Digitalization and Reduction of Bureaucracy in Customs Procedures by Bundesverband der Deutschen Industrie e.V.

POSITION | EXTERNAL ECONOMIC POLICY | CUSTOMS POLICY

Digitalization and Reduction of Bureaucracy in Customs Procedures Simplifications for Economic Operators and Authorities

November 2021 Recommendations ▪ Digitalization offers an important opportunity to simplify customs procedures and reduce bureaucracy. This is not only to the benefit of economic operators, but also of the customs authorities. Digitalization of customs procedures must therefore be implemented consistently at all levels and should always lead to a reduction in bureaucratic requirements for economic operators. It also can make way for more efficient and targeted risk analysis, which can lead to a reduction in the workload of the authorities and economic operators through the resulting improvement in controls. ▪ The German customs administration is taking a leading role regarding digitalization within the EU. From the point of view of economic operators, a central problem is the lack of, and in many areas even absence of, interconnection of the national IT systems of the customs administrations between the Member States and with the European Commission. Consistent linking via digital interfaces could significantly simplify customs procedures and lead to a considerable reduction in bureaucracy. ▪ The amount of data required in customs declarations increases constantly. Here, appropriateness should be ensured with regard to the data really needed for risk analysis and control requirements. Reduced data requirements would not only be a relief for economic operators but could also make data analysis for control purposes by customs authorities more efficient and swifter. For example, for recurring and thus well-known business transactions, periodic (e.g., monthly) collective declarations with reduced data sets would be sufficient. ▪ An efficient and digital exchange of data relevant to customs declarations offers further simplification and reduction of bureaucracy in customs declarations. The creation of digital interfaces in particular can lead to significant simplification, save resources, and accelerate the processing of customs procedures. ▪ Especially for Authorized Economic Operators (AEOs), procedural customs controls should take place rather than transaction-based controls. This, as well as more effective risk management with more targeted controls and thus reduction of control requirements for lower-risk transactions and economic operators, is also supported by digitalization.

Digitalization and Reduction of Bureaucracy in Customs Procedures

Simplification of Customs Procedures Digitalization offers an important opportunity to simplify customs procedures and reduce bureaucracy. This benefits not only companies, but also customs authorities. Digitalization and reduction of bureaucracy offer considerable potential for saving time and resources. Considering that customs authorities in the European Union (EU) processed the import, export or transit of more than 868 million items in 20191, these resources could be utilized on the part of the customs administration, for example, for more effective and system-supported risk analysis. A digitalization of customs procedures must therefore be implemented consistently at all levels and should always lead to a reduction in bureaucratic requirements for economic operators. The full implementation of the electronic systems provided for in the Union Customs Code (UCC) should be completed as planned in 2025. Further postponement must be avoided, as this would deprive economic operators of procedural simplifications. This corresponds to competitive disadvantage for German and European industry. Small and medium-sized companies in particular typically lack the personnel and financial resources to comply with complicated customs formalities. The fewer goods a company exports, the greater the impact of customs duties and bureaucratic costs, and the more difficult it is to enter the export business. At the national as well as the European level, there is significant untapped potential for simplifying customs procedures through comprehensive digitalization and consistent reduction of bureaucracy, for example through: ▪ making processes and procedures more flexible as well as more pragmatic, for example through simplified processing and reduced controls for regularly recurring business transactions; ▪ the system-based process-based review and risk analysis instead of transaction-based controls. It is essential to work more closely with economic operators in the development and implementation of digital solutions at both EU and national level. This is the only way to ensure that digitalization leads to real simplifications on the part of business. In addition, there is a need for pragmatic transitional arrangements that allow economic operators to efficiently apply customs procedures and customs simplifications. To accompany the development and implementation of digital procedures, close and constant cooperation should be sought between the customs administration and economic operators. In Germany, BDI thus proposes structured cooperation between German industry on the one hand and the Federal Ministry of Finance (BMF) and the Central Customs Authority (GZD) on the other. Through such structured cooperation, technical and implementation issues can be discussed decentrally and efficiently, and joint proposals for solutions can be developed. Interconnection of National and EU Customs Systems From the point of view of economic operators, a central problem is the lack of, and in many areas even the absence of, interconnection of the national IT systems of the customs administrations between the Member States and with the European Commission. This currently leads to significant additional burdens on the business side, which in some cases considerably exceed the actual advantages of customs procedures. Consistent linking via digital interfaces could significantly simplify customs procedures and lead to a considerable reduction in bureaucracy. When creating the Union Customs Code, the EU legislator already made clear in the preamble that "[t]he facilitation of legitimate trade and the fight against fraud require simple, rapid and standard

