,832,000 under Subhead A008XV Electronic data interchange system for the acquisition of computer hardware and software required by the Customs and Excise Department for implementation of the Electronic Data Interchange System for Dutiable Commodities Permits; and

  2. an increase in the ceilings placed on the total notional annual mid-point salary value in 1999-2000 of all non-directorate posts in the permanent establishment of the -

    1. Customs and Excise Department from $1,569,364,000 by $1,324,620 to $1,570,688,620; and

    2. Information Technology Services Department from $473,930,000 by $1,707,540 to $475,637,540.

PROBLEM

The current paper-based method of submission of Dutiable Commodities Permits (DCP) involves much manual effort in processing, and is inefficient and costly. We do not have the computer facilities to enable the processing of DCPs and related documents(1) through electronic data interchange (EDI).

PROPOSAL

2. The Secretary for Trade and Industry proposes to extend the existing Government EDI system to receive and process DCPs and related documents.

JUSTIFICATION

EDI Services

3. EDI is the electronic transfer of data from one independent computer to another using agreed standards of data structure. It has become a popular mode of electronic commerce worldwide. In order to preserve Hong Kong's competitiveness in the global business community, the Government has taken the lead to encourage the widespread use of EDI for trade-related transactions. In this connection, the Government has entered into an agreement with Tradelink Electronic Commerce Limited (Tradelink) for Tradelink to provide the Community Electronic Trading Service (CETS) for EDI processing of a range of Government trade-related documents (2). The intention is to build up the critical mass required for the community to adopt electronic commerce. We introduced EDI for Restrained Textiles Export Licences in January 1997, followed by Import and Export Declarations in April 1997. The EDI system for Certificates of Origin and related documents is under active development and is scheduled to be put into service in the latter part of this year.

DCP Applications and Processing

4. A DCP is used for duty assessment and for controlling the movement of dutiable goods until the full duty payable on the goods is paid. Currently, traders have to make repeated visits to the Customs and Excise Department (C&ED) offices to lodge applications, to update information on applications previously lodged and to collect the approved documents.

5. Back-end processing of DCP applications, though semi-automated, is labour-intensive. We have to deploy substantial staff resources to receive, sort, distribute and file the applications and supporting documents. Data extracted from the applications and supporting documents has to be manually input into the Customs Control System for validation, data processing and duty assessment. Payments of duty received at the shroff counters are deposited into banks manually at the end of each working day. Such manual processing is labour-intensive and is subject to higher security risk.

Preparation and Processing of Related Documents

6. As a control measure for revenue protection, we require warehouse operators to keep a stock account of the dutiable goods stored in their warehouses and to file a return on their stock positions either weekly or monthly. We also require cargo carriers to lodge import/export statements on imported/exported dutiable goods. Currently, they have to lodge these documents in person. Much manual effort is spent on the compilation and delivery of the related documents to C&ED. Back-end processing of these documents including cross matching of data against DCPs is done manually.

7. As part of the CETS programme, we completed a feasibility study on EDI processing of DCP in May 1999. The study established the feasibility of implementing an EDI system to cater for the processing of DCP. Under the proposed EDI system, the applicants for DCP may file their applications electronically to C&ED through their own computers. Through the same system, applications previously lodged may be updated and approved DCPs may be "collected", i.e. sent back to the applicants. Payment of duty will be settled by electronic means. The warehouse operators will also be able to use the system to file their returns to C&ED electronically.

Anticipated Benefits

Meeting the need of the industry

8. Many traders in the industry have already automated their business processes. There is a strong demand from the industry for an electronic means for them to submit applications for DCPs and related documents, as well as the associated payment of duties.

Better trade facilitation

9. The extension of EDI to DCPs will enable traders to file DCP applications and make payments electronically to C&ED. We will be able to shorten the processing time of DCPs from two days to half a day. This improvement enhances the capability of traders to meet business demands.

10. With the establishment of the EDI DCP system, warehouse operators and carriers will be linked electronically with C&ED. This computer-integrated environment will enable the timely verification of the status of DCPs (whether or not they have been approved) and facilitate automated preparation of warehouse returns and import and export statements.

