The European Commission brought forth the EU customs reform a couple of weeks ago, which puts forward some of the biggest changes in centuries for EU customs. The proposal closely follows the 10 recommendations given by the Wise Persons Group (WPG), tasked with giving an opinion on the European Customs Union.
A new approach to data and sharing data across agencies
The reform introduces a so-called EU Customs Data Hub, focusing on quality, integrity, and traceability of data. Furthermore, a modern, integrated set of interoperable electronic services for collecting, processing, and exchanging information essential for implementing the customs legislation is proposed. This new approach allows not only for better information sharing across different customs agencies, but also agencies outside of customs. Furthermore, by exchanging information via a centralised data hub, the EU can better manage risk.
This seems like a continuation of what we have already seen before with Annex B of the UCC-DA, in which a harmonised dataset based on the WCO data model was proposed for the filing of customs declarations throughout the EU. So far, the implementation has been steadily ongoing, but relatively difficult. A lot of Member States do not allocate the right resources to the change and underestimate the amount of work to be done. Luckily, the new approach that is proposed has a much more lenient timeframe, but the question remains whether this is going to work in the future, considering the difficulties countries have faced thus far.
Clearer governance: The EU Customs Authority
Currently, the governance framework of the Customs Union lacks a clear management structure and does not reflect the evolution of customs. It is highly decentralised and certain control is left up to the Member States, even though doing so leaves big discrepancies that lead to loopholes in the Customs Union for entering goods via certain routes. To enable more harmonisation and a better operational framework, a central operation EU layer that pools expertise and resources to address the weaknesses is proposed, namely, the EU Customs Authority.
Adding a centralised governing body is a good idea to control, regulate, and enhance cooperation between customs authorities, economic operators, the EU, and other government agencies that have an interest in the Customs Union. It should be ensured that this body is truly impartial and that decisions given by this authority are binding. It has been written in the pre-amble of the proposal how they wish to ensure that, but the stakeholders, such as economic operators, national authorities, and the EU need to make sure that this is happening by keeping a close eye on it!
A reform of the AEO
When the AEO scheme was introduced back in 2008, it was supposed to give valuable benefits to traders who go through the certification process. These include fewer physical and document controls, priority when checks do take place, and knowing upfront whether the goods would be selected for control. Initially, the idea was to introduce system-based controls and have the simplification of self-assessment, allowing traders to bring goods into the Union without having the direct intervention of Customs. As it turned out, the system-based controls and self-assessment were never really introduced, making the return on investment of going through the certification process very low. This is how the AEO status got more and more in the background and companies no longer saw the real benefits of obtaining an authorisation.
The European Commission wants to breathe some new life into the AEO scheme by making use of the Trust and Check trader scheme. The idea is that when AEO traders are compliant, they would be allowed to do a self-release of goods without customs intervention, as long as they provide to the customs authorities transparency into their supply chain data.
This is a major step forward in the AEO scheme. Adding a possibility to have ‘customs-influence-free’ access to the market would make the scheme more valuable for traders. The self-release of goods could accelerate movement through the supply chain. Only if customs deems that the goods need to be checked will they ‘stop’ the goods. It just remains to be seen from the negotiations how far companies are willing to go in sharing their data. To give customs direct access into a well-secured ERP system with strict access management is not favourable and could lead to potential security breaches. A solution using an intermediary that would then communicate the data to customs would be safer.
Removal of the customs duty exemption for e-commerce and deemed importer
With the introduction of e-commerce and the H7 customs declaration, an exemption to pay customs duties was also introduced for goods with a customs value under 150 euros. It has been proven that this system led to a lot of fraudulent behaviour, with companies trying via various schemes to avoid payment of customs duties and even VAT. Luckily, the European Commission has proposed the removal of this exemption, and customs duties will be levied on all goods as of the effectuation date. This means that the prices of goods might slightly increase, but at least it will no longer lead to customs infringements. The idea is to fund a part of the EU Customs Authority with the additional funds made available.
Furthermore, in line with e-commerce, the idea of deemed importer is introduced. This increases the amount of information that must be provided for an e-commerce transaction, such as information to be collected for VAT purposes.
Crisis Response mechanism
During the COVID-19 crisis, we saw that government agencies and EU institutions struggled to arrive at an appropriate response in the beginning. A lot of the responses were decentralised and led to discrepancies between the Member States when it came to handling topics such as medical aid goods. However, when we saw that companies were defrauding the system and endangering public health by delivering fake medical masks with fake certificates, the EU came together and found a way to work together on the check and control of medical masks and certify these. Using this response as an example, a centralised EU Customs Crisis Management mechanism will be established on that basis. At its centre will be the EU Customs Authority, which will be responsible for establishing the policies and procedures.
This is a good idea, as long as the response remains unified and does not unduly impact the crisis response of the Member State itself. What is seen too often is that when the measures are too low or too high, Member States find their own way of dealing with the matter, leading entities to start ‘shopping’. Take as an example the lowering of excise duties and VAT on petrol, which led to people going to other Member States because it was (temporarily) cheaper there.
Figuring out where to pay customs debt
Up until now, the country where the customs declaration was lodged was responsible for the collection of the customs duties. In the new proposal, this will change to where the importer is established and registered. This is all in line with the proposed changes for a centralised clearance system, which should be introduced in 2025, allowing AEOs to start trialing this by making use of the centralised clearance option.
One major question that remains is how we are going to avoid ‘customs shopping’. Some Member States might have a more lenient approach to gathering customs debts than others, leading to economic operators looking for the location where they will be most likely to pay as little customs duties as possible. This could be solved by having proper data sharing between the country of importation and the country of registration, to ensure that the right information about the customs value is shared. If any discrepancies are found, it should then be up to a central agency to ask why there is a discrepancy in the customs value and the amount of customs debt incurred.
Harmonisation of sanctions and customs infringements
Furthermore, a harmonised list is proposed, containing acts or omissions that will lead to customs infringements in any of the Member States of the Customs Union. This will also lead to a minimum core of sanctions to be set, including minimum fines for customs infringements.
This is a good development, because it is possible that a certain act or omission in one Member State would lead to a criminal customs infringement, whereas in another it would just lead to a fine of the lowest degree. Having all this centralised and set by one agency really shows that we have a harmonised approach to customs and ensures that compliance is measured in the same way.
A changed approach to responsibilities
As a final and very important point, the responsibility to provide information for the declaration is no longer fragmented. It can be the airplane carrier for the ENS information and the haulier to provide transit declaration information. This high fragmentation is the reason for a lot of finger-pointing, which should be avoided. In the new proposal, customs wants to make the importer or the exporter the single liable person to provide information to complete the customs declarations. This will put a lot of stress on the importer, but also gives a lot of opportunities to the importers to actually get to know their supply chain and further enhance their internal data and processes. It will be a good development, but requires a lot of effort by the economic operators to ensure that this is working for them. It is best if they explore what setup will work best for them, whether this is to take compliance fully inhouse or to make use of a form of indirect representation.
We very much welcome the proposal made by the European Commission on the future of the Customs Union. This report very closely follows the advice of an independent group that had an outsider look into the Customs Union. Whether all of the points will be accepted or not during the trilogues remains to be seen, but what is certain is that the Customs Union will have to change and modernise with the standards of nowadays. We are looking forward to the discussions between the Member States, businesses, and European Commission, and will see in 2025 how this proposal will land!