Explanatory Memorandum to COM(2023)258 - Union Customs Code and the EU Customs Authority

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dossier COM(2023)258 - Union Customs Code and the EU Customs Authority.
source COM(2023)258
date 17-05-2023


1. CONTEXT OF THE PROPOSAL

• Reasons for and objectives of the proposal

The EU customs union is a true success story of European integration and prosperity. It is the basis and the guardian of the EU single market0, allowing goods to move freely within the Union. The Union speaks with one voice in international trade relations as one of the largest trading blocs in the world. The smooth functioning of the customs union is fundamental for the EU’s economy and prosperity, and its international competitiveness. Citizens and companies benefit from international trade, while at the same time, customs tariffs, quotas, and other trade measures contribute to protect industrial production and jobs in the union and to provide revenue to public finances.

The EU economy is in the twin green and digital transition and has therefore adopted ambitious legislation, setting environmental, security, social and digital standards that shape the way businesses operate within and beyond the single market. This ambitious agenda risks being undermined if Union productions are replaced by imports from third countries that do not respect these standards. Without central supply chain monitoring and control by customs, the Union does not have full visibility on which goods enter and leave its territory. This weakens not only the credibility of the EU’s sectoral policies, but also limits the EU’s might as geopolitical actor.

Customs authorities are increasingly burdened with an ever-growing range of tasks stemming from the above mentioned very ambitious legislation that has been adopted in the last years. As a result, customs authorities are today squeezed between increasing tasks and complexity on the one hand, and a sharp increase of low value shipments in e-commerce on the other. Moreover, without a central supply chain supervision, the Union does not have full visibility and control over which goods enter and leave single market. This amplifies the inherent challenges to customs processes, data and IT, and the governance of the customs union. As the impact assessment demonstrates, customs authorities struggle in their mission to protect, with issues on the risk management and cooperation with market surveillance authorities, law-enforcement authorities and bodies, tax authorities and other partners. Also, problematic are the administrative burden for trade, the difficulties in performing controls on e-commerce goods, the limited data quality and access, as well as the divergences of implementation between Member States.

This reform strengthens the capacity of customs to supervise and control which goods enter and leave the customs union. The customs reform is a long-term strategic decision, aiming at adapting flexibly to changes in supply chains and better defending the financial interest of the EU and its Member States as well as EU’s security, safety and public interests.

Against this background, in her political guidelines European Commission President Von der Leyen announced: ‘It is time to take the customs union to the next level, equipping it with a stronger framework that will allow us to better protect our citizens and our Single Market. I will propose a bold package for an integrated European approach to reinforce customs risk management and support effective controls by the Member States’0.

As a first follow up, the Commission presented a Customs Action Plan0, outlining concrete actions to prepare the reform. As announced in the plan, and following the request of the European Parliament, the Commission conducted an interim evaluation of the implementation of the Union Customs Code (UCC)0, which recognised progress, but also identified the need to strengthen the framework on e-commerce and prohibitions and restrictions. In addition, the interim evaluation outlined the challenges in developing 27 national customs IT systems. The Customs Action Plan also announced an impact assessment of the pros and the cons of the reform, and the strategic discussion with national customs administrations in a reflection group on how to make the customs union more agile, technologically advanced and crisis-proof, which took place in 2022.

Recognising the need for structural change, the Commission engaged with stakeholders, academia and international partners in a foresight exercise on the future of customs in the EU 2040. The foresight report recommended ‘to address the governance challenge of the customs union by giving preference to a joint, central structure in order to speak with one voice, to leverage technological advancements and to make the most effective use of customs’ data’.0 Moreover, the independent report of the Wise Persons Group on challenges facing the EU Custom Union concluded that ‘serious divergences remain between national customs authorities in the application of rules and procedures’ and ‘today the level of protection of citizens and Member States depend on the place where goods are controlled, and fraudulent and negligent businesses enjoy a significant low-risk advantage over honest and compliant firms and individuals’0.

The European Court of Auditors identified challenges for customs in special reports. One report found that insufficient harmonisation in customs controls hampers EU financial interests, and recommended: ‘to the Commission to enhance the uniform application of customs controls, and develop and implement a fully-fledged analysis and coordination capacity at EU level.0 The Court further concluded that delays in customs IT development were ‘in particular due to changing project scope, insufficient resources allocated by the EU and Member States, and a lengthy decision-making process due to the multi-layered governance structure.’0 For e-commerce, the auditors highlighted challenges in collecting correct amounts of VAT and customs duties.0 Another report highlighted shortcomings in the legal framework and an ineffective implementation in import procedures, including ‘differing approaches in terms of customs controls to tackle undervaluation, misdescription of origin and misclassification and to impose customs penalties’, impacting the trader’s choice of customs office.0

This reform simplifies the UCC and cuts red tape, in line with the Commission's regulatory fitness and performance programme (REFIT). It is part of the Commission Work Programme 2022 under the priority ‘An economy that works for the people’.0

This reform includes two additional legislative proposals which were adopted by the Commission today as part of a broad package, notably for amending the VAT directive,0 on one side, and the Duty Relief Regulation and the Combined Nomenclature,0 on the other side. Both amendments complement the customs reform in relation to the necessary measures needed to address the challenges of distance sales of goods (e-commerce transactions), namely by way of removing the threshold of EUR 150, above which customs duties are due under current rules.

• Consistency with existing policy provisions in the policy area

The UCC is the main legal and IT framework for customs processes in the customs territory of the Union. This reform revises and repeals the basic act. A revision of the detailed implementing acts and delegated acts will follow.

