Revision of the Union Customs Code

Position

Revision of the Union Customs Code 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

Federation of German Industries e.V.

Date: October 30, 2023

Contents Key Messages.................................................................................. 3 Introductory Comments .................................................................. 4 Trust & Check Trader ...................................................................... 5 EU Customs Data Hub .................................................................... 7 EU Customs Authority .................................................................... 8 Changes in Customs Procedures and Other Issues .................... 9 About BDI ....................................................................................... 11 Imprint ............................................................................................ 11

Key Messages ▪

In principle, the proposal for the revision of the UCC presented by the European Commission in May includes many good and appropriate approaches and proposals. The BDI has been calling for a number of them for a long time and supports them. The reform should take into account from the beginning that the implementation is feasible for the economic operators and that the customs processes reflect the logistical processes in the companies.

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We believe that the reform of the UCC must deliver tangible progress in the area of digitalization and reduction of bureaucracy and achieve significant simplifications for all economic operators. For example, process-based controls rather than transaction-based controls should be carried out in the future. The revision must also aim to harmonize the application of customs law in all 27 EU Member States.

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Trust & Check Trader: For Trust & Check Trader, the right balance between simplifications and controls must finally be established. It must be ensured that the certification guarantees noticeable simplifications for all Trust & Check Traders in the EU.

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EU Customs Data Hub: BDI welcomes the creation of a central and EU-wide IT system. It is essential to ensure that it leads to real simplification and not to additional bureaucratic burdens. Data protection and data security must play a paramount role and unauthorized access to sensitive company data must be prevented at all costs.

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EU Customs Authority: The EU Customs Authority can make an important contribution to harmonizing the application of EU customs law. Under no circumstances should another layer of bureaucracy be created for economic operators that unnecessarily complicates and prolongs customs procedures.

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Alignment of VAT rules: Reforming the customs rules without simultaneously adapting the Directive on the VAT system will largely go nowhere with regard to import VAT if several Member States are involved. The location where the customs debt and where the import VAT debt arises must be identical.

Federation of German Industries

German Lobby Register Number R000534

Address Breite Straße 29 10178 Berlin Postal Address 11053 Berlin Germany Contact Anna Kantrup T: +493020281526 F: +493020282526

E-Mail: A.Kantrup@bdi.eu Internet www.bdi.eu

Introductory Comments The Union Customs Code (UCC) is an important pillar for the customs union and consequently for the European single market. An export-oriented German and European economy needs efficient and streamlined customs procedures to be internationally competitive. It is not only companies that can benefit from effective and targeted procedures and fast clearance.

European customs authorities can also save urgently needed resources that could be better utilized elsewhere, especially in view of rising trade volumes and increasing tasks that have to be handled by customs. Currently, goods entering the single market must comply with requirements from well over 300 pieces of legislation that must be checked by customs authorities, creating major bureaucratic hurdles for economic operators. When revising the UCC, it is essential to take this increasing complexity into account and to enable and create a coherent interconnection with other EU regulations.

Moreover, the international trading system has undergone significant changes in recent years. New geopolitical challenges thus make a revision of the UCC urgently necessary so that economic operators and customs authorities can deal effectively with the new realities and framework conditions. A revision is needed to continue to effectively protect the internal market.

In principle, the proposal for the revision of the UCC presented by the European Commission in May includes many good and appropriate approaches and proposals. The BDI has been calling for a number of them for a long time and supports them. However, the legislative proposal often remains too vague and detailed regulations are to be created in delegated and implementing regulations. Thus, from the perspective of German industry, there are currently still a number of open questions that need to be discussed as part of the legislative process. The reform should take into account from the beginning that the implementation is feasible for the economic operators and that the customs processes reflect the logistical processes in the companies.

We believe that the reform of the UCC must deliver tangible progress in the area of digitalization and in the reduction of bureaucracy and achieve significant simplifications for all economic operators. For example, processbased controls rather than transaction-based controls should be carried out in the future. Especially for particularly trustworthy economic operators (AEO/Trust & Check Trader), the right balance between simplifications and controls must finally be established. Further, the revision must aim to harmonize the application of customs law in all 27 EU Member States and thus create a level playing field. www.bdi.eu

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One of the core objectives of the reform, to achieve centralized clearance via the new EU Customs Data Hub, cannot be realized by amending the UCC alone. Without simultaneous adaptation of other legislation, such as the Directive on the VAT system in particular, centralized clearance is unlikely to be implemented for imports where more than one Member State is involved in the process. Instead, companies will continue to release goods for free circulation in the Member State where the import VAT debt arises. The reduction in procedural costs promised in the reform package through the possible elimination of a transit procedure from the EU's external border to the place of destination will thus be practically non-existent.

