Pictured above is Hans Maessen (Brexit adviser at SGS Government and Institutions Services, former chairman of the Dutch Customs Brokers Association and a Customs Broker of 35 years experience) giving evidence at the House of Commons Northern Ireland Select Committee.
I.m pleased and honoured to be able to publish an article by Hans on Brexit and Customs:
Introduction.
Customs
issues are at the heart of the Brexit discussion:
-
to facilitate trade between the EU and the UK with minimum costs and interference and
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to implement a customs land border on the Island of Ireland without infra structure.
Without
being complete, this paper describes a general concept to both
issues, which can be made operational within the present legal
framework, using existing customs infra structure and IT-systems and
within the transition period.
The
Union Customs Code and its operability by member states.
The
EU Union Customs Code (UCC) provides the legal framework for customs.
The UK will use the UCC as a basis for its future customs
legislation after Brexit. The UCC has direct applicability to EU
citizens and businesses. The UCC offers a regulatory framework,
supported by IT-systems, which is operational in all member states.
Each member state is free to shape its customs organisation as it
finds suitable to its specific situation as long as it complies to
the UCC. Next to that, the UCC offers a range of simplifications
which member states are free to apply if they wish to do so.
A
Customs Union versus a Free Trade Agreement
A
customs Union is formed by a number of individual countries, or
member states. They do not levy duties on trade within the customs
union territory. All member states levy the same duties on goods
coming from countries outside the customs union. There are no
customs formalities within a customs union.
Under
a Free Trade Agreement (FTA) two countries or customs territories,
agree not to levy any duties on trade on goods originated from
each-others territories. Customs formalities are needed under an FTA
to determine the origin of the goods and to regulate other laws such
as VAT and product compliance.
Registered
Export (REX) System
At
the moment a new worldwide system is being introduced to state the
origin of goods for customs purposes. Under the REX system, an
exporter can register in a global database in which he can state what
goods he regularly exports. He then can simply declare on the
invoice the origin of the traded goods. The REX system will replace
the present system with Certificates of Origin. The REX system can
be used also for EU – UK trade. The UK already has most companies
registered for REX within the EU.
Actors
in customs
The
following actors play a role in customs:
-
Importers and exporters: they sell and buy the trades goods. They provide the basic data (on the invoice) needed to make a customs declaration. They are ultimately responsible to customs authorities to fulfil all obligations.
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Logistic service providers: they transport the goods over the border and play a role in bundling goods and communication with brokers.
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Customs brokers: they are the intermediary between exporters and importers on one side and customs authorities on the other side. They make the actual (digital) customs declarations, streamline all formalities and procedures.
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Customs authorities: they enforce the applicable laws when goods are exported and imported. They process the digital declarations, perform administrative and physical checks, collect taxes and implement non-tariff legislation on trade.
A
vast number of laws are applicable at the border such as:
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Duties: these vary depending on the kind of goods and the origin of goods. Duties are a percentage of the value of the goods.
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VAT: export is exempt of VAT and import is subject to VAT.
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Excise duties and other taxes.
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Security: some (strategic) goods may not be exported, while other (dangerous) goods should not be imported.
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Regulatory alignment: All imported goods have to comply with regulations such as health, veterinary and phytosanitary laws.
Declarations
needed for a border crossing.
- To exit a customs territory, an export declaration is needed to check if goods are eligible (security) to be exported, but also to proof that the transaction is exempt of charging VAT.
-
To import a customs territory, an import declaration is needed to determine the payment of duties, VAT and other taxes and to check if the imported goods comply with all other laws.
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Goods can be transported across the EU border with countries like Switzerland and Norway to an interior destination with a Transit declaration. If the goods do not arrive at the point of destination and the applicable obligations are not fulfilled, then the titular of the Transit declaration is held liable for all consequences.
All
customs communications are automated
The
Union Customs Code (UCC) requires that all customs formalities are
automated. For this purpose each member state has developed its own
customs IT-systems. The UK is replacing its present customs
declaration system called CHIEF, by a new system called CDS (Customs
Declaration System), which will become operational from March 2019.
