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Damco eGuide

UNION CUSTOMS CODE (UCC)The new face of EU Customs procedures

Arjen Noordijk, Customs Product Manager

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Table of Contents

01. INTRODUCTION 3

02. HISTORY AND TIMELINE 3

03. AUTHORISED ECONOMIC OPERATORS 4

04. VALUATION 5

05. BTI/BOI 6

06. REGISTERED EXPORTERS (REX) 7

07. BONDED WAREHOUSES 7

08. REPRESENTATION AND AGENCY 8

09. SPECIAL PROCEDURES 8

10. PRECLEARANCE 9

11. SUMMARY 9

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01. INTRODUCTION

In 2016 the 28 nations of the European Union commenced the introduction of a new Union Customs Code. This will be fully implemented by 2020, at which time the customs process will also have become almost completely electronic. The changes affect any entity importing, exporting or transiting goods through one or more EU countries.

The new Code is intended to make customs procedures simpler, speedier, more certain in their outcome and cheaper to administer. They will however create significant changes for many organisations in the way they organise and administer their customs affairs, not always in obvious ways, and many areas of customs practice which have previously been subject to guidelines now fall under mandatory rules. In some cases businesses may need to reconsider their business processes and models in order to gain the maximum benefit.

It is self-evident that a true single market requires a unified system to levy and account for customs, tariffs and other duties on goods imported, exported or passing through the member states.

From May 2016, the European Union has introduced a new Union Customs Code to achieve just this, and there are implications for almost every importer, exporter, freight handler and logistics service provider.

Note that the UCC has no relationship to the Uniform Commercial Code which governs interstate commerce in the USA. UK readers should also realise that the UCC applies to them despite the recent ‘Brexit’ vote: presumably the extent to which UK importers and exporters can continue to take advantage of the provisions from ‘the other side of the fence’, for example by retaining Authorised Economic operator status, will form part of future ‘Brexit’ negotiations.

02. HISTORY AND TIMELINE

Part of the European Union strategy laid out in the Lisbon Treaty of 2000, superseded in 2009 by the EU2020 strategy, involves various initiatives to facilitate trade, including a program called Customs2020. This has the objectives of:

• Streamlining customs legislation and procedures

• Giving greater legal certainty and uniformity to businesses while increasing clarity for EU customs officials

• Creating rules, procedures, and efficient forms of transaction that meet modern-day needs

• Moving customs to a fully electronic, paperless and interoperable environment

• Reinforcing the provision of speedier customs procedures for compliant and trusted economic operators (AEOs).

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The previous Customs Community Code (CCC) dated back to 1992. This was only a partial solution, still retaining many national differences in practice and interpretation. It didn’t reflect the changes inherent in the move from a European Economic Community to a full European Union, nor the expansion of the Union to 28 members. It did not reflect or support modern trade and commercial practices and formed an unsuitable basis for comprehensive electronic operation.

A Modernised Customs Code was published in 2008 with a ‘live’ date planned for 2013, but it soon became clear that this was unsatisfactory: while some of the proposed legislation had rapidly become out of date, on the other hand neither governments, businesses nor IT systems providers could be ready in time. A new approach – the UCC, which addresses these issues – was published in 2013, with implementing legislation approved in November 2015, and a ‘live’ date for implementation of the core elements of 1 May 2016.

This Code is thus now, in its essentials, already in effect. There will however be a phased introduction of some elements, especially around automated systems, and around the ‘homologation’ (a classic EU word) of national legislation and procedures until the process is fully complete in 2020.

The principal areas of change under the new UCC concern:

• Status and benefits of Authorised Economic Operators (AEOs)

• Rules on the point at which the value of a transaction is determined

• Binding Tariff/Origin Information (BTI/BOI)

• The Registered Exporter Scheme

• Bonded warehouse operation

• Representation by customs agents.

03. AUTHORISED ECONOMIC OPERATORS

AEOs are companies engaged in international trade, including importers, exporters and also many logistics and shipping companies such as Damco. These are certified by the customs authorities as trustworthy and compliant with the rules according to a self-assessment questionnaire. The principle advantages to the AEO have been of simplified procedures, fewer examinations and audits whether of Physical goods or of administration, and pre-notification of these. There can also be mutual recognition of AEO status with third countries.

Under UCC there is also now a reduction, or in some cases elimination, of bonds and sureties for bonded warehouses, a reduction in the bond on import duties, the possibility of arranging for pre-clearance, and relief from the safety data administration in a re-export clearance.

However, the process for becoming an AEO has been made more rigorous. The self-assessment questionnaire, which used to form a set of guidelines, is now obligatory and the resulting AEO certificate is now a license, the AEO being legally bound to observe the conditions of the license. On the other hand, AEO status is now effective 5 days after approval, rather than 10 as before.