The reform is consistent with the legislation on own resources for the Union budget that establishes customs duties as a direct source of its revenue0, and with the rules on how they are made available to the Union.0

The proposal ensures full alignment between the VAT and customs treatment of B2C e-commerce sales related to goods dispatched from third countries or territories. This alignment entails the scope, the deadlines applicable for the determination, collection and payment of duties and taxes, the related reporting obligations as well as the harmonisation of the liabilities of the online sellers, in particular the marketplaces. The synchronised rules will allow online sellers to offer a true all-inclusive price when selling goods online to consumers in the EU for all goods imported from third countries, except when the goods are subject to EU harmonised excise duties0 and commercial policy measures.

On 27 February 2023, the European Commission and the Government of the United Kingdom reached a political agreement in principle on the Windsor Framework, a comprehensive set of joint solutions aimed at addressing, in a definitive way, the practical challenges faced by citizens and businesses in Northern Ireland. The joint solutions cover, amongst other things, new arrangements on customs. On 24 March 2023, the EU-UK Joint Committee adopted Decision No 1/2023 laying down the arrangements relating to the Windsor Framework, notably in the field of customs. Decision No 1/2023 stipulates that the United Kingdom may notify the Union and, in case no solution is found, suspend certain provisions of the Decision setting out arrangements for moving goods not at risk of entering the Union from another part of the United Kingdom to Northern Ireland, if the Union acts providing for facilitations relating to these movements of goods cease to be in force, in whole or in part, in such a way that they no longer provide for the same level of facilitations. The revision of customs legislation set out in this Regulation will not affect the level of the facilitations referred to in Joint Committee Decision No 1/2023.

• Consistency with other Union policies

Customs action supports the enforcement of a wide and growing number of over 350 different Union legislation, in policy fields such as trade, industry, security, health, environment and climate.0 The reform strengthens the capacity of customs to provide this service, and introduces a cooperation framework with market surveillance, law enforcement and other authorities, and Union agencies and bodies, including the European Union Agency for Law Enforcement Cooperation (Europol) and the European Border and Coast Guard Agency (Frontex). The reform is consistent with other Union policies, notably:

- The Market Surveillance Regulation,0 which provides the legal framework for risk-based controls of certain non-food products sold on the Union market, in particular through a systematic cooperation and exchange of information between Market Surveillance Authorities and customs authorities for detecting unsafe or non-compliant products entering the single market. Customs will also be called to implement the revised General Product Safety Regulation0 and the new rules aimed to effectively ban the placing on the single market of products made wholly or in part by forced labour,0 once the respective proposals are adopted.

- In the field of environmental legislation, customs authorities are involved in the enforcement of numerous rules inter alia on chemicals,0 the protection of species of wild fauna and flora,0 and the fight against climate change by minimising the use and emissions of dangerous substances.0 0 Customs authorities will also be called on to apply new Union rules to curb deforestation0 and treat waste shipments.0 Moreover, the Sustainable Products Initiative proposal calls on customs authorities to cross-check the customs declaration with the information on the imported goods contained in the newly created digital passport for products, to reduce the negative life cycle environmental impacts of products placed on the single market.0 The proposal to establish a Carbon Border Adjustment Mechanism0 will help ensure that the EU's climate objectives are not undermined by the risk of carbon leakage and encourage producers in non-EU countries to green their production processes. The mechanism applies to imported goods, and customs supports the enforcement.

- On the enforcement side, the legal basis for mutual assistance among national authorities and with the Commission regarding the application of customs and agricultural legislation provides for relevant measures. They include the rules for preventing, investigating, and prosecuting customs fraud0 and the operational cooperation framework between Member States’ and Union’s law enforcement authorities and bodies aimed to ensure security inside the Union against e.g., drug and illicit firearms trafficking.0

- The new Digital Services Act sets clear obligations for digital service providers to tackle illegal content, which results in strengthened traceability and checks on traders in online marketplaces to ensure products placed on the Single Market are safe.0

2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

• Legal basis

Article 3(1)(a) of the Treaty on the Functioning of the European Union (TFEU) establishes that the Customs Union is an exclusive competence of the Union. As a consequence, only the Union can adopt customs legislation, while Member States are responsible for its implementation.

The legal basis for this initiative is Articles 33, 114 and 207 TFEU.

Articles 33 and 114 TFEU give the European Parliament and the Council the right to take measures to strengthen customs cooperation between Member States and between the latter and the Commission to ensure the proper functioning of the internal market through the abolition of internal borders and the achievement of free movement of goods.

Article 207 TFEU builds on the premise that the scope of the initiative extends beyond cooperation between customs authorities to include trade facilitation and protection against illicit trade as an important aspect of trade policy, in accordance with the applicable international framework for trade policy with third countries.

• Subsidiarity (for non-exclusive competence)

As this proposal follows within the exclusive competence of the Union, the subsidiarity principle does not apply.

• Proportionality

The common customs rules and processes established in the UCC are implemented by Member States. The existing framework has encountered problems in terms of uniform implementation and harmonisation, generating a fragmentation of processes, practices and approaches that puts the customs union at risk. Such fragmentation and related consequences cannot be solved at national level. A revised and comprehensive, set of rules on customs processes, common data management and Union-level governance to address the problems identified and to be implemented in the same way is thus necessary.

This initiative does not go further than is necessary to achieve these objectives. The above-mentioned elements are mutually reinforcing and will enable a significant reduction of burden on both public authorities and private sector operators, effective harmonisation of rules and practices, and a level playing field for economic operators in the fulfilment of customs-related obligations.