Customs declaration systems are complex, since they have to apply
many regulations on a real time and on line basis. They communicate
with a number of national and EU customs IT-systems. The data these
customs declaration systems require for communication are very
structured. These data are provided by commercial software
applications which are mostly used and operated by large exporters or
importers or by customs brokers. There are many of such commercial
customs software applications available on the market.
These
software programs process the information which can be found on an
invoice such as the kind of goods, origin, weight, value etc. This
information is coded into datasets that can be processed by the
customs authorities IT-systems such as CDS. The processing of one
declaration may involve 10 to 20 messages back and forth between the
commercial software module and the customs software, communicating
stages and findings in a customs declaration process.
Next
to export, import and transit declaration systems, there are
IT-systems for veterinary goods (Traces), for Excise goods (EMCS),
customs payment accounts, bank guarantees, customs authorisations and
permissions etc. To manage the flow of goods there are also
(air)port community systems operational which fully integrated
customs procedures in the supply chain.
Risk
assessment
Since
all declarations are filed digitally, customs can base its risk
analysis on these (big) data. The combination of different data
elements in a declaration, can lead to a specific risk assessment. A
high risk good, frequently imported by a trusted trader, does not
have to lead to a high risk assessment. A low risk good imported
from an unusual country by an unknown trader can lead to a high risk
profile. In addition customs will also perform random checks to see
if the assessment on the basis of big data is correct. Some goods,
such as veterinary goods may have a 100% profile on administrative
checks, because of the high priority that is given to health aspects.
Kind
of inspections
When
a customs declaration is filed, the outcome of the digital risk
assessment can be threefold:
-
There is a low risk assessment which implies that no further information is needed. The goods will be released for trade and transport immediately. In general this is the case with more than 90% of all goods.
-
There is a medium risk assessment, which implies that customs want to get additional administrative information which is assessed by a customs officer. The declarant, who filed the digital declaration, will have to provide more information, such as the original invoice and origin and transportation documents. If this information is trustworthy, the goods will be released form further customs inspections. If this information is inadequate, a physical inspection of the goods can be ordered. (See 3. Below)
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There is a high risk profile so the goods are directly ordered to be physically inspected. This can be done by a scan of the container or truck or by an inspection of the goods when they are unloaded at the border or at the premises of a logistic service provider or on the premises of the importer.
In
addition to administrative and physical checks at the time of export
or import, customs can also do retrospective administrative checks on
the basis of companies administrations over a certain period. These
checks have proven to be effective. Most data about transactions and
goods are well documented within companies administrations. Under
the present UCC retrospective administrative checks can be done up to
3 years after the date of importation.
Border
clearance versus inland clearance
Export
and import declarations can be filed when the goods are available at
a border or at the points of loading or unloading at the premises of
a logistic service provider (LSP) or at the premises of the exporter
or importer.
-
Clearance at a border.
-
Export: The goods are transported without planning of customs formalities to a border. At the border a customs broker has to make a digital export declaration on the basis of the documents provided by the transporter, such as the invoice and transport and origin documentation. The declaration is digitally filed by the broker and a further customs inspection can take place depending on the risk assessment of the customs IT system.
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Import: After the export declaration was filed, a similar import procedure is needed. Another risk assessment will be done by the IT-system of the importing customs territory. Checks can take place at the border.
-
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Inland clearance.
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Export: The goods are declared while they are available for customs inspection at the premises of the exporter or logistic service provider. Many export declarations are filed by an exporter himself, since most export shipments are repetitive and thus relatively simple and predictable. Data for the declaration can be easily downloaded from existing administrative systems. If a customs broker makes such an export declaration, he can easily copy a previous declaration or use a simplified format for the declaration, which already contains all standard data. The declaration can be filed before the goods are loaded, so logistic processes are not disrupted.
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Transit: The export declaration is followed up by an Transit declaration, which facilitates that the goods can be transported to the importing customs territory without any formalities at the border. Since a bank guarantee has to be provided , to cover possible liabilities by the titular of the Transit declaration, such a Transit declaration is usually made by a customs broker. Because of his liability he will take care that all customs obligations are met. A Export and a Transit declaration are often combined.
