COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT First Biennial Report on Progress in Developing the EU Customs Union and its Governance
Date: 2018-07-05
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: EU Member State, EU customs procedure, EU police cooperation, administrative cooperation, customs cooperation, customs regulations, customs union, electronic government, innovation, single market

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 5.7.2018  COM(2018) 524 final  COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT First Biennial Report on Progress in Developing the EU Customs Union and its Governance   
 
 
1.  INTRODUCTION 

It is just over a year since the Commission launched a debate1 with five possible scenarios for 
how  the  European  Union  (EU)  could  develop  over  the  years  to  come  to  embrace  the  many 
challenges  it  faces,  that  range  from  globalisation,  to  the  impact  of  new  technologies  on 
society,  to  security  concerns  and  the  rise  of  populism.  The  Commission  believes  that  the 
Customs  Union2,  which  celebrates  its  50th  anniversary  this  year,  plays  an  important  role  in 
dealing with these challenges and therefore that its further development is vital. 

The Customs Union is one of the EU's earliest achievements and can be considered one of its 
main  success  stories.  It  has  enabled  the  EU  not  only  to  remove  internal  borders  but  also  to 
compete  with  the  rest  of  the  world.  The  EU's  single  market,  which  allows  any  business 
established  in  the  EU  to  sell  its  goods  and  invest  throughout  the  EU  without  any  internal 
borders,  would  be  impossible  without  the  tariff-free  environment  provided  by  the  Customs 
Union and the role the latter plays in overseeing imports and exports. Internationally, the EU 
is now the largest trading block in the world, accounting for 15% of world trade3, and thus has 
a far stronger position in trade negotiations with third countries than would any Member State 
negotiating alone.   

The Customs Union has evolved considerably over the last fifty years and customs authorities 
now successfully perform a wide variety of tasks at borders. Acting together, Member States' 
customs authorities work to facilitate trade and reduce red tape, collect revenues for national 
and  EU  budgets4  and  protect  the  public  against  terrorist,  health,  environmental  and  other 
threats.  Given  this  broad  mandate,  customs  is  now  effectively  the  lead  authority  for  the 
control of goods at the EU's external borders.  

However,  there  are  many  challenges  ahead.  New  trends  and  technologies  -  digitalisation, 
connectedness,  the  internet  of  things,  data  analytics,  artificial  intelligence  and  blockchain 
technology  –  present  both  opportunities  and  threats.  New  business  models  such  as  e-
commerce and supply chain optimisation are emerging and must be facilitated. At the same 

1 COM(2017) 2025  
2 The Customs Union consists of the 28 Member States of the European Union, some territories of the United Kingdom which are not part of 
the European Union and Monaco.  
3 The total statistical value of EU-28 trade flow was 3.5 trillion € in 2016 or 9.5 billion € a day (source: Eurostat). 
4 Customs duties represent a 14% share of the total EU budget – 20 billion EUR in 2016 out of 25 billion EUR of collected duties.   

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time, public finances are under pressure, the volumes of world trade are increasing5, fraud and 
smuggling are a constant and growing concern67 and there are persistent transnational crime 
and security threats. Strategies adopted in other policy areas impact on and expand customs 
tasks. Resources and funding are needed, in particular to develop and maintain the electronic 
systems that are now crucial to the operation of the Customs Union. Meanwhile, work on the 
many  customs-related  implications  of  the  withdrawal  of  the  UK  from  the  EU  must  be 
prioritised. All of this is putting EU customs authorities under increasing pressure.  

In recent years, there have been calls for a more unified approach to the Customs Union and 
for a more effective and more coherent overall management so as to address these challenges. 
The European Parliament8 has highlighted the risk that different customs electronic systems in 
Member  States  can  create  fragmentation,  additional  administrative  burdens  and  delays 
hindering the flow of goods across borders. The European Court of Auditors9 has stated that 
ineffective  implementation  of  import  procedures  as  well  as  shortcomings  in  the  legal 
framework are adversely affecting the financial interests of the EU. The European Economic 
and Social Committee10 has argued, inter alia, that effective application of customs legislation 
requires  efforts  to  minimise  the  possibility  of  varying  interpretations  by  Member  State 
administrations.  

In  its  2016  Communication  on  developing  the  EU  Customs  Union  and  its  Governance  (the 
"Governance  Communication")11,  the  Commission  suggested  solutions  to  address  these 
challenges  that  included  a  more  cohesive  and  uniform  application  of  the  common  customs 
rules  under  enhanced  policy  and  operational  structures  based  on  partnership;  better 
cooperation  of  customs  with  other  border  management  and  security  authorities;  and  a  more 
comprehensive long-term strategy for the development and maintenance of customs electronic 
systems.    In  March  2017,  the  Council  of  the  European  Union  welcomed12  the  Governance 
Communication  and  invited  the  Commission  to  provide  an  update  in  a  biennial  report,  in 
particular in some areas that the Council identified as needing particular attention.  

Against  this  background,  the  present  Communication  reviews  the  operation  of  the  Customs 
Union  to  date  and  identifies  priority  issues  ahead.  The  Communication  should  serve  to 
enhance a dialogue with all stakeholders, including citizens, businesses, Member States, the 
European Parliament and other European Institutions, whose input to the continued success of 
the Customs Union is vital.  

