EUROPEAN COMMISSION

Brussels, 17.5.2023

SWD(2023) 140 final

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT REPORT

[…]

Accompanying the document

Proposal for a Regulation of the European Parliament and of the Council

establishing the Union Customs Code and the European Union Customs Authority, and repealing Regulation (EU) No 952/2013

{COM(2023) 258 final} - {SEC(2023) 198 final} - {SWD(2023) 141 final}

Table of Contents

Introduction1.

1.1 Political Context

1.2 Legal context

1.3 Background work that will feed the initiative

Problem definition2.

2.1 What is the problem?

2.2 Why is it a problem?

2.3 What are the problem drivers?

(i) The inadequacy and excessive complexity of the customs processes

(ii) Fragmented and complex customs digitalisation

(iii) Fragmented Customs Union governance structure

2.4 How likely is the problem to persist?

Why should the EU act?3.

Objectives: What is to be achieved?4.

4.1 General objective

4.2 Specific objectives

4.3 Intervention logic

What are the available policy options?5.

5.1 What is the baseline from which options are assessed?

5.2 Description of the policy options

5.2.1 Option 1: A package of simpler processes

5.2.2 Option 2: An EU Customs Authority for coordination

5.2.3 Option 3: A central EU Customs Data Space, managed by the Commission

5.2.4 Option 4: An EU Customs Authority for coordination and operations, managing an EU Customs Data Space

5.3 Discarded policy options

5.3.1 Full integration into one EU customs service

5.3.2 Other discarded options

What are the impacts of the policy options?6.

6.1 Methodology of assessment and baseline

Baseline

6.2 Option 1: A package of simpler processes

6.3 Option 2: EU Customs Authority for coordination

6.4 Option 3: A central EU Customs Data Space, managed by the Commission

6.5 Option 4: EU Customs Authority for coordination and operations, managing an EU Customs Data Space

6.6 Governance view

6.7 Impact on Small and Medium-Sized Enterprises

How do the options compare?7.

Preferred option8.

8.1 Option 4

8.2 REFIT (simplification and improved efficiency)

8.3 Application of the ‘one in, one out’ approach

How will actual impacts be monitored and evaluated?9.

Annexes    

Annex 1 - Procedural Information    

Lead DG, Decide Planning/CWP references

Organisation and timing

Consultation of the RSB

Evidence, Sources and Quality

Annex 2 - Stakeholder Consultation (Synopsis Report)    

1.Consultation strategy

2.Methodology and tools for processing the data

3.Results of the consultation activities

3.1 Feedback on the call for evidence

3.2 Public Consultation

3.3 Feedback from targeted consultations

3.4 Ad hoc contributions

4.Taking account of feedback received

Annex 3 - Who is affected and how?    

1.Practical implications of the initiative

1.1 EU Services

1.2 Member States customs administrations

1.3 Businesses and Trade

1.4 SME Test – Summary of results

1.1 Citizens – Consumers

3.Summary of costs and benefits

3.1Explanatory notes

3. Relevant Sustainable Development Goals

Annex 4 - Analytical Methods    

Annex 5 - Reform building block: reform of the customs processes    

1.Understanding the baseline

2.The shift in paradigm proposed in options 1 to 4: simpler processes and a more efficient partnership with traders

2.1 A new paradigm

2.2 Reformed customs processes: potential simplifications for all traders

2.3 Reformed customs processes for certain reliable traders (Trust and Check traders building on the AEO scheme)

2.4 Specific customs process for low value consignments (e-commerce)

2.4.1 Removal of the threshold

2.4.2 Simplified customs duty calculation

2.4.3 Liability of the platforms

2.4.4 Extension of IOSS – collection of customs duties on e-commerce goods

2.5 Supply chain processes – a closer look

2.5.1 Transaction phase/pre-consignment

2.5.2 Pre-loading

2.5.3 Pre-Arrival

2.5.4 Arrival and release

2.5.5 Post-release

2.5.6 Information environment considerations

2.6 Customs supervision considerations – a closer look

2.7 Big picture: Simplification

Annex 6 - Reform of the customs union: reforming co-operation – a new framework    

1.Understanding the context and baseline

2.Reforming co-operation – a new framework

2.1 Policy and law

2.2 Data and IT

2.3 Prepare a strategy for tackling each policy

2.4 Deliver operational work together

2.5 Strong customs governance

Annex 7 - Reform of the customs union: description of the concept of Data Space and the operating model    

1.EU IT customs landscape today

2.The new IT paradigm – Data Spaces

2.1 How will the EU Customs Data Space work in practice?

2.2 Data management modalities, interoperability, and modes of exchange.

2.3 The EU customs Data Space in technical terms

2.4 Governance

3.Overview of Transition to customs Data Space

4.Impact of the reform options on EU customs IT costs

4.1 Baseline from which options are assessed

4.2 Option 1 – A package of simpler processes

4.3 Option 2 – EU Customs Authority for coordination

4.4 Option 3 – A central EU customs Data Space, managed by the Commission

4.5 Option 4 – EU Customs Authority for cooperation and operations, managing an EU Data Space

4.7 Summary of the options

5.Cost estimation model and method for the ICT assessment

5.1 Estimation of Member States costs

5.2 Estimation of Commission and European Customs Authority costs

5.3 Estimation of Data Space costs

5.4 Estimation of data projects and micro-applications costs

Annex 8 - Introducing an EU Customs Authority    

1.Why a new EU Customs Authority?

2.Role and tasks of the commission in relation to an EU Customs Authority

3.Different possible roles for the European Customs Authority

4.The tasks of the Authority

4.1 Digitalisation, Risk and Crisis management

Digitalisation

Risk management

Crisis management

4.2 Coordination and capacity building tasks

Performance measurement

Cooperation with other authorities and law enforcement bodies

Training and human capacity framework

Monitoring of Customs authorities and BCPs

Joint controls and operations

Guidance on processes and working methods

Classification, valuation, and origin

Authorisations

4.3 Programme management tasks

Customs Control Equipment Instrument

Customs programme

5.Other Agencies

Annex 9 - Assessment of costs and benefits    

1.Introduction and Methodology

1.1 Approach taken to assessing costs per stakeholder

1.1.1 Public administrations (Member States and EU services)

1.1.2 Business and trade

1.1.3 Citizens and consumers

1.2 Approach taken to assessing benefits

2.Timing Assumptions

2.1 Assumptions for the phased deployment of the reform

2.2 Customs Action Plan

3.Costs

3.1 Public administration - EU services

3.2 Member States

3.2.1 Definition of function categories:

3.2.2 Assumptions underlying the FTE adjustment calculation for each Option:

3.3 Business and trade

3.3.1 One-off costs – the cost of training for adapting to the new customs processes

3.3.2 Recurrent costs: the financial burden of complying with customs formalities

3.3.3. Economic operators - IT cost perspective

3.4 Citizens and consumers

Citizens and consumers – IT cost perspective

4.Benefits: Prevention of revenue loss

4.1 Understanding the baseline

4.2 Revenue losses

4.3 How would the options perform?

4.3.1 Option 1

4.3.2 Option 2

4.3.3 Option 3

4.3.4 Option 4

Benefits: Single market and sustainability (protect as one)

5.1 Toy Safety

5.1.1 Context and customs relevance:

5.1.2 How would the options perform?

5.1.3 Summary indicators

5.2 Eco-design and General Product Safety

5.2.1 Context and customs relevance:

5.2.2 Scenario assumptions:

5.2.3 How would the options perform?

5.2.4 Summary indicators

5.2.4.1 Qualitative benefits

5.2.4.2 Quantitative benefits scenarios

5.3 Bamboo

5.3.1 Context and customs relevance

5.3.2 Understanding the baseline

5.3.3 A deeper look: where the current system is falling short

5.3.4 How would the options perform?

5.3.5 Summary indicators

Benefits: Security (protection as one)

6.1 Context and customs relevance

6.2 Drugs precursors

6.3 Cigarette smuggling

6.4 Drugs

6.4 The parcel traffic dimension: a growing security risk factor

6.5 How would the options perform?

6.6 Summary indicators

6.6.1 Qualitative benefits

6.6.2 Quantitative benefits scenarios

Summary Tables: Overall comparison of the cost and benefits of the options

7.1 Option 1 (quantitative)

7.2 Option 2 (quantitative)

7.3 Option 3 (quantitative)

7.4 Option 4 (quantitative)

7.5 Summary of costs and benefits – comparison of options (quantitative and qualitative)

Annex 10 - Acronyms and definitions    

1. Introduction

1.1 Political Context

Founded in 1968, the Customs Union manages the external border of the EU by enforcing the rules governing the cross-border movement of goods, including by imposing a common tariff on goods imported from third countries. It is the basis and the guardian of the EU Single Market, allowing goods to move freely within the Union. It is a European success story that shaped the early stages of European integration and today enables the prime position of the EU in global trade as one of the largest trading blocs in the world.