• Choice of the instrument

The choice of instrument (regulation) is essential because the customs union must provide legal certainty for trade and public authorities. The customs union needs to ensure the smooth flow of legitimate trade and at the same time provide for effective, risk-based intervention by public authorities to contribute to the implementation of major elements of the Union acquis, notably the single market, the single market, security of the Union and the Union budget, through traditional own resources. The legal instrument of the UCC, which will be repealed by the reform is also a Regulation.

3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

• Ex-post evaluations/fitness checks of existing legislation

In 2022, the Commission presented an interim evaluation of the implementation of the legal provisions and the delivery of the IT systems of the UCC in terms of effectiveness, efficiency, relevance, coherence with related policies and EU added value.0 The evaluation report indicated that the success of the UCC’s implementation in the period 2016-2020 is partial.

First, while the state of implementation of the legal provisions was considered to be on track, some difficulties still remain with the implementation of the 17 IT systems established by the Code. Eight systems were successfully deployed by 2020 and are working satisfactorily according to stakeholders, four more were deployed in 2021 while five systems are to be deployed gradually by end 2025.

Second, some tangible progress in improving the customs environment has been realised but does not evenly concern all the areas analysed in the evaluation. The UCC contributed to clarifying and harmonising customs rules, in order to reduce divergent approaches across Member States, such as in the areas of customs decisions, conditions for granting the status of Authorised Economic Operator (AEO) and in some special procedures. However, harmonisation is insufficient in certain other areas, in particular risk management and monitoring of the AEO status, and varied interpretations of rules continue to be a problem. Moreover, as many of the most significant changes introduced by the UCC, such as some simplifications to the customs clearance process (e.g. EU-level centralised clearance at import and related trade facilitations), are dependent on ongoing IT projects, many of the anticipated benefits of the UCC are yet to be realised.

Third, the evaluation revealed that the implementation of the UCC did not fully tap into the potential synergies with related policies and that proper coordination and information exchange between customs authorities and other relevant national administrations in charge of applying other Union policies at the border is lacking, particularly with regard to goods subject to prohibitions and restrictions. Insufficient coordination for the purpose of aligning requirements, standards (particularly regarding data collection and sharing) and procedures has reportedly been an obstacle for digitalisation and held up progress on implementing crucial simplifications.

The evaluation also considered the relevance of the UCC as regards the most pressing challenges that customs are faced with today, such as the capacity to handle the huge volume of customs declarations and procedures from e-commerce operations. In this respect, the evaluation acknowledged that the UCC was conceived for a business model mainly based on traditional trade, where cargo vessels move large quantities of similar goods by sea. While this model still largely exists today, the dramatic increase in e-commerce transactions, in which low value consignments are individually shipped from third countries to the final consumers in the Union, puts customs authorities and customs legislation under pressure. In 2022, 890 million e-commerce transactions were declared with the H7 declaration, representing 73% of all import customs declarations, but only 0,5% of all import value. E-commerce transactions are also problematic as regards compliance with prohibitions and restrictions applied in the EU linked to non-financial risks. For these, reasons, the evaluations suggested that further action is needed in order to address these challenges in legislation.

• Stakeholder consultations and collection of expertise

A public consultation on the revision of customs legislation was launched on 20 July until 19 September 2022.0 The questionnaire was available on the EU ‘Have Your Say’ platform in all official EU languages and received 192 responses. Among the policy changes and mechanisms that could be included in a reform of the customs union, respondents strongly agree to include the following, in order of preference:

1. Simplifying customs formalities for reliable and trusted traders established in the Union (69.47%);

2. Enhancing cooperation between customs and non-customs authorities (55.79%), in particular regarding information exchange (65.97%), operational coordination (59.47%) and improved enforcement of prohibitions and restrictions (47.37%);

3. A new partnership with trusted traders and other competent authorities for better risk management, including reinforced advance cargo information (53.16%);

4. Providing for an Union-level customs information environment (54.21%), in which the most favoured features would be a simplified provision of data (enabling re-use of data, avoiding duplications, etc.) for 73.16% of replies, data management capabilities (64.21%) and the concept of ‘single window’ for the handling of non-customs formalities (63.16%);

5. Adapting customs legislation to e-commerce transactions, for example by strengthening supervision of business-to-consumer flows and liability of involved actors for all fiscal and non-fiscal rules (52.11%);

6. 35.79% strongly agree about reforming the governance of the customs union to provide for an EU layer (with another 23% that tend to agree, about 4.5% disagree, the rest did not provide an opinion); but if such an EU layer would exist, it should be tasked in particular with the training of customs officers (59.47%), IT management (51%), the financing of customs equipment (44.74%) and EU crisis response (41.5%);

7. Integrating the green agenda in the customs agenda should absolutely be part of a reform only for 31%, while 27.8% tend to agree to this and 6.31% disagree.

In addition to the public consultation, a range of targeted consultation activities were organised to gather views of expert stakeholders, as follows (see Annex II to the Impact Assessment for details):

- Discussions with national customs administrations in the context of the Reflection Group0 on (i) the recommendations included in the Wise Persons Group report, the need and features of a new partnership with traders and strengthened customs supervision and risk management; (ii) an enhanced cooperation framework with other authorities and green customs agenda and (iii) a new data paradigm and governance.

- Discussion with trade representatives in the Trade Contact Group0 in four dedicated meetings about (i) the business needs and suggestions for a revision of the UCC, (ii) the recommendations of the Wise Persons Group report, (iii) the results of the public stakeholder consultation and (iv) key elements of the reform.

