One year on

Union Customs Code (UCC): Where do we stand?

The UCC has been the law for more than a year now. Time for a check-point: Have businesses adapted? Where are still kinks in the system? What lies ahead? Facts, figures, and insights.

Views from the crowd: government and business

Judging by the number of seminars, scholarly articles, and media publications, the customs departments of EU-based businesses should’ve experienced a tectonic shift on May 1, 2016. Or at least a sizeable jolt.

But after the Union Customs Code (UCC) came into force, things on the ground remained suspiciously calm at first.

We’ve asked the authorities about it and the response from a spokesman was this: “The customs authorities sought to roll out the UCC as smoothly as possible. The Directorate General of Customs is pleased to have so far achieved its objective of minimizing the burden on the economy.”

Alrighty – good job then, right…?

The business community has a somewhat different explanation. We’ve engaged, discussed, asked questions, and had a good look around. Here some insights:

  • Bernd Stadtler, Customs Coordinator for Außenwirtschaftsrunde, a global trade roundtable, commented on it in a piece for Foreign Trade magazine: “Thanks to lengthy transition periods extending to 2019, the day-to-day customs operations of many companies have so far remained insulated from the new laws.”
  • Frank Görtz, Director of International Trade at Lufthansa Technik, has a similar take and noted: “Until the customs office has finished reassessing applicable authorizations, it’s too early to take stock.”

Causes of frustrations and key improvement areas

Both sides are right, of course. The key changes that the UCC will introduce are still being implemented or come with generous transitional periods.

But businesses are also still waiting for the elimination of trade barriers that Article 3 of the UCC names as one of the goals of the reform. This has led to frustration in many businesses:

  • Sven Baumbach, Senior Manager for Customs Export at e-commerce giant Zalando, sees the UCC as a simple recasting of the Community Customs Code and feels that the UCC initiators failed to seize upon key technical innovations. When asked for details, he criticized that the opportunities the UCC could’ve offered customs managers were squandered – for example, in the area of e-commerce, same-day delivery, and cloud services.
  • The Zalando manager also sees one upside, though: “Everyone who deals with customs, whether in the customs office or our in-house customs departments, is now heavily involved with the new regulations. The result is that we’re finally all on the same page again and speaking a common language.”

On the government side, cautious criticism has been voiced of the priorities in the implementation of the UCC by EU Council of Ministers. Just five months after the UCC was launched, the Council called on the Commission to further:

  1. Develop effective simplifications and modernization, such as centralized clearance and self-assessment;
  2. Enhance the benefits for Authorized Economic Operators (AEOs); and
  3. Ensure a proper balance between controls and trade facilitation for legitimate trade.

UCC real-life business impacts 1: Long-term supplier’s declarations

The UCC provisions for issuing long-term supplier’s declarations (LTSDs) alienated businesses by imposing additional burdens. The EU Commission responded to a key criticism from business leaders and, effective June 8, modified the rules for issuing LTSDs.

Since the UCC’s launch on May 1, 2016, it had only been possible to issue LTSDs in one direction relative to the date of issue – only for past shipments or only for future shipments. This created a need for additional administrative overhead, since it was often necessary to issue two LTSDs instead of just one. Implementing Provision (EU) 2017/989 of June 8 eliminated this (unnecessary) distinction.

Effective immediately, UCC Implementing Regulation Article 62 (2) requires the following information for the validity period of an LTSD:

  1. Date on which the declaration was made out (issue date)
  2. Start date of validity period (start date), which cannot be more than twelve months before or six months after the issue date
  3. End date of validity period (end date), which cannot be more than 24 months after the start date

his makes it possible to issue an LTSD on October 17, 2017, that is valid from January 1, 2018, until December 31, 2019 – or to issue an LTSD on March 16, 2018, that is valid from January 1 to December 31, 2018. In other words, it’s no longer necessary to split the declaration into two LTSDs to cover this period.

UCC real-life business impacts 2: Customs value changes

Give some…

Businesses and their industry associations are understandably not very enthusiastic about two changes relating to customs value, even if their impact is far from universal:

One refers to licensing costs that must now be included in the customs value even if the licensor is a third party. This can have an enormous impact, especially for products in which software or licensing fees account for a high share of the product value.

The other restriction affects primarily large corporations: Under the UCC, previous purchase prices can no longer be applied. In the past, “prepurchase prices” had been used to significantly lower the customs value – which in turn brought down the import duties based on that value.