At its core are the exclusive competence of the Union to regulate, and a common legal framework (the Union Customs Code ( 1 ), UCC), which is implemented by the customs authorities of the Member States. For ensuring their missions, customs authorities use an increasingly complex set of IT systems that also allow the economic operators to fulfil their obligations by digital means. 

Customs traditionally collect customs duties and other taxes on imports, and despite the global decline in tariffs, the collection of duties remains economically significant (EUR 24.8 billion in 2021). 75% of the collected customs duties are destined to the EU budget, representing 8% of the Union budget for 2021.

The role of customs has evolved over time to cover also non-financial tasks. During the last 20 years, non-financial sectoral legislation applicable to goods (so-called ‘prohibitions and restrictions’) has increased exponentially, in line with growing expectations regarding security, sustainability, safety, health and the protection of human rights. In close cooperation with other competent authorities, customs are the ‘first line of defence’ to protect EU citizens against non-compliant, dangerous, or counterfeited goods from third countries, and EU businesses from unfair competition. Customs further contribute to the fight against smuggling of illegal goods and terrorism and defend the EU values and way of life.

Due to its strategic position at the external border, customs are directly involved in managing crisis situations, to ensure the smooth functioning of supply chains and to either facilitate or restrict the flow of goods. Cooperation between customs administrations of countries of export and of import is key for securing international trade. The withdrawal of the United Kingdom from the EU and the Covid-19 pandemic presented a significant challenge for businesses and customs. The trade sanctions in response to Russia’s invasion of Ukraine ( 2 ) highlighted the major contribution of customs to the security and strategic autonomy of the EU. The capacity to determine and enforce which goods enter and leave the Union is of strategic importance.   

As any individual seaport, airport or land border crossing point is the entrance to the whole EU, the protection provided by customs in one Member State is at the service of the entire Union. The Customs Union is only as strong as its weakest link. Yet, there are significant differences in the human and financial resources, training, risk analysis capabilities and levels of control of the national customs administrations. 

The Customs Union’s capacity to keep pace with modern developments is increasingly under pressure. New safety and security threats, the rise of environmental and human rights-related concerns, and the dramatic increase of e-commerce trade flows are posing a significant challenge and squeeze customs authorities.

Meanwhile big data, new technologies and digitalisation are opening new opportunities for handling and exploiting data for the benefit of all participants in the economy. While customs authorities continue to strive to develop solutions, the current completion of the IT systems required by the UCC will not be enough to ensure the full use of data in order to respond effectively to existing and future challenges.

Considering current and future challenges and the evolving role of customs, the President of the European Commission committed 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’ by proposing as one of her political priorities ( 4 ) ‘a bold package for an integrated European approach to reinforce customs risk management and support effective controls by the Member States’. In September 2022, the Commission laid down a Customs Action Plan ( 5 ), as a first step until 2025, to turn President von der Leyen’s Political Guidelines into tangible benefits for European citizens, businesses, and society.  

The present initiative on the revision of the Union customs legislation proposes an integrated European approach to reinforce customs, looking at the customs processes, the data management and governance framework. It builds on the Customs Action Plan and is part of the Commission Work Programme 2022 , under the priority ‘An economy that works for the people’. By strengthening the EU’s ability to enforce domestic requirements on imported goods, thereby ensuring a level playing field, this initiative will also contribute to other Commission priorities such as promoting our European way of life, a European Green Deal, a Europe fit for the digital age and a stronger Europe in the world.

Figure 1 illustrates the scope and relevance of the Customs Union for broader EU policies and the transversal importance of the Customs Union as a shared strategic asset.

There is a close nexus between effective customs controls and the implementation of the EU trade policy, including trade defence (Column 1). Similarly, there is a strong connection between the contribution of customs to the Single Market and the objectives of the EU competition policy, for ensuring a level playing field in the competition between producers in the EU and abroad (Column 2). Unless the Customs Union performs optimally, EU producers who respect all the rules and regulations applying in the Single Market are not competing on a level playing field necessary for securing EU jobs and growth. At the same time, traders need to operate smoothly, simply, and quickly, without unnecessary breaks in the supply chain. A balance must be found between customs controls and facilitation for legitimate traders.

1.2 Legal context

The Union Customs Code (UCC) is the main legal and IT framework for customs processes in the EU customs territory. The Union Customs Code is composed of a basic act and a wide range of detailed implementing acts and delegated acts. The customs authorities must also contribute to enforce numerous different EU policies applicable at the external borders. ( 6 ) Below are listed the most relevant pieces of existing or proposed legislation to which this initiative is related:

-On the financial side, the legislation on own resources for the EU budget identifies customs duties as a direct source of revenue for the Union ( 7 ), while another set of rules regulate how these are made available to the Union. ( 8 ) 

-Also on the financial side, the VAT rules apply on imported goods and foresee specific measures on cross-border business-to-consumer (B2C) e-commerce sales from third countries. ( 9 )

-On the non-financial side, the Market Surveillance Regulation ( 10 ) provides the legal framework for risk-based controls of non-food products sold on the EU 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 Regulation ( 11 ) and the new rules aimed to effectively ban the placing on the Single Market of products made wholly or in part by forced labour, ( 12 ) once the respective proposals are adopted.

-In the field of environmental legislation, Customs are involved in the enforcement of numerous rules inter alia on chemicals ( 13 ), the protection of species of wild fauna and flora ( 14 ), the fight against climate change by minimising the use and emissions of dangerous substances ( 15 ) ( 16 ). Customs will also be called on to apply new EU rules to curb deforestation ( 17 ) and treat waste shipments ( 18 ). Moreover, the Sustainable Products Initiative ( 19 ) proposal calls on Customs 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. The proposal to establish a Carbon Border Adjustment Mechanism ( 20 ) 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 European Commission regarding the application of customs and agricultural legislation provides for relevant measures. They include the rules for preventing, investigating, and prosecuting customs fraud ( 21 ) and the operational cooperation framework between Member States’ and EU’s law enforcement authorities and bodies aimed to ensure security inside the EU against e.g., drug and illicit firearms trafficking. ( 22 )

-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. ( 23 )

1.3 Background work that will feed the initiative

A foresight report published in 2020 elaborated four scenarios of how customs in the European Union could look in 2040, ( 24 ) resulting in a vision where in 2040 customs in the EU ‘fully protect society, the environment and the EU economy through effective facilitation of legitimate trade, and intelligent, risk-based supervision of supply chains…are proactive, working seamlessly with our stakeholders and are committed to innovation and sustainability… and are seen to act as one’. The foresight report recommends addressing 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. Business support and trade facilitation should be delivered through a fully integrated IT customs system, the Single Window Environment for Customs ( 25 ) and a common EU sanctions system. 

The Commission adopted the Customs Action Plan  (CAP) ( 26 ) as its response to the foresight report and to implement the political guidelines of President von der Leyen. The plan sets out a series of actions for a more coherent and stronger Customs Union to be completed by 2025. The actions focus on four areas of intervention: risk management, e-commerce, compliance, and the Customs Union acting as one. The CAP precedes, prepares, and announces the reform:

-Under Action 7 of the CAP, the Commission conducted an evaluation of the implementation of the UCC ( 27 ), which revealed a number of problems.

-Action 17 announces a Reflection Group ‘to consider how to make the Customs Union smarter, more agile, more technologically advanced and more crisis-proof’, and an impact assessment ‘on the pros and cons of an agency approach covering a number of customs domains’.

Furthermore, the present initiative takes account of the recommendations by the Wise Persons Group. This independent group conducted stakeholder hearings and produced a report on the challenges facing the Customs Union. ( 28 ) The report concludes that ‘the Customs Union is not “fit for purpose’ and that ‘the EU Single Market is at risk’. ‘These shortcomings call for an urgent structural change, which, building on the reforms already undertaken, would bring the Customs Union to the next level.’ The group presented ten concrete, inter-related recommendations as a package: they address the need to use and cross-check all sources of data, to enhance drastically the cooperation with other authorities, to provide a centralised customs governance, to enhance relationships with the economic operators through more facilitation in exchange of greater transparency and responsibility, to cope with e-commerce, to develop green customs, customs training, and a focus on the revenue gap. 

Finally, the current initiative also aims to further address the shortcomings identified by the European Court of Auditors regarding specific issues in the legal framework and implementation for import procedures ( 29 ), delays in IT development ( 30 ), and insufficient harmonisation in customs controls that hamper the EU financial interest ( 31 ), beyond the immediate steps already taken. 

2. Problem definition

2.1 What is the problem?

The current system is not satisfactory. It is burdensome for legitimate trade. And customs authorities struggle in their mission to protect the EU, its financial interests, citizens, enterprises, the Single Market, and the environment. There are five problem areas:

(i) Customs authorities struggle in their mission to protect the EU

Since only a small share of imports and exports can be physically controlled, customs collect and analyse relevant information to identify risks and to determine the control action. This makes the risk management a determining factor in each Member State. However, customs risk management today is not entirely adequate to allow the customs authorities to fulfil its mission at EU level, because national risk management is defined according to the national circumstances, priorities and IT system capabilities without an EU dimension of risks, even if there is a common risk framework.