European Commission, EU Customs Union – unique in the world, <https://ec.europa.eu/taxation_customs/eu-customs-unionunique-world_en> (accessed 30 September 2021). 1

Digitalization and Reduction of Bureaucracy in Customs Procedures

customs procedures and processes." Consequently, it makes sense to simplify customs regulations. This should help to ensure the basis for simple and efficient clearance procedures in order to increase the competitiveness of business.2 A current example of massive additional expenses linked to a lack of interconnection of customs systems is the current version of the system for the standardized exchange of information INF STP via the EU Trader Portal, implemented for the exchange of data used in customs procedures. Although the required data is included either in the national customs declarations or in the authorization, additional manual data entry in the INF STP system is required. Linking the national customs systems with one another, establishing a data transfer between the different systems, should not only provide the customs offices involved with a digital – rather than manual – monitoring option, but also save economic operators from having to enter the same data twice. This would save considerable resources and speed up processes, both for the customs administration and for companies. From the perspective of German industry, the development of digital solutions must be user-friendly. This includes the introduction of a genuine EU-wide one-stop store for all processes associated with customs procedures. Currently, the German customs administrations spends considerable resources on the introduction of national IT solutions that are also provided by the EU. Examples are the portal for citizens and business customers (Bürger- und Geschäftskundenportal) and the web-based application for AEO authorizations (Internetantrag AEO-Bewilligung), which must be used by German economic operators for applications for binding tariff information or an AEO authorization, even though these functions are already made available by the European Commission via the Customs Trader Portal. On the other hand, other procedures such as the standardized exchange of information INF are only possible via the EU Trader Portal. Thus, companies are sometimes forced to register for different portals and to work with these different applications. Spain, France, Croatia and Poland are also currently seeking individual national solutions. Here, the German industry demands more uniformity of the applications as well as more cooperation between the EU Member States. The aim of an effective customs union must also be to ensure that the transnational use of customs procedures does not result in additional work for economic operators. An "IT union" with a common EU-wide IT infrastructure would constitute a real competitive advantage for the customs union. If digitalization projects of the European Union (EU) are individually implemented by each Member State, it is important that there are clear guidelines for national implementation to ensure a level playing field in all member states and to avoid additional burdens for economic operators as much as possible. Data Requirements in Customs Declarations The amount of data required in customs declarations is constantly expanding. Increasing requirements due to changes in EU customs law are supplemented by additional requirements from national customs authorities. Here, appropriateness should be ensured with regard to the data really needed for risk analysis and control requirements. Reduced data requirements would serve as a relief for economic operators and would quicken and make data analysis for control purposes by customs authorities more efficient. A reduction of the data fields to the required level in line with the legal basis should therefore be targeted. Currently, for example, it is difficult for economic operators to understand why several Member States require the indication of a seller if that is differing from the exporter in export declarations, since

Official Journal of the European Union, Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code, 10. October 2013, <https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R0952&from=EN >. 3