5 World trade started to recover strongly and steadily in the second half of 2016, with annual trade growth of 4.5% in 2017, compared to just 
1.5%  in  2016  –  Spring  2018  forecast,  note  No.1:  Position  Paper  (Directorate-General  for  Economic  and  Financial  Affairs,  European 
Commission). 
6 The Council progress report on fight against excise fraud (11760/17 of 8 September 2017) notes that “according to conservative estimates, 
tobacco product smuggling costs national and European Union budgets more than 10 200 million EUR in lost public revenue annually”. At 
same time the customs border crossing points of the European Union have grave shortages of control equipment and systems. 
7 Figures from studies produced by Europol and the European Union Intellectual Property Office show that counterfeit and pirated products 
represent  up  to  5%  of  all  imports  in  the  European  Union,  worth  up  to 85  000  million  EUR.  Brands  that  suffer the  most  from  Intellectual 
Property infringements are primarily registered in the European Union (2017 Situation Report on Counterfeiting and Piracy in the European 
Union, Europol and European Union Intellectual Property Office, June 2017). 
8 Resolution on tackling the challenges of the EU Customs Code implementation – 2016/3024 
9 European Court of Auditors Special Report 19/2017 
10 INT/814 
11 COM(2016) 813 final 
12 Council Conclusions on Developing the EU Customs Union and its Governance (doc. 7585/1/17 REV 1) 

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2.  BACKGROUND  

Role of customs 
The world has changed dramatically during the fifty years of existence of the Customs Union 
and  so  has  the  role  of  Member  States'  customs  authorities.  During  that  time,  in  addition  to 
continuing  to  protect  the  financial  interests  of  the  EU  and  of  its  Member  States,  customs 
authorities  have  assumed  responsibility  for  the  implementation  of  the  border  aspects  of 
several other common EU policies, with considerable success. All goods entering or leaving 
the EU are subject to customs supervision and may be subject to customs controls.  

In  particular,  customs  have  assumed  a  front  line  position  in  the  fight  against  terrorism  and 
organised crime. In the wake of the 2001 attack on the World Trade Centre in New York, the 
EU  responded  by  introducing  a  security  amendment  to  customs  legislation13.  This  provided 
for  an  EU-wide  deployment  of  common  risk  criteria  in  advance  cargo  risk  analysis  and  a 
Common  Risk  Management  Framework14  to  help  customs  to  share  operational  risk 
information  and results, supporting a rapid  response  to  any crisis event in the supply chain. 
Moreover,  customs  control  movements  of  large  amounts  of  cash  in  and  out  of  the  EU  by 
individual travellers, as an integral part of the EU's actions to combat money laundering and 
terrorist financing, and cooperate closely with other border and security authorities to combat 
these threats. 

Customs in figures15 

Revenue collection 

 

In  2016,  national  customs  authorities  detected  an  amount  of  537  million16  EUR  of 
unpaid duties to be returned to the EU budget.  

Fight against terrorism and organised crime 

 

 

In  2016,  EU  customs  seized  almost  6  300  firearms,  more  than  1  million  pieces  of 
ammunitions and over 1 500 pieces of explosives in the EU.   
In the same year customs seized almost 300 tonnes of drugs (with increased seizures 
of cocaine and synthetic drugs); the quantity of drugs customs seized in express and 
postal consignments increased by 23% compared to 2015, totalling 13 tonnes.  

  Customs  deal,  on  average,  with  100  thousand  cash  control  declarations  annually, 
representing  a  total  amount  declared  between  60  and  70  billion  EUR,  while  at  the 
same time detecting an amount of undeclared or incorrectly declared cash, on average, 
of approximately 300 million EUR per year17. 

Protection of intellectual property rights – seizures of counterfeit and cultural goods 

  Customs  were  able  to  detain  more  than  41  million  of  counterfeit  goods  which 

13 The Community Customs Code, now superseded by the Union Customs Code. The Union Customs Code allows risk-based controls to be 
carried out in relation to a range of threats (including risks for safety, security and protection of the environment, health and consumers) and 
supports the customs contributions to the detection and prevention of serious crimes and terrorism where movement of goods is concerned, 
regardless of whether there is a "customs" offence. 
14  The  Common  Risk  Management  Framework  has  equipped  customs  with  new  common  tools,  including  a  Customs  Risk  Management 
System, to share operational risk information and results, helping to identify and respond to highly mobile transnational crime and supporting 
a rapid response to any crisis event in the supply chain. Based on experience with the Customs Risk Management System  , key areas for 
improvement were identified and the European Union Strategy and Action Plan for customs risk management, endorsed by the Council in 
December 2014, provides a comprehensive agenda for strengthening risk management across seven areas.  
15 https://ec.europa.eu/taxation_customs/sites/taxation/files/facts_figures_en.pdf 
16 Protection of the European Union's financial interests – Fight against fraud Annual Report 2016, SWD(2017)266 final, 21.07.2017 
17 Commission Staff Working Document - Impact Assessment - Accompanying the document Proposal for a Regulation of the European 
Parliament and of the Council on controls on cash entering or leaving the Union and repealing Regulation (EC) No 1889/2005, 
SWD(2016)470 final 

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represented  a  violation  of  the  intellectual  property  rights  with  an  estimated  value  of 
nearly 672 million EUR in 2016 (mainly cigarettes, toys and foodstuffs).  
In  the  same  year,  customs  uncovered  96  cases  where  fraudsters  were  attempting  to 
smuggle European treasures out of the EU. 

