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Revisions to EU Customs Law to Become Applicable in Matter of Months

Hong Kong traders should be aware that on 1 May 2016, the rules of the new Union Customs Code (UCC) will become directly applicable in the EU. Traders may recall the adoption of Regulation 952/2013 laying down the Union Customs Code (UCC Regulation) on 9 October 2013.

The UCC Regulation will serve as the modernised framework Regulation on the rules and procedures for customs throughout the EU. On 29 December 2015, two acts adopted by the European Commission, containing the more detailed rules related to the UCC Regulation, were published in the EU Official Journal.

The first act, namely the Commission Delegated Regulation 2015/2446 (UCC Delegated Act), contains detailed provisions which supplement the UCC Regulation (see: Specifics Adopted for Modernization of EU Customs Procedure). The second act, namely the Commission Implementing Regulation 2015/2447 (UCC Implementing Act), contains the detailed rules for the implementation of the UCC Regulation.

In what follows, an overview will be given of a number of important changes brought about by the UCC Regulation, the UCC Delegated Act, and the UCC Implementing Act.

Customs valuation – A first important change is the abolishment of the “First Sale for Export valuation” rule. Under current EU legislation, importers can, under certain conditions, use the value of an earlier sale in the supply chain, as the customs value. The UCC will replace this rule by the “Last Sale for Export rule”, meaning that importers must use the value of the sale occurring immediately before the goods are brought into the customs territory of the Union. However, the Implementing Act provides for an exemption of this new rule until the end of 2017, on the condition that a binding contract was in place before 18 January 2016.

Moreover, under the UCC, royalties and licence fees for intellectual property (IP) and other intangible rights will more easily become dutiable. Under the current system, such royalties and licence fees are only part of the customs value if they can be regarded as a condition for the sale of those goods. Although this condition is maintained under the UCC, the Implementing Act has now defined particular situations, in which it is assumed that the “condition of sale” is met. As these situations are drafted in very broad terms, royalties or licence fees risk becoming dutiable in more situations.

In addition, trademark royalties lose their preferential treatment. Under the current legislation, trademark royalties paid for goods are not dutiable when the importer of those goods is free to obtain the goods from other sellers unrelated to the licensor. This exception will no longer be available, and trademark royalties will be subject to the same rules as other royalties and licence fees.

Binding Tariff Information – The system of Binding Tariff Information (BTI) will also undergo substantial changes. A BTI decision is issued to economic operators upon their request by the custom authorities of a Member State. The BTI decision determines a certain tariff classification (the basis for determining custom duties), which is valid throughout the EU, and therefore allows for greater legal certainty for the economic operator. The main changes to the BTI system are the following:

  • The period of validity of a BTI decision has been reduced from six to three years;
  • A BTI decision will be binding not only on all EU customs authorities, but also on the holder of the BTI. This increases the importance of appealing against unfavourable BTI decisions;
  • The applicant/holder has to be established in the EU;
  • One BTI may be issued with a single customs commodity code for goods that share the same key characteristics and when differences are irrelevant for the purposes of their tariff classification, providing greater flexibility;
  • When customs formalities are being fulfilled, by or on behalf of the holder of a BTI decision, for goods covered by that BTI decision, this will be indicated in the customs declaration together with the BTI decision reference number;
  • In cases where Member States disagree on the classification of a particular product, the States in question will be asked to consult with each other and agree on a uniform classification of the goods, within three months. If no consensus is reached, the matter will be referred to the Commission. Additional provisions are also foreseen to ensure consistency in the issuance of BTI.

BTI decisions already in force on 1 May 2016 will remain valid for the period set out in the decision.

Authorised Economic Operators – The UCC will significantly change the rules concerning Authorised Economic Operators (AEOs). On the one hand, stricter criteria will be introduced to obtain and maintain this status, including the need to demonstrate that AEOs ensure strict monitoring of their trade in goods, and that their employees have practical competences or professional qualifications directly related to the activity carried out.

On the other hand, additional benefits related to the AEO status will be introduced, as AEOs will be able to apply for “self-assessment” and “centralized clearance”. Self-assessment allows for the possibility to carry out certain customs formalities or controls, which normally fall within the competence of custom authorities themselves. Through centralized clearance, economic operators have the possibility to lodge a customs declaration at the customs office where they are established, for goods which are presented and imported in another Member State.

Special procedures – The procedures that are currently referred to as “Customs Procedures with Economic Impact” (CPEI) will be renamed “Special Procedures” under the UCC. The Special Procedures are made up of: transit (which includes external and internal transit), storage (which includes customs warehousing and free zones), specific use (which includes temporary admission and end-use), and processing (which includes inward and outward processing). Special procedures are reformed to simplify applicable rules. For example, Processing under Customs Control and Inward Processing will be merged into Inward Processing.

Non-preferential origin – The UCC introduces more detailed rules for determining the non-preferential origin of products. The basic principle will remain the same as under the current legislation. The determining factor for conferring non-preferential origin will still be: (i) that goods are wholly obtained in a single country or territory; or, if the production involves multiple countries or territories, (ii) it underwent its last, substantial, economically-justified processing in an undertaking equipped for that purpose, and resulting in the manufacture of a new product or representing an important stage of manufacture. On this second criterion, the new rules will be more specific:

  • The list of so-called “qualifying operations” (in order for goods to obtain a non-preferential origin), will be extended;
  • A general residual rule is introduced to determine the non-preferential origin for products not covered by the list of “qualifying operations”, in cases where the last processing is not considered to be substantial and/or economically-justified. This residual rule prescribes that, in such cases, the country where the major portion of the materials originated from, on the basis of the value of the materials, determines the non-preferential origin;
  • The list of “minimum operations”, which are considered as not sufficient for a product to obtain non-preferential origin based on that activity, will become applicable to all goods. Under the current legislation, this list only applies to textile products.

The Commission is now also considering the adoption of guidelines for various parts of the UCC and the implementing provisions, in order to clarify the new legislative framework.

To consult the text of the Regulations, please click on the following links:

UCC Regulation
UCC Delegated Act
UCC Implementing Act

Content provided by Picture: HKTDC Research
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