-On financial risks, the European Court of Auditors identified structural challenges on the risk management of financial risks: ( 32 ) the lack of uniform application of customs controls and of harmonised risk management and analysis hampers EU financial interests. It limits the correct establishment and collection of the customs duties. This results in a loss of revenue to the EU budget (section 2.2) and fails to protect EU production and legitimate trade from unfair competition.

-On non-financial risks, the current risk management framework does not adequately address the increasing number of non-financial issues of concern for EU citizens in a globalised world (human rights, labour rights, sustainability, environmental protection, health, safety, peace, and security, etc.). The current performance on prohibitions and restrictions is weak. For example, Member States reported very low figures of refusals in the field of product compliance. ( 33 ) As a result, non-compliant products enter the EU Single Market, some of which might entail safety and security risk with potentially severe consequences. Customs supervision helps detect criminal activities that exploit legitimate trade flows (section 2.2).

An additional difficulty is that 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. The UCC interim evaluation reveals that ‘the fact that the specific rules are the responsibility of other authorities (European or national / regional) is considered as a source of problems when coordination is missing.’ ( 34 ) The boundaries between the roles of Customs (generalists) and the large number of sectoral authorities (specialists) are defined in the sectoral legislation and are not always aligned with customs operational concepts. Customs is in the lead for co-ordinating controls at the border, but at EU level, there is no common risk management, strategy building or coordinated action with other competent authorities. Even at national level, the performance of this co-operation is weak. For example, in the field of product compliance, Member States report ( 35 ) a high share of cases where customs stop goods but must release them again because the sectoral authority did not respond within the legal deadline.  ( 36 )

The cooperation problems between customs and non-customs authorities are confirmed by the business respondents in the public consultation, who consider that a more effective sharing of information and data between national customs administrations and other authorities enforcing product requirements on imported goods is the third most important priority (very important for 114 (59%), quite important for 48 (25%)). Customs in the EU rely also on cooperation with and information from countries outside the EU. The potential of cooperation with the EU’s closest partners could be exploited more effectively, in particular through the exchange of information leading to better risk assessment and fighting the infringement or circumvention of trade rules. This has become more apparent in the context of the enforcement of the sanctions adopted vis-à-vis Russia following its attack on Ukraine.

(ii) Compliance with customs formalities is burdensome for legitimate trade

For every consignment, traders and carriers must collect the information several times and submit it to customs through dedicated IT systems, as described in the driver (section 2.3). The cost of these formalities for trade was recently brought into focus by Brexit. The Netherlands estimated in 2018 that the additional costs due to customs formalities between the Netherlands and the UK would range between EUR 387.2 million and EUR 627 million per year, and that simplifying or eliminating some formalities could reduce this. In 2019, UK priced the administrative burden of completing customs declarations for its trade in goods with the EU at £ 7.5 billion. ( 37 ) The cost for trade is assessed in Annex 9, section 3.3.

(iii) The customs model is not fit for e-commerce

Today, e-commerce represents more than twice the number of traditional trade transactions for only 0.4 % of the value. ( 38 ) This high number of transactions for a low value represents a challenge both for customs, which cannot properly supervise them, and for operators, which must comply with several reporting obligations per parcel.

Parcels valued up to EUR 150 that are directly sent from a third country to a consignee in the EU are exempt from customs duties. ( 39 ) Until 2021, there was also a VAT exemption on imported goods. However, the Council decided to eliminate the VAT exemption to protect Member States' tax revenue, to create a level playing field for the businesses concerned and to minimise burdens on them.  ( 40 ) Accordingly, from July 2021, all imported goods are subject to VAT and covered by a digital customs declaration, including for goods valued up to EUR 150 for which no customs duties are due. 

However, despite each parcel from July 2021 being reported to customs, customs authorities do not have the information to efficiently control whether the imported goods comply with EU non-financial requirements. Even checking compliance with financial requirements is challenging for customs. There is evidence of the systematic abuse of the 150 EUR threshold through undervaluing and splitting consignments. A study conducted by Copenhagen Economics in 2016 estimated that about 65% of the e-commerce consignments are undervalued in terms of customs duties. ( 41 ) In its special report on import procedures ( 42 ), the European Court of Auditors (ECA) concluded that the current customs IT clearance systems are not able to prevent the importation of goods that are ineligible for the customs duty relief, and this is not compensated for by ex-post controls and investigation plans. ( 43 ) 

Competition is therefore distorted. The duty exemption favours third country e-commerce operators over traditional trade and EU retailers, which must pay customs duties when importing in bulk, and encourages the establishment of e-commerce distribution centres outside the EU.

(iv) Limited data quality, access, and analysis

Customs risk analysis and controls rely on data. While most exchanges today are fully digital, there are problems with the collection, analysis and sharing of data. The declarant or representative compiles and submits information about a consignment from different supply chain actors, making data integration difficult and compromising data coherence and quality.  The current customs processes require the data to be submitted to different national and common systems and the related Member States. ( 44 ) The Wise Persons Group also noted ‘the different IT systems are often not interconnected. Data are not transferred from a declaration to another.’ ( 45 ) The information requested in a customs declaration focuses primarily on financial risks. Introducing additional information requirements, for example about the manufacturer, requires significant modifications to the 27 national IT systems. Indeed, the data is processed in separate national IT systems for each type of declaration. Therefore, the information is fragmented across different data bases and systems, making it difficult to ensure coherence and data integrity, which is essential in customs risk management, particularly for risk analysis at EU level. This reduces the capacity of customs to address undervaluation, non-compliance, or security risks (section 2.3).

Furthermore, the lack of a comprehensive legal framework in the UCC on exchange and use of data hampers its adequate sharing between national customs and with the Commission, with other authorities, or with partner countries. Overall, the UCC IT systems are designed for exchanging messages on a specific process step. This leads to exchanges of data elements without context which often makes them meaningless for data analysis.

The European Court of Auditors identified several reasons for the increased cost and additional time necessary to build the UCC systems. ( 46 ) The UCC evaluation draws a mixed picture of the IT implementation, with positive aspects on the centrally developed components. ( 47 ) 

 (v) Member States diverge significantly in the application of the customs rules

There is increasing evidence of these divergent practices in similar situations and despite applying the same rules, the Union Customs Code (UCC). In 2021, the ECA published its report ( 48 ) on ‘Customs controls: insufficient harmonisation hampers EU financial interests’ concluding that Member States differ significantly in the way they carry out risk management and customs controls, warning that ‘This could allow non-compliant operators to target EU points of entry with lower levels of controls’. The same conclusion results from two of the actions outlined in the CAP, namely the interim evaluation of the UCC ( 49 ) in 2021 and the Commission report on the methods and penalties for addressing non-compliance with the customs legislation. ( 50 ) These reveal that the UCC rules on simpler methods for providing information to customs, on risk management, on monitoring economic operators considered trustworthy (Authorised Economic Operators, AEO) and on penalties leave the Member States considerable discretion so that divergent practices emerge, and infringing the same UCC rule may entail an administrative penalty in one Member State and constitute a criminal offence in another. ( 51 ) 

Businesses confirm the divergent application of the UCC. In a large survey for an external study on AEO (almost 2000 replies), 28% of the 900 trustworthy operators active in more than one Member State consider that some of the benefits can vary significantly from one Member State to another. ( 52 ) In the public consultation, business representatives regularly dealing with multiple customs offices found that Member States execute similar operations in different ways also in other areas such as timing of clearance procedure, approach to representation, and interpretation of basic definitions and rules. For these business respondents, the most important goals to achieve in a customs reform are customs to act as one, in order to improve predictability for businesses, and simpler processes.

Every national customs administration is responsible for its part of the Customs Union and the Customs Union does not have structural capabilities with a mandate to identify common priorities and allocate efforts to pursuing these priorities through coordinated action. The voluntary cooperation and limited joint actions have not delivered a uniform approach. This is even more obvious where the EU needs to react to geopolitical developments. The Customs Union is not sufficiently fit for the challenges posed by globalisation and digitalisation, nor has it been prepared for the green transition.

The five problem areas are related and limit customs’ ability to fulfil its role, with negative consequences (section 2.2). Although there are external factors, the cause of these problems can be found in the customs processes, data analysis and the governance framework (section 2.3 on drivers).

2.2 Why is it a problem?

Because of these problems (i) not all customs duties are collected, (ii) dangerous, non-compliant or counterfeit products still enter or exit the EU Single Market, and (iii) illegal goods are smuggled into the EU.

