EU customs law has always been a strange creature. With elements of its practice touching on trade law, transport law, tax law, or administrative law, among others, it is often perceived as a supplemental rather than an independent field of law. As such, it has not always been given sufficient attention within companies. Recently, however, EU customs law has started to weave its way into the fabric of our everyday Brexit lexicon, raising its profile – and potential consequences – to wider levels of recognition. Following the Brexit vote in 2016, it quickly became clear that the UK’s exit from the EU customs union will have profound consequences on the supply chain operations of economic operators. Brexit illustrates the key role that customs law plays in ensuring the smooth continuity of economic activities and how any change in the EU customs framework can have very serious consequences for the import and export operations of companies and for their finances.
Against this background, one legitimate and timely question is whether the importance of complying with EU customs law is sufficiently recognised within companies, and if so, where EU customs compliance sits – or should sit – within a company’s organigram. These two questions are now examined below.
The importance of EU customs compliance
Export controls and sanctions are often identified as key areas within a company’s structure and its compliance programmes. But this article refers to EU customs law, which entails something different. Goods must comply with certain procedures and rules which enable them to physically pass through the EU border, and which apply in addition to all other regulatory frameworks that determine whether a product can actually be placed in the market. Thus, goods must be correctly classified in the Common Customs Tariff, their customs value determined and their origin carefully reviewed to identify the applicable duty rate (particularly if the importer claims the benefits of a free trade agreement or if trade defence measures – such as anti-dumping duties – may apply). All of these steps are subject to strict rules laid down in the Union Customs Code and other legislative frameworks, such as free trade agreements. Those rules are, in turn, often interpreted by the EU customs authorities in a strict manner, increasing the risks of compliance failures.
Conducting business in compliance with the applicable regulatory framework is important for any economic operator. Indeed, the merits of being so compliant should be part of the culture of any legitimate trader. However, insufficient awareness – even if unintentional – may lead companies to underestimate the importance of EU customs compliance and its potential costs.To avoid underestimating EU customs rules, companies should consider the following points.
• First, the correct application of EU customs law is verified by the authorities, often on an annual basis, after the imports have already taken place and the goods have been released to their final customers. If the authorities find a customs infringement that results in a claim for additional duties, such a claim will include the duties due for all imports of the product concerned which have occurred over the last three years or, if the authorities decide to initiate criminal proceedings, for a period of up to ten years. The significance of such claims cannot be overstated since they can quickly accrue to substantial financial liabilities.
• Secondly, companies must be aware that a customs infringement can also lead to the imposition of a fine for each import declaration and, depending on the circumstances, these fines may be calculated as several times the evaded import duties. In some cases, the sanctions may be imposed through criminal proceedings, which may include jail sentences, making the consequences of the infringement even more serious. In addition, penalties may apply even when the infringement has not resulted in the avoidance of any customs duties. Thus, the importation of goods benefitting from duty free treatment does not exclude the risks of a compliance failure.
• Thirdly, in the event of a customs infringement, the authorities will generally claim any customs liabilities from the company that appears as the importer of record in the customs declaration. This company may therefore have to face customs claims and sanctions even where such infringement is the result of the behaviour of a third party - such as the misdeclaration of the origin by its supplier -, and regardless of what the importer and the vendor may have agreed contractually among themselves.
• Finally, a company may be using the services of a customs agent who takes care of customs formalities. In most cases, however, since the agent is only its representative, the economic operator will still be the importer of record and therefore liable – or at the very least jointly liable – in the event of customs infringements. The use of a customs agent, therefore, will in no way absolve the organisation from ensuring compliance with EU customs law.
Therefore, even though goods may already have been imported and delivered to the customer, an economic operator continues to sit on a potential liability for its past imports, with regard to duties and possibly fines, for several years. In case of disputes with the authorities, companies will face additional costs such as legal representation charges and potential disruptions to the supply chain, which can be very costly, and not just financially. Those risks can only be minimised if appropriate recognition has been given to the importance of complying with EU customs laws. Moreover, such compliance efforts may be taken into account as a mitigating element in the event of a dispute with the customs authorities.
Where should EU customs law sit within an organisation?
Once the significance of EU customs law has been acknowledged, the next question is where EU customs compliance sits – or should sit – within an organisation. It is, for example, frequently the case that the customs team dealing with the day-to-day management of customs procedures and also with compliance issues, may report to the tax department, the financial controller or the business or sales departments. This is however likely to be ineffective as customs matters may not figure prominently among the responsibilities of those departments, or the latter may be among the business units that need to be checked and monitored by the customs compliance team.
It is this author’s view that EU customs law needs to be present throughout the company’s various departments. EU customs law must play a role which goes well beyond what happens with the goods when they are already at the border and ready for import, and customs matters must gain sufficient visibility and awareness within the company. While acknowledging that there is never a one-size-fits-all solution, the legal department, or the company compliance team when it exists separately, whether outside or within the legal department, would be ideally placed to contribute to those objectives.
• One reason is that the legal department or the company compliance team are already responsible to ensure and promote compliance with various fields of law, and are therefore best placed to assist in ensuring compliance with other laws such as EU customs regulations.
Indeed, EU customs law should cross horizontally through all company activities where the legal team or the company compliance team is already involved, even though some of those activities may not appear customs-related at first glance. Such activities include, for example: contractual law, where it may be necessary to determine the customs liabilities of the parties and insert the appropriate compliance provisions into the contract; due diligence for mergers and acquisitions, where it is not always taken into account that any customs infringement committed by the targeted company will became a customs liability for the new owner; and even product planning and design, which can in many cases benefit from taking into account, even at that early stage, the customs rules that will apply to the final product. Moreover, the first steps of a customs dispute, when the matter is still being handled by the customs authorities before reaching court, are very important, and the legal department’s assistance from the outset can be crucial in devising the best legally-sound business strategy. These are just some examples.
• Another reason is that the internal horizontal role played by the legal team or the company compliance department may also help in bringing EU customs compliance matters out of what is often an ostracised customs and supply chain department that struggles to obtain visibility and support internally.
Dismissing EU customs matters as a minor issue because a company has never had a customs compliance issue is a common excuse. It is, however, a naïve response to a serious risk, most likely based on insufficient awareness of what EU customs law encompasses. Such an approach obviously fails to realise that compliance can ensure substantial savings if duties are being paid in excess due to an incorrect application of EU customs law. However, it also ignores that it takes only one serious customs infringement case to considerably disrupt a company’s day-to-day functioning and even cause it serious financial strain. Such risks are particularly pertinent today when customs authorities throughout the EU appear to have become particularly aggressive in their enforcement policies, while an increase in the adoption of extra-EU protectionist tariff measures means that a compliance failure will be particularly costly due to the punitive nature of such measures.
Riding on the customs awareness generated by Brexit, EU customs teams must be given a more prominent role within an organisation’s compliance structure. Being part of, or working directly with, the legal team or the company compliance team, and ensuring that EU customs matters are sufficiently recognised within those departments, may be one of the ways to assist the customs teams in achieving their compliance goals.
Pablo Muñiz is head of the customs practice of Van Bael & Bellis. He specialises in EU trade law, with a particular emphasis on customs law. He has a wide range of experience in customs law, including customs classification, origin issues, customs valuation, compliance programmes, duty suspensions, export controls and sanctions. He regularly advises clients on multi-jurisdictional customs matters involving EU Member state customs authorities, the European Commission, OLAF and the World Customs Organisation (WCO).