Trade in an EU-UK Partnership by Bundesverband der Deutschen Industrie e.V.

POSITIONS | EXTERNAL ECONOMIC POLICY | BREXIT

Trade in an EU-UK Partnership Industry Perspectives on Rules of Origin and Customs Procedures for an Ambitious Trade Partnership

July 2020 ▪

23.ToOktober 2017 Negotiating an Ambitious and Comprehensive Free Trade Agreement: govern their future relationship, the European Union (EU) and United Kingdom (UK) are currently negotiating a comprehensive and deep free trade agreement (FTA) along the lines of the trade agreement between the EU und Canada (CETA). While such an FTA is better than no deal at all, it does not guarantee frictionless trade and remains far from a common market and customs union. To mitigate the costs of Brexit, the EU and UK should strive for a higher level of integration and smoother procedures at the border than enabled by traditional EU FTAs. By this, the EU-UK-free trade agreement could also serve as a blueprint for other FTAs.

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Withdrawal Agreement and Political Declaration as Basis for the Future Relationship: In light of the UK’s unwillingness to extend the negotiation deadline, what little time remains should be used efficiently and effectively in order to reach an agreement that can be ratified by the end of 2020, when the UK will fully leave the EU. The negotiations must ensure a close relationship that mirrors the proximity in values and geography between the EU and the UK.

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Mitigating Costs of Customs Procedures ▪

Since an FTA will establish two distinct economic zones and remove the UK from the common market, both the EU27 and the UK need to invest in hard and soft infrastructure to ensure efficient customs clearance. Customs procedures need to be optimised to mitigate costs. These efforts would also help in the case of an unwished “hard Brexit” at the end of the year.

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The EU should tackle existing hurdles to centralised clearance, and the UK should implement a ‘Single Window’ system – a one-stop shop where traders can submit all customs documentation.

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The implementation of a self-assessment scheme, in which a simple declaration on the invoice would suffice in claiming origin, would enable economic operators to continue exchanging their goods with only limited interruption.

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The EU and the UK should negotiate a customs cooperation agreement allowing for mutually recognised Authorised Economic Operators schemes.

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BDI-Task Force Brexit The BDI is committed to supporting the Brexit negotiation teams with in-depth expertise in all relevant areas of economic policy. In summer 2017, the BDI set up a Brexit task force together with its member organisations, company representatives and partners including the Association of German Banks (BdB), the German Insurance Association (GDV), the Federation of German Wholesale, Foreign Trade and Services (BGA), the Confederation of German Employersâ&#x20AC;&#x2122; Associations (BDA) and the Association of German Chambers of Commerce and Industry (DIHK). The BDI-Task Force Brexit has established ten project teams to address specific policy areas: (1) Trade in Goods, (2) Transportation and Logistics, (3) Data and ICT, (4) Taxation, (5) Legal Consequences of Brexit in Core Areas of Business Law , (6) Energy and Climate Policy, (7) Market Access, (8) Workforce Mobility, (9) Banking, Finance and Insurance, (10) Negotiation Process (including Northern Ireland, Research and Development, Defence, Financial Commitments). The objective of the project teams is to identify the potential risks posed by the exit of the UK from the EU and to propose constructive approaches to countering these risks. The project teams are looking at the regulatory issues in the individual policy areas on the European and the national level. The BDI is also a member of a similar task force at Business Europe, the umbrella organisation for European business. The work of the BDI-Task Force Brexit will progress in line with the official negotiations. This position paper is based on the background information developed by the BDI Brexit Task Force. The views expressed in this position paper are those of the BDI and do not necessarily reflect those of the other members of the Task Force.

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Content Negotiate an Ambitious Deep and Comprehensive FTA! ............................................................... 4 Establish Simple Rules of Origin for an EU-UK FTA! ...................................................................... 5 Mitigating Costs of Customs Procedures ......................................................................................... 9 Issue 1: Invest in Hard Customs Infrastructure ................................................................................... 10 Issue 2: Invest in Soft Customs Infrastructure (ICT Systems) ............................................................ 10 Issue 3: Centralised Clearance ........................................................................................................... 11 Issue 4: Facilitating the Authorised Economic Operator ..................................................................... 12 Issue 5: Enable Self Declaration ......................................................................................................... 13 Issue 6: Customs Export Procedures .................................................................................................. 14 Issue 7: Prohibitions and Restrictions in Export .................................................................................. 15 Imprint ................................................................................................................................................ 17