 

Managing trade flows across EU borders  

  Across the EU, customs deal with more than 9 customs declarations and over 100,000 
EUR of value per second and they collect duties totalling 25 billion EUR per year.  
  EU traders today submit 99% of customs declarations electronically and they will be 
able to use customs electronic systems for other elements of their business operations 
soon, in line with the ongoing implementation of the Union Customs Code electronic 
systems. 

  The  speed  of  the  customs  clearance  process  is  now  very  high:  even  customs 
declarations submitted under standard procedure (i.e. where no simplified procedures 
are availed of) are generally cleared within 1 hour (93% in 2016).   

Legal framework  
Customs legislation is adopted at EU level although its implementation is the responsibility of 
the Member States via their national customs administrations. Since 2016 the Union Customs 
Code  provides  a  refreshed  and  comprehensive  legal  framework  for  customs  rules  and 
procedures in the EU customs territory that is adapted to modern trade realities and to global 
standards so as to facilitate EU businesses in their international activities. Major progress has 
been  achieved  in  making  all  customs  processes  fully  electronic  as  required  under  this  new 
Code18.  Customs  also  apply  more  than  60  pieces  of  non-customs  legislation  as  part  of  their 
role of implementing the border aspects of other common EU policies. Moreover, legislation 
and  non-legislative  tools  enable  EU  customs  authorities  to  cooperate  with  each  other  to 
combat  security  and  financial  risks  and  there  are  international  cooperation  agreements  in 
place with many third countries.  

Electronic Systems 
The  Commission  and  Member  States  have  been  working  together  on  the  development  and 
operation of electronic systems to underpin customs operations since 200819. These systems 
cover  the  various  customs  processes  including  customs  declarations,  goods  movement 
including transit in and out of the EU and information flows between administrations and with 
the  Commission20.  They  also  include  some  common  databases  such  as  on  tariffs.  The 
development of seventeen electronic systems21 to manage the processes set out in the Union 
Customs  Code  is  a  major  step  forward  in  the  e-customs  strategy  but  a  vital  one  if  customs 
administrations are to be able to carry out their tasks while facilitating trade flows.  

Trade facilitation 
Underlying  the  customs  mission22,  there  is  a  simple  overarching  principle,  which  is  that 
customs need to balance their customs controls with the facilitation of legitimate trade, so as 
to  enable  the  EU  to  prosper  and  develop  competitive  businesses.  The Union  Customs  Code 

18 Report on UCC implementation – COM(2018) 39 final 
19 Decision No. 70/2008/EC of the European Parliament and of the Council of 25 January 2008 on a paperless environment for customs and 
trade (OJ L 23, 26.1.2008, p.21) 
20 Including, for example, interface with the Anti-Fraud Information System (AFIS), an umbrella of applications which allow Member States 
customs authorities to detect and combat customs fraud. 
21 Commission Implementing Decision (EU) 2016/578 of 11 April 2016 establishing the Work Programme relating to the development and 
deployment of the electronic systems provided for in the Union Customs Code 
22 Article 3, UCC 

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aims to achieve this balance, simplifying rules and procedures while introducing features such 
as obligatory guarantees and strengthened safety and security rules. 

An important instrument for both customs controls and trade facilitation that was introduced 
as  part  of  the  security  amendment  was  the  "Authorised  Economic  Operator"  regime23. 
Authorised Economic Operators are granted some benefits (e.g. fewer border controls, easier 
reporting, reduced risk rating, etc.) in return for cooperating closely with customs authorities 
to  assure  supply  chain  security.  Companies  wishing  to  benefit  from  this  regime  have  to 
undergo a strict certification process, provided for in EU law, and must be prepared to take 
additional  steps  so  as  to  continiously  demonstrate  to  customs  authorities  that  they  can  fully 
meet their obligations and actively contribute to the safety and security of international supply 
chains.  The  Union  Customs  Code  enhanced  the  benefits  of  the  regime  while  also  requiring 
prospective Authorised Economic Operators to comply with additional strict conditions. The 
number of such operators reached almost 16 000 at the end of 2016 and their involvement in 
the supply chain reached the level of 77% in the same year. 

Measures are constantly undertaken to further step up the overall management of the regime 
and to ensure a uniform approach within the Customs Union. However, this regime can only 
be  credible  and  effective  if  Member  States  act  to  ensure  its  sound  control,  in  particular  by 
taking  prompt  action  where  difficulties  or  non-compliance  are  detected.  In  this  context 
Member States exchange information continuously on specific risks related to all stages in the 
Authorised Economic Operators process.  

3.  REVIEW OF THE OPERATIONS OF THE CUSTOMS UNION IN PRIORITY 

AREAS 

Despite  the  many  achievements  over  the  last  fifty  years,  the  Commission  agrees  with  the 
European  Parliament,  the  Court  of  Auditors  and  the  Council  that  more  needs  to  be  done  to 
ensure that the Customs Union can continue to face the challenges ahead. This chapter reports 
on  developments  in  the  last  years  in  improving  the  operation  of  the  Customs  Union,  as 
suggested  by  the  Commission  in  its  Governance  Communication,  and  as  endorsed  by  the 
Council  in  its  conclusions  of  March  2017.  The  chapter  focuses  on  the  priority  areas  which 
have been identified by the Council in those conclusions. It  also refers to ongoing  work to 
make further progress in each of the specific areas which are examined. 