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Import: As soon as the goods are available at the premises of the logistic service provider or the importer, an import declaration is filed. This is often done by a customs broker, since he has all necessary permissions from customs to do so, such as the IT infra structure, a payment account for duties and taxes, and all the knowledge required to streamline a compliant declaration process. If an inspection has to take place, the goods have to stay available for inspection by a customs officer for a mobile inspection, until they are made available for free circulation.
-
General
implementation at the EU – UK border
It
will be necessary for the UK to participate in the Transit convention
after Brexit. The UK has already applied to do so. The UK will also
have to implement simplifications which are now available within the
UCC, to make inland clearance easily accessible. This accessibility
can be realised by offering service opportunities to customs brokers
and companies that want to make their own declarations. Member
states of the EU with intensive UK trade, such as Ireland, France,
Germany, Belgium and the Netherlands, may also want to make inland
clearance easily accessible, thus facilitating trade and preventing
congestion at harbours and borders.
In
addition, it is quite logical that a German importer wants to do his
customs declarations in his home country and not at one of the
Channel or North Sea ports or at the Irish Sea for trade with
Ireland.
Implementation
on the Irish land border
Traders
will have a natural incentive to comply with the customs obligations,
because the VAT rate on export is 0%. This rate can only be applied
when an export declaration is filed. Each declaration is registered
by customs. Thus VAT authorities can easily check if the information
on the monthly VAT declaration of an exporter is correct by simply
comparing it with the available customs data. So is no export
declaration is filed, then the VAT authorities will not allow the use
of the 0% rate.
Every
export declaration has to be followed up by a Transit declaration
which has to be followed up by an import declaration. In this way
the complete flow of goods and connected administrative obligations
can be followed on both sides of the border, while no infrastructure
is needed.
Veterinary
goods
Veterinary
goods form a special category for customs, since they are inspected
more intensely and frequently then other goods. EU regulations say
that these goods should be inspected at border inspection posts (BIP)
which should be located ‘in the immediate vicinity of the border’.
However, due to the specific geographical situation, these
inspections point can be located away from the border. This is for
example presently the case Rotterdam, where there are BIP’s located
up to 40 kilometre inland. The Irish land border can also be
qualified as a specific geographical situation, since it has more
than 300 border crossings which are being used at a relatively low
frequency for trade in veterinary goods. Inspections can take place
at the premises of the exporter and importer or of the logistic
service provider where the animals and goods are loaded and unloaded.
Mutual
recognition of inspections and cooperation can further help to manage
the cross border trade of these goods.
The
EU Traces system is designed to track and trace the trade of
agricultural products within the EU and with associated third
countries. Traces is now fully operational in the UK and the UK
could apply to be an associated third country for Traces after
Brexit.
Statistics
show that the numbers and value of trade and shipments of veterinary,
sanitary and phyto-sanitary goods between the Republic of Ireland and
Northern Ireland is not so big and thus manageable.
Taking
into consideration that the Island or Ireland already is a
bio-security zone for veterinary diseases, this can be incorporated
in the risk assessment of the customs declarations and thus in the
intensity with which administrative and physical checks are
implemented. There is no other sector in trade which is so heavily
regulated and monitored as the agricultural sector. The data from
these sources can be further used to manage the trade in these goods.
Comparison
with Norway and Switzerland
The
EU has comparable operational borders with third countries such as
Norway and Switzerland. These borders offer hybrid facilities.
Customs clearance can be done at the border or using inland
clearance. At the EU-Swiss border in Basel and elsewhere, there are
lanes for border clearance and lanes for trucks carrying goods under
the Transit system. It depends on the circumstances and preferences
of the actors in trade which method they prefer and apply.
For
trade on the Irish land border, inland clearance would de facto
become obligatory as there will be no infra structure at the border.
Since there is no customs service industry now available in Northern
Ireland or at the Irish land border, there is an opportunity for
brokers to develop that market.
Transit
barcode scanning.