Better control

11. We will be able to control more effectively the movement of dutiable goods to prevent evasion of duty through automation of data cross matching among DCPs, warehouse returns and import and export statements. The availability of more accurate and timely information on dutiable goods movement will enhance our capability to detect irregularities or malpractices, minimizing the chance of evasion of duty.

Automation provides accurate checking and higher efficiency

12. Automated checking and cross matching of data in related documents obviates human errors. It reduces the processing time, while ensuring a higher quality output and more accurate results.

Improved efficiency and higher security

13. The electronic payment to be introduced in the EDI system will provide a more convenient means for traders to settle the duty payment. This will also eliminate the risks associated with the physical handling of large amounts of cash/cheques.

Cost savings

14. We estimate that considerable staff savings will be achieved through the streamlining of work and elimination of certain manual processes. The deletion of posts will also result in savings in accommodation. The EDI DCP will result in an annual saving of $13.04 million, of which $10.29 million is realisable by deleting 27 posts, and $2.75 million is notional savings. A detailed breakdown of the savings is at Enclosure 1.

FINANCIAL IMPLICATIONS

Non-recurrent Expenditure

15. We estimate that the proposed system will require non-recurrent expenditure of $37,341,000 over three years from 1999-2000 to 2001-2002. The cost breakdown is as follows -


1999-2000 2000-01 2001-02 Total

$'000 $'000 $'000 $'000

Non-recurrent expenditure





(a) Hardware and software - 10,666 - 10,666
(b) Implementation service - 13,420 3,045 16,465
(c) Site preparation - 450 - 450
(d) Payment service setup fee - 401 - 401
(e) Communication service - 525 - 525
(f) Training - 307 - 307
(g) Start-up consumables - 164 - 164
(h) Contingency -
-------
2,409
------
304
------
2,713
------
Sub-total -
-------
28,342
------
3,349
------
31,691
------

Staff costs





(i) C&ED 396 2,430 - 2,826
(j) Information Technology Services Department (ITSD) 1,530 1,294 - 2,824

------- ------ ------ ------
Sub-total 1,926
-------
3,724
------
-
------
5,650
------
Total 1,926
-------
32,066
------
3,349
------
37,341
------

This item seeks Members' approval of the non-recurrent commitment of $31,691,000 for items (a) to (h) and an increase in the Departments' notional annual mid-point salary (NAMS) ceiling for the additional in-house staff needed.

16. As regards paragraph 15(a) above, the expenditure of $10,666,000 is for the acquisition of hardware and software. The expenditure breakdown of the hardware and software, together with a brief description of their functions in serving the DCP system, is at Enclosure 2.

17. As regards paragraph 15(b) above, the expenditure of $16,465,000 is for the acquisition of contract services for systems analysis, design, development, integration and implementation. The expenditure breakdown is at Enclosure 3.

18. As regards paragraph 15(c) above, the expenditure of $450,000 is for site preparation work such as the installation of conduits and power sockets, and cabling work at C&ED offices.

19. As regards paragraph 15(d) above, the expenditure of $401,000 is for the setting up of accounts to use Electronic Payment Service (EPS) and Automatic Teller Machine (ATM) Payment.

20. As regards paragraph 15(e) above, the expenditure of $525,000 is for the acquisition of telecommunications service for the establishment of the EDI-DCP wide area network.

21. As regards paragraph 15(f) above, the expenditure of $307,000 is for the provision of training to Government staff on using, operating and supporting EDI DCP applications.

22. As regards paragraph 15(g) above, the expenditure of $164,000 is for the acquisition of start-up consumables such as printer toners, printing papers, backup tapes and stationery for the project.

23. As regards paragraph 15(h) above, the expenditure of $2,713,000 represents a 10% contingency in respect of the items of paragraph 15(a) and 15(b).