Trust & Check Trader Should a new program for trusted economic operators be introduced, as proposed in the current draft revision of the UCC with the Trust & Check Trader, this status must finally establish tangible simplifications for certified companies. The Trust & Check Trader is intended to build on the Authorized Economic Operator (AEO) program and enable simplifications, including self-assessment and process-based controls. In addition to the requirements currently placed on the AEO-S, Trust & Check Trader must provide customs authorities with real-time access to relevant company data (cf. Art. 25(3)). In this respect, the European Commission should develop specifications together with the economic operators at an early stage and have the (technical) feasibility checked in order to enable a transition that is as smooth as possible. Data protection and data security (see also comments on the EU Customs Data Hub below) are of paramount importance for companies and must play a central role. In addition, the relevant company data should be reduced to a reasonable set of data: blanket access to the accounting system, for example, can lead to a challenge for the customs administration to find the relevant data in the case of large companies. This also makes it very difficult for companies to use if the necessary set of data, and thus the systems that need to be connected to the EU Data Hub, is overly broad. Access to the records relevant to customs for the respective transaction should be sufficient.

To ensure that the Trust & Check Trader program is actually used by economic operators, it must be ensured that certification guarantees simplifications for all Trust & Check Traders in the EU. In the legislative proposal, Article 25(7) gives national customs authorities considerable discretion in authorizing individual simplifications for Trust & Check Traders ("Customs authorities may authorize Trust and Check Traders").

Thus, traders cannot be sure which simplifications will be available to them after successful certification. In view of the fact that the AEO program in place today is already underutilized because economic operators hardly www.bdi.eu

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experience any measurable benefits in relation to the certification effort, we believe that economic operators will only be willing to meet the high requirements of the Trust & Check Trader if real benefits are associated with it. The vague promise that there could be certain benefits if the national customs authority authorizes them is not sufficient here. In addition, it can lead to unequal application of customs law within the EU if national customs authorities have different approval practices. The revision must therefore ensure that EU customs law – not only regarding the Trust & Check Trader – is uniformly applied in all Member States.

The proposed advantages of a Trust & Check Trader are rather limited and, apart from the possibility of self-assessment and centralized clearance, are available to any economic operator under the current customs legislation. A further simplification for the Trust & Check Trader could be, for example, the possibility to apply for a suspension of enforcement without a security deposit being required.

Several simplifications that are currently available to all economic operators are to be reserved for Trust & Check Traders in the future. For example, the authorization for simplified customs declarations or a local clearance procedure will only be reserved for a Trust & Check Trader. This would represent a significant deterioration of the status quo for a large number of economic operators in Germany who have an authorization for a simplified declaration procedure, particularly in the area of exports (so-called SDE authorization). As is the case today, customs simplifications should be accessible to all economic operators if they meet the authorization requirements.

The requirements for the Trust & Check Trader should be designed in such a way that it is possible for economic operators of all company sizes to obtain this status. According to the proposed regulation, it seems that the Trust & Check Trader is intended to replace the current AEO-C. However, the planned requirements for the Trust & Check Trader also include the securityrelated prerequisites that an AEO-S must fulfill as well as real-time access by customs authorities to relevant company data. Therefore, the Trust & Check Trader can be considered an extended AEO-F. However, nearly half of all existing AEO authorizations today are for AEO-C only. These authorization holders, of which around 47 percent are companies based in Germany, may therefore not be able to meet the requirements of the Trust & Check Trader or will only be able to do so with considerable additional effort.

The draft regulation does not otherwise indicate why a Trust & Check Trader must also fulfill the security-relevant requirements of an AEO-S. All other regulations that refer to the Trust & Check Trader are exclusively customswww.bdi.eu

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related, but do not contain any security-relevant aspects. In addition, the AEO-S will continue to exist alongside the Trust & Check Trader. Article 25(3)(e) of the proposed regulation should therefore be removed.