Digitalization and Reduction of Bureaucracy in Customs Procedures

the exporter is the relevant party for the export transaction. In Germany, businesses are also required to indicate the exporter under foreign trade law (außenwirtschaftsrechtlicher Ausführer) if it differs from the exporter for customs purposes (zollrechtlicher Ausführer). This indication should only be necessary for exports of goods subject to authorization in order to reduce unnecessary additional bureaucracy for economic operators as much as possible. We are also concerned about the increasing number of document codes to be reported in connection with legal regulations of various kinds and the associated prohibitions and restrictions. Here, the customs declaration is used to introduce new and often impractical control mechanisms. Thus, despite digitalization, bureaucratic requirements for economic operators in customs procedures are increasing. Moreover, customs administrations place high demands on economic operators in terms of the description of goods required in customs declarations. These requirements cannot be implemented by IT systems. The range of goods of AEO-certified economic operators in particular is regularly checked as part of AEO monitoring. Simplifications should be established at least for these companies. In addition, requirements for description of goods are often inconsistent from one Member State to another. This leads to competitive disadvantages within the EU. Efficient Digital Exchange of Information and Documents An efficient and digital exchange of data relevant to customs declarations offers further opportunities for simplification in customs declarations, which can also benefit not only economic operators but also the customs administration. The creation of digital interfaces in particular can lead to significant simplifications, save resources and accelerate the processing of customs procedures. In addition to the digital exchange of data relevant to customs declarations, the entire application process should also be consistently digitalized, for example for applications for authorizations or for refunds. Establishing a single-window application that establishes customs as the central contact authority for business to consolidate a digital exchange of both customs and non-customs information would result in significant simplification. A single window application would establish a single point of contact - a socalled one-stop shop - where economic operators can submit all documents necessary for customs clearance in one place and which can be accessed by all relevant authorities. In this way, repeated submission of necessary information at different authorities can be avoided. When setting up this application, it must be ensured that it truly does not lead to additional bureaucratic requirements. It must also be ensured that the customs clearance process is not delayed, but actually accelerated. In addition, it must be ensured that other procedural simplifications, such as centralized clearance or selfassessment, are functionally integrated into a single-window application. BDI welcomes the European Commission's plan to establish such a single-window application in the EU. In principle, the proposed regulation presented in fall 2020 is a step in the right direction. In concrete terms, however, the proposal is insufficient to offer real simplification for economic operators. In particular, the fact that a separate national single window environment is to be established in each Member State is viewed with concern, as this would almost completely eliminate the advantages of a one-stop shop. Should the European legislator insist on individual national single window applications, it must be guaranteed that there are clear guidelines for national implementation to ensure a level playing field in all Member States. Centralized clearance also has enormous simplification potential for economic operators through the efficient digital exchange of information and necessary documents. Centralized clearance allows goods to be presented at customs office A (at the location where goods are stored), while the associated customs declaration is submitted at customs office B (for example, at a company's headquarters). While much still must be clarified for the application of this significant simplification at EU level, in particular with regard to the handling of the collection of import value-added tax - which is, however, possible once approval has been granted – centralized clearance at the national level would already

Digitalization and Reduction of Bureaucracy in Customs Procedures

be possible today. This would minimize the expenses for customs controls at the entry and exit customs offices and thus lessen the burden on these customs offices. At the national level, however, centralized clearance would already be possible at present. At the same time, especially for AEO-certified companies, customs controls could be carried out on a process-oriented basis as part of the annual AEO monitoring. The additional transaction-related checks at entry and exit customs offices could be largely eliminated, thus saving additional resources on the part of the customs administration. For German industry, it is difficult to understand why the German customs administration has so far refused to apply this instrument nationally, especially in light of the fact that other EU Member States (such as Hungary) already allow centralized customs clearance, thereby strengthening their locations. Simplifications for AEOs Certification as an Authorized Economic Operator (AEO) requires significant effort on the part of the economic operator, such as the implementation and documentation of a corresponding organizational structure and processes or the creation of an internal compliance system. Compliance with these requirements is subject to regular monitoring by the customs authorities. Since AEOs generally prove to be reliable and trustworthy economic operators, the status should be accompanied by noticeable simplifications. The following exemplary simplifications would be conceivable, which can also be discussed and specified in more detail within a framework of structured cooperation between the business community and the customs administration: ▪ A significantly reduced data set for AEOs that also provides process security and stability with regard to the company's internal IT implementation; ▪ self-assessment for recurring business transactions and standard processes; ▪ process-based instead of transaction-based controls for AEOs: – Certification as an AEO facilitates access to simplified procedures for customs declarations. Extensive specifications and restrictions are already made in the authorizations for the respective procedure (for example, restriction of simplification to a certain group of goods), which are regularly monitored. The implementation of procedural controls instead of transaction-based controls is therefore already possible without further IT adjustments for these reliable economic operators by updating the administrative instructions. ▪

The possibility of EU-wide centralized clearance also for imports.