24. As regards paragraph 15(i) above, the cost of $2,826,000 represents C&ED staff cost for supporting system development and implementation including system design, system testing, end-user training, preparation of operation manuals and procedures, joint testing with Tradelink and pre-production set-up. This comprises 12 man-months of a Senior Inspector (SI), 12 man-months of an Inspector, 12 man-months of a Senior Customs Officer (SCO) and 18 man-months of a Customs Officer (CO). In terms of posts required in 1999-2000, it involves the creation of one SI post, one Inspector post and one SCO post in C&ED at an additional NAMS value of $1,324,620. In 2000-01, an additional NAMS value of $581,940 for the creation of 3 CO posts is also required.

25. As regards paragraph 15(j) above, the cost of $2,824,000 represents ITSD staff cost for the preparation of tender specification, tender selection, tender negotiation, contract management and administration, and provision of information technology advice to the user department (C&ED) and the contractors in relation to the project. This comprises 12 man-months of a Senior Systems Manager (SSM) and 12 man-months of a Systems Manager (SM). In terms of posts required in 1999-2000, it involves the creation of one additional SSM post and one additional SM post in ITSD at an additional NAMS value of $1,707,540.

Recurrent Expenditure

26. We estimate that the system will incur the following recurrent cost -


2000-01 2001-02 2002-03
and
onwards

$'000 $'000 $'000
Operational expenses


(a) Hardware and software maintenance - 2,052 2,551
(b) Electronic payment service 9 110 110
(c) Communication service 48 576 576
(d) Consumables 4
-----
42
------
42
------
Sub-total 61
-----
2,780
------
3,279
------
Staff costs


(e) C&ED 60 723 723
(f) ITSD 28
-----
341
------
341
------
Sub-total 88
-----
1,064
------
1,064
------
Total 149
-----
3,844
------
4,343
------

27. As regards paragraph 26(a) above, the expenditure of $2,551,000 is for the maintenance of computer hardware, system and application software.

28. As regards paragraph 26(b) above, the expenditure of $110,000 is the estimated annual usage fee paid to the banks for using the EPS and ATM Payment.

29. As regards paragraph 26(c) above, the expenditure of $576,000 is for the management service of the communication network equipment and the rental cost of communication lines.

30. As regards paragraph 26(d) above, the expenditure of $42,000 is for the provision of consumable items, such as toners and papers for printers and tapes for backup purposes.

31. As regards paragraph 26(e) above, the cost of $723,000 represents C&ED staff cost for central administrative work, on-going maintenance, and system enhancement of EDI DCP. It comprises one Inspector post.

32. As regards paragraph 26(f) above, the cost of $341,000 represents 2.4 man-months per year of an SSM post of ITSD staff costs for contract administration. ITSD will absorb the staffing requirement by internal deployment.

33. Subject to Members' approval of this item, we will include the provision for the purpose of paragraph 26(a) to (e) in future Estimates.

Cost and Benefit Analysis

34. The proposed system will achieve significant economic and efficiency benefits. A detailed cost and benefit analysis is at Enclosure 4. Members will note that the proposed system will pay back in about seven years' time.

35. Moreover, to retain our competitiveness as an international business centre, Hong Kong cannot afford to lag behind in the use of electronic commerce. With the establishment of the EDI system for DCP, we will be able to shorten the turnaround time for DCP processing from two days to half a day. The time and resources spent by traders on commuting and queuing will be significantly reduced. There will therefore be substantial economic benefits from the faster processing of trade documents and our ability to protect revenues.

Implementation Plan

36. Subject to Members' approval, we will proceed as follows -


Activity

Expected
completion date

(a)

Tendering for implementation

February 2000

(b)

Development and implementation

February 2001

(c)

System roll-out milestones



(i) Limited production pilot with
selected traders

March to May 2001


(ii) Full production run

August 2001

Consultation

37. We have consulted the industry including dutiable commodities traders, warehouse operators, carriers and industry associations. They are supportive of the proposal.