i.  Implementation of the Union Customs Code   

The full implementation of a modern and effective legal framework is crucial if the Customs 
Union is to operate successfully. The Commission has recently reported24 on the state of play 
of  implementation  of  the  Union  Customs  Code  that  is  applied  as  from  1  May  2016.  The 
legislative  provisions  are  operating  smoothly,  with  discussions  taking  place  regularly  with 
trade and Member States to resolve any problems of interpretation or application. In addition, 
the  Commission  deployed  fifteen  eLearning  modules  on  the  Code  in  2016  to  support  the 
introduction and uniform implementation of this legislation. Guidance documents explaining 

23 Introduced through the World Customs Organisation (WCO) SAFE Framework of Standards (FoS) in 2005 and internationally recognised 
as  an  effective  supply  chain  security  instrument  that  still  aims  to  facilitate  international  trade,  the  Authorised  Economic  Operator  (AEO) 
concept is increasingly used as a benchmark for establishing trusted trader programmes in other areas, in particular Civil aviation security, 
Maritime security, export controls of dual use goods, and taxation.  

24 Report from the Commission to the European Parliament and the Council on the implementation of the Union Customs Code and on  the 
exercise of the power to adopt delegated acts pursuant to Article 284 thereunder - COM(2018) 39 final 

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practical  aspects  of  the  application  of  the  rules  also  play  an  important  role  in  the  correct 
implementation of the Code. Member States and trade representatives have collaborated with 
the Commission to complete all such necessary guidelines and they continue to collaborate on 
updates to these documents as the need arises. 

Most of the work on upgrading or creating electronic systems (seventeen in total) envisaged 
by  the  Union  Customs  Code  will  be  completed  by  2020.  However,  some  systems  will  be 
deployed more gradually up to 202525 and depend on financing under the next generation of 
EU  customs  funding  programmes.  Delivering  all  the  electronic  systems  is  vital  in  order  to 
allow customs administrations to manage financial and security risks while facilitating trade.  

A  significant  task  ahead  for  Member  States'  customs  administrations  is  the  reassessment  of 
many  of  the  authorisations  granted  under  the  previous  customs  legal  framework,  the 
Community  Customs  Code,  which  must  be  completed  by  May  2019.  Authorisations  are 
granted  to  economic  operators  for  different  purposes,  mostly  to  allow  them  to  apply  some 
simplified  or  less  cumbersome  customs  procedures.  A  good  example  is  the  authorisation 
granting  Authorised  Economic  Operator  status.  As  the  conditions  for  granting  the 
authorisations  may  have  changed  under  the  Union  Customs  Code,  and  have  become  more 
stringent  and  more  uniform  in  some  cases,  existing  authorisations  need  to  be  re-assessed  to 
ensure strict application of the new rules.  

The Commission is assisting Member States and trade representatives  by providing fora for 
discussion of issues arising in this process of reassessment of authorisations in the period up 
to May 2019. The process of implementing the Union Customs Code and of the bedding-in of 
the new provisions and new IT systems must remain a priority for the next years. 

ii.  Developing  a  comprehensive  mid  and  long-term  strategy  for  customs  IT 

systems 

As  the  Commission  noted  in  its  Governance  Communication,  the  cost  of  maintaining  the 
increasingly sophisticated EU-wide customs electronic systems over the years to come will be 
significant and solutions are needed on how to manage this. In addition there are longer term 
issues  of  how  to  avoid  duplication  of  effort  and  resources  in  the  updating  of  old  electronic 
systems in each of the Member States. At the same time electronic systems are indispensable 
for the efficient and modernised operation of the customs union.  

Since then, Member States and the Commission have engaged in wide ranging discussions to 
try to arrive at a more efficient, cost-effective and streamlined approach to the management of 
the  electronic  systems.  Some  progress  has  been  made  in  identifying  potential  solutions, 
having regard to the Digital Agenda, the potential for cross-sector interoperable approaches, 
and the implications of technological innovations over the coming years. 
The  Commission  has  recently  adopted  a  progress  report26  on  an  IT  strategy  for  customs  to 
help focus the debate needed over the coming years. The priority is the creation of a “catalyst 
group” of interested Member States and the Commission to explore the specific issues set out 
in  the  progress  report.  The  objective,  as  indicated  in  the  progress  report,  should  be  to 
establish a feasible scenario for the longer term and a path to get there, including via further 
“pilot  projects”  and  due  diligence  work  on  synergies  with  other  actors,  as  well  as  via 

25 COM (2018) 85 final, 2 March 2018   
26 COM(2018) 178 final 

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appropriate legal analyses and cost/benefit exercises. The Commission is ready to participate 
actively in this work. 

iii.  Developing the governance of the Customs Union  

The Council and the Commission agree on the need for a long-term overarching policy and 
shared  operational  management  vision  for  the  Customs  Union.  This  will  allow  necessary 
decisions to be taken in an inclusive and partnership manner across the different policies with 
the different stakeholders, taking everybody's needs into account.  

One  of  the  groups  to  be  used  for  the  purpose  of  this  shared  management  of  the  Customs 
Union is the Commission's advisory group of customs Directors-General (the Customs Policy 
Group). The involvement of the Customs Policy Group in the review of the implementation 
dates for the electronic systems provided for in the Union Customs Code is a recent example 
of  how  a  reinforced  partnership  between  Commission  and  Member  States  can  help  in  the 
effective  management  of  customs  priorities.  The  Commission  proposes  to  give  this  group  a 
clearer and more specific role in relation to work on the Customs Union.  