(i) Loss of revenue

Customs duties on imported goods are a Traditional Own Resource for the EU budget and contributed EUR 18.6 billion in 2021. Where goods are imported without paying the full and correct customs duty (and VAT on import), this undermines the financial interests of the EU and its Member States. This is often referred to as the ‘customs gap’. ( 53 ) While a precise quantification is not yet available, a recent example gives an impression of the scope. Investigations by OLAF discovered that textiles and footwear from China were imported on falsely low values for years, including by abusing the ‘customs procedure 42’ - a business facilitation under which customs duties are paid at importation and VAT is paid later in the Member State of destination. ( 54 ) As mentioned above, imports are often undervalued. Furthermore, not all duties assessed are paid - the established and estimated amount of unpaid duties was EUR 523.8 million in 2021. Another example is a recent pilot reporting exercise involving 20 Member States. During post-release controls, irregularities amounting to EUR 512.6 million in duties and VAT at import in 2021 were detected. ( 55 ) 

(ii) Non-compliant and dangerous products enter the EU Single Market

This concerns rules and standards in the EU, which also apply to goods that are imported. For example, rules on product safety, chemicals, food, contact materials, and other health or environmental considerations. There are serious weaknesses in the control of products entering the EU, which puts at risk the safety and security of EU citizens. Notified problems are three times more often identified on imported than on EU-manufactured products. ( 56 ) Studies and enforcement actions on the EU market consistently show the high non-compliance rates of imported products in different manufacturing sectors, such as chemicals ( 57 ) or toys ( 58 ), with particular concerns in the area of e-commerce. ( 59 ) In the public consultation on this reform, 128 respondents (68%) considered it easy to buy non-compliant or counterfeit goods online. ( 60 )  

In 2019, consumers suffered financial loss of a total estimated value of EUR 19.3 billion from purchasing unsafe products that they would not have purchased if they knew these products were unsafe and should not have been on the market in the first place; ( 61 ) this loss is expected to reach EUR 20.8 billion by 2025 and almost EUR 22 billion by 2034. ( 62 ) Total detriment to EU consumers and society from product-related injuries and premature deaths is estimated to be EUR 76.6 billion per year; perhaps 15% of accidents could have been prevented if the products were safe (implying preventable damage due to product-related accidents of around EUR 11.5 billion per year). ( 63 ) 

An OECD study on counterfeited goods estimates that for 2019, imports of counterfeit and pirated products into the EU amounted to EUR 119 billion – up to 5.8% of all EU imports. ( 64 ) From 2017 to 2019, there were almost 230 000 seizures of dangerous goods entering the EU. ( 65 ) The study estimates the global problem at 2.5% of world trade. About one third of counterfeited and pirated goods are dangerous fakes (food, medicine, cosmetics, toys, etc).

Imports of counterfeit and pirated products into the EU translate into a loss of profit, jobs and revenues of legitimate businesses. ( 66 ) This issue is particularly relevant for small and medium size enterprises (SMEs): for example, an estimated 99% of the EU’s toy companies were SMEs as of 2020, employing about 2/3 of the sector; this industry faces persistent unfair competition from non-compliant toy imports. A case study on toys is included in Annex 9.

Also, exports must comply with the rules. For example, the EU controls the export of dual-use items to prevent the proliferation of weapons ( 67 ), waste shipments to ensure that waste is managed in an environmentally sustainable way ( 68 ) and, further to the Covid-19 pandemic, monitors the export of vaccines to third countries. ( 69 ) 

(iii) Criminal activities exploit trade flows to smuggle illegal goods

Criminal networks exploit trade flows, smuggling drugs, weapons or cultural goods. Customs controls detect increasing numbers of illegal goods. In 2021, a record of 592 tonnes of drugs were seized, and a record amount of 4.7 billion pieces of tobacco products. The 6.496 pieces of firearms seized are an increase of 58% compared to 2020, the seized ammunition grew by 460%. Other fraud schemes include infringement on intellectual property, or undeclared movements of cash. E-commerce flows are also exploited by criminals. ( 70 ) Smuggling routes adjust to increased control activities of customs in one country. Customs risk management and the cooperation with law enforcement bodies are key. ( 71 )

These problems are perceived by customs administration and public stakeholders. In the Reflection Group on the customs reform, most Member States shared the impression that customs today is squeezed, with a dramatic increase in declarations in e-commerce on the one hand, and a continuous increase of tasks regarding prohibitions and restrictions on the other. Business and civil society stakeholder expressed their views on the current situation in the public consultation. The feedback from 194 respondents has a good distribution across the EU and includes SMEs (details Annex 3). Overall, the opinions of respondents show room for improvement for different policy aspects.

Figure 2 – Results of the public consultation on customs contribution to different policy objectives - Source DG TAXUD

2.3 What are the problem drivers?

The key problems above have three main drivers: (i) inadequate and complex customs processes in the UCC, (ii) a fragmented UCC digitalisation model and (iii) a fragmented and inefficient governance. They occur against a backdrop of external developments which accentuate the challenges of the system: more declarations, because of the rise of e-commerce trade, and more tasks, because of additional prohibitions and restrictions.

(i) The inadequacy and excessive complexity of the customs processes

The Union Customs Code (UCC) is the main legal and IT framework for customs processes in the EU customs territory. In essence, the UCC defines who must (or may) do what and when ( 72 ) and, as explained in the legal context, is the basis to apply other pieces of legislation, such as the Duty Relief Regulation and VAT. As the UCC evaluation highlights, the UCC’s most innovative feature is requiring that all communications between customs authorities, economic operators and the Commission be digital. The modernisation triggered by the 2016 UCC reform mostly consisted in digitalising existing customs processes. This in turn means that each step of the customs processes depends on an IT system. This section and the next will illustrate how this feature, while being positive in a digital world, has unintendedly caused (part of) the difficulties of customs to fulfil its mission, the poor data quality and the high administrative compliance costs for businesses.

As the ECA noted already in 2017, ( 73 ) the entry process of foreign goods into the Union is particularly complex. Traders must provide information to the customs authorities on each consignment at five different steps: (i) before the goods are loaded for or arrive in the Union, (ii) when the plane or the vessel arrives, (iii) when they present the goods to customs, (iv) if the goods are temporarily stored and (v) when the goods are to be placed on the Union market.

Figure 3 – Illustration of current customs procedures for one consignment on import - Source DG TAXUD

Each step serves a different purpose and for that reason part of the information that the operator must provide for each consignment varies from one step to another. Yet, the process results in requirements which are both inadequate and excessive, particularly where they apply to the billions of e-commerce parcels:

-The customs duty exemption for goods valued up to EUR 150 and no VAT exemption. The customs duty exemption for low-value goods was enacted in 1983 and increased in 1991 and in 2008. A VAT exemption for imported goods also existed. Both were justified in the excessive administrative burden for charging low customs duties or VAT on low value goods. The Council decided to eliminate the VAT exemption for low-value imported goods and to provide a One Stop Shop (IOSS) for e-commerce intermediaries selling foreign goods to European consumers, allowing them to collect the import VAT at the moment of sale instead of collecting it when the goods enter the Union market. To check whether VAT was charged at the moment of the sale or needs to be collected at the border, all parcels must be declared to customs upon arrival to the EU. According to the Commission evaluation ( 74 ) of the VAT rules, eliminating the VAT exemption for low value imports has been a success. In the first 6 months, Member States collected EUR 1.9 billion in VAT and both the tax and customs authorities now have data on e-commerce transactions. However, the difference between VAT and customs rules on e-commerce renders the system very complex for all involved (VAT applicable on all goods, customs duties applicable from EUR 150; VAT collected and declared at sale by platforms but checked at arrival when postal and express operators declare the goods to customs). Platforms complain that VAT is sometimes charged twice. Express couriers and postal operators argue that they must declare goods for which they have no data because they are not part of the original sale. Consumers often refuse the goods because postal operators charge an unexpected fee for compliance with customs formalities. ( 75 ) Customs complain that their IT systems cannot cope with the volume of declarations and that it is not worth to check whether the parcels are artificially undervalued below EUR 150 to claim a very limited amount of duty to the consumer, or for which there is no customs duty to collect.

-Difficulty to follow consignments in the EU: the UCC allows economic operators to combine and replace the five steps of the import process. This responds to different business needs (goods entering a Union port just for transhipment need different information than those being placed in the Union market). The multiple options make it very difficult for customs to follow the movement of the consignment in the Union.

-Unclear responsibilities: the UCC allows several actors to provide the information in each step. The carrier, the importer, the representative, the holder of the goods, the holder of the procedure or even ‘any person able to provide the required information’ may submit the information. No operator bears the full responsibility for the entire supply chain, making it difficult for customs to properly address non-compliance. Literature ( 76 ) identified the lack of clarity of the role of the declarant, who assumes responsibility for the financial obligation, the customs duties, but leaves to the importer the responsibility for the non-financial requirements, in line with the non-customs legislation ( 77 ). In e-commerce, the EU consumers having ordered the goods online become the declarants and the importers, even if in most cases no duties are due because the goods are below EUR 150. Yet, the non-customs legislation is not intended to impose compliance requirements on consumers and generally the consumers are not providing the information to customs.

