What businesses and lawmakers need to know about the system that is to be abolished on 7 November 2023?

Ukraine is reforming its customs system in accordance with the EU standards. At the same time, Ukraine continues to use its own regulations introduced long before the signing of the Association Agreement with the EU and before it submitted its application to join the EU. From the point of view of the European integration process, these provisions are temporary.

One of these provisions is the system of simplified customs clearance provided by the Customs Code of Ukraine, which allows any trader not to present goods to customs. It was to be abolished on 7 November 2022, however its operation was extended for one more year.

Why are these two systems (European and “old” Ukrainian) mutually exclusive and cannot be applied at the same time? Also, why does the extended operation of this system hamper Ukraine’s prospect to join the EU?

How the simplification system works in the EU

To understand what the “conflict of systems” is, remember the principle of operation of the European system.

The EU Customs Code provides for two options for customs clearance: (1) standard procedure, (2) simplified procedure.

According to the standard procedure, if the customs declarations are drawn up correctly, they are processed by the customs authorities immediately, under the condition that the goods those declarations refer to have been presented to the customs^[1] . For example, to move goods under the export procedure, the trader must go to the customs office and present the goods that are being transported.

According to the UCC, these customs offices are mainly located within the European Union. These are: (a) the customs office responsible for the place where the exporter is located; (b) the customs office responsible for the place where the goods are packed or loaded for export; (c) another customs office in the relevant EU Member State which has administrative competence with regard to such transaction. In addition, if the value of the goods does not exceed EUR 3,000 per batch and is not subject to prohibitions or restrictions, the customs office responsible for the place of departure of the goods from the EU customs territory can also process the goods for export.^[2].

As for simplified procedures, it facilitates and speeds up customs clearance significantly. It provides for preliminary authorisation of the undertaking by the customs authorities.

In case of transit movement of goods, upon the request (documents submitted and reviewed for compliance) the customs authorities can grant the application of one or more simplifications related to the goods being processed under the common transit procedure or the completion of this procedure^[3] :

(a) the authorized consignor status (for the export of goods from the EU) which allows the goods to be placed under the Union transit procedure without presenting them to customs;

(b) the authorized consignee status which allows the goods imported under the common transit procedure in the EU to be received at the authorized place for the completion of the procedure in accordance with Article 2 233 UCC;

(d) the use of a customs declaration with reduced data requirements for placing goods under the common transit procedure;

(e) the use of an electronic transport document as a customs declaration for placing goods under the common transit procedure, provided that it contains the particulars of such a declaration and that particulars are available to the customs authorities at the point of departure as well as at the place of destination to allow customs supervision of the goods and the completion of the procedure.

In addition, other simplifications (for example, simplified customs declaration, declaration by entering data into the tracking system, etc.) and/or the status of authorised economic operator (AEO) allows for faster entry of the goods in the appropriate customs regime with less physical and documentary restrictions, among other things, by reducing the risks level in relation to such a trader^[4]. Being a candidate for EU accession Ukraine must have in place the system of simplifications provided for by the EU Customs Code.

Ukrainian scenario

Within the framework of European integration, Ukraine began the introduction of the European system of customs clearance and simplifications — that is, the AEO Programme, individual simplifications without AEO status, transit simplifications in accordance with the Convention on a common transit procedure. This system is already implemented in Ukrainian legislation.

However, another system implemented during 2012–2015 is being used in Ukraine in parallel. Within the framework of such system, any entrepreneur can choose not to present goods to customs (unless the risks indicators are triggered) and traders under this simplification are not required to meet the criteria for granting simplifications, as it is provided for under EU law.

Thus, when importing goods into Ukraine, the CCU provides that “Customs authority that received the preliminary customs declaration may allow the release of the declared goods without them being presented to the customs office.”^[5].

When exporting goods from Ukraine, the CCO provides that “Customs authority may allow the release of goods requested to be placed under the customs export regime without presenting them to the customs office on the basis of a standard export declaration. Such a decision is made by the customs office based on the results of the risk analysis but no later than 4 hours after receiving the export declaration completed and submitted in accordance with the established procedure”^[6] .

After the Law of Ukraine No. 141-IX of 2 October 2019 “On Amending the Customs Code of Ukraine as to Certain Activities of Authorised Economic Operators” introduced provisions on AEO to the CCU, these provisions (on the possibility not to present goods to customs) were to be repealed after the end of the 3-years transition period. Taking into account that the aforementioned Law entered into force on 7 November 2019, the relevant provisions (Article 258(2) (export) and Article 259(3)(2) and (3), Article 259(4), (5), (7) and (12) (import) were to be repealed on 7 November 2022, in accordance with point 2 of Section II (Final and Transitional Provisions) of the Law of Ukraine No. 141-IX.

However, due to the state of war in Ukraine this was postponed for another year — until 7 November 2023.

Taking into account the fact that this was the first step to introduce authorisations, this system also needs to be developed and modified. The main goal of these developments and modifications will be mutual recognition of Ukrainian authorisations by EU countries, and later by other countries of the world. Thus, this will not only accelerate the European integration processes for Ukraine, but also the processes of deeper integration into the world trade system.

However, it should be noted that the mutual recognition of our AEO systems will take place only after a thorough examination of our practical application of those systems by the EU, that is, at a certain point we will have to undergo an assessment by the EU of whether the implemented system meets their requirements, and whether it is possible to synchronize both these systems to work seamlessly.

The European authorisation system, already introduced in Ukraine at the legislative level, provides for the complete replacement of the “old” Ukrainian simplifications with the following authorisations:

– “release by location” (Article 249-1 of the CCU) — both for import and export without the need to present the goods to customs in the absence of risks,

– “special seals” (Article 326-1 of the CCU) — for export,

– “authorized consignor or consignee” (Articles 84–86, Annex I to the Convention on a common transit procedure).

