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Union Customs Code: Are you prepared for it or not?

PUBLISHED: 09:00 05 January 2016

Miles Vartan, managing director of MVC, and Holly Tonge, senior consultant, MVC.

Miles Vartan, managing director of MVC, and Holly Tonge, senior consultant, MVC.

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The new Union Customs Code (UCC) will significantly change what is allowed, and what is not allowed, potentially creating some real challenges for importers, exporters, shipping lines, hauliers, freight forwarders, manufacturers, ship agents … and so on.

When the UCC enters force in May 2016, it will replace existing customs rules. Its underlying principles are that all communication should be electronic, and to simplify and modernise procedures.

Some are ready, but many are not. Indeed, many seem blissfully unaware of what’s coming and its consequences – and these companies could be heading for some real problems, says Suffolk-based consultant Miles Vartan, a specialist in Customs and freight security matters.

Most of all, he says, the UCC will make Authorised Economic Operator (AEO) certification really vital rather than ‘nice to have’, as many may have seen it so far. AEO has never been compulsory – and it still won’t be. But the UCC is being used as a way to increase AEO uptake across the EU – imposing mandatory guarantees for both actual and potential Customs debts for companies who are not AEO accredited.

Miles, whose company MVC
has supported and advised economic operators such as KWL Logistics, Lombard Shipping, Lysander Shipping & RJJ Freight through the AEO application, preparation and audit process, says: “Many companies try to compare AEO with
their past experiences with ISO
certifications, wondering whether they get sufficient value-added from the work involved.”

“But AEO is going to be linked directly to financial guarantees under the new UCC processes. Those without AEO status will have to pay some stiff financial guarantees up front.

“On top of that, they face the risk of their goods waiting in the ‘slow lane’ in the supply chain, while AEO companies’ goods are processed first and move more rapidly through the green lane.

“And there’s a third reason for securing AEO – it means you can assure your customers that your security procedures are verified by Customs.”

Indeed, as more companies secure AEO status, they are, in turn, insisting that their suppliers are similarly accredited. So what’s it all about? Security’s the answer. AEO mirrors the United States’ C-TPAT (Customs-Trade Partnership Against Terrorism), introduced after the 9/11 attacks and designed to secure the international supply chain against the threat of terrorism, fraud and other criminal activity.

The AEO process requires companies to review and enhance their procedures to guarantee the physical security of cargo and premises, as well as the security of their IT systems and data back-ups – and all of this must be audited by Customs.

So far, the take-up of AEO in the UK has been far slower than in other countries. In November, UK Revenue & Customs figures showed that AEO certificates had been issued to just 390 companies in the UK, 40% of these being freight forwarding companies. That compared to 6,000 companies in Germany, nearly 1,500 in the Netherlands, 1,255 in France and 979 in Italy.

As the UCC penny drops, HMRC is expecting applications for AEO certification to accelerate rapidly. There’s concern, however, that companies will leave it too late, says Miles.

“AEO will be financially attractive to thousands of companies under the new UCC regulations – but it’s more the financial ‘un-attraction’ that’s to be avoided, because without AEO status companies will be penalised,” he says. “Whilst AEO remains a commercial decision, the advantages of successful accreditation will be much greater from 2016 onwards.

“However, HMRC allocates 120 days to process an AEO application, so companies need to get in their applications at the start of January. Any later and there is a chance that you will not have AEO by May 1 2016, when the UCC comes into force – and what is going to happen then? There will be some transitional regulations but there will also be a lot of uncertainty. One foot wrong and a company will potentially be required to pay the guarantee requirements in full.”

It must be recognised that the world of international trade has clearly changed over the past few years, after several significant security incidents, says John Dugmore, chief executive of the Suffolk Chamber of Commerce.

“Facilitating the smooth flow of goods through international borders is essential; companies need to have a good understanding as to how the Authorised Economic Operator status can help businesses achieve this,” he says.

More than 70 countries are said to be currently working on their own versions of AEO; the US demanded that other countries come up with their own schemes to match C-TPAT, to maintain the secure supply chain.

So, is AEO a carrot or stick? Both, probably. The benefits, however, are clear, says Miles: competitive advantage, with faster Customs clearance and priority examination; mutual recognition with the US and also with China and Japan, with more countries developing similar schemes; worldwide recognition as a safe and secure business partner; and reduced data requirements on Customs declarations.

“Without exception, the companies I have worked with are so relieved to have AEO,” he says. “The key message is: are you ready for the changes? The point of the changes is to enhance security, but there are also significant add-on benefits for companies with AEO status.”

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