- Consultation of Member States customs administrations in a Reflection Group composed of the Directors Generals of national customs authorities, specifically set-up to look at the various building blocks of the reform package;

- Consultation of Union-level trade associations, federations and individual companies represented in the Trade Contact Group;

- Consultation of Commission services working with various regulatory requirements on goods applicable at the borders;

In addition, evidence supporting this initiative was gathered from existing documentary sources including legislation and other policy documents, customs and trade statistics, evaluations and reports on relevant policies and information on related initiatives, as listed in Annex I to the Impact Assessment. External expertise used for the impact assessment included in three studies on the evaluation of the UCC implementation, on the AEO programme and on solutions to the challenges posed by e-commerce.0

The consultation activities allowed for the collection of qualitative and quantitative information and data, which were processed and analysed systematically using appropriate techniques. Qualitative data (including from submissions and contributions sent to the Commission) was coded according to key themes, then reviewed and analysed from different angles and presented in narrative form. Quantitative data (survey responses) was processed using Excel and Commission’s public consultation dashboard tool and analysed using statistical methods such as frequency counts, cross-tabulations and simple trends.

• Impact assessment

The draft impact assessment report was submitted to the Commission’s Regulatory Scrutiny Board (RSB) on 30 September 2022. Following the meeting on 26 October 2022, the RSB issued a negative opinion on 28 October 2022, suggesting several areas for further improvement. The revised report was resubmitted on 21 December 2022. The Board issued a positive opinion with reservations on 27 January 2023. The revision addressed all matters identified for improvement by the Board, which included better justifying the urgency and rationale to act now, the links to evaluation and European Court of Auditors work, the coherence with other initiatives, the delineation of the dynamic baseline (including the Customs Action Plan), the intervention logic, the mapping of the objectives, the contribution to Green Deal objectives, the way each option would work in practice, the extent to which options and measures are cumulative and exhaustive, the identification of combinations of options, the feasibility and funding risks, the presentation of costs and benefits, the impact analysis including in relation to the proposed governance structures, consumers, and IT cost assumptions, the reflection of stakeholder views, the monitoring and evaluation arrangements, the identification of individual measures in the options in customs processes and trusted traders, the explanation of e-commerce options including the removal of the EUR 150 exemption threshold, the one-in, one out approach, the delineation between costs and benefits and of illustrative figures, the impact analysis of governance solutions, the consumer impacts in particular regarding the removal of the EUR 150 duty exemption, and ex-post evaluation.

Contents

1.

The impact assessment, as improved following the opinion of the Regulatory Scrutiny Board, distilled and summarised the five main problem areas underlying the need for reform:


1. Customs struggle in their mission to protect the Union financial interests, and the ever-increasing non-financial requirements under sectoral policies (product safety, security, protection of human, animal, plant health, of the environment etc.). Since only a small share of imports and exports can be physically controlled, customs depend on risk management – however, risk management today is not sufficiently effective, uniform or comprehensive at EU level. In addition, customs must work with other authorities across a wide range of challenges, but the quality and effectiveness of this co-operation is often sub-optimal and varies across the EU.

2. Current customs processes require traders to provide similar information on goods several times in the supply chain to different authorities via multiple and not always interoperable IT systems. This creates administrative burden for legitimate operators.

3. The current customs model is not fit for e-commerce. The huge rise of e-commerce has changed the nature of trade, from goods traditionally brought into the Union in big quantities via cargo, to millions of small consignments shipped directly to individual consumers. Customs authorities are not prepared to cope with the increase of volumes of goods and declarations. In addition, there is evidence of the systematic abuse of the €150 threshold below which customs duties are not charged; moreover, this exemption favours third-country e-commerce operators over traditional trade and EU retailers, distorting competition.

4. Data quality, access and analysis is limited. Although customs processes are digitalised, and customs risk analysis and controls rely on data, the data needed for carrying out customs supervision, risk analysis and controls are fragmented and duplicated across multiple systems in a decentralised customs IT infrastructure. This is costly for customs authorities, not flexible and hampers an efficient use of data. The lack of a comprehensive legal framework in the UCC on exchange and use of data also hampers its sharing between customs, the Commission, other authorities or partner countries.

5. The operational implementation in Member States diverges significantly in control practices and methods, implementation of simplifications, and penalties for infringements of the customs legislation. There is no appropriate Union-level risk analysis to properly supervise trade flows and detect non-compliant trade, and non-compliant operators can target EU points of entry with lower levels of controls.

Because of these problems: (i) not all customs duties are collected – loss of revenues undermines the financial interests of the EU and the Member States; (ii) dangerous, non-compliant or counterfeit products still enter or exit the EU single market, and (iii) illegal goods are smuggled into the EU, adapting to increased control activities of customs in one country by finding other entry points. These consequences undermine the competitiveness of compliant industry, translate to a loss of profit, jobs and revenues of legitimate businesses including in particular small and medium sized enterprises (SME) and put at risk EU citizens’ safety and security.

The impact assessment identified the key drivers behind the problems as (i) the inadequacy and excessive complexity of the customs processes; (ii) the fragmented and complex customs digitalisation, and (iii) the fragmented customs union governance structure.

To address these problems and the underlying drivers, the impact assessment identified three major policy choices, which will largely determine the extent to which the customs union gets the desired capacity to collect, protect and simplify as one. These are:

2.

- to what extent should customs processes be reformed?


3.

- to what extent should the customs data management approach be reformed?


4.

- to what extent should the governance of the Customs Union be reformed?


5.