------------------------------------

Trade and Industry Bureau
June 1999

Enclosure 1 to FCR(1999-2000)24

I.Notional Savings

(i)Improvement in Efficiency

Description

Savings in
man-year

Annual staff
cost (HK$)

Cost (HK$)

Customs and Excise Department (C&ED)


Permit Office (Hong Kong)


Attend counter, receive and process permit applications and amendments, and issue permits








Senior Clerical Officer (SCO)

1.00

623,604

623,604.00

Clerical Officer (CO)

8.48

453,792

3,848,156.16

Assistant Clerical Officer (ACO)

2.00

323,760

647,520.00

Clerical Assistant (CA)

2.40

216,348

519,235.20

Sub-total

5,638,515.36





Permit Office (Kowloon)


Attend counter, receive and process permit applications and amendments, and issue permits








Clerical Officer (CO)

1.70

453,792

771,446.40

Assistant Clerical Officer (ACO)

0.85

323,760

275,196.00

Clerical Assistant (CA)

1.00

216,348

216,348.00

Sub-total

1,262,990.40





Data Input Unit


Update/input data to Customs Control System,
check permit issued printout




Inspector (I)

1.00

722,916

722,916.00

Assistant Clerical Officer (ACO)

6.70

323,760

2,169,192.00

Sub-total

2,892,108.00





Records and Statistics Unit


Maintain permits register and all related statistics




Clerical Officer (CO)

0.50

453,792

226,896.00

Assistant Clerical Officer (ACO)

5.03

323,760

1,628,512.80

Sub-total

1,855,408.80





Accounts


Arrange banking revenue, collect revenue and
supervise duty collection








Assistant Clerical Officer (ACO)

2.22

323,760

718,747.20

Sub-total

718,747.20





Sub-total (I)

1.00


722,916.00

Sub-total (SCO)

1.00


623,604.00

Sub-total (CO)

10.68


4,846,498.56

Sub-total (ACO)

16.80


5,439,168.00

Sub-total (CA)

3.40


735,583.20





Total Efficiency Improvement

12,367,769.76

C&ED




Total Efficiency Improvement



12,367,770

Less Realisable Savings (Posts Deletion)



(10,288,572)

Total Notional Savings



2,079,198

Note : The above notional savings in efficiency improvement are fragmented savings scattered in different offices. Therefore, they cannot be realised.

(ii) Savings in accommodation resulting from deletion of post

Description
Number
of
post
deletion

Area saved per post

(m2)

Annual accommodation cost per m2(HK$)

Cost

(HK$)

C&ED



Permit Office (Hong Kong)



Senior Clerical Officer (SCO)

1

5.8

5,756.40

33,387.12

Clerical Officer (CO)

8

4.4

5,756.40

202,625.28

Assistant Clerical Officer (ACO)

2

4.4

5,756.40

50,656.32

Clerical Assistant (CA)

2

4.1

5,756.40

47,202.48

Sub-total


333,871.20






Permit Office (Kowloon)



Clerical Officer (CO)

1

4.4

3,920.40

17,249.76

Clerical Assistant (CA)

1

4.1

3,920.40

16,073.64

Sub-total


33,323.40






Data Input Unit



Inspector

1

4.8

5,756.40

27,630.72

Assistant Clerical Officer (ACO)

6

4.4

5,756.40

151,968.96

Sub-total


179,599.68






Records and Statistics Unit





Assistant Clerical Officer (ACO)

5

4.4

5,756.40

126,640.80

Sub-total


126,640.80






Total Savings

40.8


673,435.08

II.Realisable Savings : Posts Deletion

Description

Savings in
man-year

Annual staff
cost (HK$)

Cost (HK$)

C&ED


Permit Office (Hong Kong)


Senior Clerical Officer (SCO)

1

623,604

623,604.00

Clerical Officer (CO)

8

453,792

3,630,336.00

Assistant Clerical Officer (ACO)

2

323,760

647,520.00

Clerical Assistant (CA)

2

216,348

432,696.00

Sub-total

5,334,156.00




Permit Office (Kowloon)


Clerical Officer (CO)

1

453,792

453,792.00

Clerical Assistant (CA)

1

216,348

216,348.00

Sub-total

670,140.00




Data Input Unit


Inspector

1

722,916

722,916.00

Assistant Clerical Officer (ACO)

