Ukrainian customs in the 2030 horizon. The goal is to prepare for joining the Customs Union and the EU

The reform of Ukrainian customs, which is currently being implemented, has a particular task: to prepare Ukraine for joining the European Customs Union. Achieving this task within customs is essential for recognizing Ukraine as ready to join the European Union, a topic discussed at intergovernmental conferences on the launch of negotiations on June 25.

The year 2030, set as a benchmark for the next wave of EU expansion, provides a clear schedule of actions and results that must be achieved to take advantage of the 2030 horizon.

All the changes already implemented, such as “customs visa-free” access, the Authorized Economic Operator (AEO) institution, the right to be heard, adoption and appeal of decisions, and ongoing efforts to improve the application of customs regimes and the service in customs authorities under a contract, as well as the introduction of customs representation (representation of the interests of enterprises in customs authorities) and customs debt institutions, are subordinated to a single strategic goal: the accession of Ukraine to the EU.

Simultaneously, Ukrainian customs must meet EU standards not only at the time of accession but also after membership, ensuring the potential for further development in sync with the customs of EU countries.

What does Ukraine need to do during this time to meet EU requirements and have the prospect of joint development of customs legislation and customs procedures?

As a member of the EU, Ukraine will become part of the single customs space of the European Union, where there are no internal customs borders between countries, and will share the EU’s eastern external border. The European Customs Union operates under unified legislation, procedures, and rules, enforced by customs officials and IT systems. Interoperable IT systems facilitate information exchange and interaction between customs authorities within the entire Customs Union.

The philosophy of the European Customs Union is reflected in its priorities: promoting international trade, controlling the safety of goods entering the EU, collecting appropriate customs payments, easing customs clearance for honest businesses, and preventing attempts by dishonest businesses to circumvent legislation.

To this end, European customs are being developed as paperless (electronic, e-Customs) systems, as mandated by law. Standardized IT systems, designed according to an agreed plan (MASP-C), significantly reduce the role of the human factor. These systems are a means to unify customs procedures.

The most fundamental current directions of Ukrainian customs reform are regularly noted by the European Commission in its conclusions (Chapter 29: Customs Union). The European Commission’s conclusions serve as a marker of Ukraine’s achievements and a reference point for determining the priorities of further changes.

The key task is to bring national customs legislation into compliance with EU legislation. Strategically, this involves adopting a new Customs Code of Ukraine based on the EU Customs Code and other related legislative acts. It also includes developing, launching, and testing certain customs IT systems necessary for the implementation and operation of legally mandated customs procedures.

In the context of the security of goods entering the EU and the fight against smuggling, priority areas include the protection of intellectual property rights (IPR) and the criminalization of smuggling.

Granting preferences to honest businesses is achieved through authorization tools, particularly the AEO status, and simplifications under the common transit procedure (NCTS). In the EU, this system is being modernised so that customs simplifications for honest businesses are tangible and profitable, encouraging entrepreneurs to be honest and authorize themselves. In Ukraine, the European simplification system is replacing national simplifications.

Ukraine will be able to complete negotiations under Chapter 29 “Customs Union” with EU countries when Ukrainian customs legislation fully complies with EU customs legislation, and IT systems are assessed for mutual operational compatibility with EU IT systems. Therefore, an important step is the decision to develop a new Customs Code of Ukraine based on the EU Customs Code, which is already being implemented by expert groups.

The new Customs Code of Ukraine will operate in conjunction with implementing by-laws, similar to the EU system, where the current EU Customs Code is supplemented by about 60 implementing acts. Ukraine needs to choose the optimal distribution of norms between a more conservative, difficult-to-amend Code, and more flexible implementing acts.

In the field of developing and implementing customs IT systems, only one of the required 17 IT systems has been implemented so far: NCTS. The remaining 16 systems need to be developed in the near future. The successful introduction of NCTS achieved through the consolidation of all branches of government with international support, serves as a model for implementing other systems. Several IT systems, compatible with EU systems, are already under development as envisaged by the Digital Development Plan of the State Customs Service, which is based on the aforementioned MASP-C.