The impact assessment considered four options, each providing a coherent package of measures addressing these three policy choices:


1. Option 1 – a package of simpler processes. This examined the key, interdependent, process components, notably the process steps themselves, the roles of the different actors and their compliance responsibilities, the use of data, the treatment of more reliable operators, the treatment of e-commerce flows, and the way in which penalties are applied across the EU to deter non-compliance. This package would reduce and simplify import process steps, clarify the responsibilities of the actors (notably importers and exporters), remove the customs duty exemption for goods valued at up to EUR 150, and provide for electronic platforms to be deemed importers and account for customs duties for business-to-consumer e-commerce traffic, with a simpler duty calculation approach. It would introduce a new Trust and Check approach to partnership with trade, where additional privileges (such as fewer and more targeted customs controls, and the possibility to “self-release” goods) would be available for transparent, reliable traders. It would introduce a common approach to administrative penalties. It would improve the Commission’s access to data to support risk management. These changes would be carried out under the current digitalisation model and the existing customs governance structure, which, it was assessed, would limit their impact.

2. Option 2 would complement Option 1 with an EU Customs Authority to coordinate cooperation between the Member States in risk management, support uniform implementation of rules, and manage customs programmes. This package would rely on the current digitalisation model.

3. Option 3 would create an EU Customs Data Hub, managed by the Commission, to implement the simpler customs processes identified in Option 1, in a centralised IT model. The data hub would facilitate collecting information from different actors, processing it for EU customs risk management and exchanging it with other competent authorities. As regards governance, the role of the Commission would be reinforced, in particular in the organisation of risk management, subject however to the limitations of the Commission’s capacities and its lack of an organisational mandate to deliver the full potential of the new data environment.

4. Option 4 includes simpler customs processes implemented via the EU Customs Data Hub managed by an EU Customs Authority in charge of (in addition to Option 2) operational risk management and data management and supporting the delivery of simplified processes.

Option 4 is the preferred option. Its three elements (reformed customs processes, implemented in a central EU Customs Data Hub, managed by an EU Customs Authority) reinforce each other to deliver better results and create synergies across the EU. This is the most efficient option, as the investment in central structures significantly reduces the cost for Member States and businesses. In particular, it has the following benefits0:

- Customs supervision is strengthened. Improved access to and processing of data via the EU Customs Data Hub will make EU risk management more efficient and increase customs’ capacity to detect fraud by identifying profiles of risky operators acting at Union level. It will generate additional revenues for the Union and its Member States. Improved access to data and better coordination among authorities will increase customs capacity to detect and stop goods not complying with Union requirements to the benefit of citizens and consumers.

- Administrative burden for legitimate trade is reduced. The revised processes are simpler, and data is collected once from the right source via a single interface in the EU Customs Data Hub. The assessment estimated savings could be in the region of EUR 1.2 billion to EUR 2.6 billion annually (taking account of the increased customs duty charge to businesses arising from the removal of the EUR 150 threshold on business-to-consumer e-commerce traffic, estimated in the region of EUR 1 billion annually).

- Centralisation of functions (IT, data and risk management) in the EU Customs Authority results in significant savings for Member States’ customs IT expenditure. The assessment estimated these could start in the region of EUR 194 million and rise over a 15 year window to around EUR 2.3 billion annually. The EU Customs Authority ensures coordination between national customs administrations and other authorities.

- E-commerce playing field is levelled with traditional trade. The revised processes allow e-commerce actors to provide financial and non-financial information in a simpler manner and make them liable for it; consumers benefit from more transparency of prices and fees.

- The customs union acts as one. The revised processes are delivered in a central EU Customs Data Hub by a central EU Customs Authority to facilitate uniform implementation in all Member States and avoid divergences.

As regards social and environmental impact, this option is expected to bring significant benefits through better enabling customs to enforce legislation that pursues social and environmental goals, in co-operation with the relevant other authorities. In particular:

- The preferred option, by combining the operational co-ordination mandate of the EU Customs Authority with the data tools and processes provided in the EU Customs Data Hub, will best enable structured, EU-wide co-operation between customs and relevant social and environmental policies in order to improve their outcomes from customs action at the border.

- The additional information that operators provide to customs should further improve the capacity of customs to help to enforce specific legislation pursuing social goals, such as the legislation banning forced labour, or environmental goals.

- Removal of the EUR 150 duty exemption will put an end to the practice of splitting orders of a high value into several consignments lower than EUR 150 to profit from the duty exemption, with the consequent positive environmental effect on transport emissions.

6.

- Better enforcement of product requirements on imported goods might lead to a relocation of production into the Union


The use cases in the impact assessment further illustrate how the reform will support the implementation of relevant current policy objectives, including in the areas of ecodesign and sustainable products, consumer emissions, single-use plastics, persistent chemicals, and reduction of unfair competition from non-compliant imports affecting EU industry and jobs, and market surveillance activities in general.

As regards Sustainable Development Goals, the impact assessment identified how the reform would contribute to the implementation of these through measures taken in relation to international trade in goods and supply chains, which would, in particular:

- improve the facilitation of legitimate trade, connected with Goal 8;

- improve the detection and prevention of imports or exports which contravene relevant EU rules on, for example, waste, chemicals, or safe and sustainable product design, connected with Goal 12;

- strengthen the protection of territorial ecosystems (from e.g. imports which are products of deforestation) and protection of biodiversity (through helping detect traffic contravening CITES), connected with Goal 15.

The proposal is fully consistent with the do no significant harm principle. It will improve the enforcement of environmental policies and will streamline and make more efficient the conduct of international trade operations and their supervision by economic operators and public authorities respectively. The pooling of resources and tools in the central environment will in particular reduce duplication of systems development and administrative activities, reducing the overall time spent on customs processes and accordingly the consumption of resources.