6

323,760

1,942,560.00

Sub-total

2,665,476.00




Records and Statistics Unit


Assistant Clerical Officer (ACO)

5

323,760

1,618,800.00

Sub-total

1,618,800.00




Total Realisable Savings (Posts to be deleted) 27
10,288,572.00

Savings : Summary

DescriptionAnnual Savings (HK$)
Realisable Savings10,288,572
Notional Savings
Improvement in efficiency2,079,198
Savings in accommodation cost673,435
Sub-total of Notional Savings2,752,633
Total Savings13,041,205


Enclosure 2 to FCR(1999-2000)24

Cost Breakdown of Hardware and Software

Hardware and software item

Cost
(HK$'000)

Description

Database servers (4 servers)

1,909

Database servers act as central repository of Dutiable Commodities Permits (DCP) data for subsequent processing performed by the user department.

Electronic data interchange (EDI) communication gateways (2 servers)

1,306

EDI communication gateways perform EDI message translation, validate the DCP messages and forward the valid messages for database storage.

Application servers (2 servers)

1,306

The application servers serve as middleman of the DCP functions for the user department.

Workstations and printers (48 PC client workstations, 44 notebook computers, 54 PC printers)

1,913

The workstations and printers are provided to users as client equipment for their interactive processing and manipulation of DCP functions.

Communication and network equipment

1,687

Communication and network equipment plays a significant role in linking up all the above mentioned computer components for communication. It also protects the network and system from being intruded by implementing security measures through the installation of firewall equipment.

System software

2,545

It consists of operating system software, database software, EDI gateway software, PC software, etc., which supplement the hardware components to ensure the proper functioning of the whole system.




Enclosure 3 to FCR(1999-2000)24

Cost Breakdown of Implementation Services

Function

Cost
(HK$'000)

Description

Dutiable Commodities Permits (DCP) application development

14,884

Contract service is needed for implementing the new core functions of DCP to facilitate the electronic data interchange (EDI) submission of DCP and subsequent DCP processing.

Existing system enhancement

1,581

Contract service is needed to enhance the existing Government computer systems such as Customs Control System and EDI communication gateways for integrating with the new core functions of DCP.

Enclosure 4 to FCR(1999-2000)24

Cost and Benefit Analysis of
the proposed Electronic Data Interchange System
for Dutiable Commodities Permits
(at 1999-2000 price level)


1999-
2000
2000-
2001
2001-
2002
2002-
2003
2003-
2004
2004-
2005
2005-
2006
2006-
2007

$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000

Non-recurrent cost









Expenditure

- 28,342 3,349 - - - - -

Staff

1,926 3,724 - - - - - -
Sub-total 1,926 32,066 3,349 - - - - -

Recurrent cost









Expenditure

- 61 2,780 3,279 3,279 3,279 3,279 3,279

Staff

- 88 1,064 1,064 1,064 1,064 1,064 1,064
Sub-total - 149 3,844 4,343 4,343 4,343 4,343 4,343

Total costs

1,926 32,215 7,193 4,343 4,343 4,343 4,343 4,343

Benefits









Realisable savings

- - 858 10,289 10,289 10,289 10,289 10,289

Notional savings

- - 229 2,752 2,752 2,752 2,752 2,752

Total benefits

- - 1,087 13,041 13,041 13,041 13,041 13,041

Net benefits

(1,926) (32,215) (6,106) 8,698 8,698 8,698 8,698 8,698

Cumulative benefits

(1,926) (34,141) (40,247) (31,549) (22,851) (14,153) (5,455) 3,243


(1) These include, for example, warehouse returns, import and export statements, invoices, bills of lading, airway bills, shipping orders and age certificates related to the dutiable goods.

(2) These trade-related documents include -
    (a) Restrained Textiles Export Licences;
    (b) Other quota-related transactions;
    (c) Import and Export Declarations;
    (d) Certificates of Origin and related documents;
    (e) Cargo Manifests; and
    (f) Dutiable Commodities Permits.