-Rigid data format: By contrast, the UCC defines in exact detail in a unique format the information to be provided at each step for each consignment. The UCC interim evaluation signals the huge effort in harmonising the data requirements to facilitate the interoperability of the IT systems across all Member States, the harmonised application of the rules, and alignment with international customs data models. However, it also notes that traders perceive it as an increasing burden because they need to update their systems and because national customs authorities still require certain additional data elements. Furthermore, that information is normally sufficient for customs to calculate the customs debt but not to assess compliance with other requirements. For that purpose, essential data elements are missing, such as the manufacturer and the supplier of the goods. Furthermore, the combined nomenclature (CN), under which customs classify and identify goods based on WCO international standards, is not systematically used for the definition and classification of manufactured products in EU sectoral legislation. It makes it difficult to identify specific products in customs procedures and to link CN codes with specific requirements applicable to these products in non-customs legislation.

-The ambiguous definition of the person responsible for the information, combined with the rigid definition of the information to be provided often results in the poor quality of the data that customs receive, as there is no certainty that the information is being required from the operator best placed to have it. An example is e-commerce, where the postal or express operator, on behalf of the consumer, informs customs about the value of the goods, based on information that the sender has given in the origin country. However, that foreign sender has often not taken part in the original transaction between the European consumer and the EU-based e-commerce intermediary so it might provide a lower value.

-Finally, for some steps, the UCC does not clearly define the consequences of not providing the information. This is then entirely left to the Member State’s legislation ( 78 ) and introduces an important element of distortion in the Customs Union. Part of the UCC solution to that problem is a “reward” to reliable traders, the AEOs. These trustworthy traders enter a partnership with customs to have access to simpler customs procedures in exchange for carrying out certain tasks. However, monitoring their compliance has become challenging, as revealed by the UCC interim evaluation (section 2.2.).

These mismatches make the customs authorities’ task to collect and protect difficult. To balance needs and resources, the UCC requires the Member States to base their controls on automated risk management. The Member States must therefore carry out risk management and decide what to control and they do so based on national systems and national data, without an EU-wide perspective. According to the UCC, the Commission’s role is to prepare common risk criteria in legal implementing acts, operating some IT systems, and sharing risk information. The Commission may also organise common priority control areas.

By contrast to the entry process, the UCC exit process is simpler. It requires economic operators to provide the customs authorities with information on goods exiting the Union on only two steps: (i) the exporters must provide customs with certain information once it is known that the goods are to exit, so that customs can react if necessary and (ii) the carrier must inform about the exit of the goods from the Union.

Finally, the efforts in harmonising rules have resulted in rigidity for crisis management. For instance, during the COVID crisis, most Member States were allowing operators to defer the payment of taxes without guarantees except for customs debts, because the UCC often requires a guarantee for referral and does not foresee any “force majeure” clause.

(ii) Fragmented and complex customs digitalisation

Access to all relevant data to exploit it by cross-checking using artificial intelligence is a major objective pursued in all domains by governments and companies, empowering them to trace behaviours and habits and further adapt their strategies. Big data is today driving the digital revolution.

Customs is a pioneer in digitalization. From 2003, ( 79 ) there is the ambition of creating a simple and paperless environment for customs and trade. Today 99% of traders’ information to customs is digital and customs systems react automatically, in less than 5 minutes for 87.3% of the cases.

As mentioned above, one of the main goals of the UCC is to complete this achievement by requiring a fully electronic environment for the customs authorities and economic operators, to complete customs formalities via the deployment of a number of electronic systems. While originally foreseen to be completed by 2020, the date for final delivery of the UCC IT systems has been postponed to 2025 due to delays in implementation both at Commission and Member States level, linked to the complexity of the developments. Both the ECA ( 80 ) and the Commission ( 81 ) found that the ambitious tasks proved more complex than initially envisaged, due to their decentralized nature, the lack of resources and the changing scope in projects. However, once implemented, the UCC IT systems will significantly improve the customs electronic environment, particularly for economic operators active in various Member States. While in 2022 an economic operator wishing to complete the formalities for the aforementioned entry and exit processes throughout the Union needs connection to national 189 IT systems, in 2025 it will ‘only’ need 111 connections, a decrease of 41%.

This figure shows that the UCC digitalization model, while bringing significant benefits and being therefore necessary to complete, remains complex and fragmented. The model has contributed to the poor data quality for customs to fulfil its mission, to the divergent implementation of the customs rules and to high businesses’ administrative compliance costs, as follows:

-The UCC foresees a specific, normally national, IT system for each step of the process that was illustrated in figure 1. Those national IT systems are not necessarily interconnected, not even within one Member State. Operators have therefore limited (if any) possibilities to save in compliance by reusing the data on a specific consignment for several steps.

-Economic operators provide the information on several national IT systems, which are similar but not identical. For operators, there are 27 separate customs IT environments, even if there is only one Customs Union. A notable exception is the Commission-built IT system to provide the pre-loading and pre-arrival information, Import Control System or ICS2, which provides a unique trader portal for the entire Union. The Commission has also built a series of trans-European systems to connect the national interfaces to enable operators to complete some formalities from a single location (one stop shop). However, until all national interfaces are updated in 2025, the operators will not perceive that benefit.

-The national IT systems produce national databases. Therefore, neither the Member States nor the Commission have an overview of the consignments or the operators for risk management purposes. Member States conduct their risk analysis based on national data. The Commission has no access to those data, not even to the data stored on the trans-European systems that the Commission has built and manages. The exceptions are the statistical collection of trade data called ‘surveillance’ and a secured system to exchange information on specific risks (CRMS).  ( 82 )

-Maintaining and managing these 27+1 parallel IT environments is costly for the EU and Member States. Any change or adaptation is lengthy, requiring a minimum of 2 years.

-From a personal data protection point of view, the UCC digitalisation model was in line with the spirit of Directive 95/46/EC ( 83 ), but it has shown its limits under the new paradigm established by the General Data Protection Regulation, where obligations for data controllers and processors are more detailed, and the exercise of data subjects’ rights is fully harmonised. 

-The IT systems were conceived with the financial role of customs in mind. The information therein is therefore sufficient to calculate the customs duties, but it is not adequate for enforcing the non-financial requirements. The EU Single Window Environment for Customs initiative intervenes in this area, by ensuring that certain Union non-customs systems (agriculture, for instance) are made interoperable with national customs systems and that information on the compliance of non-customs formalities is exchanged between them. However, such intervention is strongly dependent on how the sectoral policy is designed, including whether IT tools exists. In addition, the EU Single Window Environment for Customs does not deal with risk management and the associated identification of priorities of controls.

(iii) Fragmented Customs Union governance structure

The governance of the Customs Union is largely unchanged since its creation in 1968. There has been no significant evolution in its strategic and operational management, making it less able to face current and future challenges.

The responsibility for the implementation of the customs legislation is shared between the Member States and the Union. The Lisbon Treaty established that the Customs Union is an exclusive competence of the EU and that the internal market is a shared competence. Therefore, the EU has exercised its competences by adopting a common legal framework, the Union Customs Code (UCC).

Member States implement the customs rules and processes. ( 84 ) The Commission is empowered to adopt, subject to a positive opinion from the Member States in the Customs Code Committee, implementing acts to establish more uniform conditions for the implementation. The Commission also has the power to adopt delegated acts following consultation of Member States in the expert group with the scrutiny of the Council and the European Parliament.  ( 85 )

The Customs Policy Group, an expert group composed of the directors general of national customs administrations, advises the Commission on strategic customs policy issues, and facilitates the exchange of views between the Commission and the Member States on customs policy; it is not a decision-making forum. ( 86 ) In the Council, the Customs Union Working Party, beyond its legislative role, meets regularly though not systematically in the formation of customs directors general (the so-called ‘High-Level Working Party’ on Customs or HLWP) to discuss governance matters.

The aforementioned legal and legislative process and strategic fora have proven insufficient to achieve a ‘real’ Customs Union in which legislation is applied uniformly by all Member States and risks are equally covered wherever the goods enter or leave the customs territory based on common, coordinated action. Additional policy and governance instruments have therefore been put in place for better operational coordination and cooperation, and to support more uniform implementation of the rules on the ground:

-The Commission develops guidance and coordinates the sharing of risk information but is limited by the powers conferred to it in the operational domain and by the lack of ‘critical mass’ ( 87 ) for performing these tasks.

-The Customs Control Equipment programme, ( 88 ) provides financing to equip the customs offices with detection control equipment at the border. The Commission is entrusted with the implementation of the programme.