The proposal is driven by the digital by default and privacy by default principles. It aligns with flagship Commission initiatives such as the AI act, Data Governance Act, GDPR and EUDPR. It provides for user-centric processes ready for automation, enabling all operational exchanges with customs to be carried out electronically through a single multipurpose EU interface. It supports the once-only principle, the reuse of data and the data minimization principles by providing for data, once submitted, to be integrated in other processes, and by embedding the EU Single Window Environment for Customs approach connecting customs and non-customs formalities (Regulation (EU) 2022/2399); also enabling a Data driven policy. It provides for a paradigm shift from multiple peer-process national systems towards a flexible central set of services and systems which will enable processes to be developed and changed in a cheaper, more consistent, agile and flexible manner. It will support innovation and digital technologies by enabling the use of advanced analytical techniques in customs operations, and EU-wide and pooling of resources and open-source development of components which can be used by all Member States in that context. Drafting is “digital-ready”, with provision for empowerments and delegations to address technical aspects such as data elements and rules.

• Regulatory fitness and simplification

The reduction and simplification of customs processes, and the introduction of a single EU portal for interacting with customs (the EU Customs Data Hub), is expected to significantly reduce the administrative burden compared with the Union Customs Code currently in force.

In the impact assessment, it was estimated that total savings for economic operators, in the preferred option could amount to EUR 26 billion over 15 years (taking account of the increased customs duty charge to businesses arising from the removal of the EUR 150 threshold on business-to-consumer e-commerce traffic, estimated in the region of EUR 1 billion annually).

• Fundamental rights

Customs has a long experience in collecting and processing data that contains business sensitive information, financial and personal data. The revision of the customs code fully respects the fundamental right of protection of personal data. The reform even improves the protection of this right, as demonstrated in the impact assessment for option 4. The Data Hub would integrate personal data protection tools and controls, enabling each data controller to ensure data protection rights. This will have a positive impact also for data subjects that would be able to exercise their rights in a very similar manner across all Member States.

4. BUDGETARY IMPLICATIONS

The reform strengthens customs in addressing the collection of unpaid duties, undervaluation and fraud. Furthermore, removing the duty exemption on goods below EUR 150 closes a loophole and brings additional revenue to the Union budget estimated at EUR 750 million per year at current prices.

Gradually, the collection of duties will shift from the place of declaring the goods, towards the place where the importer or exporter is established in the Union. This facilitates the audit and collection of duties and simplifies the interaction for the importer or exporter, in particular for SMEs. While this change has no direct impact on the overall EU budget or the national contributions to the EU budget, it can gradually change the distribution of the share of customs duties retained by Member States as a collection cost.

The EU Customs Authority and the development of the EU Customs Data Hub will not require a budgetary increase within the 2021-2027 period, as the costs of approximately €60 million during the first 2 years will be financed under the Customs Programme 2021-2027. Post 2027 the total costs of the Reform for the EU budget are estimated in the region of EUR 1.855 billion. This covers the cost of the tasks entrusted upon the EU Customs Authority with this proposal as well as the EU Customs Data Hub, without pre-empting the agreement on the post 2027 MFF and programmes.

5. OTHER ELEMENTS

• Implementation plans and monitoring, evaluation and reporting arrangements

The Customs Union Performance (CUP) project run by the Commission annually collects and analyses aggregated information provided by the Member States about customs activity, trends, and performance in the EU to support evidence-based policy. One main outcome of the analysis is the Customs Union Performance Annual Report addressed to the Member States only, provides conclusions and recommendations on the main developments in the Customs Union, based on the analysis of Key Performance Indicators linked to the EU strategic objectives: protection, competitiveness, facilitation, control, and cooperation. The CUP indicators address several types of activities, ranging from the amount of customs duties collected, the use of simplifications, the role of the AEOs in customs processes, to actions in the field of customs controls and detection of illicit trade.

The collection of CUP data is currently voluntary, which raises questions about data quality, completeness, and consistency, as well as issues regarding data ownership and confidentiality. This initiative aims at further developing the CUP measurement by introducing a legal basis for a structured framework for the provision and analysis of relevant information on customs performance to produce the annual report. In addition, the legal basis for CUP will finally offer a tool for the monitoring and evaluation of the present initiative, improving indicators in the area of risk analysis and control inputs and outputs, and protection, collection, and simplification outcomes. This will address the lack of effective tools for supervision at the Commission’s disposal, as indicated in the UCC evaluation.

• Detailed explanation of the specific provisions of the proposal

This reform strengthens the capacity of customs to supervise and control which goods enter and leave the Customs Union. Customs will take a new strategic approach, driven by data analysis of supply chain information, to have targeted and coordinated customs action. The cooperation framework of customs authorities, market surveillance authorities, law-enforcement authorities and bodies, tax authorities and other partners is strengthened. In a new partnership with trade operators, the administrative burden is reduced and customs processes are streamlined. A new EU Customs Data Hub facilitates the exchange and combination of information in a single central environment. A new EU Customs Authority runs a central risk analysis and supports national administrations, leading to coordinated customs action. These measures prepare the Customs Union for the future, with growing volumes of e-commerce and with increasing complexity of prohibitions and restrictions.

The new Union Customs Code has a simple and intuitive structure. The role and responsibility of customs authorities, importer, exporter and carrier are defined. Information is collected in the new EU Customs Data Hub and processed for risk analysis. This is followed by a single title for entry, and for exit respectively. New titles introduce a crisis mechanism, the EU Customs Authority and the common minimum harmonisation of customs infringements and non-criminal sanctions.

Title I introduces the new Union Customs Code, that builds on many elements of the previous Code. The mission of customs authorities is strengthened, to reflect the wide range of services customs, starting with the collection of duties, to the protection of citizens, the environment and other public interests, the fight against unfair, non-compliant and illegal trade, as well as the support of legitimate trade flows. The title contains relevant definitions for the revised customs processes, most importantly the importer and exporter, the deemed importer in case of distance sales and the prohibitions and restrictions.

