Leonardo Macedo is a judge in the Administrative Tax-Customs Court in Brazil, as well as a former Customs officer, and is passionate about Customs valuation. Noting that tariff increases have lately been at the centre of international trade disputes, he highlighted the need to shift the focus on the negative effects of tariffs to the types of tariffs to be applied to each commodity (ad valorem, ad rem and composite). In his view, governments need to rethink the way they use tariff types.

Pointing out the fact that the importance of international trade instruments and standards has become even more obvious during the COVID-19 pandemic, he also stressed the need to harmonize penalties for Customs infringements in different jurisdictions, and to leverage technological progress, especially the opportunities offered by cloud computing which enables people to upload and share their digital resources, such as software, applications and files.

Dinesh Unadkat, Director of a consultancy firm called J. D. Consultants Ltd, explained that in the United Kingdom, Her Majesty’s Revenue and Customs (HMRC) recognizes that some importers and exporters try to be compliant but do not necessarily always succeed in their endeavours. For these traders, education is seen as the most appropriate response and HMRC will issue a warning letter followed by a phone call or a visit to discuss the issues, get the trader to rectify the error(s) made and provide guidance so that similar errors can be avoided in the future.

According to Dinesh Unadkat, it would be good to see every country adopting such an approach, which enables traders to learn from their mistakes. Moreover, Customs officials should encourage traders to come forward with issues by ensuring that they will not be penalized and will not have to go through a lengthy legal process to deal with errors and offences that can be dealt with differently. In the UK, only a minority of offences are related to fraud committed intentionally, and these are prosecuted as criminal offences.

Roberto Raya da Silva, founding member of Raya Consult, agreed that the level of penalties should be discussed as they are sometimes inappropriate, especially when it comes to classification issues and it is the first time that the company concerned is at fault. He explained that in Brazil the Administration can review a company’s classification records over a period of five years, and if an importer has used the wrong classification for a long period the fine can reach absurd amounts.

He considers that where a problem exists a company should be alerted quickly by the Administration, and the rate of the fine incurred should be low. Moreover, although in Brazil an importer can consult Customs ahead of a transaction, the Administration usually takes around four months to reply and this is often too long for companies in rapidly-changing sectors such as technology. The fact that the decisions of the Administration are published online is, however, of great help.

Wisnu Nugrahini from the Indonesian Customs and Excise Education and Training Center indicated that her Administration has gone through several reforms and offers modern procedures to traders, as she explains in her article “Indonesia: Customs in the country of 17508 islands”. However, although Indonesian Customs implements electronic systems these are still of limited use, and there is a need to connect the IT systems of various institutions. This will be beneficial both to enforcement authorities, as they will be able to enhance their data analysis capacities and fight undervaluation more effectively, and to traders as it will lower their administrative costs.

Wisnu Nagrahini also explained that another challenge was how to supervise borders and fight smuggling and illicit trade in a territory which consists of more than 17000 islands. Finally, she mentioned the focus on protecting SMEs by regulating imports of goods bought online and facilitating exports.

Dr. Borys Kormych, Professor at the Odessa Law Academy in Ukraine, explained that the separation of the Customs and Tax services in 2019 has been a positive development, because during the time when the two were merged too much emphasis was given to fiscal functions at the expense of trade security and facilitation.

The most remarkable recent achievement has been the introduction of the Single Window for International Trade in 2018. The system enables traders to submit the Customs declaration and associated documents, as well as the data requirements linked to four types of regulations applicable at the border. It has also introduced the procedure of silent consent, which sets a 4-hour limit for each of four regulatory agencies to respond when a transaction is flagged by the risk engine. This system has reduced opportunities for corruption.

One area where businesses complain is Customs valuation. In Ukraine, Customs collects up to 45% of tax revenue and 30% of State revenue. This creates enormous pressure on the Administration and on businesses. Practices such as informal negotiations and a lack of transparency in the way the risk management system works and risk profiles are designed, are among the issues repeatedly raised within the framework of the WTO Valuation Committee.

Customs procedures need to be harmonized over the territory, and some are outdated. For example, Customs officers at the seaports work on two different electronic systems – the Administration’s own clearance system and the one operated by the port; these systems are not interconnected and therefore cannot allow for automated data exchange. The internal transit regime is still fully paper-based.

Ciarán McConigley, Director of Across Borders Consulting, explained that the Irish authorities take a pro-business approach to ensure traders are aware of their obligations, by providing them with technical guidance and good electronic systems which facilitate Customs-related activities. Among other things, the system offers traders the possibility to access historic clearance data which can, if utilized in the correct way, assist them to identify risks and opportunities in their import and export activities.

The biggest challenge for all stakeholders in Ireland at present is getting prepared for the post- Brexit Transition Period. It is estimated that there will be a significant increase in administrative work, and the number of Customs declarations is expected to increase from 1.6 million to 20 million per year. This will mean more work for Customs intermediaries and Customs specialists.

