Customs: ‘small accession’ to the EU is already happening

The successful preparation of Ukraine for accession to the Convention on a Common Transit Procedure (NCTS) will serve as a matrix for further steps to harmonize Ukrainian customs procedures with European ones.

Vytenis Ališauskas,
International Key Expert on custom reforms, EU4PFM

Despite the wartime, Ukraine is now in the process of ‘small accession’ to the EU in the customs sector. This statement is backed by Ukraine’s successful preparation for joining the European Convention on a Common Transit Procedure. At the moment, Ukraine is technically ready to join this Convention. This is an assessment given in early June by the Directorate General for Taxation and Customs Union of the European Commission (DG TAXUD). Other necessary components will be assessed by the assessment mission of the contracting parties to the Convention. The findings are expected in July. Why is the issue of joining the Convention on a Common Transit Procedure an important European integration marker?

How it happened in the EU

The EU was initially intended primarily as a customs union. Therefore, the issue related to customs, namely the free movement of goods between countries, was considered as one of the key issues in the course of the creation of the European Union.

A common transit procedure became a touchstone for the subsequent establishment of common customs processes. Subsequently, all new ideas were implemented in other customs procedures based on the successful example of common transit. That is why preparations for joining the Convention on a Common Transit Procedure are so important.

Why is this called a ‘small accession’ to the EU?

Ukraine commenced the process of joining the Convention immediately after signing the Association Agreement with the European Union. Ukraine followed an intensive work schedule, even during the war. Here and now, Ukraine has relevant legislation and procedures that are fully consistent with the EU Customs Code.

The process of preparing for the introduction of common transit included the adoption of relevant legislation, the introduction of new roles and new structures. The same steps following the same pattern will need to be taken to harmonize other components of the customs sector. One might say that this is a ‘matrix’ which can be used in the future to harmonize other customs issues. That is the ‘matrix’ of the European integration process for Ukrainian customs has already been created and tested.

Importantly, this is not just about the implementation of some single IT system or a law, as one might think. It was a complex task that required developing and adapting technical systems, deploying them on hundreds of computers, training thousands of customs officers to work with the system, communicating and informing businesses, providing expertise, communicating with specialised European structures, developing and adopting a lot of new primary legislation and secondary legislation which complies with the European acquis. The updated transit legislation should now comply with EU norms, and, of course, make it possible (i.e. legal) for Ukraine to apply the common transit procedure in full, as is provided for by the Convention.

I am glad that European partners, including the EU Public Finance Management Support Programme for Ukraine (EU4PFM), had the opportunity to help Ukraine with every part of this complex process.

This was a new experience of working on such a complex task for Ukraine (I am talking about the customs sector now), and some might feel that everything is happening too slowly. Ukraine moved forward one step at a time. Yes, some said that Law 78 was enough to implement this system. Indeed, this law, together with the secondary legislation adopted to implement it, is sufficient on a national scale. And the system went live nationwide in March 2021. However, the introduction of transit simplifications, new guarantee mechanisms (corresponding to European ones), and the application of the system on the international level still required the adoption of a whole package of legislative acts. This process, which involved representatives not only of the State Customs Service, but also of the Ministry of Finance, the National Bank, business associations, has been uninterrupted and, as far as I am concerned (as a direct participant in this process), intensive.

Sure, there is no limit to perfection. However, Ukraine has demonstrated extraordinary efficiency compared to other countries, all of this despite the large territory, and the fact that war is being waged on your territory for four months already.

What actually happened

The contracting parties to the Convention agreed to a remote assessment mission to be held on 23–24 June to assess Ukraine’s readiness to join the Convention on a Common Transit Procedure.  This means that Ukraine is (a) technically ready for the international application of NCTS, (b) moving according to the agreed schedule for the development and implementation of the Phase 5 of NCTS, which is a prerequisite for joining the Convention.

This happened after Ukraine completed the last of the 3 stages of testing — international testing of the national application of NCTS. It was undertaken jointly by Ukraine and several contracting parties to the Convention: Austria, Belgium, Bulgaria, North Macedonia and Romania. Overall, the process of testing whether Ukrainian NCTS system is compliant with the requirements of DG TAXUD (the so-called Conformance Testing) has continued since September 2021. Successful completion of the Conformance Testing is a necessary condition for Ukraine to receive an official invitation to join the Convention.

I would also like to note the seemingly purely technical detail which had every chance of being fatal. This is the so-called Phase 5 of NCTS. Ukraine received the exclusive right to join Phase 4 of NCTS Convention, however, transitioning to Phase 5 of NCTS by the end of 2023 was one of the main conditions for joining. The thing is, all the parties to the Convention are now working on transitioning to Phase 5 and should complete this process by 1 December 2023. Ukraine has convinced its European partners that it is technically and practically able to proceed with Phase 5 in sync with all the contracting parties to the Convention. In May, a contract was awarded for the development of NCTS Phase 5 compliant national transit system software, which means that Ukraine has started preparations for the transition to NCTS Phase 5 on time and is progressing according to the agreed timetable in this matter. EU4PFM has been contracted by Customs to develop this system and finance it. Our experts have been sharing practical experience and, together with other partners, primarily RST of the Ministry of Finance, have been assisting in drafting the relevant legislation.

The next step of Ukraine towards the accession to the Convention on a Common Transit Procedure is the opinion of the assessment mission of the contracting parties to the Convention which will determine whether Ukraine needs to do any more homework in order to receive an invitation to join the Convention. We expect the opinion to be delivered in July.

The introduction of a common transit procedure will mean that in matters related to transit, Ukrainian customs will receive similar functions and become a full partner to the other 35 countries that signed the Convention. Transit procedures will become simpler, more transparent and understandable for businesses involved in international trade.

It is not an easy thing to do during war. As a representative of an EU Member State, I am proud that the European Union can provide practical assistance to Ukraine in the implementation of its European integration course.