-The Customs programme for cooperation in the field of customs ( 89 ), also provides financing to facilitate and enhance customs cooperation between national customs authorities, and to build their administrative, human and information technology (IT) capacity. The Commission is entrusted with the implementation of the programme. Part of the fund is used to finance Expert Teams, a structured form of enhanced operational cooperation on a thematic or geographical basis. Participation is however voluntary and therefore concerns only interested Member States. Expert teams are further limited by their lack of administrative and legal status and are not competent to take decisions on participants. Finally, the administrative and budgetary management is a significant burden for Member States. Despite these limitations, the positive and tangible results of several expert teams have shown the Customs Union would benefit from more and better organised operational coordination and cooperation. The Customs Eastern and South-Eastern Land Border Expert Team (CELBET) ( 90 ) made progress on a common approach to risk management, joint controls, border crossing points’ diagnostics, common training and centres of excellences, and cooperation with border guards and neighbouring countries. Considering the limitations inherent to expert teams and driven by their positive experiences within CELBET, the customs Directors General from the 11 participating Member States unanimously called for the creation of an EU customs agency in November 2021.

Overall, the current governance structure is not fit for purpose. De facto, the Customs Union is managed by means of legislative and non-legislative tools that are not designed for that scope and making it difficult to adapt the customs systems and procedures in cases of crisis. A political prioritisation of areas for common, coordinated action in risk management does not exist. Priorities are determined mainly at national level, according to national political preferences, and not following a Union approach required for a homogenous enforcement of the rules and an appropriate protection of the Single Market by Customs. Over time, the multiplication of committees, expert groups, project groups and expert teams dealing with customs matters has resulted in a major co-ordination challenge, further fragmenting the governance. There are many layers of customs activity but there is no strategic coherence. The operational management of the Customs Union is not coordinated and depends on the willingness of Member States to cooperate.

2.4 How likely is the problem to persist?

A number of actions foreseen in the Customs Action Plan will have a certain positive effect towards 2025. The Union Customs Code includes a simplification for trade that is still under development (centralised clearance). Furthermore, the Customs Action Plan has successfully implemented the Customs Control Equipment Instrument, the interoperability study for law-enforcement, and the EU Single Window environment for customs. They all bring some improvements and are included in the dynamic baseline (section 5.1) against which the current initiative will be evaluated.

However, the previous sections show that the problems derive from structural elements of the Customs Union. The divergence between Member States has its roots in the national responsibilities for parts of the Customs Union, without an EU perspective. The fragmentation of data is directly linked to the approach to IT systems and to the individual customs processes. Despite the consistent efforts to ‘act as one’, the cooperation between customs authorities has not reduced the divergent operational implementation. The cooperation with other authorities remains inefficient, and predominantly at national level. More effort in the same system does not bring a solution. The independent Wise Person Group similarly concluded in 2022: ‘There is a need for systemic change both in terms of Customs processes and in putting more Union in the European Customs. This is today an urgent matter of strategic sovereignty and reinforced resilience.’

The trends identified in the foresight report affecting the work of customs in 2040, such as larger trade volumes, increasingly complex non-customs regulatory environment for products, growing use of technology and enlarged access to, use and analysis of data implying new skills for customs officers, do not align with the current capacity of customs.

The urgency becomes also visible in the dramatic increase of declarations. And while the number of controls increased, the proportion of goods controlled dropped. In July 2021, a new customs reporting obligation on e-commerce became applicable. This made a trend visible that is confirmed by two different reporting systems:

Figure 4 Evolution of customs declarations (2016-2021) – Source DG TAXUD°

On the left hand, the statistical reporting in the ‘Surveillance 3’ system shows that the number of declarations (orange) surges with the new reporting obligation for low value parcels in July 2021 from 35 million to over 100 million. It further shows this increase is not caused only by the overall increase in trade (blue). On the right hand, the internal reporting of customs administrations under the ‘Customs Union performance’ project shows the increase in declarations for one customs officer on average. The increase is steadier because of the reporting decisions in each Member State. For the year 2021, the blue line visualise the additional challenge e-commerce presents for customs supervision and compliance with both the financial and non-financial rules. The red line makes it apparent that e-commerce adds to a trend of an already increasingly strained customs system.

Without addressing the customs processes, the IT customs environment and the governance, the current difficulties customs have in performing their duties are thus likely to increase significantly.

PROBLEM TREE

Problem tree – Source DG TAXUD

3. Why should the EU act?

Article 3(1) TFEU establishes that the Customs Union is an exclusive competence of the EU. This carries the consequence that only the Union can legislate and adopt legally binding acts. The Member States can do so only if empowered by the Union or for the implementation of Union acts. In addition, the internal market is a shared competence pursuant to Article 4(2)(a) TFEU. In shared competences, the Member States can adopt legally binding acts only where the Union has not exercised its competence. In the customs area, rules regulate the Customs Union (tariff, quotas and alike) and the internal market (i.e., abolition of internal frontiers and achievement of free movement of goods). For that reason, the Union Customs Code (UCC), is based also on Article 114 TFEU. In either case, to the extent the EU has exercised its competences by adopting common rules, Member States are precluded from adopting their own customs legislation. Any revision of that framework should therefore occur at Union level.

The UCC is based also on Articles 33 and 207 TFEU, according to which, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, take measures in order to strengthen customs cooperation between Member States and between the latter and the Commission. In addition, Article 207 gives the European Parliament and the Council the right to adopt measures defining the framework for implementing the common commercial policy. Given the broad scope of the initiative as described in the above sections, the revision of the UCC will include trade facilitation and supervision aspects that go beyond the cooperation between customs authorities, in accordance with the applicable international framework for trade policy with third countries.

However, the common rules and processes established at EU level in the UCC must be implemented by Member States. As previously detailed, 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, comprehensive, and detailed set of rules ensuring that customs can act as one and implement the rules in the same way is necessary.

4. Objectives: What is to be achieved?

4.1 General objective

Customs is the only comprehensive capability of the EU to supervise international supply chains and all goods crossing the external borders. The customs authorities supervise the flow of goods in and out of the EU for ensuring compliance with a broad range of requirements across different policy domains. Customs authorities are therefore at the centre and the guardians of the Single Market. After being cleared in one Member State, goods move freely within the Customs Union. As a result, the Customs Union is only as strong as its weakest link. The proposed reform aims at ensuring a framework that better allows customs authorities’ action across all the EU, to act as one, to be effective in identifying and stopping non-compliant goods and customs duties avoidance and efficient in carrying out those controls with the lowest possible burden both for the authorities and for trade.

The general objective captures the inherent need to achieve the right balance. Firstly, customs need to efficiently and effectively protect the Single Market, citizens, and values of the EU by ensuring compliance with a dramatically increasing series of non-financial requirements.

Secondly, customs need to ensure proper, effective and timely collection of customs duties and taxes due. This includes deterring customs fraud and undervaluation and thereby preventing the loss of revenue for both the EU budget and the Member States.

Finally, customs should facilitate legitimate trade as this contributes to growth and prosperity in the EU. It is vital that the flow of legitimate trade is not unduly disrupted. Customs processes and rules must ensure that all traders - including SMEs – can comply with the rules as smoothly as possible. The framework provided by the Customs Union must achieve the right balance between ensuring effective controls across all the various types of risks and facilitating legitimate trade with as little cost and administrative burden as possible.

4.2 Specific objectives

The way in which the reform can help the Customs Union better achieve its overall objectives can be decomposed into 5 specific objectives of equal importance and weight:

SO.1. Strengthen EU customs risk management. Customs are able to correctly decide whether to stop a good from entering the EU when they have sufficient and timely information available. The system must be able to build on its experiences to stop similar goods from entering the Single Market at another time or through another entry point. Customs intervention must therefore develop risk management of the whole supply chain in real time, with an EU perspective, through the analysis of risks and threats in a constantly updated way and identify the measures and controls to be performed at the border crossing points of entry and exit of the EU territory. A solid co-operation framework with authorities responsible for other policy areas, and with international trading partners is necessary for this purpose. This will also help better manage current and future crises in a world marked by increasing geopolitical tensions.

-For financial risks, this will allow customs to identify fraud and undervaluation, and improve duty collection. 

-For non-financial risks, this will improve the customs contribution to enforcement of prohibitions and restrictions and contribute to EU safety and security. 

SO.2 Reduce the administrative burden and simplify the procedures for traders, consumers, and customs authorities, without jeopardising effective customs supervision.

SO.3 Ensure a level playing field between e-commerce and traditional trade as regards customs, in line with the VAT rules.

SO.4 Enhance access and use of data for strategic customs action. Ensuring timely and flexible data management will support better risk management, better crisis response, better measurement of the Customs Union performance and simpler rules for trade. Customs attention must shift from individual consignments, towards the global supply chain to identify problems and risks. Building intelligence from connecting the supply chain data will help strengthen customs supervision and customs risk management. A data-driven approach is needed, to place the emphasis more on the collection of first-hand data from commercial systems, web platforms and other sources, and to reduce reliance on third-party declared data. Customs need to access and tap into the wealth of data from all types of sources, in a centralised way and orchestrate uniformly the use of data for the Customs Union to act as one.