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Negotiate an Ambitious Deep and Comprehensive FTA! To govern their future relationship, the European Union (EU) and United Kingdom (UK) have agreed to negotiate a deep and comprehensive FTA along the lines of the trade agreement between the EU und Canada (CETA). With an FTA, the EU and the UK would neither establish a customs union nor a common commercial policy; they would moreover neither install a single market nor follow a common external trade agenda. It remains thus far away from the status quo. CETA, which has been provisionally applied since 21 September 2017, represents one of the most comprehensive and ambitious free trade agreements of the EU. Ninety-nine percent of all industrial customs duties have been abolished since the agreement entered provisionally into force. Within seven years at the latest, industrial products will be entirely exempt from tariffs. The agreement with Canada supplements the WTO accords: CETA is not only more ambitious in its liberalisation aims (e.g. by eliminating tariffs, liberalising services and protecting intellectual property) but also features many socalled WTO+ areas, such as investment, competition, regulatory cooperation, and public procurement. However, in comparison to the current level of integration between the EU and the UK, it is anything but ambitious regarding regulatory cooperation, trade in services, digital trade, and many other areas of cooperation. While a EU-UK FTA will most likely set most tariffs at zero, it will create new bureaucratic barriers for two reasons: First, full customs procedures will be necessary for UK-EU trade; delays are to be expected and will negatively affect supply chain reliability. Second, and in contrast to trade within a customs union, proof of origin is mandatory if traders wish to benefit from preferences. This applies both to trade between the EU and the UK and to trade with EU FTA partners. Third country goods and goods that fail to achieve preferential origin become liable for duty payments. This is especially unwelcome news for shipments that enter from third countries and are destined for the EU via the UK or vice versa. These goods would then have to be declared twice, controlled, and would be liable for twofold customs duties. An FTA between the EU and the UK, should therefore, among others: ▪

Encompass all sectors of the economy;

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Introduce no new tariffs and quantitative barriers, with no exceptions, provided that a level playing field is ensured;

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Contain modern rules of origin for industrial goods (chapters 25-96 CN) and be integrated into the PEM area;

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Foster trade by streamlining and facilitating communication between business and administrations on trade related tax issues and statistical matters;

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Feature clear and restrictive rules on subsidies;

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Foster regulatory cooperation between the EU and the UK to prevent new non-tariff barriers. This should go beyond mutual recognition of equivalent certification agencies and procedures;

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Cover services and investment as well as WTO+ issues such as competition, government procurement, and protection of intellectual property rights (the degree of coverage needs further deliberation);

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Introduce a committee structure to monitor the implementation of the agreement and compliance;

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Establish a mechanism to settle trade disputes.

Withdrawal Agreement and Political Declaration In light of the UK’s unwillingness to extend the deadline for negotiations, what little time remains should be used efficiently and effectively in order to reach an agreement that can be ratified by the end of 2020, when the UK will fully leave the EU. To that effect, the withdrawal agreement and the political declaration have been agreed upon as the outline of a future partnership. The negotiations must lead to a continued close relationship that mirrors the proximity in values and geography between the EU and the UK. The Withdrawal Agreement and the political declaration are the only basis upon which this relationship can be actualised. Northern Ireland In the Withdrawal Agreement, Northern Ireland was given a special status in order to avoid a “hard” border between Ireland and Northern Ireland with controls on goods crossing the border between both countries. Instead, goods crossing the Irish Sea between Great Britain and Northern Ireland have to complete import/export formalities. Northern Ireland’s special status presents economic operators with a number of questions yet to be addressed, especially regarding customs facilitation. While Northern Ireland will not remain part of the EU’s customs union it will continue to enforce the EU’s customs code. It still remains unclear how trade in goods between Northern Ireland and the UK is to be conducted. Companies need clarification on these issues in order to adapt their IT-systems accordingly and prevent further and unnecessary complications for economic operators.

Establish Simple Rules of Origin for an EU-UK FTA! Rules of Origin (RoO) severely impact the utilisation of FTAs. Nilsson/Preillon (2018)1 found that the average EU export preference utilisation rate (PUR) across 18 FTAs, i.e. the extent to which businesses are using the available tariff preferences, was 77.4 percent. A study by the Federation of German Industries has shown that complicated RoO and the costs associated with proving origin are a major reason why German companies choose to continue trading under the tariff rates bound at the WTO (most favoured nation tariff) instead of utilising the preferential tariff.2 In 2018 the preference utilisation rate3 for CETA was only 37 percent.4 For an EU-UK FTA, this stands to be even lower. Thus, RoO introduce a completely new type of bureaucracy in EU-UK trade. These

