Ukraine Report 2023 - customs comments and recommendations of the European Commission

The European Commission has published an analytical report on the implementation  of the European customs legislation in Ukraine.

As a candidate country for EU accession, Ukraine is obliged to harmonize its legal framework with the European, implement law enforcement sector and use common computerized customs systems. The European Commission (hereinafter - the "Commission") in its Ukraine 2023 Report (hereinafter - the "Report") noted that although the ongoing military aggression, Ukraine has made significant progress in harmonizing its legislation with EU law, in particular:

• Ukraine is connected to the EU customs information system and is using the New Computerized Transit System (hereinafter - NCTS)
• since October 1, 2022, Ukraine has become a contracting party to the Convention on a Common Transit Procedure, which is fully based on the EU transit system.

The Commission noted that the Customs Code of Ukraine, adopted in 2012, is largely in alliance with the Customs Code of the EU, including amendments on transit procedures, AEO simplifications and intellectual property rights enforcement.

In particular, in 2022, the Customs Code of Ukraine was amended twice to simplify customs formalities, decision-making procedures and accession to the NCTS.

It was also noted that the Ukrainian government adopted the Resolution of the Cabinet of Ministers of Ukraine "On amendments to the Procedure for maintaining the Ukrainian classification of goods for foreign economic activity", which brought the classification of goods in line with the Harmonized system and the Combined EU Nomenclature.

The Commission has determined the priority tasks for Ukraine in 2024:

• to make progress in areas related to customs procedures, customs debt and the use of guarantees, as well as to simplify customs formalities and harmonize the Customs Code of Ukraine with the Customs Code of the EU
• to ensure the timely implementation of the 5th phase of the NCTS and to expand the use of the common transit procedure, as well as the authorized economic operator (hereinafter - AEO)  framework
• to adopt legislation criminalizing large-scale smuggling of all goods and to build up administrative capacity for its implementation.

The Commission's recommendations in the Report are the following:

• to raise the usage of the national AEO program and to finalize the development of an appropriate IT system for mutual recognition with EU countries
• further harmonization of the Customs Code of Ukraine with the Customs Code of the EU, particularly in the areas of customs procedures, simplification of customs formalities, pre-departure information exchange and the enforcement of intellectual property rights
• updating the IT system for registering liabilities of subjects of foreign economic activity
• the cancelation in November 2023 of pre-war customs clearance simplifications,  should promote the use of NCTS and provide benefits to eligible AEOs, as well as strengthening risk-based customs controls and improve internal controls
• ensuring the return of the operative intelligence rights to the State Customs Service, which is necessary to improve its efficiency.

In the Report, the Commission also emphasizes the identified risk areas. For example, Ukraine became a contracting party to the Convention on a Common Transit Procedure and the Convention on the Simplification of Formalities in Trade in Goods on October 1, 2022, but the number of transit shipments under such procedure remains modest. Additionally, given the ongoing war and the suspension of several regional customs offices and border crossing points in eastern Ukraine, the number of transit traffic remains low.

It’s noted in the Report that the State Customs Service of Ukraine has largely retained its operational and administrative capacity, but at the same time a comprehensive reform is needed to transform it into a modern, efficient, transparent and corruption-free institution.

According to the Commission’s opinion, such reform should include, in particular, the following areas: transparency of the selection and stability of the leadership, effective recruitment and training of staff, upgrading of the IT infrastructure, implementation of the European IT systems, increased emphasis on risk-based management and post-clearance control.

The Report also envisages Ukraine's accession to the Protocol to Eliminate Illicit Trade in Tobacco Products and the adoption of a long-term national strategic plan for the digital development of the State Customs Service of Ukraine until 2026 based on the EU's customs strategic plan.