The balance between Business and State: how Customs Works in EU and What Ukraine Should Implement

Vitjanis Ališauskas, International Key Expert on Customs of the EU Public Finance Management Support Programme for Ukraine (EU4PFM) shared his thoughts with European Truth

If Ukraine seeks greater economic integration with the EU, the priority should be the establishment of mutually clear customs rules and procedures.

As a matter of fact, customs is one of the most important factors to ensure intensive international trade. While international trade, in turn, is one of the most important factors in economic integration. 

Therefore, it is no coincidence that Ukraine has begun to implement such changes after the signing of the Association Agreement with the EU, and the EU is actively supporting this process through the EU4PFM program. 

What are these changes about?

What does the business want – and what does the State want?

The main principle of work of the customs in the EU is: “Customs should not hinder international trade”. This is true, but not all. The second, no less important part of this principle, is: “… and protect the interests of the State”.

What does this mean in practice?

Business does not want to spend extra time and money when crossing the border. While the State wants businesses to honestly pay all customs duties.

The State should organize the process so that businesses can quickly complete customs procedures – but at the same time, it should be able to catch those who abuse trust.

A legitimate business should be able to obtain a “trust mandate” from customs; such mandate in the EU is the customs simplifications. And for those who purposely want to play dirty, there is criminal liability for smuggling.

The State seeks to get fair taxes, while business seeks to pay less. 

The truth is not to overburden the business with unnecessary payments (for example, for the performance of services that can be performed independently using IT solutions, or overstated duties, or incorrectly assessed customs duties), but also to prevent any evasion of customs duties.

If all traders pay correctly, state revenues grow. The task of the customs is to ensure that everyone pays according to the law.

There are no ideal systems, but there are sound grounds to believe that the system operating in the EU is quite effective.  

How do the customs services work in the EU countries?

Businesses have the possibility to carry out most operations online – in the self-service model. This applies to filing declarations, making payments, obtaining administrative services, permits, communicating with state authorities, customer services, etc.

Customs officers work in their own system, in which the vast majority of processes are automated.

In addition, there are three systemic tools in the UE customs that make it possible to speed up customs control:

– automated risk management system;

– automated customs audit system;

– system of simplifications for business.

How does it work? A truck arrives at the customs border. The customs officer, who can see the customs declaration in the system, should understand whether this truck must be carefully inspected, or whether it may be passed without spending time for an inspection.

It is the automated risk management system that helps to make a decision.

It should be noted that it is not the customs officer himself, not his superiors, but the system operating on the basis of data analysis – both about the owner of the goods and about the goods themselves, the country of departure, etc.

If the risks are low, the truck may be passed without being inspected.

In order not to delay it without a sound reason, the customs have a customs audit tool: the trader crosses the border without an inspection, but later (even a month later) the customs has the right to check whether all payments have been paid.

The customs have a special approach to an honest business. Those who enjoy simplification cross the border much faster.

What are the benefits of simplifications?

First of all, a simplification is not an exemption from paying duties. Actually, it is a permit not to pass unnecessary customs procedures (that are sometimes fee-based) at the border, as the trader has been checked before arrival at the border.

It is a voluntary audit of the company to get simplifications.

Simplifications covering the most popular customs procedures, i.e. export, import, and transit, are of particular importance.

The Authorized Economic Operator Program is used for export and import (it operates in almost 100 countries around the world and has been implemented in Ukraine since August 2020). In case of transit through the countries that are parties to the Convention on a Common Transit Procedure, simplifications in the NCTS system are applied.

Currently, there are 35 such countries, and Ukraine has good chances to become another one in 2022. Both systems provide a number of simplifications and advantages during customs clearance and largely overlap – but for different customs procedures.

Therefore, those who have the whole “package” of simplifications – for transit, export, and import, i.e. under the AEO program and in the NCTS system – benefit the most.

To conclude this matter, I must say that provisions of the Customs Code temporarily providing a significant part of these benefits are effective in Ukraine. However, the validity of these provisions of the Customs Code expires on November 7, 2022. Therefore the AEO Program and the Common Transit Procedure (NCTS) will be the source of simplifications after that date.

Technical implementation of the above is possible with the use of IT tools. A necessary condition for the operation of customs services in the EU countries is the use of IT tools at all sites and stages of work: from filing declarations, provision of administrative services, obtaining simplifications to up-to-date databases (e.g. in respect of intellectual property rights, simplifications, customs value, etc.) and the above risk management and customs audit systems.

The use of IT solutions allows reducing the time of communication with customs authorities for business and individuals, to transfer this communication largely in the online mode, to ensure the openness of customs data, to reduce the human factor, and to reduce potential corruption risks. In addition, using intelligent systems, customs officers perform much more qualified work than in the paper age.

The most effective way to combat corruption is to reduce the human factor.

It was present at customs at many stages before. The ideology of the EU is to minimize the human factor wherever IT technology allows doing so and where appropriate.

What about Ukraine?

The same systems that have proved to be effective in the EU are developed in Ukraine with our help: a new Automated Risk Management System, a new Single Window (for comfortable work with the services for external users), Customs Audit, a new Automated Customs Clearance System (a system for customs officers), etc.

We help with the development of IT solutions, as no matter how perfect the existing systems may seem, the IT sector is developing so actively that it requires constant updating. Also, with our help, Ukraine has introduced the Authorized Economic Operator Program and is implementing NCTS.

Of course, Ukraine could develop its own version of successful cooperation between the State and business in customs matters.

But since Ukraine has the Association Agreement with the EU, it is logical that it introduces customs rules and procedures that are close to the philosophy of the EU. Given the existence of the Association Agreement with the EU, the introduction of a significant part of “European” instruments has been included in national programs, including those related to digitalization and European integration.

We hope very much that we will contribute to reforming the Ukrainian customs and the fulfillment by Ukraine of its commitments under the Association Agreement with the EU. The success will depend on us as well, but above all – on Ukraine itself.

Let’s implement change together!