SO.5 Enable the Customs Union to act as one by ensuring effective EU-wide protection, irrespective of where the good crosses the border and adopting EU-wide approaches that are more than the sum of individual national efforts. A strong, uniform mechanism and response to crisis needs to be established. 

4.3 Intervention logic

5. What are the available policy options?

This Impact Assessment evaluates four different reform options with an increasing degree of ambition. In designing policy options, it is important to recall that the UCC provides a complete Customs Union ecosystem. It provides in detail for how the Customs Union works, with the rights and obligations of private and public sector stakeholders and with the processes that are needed to handle and supervise goods moving to, through and from the EU. The reform objectives are inter-dependent, and the reform options must be systematically coherent.

For these reasons, the options are mapped, identified, and assessed as viable reform packages, taking account of how the measures taken would work together. Each package addresses the problems, drivers and objectives identified (in a different manner and to a different extent).

Three major policy choices will largely determine the extent to which the Customs Union gets the desired capacity to collect, protect and simplify as one. These provide the major structural elements (building blocks) around which options are packaged. They are:

-To what extent should customs processes be reformed? The choice is between continuing the processes in the baseline or changing them as a starting point for the rest of the reform. Although the principles for reforming the customs processes are similar in every option, the way they are implemented varies depending on the other two policy choices (data management and governance). The reformed customs processes can only be implemented to the full extent, if they are accompanied by a centralised approach to the collection, use and processing of data (O3, O4). In case centralisation of data is not implemented, these components will be less effective as explained in section 6 (O1, O2).

-To what extent should the customs data management approach be reformed? Data management addresses how information is provided, stored, analysed, and used to drive customs operations. In the current decentralised approach, every Member State develops its own IT solutions for the different declarations, in line with common criteria for interoperability. A new approach to customs processes requires a better analysis and use of customs data. An important policy choice is whether to build these capacities individually in national systems (O1, O2) or together in a centralised Data Space (O3, O4).

-To what extent should the governance of the Customs Union be reformed? Different possibilities to strengthen ‘acting as one’ are considered in the reform:

oStrengthen the existing governance model based on cooperation (O1)

oIntroduce an EU Authority for the Custom Union (O2, O4)

oStrengthen the role of the Commission (O3)

5.1 What is the baseline from which options are assessed?

This impact assessment builds on a dynamic baseline, which assumes that both the ongoing implementation of the Union Customs Code IT systems and all the Customs Action Plan are completed by 2025.

The Commission’s Customs Action Plan (CAP) adopted by the College in 2020, acknowledges that despite the major modernisation of EU customs legislation in 2016 (the UCC), there is evidence of problems and warned that ‘there are great risks of losses of revenues for the EU budget, of threats to the safety and security of EU citizens, and of excessive burdens on legitimate trade, if action is not taken to reinforce the activity of national customs authorities across the EU.’ ( 91 ) The CAP precedes, prepares and announces the reform. It points towards the main areas where legal change would be needed and brings forward in parallel some practical actions within the current legislative limits (Overview in Annex 9.1).

Indeed, in 2025, if nothing else changes, the problems and drivers are likely to persist (see section 2.4) and customs will have difficulties to perform the increasing list of tasks, in a more and more complex world. While customs managed to cope in recent crises, like the UK withdrawal, the Covid-19 pandemic, or the Russia invasion of Ukraine resulting in sanctions against Russia and Belarus, it is not guaranteed that a future crisis situation can be handled.

In the baseline, Member States carry out risk management in national systems and with national data, without an EU-wide perspective. The Commission role is to provide common risk framework. The customs processes, data management and governance in the baseline are described in the drivers in section 2.3. Member States and the Commission complete the UCC IT systems and need to maintain and constantly update them. The Member States, the Commission and the economic operators will therefore continue to incur in a series of administrative costs that are further detailed in section 6.

5.2 Description of the policy options

5.2.1 Option 1: A package of simpler processes

General considerations

The key customs process components to be considered, in view of the reform objectives, are:

·The process steps as such, and the extent to which these could be reduced or simplified (see further the baseline analysis in Annex 5, section 1)

·The roles of the different trade actors, and how they fit with compliance responsibilities (see further Annex 5, sections 2.5 and in an operational view, section 2.7)

·The way data is provided and used for effective customs supervision

·Specific process treatment for more reliable operators

·Specific process treatment for e-commerce flows of goods

·The way in which penalties are applied across the EU to deter non-compliance

An important consideration for this analysis is the interdependence of each component above. Any valid option has to address the elements together.

As regards process steps, the relevance of each step was re-examined. Account was also taken of the commercial reality that any supply chain involves certain actors, including carriers (with various level of subcontracting), and principals (importers, exporters), which have different business roles and possess different information in the normal course of their business. It is also to be noted that supply chains are diverse, with different features depending on the modes of transport used and on commercial choices. Global postal traffic, for example, has some specific roles for origin and destination postal offices, which are not found in other supply chains. Deep-sea maritime traffic has its own distinctive features, including layers of subcontracting of transport, routings involving calling at several EU and non-EU ports, and de facto integration of port community systems in customs compliance. Any remodelling of customs process needs to enable operators to clearly discharge their responsibilities, across a diversity of commercial practices. A given carrier needs to know, for example, whether it is carrying goods which have not been released to free circulation, and to know unequivocally when its accountability to customs passes to the next carrier in the chain. Customs likewise need to know who is responsible for goods at a given moment. This means that the approach to simplifications must enable communication to some degree between customs and the different operators at the relevant points in the supply chain, so that all actors can fulfil their role and always know who is responsible to customs until the goods are released to the market.

As regards roles, a weakness in the current system is that the persons accountable to customs for each process step are not necessarily the persons best placed to fulfil substantive compliance obligations. The commercial reality is that the persons who motivate the traffic (exporters and importers) are best placed to assume responsibility for financial and non-financial compliance. Alternative roles, including the current “declarant” role or the carrier role, have greater difficulty in fulfilling this responsibility in so far as they do not have full insight to the commercial transaction. In light of the objectives of the reform, the most appropriate change at the level of roles is to attribute compliance responsibility to importers and exporters in the first instance (while providing for default responsibility for intermediaries in specific scenarios such as transhipment to ensure that the responsibility as such is always covered). This change would also open the door to further simplification. As the importers and exporters are also in possession of the information necessary for substantive compliance, and could account for some aspects (such as duty payment and certain product compliance requirements) on a full supply chain basis, it is possible to consider alternative compliance approaches, and place much less reliance on the provision of detailed declarations for all compliance issues at every process step.

Regarding the modalities for provision of data, the issue is partly formal (the regulatory requirement as such) and partly operational (commercial practices and the existing legacy of information environments). From the formal perspective, it is possible to provide for a rebalancing of information provision obligations, to match information requirements, in terms of scope and timing, better with who can and should fulfil them. It is also possible to require that information, once submitted, should be re-used in all customs processes across the EU. The extent to which this can be offered, and the relative costs and benefits of offering it in a transnational environment where different national customs authorities and trade have to communicate across the flow of goods, depend strongly on the available IT systems. To give a concrete example, if a carrier provides information to the customs office of first entry to the EU, that information is not going to be available to other offices and used in other processes unless the IT systems exist to make it so. One approach is to rely on current national systems to be developed to handle this. Another approach is to provide for a single data entry point for traders which supports the re-use and integration of data.

Regarding reliable operators, consideration was given to different approaches. The first key ingredient in any future formula is the way in which reliability is demonstrated. Here, the options are essentially to strengthen the existing system, by further clarifying the way in which compliance assurance is provided and enhancing monitoring, or to introduce an alternative or complementary approach based more on transparency and accountability. The second issue is the nature of the benefits which can be offered, in the areas which have a business relevance, i.e. procedural burden, facilitation of controls and provision of financial guarantees. A third aspect is the practical understanding of the existing scheme (AEO) and in particular its use as a badge of trust between traders and for purposes of international mutual recognition agreements, currently limited to ‘AEO S’ (recognition for security and safety purposes). Each option needs to present a balanced package. In addition, each option needs to ensure that overall, the customs supervision remains effective.

In that light, it was considered whether it would be possible to exempt reliable traders from providing any data in the supply chain. A complete exemption in respect of their supply chains would not be possible as this would open the door to their exploitation by organised smuggling groups without any possibility for customs to target their controls on such traffic. The necessary balance on this procedural aspect could be obtained however by ensuring a minimum provision of advance cargo data and consignment identification as such by carriers, and connecting this with reliable importers. This would enable a greater shift in the information provision burden of importers away from the supply chain, and should apply in all options.