Lars Nilsson and Nicolas Preillon (European Commission) (2018), EU Exports, Preference Utilisation and Duty Savings by Member State, Sector and Partner Country, 2018, p. 3, <http://trade.ec.europa.eu/doclib/docs/2018/june/tradoc_156931.pdf> (accessed 3 April 2020). 2 BDI (2020), Aiming for Better Utilization of EU-Free Trade Agreements, pp. 28, <https://e.issuu.com/embed.html?d=20200325_bdi_position_better_utilization_of_eu_fta&hideIssuuLogo=true&u=bdi-berlin> (accessed 3 April 2020). 3 PUR for European exports to Canada. All preference utilisation rates referred to in this paper from here on refer to the preference utilisation rates of European exports to the respective partner country/countries. 4 Lars Nilsson and Nicolas Preillon (European Commission) (2019), Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the Implementation of Free Trade Agreements, p. 7, <https://ec.europa.eu/transparency/regdoc/rep/1/2019/EN/COM-2019-455-F1-EN-MAIN-PART-

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rules entail pre-shipment calculations of origin and the burdensome requirement of documentation of input to production lines. What is more, particularly small and medium-sized companies (SMEs) have, if at all, only limited experience with trading practices outside of the common market. More often than not, SMEs that used to be integral parts of inner-European and cross-channel supply chains do not possess the experience of complying with the complex and expertise-driven requirements of origin certification. Simplified and harmonised RoO could mitigate these barriers to trade. RoO should reflect those set out in other EU FTAs. German business proposes the following simplified RoO for an EU-UK FTA: ▪

Pan-Euro-Mediterranean (PEM) cumulation area as a regulatory floor: The EU and the UK should agree on a RoO chapter along the lines of the Pan-Euro-Mediterranean (PEM) cumulation area as a regulatory floor in establishing origin for industrial goods (chapters 2596 CN). This would benefit particularly small and medium sized enterprises. Additionally, larger companies, or companies with more experience outside of the common market, should be given the opportunity to use more advanced, product specific RoO as they apply to modern FTAs. Such an approach would integrate the UK into the PEM-area and ease the regulatory burden on those hit hardest by the trade friction caused by the newly established trade relations between the UK and the EU.

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Uniform cross-sectoral value-added rules: As an alternative for those economic operators who do not rely on PEM rules for their daily operations, an EU-UK FTA should also contain a uniform, cross-industry value-added rule of 50 percent based on the EU calculation method (EEU). This excludes agricultural products covered in chapter 1-24 of the Combined Nomenclature (CN).

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Sector-specific alternative rules: Alternative rules should explicitly remain a possibility for determining preferential origin. The first alternative should be a change of tariff classification. As a further alternative, selected sector-specific processing rules should apply for certain products as defined by the sectors. The affected sectors should be closely involved in defining these rules. For processed sugar, the product-specific rule should be based only on the weight of the final product.

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Phase-in period: In order to give companies enough time to implement the FTA, both sides should think about a phase-in period that would allow companies to benefit from the FTA from entry into force.

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Adaptation to Technological Change: Rules of origin in EU FTAs must keep pace with technological innovation and progress. Thus, they should be regularly revised. A revision clause should be included for that purpose.

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Duty Draw Back: As a general rule, preferential tariffs can be reimbursed retroactively in the event of submission of proof of origin after importation. In order to increase the FTA preference utilisation rate, all agreements should include a rule obliging both contracting parties to ensure appropriate duty drawback systems.

1.PDF?utm_source=POLITICO.EU&utm_campaign=e88f8ee8c9EMAIL_CAMPAIGN_2019_10_15_04_55&utm_medium=email&utm_term=0_10959edeb5-e88f8ee8c9-189626081> (accessed 3 April 2020).

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The existing EU FTAs provide for the option of granting preferential tariff advantages retrospectively but only in justified exceptional cases. Within this framework, a refund of customs duties already paid can be applied for within the statutory limitation periods, if proof can be provided that the imported goods were of preferential origin. German industry therefore suggests that preferential tariff advantages can be generally claimed retrospectively for a period of no less than three years. In the context of the EU-UK FTA such a provision would be vital to economic operators. It would provide the benefits of the agreement from day one and forestall the considerable risk associated with a likely and prolonged implementation period. Such retrospective validity supports producers on both sides. For such a retrospective claim, it is essential that the customs authorities of each party to the agreement establish clear and understandable procedures that allow the importer to request the refund without having to face too many bureaucratic obstacles. ▪

Averaging: The possibility of averaging should be allowed. In contrast to calculations of a single product, averaging enables a summary view of series, calculation periods and/or production sites.

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Calculation on the basis of average material prices: A calculation based on average material prices should be permitted.