The Commission has launched the process to convert the Customs Policy Group to a formal 
expert group, with clear tasks and rules of procedure.27  

iv.  Continuing to develop the Customs Union Performance  

Continuous policy monitoring, analysis and assessment of possible impacts are essential parts 
of  governance  of  the  Customs  Union.  To  this  end,  the  Commission  has  been  working  on 
developing the Customs Union Performance tool to help steer policy formulation and strategic 
decision  making.  This  tool  should  allow  the  systematic  assessment  of  the  Customs  Union's 
performance  against  its  strategic  objectives  in  terms  of  efficiency,  effectiveness  and 
uniformity  by  analysing  key  trends  and  thus  identifying  areas  for  improvement.  It  is  an 
indispensable  tool  for  raising  awareness  of  the  Customs  Union's  achievements  and  added 
value among its main stakeholders and the broader public. 

The Customs Union Performance tool operates by assessing the functioning of the Customs 
Union, on the basis of Key Performance Indicators in a range of areas such as protection of 
financial  interests,  ensuring  the  safety  and  security  of  EU  citizens  and  assessing  the 
importance of customs in contributing to the growth and competiveness of the EU. While the 
Customs Union Performance has already proved its worth, it needs to be further developed so 
as  to  strengthen  data-driven  policy  making,  including  by  developing  the  Key  Performance 
Indicators  and  enhancing  the  use  of  the  system  of  reference  values  as  well  as  of  modern 
analytical  methods  and  tools.  In  this  work  it  is  essential  to  build  on  synergies  between 
the  Commission,  other  authorities  with  border  management 
customs  authorities, 
responsibilities  and  international  organisations,  so  as  to  enable  re-use  of  data  sources  and 
avoid possible duplication.  

The  upcoming  Austrian  Presidency  has  undertaken  to  support  this  work  and  strengthen  the 
strategic dimension of the Customs Union Performance by organising a high-level seminar on 
the  subject  in  autumn  2018.  The  Commission  is  continuing  to  consult  stakeholders  and 

27 Reference if this is completed before the adoption of the report. 

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examining  the  need  for  and  feasibility  of  a  legal  basis  to  support  the  Customs  Union 
Performance project, as already indicated in the Governance Communication. 

v.  Single Window  

The  Commission  is  developing  work  on  an  EU  Customs  Single  Window  environment  that 
would  permit  an  economic  operator  to  submit  data  required  for  a  wide  range  of  regulatory 
purposes  (e.g.  veterinary,  sanitary,  environmental,  etc.)  in  a  standardised  format  to  multiple 
recipients  and  via  harmonised  access  points.  An  EU  Customs  Single  Window  could  bring 
about multiple gains, benefitting both the trade community and regulatory authorities. This is 
a complex area where care is needed to avoid duplications and unnecessary cost. In the light 
of this, the Commission and the Member States have agreed to implement the Customs Single 
Window environment through a phased approach. The first phase consists in the provision of 
tools to connect EU certificate systems with national systems so as to enable the automated 
acceptance  by  Member  States'  customs  authorities  of  electronic  certificates  issued  by  other 
authorities  for  which  a  database  is  set  up  at  EU  level.  A  possible  next  phase  could  aim  to 
provide a framework to support the establishment of an integrated and coherent environment 
for customs Single Window services in the EU. 

The  Commission  is  continuing  to  work  towards  an  EU  Single  Window  environment  for 
customs and, on this basis, will consider possible further steps. 

vi.  Improvements in customs and tax cooperation 

The need for improvements in cooperation between customs and tax authorities is crucial, in 
particular  given  that  customs  ensure  the  correct  application  of  VAT  and  excise  duties  on 
imports of goods. The merits of cooperation, stressed on many occasions by the Council, the 
European Parliament, the European Court of Auditors and the Commission, include achieving 
a  better  balance  between  controls  and  trade  facilitation,  eliminating  mismatches  between 
rules,  helping  to  combat  fraud  and  more  streamlined  administrations.  In  the  last  year  there 
were important developments in this regard. 

Member States agreed in December 201728 to provide simpler and more efficient VAT rules 
for businesses that sell goods online to consumers, as well as to remove the current exemption 
from  VAT  for  imports  of  small  consignments  from  outside  the  EU  which  leads  to  unfair 
competition and distortion to the detriment of EU companies. Discussions are ongoing with 
customs and tax authorities as customs will have significant responsibilities in managing the 
application of VAT to imports in accordance with the new rules.   

In  November  2017,  the  Commission  adopted  a  proposal29  to  make  the  VAT  system  more 
fraud-proof  and  counter  large-scale  VAT  fraud.  The  proposal  aims  at  improving  the 
cooperation  between  customs  and  tax  authorities  regarding  the  collection  of  VAT  upon 
imports from outside the EU so as to prevent abuse of a trade facilitation measure known as 
Procedure  42.  This  proposal  addresses  the  weaknesses  revealed  by  the  European  Court  of 
Auditors and by investigations carried out by the European Anti-Fraud Office regarding the 
implementation of this customs procedure.  

