In 2014, Ukraine signed an Association Agreement with the European Union. The economic part of the Agreement is among its most important components. The EU’s goal is to assist Ukraine and provide the necessary support so that democratic reforms would bring tangible benefits to citizens of Ukraine. Among other important areas, such as the fight against corruption, energy and trade, this assistance covers the area of economic and sectoral reforms, including supporting customs reform in Ukraine.

One of the cornerstones in the area of customs reform, which is also very important for the economic integration between the EU and Ukraine, is customs transit. Ukraine has committed itself to acceding to the Convention on a Common Transit Procedure, and has the prospect of meeting all the necessary requirements by the end of 2021. The EU’s goal is to assist Ukraine and provide the necessary support so that democratic reforms would bring tangible benefits to citizens of Ukraine. This assistance is provided in the broader context of support for customs reform in Ukraine.

Customs reform in Ukraine based on a systematic approach, digitalization and transparency

Customs revenues account for about 35% of revenues received by the State Budget of Ukraine, which is why it is important that customs taxes are paid fairly. Such a significant share held by the State Customs Service in the State Budget’s revenues makes customs reform one of the primary reforms in Ukraine. This is especially important during a pandemic period when revenues are declining.

At the request of the Ukrainian authorities, the EU continues to support developments in the following areas of customs reform as primary ones: customs IT transformation, accession to the Convention on a Common Transit Procedure, introduction of the Authorised Economic Operator (AEO) Program, implementation of a modern risk analysis and management system (ASUR), assistance in the harmonization of Ukrainian customs legislation with EU customs legislation, modernization of human resources management. These are not distinct measures or “point” improvements, but the trends of a systematic approach towards reform, based on digitalization, transparency and trust between business and customs, which takes into consideration the successful experience of other countries that are currently EU Member States, including post-Soviet Lithuania, Latvia, and Estonia.

This support is provided within the EU4PFM Programme called EU Public Finance Management Support Programme in Ukraine, which brings together EU experts with Ukrainian colleagues with the aim of improving Public Finance Management (PFM) in Ukraine, support the development of a modern, efficient and fair revenue collection system and enhance the organizational capacities of PFM institutions in Ukraine. 

Convention on a Common Transit Procedure increases efficiency and security and reduces time and costs

The Convention on a Common Transit Procedure of 20 May 1987 forms the basis for the movement of goods between EU Member States, EFTA countries, Turkey, the Republic of North Macedonia and Serbia. However, it’s not just the Convention that matters but the technology that underpins it. The New Computerized Transit system (NCTS) is only accessible to the Contracting Parties of the Convention. It increases the efficiency and security of the procedure both for traders and the customs authorities.

With regard to the prospects for EU-Ukraine relations, customs transit is one of the cornerstones of political association and economic integration between the EU and Ukraine, and of vital interest to business. 

The use of a Common Transit Procedure enables the movement of goods from one point to another between the customs territories of different Contracting Parties of the Convention on a Common Transit Procedure without the payment of any duties, other charges and without application of other commercial policy measures. Such movement of goods is carried out as a single transit procedure from start to finish with the same transit declaration and the same financial guarantee.

From the perspective of business, common transit facilitates the free movement of goods between two points in a single customs territory, via another customs territory, or between two or more different customs territories. It allows for the temporary suspension of duties, taxes and commercial policy instruments (e.g. import quotas, anti-dumping duties and other restrictions). By supporting paperless customs clearance, the NCTS reduces the cost of customs formalities and the number of trucks queueing at the border, meaning a faster flow of goods. Economic operators can also be provided with additional advantages by using simplifications such as Authorised Consignor and Consignee status. These simplifications make it possible for a trader to receive goods at an authorised place without the need to present them at the customs office. 

Common Transit Procedures – prevention and fight against fraud

The NCTS connects customs offices across the Contracting Parties of the Convention’s signatory countries, enabling the exchange of customs data. When a customs declaration is made, a message anticipating the transit/arrival of goods is sent to the customs offices located in the countries of transit and destination. This allows the Customs Service to monitor the goods at each stage of movement, meaning shipments can be tracked across jurisdictions, thus improving prevention and fight against fraud.

The rules of application of the Common Transit Procedure represent a good balance between the interests of economic operators and the customs authorities. The following are the main features of these rules:

• the use of electronic transit declarations;
• clear description and identification of goods;
• efficient financial guarantees and electronic mechanism of their management;
• transportation of goods within the prescribed time limit and following an economically justified itinerary;
• simplifications, such as modulation of amount of guarantee, the status of Authorised Consignor and Authorised Consignee, special seals, rules applicable for certain modes of transport, etc.

Practical application of the common transit scheme, including the use of the NCTS, would not only modernise transit processes applied in Ukraine and make them more efficient, but would also facilitate trade between Ukraine, the EU and other common transit countries and create better conditions for the export of Ukrainian goods to EU Member States.

In this manner, accession to the Convention on a Common Transit Procedure, which is implemented through the NCTS tool, is a way of combating smuggling and fraud through which dishonest business evades making payments of customs duties. After these tools have been introduced and improvements of services have been made, the level of trust between business and the Customs Service will increase.

Ukraine has already come a long way in preparing itself to accede to the Convention by actively working on the harmonization of its customs legislation with EU customs legislation, developing software, training customs officers, and has begun testing the functionality of the NCTS locally. The EU hopes that those efforts will enable all the necessary steps to be duly taken towards connecting the international NCTS environment by the end of 2021, and the EU is committed to providing support to this course.

In conclusion,

We are pleased to note that systemic reforms in the customs field, including those set out in the Association Agreement with the EU, are ongoing in Ukraine. The EU is committed to supporting Ukraine in reforms that are likely to yield positive results for the country and its citizens in the short term. In the event that the country itself and its citizens support such reform.

Vytenis Ališauskas,

EU4PFM International Key Expert on Customs reform