Regarding e-commerce, the essential process issue is how to include e-commerce flows in the scope of customs duty and customs supervision measures. Options could include requiring consumers, postal operators, carriers, or e-commerce intermediaries to provide additional information and take responsibility for ensuring compliance both financial and non-financial requirements. Involvement of tens of millions of consumers in provision of customs duty calculations or demonstration of compliance with product standards would be undeliverable in practice. Involvement of transport intermediaries in substantive compliance is possible in principle, but their access to the underlying commercial transactions in practice is insufficient and is demonstrated by the shortcomings inherent to the constraints of the current rules where customs declaration requirements are based on the information available to these operators (notably postal operators and courier companies). E-commerce intermediaries (notably, platforms) are best placed to assume responsibility as they have both a substantive role in determining what is imported or exported, and the depth of commercial data necessary to identify the goods for fiscal and non-fiscal compliance purposes. In so far as they act on behalf of third party vendors, it is reasonable nonetheless (and consistent with other EU policy measures) to expect that they would use the technical means at their disposal to respond to advice which public authorities may provide regarding non-compliant supply chains which use their services. E-commerce intermediaries do not always possess full supply chain information however – in this respect, the role of transport intermediaries remains important, both in providing supply chain information to customs, and handling practical interventions such as operational controls. Again, consideration of the commercial reality limits the practical options. The viable policy options need to take as a common principle that compliance responsibility is attributed to e-commerce intermediaries, and that transport intermediaries will continue to provide supply chain data to customs and facilitate customs controls and risk mitigation measures within their capacities.

Taking the above considerations into account, it would not be appropriate or realistic to attempt to present and assess options for each process element independently. The approach taken in this assessment is to prepare coherent, viable packages integrating changes in processes, the information environment and governance, taking account of interdependencies.

A final consideration is the approach to penalties for non-compliance with customs legislation. Variations across the EU in the approach to administrative penalties in particular could undermine in practice the improvements provided for in the revised legislation. For example, it is not realistic to expect data quality to improve systematically if there are little or no consequences for providing inaccurate data in some Member States and strong penalties in others. Such variations also risk motivating distortion of traffic towards enforcement environments which would be perceived as weaker. All options should therefore be accompanied by a common approach to administrative penalties.

The first Option package - Option 1 - envisages a coherent reform addressing all the key elements above. Given the commercial realities, the main choices would in fact be common for all options, but their practical delivery would vary very significantly when they are combined with additional measures for the information environment and the governance. In Option 1, they are implemented within the existing governance structure and within the national IT environments.

Customs Processes

As the reform aims to strengthen customs supervision and reduce the burden for traders, option 1 contains a package of changes to customs processes, to solve the identified main issues in the customs processes in the UCC. This is at the heart of customs activities. They result from requests put forward by the ECA, from the internal reflection and evaluation experience within the Commission and strategic insights provided in the Wise Persons Group report. Key ideas underlying the solutions proposed were discussed and welcomed in principle by the Member States in different discussions. The processes are explained in detail in Annex 5.

The first issue identified is the multiplicity of steps in the import process explained in the drivers. This option proposes to completely remove some steps in the import process to make it more similar to the export process. The importer and the carriers would provide information to customs before the goods arrive to the Union. Customs perform risk analysis on the basis of that information and, once the goods have arrived, request a control only if necessary. The operator would not need to systematically present the goods to customs or provide information on the consignment several times. Customs would not need to accept every piece of information from operators. By contrast, the obligation to provide certain minimum pre-loading and pre-arrival information (advance cargo data) must remain.

The second issue identified was the lack of a single responsible operator per consignment. Removing the role of declarant and clarifying the role of the importers and exporters addresses this issue. Importers and exporters motivate the traffic of the goods and so they become responsible for providing the information to customs, for paying the applicable duties and taxes, and for ensuring compliance with other requirements. One operator per consignment becomes the single liable person both for financial and non-financial risks. The carriers are also key. They have essential information on the route, the means of transport, the loading and arrival times and the weight of the goods. Customs needs that information and also needs the carriers to be gatekeepers, to contribute to ensure that importers and exporters (and, if not them, the carriers themselves) provide data on the consignments, and to support controls.

Additional information that is relevant for customs to fulfil its role is used for the risk analysis. This includes cross-checking information with other competent authorities on specific risks. Economic operators are required to share more information about their supply chains, including on the manufacturer and supplier. Carriers are required to share information on the container status. Specific information requirements in other EU legislation, for example a digital product passport, would also be applied by customs and used for the risk analysis. Furthermore, the framework for administrative cooperation with international trading partners and the provision for the exchange of customs information are strengthened.

This links with the third identified issue, the impossibility to link the import process steps and reuse the data. This option envisages that, once the importer or exporter provides data on a consignment, the carrier is entitled to link its own information to the pre-existing data. The importer or exporter would also be able to use the data on one consignment for a similar one (or even beyond, see below possibilities for trusted traders). Customs would then have the overview on the consignment. However, the implementation of this possibility depends strongly on the digitalisation and governance model chosen in each option. Option 1 is based on a decentralised digitalisation model (see below) so each national IT environment would provide for the possibility to reuse data in its own way. The central level – in Option 1, the Commission – would then have to play a role in coordinating the interoperability across Member States, very similar to the baseline. By contrast, in options where there is either digital centralisation (O3 and O4) or a central governance structure (O2 and O4), implementing the reuse of data becomes easier.

The reuse of data is closely linked to another identified issue, that the UCC defines an excessively rigid format for data. To address this, this option proposes to remove the regulation of the data format from the UCC. This would open up the door to more flexible data formats, keeping in mind that the data should be sufficiently structured and precise to allow that customs carries out an automated risk analysis; it may be noted that ambiguous data can lead to inefficiencies such as false positives (wasted interventions) or false negatives (missed risks). Again, the implementation of this feature depends both on the digitalisation and governance models chosen, as explained above.

This new model of customs processes puts e-commerce intermediaries and traditional traders importing in bulk on a more equal footing with the following additional legal modifications:

-The customs duty exemption for goods up to EUR 150 has been identified in section 2.2 as providing a competitive advantage to foreign retailers as opposed to EU retailers and in section 2.3, as a source of complexity, uncertainty, and poor data in the completion of customs formalities and as being prone to fraud. This option would eliminate the customs duty exemption for goods up to EUR 150 and to the highest possible extent would align the customs rules with VAT rules to address those problems. 

-When it comes to responsibilities, under the current UCC rules the consumer is considered the importer and therefore any customs action against parcels, be it for undervaluation or for non-compliance of the goods with other non-financial requirements, has a very limited impact. This option follows the VAT model and makes electronic platforms “deemed importers”, requiring them to charge customs duties at the moment of the sale without modifying Member States’ liability for the EU budget. If customs encounters a problem in a parcel, customs can therefore act against the platform and investigate whether it concerns an isolated case or a systemic problem. In addition, customs could contribute to enforce the new rules on responsibility embedded in the Digital Services Act. The idea to make electronic platforms liable for complying with customs results from discussions between the Commission with Member States and e-commerce platforms. ( 92 ) Making the e-commerce intermediaries “deemed importers” and having them charging the customs duties at the moment of the sale would align the customs treatment with the VAT regime for distance sales. This would not change Member States’ responsibility for making available the Traditional Own Resources.

Calculating the applicable duty is a complex task based on three factors of the good: (i) its tariff classification among more than 1 000 codes; (ii) its customs value and (iii) its origin. Applying this method in e-commerce would often result in a disproportionate administrative burden and collection costs both for customs and businesses. To avoid this, option 1 proposes to provide e-commerce intermediaries with the possibility to apply a simpler duty calculation method based on only 4 different buckets ( 93 ), each of them with a different duty rate. Applying the bucketing system should not result in lower revenues than applying the standard calculation but would be easier. To keep the approach simple, only goods subject to harmonised excise duties ( 94 ) would be excluded from the facilitation. It would apply higher duty rates than the standard ones in order to account for potential revenue losses resulting from commercial policy measures such as from anti-dumping duty, countervailing duty, and specific agricultural duties. In order to prevent the misuse of the approach that would only apply in relation to goods sold directly to consumers in the EU, it would be necessary to introduce a safe-guard mechanism that would allow the Commission to intervene if a systematic abuse is identified. The bucketing system would be based on the erga omnes duty rates and does not take into account the originating status of the goods. However, if the economic operator wishes to benefit from preferential tariff rates by proving the originating status of the goods, he/she can do so by applying the standard procedures. Canada successfully applies such a simplified system since 2012 ( 95 ) and the Global Express Association refers to it as a benchmark in its position paper on ‘Tax/Duty Collection on Imported Low Value Shipments ( 96 ). Taking the above elements together, the revised and simplified set of processes under this Option, for ‘standard’ operators, is depicted in Figure 5 below.

Figure 5 – Illustration of simpler customs procedures for a consignment on import - Source DG TAXUD