28  http://www.consilium.europa.eu/en/press/press-releases/2017/12/05/vat-on-electronic-commerce-new-rules-adopted/  
29 COM(2017) 706 final  

8 

 
 
 
 
 
 
 
                                                            
Negotiations  in  the  Council  are  ongoing  and  an  agreement  on  this  initiative is  an  important 
part  of  the  customs  agenda  for  the  coming  years.  The  legislative  measures  should  be 
accompanied by a concrete engagement by Member State tax and customs authorities to put 
in place the necessary channels of cooperation. 

Moreover,  the  future  European  Public  Prosecutor  Office  (EPPO)30  will  be  empowered  to 
investigate and prosecute EU-fraud and other crimes affecting the Union's financial interests, 
including customs fraud and serious VAT fraud. The PIF directive31 adopted on 5 July 2017 
harmonises the definitions, sanctions and limitation periods for the same crimes. 

The  Commission  and  the  Member  States'  customs  authorities  must  continue  to  work 
intensively to prepare for 2021 when the current VAT exemption32 for goods valued below 22 
EUR coming from outside the EU will end and as a result customs may have to collect VAT 
on a higher number of imported goods.   

vii.  Continuing the involvement of trade in EU customs legislation 

Trade continues to play a crucial role in helping to ensure that customs procedures and rules 
are workable and appropriately balance the requirements of legitimate traders with effective 
controls.  The  Commission  has  been  developing  further  the  mechanism  to  strengthen  trade 
input  at  different  stages  in  the  procedures  by  reviewing  the  terms  of  reference  of  the  main 
consultation  body  –  the  Trade  Contact  Group.  Besides  the  main  platform,  the  Commission 
also  promotes  joint  customs-trade  discussions  at  the  various  stages  of  development  and 
implementation of legislation. 

Revised  Terms  of  Reference  of  the  Trade  Contact  Group  were  agreed  and  published  in 
201733. A proactive approach from trade will be necessary to ensure that the most value can 
be  achieved  from  these  closer  worker  arrangements.  The  Commission  for  its  part  will 
continue  to  organise  regular  consultations  with  trade  representatives  using  these  new 
arrangements.  

viii.  Increased  integration  of  operations  and  management  between  customs 

authorities  

The  Commission  believes  that  deeper  operational  cooperation  between  national  customs 
authorities  is  crucial.  In  particular,  from  the  perspective  of  the  EU  Common  Risk 
Management  Framework  for  customs  controls,  special  attention  must  be  given  to 
organisational  capacities  for  collaboration,  so  as  to  achieve  the  best  possible  return  on 
investments in new data, systems and rules.  

While  the  implementation  of  customs  legislation  is  the  responsibility  of  individual  Member 
States, uniform implementation is a task and concern of the Customs Union as a whole. The 
Customs  2020  programme  provides  the  organisational,  methodological  and  budgetary 
framework for cooperation between national customs authorities in order to enable a deeper 
integration  at  operational  level.  The  added  value  is  most  present  in  the  area  of  electronic 

30 Council Regulation 2017/1939, OJ L 283, 31.10.2017, p. 1. 
31 Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on the fight against fraud to the Union's financial 
interests by means of criminal law (OJ L 198, 28.7.2017, p. 29) 
32 Directive (EU) 2017/2455 of 5 December 2017. 
33 https://ec.europa.eu/taxation_customs/general-information-customs/customs-trade-consultations_en 

9 

 
 
 
 
 
 
                                                            
systems  where  the  programme  allows  the  development  and  running  of  the  trans-European 
systems.  But  the  programme  also  has  a  significant  added  value  in  terms  of  cooperation 
activities  such  as  project  groups,  many  of  which  have  delivered  valuable  outcome  for  the 
Customs Union34. 

A novelty under the Customs 2020 programme is expert teams which are designed to achieve 
results via more intensive collaboration among a limited number of countries on a particular 
issue. Several expert teams set up in 2016 provided promising results in 2017 such as national 
customs  laboratories  pooling  expertise  and  equipment  for  analysing  samples  and  sharing 
results  and  CELBET  –  see  the  table  below.    Despite  these  promising  results,  some  of  the 
expert teams have not been used to their full potential. A survey carried out in summer 2017 
suggested  that  the  reasons  may  include  the  heavy  administrative  burden  of  setting  up  and 
running and expert teams.  

CELBET (Customs Eastern Land Border Expert Team35) 
 This expert group brings together 11 Eastern and South-Eastern land border Member States36 
for 18 months at a cost of 927.000 EUR EU co-financing. Promising results include: 

  Risk management: joint creation of risk profiles and their assessment after use  
  Operational controls: mapping of non-commercial border crossing points; carrying out 

Joint Intensified Actions at selected land border posts 

  Equipment  and  procurement:  inventory  made  of  all  control  and  detection  equipment 

available at the border posts, typology and gap analysis established 

  Training: training gap analysis carried out and training material for Border guards and 

Customs being prepared. 

  Evaluation/performance  measurement:  work  on  Key  Performance  Indicators  for 

border crossing points, 

  Co-operation  with  border  guards  and  neighbouring  countries:  recommendations  on 
improving exchange of information when working at land border crossing points.  

The  functioning  of  the  Customs  Union  and  the  further  integration  of  the  national  customs 
authorities that run it remain entirely dependent on the Customs programme. In view of the 
challenges facing the world, the European Union and the Customs Union, it is crucial that this 
programme continues after 2020.  

