Column for "Obozrevatel": How to get a "customs visa waiver" during the war – Ukrainian experience

Yurii Draganchuk, Deputy Minister of Finance of Ukraine for European Integration, and Oksana Nikanorova, adviser of the Deputy Minister of Finance of Ukraine, customs reforms coordinator of the Reform Support Team of the Ministry of Finance of Ukraine, in a column for the "Obozrevatel" publication, told about Ukraine's experience in accession to international customs conventions, as well as the benefits of domestic  business with the beginning of the international application of NCTS.

On July 7, 2022, a key decision was made, necessary for Ukraine to join two customs conventions (the Convention on а Common Transit Procedure and the Convention on the Simplification of Formalities in Trade in Goods) and the international application of the NCTS, which is already known as "customs visa waiver".

The accession of any country to these conventions is a long and difficult path that requires serious transformations of transit and guarantee procedures, availability of a network of reliable guarantors on the market, implementation of legislation, introduction of appropriate software and the possibility of its communication with the software of customs authorities 35 countries of the world, training of customs specialists and guarantors to work with NCTS, business agreement to spend additional time and participate in the implementation of a completely new process. Further, the direct launchment of NCTS at the national level and work with it for at least a year, the work of several EU missions and, based on the results of their work, the decision on invitation by 35 countries - participants of the conventions.

The active phase of work in this direction began almost four years ago, and its main goal at that time was the activation of customs information exchange between Ukraine and 35 countries of the world. In the pre-war period, this was almost 50% of our international trade, which with the beginning of the war and the blocking of most of the borders turned into more than 70%.

This work was initiated by the Ministry of Finance of Ukraine and the Reform Support Team, later it turned into a large-scale project of the Ministry of Finance of Ukraine and the State Customs Service of Ukraine, which was technically supported by 2 projects (Reform Support Team and the EU4PFM program), politically – by EU Delegatio to Ukraine, the Government Office of European Integration, the Cabinet of Ministers of Ukraine, the Verkhovna Rada of Ukraine. In order to implement the project, in addition to the basic Law of Ukraine "On a common transit regime", we have developed 16 by-laws and explanatory acts on almost 800 pages; held dozens of supervisory councils and working meetings with the National Bank, businesses, guarantors; trainings for customs officers, businesses and guarantors; the State Customs Service of Ukraine tested 143 scenarios of readiness to work with NCTS at the international level. In order to ensure the international application of NCTS (and the necessary system of customs simplifications), we have developed, and the Verkhovna Rada of Ukraine adopted in the first reading and is preparing for the second reading the Draft Law № 7420 on 200 pages. As our international expert of the EU4PFM project Vityanis Alisauskas notes, "International application of the NCTS is a "small introduction" to the EU".

What does it bring to business and Ukrainians?

The war and the need to accelerate the filling of the country with goods as a "litmus test" highlighted the imperfection of a number of processes at the border. According to many international experts, the international application of the NCTS for Ukraine is precisely the tool that will be able, on the one hand, to speed up the movement of goods across the border and their customs clearance, and, on the other hand, to preserve the vector for European integration and even fulfill part of its obligations. The main arguments of the experts are that after joining the NCTS it will be possible:

•  to move the goods on the basis of one transit declaration and one guarantee between 36 countries of the world (between Ukraine and the EU countries, the United Kingdom, Turkey, Serbia, North Macedonia, Iceland, Norway, Liechtenstein and Switzerland).
•  for enterprises authorized in accordance with the EU rules - to receive and send goods at their enterprise without visiting customs terminals as a transit simplification for movements between these countries.

In addition, the international application of NCTS will revive the market of financial services, as after joining Ukraine to it Ukrainian financial guarantees will begin to operate in 35 more countries of the world. This opens up new opportunities for our banks, insurance and other financial companies.

From the point of conducting international trade, the war cut off a number of logistical routes and blocked almost all sections of Ukraine's border, except for the border with the EU countries. On the one hand, it causes significant losses to the economy. On the other hand, if you look from the point of view of finding growth areas and opportunities, this situation forced us to restart certain processes at the border and spread the European rules for controlling cross-border movement of goods.

Ukrainian customs control rules are quite liberal. At the same time, even with regard to such liberal rules, business constantly expressed its dissatisfaction even before the war. Due to a significant part of the relaxation of controls without counterbalancing them from abuse deterrent mechanisms, such liberal rules are incompatible with the EU rules, which blocks both the expansion of the exchange of customs information and the strengthening due to this system of risk analysis, as well as the recognition of our forms of customs control by the customs authorities of other countries.

It should be noted that the international application of NCTS in combination with the previously introduced AEO program, as well as customs simplifications that are planned to be available for enterprises without AEO status, opens up even greater opportunities for Ukrainian business compared to the relative losses from the planned cancellation of the existing IM40EA procedure and export without entry to the customs terminal.

Among the mentioned prospects, the following opportunities open up for Ukraine:

•  development of a network of commercial, logistics or trade hubs;
•  development of processing and production industries for the needs of the internal market of consumption of goods due to the use of the end-use procedure (the application of reduced duty rates is expected);
•  expansion of the range of services for brokerage, freight forwarding, and financial companies by increasing the demand for a comprehensive guarantee (including a comprehensive guarantee with reduced reference amount and guarantee waiver).

This should revive, make the sphere of trade in goods (especially Internet trade) more mobile and resistant to external challenges, as well as encourage most of the business to plan and optimize tax and customs payments, more meticulous planning and control of cash flow.

Also, the opportunity of developing a network of logistics hubs should become the most considered decision in the conditions of the critical state of the customs infrastructure and, at the same time, the impracticality of its development in the context of our goal of joining the single customs space of the EU and, accordingly, the prospect of abolishing customs control at the border with the EU.

To use such opportunities, the enterprise must conduct a preliminary self-assessment and confirm the reliability of its internal processes (for example, regarding the preservation of documents or the possibility of their restoration in case of loss, HR and personnel selection, control over goods arriving or stored at the enterprise, compliance with tax and customs legislation, application of compliance practices, control over the company's financial stability and financial solvency; the exact list of criteria depends on the set of simplifications that the company will apply for). In return, the company will receive authorization for customs simplifications as an incentive. In general, such a procedure can take from six months to a year. Therefore, interested companies should plan and start this path now, without waiting for the end of the war.

It is clear that a number of companies will face certain difficulties in connection with the destruction of certain warehouses or offices where goods or documents were stored. For companies that used these practices and invested in the reliability of internal processes even before the war, this will not be anything new or too difficult. It will be easier for them to recover to meet the criteria and apply for simplifications.

World economic trends are moving forward. Ukraine will not be able to restore its economy, if it does not find a place for its business in the world economy, taking into account its trends and vectors of change. For example, the experience of Turkey, with which Ukraine has a similar geographical location and a variety of checkpoints, shows that a strong basis for the development of trade business can be built based on a common transit system and a system of European simplifications.

You can find out more about the new opportunities of using a common transit system, as well as more information, how to become a user of it, on the website of the State Customs Service of Ukraine.