The reform strives for transparency and accountability of the responsible actors and offers simplifications of the customs processes in return. Title II establishes the responsibilities of the importer, deemed importer and exporter towards customs. As regards roles, a weakness in the current system is that the persons currently accountable to customs, such as the declarant and the carrier have greater difficulty in fulfilling their responsibility for financial and non-financial compliance. Against this background, the most appropriate change at the level of roles is to attribute compliance responsibility to importers and exporters. Customs requires them to be established in the territory of the Union (which was already the case for the declarant in Article 170 (2) of the previous Code) and to register with the Member State of establishment, with listed exceptions. Online sellers and e-commerce platforms were so far not involved in the customs formalities at import. Acting as deemed importers, they will be obliged to provide to the customs authorities not only the data necessary for the release for free circulation of the goods sold to consumers in the EU, but also the information that they must collect for VAT purposes. The role of the carrier bringing goods into the customs territory, and the information required to that end, is clarified. The authorised economic operator scheme continues the successful cooperation of business and customs. This partnership is taken to the next level, with the introduction of a new status of Trust and Check trader. These trusted and transparent traders grant the customs authorities access to their electronic systems keeping record of their compliance and the movement of their goods. In return, they got certain benefits, notably the possibility to release the goods on behalf of customs and to defer the payment of the customs debt.

Title III presents a new data paradigm that gradually integrates and replaces the current customs IT systems: moving from 27 IT environments with many systems in each Member State, towards a centralised set of systems and services. The EU Customs Data Hub is a centrally developed environment set of systems and services whose use is mandatory. It redefines how customs and other data is collected, used for customs supervision, and shared with partner authorities. It is also the new ‘engine’ that processes, connects and stores the information and runs EU level risk analysis. Together, this gives customs a better supply chain vision for its risk assessment and enables Customs action to become more targeted and strategic. Moreover, it allows applying data protection rules, rules for accessing information, IT security and confidentiality in a horizontal, coordinated and consistent manner.

Title IV retains essential concepts regarding the scope of customs supervision for goods to be brought into or to be taken out of the customs territory of the Union, to be placed under the end-use procedure or to be placed in internal transit. It adjusts the identification of competent customs offices to provide for the role of the customs office responsible for the place of establishment of the importer or exporter. Customs supervision, controls and mitigation measures will be based on risk management of the whole supply chain in real time, with an EU perspective. The improved risk management on both financial and non-financial risks is at the core of the reform. Title IV provides a clear description of the risk management process, both for financial and non-financial risks and the roles and responsibilities of the Commission, the EU Customs Authority and the customs authorities in this area. It addresses the use of the EU Customs Data Hub in supporting customs risk management and provides for a comprehensive exchange and use of information relevant for risk management and controls. National customs authorities remain in the driving seat for national risk management and conducting the necessary customs controls. Based on a new EU-level risk analysis the EU Customs Authority will issue EU control recommendations to customs authorities. These recommendations for controls will have to be implemented, or reasons provided as to why the control recommendation was not applied. The Commission will establish common risk criteria and standards and common priority control areas by implementing acts and may identify specific areas in the domain of other legislation which warrant priority treatment for customs risk management and controls. Title IV also provides for systematic evaluation of the implementation of risk management to support continuous improvement.

Title V contains the different customs procedures that allow a trader to temporarily store the goods, or to release them for free circulation on the EU Single Market. In principle, the customs authorities continue to be responsible for releasing the goods and for placing the goods in a customs procedure. Authorised Trust and Check traders will be able to release their goods without active customs intervention, where the information is available in advance and where the goods have not been selected for controls. The title also includes clear rules on the process and legal consequences when customs authorities need to consult other competent authorities before releasing the goods, including the possibility to require importers to continue informing about the distribution of the goods after they are in free circulation. In every scenario, customs can stop the movement of goods, refuse the release of goods, and ultimately has the possibility to seize the goods. Title V equally contains transitional provisions, allowing the current customs processes to continue with legal certainty throughout the transition period and until the new data management systems are operational.

Title VI presents the new simplified process for bringing goods into the Customs Union, a significant reduction in complexity and administrative burden. Customs collects information for risk analysis, including advance cargo and pre-departure information and intervene where necessary. The focus of customs administrations shifts from the individual consignment towards the supply chain supervision to identify risks. Customs maintains the capacity to intervene on every individual consignment, based on the information in the EU Customs Data Hub. Depending on the type of the customs procedures there is a minimum set of information, which has to be provided or made available to customs. Where customs has the relevant information in advance and sees no risk or problem to address, the goods can move in line with the principle to assess in advance and intervene only when and where necessary. The multiple customs declarations are gradually replaced by using business data, following a transition period to develop the necessary systems. Information can be provided earlier to strengthen the supply chain supervisions of customs. Building on the positive experience with ‘multiple filing’ in the import control system 2 (ICS2), different actors in the supply chain can provide their part of the relevant information. For example, the importer can provide the relevant information about the product and the transaction, while the carrier can provide the information about the routing and arrival separately.

Rules on export in title VII mirror the processes for entry. The exporter is established in the Union and registered. Customs collects the relevant information and conducts a risk analysis. Legitimate trade flows are facilitated and, at the same time, customs capacity to supervise and enforce the rules is strengthened.

Title VIII maintains the special procedures of the previous Code. Relevant information is collected on special procedures, such as transit, inward and outward processing, temporary admission, end use or customs free zones. In line with the general approach, the transparency and accountability of the responsible economic operator are improved.