The Commission has recently presented proposals establishing i) a new Customs programme 
that  is  aimed  at  providing  a  solid  basis  for  taking  up  the  challenges  facing  the  Customs 
Union,  in  particular  by  deepening  current  cooperation  mechanisms  and  capacity  building 

34 - analyses of traffic, threats and resources across external land borders; 
- creation of networks of experts, e.g. for air, maritime and land transport, who share good practices and review operational/technology issues 
underpinning risk analysis;  
- a prototype shared service supporting targeting by customs of maritime containers; 
- the Import Control System reform programme which provides a new platform for co-operation between customs and other law enforcement 
functions in advance cargo risk analysis, aiming to improve the quality of data declared and to enable real-time sharing of declared data and 
risk-relevant information (including control results). 
35  In  the  CELBET  project  report  26.09.2017  on  Work  Package  3.1  “Making  an  inventory  of  currently  deployed  control  and  detection 
equipment”, results of the Subtask 3.2.1, Gap analysis for each Border Crossing Point (BCP) were reported. The conclusion was (p.15 of the 
report):    “The  main  finding  of  the  inventory  [of  174  land  border  crossing  points  of  the  EU  external  border]  is  that  the  situation  with 
equipment  and  infrastructure  is  not  ideal.  The  most  worrying  aspect  of  the  analysis  is  that  53  %  of  the  BCPs  lack  of  automated  number 
plate/container number recognition systems (ANPRS) that would be a solid basis of and an effective tool for risk management. Furthermore 
46 % of BCPs lack scanners for cargo and vehicle inspection of trucks and wagons and even personal hand control tools are not available in 
51 % of Border Crossing Points.” 
36 Estonia (coordinator), Finland, Latvia, Lithuania, Poland, Slovakia, Hungary, Romania, Bulgaria, Greece & Croatia 

10 

 
 
 
                                                            
 
features and ii) a Customs Control Equipment fund, aimed at supporting equivalent customs 
controls.  

4.  PRIORITY ISSUES AHEAD 

The  Customs  Union  cannot  be  static.  Markets,  trade  and  technologies  are  dynamic  and  the 
Customs Union must support these developments. In order to do this, Member States' customs 
administrations  must  not  just  advance  in  the  areas  outlined  in  the  previous  chapter  but  also 
consider  strategies  for  future  development,  new  approaches  and  different  ways  of  working, 
given also the pressures of tighter resources and the possibility of greater responsibilities in 
the future. In that spirit, the Commission puts forward the following list of priority issues for 
consideration in customs policy fora in the near future: 

a) Managing Brexit. The withdrawal of the UK from the Union and its Customs Union and 
the  consequent  change  of  becoming  a  third  country  will  have  a  substantial  impact  on  all 
customs processes. Ensuring an orderly withdrawal and the implementation of changes such 
as modifications to customs processes will impact on the Commission's and Member States' 
resources  in  particular  due  to  the  considerable  uncertainties  linked  to  the  withdrawal  itself. 
The Commission is in close cooperation with Member States screening customs processes and 
procedures to identify legal, IT and any other aspects which have to be addressed in the light 
of the withdrawal. It is clear that those measures will require adjustments to the customs IT 
systems,  which  may  lead  to  additional  costs  and  to  an  increased  demand  for  resources  and 
cooperation  between  Member  States  and  the  Commission  as  well  as  between  the  Member 
States themselves. Equally, adjustments are needed on the side of economic operators. As a 
first step to inform stakeholders, a notice on the consequences of the UK's withdrawal in the 
area  of  customs  and  relevant  aspects  of  indirect  taxation  (VAT  and  excise  duties)  has  been 
published.  

b)  Strengthening  controls  and  tackling  fraud.  Since  the  evasion  of  customs  duties  and 
VAT must be compensated by higher contributions from Member States into the EU budget 
and  thus  is  ultimately  borne  by  EU  taxpayers,  it  is  vital  for  Member  States  to  see  how  to 
improve  efficiency  of  controls.  In  order  to  ensure  a  common  approach  to  customs  financial 
risk management across the EU, the Commission has recently adopted a Decision on common 
financial  risk  criteria  and  standards37.  Given  the  volume  of  cross-border  activity,  successful 
tackling  of  fraud  may  need  to  encompass  new  and  different  ways  of  controlling  goods,  for 
example  by  optimising  the  use  of  IT  systems  to  better  target  risky  transactions  for  controls 
and by greater reliance on trusted traders and their data, without neglecting tried and trusted 
control methods in situations where they are appropriate.  

c)  Greater  use  of  monitoring  of  EU  customs  law.  Uniform  implementation  of  customs 
legislation by Member States is crucial as  fraudsters can exploit weaknesses at one external 
border to create problems for the whole of the Customs Union. The Commission is expected 
to  monitor  Member  States'  implementation  of  common  customs  rules  and  take  action,  if 
necessary,  to  ensure  their  compliance.  Although  infringement  procedures  are  an  important 

37 Reference if this is completed before the adoption of the report. 

11 

 
 
 
 
  
                                                            
tool  to  this  end,  they  have  to  be  seen  as  a  last  resort.  This  is  why  the  Commission  also 
undertakes cooperation and capacity building activities among Member States, including peer 
monitoring, aimed at promoting best practices and raising overall awareness of customs rules.  
The  current  Commission  policy  of  Customs  Union  monitoring  is  under  review,  aiming  at 
better understanding of the process on the part of all parties and better use of resources.  

