New EU Union Customs Code

Will the new EU Union Customs Code finally bring centralized clearance?

The EU customs union is central to the EU dream of a common and efficient market. Ideally, whether your container enters through Felixstowe or Rotterdam or Riga, it should go through an entirely predictable customs process, and you should be able to handle it all electronically within one system from anywhere within the EU.

Unfortunately, the EU still has a long way to go to get there. The new Union Customs Code (“UCC”), launched with the aim of modernizing and simplifying customs clearance processes, moves in the right direction – slowly. The UCC will take effect in May 2016, but some elements will come much later, especially the long-awaited IT systems enabling centralized clearance of all customs information.

Meanwhile, companies have plenty to look out for in the new UCC, which runs to 100 pages, plus another 1,000+ pages of related legislation. Some special customs procedures will be modified; the “first sale” principle for determining customs value will end; and some customs authorizations will be reassessed – by national customs authorities.

Importantly, companies will need to be wary of varying practices by EU Member States. Despite the European Commission’s best efforts at harmonization, the various Member States are interpreting the UCC in varying ways, so be sure to consult the customs authority of your relevant Member State. The Commission will be issuing Guidelines to help companies and national customs authorities make sense of the new rules.

Centralized clearance IT system will be in place by 2020… or later

Industry associations have been waiting for electronic centralized customs clearance since 2005. The new UCC sets out to develop and deploy electronic data-processing systems by the end of 2020. However, the Commission now says that it may take longer than anticipated to upgrade all Member States’ IT systems, and that there may be amendments to the UCC to allow some IT elements to start even after 2020. There are delayed target dates for each element of the new systems. For example, the electronic “Proof of Union Status” to replace the paper form T2L was due to come online in 2017, but this will likely slip to 2019.

With the EU taking longer to deliver the new IT systems, companies may have to align their own IT systems with the EU’s on very short notice. Industry associations are putting pressure on the EU to ensure that companies get at least 18 months to align their systems after their national customs authority notifies them of the technical specifications.

For a “Single Window” to enable one-stop filing of all customs (and non-customs) information, there is no concrete timeline. The veterinary sector has tested the Single Window as an isolated project, but there are no specific plans to roll this out more widely to other sectors.

So what will change in May 2016?

If your company is using any special procedures, such as inward processing, outward processing, temporary admissions or customs warehousing, there are likely to be changes in effect from May 2016. How this affects your business will depend on your specific case. One change to watch out for is whether you will need to provide a guarantee for using a special procedure. Currently, Member States have discretion to decide when a guarantee is, or is not, required. Under the UCC as applied from 1 May 2016, a guarantee will be mandatory in some circumstances.

Another key change under the UCC is the end of the so-called “first sale” principle. Currently, companies can use the value of an earlier sale in the supply chain as the customs value, provided certain conditions are met. Under the UCC, companies must use the value of the sale occurring “immediately before the goods are brought into the territory of the EU”. Each company will need to consider how this impacts their business model and supply chain. This change applies as of 1 May 2016, although there is a transitional period until the end of 2017 for existing contracts that use the first sale principle.

What about current authorizations? Will they need to be renewed in May 2016?

Regarding the renewal of customs authorizations, companies will again need to watch out for differences in practices among Member States. For example, for temporary storage authorizations, some national customs authorities are giving longer transitional periods than others. In general, the UCC deals differently with three categories of authorizations:

• Authorizations with a limited period of validity that are still valid on 1 May 2016: These will continue to be valid until the final date of the limited period as stated on the authorization, or until 1 May 2019, whichever is earlier.
• Authorizations with no particular period of validity that are still valid on 1 May 2016: These will need to be re-assessed by the relevant national customs authority. The timing of that re-assessment is up to the customs authority.
• Authorizations that expire before 1 May 2016: The customs authority may choose to grant a new authorization either under the current customs rules or under the new UCC rules. However, if the new UCC rules are used, the new authorization will only be valid from 1 May 2016.

Even if a company’s authorizations continue to be valid, it will also need to take the new UCC rules into account. Although the procedure may be authorized, the new UCC rules will affect how the procedure is used and how the goods are treated after they have undergone the procedure.

What else is new in Brussels on the customs front?

The EU is negotiating a free trade agreement with Japan. The negotiations are still at an early stage, so this is a good time to contact the Commission with the industry’s priorities. There will be a specific chapter on customs and trade facilitation, which will push for (i) transparent customs rules, (ii) simplification of procedures, (iii) consistency with international standards, and (iv) risk management while avoiding arbitrary discrimination. One point already on the agenda is the Temporary Admission procedure. The EU is negotiating for easier use of the ATA Carnet in Japan, with a common list of merchandise between the two economies.

Meanwhile, there is strife within the EU-Turkey customs union. Companies report that Turkey is increasing import duties on their products, especially for goods that are of EU origin but with non-EU aspects in the supply chain. The Commission is aware of these issues and is raising them with Turkey, but so far to little avail.

And a final word…

If your company is struggling to digest aspects of the 1,000+ pages of legislation before 1 May, you can reach out to the relevant national customs authority for guidance. The relevant implementation team in the customs authority can advise on any specific changes that may relate to your company’s processes or existing authorizations. For issues that are particularly difficult or sensitive to resolve, we recommend that you speak to your customs lawyer before contacting the customs authority.

Jung-ui Sul, Sidley Austin LLP.

The views expressed in this article are exclusively those of the author and do not necessarily reflect those of Sidley Austin LLP and its partners. This article has been prepared for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers.