The EU releases details of its custom reforms. Lessons for Australia’s STS reforms?

The European Union (EU) has recently released details on its new proposed customs reforms. The proposed reforms will undoubtedly revolutionise the relationship between customs and the private sector, and involves developing new processes for reporting the movement of goods through the supply chain, placing an emphasis on facilitating trade for trusted parties in the supply chain.

The reforms recognise the fundamental issue faced by all customs and border agencies, that traditional approaches to managing trade volumes at the border have become too complex. It is likely that with increases in trade, different approaches will need to be adopted without compromise to the fundamental aims of the collection of revenue and guarding against imports which pose a threat to national interests.

Background to some recent international customs and trade facilitation initiatives

Trade facilitation and modernisation have been a focus of customs agencies and international organisations for some time, including the World Customs Organisation (WCO), the World Trade Organisation (WTO) and the United Nations Conference on Trade and Development (UNCTAD). In more recent times, much of the work has been conducted as initiatives driven by national commitments from implementation of the WTO Trade Facilitation Agreement.

Examples of significant trade facilitation developments include the following:

• After years of pilot projects, preparation and negotiations, the EU Single Window Environment for Customs made its way into EU law in December 2022. A previous article that discusses this further can be found here. The Single Window Environment for Customs is to be introduced over several years commencing with a first phase coming into effect in 2025, initially focussing on enhancing intergovernmental exchanges at EU borders.
• The United Kingdom (UK) introduced legislation to assist the use of electronic trade documentation in place of traditional paper documentation. Further commentary on this initiative can be found in a previous article here. The legislation is now moving through the UK Parliament.
• The Indo-Pacific Economic Framework (IPEF) is a modern regional agreement between 14 countries in the Indo-Pacific region. Launched in September 2022, the IPEF is intended to facilitate co-operation and economic integration in the region. Unlike conventional Free Trade Agreements, the IPEF does not include tariff reductions or market access improvements, instead, provides for work around four main ‘pillars’, being:

1. trade (including digital trade);

2. supply chains;

3. clean energy decarbonisation and infrastructure; and

4. tax and anti-corruption.

In May 2023, following several negotiating rounds, the parties announced completion of the IPEF Supply Chain Agreement (Agreement) to assist with supply chain challenges. The Agreement includes three new IPEF Supply Chain bodies. The Agreement will require approval from each of the contracting parties, including the Joint Standing Committee on Treaties. General commentary on the Agreement can be found here.

The themes through these initiatives

The consistent theme throughout these developments is the facilitation of transactions through the supply chain to enable the reliable, regular, and timely movement of goods, while still collecting relevant revenues and protecting against illegal activities and biosecurity threats. The developments also seek to make supply chains more resilient in challenging times.

Further consistency in recent supply chain developments is that the movement of goods and management of risks exceed the capacity of many of the traditional structures. Governments and their border agencies will need to work towards a new approach relying heavily on concepts of trust with private sector participants in the supply chain, and trust in the data and information provided between the parties. Additionally, an approach which adopts digital technologies will allow transactions to be completed efficiently and be on par with standards similar to the commercial world.

The proposed EU customs reform

On 17 May 2023, the EU announced proposals for significant reforms to the EU Customs Union to manage the significant increase in trade volumes (especially in e-commerce), EU standards to be reviewed at the border, and rise in international issues which disrupt and challenge the supply chain. The reforms will incorporate a new ‘EU Customs Authority’ to administer the ‘EU Customs Hub’, intended to replace existing customs technology in EU member states (leading to significant financial savings by those states), and assist with a new EU approach to risk management and intervention by customs authorities. The aim will be to provide one main interface and simplify customs reporting requirements through digital means, without compromising on the traditional objectives of customs authorities.

According to the European Commission, the reform is to be based on three ‘pillars’, as follows:

1. A new partnership with business which will only be required to deal with one portal and will only have to submit data once for multiple consignments. Further, the most trusted traders (‘Trust and Check’ traders) will be able to release goods into the EU with no active customs intervention, however, will still be subject to a post-transaction review. This is consistent with a movement towards ‘entity-based’ management of those in the supply chain, as compared to a more traditional ‘transaction-based’ approach. This recognises that the sheer number of transactions would mitigate against full transaction-based intervention, and further enhance the benefit to companies to be considered as trusted traders as provided for in the WCO Authorised Economic Operators (AEO) program.
2. A smarter approach to customs checks. The new Customs Hub will enable all member states to have access to real-time data, which can be shared to advance the review of transactions before the goods enter the UK. The EU states will use Artificial Intelligence to analyse transactions to allow EU customs authorities to focus on areas of growing concern, such as unsafe goods, goods produced by means of forced labour, and goods contributing to climate change. The system will also assist with the recovery of duties and taxes simultaneously.
3. A more modern approach to e-commerce. The significant increase in the level of transactions effected through e-commerce has created real issues. This is largely due to the fact that overseas suppliers and online platforms, who are the predominant parties completing the transactions, are beyond the control of customs authorities. The EU has proposed several new approaches. This includes that overseas online platforms will be responsible for ensuring that customs duties and VAT are paid at the time of purchase, and that exemptions are removed from customs duties payable on low value imported goods, and simplifying the means to calculate the customs value of such low value transactions to ensure greater ease for online platforms and customs authorities to calculate the duty owing accurately.

Implications for Australian reforms in the supply chain

Recent developments in the proposed customs reforms pave the direction toward possible opportunities to facilitate and modernise trade, without concession to the fundamental roles of border agencies in relation to security, revenue, biosecurity, and consumer protection.