d) Improving efficiency of customs administrations. More cooperation between operational 
services  on  the  ground,  including  between  tax  and  customs  administrations,  could  enable 
scarce  resources  to  be  used  more  efficiently.  The  lessons learnt  from  current  projects  under 
Customs 2020 indicates that cooperation between Member States and the Commission in this 
area brings a high added value and should therefore be pursued, e.g. with a view to exploring 
new  data  analytics  techniques,  testing  collaborative  working  methods,  and  identifying 
possible capacity needs to support the Member States in their targeting of transnational risks 
in their clearance and post release control work. 

e)  Harnessing  innovation.  The  new  digital  reality  with  its  new  business  models,  ways  of 
working,  automation,  fragmentation  and  changes  in  the  value  chain  is  influencing  the  EU's 
competitiveness,  the  fairness  it  strives  to  achieve  and  its  safety  and  security.  It  is  crucial  to 
keep pace with and harness evolving technologies, including in particular data analytics and 
the  upcoming  blockchain  approach  as  already  discussed  with  the  Member  States  on  several 
occasions. Cross-sector cooperation and inter-operability  are key requirements underpinning 
all  technological  developments.  New  European  and  international  standards  may  also  be 
necessary.  

f) Optimising customs electronic systems and their use. Increased cooperation between the 
Member  States  in  the  area  of  electronic  systems  is  vital  so  as  to  reduce  overall  costs  and 
eliminate duplication of costs in the development, maintenance and operation of the systems. 
There is already a strong demand from Member States for looking into more centralisation of 
systems as well as collaboration solutions, as described in the Commission report on the IT 
strategy  for  customs.38  Based  on  the  report,  the  Commission  will  in  the  short  term  actively 
engage in the analysis of different alternatives in this area.  

g)  Dealing  with  e-commerce.  The  challenges  of  e-commerce  for  customs  are  by  now  well 
known. Customs nowadays have to deal with a phenomenal increase in the volume of goods 
being  bought  online  outside  the  EU  in  terms  of  controls  and  collection  of  the  applicable 
duties. In particular the volume of low value goods imported into the EU is growing each year 
by  10-15%.  While  applying  effective  controls  to  tackle  fraud  as  a  priority  and  collecting 
applicable  duties  to  these  goods  on  import,  Customs  must  at  the  same  time  support  and 
facilitate the development of this form of trade which brings great benefits to businesses and 
citizens.  The  Commission  has  been  actively  supporting  traders  to  prepare  for  the  electronic 
provision of pre-arrival information for security and safety purposes by 2020 as provided for 
under the Union Customs Code.  

38 Report from the Commission to the European Parliament and the Council on the IT strategy for customs - COM(2018) 178 final 

12 

 
 
 
 
 
 
                                                            
h) Capitalising on the Customs Union to improve EU security. Action to improve the EU's 
security  implies  considering  how  common  policies  in  the  police,  border  management  and 
customs  areas  can  be  made  to  work  better  together  to  support  the  fight  against  serious  and 
organised  crime  and  terrorism  and  to  improve  protection  at  the  EU's  external  borders  in 
particular.  Areas  for  practical  cooperation  at  an  operational  level  with  border  guards  and 
European  Border  and  Coast  Guard  Agency  should  also  be  further  explored.  As  the  lead 
authority  for  the  supervision  of  the  movement  of  goods  across  the  external  borders,  with  a 
special responsibility for advance cargo risk analysis, customs is a key partner for security and 
law enforcement authorities in combating transnational threats.  

i) Continuing to work on international relations. In 2017, imports from third countries into 
the EU reached 1879 billion EUR and exports from the EU to third countries reached 1859 
billion  EUR39.  The  volume  of  that  external  trade  is  continuously  growing.  This  requires 
continuing  and  increasing  cooperation  between  the  EU  and  third  countries  both  to  improve 
compliance  with  customs  regulations  and,  at  the  same  time,  to  facilitate  EU  trade  with  the 
outside  world.  This  must  be  accompanied  by  work  on  more  robust  supply  chains  at 
international  level,  within  the  forum  of  the  World  Customs  Organization,  through  further 
strengthening the Authorised  Economic Operator  status.  The further development of  mutual 
recognition of Authorised Economic Operator programmes with partner countries, as already 
in place with the United States, China, Japan, Switzerland and Norway, is also crucial so as to 
encourage wider take-up of Authorised Economic Operator status.  

5.  CONCLUSION  

The  Customs  Union  is  at  a  crossroads.  We  have  a  new  legal  framework,  new  methods  of 
working and new IT tools. These must now come together in the next few years in a coherent 
implementation that encourages compliance and targets risk areas, while reaching out to other 
policy areas, notably security, to strengthen EU common policies.  

The development of the Customs Union is a dynamic process and in the last years we have 
made progress in many areas linked to a better management of the Customs Union. Work in 
these  areas  must  continue.  At  the  same  time,  however,  the  Commission  believes  that  EU 
customs must look at new priority issues in order to deal with the challenges ahead.  These are 
as follows:  

Improving efficiency of customs administrations  

  Managing Brexit  
  Strengthening controls and tackling fraud  
  Greater use of monitoring of EU customs law 
 
  Harnessing innovation  
  Optimising customs electronic systems and their use  
  Dealing with the challenges of e-commerce  
  Capitalising on the Customs Union to improve EU security  
  Continuing to work on international relations 

The Commission invites the European Parliament and the Council to endorse this report and 
looks forward to engaging actively with those institutions on follow-up. 

39 Customs Union Performance – 2016 Annual report 

13