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Cumulation: For all industrial goods (chapters 25-96 CN), full bilateral cumulation should be included to allow intermediary goods manufactured in one party to the agreement count towards originating content when the final good is manufactured in the other party. Full cumulation allows the parties to an agreement to potentially consider all the working or processing steps within the value-added chain in the respective partner states as originating. Additionally, a diagonal cumulation with other EU free trade regions should be the objective. Local content from the other 67 EU free trade partners should qualify for originating material just as EU or UK origin products. Therefore, particularly the cross-industry value added rule should be subject to application across the EU and the UK. Additionally, the general rules of origin such as the provisions of general tolerance and territoriality, the gradual acquisition of origin and the duty drawback should be harmonised. Where negotiations with FTA partners have already been concluded, they should not be excluded from this option of cumulation in the long run.

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Cascading: Many existing EU FTAs, like CETA, allow for a so-called modular calculation in the determination of the preferential status of an industrial good that is manufactured in several production stages in one company. As part of the modular calculation, the preferential origin of all intermediate products is determined according to the bottom-up principle up to the final product. If an intermediate product obtains the status of preferential origin, the non-originating materials contained therein no longer have to be taken into account in the preference calculations of the subsequent production stages. The intermediate product is included with its entire value as originating good in the preference calculation of the subsequent stage. Cascading acquisition of origin ensures that companies with a high proportion of in-house production are not at a disadvantage compared to companies with a low proportion of in-house production from a preferential law perspective, provided that the production steps take place within a preference zone. To avoid distortions of competition, this gradual acquisition of origin should be included in the EU-UK FTA.

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General tolerance and territoriality: Limited outsourcing of production stages to third countries should, in principle, be possible without compromising eligibility for the preferential status. A tolerance of up to 15 percent value added outside the preferential area should therefore be considered as a general rule in the agreement. The tolerance for the sugar sector should be based on the weight of the final product only. However, the weight method is unsuitable for chapters 25-96 CN (industrial goods) and therefore its scope should not be expanded in any case.

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Proof of origin: Proof of origin should be simplified. Exporters should be able to choose freely, whether they submit the consignment-based proof (preferential invoice declaration and the formal certificate such as EUR.1) or a certificate of origin that is valid for multiple shipments for a specified long-term period. Non-formal proof of origin, such as the invoice declaration, should also be allowed as it would significantly simplify the handling of the preferential origin of goods. Up to a certain amount, the use of non-formal origin certification should always be possible (e.g. 6,000 euros as in the EU-Korea FTA). Furthermore, if an exporter has been granted the status of “Approved Exporter”, they should be able to issue an invoice declaration without being restricted by a monetary threshold. This is already practiced in several countries such as South Korea, Mexico, and Switzerland. In order to further simplify proof of origin, the obligation to include origin criteria in the statement on origin, as introduced in the EU-Japan EPA, should not be incorporated in an EU-UK FTA. The requirement to indicate origin criteria represents a considerable additional burden to companies. Should importer’s knowledge be used for proof of origin, a simple declaration on the invoice should suffice. Additionally, and as in the EU-Japan EPA, lack of importer’s knowledge should not lead to a refusal of proof of origin.5 Administrative cooperation between European and UK customs authorities should also be established. In case of critical questions and in individual cases, the customs authorities of the importing country contact the authorities of the exporting country. Alone or together with the authorities of the importing country, the customs authorities then carry out a more detailed examination of questionable proofs of origin. This would prevent British importers from requesting sensitive details such as intellectual property from their European exporters.

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Supplier’s declaration for products without preferential origin status: A declaration stating the non-originating content of a product is already legally possible under European law in order to enable a pro-rata consideration in the preferential calculation. Economic operators can deliver these declarations in the form of a single or a long-term supplier’s declaration. German industry believes that this should be permitted on a cross-border basis under a potential EU-UK FTA. Furthermore, a single standard for the use of the supplier’s declaration (i.e. document format/ document validity/ guidelines) should be agreed upon in order to keep administrative burden and issues of incompatibility to an absolute minimum.

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Non-alteration Principle for Transit: Goods should maintain their preferential status irrespective of the transport route. Proof of preferential status shall be considered adduced, as long as customs authorities do not cast or claim reasonable doubt on the non-alteration condition/status of a good. This adjustment is necessary in times of global value chains. In

This guarantee has also been agreed upon between the EU and Japan: TAXUD, EU-Japan Economic Partnership Agreement (EPA)Rules of Origin and Origin procedures Information to EU exporters Application in Japan of Article 3.16(3) of the EU-Japan EPA Request for an explanation from the importer in Japan, <https://ec.europa.eu/taxation_customs/sites/taxation/files/14-03-2019-information-article_3_16_3_jp.pdf> (accessed 28 October 2019).