Many traders are still not prepared for the impact of Brexit from a Customs perspective, due to the economic fallout of COVID-19. There is also a belief among some traders that a Free Trade Agreement with the European Union will remove administrative barriers. However, to claim the benefits of any FTA, traders would have to comply with certain requirements which will entail the engagement of financial and human resources.

Evguenia Dereviankine, Lawyer at PARADIGMES, indicated that French Customs has accomplished a great deal during the pandemic in terms of helping importers. However the Administration has recently lost a lot of its responsibilities, which have been transferred to the Tax Administration, and it must adapt its activities in order to preserve its independence.

The Administration is also considering reforming its penalty regime. France is one of the last countries in the EU that still treats all Customs infringements as criminal offences. The criminal approach has certain benefits (protection of the rights of defence; lack of automaticity in the application of penalties) and limitations (uncertainty as to the amount of the fine to be applied). Some changes have already been made, such as the adoption of different levels of punishments based on good or bad faith, and a cut in the interest payable for delay in case of disclosure, and discussions are ongoing to pursue reforms and align the Customs penalty regime on the Tax regime.

Dr. Talke Ovie, a German attorney-at-law, pointed out that the Union Customs Code (UCC) states that Customs “is the partner of commerce”. This means that Customs should know trade operators and be able to understand the specific circumstances leading to a business decision in an individual case. This is the only way to achieve real compliance and ensure that omissions are punished, lessons are learned and processes between companies and Customs are coordinated in a way which satisfies the interests of both.

Talke Ovie explained that great efforts are made in Germany to facilitate and maintain the transfer of know-how and knowledge. Business associations and organizations in particular are offering companies networking opportunities. However, it is still challenging for companies to draw correct conclusions when it comes to compliance with the statutory criteria based on the knowledge they have acquired and the procedures they have put in place, and, when necessary, to put forward their views. It is often not possible to reach an agreement with Customs, which tends to use the courts as “decision-making bodies”. This costs economic operators money and, above all, time. In practice, therefore, the written law and the practical-minded entrepreneur (who is currently preoccupied with economic survival) are often at odds with each other.

Dr. Gediminas Valantiejus, a Lithuanian attorney-at-law, highlighted the fact that an important challenge facing the EU is ensuring consistency in the way that rules are applied in Member States. Rules set at the supranational level are not understood in the same way in each Member State. In Lithuania, the interpretation of these rules by the national Customs authorities and other national institutions (such as national courts) differs from the decisions taken at the supranational level (e.g. by the EU Court of Justice). Authorities also sometimes apply rules which are not aligned with the EU rules, for example specific national rules on estimating the value of imported used motor vehicles. Also, decisions as to who should take legal responsibility for Customs offences are inconsistent and unpredictable. There are no clear criteria for determining which person should be held responsible and bear administrative responsibility.

Jonas Sakalauskas, another attorney-at-law from Lithuania, also pointed out areas for improvement in the EU. He drew attention to inconsistencies in the tariff classification of goods; a disregard for international trade practices and the practices of other EU national Customs authorities; different requirements and procedures between national Customs offices; and limited opportunities for the amicable settlement of disputes.

I, Enrika Naujokė, Director of the Customs brokerage company UAB “Muita”, took the floor to give additional information on the situation in Lithuania. Lithuanian Customs quickly adopted new technologies to communicate with business during the pandemic, and online discussions were organized to inform the public and obtain everyone’s feedback. Lithuanian Customs officials are in general very open to cooperation and the sharing of knowledge, and they participate in conferences and journals. However, there is a gap in Customs education in Lithuania, as no Customs study programme is acknowledged as meeting the standards set by EU Recognition of State-of-the-Art Customs Academic Programmes or the WCO Guidelines for the recognition of University Customs Curricula.

I also listed some current challenges in the EU. Further harmonization of rules is needed: for example, there are significant differences in the requirements for obtaining an EORI number (the number assigned to companies that import or export goods to or from the EU); there are no harmonized rules regarding Customs representation (Customs brokers need a licence in Lithuania, while in Germany they do not) and Customs infringements; and the administrative penalties imposed on private persons are too high in some countries.

The group also identified issues to be discussed during future events. These include: what does it mean to “be compliant”? How to assess Customs knowledge and how to acquire a “sufficient” knowledge? Which aspects of Customs formalities should be harmonized on a regional or global scale?

As Dr. Talke Ovie said, “Customs and trade law is becoming ever more complex and a way must be found to secure the transfer of know-how and knowledge in the current situation.” Do not hesitate to contact me if you are interested in contributing to the Customs Compliance & Risk Management Journal for Practitioners, and joining our writers’ group meetings.

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