Title IX lays down detailed rules in respect of the three elements, which need to be determined to apply import and export duties as well as other measures applicable to trade in goods, such as anti-dumping duties: classification, value and origin. The proposal does not modify these factors, which are largely determined by international rules in the World Trade Organisation and World Customs Organisation, as well as EU bilateral trade agreements. However, as these rules have been identified as being particularly complex for e-commerce, the title will provide two simplifications that the importer may choose to apply when determining the customs duty applicable to business-to-consumer transactions.

The first simplification concerns the proof of non-preferential origin that can be waived for e-commerce goods if the importer opted for the use of the simplified tariff treatment. This is necessary, since the administrative burden to obtain such proof is usually disproportionate compared to the value of the goods. Secondly, and also under the condition that the importer uses the simplified tariff treatment, the transport costs up to the final destination of the goods are to be included in the customs value. This approach ensures full alignment of the tax base for import duty and VAT as regards business-to-consumer e-commerce transactions where transport costs are typically determined up-to the final consumer’s address.

In accordance with Title X the customs debt incurs at the time of release for free circulation. Since the work of customs authorities is shifting from a focus on the consignment towards the supply chain, their work also focuses more on the established importer and exporter. After a transition, the customs debt arises at the place where the importer is registered, as opposed to arising where the customs declaration is lodged. This is an important simplification for economic operators and in particular SMEs, under the new partnership with trade. In turn, customs authorities are in a better position to control and audit established importers. Customs duties are a traditional own resource of the EU budget. Member States retain a share of the duties as collection cost, the distribution of which might gradually change with the new provisions. Furthermore, the amount of duties is determined by the importer or the exporter, and by the responsible customs authority only where the importer has not done so. In e-commerce, the deemed importer incurs the customs debt already at the moment of payment of the sale, similar to the provisions on VAT. However, as this might happen well before the goods physically arrive to the Union, the e-commerce intermediaries can be authorised to notify the real duty incurred and have periodical payments, collected by the Member state of establishment and registration.

In recent years, customs administrations have demonstrated resilience and reactivity in dealing with crises. Crisis situations require specific responses – that can be stricter, or more flexible allowing for exceptions – but must be applied similarly across the EU. Title XI includes crisis provisions directly in the Union Customs Code. For different crisis scenarios the EU Customs Authority will develop protocols and procedures, such as application of common risk criteria, appropriate mitigation measures and collaboration framework, and ensure their application and implementation, upon a decision to be taken by the Commission via an implementing act.

Up to now, the EU was lacking a clear structure to operationally manage the Customs Union that is ready for the challenges of our time. In title XII, the regulation establishes the EU Customs Authority, its tasks, responsibilities and governance. The Commission my entrust the Authority to develop and operate the EU Customs Data Hub. It will conduct the EU level risk management and will issue control recommendations to the national customs authorities. Both functions are fundamental for increasing customs capabilities across the Union, and to take the Customs Union to the next level. The EU Customs Authority will also actively coordinate customs action across the EU and implement political priorities for the functioning of the Customs Union. The EU Customs Authority will cooperate at EU level with other agencies, bodies and networks such as EUROPOL, FRONTEX or ECHA. It will also facilitate the cooperation between administrations, including the work of expert groups, training and the exchange of staff between countries.

In accordance with recent case law of the Court of Justice0, the competence to determine the location of the seat of an EU agency lies with the EU legislature, which must act to that end in accordance with the procedures laid down by the substantively relevant provisions of the Treaties. The Commission considered it appropriate to leave open the name of the hosting city in its proposal. Criteria to be taken into account in order to contribute to the decision-making process and based on the Common Approach are provided in a recital stating the reasons for the relevant Article. The seat selection should be based on a transparent application process to be concluded before the end of the legislative procedure. Applications should be submitted by Member States given that hosting an EU decentralised agency requires a clear commitment by the Member State in question. The Commission is ready to assist in the evaluation of these criteria and will actively cooperate with the co-legislators on the selection of the seat, in light of the ECJ judgment of 14 July 2022 and in compliance with its institutional responsibility.

To fulfil its mission, customs authorities cooperate closely and regularly with market surveillance authorities, sanitary and phytosanitary control authorities, law-enforcement authorities and bodies, border management authorities, environmental protection bodies, experts on cultural goods, and many other authorities in charge of sectoral policies. Title XIII provides for a new cooperation framework for structured collaboration between customs and those authorities covering four areas: the rules and legislation, data exchange, strategy building and coordinated action. Such cooperation will develop common supervision and control strategies to address the specific problems. The actions customs can take supporting other policy areas are better defined, allowing sectoral legislation to refer to the Customs Code. International cooperation and customs diplomacy are more important, and the cooperation with partners is strengthened and can include the exchange of customs data.

National practices on customs infringements and their sanctions differ significantly between Member States, leading to divergences in treatment and distortions of goods. In title XIV, the reform introduces a minimum common core of acts or omissions that constitute customs infringements and a minimum common core of non-criminal sanctions, as well as common principles, without changing the procedural legal order of Member States, and allowing them to provide for additional customs infringements and to add national sanctions. Customs infringements that concern more than one Member State require the cooperation of the authorities. The EU Customs Data Hub will collect all decisions linked to customs infringements and their sanctions for transparency purposes.

The final provisions in title XV include a timeline for the continuation of the current practice with customs declarations to the national systems, and the transition towards the new system. The EU Customs Data Hub will be developed gradually, starting with the new approach for e-commerce. Traders can start using the EU Customs Data Hub as of January 2032, and would be obliged to do so by 2037, when it will be fully operational. The EU Customs Authority will be gradually established and shall assume its tasks from 2028.