The introduction of such simplifications and the reduction of bureaucratic requirements would not only relieve AEOs, but customs authorities as well through the elimination of a repeated control effort for AEOs.

Simplifications through Reduction of Bureaucracy Even beyond a consistent digitalization of customs procedures, there are a number of other opportunities for simplification through reduction of unnecessary bureaucracy. Once again, this would not only relieve the burden on economic operators, but also on customs authorities. A systematic reduction of bureaucratic burdens and requirements would lead to savings in resources, which could be used more effectively elsewhere and thus strengthen the EU and its Member States as a business location.

Digitalization and Reduction of Bureaucracy in Customs Procedures

The European Commission should work towards a pragmatic reduction of bureaucratic burdens for economic operators across the EU. Additionally, the Commission must ensure that simplifications guaranteed to businesses through the UCC are implemented to a similar extent across all Member States in order to establish a level playing field in the EU. The following practical examples clearly show that there is great potential for reducing bureaucracy in customs and can thus lead to significant simplifications: Authorization of a Local Clearance Procedure As part of the application for approval of a local clearance procedure (A1), the applicant is required to prepare a goods list with each individual customs tariff number at subheading level of the Combined Nomenclature (8-digit CN number) for which the local clearance procedure is to be used. Often, such a goods list may contain more than 1,000 customs tariff numbers. After the responsible main customs office has received the corresponding list of goods and incorporated it into the authorization, it is sent to the applying company by mail together with the attachments. When adding a single new tariff number to the goods declaration, the applicant must go through the entire process again. This additional effort could be avoided by simply summarizing the Harmonized System headings used (4-digit HS number). In addition, the electronic dispatch of authorizations, for example as a file by e-mail or via other means of electronic communication, would also lead to a simplification. Comprehensive Guarantees For all special procedures pursuant to Article 210 of the Union Customs Code, a guarantee must be provided in the amount of a reference amount. A major innovation of the UCC was the introduction of the possibility to provide a single comprehensive guarantee for several customs procedures. Nevertheless, this facilitation has not yet been granted in Germany since the entry into force of the UCC and is even excluded until further notice by an internal service regulation. Currently, businesses are required to provide an individual guarantee for each procedure. In practice, for example, businesses may need a new additional guarantee if the guarantee in one procedure is not sufficiently high. The same applies if there is still a large amount of unused guarantee in a concurrent procedure. For German industry, the application of a comprehensive guarantee for all procedures is essential and represents a significant simplification. Therefore, the BDI calls for the prompt implementation of the comprehensive guarantee in Germany. Release of Goods At present, German industry finds that obtaining an authorization for the release of goods at the time of the import declaration at the time of the entry in the declarant's records is virtually impossible for AEOs within the jurisdiction of some main customs offices. For industrial logistics and production processes, the conventional release at the time of expiry of the deadline during the business hours of the customs office is by no means sufficient to be able to work efficiently. For example, when goods are taken out of a customs warehouse for free circulation in the EU in multi-shift operation at night, it is not possible to wait for the customs authorities to release the goods the next morning once the customs office opens again. This leads to unnecessary delays and bureaucratic effort. Both can be avoided by the aforementioned corresponding authorization.

Digitalization and Reduction of Bureaucracy in Customs Procedures

Authorized Consignee and Temporary Storage Facilities Although the Delegated Regulation DA (EU) 2018/1063 in Article 115 allows temporary storage without authorization under certain conditions (declaration for a customs procedure or re-export no later than three days after presentation of the goods), German customs authority continues to stipulate a mandatory storage facility so that the storage at a place authorized under Article 115 (2) UCC-DA is not possible. This requirement results in considerable additional bureaucracy (authorizations, providing guarantee) for many businesses when they place their imports under a customs procedure (e.g. release for free circulation) within three days and do not make use of the storage period of up to 90 days.

Digitalization and Reduction of Bureaucracy in Customs Procedures

Imprint Bundesverband der Deutschen Industrie e.V. (BDI) Breite Straße 29, 10178 Berlin www.bdi.eu T: +49 30 2028-0 Authors Anna Kantrup T: +49 30 2028-1526 a.kantrup@bdi.eu Matthias Krämer T: +49 30 2028-1562 m.kraemer@bdi.eu

Document Number: D 1466