What Has Already Been Done

Accession to the Convention on the Common Transit Procedure. On October 1, 2022, Ukraine became a full member of the Convention on a Common Transit Procedure and the Convention on the Simplification of Formalities in Trade in Goods, marking the beginning of the international application of NCTS (the so-called “customs visa-free”). During this period, the State Customs Service issued more than 90,000 transit declarations and provided substantial support to the customs processes.

Development of NCTS. Ukraine successfully advanced to Phase 5 of NCTS among the first 20 countries participating in the Conventions. This milestone is significant because NCTS is the only European customs IT system implemented in Ukraine so far, demonstrating Ukraine’s capability to introduce and develop European customs IT systems synchronously with EU countries.

Authorization Tools. There has been a transition from national simplifications to European formats, including the Authorized Economic Operator (AEO) system and the introduction of transit simplifications in common transit (NCTS). Simplifications allow all reliable enterprises, not just AEOs, to enjoy certain advantages during customs formalities. Significant progress has been made in developing the AEO program, with 46 companies in Ukraine having received 50 AEO authorizations to date.

Harmonization of National Customs Legislation with European Legislation. The non-preferential rules for determining the country of origin of goods have been aligned with the EU Customs Code, enabling the implementation of protective measures within the framework of sanctions policy and trade protection using the same EU rules for determining the origin of goods.

A mechanism for issuing decisions by customs authorities, including their review, cancellation, annulment, and the application of the “right to be heard,” similar to that operating in the EU, has been introduced.

Declaration of Military Equipment. Ukraine has taken steps to unify the procedure for declaring military equipment and other goods with EU and NATO standards.

In 2023, Ukraine joined the EU “Customs” Program, enabling the country to benefit from cooperation in improving IT systems, exchanging information, and sharing best practices among the customs authorities of participating countries.

Alternative Rules of Origin. Ukraine has applied alternative rules of origin, allowing for the processing of goods from EU and EFTA countries in Ukraine and their subsequent classification as Ukrainian origin for export to these markets. This process, known as diagonal cumulation, is facilitated within the Pan-Euro-Med Convention framework.

Criminalization of Smuggling. On January 1, 2024, the Law of Ukraine on the criminalization of smuggling of excise goods came into force. From July 1 of this year, the criminalization of smuggling of goods was also enacted.

Legislation Screening.  At the end of 2023, a report was presented based on the initial assessment of the state of implementation of the acts of the European Union (EU acquis) through self-screening, which is a comprehensive comparative analysis of Ukrainian legislation concerning its compliance with EU law. In January 2024, the European Commission began screening the legislation of Ukraine for compliance with the legal norms of the European Union, which is a mandatory procedure during the accession of a candidate country to the EU.

Estimates of the European Commission.  The European Commission gave one of the highest scores in the “Customs Union” part among the candidate countries for joining the EU in the report for 2023.

IT. The long-term National Strategic Plan for Digital Development, Digital Transformation, and Digitalization of the State Customs Service was adopted on the basis of the MASP-C multi-year strategic plan for the development of electronic customs.

Development of the new Customs Code. The Ministry of Finance together with the State Customs Service and with the assistance of the EU Public Finance Management Support Programme for Ukraine (EU4PFM) and the Reform Support Team under the Ministry of Finance started the development of a draft of the new Customs Code of Ukraine. The presentation of the draft is planned for December 2024, followed by its discussion with business and other interested parties.

Simultaneously with the work on the new Customs Code for further harmonization of national customs legislation with EU legislation, the Government of Ukraine submitted to the Verkhovna Rada for consideration a draft law on amendments to the current Customs Code of Ukraine regarding the implementation of some provisions of the EU Customs Code.

Cooperation with International Partners

This collaboration involves not only consultation and the sharing of experience but also a current “audit,” which is crucial given the time constraints. Ukraine is committed to avoiding rework and the associated loss of time and money. Therefore, the continuous presence of experts from European countries allows for prompt assessment at each stage to ensure compliance with European Union standards.

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The European integration changes introduced by Ukraine in the customs sphere, particularly over the past 2.5 years of full-scale war, have enabled the commencement of official negotiations regarding Chapter 29: Customs Union. In April 2024, the European Commission presented the draft negotiation framework for Ukraine to the EU Council—this represents the 5th step out of 9. The next stage involves its approval by the EU Council and bilateral negotiations with each EU member state.

Cooperation for Ukraine’s accession to the EU continues, and we are confident in achieving the set goal.