Customs transit procedures: insights from an operatorBy Jirka P. Groenendijk, Director, TransitNet Services, SGS
At the WCO Transit Conference held in Brussels, Belgium in July 2017, during which the WCO Transit Guidelines were launched, many administrations presented and shared their national or regional experience with regard to transit procedures. This article presents the point of view of a large and well-known transit operator that manages the movement of goods across the European continent, and discusses the added value of allowing “transit facilitators” to handle transit operations on behalf of their clients.
Under a Customs transit regime, goods provisionally exempted from duties, taxes and commercial policy measures applicable to imports move between two points in a Customs territory, via a different Customs territory, or between two or more different Customs territories. The regime reduces the risk of congestion at external borders, sea ports, airports and land borders by shifting controls inland, at departure and destination, closer to the traders’ premises.
Those not familiar with the procedure may find the following example helpful. A French perfume manufacturer is selling a consignment to a Turkish reseller. The market price of the consignment is 1 million euro, of which 75% consists of excise taxes and value-added tax (VAT) – the Customs debt due in the country where the perfume will be consumed, namely Turkey. The French exporter will be exempt from any taxes if he can prove that the goods have left the European Union (EU) or have entered another Customs regime which allows for that. The sooner the export operation is completed, the sooner the exporter’s liability for the Customs debt will be discharged. The Turkish consignee is liable for the Customs debt when he declares the consignment for import. He will do so after he has ensured that the consignment has been delivered intact in terms of quantity and quality – a control which should take place inland, as close as possible to the importer’s premises.
During the whole process the consignment will move, like a “rolling duty free shop,” across a number of Customs territories before arriving in Turkey, i.e., through several EU countries (France, Italy, Slovenia, Croatia), then through a non-EU country (Serbia), and finally through another EU country (Bulgaria).
All transit regimes, whether national, regional or international, have four pillars in common:
- a transit (simplified) declaration must be presented to Customs by a principal, i.e. the person who places goods under a transit procedure;
- the risk of fraud in respect of the Customs debt associated with the procedure is mitigated by the lodgement of a guarantee – usually a financial guarantee;
- the cargo must be identifiable and/or sealed so that any leakage can be easily detected;
- the transit procedure is completed once the goods arrive at their final destination or on exit from a Customs territory.
It would probably be safe to assume that all WCO Members implement a national transit regime, except for EU countries where a Union transit procedure known as “Community Transit” applies to Customs transit operations within the 28 Member States, Andorra and San Marino. Several international and regional conventions regulate transit operations, including:
- the WCO International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention), which provides Standards and Recommended Practices for Customs administrations in a dedicated specific Annex;
- the Customs Convention on the ATA Carnet for the Temporary Admission of Goods (ATA Convention);
- the Convention on Temporary Admission (Istanbul Convention);
- the Customs Convention on the International Transport of Goods Under Cover of TIR Carnets (TIR Convention), which is the only global transit instrument that establishes a paper-based transit system for goods being transported by road, and which is used mostly between EU Member States and EU neighbouring countries; the TIR Carnet is used for the transport of goods between two or more territories, which means that it cannot be used in a single territory only;
- the Convention of 20 May 1987 on a common transit procedure (Convention on Common Transit), which forms the basis for the movement of goods between the 28 EU Member States, the four members of the European Free Trade Association (EFTA), as well as Turkey, the former Yugoslav Republic of Macedonia, and Serbia; this Convention makes a distinction between non-Community goods (T1) and Community goods (T2);
- the Customs transit arrangements in the Eurasian Economic Union (EAEU), the Customs Union formed by Russia, Belarus, Kazakhstan, the Kyrgyz Republic and Armenia, which are very similar to those provided for by the Convention on Common Transit.
According to trusted sources, in 2016 there were:
- 10 million international transit declarations and 6 million national transit declarations lodged under the Union transit procedure and the common transit procedure, that were managed through the EU’s New Computerised Transit System (NCTS) among 35 States;
- 5 million transit operations among the five EAEU countries;
- 2 million transit operations through the TIR system, among 45 active countries;
- 40 million inbound transit operations in the United States;
- 220,000 ATA Carnets issued.
In today’s global economy, it is not incorrect to say that most of the things we wear, eat, drink or use in our daily lives, including even the cars that we drive, have been transported by a truck, a train or a ship under a Customs transit regime at some point in the journey that took them from the production facilities to the final user.
Computerization: the European experience
Union transit was implemented in 1975, while common transit was introduced in 1987 to supersede the agreement which existed at the time with EFTA members. However, at the beginning of the 1990’s, massive fraud caused the viability of transit regimes, including the TIR, to be called into question. It was estimated that hundreds of millions of euro in taxes were being eluded, the main reasons being that:
- procedures were fully paper-based, with discharges validated by rubber stamps;
- guarantees were insufficient and badly managed;
- the internal borders of the EU had disappeared as a result of the creation of a single Customs territory, while new borders had appeared with members of the former Soviet Union which lacked the resources and experience to manage transit procedures properly.