The Trust & Check Trader is to be introduced by 2038. Until then, the current AEO program will be maintained. From the BDI's point of view, AEOs are already reliable and trustworthy economic operators who must invest a lot of time and effort for certification. The UCC already contains numerous simplifications that AEOs have been waiting to see implemented. By the time the revised UCC is fully implemented, tangible simplifications for AEOs should already be realized. This could also contribute to the use of the new Trust & Check Trader by companies.

In order to develop a program for particularly trustworthy economic operators that is attractive to companies of all sizes and sectors and is consequently actively used, the European Commission should engage in an active and constructive exchange with the economic operators at this early stage. This will ensure from the outset that specifications and requirements can be implemented and that the program is used accordingly.

EU Customs Data Hub Digitalization offers an important opportunity to simplify customs procedures and reduce bureaucracy. This benefits not only the economic operators, but also the customs authorities. From the point of view of German industry, the inadequate and, in many areas, non-existent interconnection of the IT systems of the national customs authorities with each other and with the European Commission is a key problem. For economic operators, this currently creates considerable additional work and expenditures, especially if they are active in several Member States. This contradicts the idea of an effective customs union. In the view of the BDI, there can be no efficient customs union without an IT union.

Therefore, German industry welcomes the creation of a central and EUuniform IT system (Art. 29 et sqq.). The EU Customs Data Hub assumes a central function in the European Commission's draft revision and is intended to make an important contribution to the reduction of bureaucratic costs and to the uniform implementation of the UCC in all Member States. The establishment of the EU Customs Data Hub, in which a digital exchange of both customs and non-customs information is consolidated and standardized within the EU, would be a significant simplification for economic operators.

The BDI has long called for a one-stop shop where all documents required for customs procedures can be submitted in one place.

www.bdi.eu

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When setting up this application, it is essential to ensure that it becomes a real simplification and does not lead to additional bureaucratic work. Under no circumstances should the current trend of constantly increasing data requirements by the Commission and customs authorities be allowed to continue. (Data) requirements in the EU Customs Data Hub must correspond to the logistical processes in companies.

In a central EU Customs Data Hub, where sensitive and secret business data is also stored, both data protection and data security must play a paramount role. Unauthorized access, for example through hacking attacks, must be prevented at all costs. But also within the (national) customs and market surveillance authorities (cf. Art. 31), access to company data must be limited to persons directly involved in the respective transactions. Article 31 (14) provides for the Commission to specify the access rights and scope of the individual authorities to data in the Customs Data Hub via implementation regulations. However, the text remains very vague here. Unauthorized access to sensitive data should already be prevented by the basic legal act. Moreover, the current version of the text does not include any possibilities for economic operators to gain knowledge of who has accessed their data in the Customs Data Hub. Trust & Check Traders in particular, who must grant customs authorities real-time access to their company data, should be able to track exactly which (customs) official has accessed their data at any time. It must also be possible to trace what data was accessed and for what reason. In addition, economic operators should also be granted the right to obtain an unbureaucratic overview of the data stored in the EU Customs Data Hub. Another content of the EU Customs Data Hub could, for example, be a database on the customs authorizations granted by companies. This would provide customs administrations and economic operators with a quick, accessible and uncomplicated overview of which representatives are authorized to clear goods on behalf of a particular company.

Economic operators should be involved in the planning and design of the EU Customs Data Hub from the onset to ensure that adaptation processes are (technically) feasible and that economic operators can thus quickly benefit from the envisaged simplifications.

EU Customs Authority The creation of an EU Customs Authority is another key new feature proposed by the Commission with the revision of the UCC. The EU Customs Authority is not intended to take over any operational tasks at the external borders or of the national customs authorities. Instead, it is to carry out EUwide risk analysis and, above all, monitor and coordinate the work of national www.bdi.eu

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customs authorities and contribute to capacity building of national authorities (Art. 208). In addition, the EU Customs Authority is to take on tasks related to the development, operation, and maintenance of the EU Customs Data Hub (Art. 209).

From BDI's point of view, the EU Customs Authority can make an important contribution to harmonizing the application of EU customs law. Therefore, the focus of its work should be on the development of common standards and procedures as well as best practice recommendations or guidance documents.

