Wise Persons Group recommendations: what is the future of EU customs?

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Wise Persons Group recommendations: what is the future of EU customs?

Monika Bielskienė

Monika Bielskienė

Attorney at Law, PwC Lithuania

In order to stimulate ‘thinking outside the box’ in the EU debate on the future of the Customs Union, the European Commission has established a Wise Persons Group on Challenges Facing the Customs Union (WPG) to reflect on four key topics: e-commerce, risk management, the effective management of non-financial tasks and the future of customs governance structure. The group consists of 12 representatives of business, science and state institutions. In this article, published in Customs compliance & Risk Management journal,  Monika Bielskienė shares their report published on 31 March 2022, reviewing both the current customs situation and the origins of the systemic problems, as well as providing 10 recommendations for a major breakthrough.

The report provides much statistical data, based on the results of the stakeholders’ survey, and also data and findings of international organizations or bodies (such as OLAF). On top of this, both the minutes of the meetings of this group and the interim documents are published on the EU website, so there is a lot of material for further analysis. In this article, we will briefly review namely the part of the recommendations.

Recommendations by the WPG

1.  A package of reforms by the end of 2022

The European Commission by the end of 2022 should table a package of reforms, including the Union Customs Code, implementing the recommendations contained in this report, relating to processes, responsibilities and liabilities, and governance of the European Customs Union.

The report sets an ambitious target of putting forward concrete reform proposals by the end of this year, with a target of implementing them by 2030. The speed under which the EU adapts to innovations is raised as one of the systemic challenges, while some provisions of the UCC approved in 2013 and entered into force in 2016 for the implementation have been postponed until 2025.

2. A new approach to data

Rather than relying principally on customs declarations, customs shall focus on obtaining better quality data based on commercial sources, ensuring it is cross-validated along the chain, better shared among administrations, and better used for EU risk management. Certain e-commerce platforms should be required to provide data to customs. Also, businesses should be provided with a single data entry point for customs formalities and a single-window portal.

The report recommends collecting a variety of data to verify declarations, from manufacturers, carriers, customs brokers and, in particular, from platforms and payment institutions. It is proposed to start the implementation of systems based on blockchain technology, that will greatly assist traders and Customs, and would allow retrospective verification of the transaction – ensuring that the data will not be changed.

3. Set up a framework for cooperation

In addition to individual customs authorities, other authorities, such as market surveillance authorities, tax authorities and other law enforcement bodies, should share data for comprehensive management of risks at the EU level.

Another acute problem identified is the differences in practice between the EU Member States. Although customs administrations should act as a single EU customs office, the disparities between the 90,000 employees in the EU’s 2,000 customs offices are still huge and are being exploited by unfair businesses, to the detriment of the fair ones. Therefore, as proposed in the report, both information and competencies should be exchanged so that the operation, as well as the sanctions for possible non-compliances or infringements, are the same wherever goods enter the EU. Cooperation is also a prerequisite for effective risk management and data quality.

4. An establishment of a European Customs Agency

This Agency should provide customs-related services to the European Commission and the Member States. The Agency would not substitute the division of existing competencies but would be a tool for assistance and cooperation.

The Agency could be given EU-level risk management functions, supervision of AEOs, data management, IT infrastructure development, joint procurement, crisis management, pooling and sharing of know-how, organising a forum for international discussions, and assistance to individual Member States upon request.

5. A reformed and expanded AEO system based on trust

The AEO system should become expanded in scope, multi-layered and more effective to better facilitate trade.

It is proposed that holders of AEO status should be able to share data with customs not on a transaction-by-transaction basis but on a periodic basis. The cooperation between the AEO and the customs should be mutually beneficial, with the AEO providing the data to customs, while customs could provide facilitation at the level of working capital (for example by reducing the required guarantees). The confidence should be based on continuous internal control by the companies themselves and occasional customs inspections. In a trust-based system, infringements should be punished at a particularly high level, with additional information being communicated to all the EU Member States and other concerned economic operators. AEOs would also be allowed to provide bonds for other companies that do not have AEO status so that they can also participate as reliable parties in the supply chain.

6. A new framework of responsibility and trust

ABC model (Authorised, Bonded or subject to greater Control) should be introduced, in which operators would seek Authorised Economic Operators status to gain commercial access to the EU market. Failing this, a bond provided to an AEO, against which the EU authorities may levy a significant charge for misdeclaration or rule breaches, may allow access to the market. Small non-commercial consignments would continue to be sent through the usual processes, but without priority and subject to a level of controls that reflects their “non-trusted” status.

This proposal relates to the fifth recommendation of the extension of the AEO status and the fourth recommendation of the establishment of a European Customs Agency with a supervisory role for AEO operators.

7. The removal of the customs duty exemption threshold of EUR 150 for e-commerce

The existence of the exemption does create an incentive for exporters to the EU to break consignments down into smaller packages so that they can effectively trade free of customs duties. Since a similar VAT exemption was abolished, the customs duty exemption does not even save the importing person the trouble of making a customs declaration, therefore, it is no longer meaningful. The report proposes a simplification of tariffs for small consignments instead of this exemption (so that, for example, there is not so much hassle in classifying goods and checking the correctness of classification).

8. Green customs

Customs have an important role to play in helping the EU deliver its Green Deal agenda, therefore customs themselves need to internally be maximally ‘green‘. Maximum digitalisation, the uniform application of customs rules, and the removal of the EUR 150 duty exemption (which will prevent goods from being transported on inefficient routes or splitting into smaller consignments solely because of a more favourable customs approach) would help to achieve sustainability. It is also proposed that the EU take the lead to revise the Harmonised System (HS) Nomenclature so that sustainable goods can easily benefit from the most favourable customs regime.

9. Properly resource, skill and equip customs to ensure the capacity to fulfil their mission

The report suggests looking at how to attract new talents and new skills to the job, whilst providing adequate reskilling to customs officers who have to be state of the art in complex matters as diverse as chemicals, drug precursors, electronics, and food composition, complex fiscal schemes and many other.

10. An Annual Customs Revenue Gap Report

‘What you can’t measure, you can’t manage’. There is currently no reliable data and methodology to determine the extent to which duty is not collected due to irregularities and fraudulent schemes (while the VAT gap is being measured). For example, EUR 25 billion in customs duties were collected in 2020 (11% of the EU budget); the abolition of the EUR 150 exemption alone could, by conservative estimates, bring in an additional EUR 1.5 billion in income per year.

Concluding remarks

Some of the proposals are really ambitious, such as a short deadline for implementing reforms or implementation of the blockchain technology. However, some, for example, the removal of the EUR 150 customs duty exemption is to be expected in the near future. This vision for the future of EU customs is relevant for businesses as an indicator of where customs move forward to adapt their activities accordingly. One such area is the seeking of the AEO status. This may not be an easy challenge, but it seems likely that it may be inevitable in the future to participate effectively in international trade.