This course of events paved the way for fraud, and organized crime was quick to jump onto the bandwagon, ultimately leading to the first EU Parliamentary Enquiry Committee, whose conclusions “forced” EU Member States and Common Transit Convention members to computerize the Union and common transit regimes. Thus, on 1 May 2004, modernized regulations entered into force in the 25 EU Members States and the four EFTA members, and the NCTS, based on electronic declarations and processing, was launched.
The NCTS gateway is connected to the Customs Management Systems (CMS) of all countries implementing the Union and common transit procedures. Customs offices communicate and exchange standard messages electronically through the system, in their native languages. As for traders, they communicate electronically through the national CMS of the country they are operating from, but are not connected to the NCTS.
In parallel to the computerization, a number of essential accompanying procedures and legal enhancements were implemented to reinforce controls in order to secure Customs debt collection, whilst granting simplifications for principals who fulfilled certain criteria. These procedures and enhancements include – just to mention a few – the obligation to lodge bank guarantees from approved banks, online monitoring of the total Customs debt provided it does not exceed the agreed reference amount, introduction of the concept of authorized consignees and authorized consignors, use of global guarantees, etc.; (“authorized consignee” means a person empowered by Customs to receive goods directly at his/her premises without having to present them at the office of destination; “authorized consignor” means a person empowered by Customs to send goods directly from his/her premises without having to present them at the office of departure).
Computerization did not get rid of the complexities. Rules and information technology (IT) requirements/practices vary from one country to another, depending on national prerequisites. For example:
- Certain offices of destination do not notify the principal that the goods have arrived and have been released, whilst in others the procedure is fully automated up to the enquiry;
- Certain States require the principal to provide them with an HS code up to 10 digits and the precise number of items being transported, whilst others are satisfied with a generic or simplified description of the goods;
- Certain States omit to include VAT or excise when evaluating the Customs debt;
- Certain States refuse to validate the transit procedure if the driver is not accompanied by a local broker when he/she arrives at an office of transit or at the office of destination.
Practices also differ from one office to another, and even from one shift to another within the same office. It is not unusual to see a Customs officer on one shift who refuses to release goods for transit or requires unnecessary documentation being replaced by a new shift member who releases the same goods for transit. There are also differences or specificities depending on the transport mode, i.e., truck, roll-on/roll-off vessel (RORO), rail, or barge.
In addition, each party to a transit regime may grant additional measures of facilitation to bona fide operators, such as guarantee reductions, authorized consignor status, and the possibility not to affix seals to a consignment.
On top of this come the linguistic barriers. Ideally, principals must have at their disposal multilingual people who are experienced in logistics and Customs matters, to maintain direct contact with Customs at local and regional levels, as well as with Customs headquarters. They must also have robust IT systems and performance software, and must sometimes be able to operate both within and outside the “NCTS territory.”
These complexities open up a market for service providers. The idea would be to give logistics sector operators the possibility to delegate the management of their transit operations by road, rail and waterway to a service provider acting as a principal (the person who places goods under a transit procedure, even where this is done by an authorized representative) for Customs purposes.
Such a service is currently available under the framework of the Union and common transit procedures, as well as under the EAEU transit arrangements. Through a web-based application, clients can create transit declarations and submit them to any of the Customs systems, and track them online. The company arranges and lodges the required guarantee – issued by an approved bank – in favour of Customs. Bank guarantees are lodged in each country involved in the transit operation, in order to avoid the issues that can arise when a country’s Customs administration calls on a guarantee issued in another country.
Traders and freight forwarders benefit from the experience of transit experts who ensure that a declaration is compliant with national requirements, and who will settle any disputes as quickly as possible. This takes away the need for traders and freight forwarders to develop IT capabilities, provide bank guarantees to Customs, pledge assets, solve problems that arise in the course of the transit journey, and settle claims. Drivers receive relevant advice, depending on their different routings.
In light of differences in the implementation of a similar Customs regime on the European continent, and given the diversity of conditions prevailing within and between countries or regions, one could question the need for, and usefulness of a universal transit regime setting identical rules for countries as different as Germany and Mozambique, for example.
Rather, it might be preferable to think in terms of an opportunity for “transit facilitators” to enhance national and international transit operations by providing services adapted to national legislation, using a fully automated and computerized system that will assure countries of a high level of compliance and minimal risk when it comes to revenue collection, by securing bank guarantees in each country involved in a transit operation.
If the United Kingdom leaves the EU Customs Union, it is highly probable that it will join the common transit system – this being the only possible way to move Customs control inland and minimize border control and congestion. All over the world, transit regimes offer huge benefits to traders and governments alike. Therefore, it is firmly believed that giving traders the possibility to hand over the management of their transit operations to a third party which has recognized experience and offers all necessary guarantees in terms of revenue and security, will be an asset for both traders and governments.
For Customs administrations, this would just be a question of giving such a service provider access to their CMS – a small price to pay given the benefit that Customs will derive from dealing with one reliable, experienced and national service provider which has an international presence.