Australia is facing a crucial stage in its approach to reform of supply chain and border practices. Financial and other resources have been made available to those agencies responsible for border clearances to support their work on trade facilitation and modernisation. Further, government has separately established the Simplified Trade System (STS) Implementation Taskforce, tasked to assist with a whole of government approach to a more effective and sustainable cross-border trade environment for Australia.

Australia’s border system is very complex from a regulatory perspective. With approximately 29 agencies working at the border and over 200 pieces of legislation in place (let alone related regulations and directions), there is no doubt that the task for the STS Implementation Taskforce is both challenging and very ambitious. As a result, each agency has its own agenda, legislation and policies — many of which have developed independently since Federation in 1901.  Further, the history of problems in implementing new information technology (IT) systems would cause agencies and government to be cautious in adopting new technological processes. There is also the need to ensure that the members of the private sector are included in the reform process, and that they can contribute to the development and adoption of new processes.

That leaves the question whether there is an achievable outcome where government and agencies have the expertise and confidence to adopt new approaches to regulation and processes, which are also endorsed and supported by the private sector and those providing IT solutions to the private sector. At a time when government and agencies outside of Australia are moving forward with initiatives such as those described above, there is a real fear that Australia could be left behind. There is a need for a statement on behalf of the ‘whole of government’ endorsing a clear set of outcomes approved by all parties in the supply chain, whose implementation will be fully funded and overseen by one agency or senior government official, with authority over all the border agencies. That person or authority would have a mandate to implement those outcomes against a prescribed timetable, including regulatory and process changes, drawing on contemporary international developments and experience. Such outcomes would be supported by necessary legislative reform.

There is no doubt that such an outcome would be seen as a courageous decision. However, given the importance of serious reform at the border, it is time to take stock of all the excellent work undertaken to date and, with support of the private sector, adopt a process which delivers outcomes to advance the process with one party leading the reform across all sectors of government.

Thoughts from the STS Summit

On 26 June 2023, the STS convened an industry Summit bringing government, its border agencies, and the private sector participants together to consider the work of the STS and discuss the basis on which the STS should advance its work. The Summit was a significant success and commentary from the Summit will form part of the ongoing work of the STS. At the same time as the Summit, the STS released an STS Consultation Paper 2023 (Paper).

The Paper provides details of several proposed reforms and seeks comments on those reforms and the more general work of the STS. It is encouraged to turn in submissions in response to the Consultation Paper, and provided below are some comments:

• The STS will need to be funded and resourced to continue its work. As discussed above, the Federal Government should establish a new ‘Office of Trade Facilitation’ (Office), or similar, to review the work being done by the STS and border agencies. This will ensure work is pursued promptly and completed. Ideally, there would be a senior official leading the Office, with responsibility for the Office being assigned to a senior federal government Minister. This would assist in ensuring a ‘whole of government’ response to the needed reforms.
• There needs to be sharing of relevant data across agencies to ensure that the data needs only to be provided once by a party in the supply chain (the ‘one touch’ approach). While this may require more data in the first instance and a requirement for that data to be updated where needed, it will reduce the frequency that parties will need to provide the data.
• Move away from the ‘transaction-based’ review of the supply chain, to more of an ‘entity-based’ review, similar to what is taking place in the EU currently. This would enable the more advanced form of ‘Trusted Trader’ akin to that provided in the EU Customs Reform.
• Australia needs to continue with the work towards a ‘Trade Single Window’ so that there is the one portal through which parties need to lodge their reports to government and seek permits and licences. Further commentary on the adoption of such an approach is discussed in a previous article.
• Removal of ‘nuisance tariffs’, as recommended on many occasions by the Productivity Commission. Further discussion on this topic has been discussed in a previous article.
• The Customs Amendment (Controlled Trials) Bill 2021 needs to be pushed through Parliament to allow the Australian Border Force to establish its ‘regulatory sandbox’ to test new practices not currently allowed by the Customs Act 1901, but which could lead to legislating for the formal adoption of those processes.
• There must be a review of the use of low value exemptions from customs duty which allow goods imported to be reported by the less onerous self-assessed clearance (SAC) declaration. Other customs agencies are looking to remove this exemption, such as the EU in its proposed customs reforms. Further, several speakers at the Summit suggested that the exemption should be removed entirely, that cost recovery should be applied to review SAC declarations by border agencies, and that SAC declarations should be subject to the same review by border agencies, as are other import declarations.
• Importers, exporters, and their service providers should be required to provide more information to the border agencies before goods are approved for export to Australia.  This would assist in transparency and the good conduct of Australia’s profiles on incoming goods.
• Improve the sharing of data between Australian border agencies. This would include sharing intelligence regarding suspect transactions and investigate methods of sharing that data with equivalent agencies in trusted jurisdictions. Currently, Australia has close defence and strategic relationships with many countries, including sharing of information. Those close and secure relationships could be used as a basis for the sharing of intelligence on transactions in real-time.

Conclusion

Ultimately, the reform process needs to be continued to improve productivity at the border, without compromising the fundamental roles of agencies. Of course, this would need significant investment in the reforms and substantive legislative change to eliminate barriers to the reform. It also requires consideration of other reforms proposed by others in the supply chain domestically and internationally, an example being the proposal by UNCTAD for the use of blockchain to deliver significant trade facilitation, as contained in their publication ‘Global Report on Blockchain and its Implications on Trade Facilitation Performance’. It will also require government to pursue reforms in collaboration with the private sector, as intellectual capacity is not solely confined to government or the private sector.

Contact us

If you would like to discuss the proposed custom reforms and recent trade customs and trade facilitation developments in greater detail, please contact our Customs & Trade team.