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modern logistics networks, goods are often not delivered directly from the country of origin to the destination country offering preferential treatment. Rather, they are first delivered to a regional hub which then supplies the region at short notice and generally falls outside the application area of the preference agreement. This kind of distribution system makes an essential contribution to improve flows in the supply system and enables widespread just-intime deliveries. ▪

Accounting Segregation: German industry furthermore advocates against the principle of separate storage, in which materials with preferential origin must be separated from materials without preferential origin. Physically separating identical goods with the same nature but different origin makes storage and production considerably more difficult and expensive. Strict separation is uneconomical, for example for liquids and bulk cargo with small particles. Instead, accounting segregation should replace the physical separation of originating and nonoriginating goods. This should be carried out in accordance with proper accounting standards, allowing companies easy application. Documentation requirements should not exceed national standards that are already in place and have proven to be sufficient. The use of accounting segregation for commercial goods, materials and products should therefore be explicitly allowed in the text of the agreement.

Mitigating Costs of Customs Procedures The term “customs” refers to more than the collection of tariffs. It also encompasses the enforcement of a wider set of rules and regulations that stipulates what can be traded and how it is treated by authorities. With higher volumes of trade, the focus has shifted from revenue generation to security and product standards. Governments are focused on preventing smuggling, diseases control, food safety, and so on. To minimise unnecessary checks, decisions on what to check are driven by information such as the origin of goods, the volume and type of goods, and the trading history of the importer or exporter. Brexit inevitably means significant changes to the way the UK border operates. Traders who are used to moving goods freely to the EU will face new requirements for paperwork, and their goods could face substantial border checks. Approximately 180,000 additional traders would need to make customs declarations (on top of today’s 141,000 traders). The sheer volume of UK trade with the EU means that the number of checks is expected to increase substantially after Brexit. 6 Due to the expected short timeframe that customs authorities as well as economic operators will have to implement the new customs procedures, pragmatic transitional rules are necessary. This would allow especially the economic operators to make the required adaptions to their IT systems necessary to utilise the FTA and its customs procedures from day one. In the following section, several customs challenges are discussed. The UK should mirror the EU’s customs approach. However, this will not suffice. The EU and the UK need to take further unilateral and bilateral action to at least (partially) mitigate costs, e.g. by modifying the UCC and its delegated and implementing acts and/or the corresponding future UK’s customs union regime. In doing so, they will need to find a solid balance between trade facilitation by simplifying and streamlining customs arrangements and wider safety and security.

House of Commons/Home Affairs Committee (2017), Home Office Delivery of Brexit: customs operations, p. 6 <https://publications.parliament.uk/pa/cm201719/cmselect/cmhaff/540/540.pdf> (accessed 6 April 2020).

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Issue 1: Invest in Hard Customs Infrastructure The physical customs infrastructure supporting trade has been carefully calibrated to bolster the growing flow of goods. Non-EU unitary trade (in contrast to trade with bulk goods such as coal or gas) is handled almost exclusively in containers. These arrive on big ships and remain at ports for a period of time until the importer takes them inland. Customs processing can be done while the containers are at sea. It is different for arrivals and dispatches between the UK and the EU, which rely overwhelmingly on a continuous movement of trucks, carried by ferries or trains (‘roll-on, roll-off’, or RoRo). There are more truck movements between the UK and EU through major ports each year than there are container shipments to or from the rest of the world. There are severe constraints on expansion at some ports. Additional infrastructure will also be needed at the Channel ports in France and Belgium.7 Constraints also apply to the rail infrastructure. On the rail network, which is one of the most intensively used in Europe, delays due to greater border controls could have significant follow-on delays for domestic freight and passenger services. Additional rail infrastructure may be required for customs purposes and to manage delayed trains. Construction of additional rail infrastructure requires lead times of often up to several years due to long plan approval procedures and legal obstacles. Recommendations: ▪

The EU and the UK need to further invest in physical infrastructure at key arteries for EU-UK trade.

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Customs solutions based on self-assessment should be implemented and customs declarations simplified to speed up the process of clearing customs. As a consequence, less physical space and fewer officials would then be needed to execute the control procedures.

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To reduce pressure on infrastructure and personnel, the location where checks and control take place could be moved. For veterinary and phytosanitary checks, for instance, the UK and the EU could agree on mutual recognition of SPS checks or on periodic checks in one another’s jurisdictions.