The following example highlights the change:

  • Company A, based in the EU, signs a contract with its parent company B, based in the US, to  purchase custom-designed shirts for €40,000. Parent company B orders the shirts from supplier C in China for the equivalent of €25,000.
  • Under the prepurchase principle, company A was able to declare a customs value of €25,000 – what B paid to C. But under UCC Implementing Regulation Article 128 (1), this is no longer allowed.
  • The customs value is based on the transaction price of the sale occurring immediately before the goods were brought into the customs territory of the Union – in our example, €40,000.

And take some…

But there are also changes for the better: The sanctions-like nature of customs debt has been eliminated.

The UCC provides for circumstances under which unintentional violations can be extinguished: Article 124 (1), letter h of the Union Customs Code states that the customs debt shall be extinguished where the violation had no significant effect on the customs procedure; there was no attempt at deception; and all of the formalities necessary to regularize the situation of the goods were subsequently carried out.

In many scenarios, this enables customs operators to avoid the subsequent recovery of import duties.

UCC real-life business impacts 3: Registered Exporter (REX) system

A surprise hit among many businesses was the REX status, which was actually intended primarily for exporters from developing countries under the Generalized Scheme of Preferences (GSP). It seemed at first that almost no EU company would benefit from the REX status, but that changed with passage of the Comprehensive Economic and Trade Agreement (CETA) with Canada.

Now, REX is a prerequisite for any EU-based company that wishes to submit declarations of origin for shipments valued at over €6,000 – for which registration is now possible.

UCC real-life business impacts 4: Small changes in effect at a glance

Here is an overview of a series of smaller changes that seem to have been implemented with little or no fanfare:

Smaller UCC changes at a glance
Smaller UCC changes at a glance

Time to wake up now: 2-step approach for reassessment of authorizations

The changes to date have indeed been modest. That’s no reason to become complacent, however. The key areas of UCC implementation are really starting to pick up speed now.

One item of paramount importance for today’s customs operations is the reassessment by customs authorities of open-ended authorizations, which began in the first quarter of 2017. The authorities will check whether the authorizations meet the authorization criteria of the UCC.

It’s important to note that customs officials will review the authorizations in two consecutive steps – see the illustration below. Industry associations have welcomed this incremental approach. First, because it gives companies enough time to prepare for the stricter criteria, and second, because the uniform reassessment date avoids giving some companies a competitive advantage over others.

2-step approach
2-step approach

Given the high number of authorizations that need to be reassessed, the results of the reassessment are not expected to be announced before the end of 2018. Holders of authorizations will receive the results in writing from their assigned customs office. The reassessment does not include temporary authorizations – for these, holders need to reapply before they expire. Any temporary authorizations that are valid beyond April 30, 2019, will be revoked by the customs office effective May 1, 2019.

Sleeping giants? IT system adaptations, development, and implementation

Another issue with tremendous real-world impact is going almost entirely behind the scenes: The legal changes arising from the UCC need to be implemented in IT systems. The pressure on those in charge is intense: Achieving the UCC’s general objectives of simpler import and export procedures, lower administration and monitoring costs, and faster processing times depends on adequate IT solutions.

The EU Commission has deployed a Multi-Annual Strategic Plan (MASP) in an attempt to manage the complex web of concurrent projects. MASP has taken on an unstoppable momentum and complexity amid all the pending legal changes. For this reason, it is reviewed and updated each year.

The “UCC Work Program” provides the Commission with a toolbox to facilitate implementation of the customs code when it comes to developing and deploying IT systems. The current program encompasses 17 individual projects with an implementation roadmap extending to 2020.
Postponements have not been ruled out, nor are they unlikely.

UCC IT projects with special relevance for businesses: upcoming deadlines

One project of special importance for businesses is the Automated Export System (AES). It is designed to make the necessary IT adjustments to accommodate changes in the simplified procedures, the apportionment of outbound consignments, and the customs clearance of exports.

Another goal is to develop harmonized interfaces to the Excise Movement and Control System (EMCS) and the New Computerized Transit System (NCTS). AES is designed to enable complete automation of export processes and formalities. The system is scheduled to go live in October 2019.

Practitioners are also keeping a close eye on the project dealing with the special procedures, the first parts of which were already rolled out in the first half of 2017. The project to centralize the customs clearance of imports (scheduled to go live in October 2020) could make life much easier for businesses.

Overall, the need for highly automated IT solutions for customs varies widely within the EU. Countries with large numbers of transactions have a higher stake in this than smaller EU countries, for whom the cost of implementing such systems and processes is not always worthwhile.

It will be interesting to see whether the planned harmonization of processes and centralized platforms means that smaller member states will not have to implement everything themselves in their domestic IT systems.

What’s your view on the current status of the UCC – and how is your organization managing the changes? I look forward to hearing from you – on LinkedIn.