All this allows authorised trade entities not to present goods to customs, i.e. not to deliver them to the Ukrainian customs terminal. In addition, the most efficient way to use the common transit procedure (if the traded chooses to do so) is in combination with the above-mentioned authorisations.

However, in order for this system to be fully operational, Ukrainian authorisations must be mutually recognised by EU countries, and later by other countries of the world. This will speed up not only European integration processes, but also deepen Ukraine’s integration into the world trade system. However, mutual recognition of AEO systems will happen only after an international assessment of Ukraine’s practical application of this system — whether the programme implemented by you meets EU requirements, and whether it is possible to synchronize the work of Ukrainian and European programmes to work seamlessly.

What business needs to know

Business often complains about queues at the border. As a representative of the EU member country, I have to say that European customs officers have no less complaints about Ukrainian system of “simplifications” which make them do the work that should have been done in Ukraine.

As already mentioned, the Law of Ukraine No. 141-IX of 2 October 2019 allows the export of goods from Ukraine without presenting them to the internal customs. Afterwards the goods are subject to superficial border checks, and the trucks which have not been checked enter the EU.

From the point of view of EU countries neighbouring Ukraine, unchecked goods without seals are risky, and this leads to systematic and detailed checks on the European part of the border. This significantly increases the time of customs clearance, as the goods must undergo a thorough inspection, including through X-ray machines and other means of customs control. Since goods inspection requires additional time and resources, this results in longer queues.

If the goods exported from Ukraine to the EU arrive at the border under the common transit procedure, properly checked and sealed at the customs office of departure in Ukraine, the EU border control will have to complete only minimal formalities with regard to such transit movement; those formalities are significantly less compared to the full procedure of placing goods under the common transit procedure that European customs officials are forced to use now.

What lawmakers need to know

The current system is beneficial to shadow business and harms the security and image of Ukraine. Why?

While in accordance with EU legislation only traders that have received the appropriate authorisation for meeting the necessary criteria and that have passed the assessment of conformity can skip presenting goods at customs, in Ukraine it is still possible to use simplifications without any verifications of safety and reliability.

As a result, any interested trader, including those potentially associated with criminal networks, has favourable conditions for loading cargo and delivering it directly to the border without presenting it to internal customs for inspection. This creates a favourable environment for illegal schemes and crimes which can stimulate the growth of the level of illegally exported products and commodity smuggling.

Likewise, any unverified undertaking, even with the criminal record, can import goods into Ukraine without undergoing control procedures at the internal customs. Since the capabilities of the customs authorities to check the goods imported into Ukraine are very limited, potential smugglers can import goods into the country without paying customs fees. Fraudulently imported goods flood the “black” market, which has a negative impact on Ukraine’s already war-torn economy.

Ukrainian legislation (in accordance with Article 249-1 of the CCU) already allows entities that have been authorised to use the simplification by the customs authority to use of release by location procedure. Authorisation to use the “release by location” simplification can be granted if the trader meets criteria that are identical to those provided for in the EU legislation.

In order to fully apply the release by location procedure it must also have: 1) authorisation for a common guarantee and 2) authorisation for the use of the “special seals” simplification (for export of goods).

It should be noted that the criteria are interchangeable, therefore, after receiving one authorisation the compliance criteria for it are mutually credited when receiving other authorisations.

… Let’s talk about Solidarity Lanes

Uninterrupted movement of goods across borders must be ensured for the Solidarity Lanes to function normally. Therefore, it is necessary to reduce the duration of customs formalities and control on both sides of the border between Ukraine and neighbouring EU member states.

In order to achieve this, the European Commission strongly recommended Ukraine to ensure that all goods entering the EU from Ukraine are already placed under the common transit procedure at internal Ukrainian customs or at the facilities of authorised consignors to increase the effectiveness of the functioning of Solidarity Lanes — which means being checked and sealed within the country.

Conclusions

Having made the decision to join the EU, Ukraine decided to introduce legislation that complies with the provisions of the European Union, including the EU Customs Code. The system that has been operating in Ukraine since 2012 does not meet EU standards. ~~At the same time,~~ use of simplifications (for example, the possibility not to present goods at customs) without authorisation is contrary to the AEO concept and the EU customs legislation on simplification. This threatens the conclusion of a mutual recognition agreement with the EU. This also jeopardizes the prospect of Ukraine’s accession to the EU since the current AEO Programme is a mandatory condition for accession. Businesses should be aware that current national “simplifications” are one of the reasons for queues. An honest business must understand that this reduces its competitiveness because it increases opportunities for dishonest business. Legislators who refer to business interests defending the “old” system of Ukrainian simplifications must be aware that they are complicit in strengthening the positions of “gray” and “shadow” business (and, therefore, budget losses), slowing Ukraine’s accession to the EU.

As a supporter of Ukraine’s European integration, I hope that by 7 November 2023 there will be no people willing to support the “old” simplifications system which has such ambiguous implications.

^[1] Article 172(1) of the Union Customs Code (Regulation (EU) No. 952/2013, hereinafter referred to as UCC)

^[2] Article 221 (2) of Commission Implementing Regulation 2015/2447.

^[3] Article 233(4) of the UCC.

^[4] Article 24(1) of the Delegated Regulation of the Commission (EU) 2015/2446.

^[5] Article 259(3)(2) and (3), Article 259(4), (5), (7), (12) of the CCU which include technical information on the use of the declaration without arrival and presentation of goods to customs.

^[6] Article 258(2) of the CCU.