Issue 2: Invest in Soft Customs Infrastructure (ICT Systems) Customs clearance is not only about the physical infrastructure but requires many people and organisations to work together effectively. Therefore, ICT systems are very important. The rapid sharing of data is critical and, as such, a coherent approach to risk assessment. With the end of the transition phase, the UK will have to introduce its own customs legislation, including detailing customs procedures, customs permits, customs codes, customs declarations, customs duty levels, and simplifications. The EU is still in the early phase of implementing the UCC. The two new EU customs simplifications, centralised clearance and self-assessment, will not incorporate the UK. The UK has its own ICT infrastructure, the backbone of which is the Customs Handling of Import and Export Freight (CHIEF). CHIEF is in the process of being replaced by a new system, the Customs Declaration Services (CDS), which was designed to meet the EU’s new customs requirements in the UCC. Currently, CHIEF and CDS are operated in parallel in order to ensure that all traders in the UK

House of Commons/Home Affairs Committee (2017), Home Office Delivery of Brexit: customs operations, p. 15 <https://publications.parliament.uk/pa/cm201719/cmselect/cmhaff/540/540.pdf> (accessed 6 April 2020).

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are migrated to the new system before CDS becomes solely operational. However, the British system is likely to struggle to meet the new requirements after Brexit, due to the massively increased trading volume and operational issues that IT systems will face when put to a formerly unknown application environment. Updated IT systems will be fundamental to ensure the effectiveness of any new customs arrangements.8 The New Computerised Transit System (NCTS) is a system within the EU and other parties to the Common Transit Convention, based on electronic declarations and processing. It is designed to improve the management and control of Union and Common Transit. It is a positive sign that the UK will become a party in its own right to the Common Transit Convention after the end of the transition period. This means that the use of the respective common transit procedures, including NCTS, remains possible for transports from and to the UK. Recommendations ▪

The UK should replicate the UCC in domestic legislation.

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The UK needs to accelerate the upgrading of its computer systems for electronic customs declarations.

Issue 3: Centralised Clearance Centralised Clearance (CC) would greatly facilitate EU-UK trade. CC allows businesses to deal with all their import and export declarations at a single customs office, i.e. a single one-stop shop. The concept is enshrined in articles 179-181 of the Unions Customs Code. CC permits economic operators to centralise and integrate their accounting, logistics, and distribution. This enables savings in administrative and transaction costs. However, there are several hurdles to overcome. Declarations for VAT at import, prohibition or restrictions at import (PoR) and exports cannot yet be lodged at the one-stop shop. Major problems are the unharmonised import VAT and excise duties – considering variance among EU Member States – and national tax collection. German business asks that major advantages are made towards a completely digitalised, and hence genuine, centralised clearance. Recommendations ▪

The EU and member states should tackle existing hurdles to centralised clearance.

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The EU should speed up its work on a ‘Single Window’ system. It should also introduce VAT declarations into its ‘Single Window’ system.

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The UK should also implement a ‘Single Window’ system – a one-stop shop where traders can lodge all customs documentation.

House of Commons/Home Affairs Committee (2017), Home Office Delivery of Brexit: customs operations, p. 21 <https://publications.parliament.uk/pa/cm201719/cmselect/cmhaff/540/540.pdf> (accessed 6 April 2020).

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Issue 4: Facilitating the Authorised Economic Operator Self-assessment and simplified procedures are two promising ways to minimise the burden caused by the increase in customs declarations. Both should be extended to Authorised Economic Operators (AEO). The AEO concept is based on the Customs-to-Business partnership of the World Customs Organisation (WCO). The AEO status is established in Article 39 of the EU Union Customs Code Regulation. The AEO is a certified trustworthy company that meets certain criteria and is granted simplifications in customs procedures and customs facilitation on this basis. AEO goods can move more quickly, which translates to lower costs. At the same time, customs authorities benefit, since they can focus their scarce inspection capacities on the cargo of unknown and potentially unsafe operators. Mutual recognition of AEOs would further facilitate customs procedures. The EU has concluded and implemented Mutual Recognition of AEO programs with Norway, Switzerland, Japan, Andorra, the United States, and China. Similarly, different standards between the EU und the UK are not to be expected. However, applying for AOE status is time-consuming and expensive, and the benefits do not always justify the costs. Thus, application for AOE status should be simplified in the EU-UK relations, but also in general. The potential scope of increased facilitation is relatively extensive for AEOs as well as customs authorities given that UK companies with AEO status account for around 60 percent of UK imports and 75 percent of the country’s exports.9 Recommendations ▪

To make AEO status more attractive and to facilitate trade, the system should move away from a transaction-based controls approach towards general risk analysis including business process-based controls. Trustworthy companies need more tangible simplifications in administrative proceedings, such as real discounts in customs securities and fast-track procedures.

