New Customs mission in the EU. What challenges Ukraine is facing?

The EU Customs Code has given customs in the EU member states a fundamentally new role. An external mission – to promote international trade was added to the usual internal function of the collector of customs duties. This major innovation of this EU’s basic customs document reflects the new realities of today’s globalized world and an integrated Europe.

However, to implement the relevant provisions of the Customs Code, the EU countries need to implement many different IT solutions.

Vytenis Ališauskas, International Expert of Public Finance Management Support Programme for Ukraine (EU4PFM)

Not at one point in time, of course, but during a certain period: from its adoption in 2013 to the end of 2023. During this period, the EU countries must “reconstruct” their customs system so that the Customs of each of them correspond to this new mission. What are those principles laid down in the EU Customs Code – and what challenges Ukraine will be facing?

“Time + honesty = money”

In Ukraine, customs provides about 40% of revenues to the state budget. This is undoubtedly an important figure. But it describes only one aspect of the activity – how customs collects duties and protects the domestic market and domestic business. These tasks have traditionally been considered the main ones for customs.

But now the role of customs is changing. It is becoming an important component of the international trade chain. The intensity of international trade and the competitiveness of local exporters depend on how Customs works. Which, in the end, also affects the performance of traditional functions – increasing budget revenues. The role of customs as a catalyst for international trade, the competitiveness of countries and companies is strengthening. The time-tested “time-money” formula is more relevant than ever in today’s dynamic world.

This new role of customs involves a dual-task. On the one hand, fast customs clearance of goods; on the other – their reliable control: to stop violators and to take care of fair payment of customs duties. But how to achieve this?

First, you need fast, simple, convenient, and efficient customs clearance procedures. The basis of such procedures is the use of modern technologies, uniform application of customs legislation, and modernized approaches to customs control. And yet: customs must create such conditions that it is profitable for an entrepreneur to be honest. So, the old formula would get a new look: “time + honesty = money”.

The key factor of change is IT

IT is a key factor in changing customs processes, as it helps to organize them differently. Fast, efficient, and minimizing the human factor. IT creates new opportunities to digitize the processes we had on paper before. IT systems, on one hand, are more convenient and easier for users; on the other hand, they allow customs to perform their functions more efficiently.

Therefore, the use of information and communication technologies reduces both business costs and risks to the public. Development of IT technologies will successfully fulfill the New Customs Mission described in the current EU Customs Code.

The decision to inspect the cargo should be made based on the Automated Risk Analysis System. Such a system is the heart, the engine of the main customs processes. Such a system is focused on both “good” and “evil”. It should identify both potential infringers and genuine entrepreneurs to scrutinize some and assist others in speeding up customs formalities.

In turn, the automated risk analysis system will work at full capacity after the creation of full-fledged databases. Forecast project “The future of customs in the EU-2040”, developed under the patronage of the European Commission, provides for the creation over time of a fully integrated customs IT system of the European Union.

Another important tool that helps customs play its new role is the customs control and audit system. It allows you to transfer customs control “for later” without detaining the entrepreneur at customs. That is if the risk system did not work on an entrepreneur – the customs can pass him through, but later (even a month later) to check whether he was honest. This speeds up customs clearance and reduces queues at the border.

And finally, about another important tool – the system of simplifications.

To be honest, is profitable

To control faster, but sorely, the customs must “allocate” conscientious entrepreneurs. The goal is not to waste anyone’s time, to create a favorable customs control regime for them, and to pass them through a simplified procedure. Therefore, for the new role of customs, it is important to create such conditions that it is beneficial for the entrepreneur to be honest – to introduce special systems of simplification. Honest entrepreneurs will be saving their own time and money; for some of the processes, which are usually done at customs, there will be an option to perform them by entrepreneurs themselves, without calling at the customs terminal, and the customs will trust them on this.

The EU applies the Authorized Economic Operator (AEO) Program (for exports and imports), as well as a simplification in general transit.

An Authorized Economic Operator (AEO) is a symbol of a bona fide entrepreneur. To acquire the status, he must not only assess himself but also present all documents to the institutions that control him. In the EU, this process did not start immediately, but now more and more companies in the EU are gaining this status.

The set of simplifications allows customs to identify a reliable entrepreneur in different customs regimes, which brings the greatest benefit to the entrepreneur. Having recognized such status by other countries, the entrepreneur can use its benefits also in his own customs territory.

Why should Ukraine be interested?

As you know, Ukraine has signed an Association Agreement with the EU and must harmonize its customs legislation with the EU Customs Code. It is about Annex XV to the Association Agreement between Ukraine and the EU, which concerns the approximation of customs legislation of Ukraine and the legislation of the European Union (article-by-article implementation of the Customs Code and other EU regulations). Thus, approaches to the role of customs in Ukraine should also correspond to the EU TC.

The EU and other international partners are assisting Ukraine in this process of harmonization. The work of international and national experts on various projects together with Ukrainian state institutions allows creating tools that correspond to the “spirit” of the EU Customs Code.

Thus, the EU4PFM Program together with other international partners supports Ukraine in aligning its National customs legislation with the EU Customs Code, joining the Convention on the Common Transit Procedure (NCTS), implementing the AEO Program, developing a modern Automated Risk Management System, post-customs control system and customs audit, control of customs value, forms of tariff and non-tariff regulation and administration of duties, System of financial guarantees.

I hope that we are using this time so we would be useful to Ukraine in reforming its customs – in line with the updates, set by the EU Customs Code.

The transformation of Ukraine into a reliable link of the international trade chain will be of key importance both for strengthening its economy and improving the welfare of Ukrainians and for the fastest and most effective integration of Ukraine into the European Economic Area.

Vytenis Ališauskas, International Expert of Public Finance Management Support Programme for Ukraine (EU4PFM)