Supply chain security - Update of the Community Customs Code

An important security-related update of the Community Customs Code, namely EC Regulation 648/2005, has recently become law. This affects everyone who is involved in the international supply chain and it is therefore important that traders and third countries' customs authorities are informed.

As from January 2008 it will be possible for traders to obtain recognition as an Authorised Economic Operator (AEO). This means that reliable traders that meet specified criteria will be able to benefit from a 'lighter' regime as regards both security measures and simplifications as provided for under customs rules. The AEO programme will strike a balance between increasing security requirements and facilitation for compliant traders.

In July 2009 it will become mandatory for traders to provide customs authorities with advance information on goods moving into, or out of, the customs territory of the European Community. Failure to do so will mean goods cannot be loaded on ships bound for the EU or leaving the EU for ports in third countries.

Questions related to the security amendment are being discussed with the EU's major trading partners, both bilaterally and within the context of multilateral discussions within international organisations such as the World Customs Organisation (WCO). In fact, the introduction of AEO status is one of the major pillars of the WCO own SAFE Framework of Standards. This has been accepted by the EU and all its major trading partners.

The rationale behind the update

The terrorist attacks in New York, Madrid and London have brought to the fore a serious, new challenge: how best to design and implement effective measures that will successfully defend trading and transport systems within the EU from terrorist attacks - while preserving the efficiency of today's system and the benefits that both consumers and businesses derive from it. A terrorist attack related to the international supply chain would not only threaten lives, but could also bring international transport to a halt, with potentially disastrous consequences for the world economy.

The European Council of March 25, 2004 called for the protection of all forms of transport systems, in order to ensure effective border control and facilitate the adoption and implementation of the strategy for customs cooperation. This was followed in April 2005 by the adoption, on the part of the European Parliament and Council, of the so called "Security Amendment" to the Community Customs Code providing the legal framework for the measures described below. The Regulation assigns Customs administrations, together with economic operators, a major role to play in securing the supply chain while facilitating legitimate trade.

The cornerstones

The European Commission has adopted a regulation aiming at increased security for shipments entering or leaving the EU. The Regulation provides greater facilitation for compliant operators whilst ensuring the implementation of the amendments to the Community Customs Code introduced by the Parliament and the Council in 2005. It introduces a framework for an improved and more coherent risk analysis of goods crossing EU borders.

From January 1, 2008, reliable traders (Authorised Economic Operators) respecting determined criteria will benefit from trade facilitation measures, and from July 1, 2009 the electronic exchange of advance information between traders and customs authorities on all goods entering or leaving the EU will be introduced.

The regulation also requires customs authorities to exchange information electronically on exports in order to speed up export procedures.

All the new measures aim at increasing the level of protection offered by customs controls for goods entering or leaving the European Community. They involve putting in place a new risk management framework; granting the status of authorised economic operator to reliable traders; introducing the requirement for pre-arrival and pre-departure information to be given to the customs authorities on all goods brought into or out of the customs territory of the Community; and facilitating information exchange between customs administrations of the member states.

EC Regulation 648/2005 has been followed up by the publication of the implementing provisions, setting out in great detail the operational aspects of the customs processes arising from the above mentioned measures. The regulation, 1875/2006, came into force on December 26, 2006 and applies within the following timeframe:

1. Since early 2007, a common risk management framework has been used to support improved risk based controls by customs authorities. The risk management system will be fully computerised by 2009.

2. On January 1, 2008 the provisions for the Authorised Economic Operator programme (AEO) will enter into force.

3. As from July 1, 2009 it will be mandatory for traders to provide customs authorities with advance information on goods brought into, or out of the customs territory of the European Community.

Additionally a non-security related measure is introduced with the entry into force

of the implementing regulation: Customs authorities are enabled to exchange information electronically on exports between the customs offices involved in the procedure, allowing Community exporters to receive the proof of export immediately after the exit of the goods (Export Control System). This measure was implemented by the Customs administrations of the member states on July 1, 2007.

These measures should produce faster and better targeted customs controls, thus facilitating legitimate trade but tightening minimum security and safety requirements.

The Department of Customs in conjunction with the Malta Business Bureau will be holding several information meetings for the trade in the coming weeks, on the Security Amendments to the Community Customs Code.

More detailed information can be found on the websites of the European Commission's Directorate-General for Taxation and the Customs Union and Malta Customs' respectively:

http://ec.europa.eu/taxation_customs/customs/policy_issues/customs_security/index_en.htm http://mfin.gov.mt/page.aspx?site=CUST&page=default

• The above was adapted from the DG TAXUD website. Mr Brincat is an EU specialist, Department of Customs.