Thus, it could significantly help to create a level playing field in the EU and at the same time contribute to more efficient customs procedures across the EU. Under no circumstances should the creation of the EU Customs Authority add another layer of bureaucracy for economic operators that unnecessarily complicates and prolongs customs procedures. The national customs authorities should remain the central point of contact for companies.

At the same time, the EU Customs Authority could also play the role of a mediator. It would mediate between companies and national customs authorities as well as between two (or more) national customs authorities if EU customs law is interpreted differently in the individual Member States.

Alternatively, a helpdesk could be set up at the EU Customs Authority, to which companies or national authorities would be able to report differences in interpretation of customs legislation. After examining the reports, the EU Customs Authority could adapt corresponding guidance documents or information materials in order to work towards a uniform interpretation.

Changes in Customs Procedures and Other Issues In addition to the three extensive changes and new provisions mentioned above, the European Commission proposes a number of other changes to customs procedures in its draft revision.

For instance, significant changes are proposed for temporary storage. The current UCC permits temporary storage for up to 90 days. The legislative proposal provides in Article 86(5) for a reduction of the time limit to three days or six days for authorized consignees. Recital 36, on the other hand, provides for a period of ten days. German industry considers a three-day period of storage to be too short, particularly for maritime transport. At least the ten days mentioned in the recital should be included in the regulation.

However, it would be better to return to the 45-day period that was already included in the old Customs Code for maritime transport.

www.bdi.eu

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From BDI's point of view, it is also problematic that the European Commission has not adopted the already existing definition of Article 1(19) UCC-DA for the definition of exporter in Article 5(14) in the legislative proposal. The new definition could lead to difficulties in connection with Article 22(2) and (3), in particular in cases where the "determining person" is not established in the EU and no exemption under Article 22(3) applies. In particular, these are the frequent cases in international trade of goods where the foreign buyer determines the shipment of the goods (Incoterms® clauses EXW and FCA). In this context, it is necessary to define the EU established contracting party as the (alternative) exporter. It would be even better to use the reform project to standardize the various definitions of the term exporter under customs legislation and export control legislation.

Within the legislative proposal, the European Commission also proposes in Article 254 to introduce a uniform EU-wide minimum penalty for customs violations. Here, it is essential to ensure proportionality between the offense and the penalty and to grant the national customs authority discretion regarding the imposition of the penalty. Especially with a view to a uniform application of EU customs legislation and a degree of proportionality, this initiative is to be welcomed. For the same reasons, however, a maximum penalty should also be introduced.

The obligation to keep the necessary records for special procedures according to Article 104 should be reserved for the authorization holders. Particularly in the inward processing procedure, sub-processing operations are frequently authorized. The provision could currently be interpreted in such a way that both the sub-processor and the authorization holder must keep the same records, resulting in a duplication of those records.

The reform package does not include measures on the incurrence and administration of import VAT outside e-commerce shipments when the Member State of import is different from the Member State of destination.

Without adjustments to the VAT Directive, the envisioned relief for Trust & Check Traders will not materialize as the place where the customs debt arises differs from the place where the VAT debt arises.

With the introduction and use of the EU Customs Data Hub, it should therefore also be possible to fulfill all requirements for national levies, such as the VAT. Without a corresponding adjustment of the Directive on the VAT system, the promised simplification of the elimination of a transit procedure will not actually be realized, or there will be additional burdens for companies.

www.bdi.eu

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About BDI The Federation of German Industries (BDI) communicates German industries’ interests to the political authorities concerned. She offers strong support for companies in global competition. The BDI has access to a widespread network both within Germany and Europe, to all the important markets and to international organizations. The BDI accompanies the capturing of international markets politically. Also, she offers information and politico-economic guidance on all issues relevant to industries. The BDI is the leading organization of German industries and related service providers. She represents 40 inter-trade organizations and more than 100.000 companies with their approximately 8 million employees. Membership is optional. 15 federal representations are advocating industries’ interests on a regional level.

Imprint Federation of German Industries e.V. (BDI) Breite Straße 29, 10178 Berlin, Germany www.bdi.eu T: +49 30 2028-0 German Lobby Register Number: R000534 Contact Anna Kantrup Senior Manager, External Economic Policy T: +49 30 2028 1526 a.kantrup@bdi.eu BDI document number: D1855

www.bdi.eu

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