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The UK is currently part of the EU’s AEO concept. After Brexit, the UK will need to either adopt the provisions of the AEO scheme into UK law, or develop its own AEO scheme. German industry acknowledges that HMRC has declared that alternatives will be in place in case no deal can be reached between the negotiating parties. However, the exact structure of a UK AEO remains unclear. Therefore, German industry calls upon the UK to precisely define what a UK AEO would look like.

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To further simplify customs and to facilitate trade, German business calls upon the EU and the UK to mutually recognise the respective trusted traders status of companies domiciled in the partner’s customs area. The high standards met by economic operators during the certification process as well as the ensuing administrative obligations on businesses thereafter should result in effective and palpable trade facilitations for trusted traders.

UK Parliament (2018), What if the UK fails to secure a deal with the EU? <https://publications.parliament.uk/pa/ld201719/ldselect/ldeucom/187/18706.htm#_idTextAnchor019> (accessed 6 April 2020).

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Issue 5: Enable Self Declaration If the EU and the UK mutually recognised their AEOs as trustworthy operators, there is ample scope for simplifying import declarations through self-assessment. Accordingly, a large part of the necessary customs registration process and customs procedures would then be carried out by the companies themselves, with periodic (e.g. monthly) reporting of aggregate data replacing the necessity for repeated customs procedures for every transaction conducted. After obtaining AEO status, companies must apply for self-assessment. Customs authorities then must check the compliance procedures, products, and partners of a company. If all these aspects are in line with customs regulations and the requirements for self-assessment are fulfilled, a company should be authorised for self-assessment and obtain a registration number that is listed in a separate database. In the following, German Industry proposes two simplification scenarios. BDI argues that Variant 1a and 2a is the pair enabling a genuine optimisation of reciprocal trade between the EU and the UK. While it requires economic operators to abide by high compliance standards, it comprises undeniable rewards for business by keeping ongoing bureaucratic exchange to a minimum. What is more, the strongest simplification would also ease the administrative burden on authorities and clear resources to ensure European customs can focus on preserving the integrity of the common market. Variant 1a: Strongest Form of Simplification ▪

An ATB – the approval number received when a carrier declares a manifest to customs before arrival – is granted upon entrance into the EU and/or within the framework of completing a transit procedure. Customs will only examine whether the economic operator has been granted the relevant simplification (using an EU database and by checking that the simplification has been authorised in the accompanying documents). If this is the case, the goods will be released automatically and the ATB number will also be completed, indicating the simplification.

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There is no “provisional declaration“. The operator can subsequently enter the goods without any further delay. Entrance should be registered in the operating records and customs declarations made periodically (e.g. either monthly, quarterly etc.).

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In principle, the method is the same as for value-added tax (VAT), i.e. submission of a periodic customs declaration to provide data that is summarised to the greatest possible extent. This could even go so far as only informing the customs authorities of the total charges (division of the statistical data depending on the “category of goods“, according to percentage of total charges, or percentages determined on the basis of empirical values).

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On a random basis, the customs authorities can subsequently check whether the information was correct by administering only random spot-checks.

Variant 1b: Registration of the Procedure on Entrance but Periodic Declaration ▪

An ATB is issued upon entry into the EU and/or within the course of completing a transit procedure. Should the alternative to the upstream NCTS procedure be selected, the NCTS will automatically be completed once the ATB has been issued. Economic operators only have to state that this strongest form of simplification has been authorised. Customs will only examine whether the economic operator has been granted the relevant simplification (via an EU database, and by verifying that the simplification has been authorised in the accompanying documents). If this is the

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case, release of the goods is automatic, as the allocation of the ATB is equivalent to the clearance of goods. Note: In the case of variant 1b, the ATB number will, at the same time, automatically be allocated under indication of the simplification. ▪

The economic operator will be informed of the ATB number.

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The import duties are then calculated as part of the in-house self-assessment, if appropriate, automatically, in the company’s existing customs system, whereupon a monthly payment will be made to the Main Customs Office.

Regarding further management, there are two variants (variant 2a and variant 2b): Variant 2a ▪

In the payment declaration, in addition to stating the charges, the customs procedures applied are also established, as well as the respective customs value assigned to this customs procedure.

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On a random basis, the customs authorities subsequently examine whether the information is correct (only using random spot-checks!).