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There are further requirements. The person in the AEO responsible for customs compliance must now hold a relevant qualification in customs work, or show three years of relevant experience and competence. (It is not currently clear what courses of study will be acceptable under this provision). Customs responsibility can be outsourced to a representative but the same conditions apply.

There is also a responsibility to appoint a person responsible for safety/security and in fact under the rules at present, the customs and security licenses for AEO-F (Customs & Safety) companies are separate.

AEOs also face stricter administration requirements, auditable by customs, including written procedures for dealing with import and export restrictions. Again, the same requirements apply if customs activity is outsourced.

There will be an exchange system allowing authorities in all member states to consult registers of AEOs.

04. VALUATION

Under the former CCC, the rules for determining the point at which customs and other duties become payable (and thus of course the value of the transaction) were somewhat confused and open to interpretation. For example, if a Chinese manufacturer sold goods to a US company but these were to be shipped directly to a customer in the European market, then if the invoice mentioned the EU this could be used to determine the customs value, even though the value ascribed to the goods on arrival in the EU would necessarily be somewhat higher.

This is no longer allowed. The new UCC works on the transaction that actually brings the goods into the EU and so the valuation point is the invoice between the US company and its European customer. The principle is shown in Example 1, where ‘Sale 2’ represents the commercial transaction that brings the goods within the scope of EU customs as this is the last transaction before the goods enter the EU and therefore determines the customs valuation. This will increase the duties payable for a number of companies.

Buyer D BE

Importer CNL

Manufacturer AChina

Dealer BUSA

Sale 1

Sale 2 Price 13000$

Price 10000$

Price 16000 €Sale 3

DeliveryCommodity: Cars

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A less obvious case is shown in Example 2. Here, goods have been brought into a bonded warehouse in the EU, but remain the property of a Swiss (i.e. non-EU) customer until they are sold. In this case the customs value is the value of the transaction between the manufacturer and the Swiss company since there is no other transaction (and not, as might be supposed, the value when the goods are sold out of bond to an EU end-user).

EU Bonded WHS in NL(Swiss customer)

Buyer BSwitzerland

Manufacturer AChina

EU Customer

EU Border

Sale 1

Sale 2

WHS

UCC also makes clear that the customs valuation must include any royalty fees, licence fees or other intellectual property payments if these are not already included in the price of the goods and the payment of these fees is a condition of sale.

There is provision for companies to apply to customs for a license covering Binding Valuation Information, for example in circumstances where cost elements such as freight or insurance charges can fluctuate unpredictably and rapidly. The range of factors included is expected to be widened, although the way in which the process will work is not yet clear, and it is fair to say that the customs authorities do not yet have the requisite systems in place.

A further easement is that, whereas before the currency exchange rates applied by customs might fluctuate with the markets, these will now be fixed on a monthly basis.

05. BTI/BOI

Binding Tariff Information and Binding Origin Information are tools created by the European Union to give economic operators greater certainty as to their liabilities and obligations without the risks of retrospective challenge by the authorities.

BTIs helps importers or exporters obtain the correct tariff classification for goods, which in turn determines the scale of any customs duties, export refunds and so on. The BTI is issued by a member state but is valid and binding across the EU. The BTI status cannot be changed by the authorities during its period of validity, but this period has been reduced from 6 years to 3 years. BTI applications now have to be made electronically, using an EORI number. BTI references now have to be filed with customs entries and can now be applied for by groups of

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companies rather than just individual entities. The EU will now be monitoring the use of BTIs.BOIs work similarly in establishing the true country of origin (and thus the status of goods under the many multilateral and bilateral free trade agreements). Unlike BTIs, application for BOIs is still currently a paper process.

06. REGISTERED EXPORTERS (REX)

From 1 January 2017 there will be a new self-certification system for exporters and current documentation will be replaced by statements of origin provided by exporters. The exporter will have to obtain a registration number from the country enjoying the trade preference and this will enable statements of origin to be provided to customers. A system allowing operators to verify the validity of such statements will need to be created. Exporters of small shipments, valued below EUR 6000, can make a statement of origin on their invoices without registration.

07. BONDED WAREHOUSES

UCC introduces significant changes in the operation of bonded warehouses, so there will now be just four categories of bonded warehouse rather than the former eight.

Private bonded warehouses are used by the licensee who is also responsible for customs compliance.

There are three types of public bonded warehouses. As the name implies these are available for use by anyone, the difference lies in where the responsibility for customs compliance rests (Type III, incidentally, covers warehouses controlled by the customs authorities themselves).Significantly, free bonded warehouses, and the various forms of Free Zone, (as for example at Schiphol) are no longer permitted – users will have to find a different form of bonded warehouse operation, probably a private bonded warehouse, or alternatively use an Area for Temporary Storage.