The
Transit system was introduced about 2 decades ago and works
satisfactory. A special aspect of the system is that there is an
obligation to scan the barcode of the of the print of the digital
Transit declaration at the border. On the basis of this scan it can
be determined what customs territory can hold the titular responsible
and liable for the obligations under Transit. Take for example a
transport from an inland location in Germany across the border in
Basel to an inland location in Switzerland. If the barcode has not
been scanned at the border in Basel, then the German customs
authorities may hold the titular responsible. If a scan has been
made, then the Swiss may hold the titular liable, since there is a
registration that the goods have arrived on Swiss customs territory.
The barcode scan is an old fashioned administrative obligation that
can easily be replaced by an app that follows the truck that carries
the goods across the border. If such an app would be developed for
the Irish land border, it could also be used at other EU external
borders such as Basel.
Examples
of implementation of inland clearance after Brexit.
- Repetitive trade of car parts.
A
German company supplies car parts on a daily basis to a car
manufacturer in the UK. The goods are transported by a truck
crossing the Channel at Calais and Dover. This kind of trade is
documented in detail in the IT-systems of the seller and buyer. The
exporter would use commercial customs declaration software to
download the data from his IT-system and generate a fully automatic
export declaration. Since the risk profile of these transactions is
very low, there would be no need for any administrative or physical
checks by customs.
The
exporter could order the trucking company to take care that a Transit
declaration is made available for the transport to the UK. The
trucking company would probably ask a broker to make this Transit
declaration. The alternative would be that he himself would apply
for a customs permission to make the Transit declaration himself.
The goods can be transported to the car manufacturer in the UK.
Since
the car manufacturer receives goods from all over the world for
assembly, he will have his own customs department taking care of the
import declaration. A datafile, made available by the supplier is
used to download into his customs declaration system. He makes use
of the simplification in the UK customs system to report the imported
goods on a monthly basis.
Since
the UK has introduced postponed accounting for VAT when Brexit took
place, the importer does not need to pay VAT upon imports to HMRC.
The VAT is registered administratively through the import declaration
and can be cleared on the monthly VAT declaration.
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Export of veterinary goods from the UK to the EU.
A
UK exporter of exclusive beef exports to Austria. The goods are
inspected by a UK veterinarian before export. Being an eligible
trader, the exporter registers the sale to the likewise eligible
Austrian importer in the EU Traces system. An export declaration is
made by a specialised customs broker in the UK when the goods are
loaded. In the export declaration the code that refers to the
veterinary inspection is filed, so the UK customs computer registers
that all obligations are met. The broker also makes the Transit
declaration which is needed for the transport to Austria. In Austria
the truck reports to an authorised inspection point, where the local
veterinarian inspects the papers. Since mutual recognition of
veterinary inspections is agreed on between the UK and the EU, he
sees no need for a physical inspection and the goods are released.
- Small trader on the Irish border
A
wholesaler of specialised tools for the construction industry,
located in Belfast sells once a month to customers in the Republic of
Ireland. He uses a logistic service provider (LSP) to deliver the
goods to his customers in the Republic. The LSP collects shipments
from different exporters and has a daily service from Belfast to
Dublin. From there the goods are distributed to the diverse
customers in the Republic. He has made a deal with a customs broker
to take care of all customs formalities. The LSP collects in his
warehouse and gives order to the broker to make the export
declaration for each individual shipment on behalf of the exporters.
The risk assessment on the goods is so low that almost all
declarations are released for export immediately. The broker makes
one collective Transit declaration for the daily transport to the
Republic. The broker cooperates with a colleague in Dublin who
prepares the import declaration, so that the goods can be declared
immediately when they arrive at the premises of the distribution
centre in Dublin. Occasionally Irish customs want to have more
information about the imported goods. Physical inspections took
place twice last year.
The
brokers invoice their service to the LSP. The LSP adds the customs
clearance costs to his transportation bill. Since he has multiple
declarations each day, he was able to get a very competitive price
from the brokers. All obligations the importer and exporter have
concerning VAT are fulfilled through the customs declaration.
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