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The statistical reporting is done separately in coordination with the Federal Statistical Office, whereby as many simplifications as possible should be allowed.

Variant 2b ▪

In parallel, the Main Customs Office receives a monthly report with consignment-related data containing all reported ATB items (forwarded via the company’s certified customs software – for example, to ATLAS). This procedure also includes the completion of the ATBs granted.

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As the items have been forwarded, the data can continue to be reported to the Federal Statistical Office via the customs administration.

Issue 6: Customs Export Procedures Within the confines of an FTA, it is clear that the number of pre-departure declarations would increase and that applications by economic operators for simplified procedures would also rise. This in turn would put stress on institutional capacities formerly unburdened by handling the severe amount of declarations that has to be expected. Recommendations Pre-Departure Declarations: Summary declarations instead of individual advance declarations ▪

Summary declarations by AEOs should replace individual declarations. Holders of AEO status only need to state the approval number in an accompanying document. With this number the exports customs office can see that the AEO is not required to provide an individual declaration, but only a summary declaration. AEOs that are granted these simplifications are registered in a customs database to which only the customs authorities have access. Thereby AEOs are obliged to enable spot checks at randomly given times.

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Pre-Departure Declarations: Waiver ▪

Similar to the aforementioned case, with the addition that a summary declaration will also not be required.

Customs Export Declaration: Summary Declarations Instead of Individual Declarations ▪

As in the case of pre-departure declarations, periodic summary declarations should in this case replace individual declarations (every month or quarter). The owner of an AEO certificate only needs to state the number of their status authorisation in an accompanying document. Based on this authorisation number, the customs point of exit can see that an individual export declaration is not required. Using a customs database, to which only the customs authorities have access, the customs authorities can control whether the participant has actually been granted this simplification.

Customs Export Declaration: Waiver ▪

Similar to the aforementioned case, with the addition that a summary declaration will also not be required.

Issue 7: Prohibitions and Restrictions in Export Given the level of integration on both sides of the canal, it is self-evident that particularly the production of dual-use goods – that is, goods with an either civilian or military application – will potentially be disrupted by an FTA. Such an agreement still puts the UK well outside of the common market and its community transfer provisions. Measures and Recommendations Simplified export control procedures should be implemented for EU exports of dual use goods to the United Kingdom, as well as for other trade control regulations, e.g. for drug precursors or armaments trade. To minimise global proliferation risks, EU companies need to apply for individual export control licenses with their national export control agency, if they wish to export to a third country outside the EU. This procedure is regulated in the EU by the Union’s Dual-Use Regulation 428/2009. The necessary export control procedures can take weeks, or even months, as the process involves technical, country- and end-user-specific risk analysis. However, the dual-use and national defence regulations provide for exemptions for exports to countries with no or close to zero risk of proliferation. These country-specific simplifications are endorsed in the General European Authorisation licenses. Among other general licenses, the EU001 is the general authorisation under which (nearly) all dualuse items can be exported without licensing requirements to the following countries: Australia, Canada, Japan, New Zealand, Norway, Switzerland, and the United States. German industry is relieved that the negotiating parties agree that the United Kingdom should be added as a EU001-listed country. Other trade control regulations should also foresee similar simplifications to trade between the EU and the United Kingdom. It would also be necessary for the United Kingdom to be listed in Annex 2 Part 3 of the EU Dual-Use Regulation 428/2009 because national general licenses often reference these in their provisions. In addition, it must be ensured that the United Kingdom can still participate in the simplified export control procedures of global licenses with respect to projects within the Letter of Intent/HMR-Agreement and the certification under Directive 2009/43/EC of the European Parliament and of the Council of 6 May 2009 simplifying the terms and conditions for the transfer of defence-related products within the EU.

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Since it is unlikely that the required adaptions in the Dual-Use Regulation can be finalised before the end of the transition period via the required ordinary legislative procedure, they should be part of an EU-UK FTA. EU Member States and their national export authorities (like the German BAFA) should ensure early clarification for exporters and national implementation, including the timely preparation of customs authorities. If these steps cannot be taken on the EU level in time, Member States should take the necessary administrative action to clarify the legal status of existing licenses and to allow for simplified export procedures in the future exchange with the UK.

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Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 Authors Dr. Stormy-Annika Mildner T: +49 30 2028-1562 s.mildner@bdi.eu Dr. Nikolas Keßels T: +49 30 2028-1518 n.kessels@bdi.eu Anna Kantrup T: +49 30 2028-1526 a.kantrup@bdi.eu Gabriela Popzyk T: +49 30 2028-1596 g.popzyk@bdi.eu

Document Number: D 1207