An area of temporary storage does define a Customs status. It is a location under customs supervision wherein non-EU goods can be stored for a maximum of 90 days (an increase on previous arrangements) while they are waiting either to enter the EU through customs, or to be re-exported. This procedure has lower administration and data requirements with customs than using a bonded warehouse but, as noted, is strictly time-limited so may not be suitable for all traffic.

There are also changes in procedure for the re-export of non-EU goods being stored in bond prior to export outside the EU. Previous transit documentation is replaced by a mandatory re-export declaration. This requires additional data, some of which the bonded warehouse operator may not have. A mismatch between goods leaving bond, and leaving the EU, or a mismatch between the two sets of documentation, could incur fines and penalties. Bonded warehouse operators are therefore likely to face an increased administrative workload.

Although in general the UCC is intended to help and simplify trade, it appears that bonded warehouses and their users face particular challenges. In some cases, this may suggest the need to rethink business strategies, for example the locations at which goods are held when in transit or where the ultimate customer has not yet been determined.

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08. REPRESENTATION AND AGENCY

For many, and especially smaller or occasional importers and exporters, outsourcing of customs activity to specialists, perhaps including logistics service providers such as Damco if appropriate, makes sound sense in terms of cost, administration and access to specialist knowledge. The UCC allows for this in a number of forms, which may vary among member states (for example because laws on legal liabilities vary) providing they conform to the fundamentals of the UCC.

Essentially, anyone can choose to use a customs representative, but the latter now have to meet certain criteria – essentially those that would apply to an AEO. (A company applying for AEO status presumably believes it has the skills, expertise and capacity to manage customs themselves, although it is open to AEOs to use representatives for some or all of their activities). The agent or representative, however, must be able to show that:

• They have no record of repeated or serious violations of customs and tax regulations, or of other serious offences linked to their economic activities

• They are in full control of the procedures and flows of goods they represent, and can demonstrate this in a way that can be audited by customs

• They can demonstrate their financial solvency

• They can prove their competence in the specific activities involved (although as mentioned above, the nature of proof required through qualification or otherwise is currently somewhat obscure).

Representation can be direct or indirect. A direct representative can make declarations in the name of – and on behalf of – another legal person (but this is limited to EU operators – you can employ your financial advisor in Frankfurt for this, but not your advisor in Panama).

An indirect representative can make declarations in its own name but on behalf of another legal entity, who may be based anywhere, not necessarily in the EU.

There are, and may continue to be, different national interpretations of this: as above, this is partly because of the need to reflect national laws around commercial (and conceivably criminal) liability. For some special customs procedures (like inward or outward processing) only direct representatives are allowed.

09. SPECIAL PROCEDURES

The UCC brings in new or revised rules for a number of more unusual procedures, including inward processing (where for example goods already sold have to be brought back into the EU for repair; various forms of processing under customs control, such as the import of non-EU goods for destruction, and outward processing, where goods may be sent outside the EU or treatment but will be re-imported: an example might be sending German steel to Switzerland for specialised heat treatment. To avoid paying unnecessary duties, licences are required, as is specialist advice.

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10. PRECLEARANCE

Rules allowing declaration and settlement of goods prior to their arrival in the EU already exist. Similar rules are being put in place to cover export and transit, and declarations can be made up to 30 days before arrival. In practice most shipments are not even shipped by then so a timeframe of seven days sounds more realistic.

11. SUMMARY

The UCC is intended to make trade into, through and out of the EU simpler and less burdensome, while at the same time enhancing customs’ ability to secure the revenues that are properly due. The principle rules are already in effect, but the full move to purely electronic activity, and the homologation of national rules, will take some years and so the fine detail will be in a state of flux for some time.

The changes potentially affect all but the smallest or most occasional traders. If they do not already have adequate in-house expertise, they should be seeking professional advice since, while compliance with the new rules will in most cases make life much easier, failure or inability to comply (for example by not being able to file electronically) may bring risks in delays, inspections, administration costs, unnecessary payments of duties and tariffs, and potentially fines and other penalties.

Logistics service providers (LSPs) such as Damco are necessarily exposed to the UCC themselves and could well be your first port of call for advice and for reference if required to more specialist sources. In many cases of course LSPs already act for clients as customs representatives or agents, and you may wish to explore such an arrangement with your local Damco office. In the meantime, some of the issues outlined above were also explored in a recent Damco webinar, available here

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About the authorArjen Noordijk is Customs Product Manager at Damco Benelux. With nearly 20 years experience in Customs brokerage, legislation and documentation in the Transport and Logistics sector, he joined Damco in 2008 and since then has taken various roles in operations & management.

About DamcoDamco, one of the world’s leading third party logistics providers, specialises in delivering customised freight forwarding and supply chain solutions. The company has more than 300 offices in over 100 countries and employs 11,000+ people. Damco is part of the Maersk Group. More information about Damco can be found on www.damco.com

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