The EU Customs Union is facing a number of challenges and is in need of modernization, as a result of the rapid digitalization of the European economy and the adoption of the EU Green Deal. The ongoing COVID-19 pandemic and the invasion of Ukraine have highlighted the critical role the Customs Union plays in the EU’s ability to respond to a crisis, which has brought these modernization needs to the fore.
In September last year EU Commissioner Paolo Gentiloni appointed an advisory group to propose solutions to some of the most pressing issues faced by the Customs Union - the recommendations from which have now been published.
The Wise Persons Group recommendations include a new approach to data, a package of reforms relating to processes and advice on properly resourcing, upskilling and equipping customs administrations.
It notes in its recommendations report that the EU is the largest trading block in the world, followed by the US and China, and accounts for over 15% of world trade. The Customs Union is the foundation of the EU single market and ensuring its robustness is critical to the future success of the region.
However, Brexit has led to a further increased workload for EU customs authorities, and there are a number of threats that the Union needs to prepare for.
The Wise Persons Group says:
Despite its successes, our Customs Union is facing multiple growing challenges that call for its modernisation to accelerate the twin green and digital transition. The explosion of e-commerce presents customs with an inflow of small consignments with new financial, counterfeit, compliance, safety and security risks. The EU Green Deal means additional stringent environmental legislations and harmonised and strengthened standards.
The mission of customs is expanding and brings Member States control capacities to its limits. On the other hand, there is an increasing demand for greater facilitation and acceleration of legitimate trade to be accommodated without neglecting the protection against financial and non-financial risks of EU citizens as well as against the unfair level playing field between EU companies and their international competitors.
Paolo Gentiloni, Commissioner for Economy, said:
First the pandemic and now the invasion of Ukraine have highlighted the essential role played by EU customs in crisis management. Today, customs authorities are facilitating the provision of humanitarian support and ensuring that the sanctions imposed on Russia are properly implemented.
Efficient customs clearance and controls are vital to protecting EU citizens and businesses, while at the same time enabling legitimate trade, which is crucial to growth and jobs. These proposals will be of great support in making our Customs Union ready for the challenges of the future.
The Wise Persons Group notes that the majority of stakeholders interviewed for the report complained about a systemic absence of common implementation of customs measures, different control practices across border entry points, and differences in methods and sanctions for non-compliance. The conclusion, the report states, is that it speaks to a customs union with 27 borders, rather than one common border.
This fragmentation is being driven by the poor availability and quality of data submitted to Customs, as well as an insufficient level of data sharing across the Union. This is making it extremely difficult to properly manage risks at both a national and EU level.
The Group recognizes that its recommendations are a ‘moonshot’ - a highly ambitious programme - but adds that they would ensure that the Customs Union is fit for a “more geopolitical world in which revenue is secured, trade is easy, fair, sustainable and safe, and citizens are protected against security risks”.
The recommendations include:
A package of reforms, relating to processes, responsibilities, liabilities, and governance of the Customs Union.
A new approach to data aiming to diminish reliance on customs declarations, obtain better quality data from commercial sources, and provide businesses with a single data entry point for customs formalities.
A comprehensive framework for cooperation, enabling better data sharing across the Customs Union, with the involvement of market surveillance authorities, law enforcement bodies and tax authorities.
Setting up a European Customs Agency to complement the role of the Commission and support the work of Member States.
Reforming and expanding the Authorised Economic Operator scheme.
A new framework of responsibility and trust, in which businesses would seek Authorised Economic Operators status to gain commercial access to the EU market. Small non-commercial consignments would continue to be sent through the usual processes, but without priority and subject to a level of control that reflects their “non-trusted” status.
No more customs duty exemption threshold of €150 for e-commerce, together with simplified rates for low value shipments.
A package of measures to green EU customs, digitalize procedures, ensure that prohibitions and restrictions related to sustainability are properly implemented on imported products, as well as possibly reform the World Customs Organization Harmonized System Nomenclature to allow for the proper classification of environmentally friendly products that the EU wants to promote in international trade.
Properly resourcing, upskilling and equipping customs administrations, to ensure their full capacity to fulfil their missions.
An annual estimate of the Customs Revenue Gap to better manage customs revenue collection.
Commenting on the findings, Arancha González Laya, Chair of the Wise Persons' Group said:
This report calls for an urgent structural change of the way European customs are organised and equipped. A strong Customs Union with a protective “one external border” is essential to Europe's strategic autonomy, to its trade might and to its security and defence ambitions. Standing still would effectively mean less protection to European citizens, less competitiveness for European businesses and less security for the EU.
The recommendations from the report will now be discussed with the European Parliament and Member States. The Commission will also set up a ‘Reflection Group’, involving Member States, to debate and ‘operationalize’ the recommendations. Based on this input and broader consultations, the Commission will table a customs reform package by the end of the year.
It’s worth noting that the EU’s planned customs reforms are happening in parallel to the UK’s ‘lighter touch’ border and customs regime, where it plans to develop a Single Trade Window, allowing traders to submit all relevant import, export and transit related regulatory requirements and data into a single government digital portal.
However, this is all very much still a work in process and ‘frictionless trade’ between the EU and the UK is still a long way off - with an already clear increase in costs, paperwork and border delays.
But what’s clear is that current customs processes and operations have not kept pace with the changes that are occurring in the broader economy. Given the economic uncertainty facing countries around the world, streamlining the effectiveness of these systems should be a top priority.