Customs special regimes, AI, circular economy and compliance: the challenges

On 30 November 2023 the DG TAXUD published the guidance “Special procedures for MSs and Trade -Title VII UCC” number of reference TAXUD/A2/SPE/2016/001-Rev 21-EN.

In this document, the EU working group, according to article 210 UCC, checks and analyzes the customs procedures with economic impact (CPEI) also called eitther “Special Procedures” or “special regimes”.

The main categories are

Storage which covers customs warehouse and free trade zones
Specific use. In this category, the temporary admission and the end use authorization fall.
Processing which means inward processing relief and outwards processing relief

The common framework of these special procedures is

Authorization: the authorisation which is a favourable decision with a maximum period of validity of 5 years. Each customs procedure can be granted by a specific application and the same application can’t involve more the one special regime. It is possible to apply for an authorization with retroactive validity and to ask for a retroactive amendment. Indeed, in the guidance, it is stated that “…An authorisation can be granted with retroactive effect when the conditions of Article 211(2) UCC are met. However, an authorisation cannot be granted again with retroactive effect if an authorisation with retroactive effect has been granted for the same special procedure…”. In other words, only the holder of the authorisation (economic operator) for Inward Processing, Outward Processing, End-Use, Temporary Admission, and private Customs Warehousing has the right to declare goods for the relevant special procedure;
Competent customs authority: the comptetent customs authority (competent Member State) is the one where the applicant´s main accounts for customs purposes are held or accessible, and where at least part of the activities to be covered by the decision are carried out. If the competent customs authority cannot be determined according to Article 22(1) UCC, it is the one where the applicant’s main accounts for customs purposes are held or accessible (see Article 12 Delegated act. Commission Delegated Regulation (EU) 2015/2446 here in after also “UCC-DA”);
Applicant: the applicant is, normally, a person established in the Customs territory of the Union. However, it is possible under certain conditions to grant an authorisation for IP and end-use to a person who is established outside the Territory;
Financial guarantee: it is compulsory. The purpose of the guarantee is to cover a potential customs debt, which may be incurred for goods that have been placed under a special procedure. Moreover, it need not to be provided in the following circumstances: a) the erga omnes import duty rate for the goods to be placed under the special procedure is zero; b) regarding the potential debt of other charges, namely VAT, there is waiver of providing a guarantee in accordance with the provisions governing such charges;
AEO authorization (AEOC and AEOFull): reduce: a) amount of financial guarantees; b) reduce the amount of data required for the authorization. The AEO is the authorization based on the relaibility of the economic operator and requires ongoing internal monitoring, risks management and root cause analysis (RCA) of the processes;
Compliance with the trade policies: the trade policies can be tariff measures and no tariff measures. The non tariff measures impact the goods under IPR. For the antidmping measures it is possible that EU needs to enforce some measures which cover an essential role in protecting the European interest. It is stated, in the guidance that “…All the examinations of the economic conditions must be carried out at the Union level. Where, after the issuing of an authorisation for inward processing anti-dumping measures are imposed on the goods placed under the IP procedure, an examination of the economic conditions may be required in accordance with Article 259 (2) or (3) IA. Such examination is possible only where evidence exists that the essential interests of the Union producers are likely to be adversely affected by the use of the authorisation…”.
Customs treatment of waste, losses, secondary processed products: essentially, if the goods placed under suspension regimes, could be employed in other production processes or they are “byproducts”, it is required the payment of duties and VAT; in the guidance, it is stated that “…. Waste in the case of usual forms of handling: “…Goods placed under the customs warehousing procedure undergo usual forms of handling. Such operation leads to waste as a byproduct which has a commercial value for any person. The waste remains under the customs warehousing procedure. Hence, a customs debt would incur if the byproduct is declared for release for free circulation…”

*** Circular economy and special regimes ***

The customs special regimes can play an important role inside the circular economy system. But according to “Study Report – Transition to a circular economy and implications for Customs administrations” published in 2023 by the WCO, the customs administrations and management of the special regimes should consider the following points: “…

Basic knowledge in this new field may typically include the definition of what the term “circular economy” exactly means, as well as existing differences between a linear and circular economy, legal considerations around materials and products in circulation within and outside the border in a circular economy, and the progress status of national and regional transitions.
In addition, most economies today fall somewhere between a linear and a circular economic More and more governments have implemented policies to support the circular economy approach. Currently, there are more than 520 policies and regulations already promoting circular economy goals at the national or regional level. This trend reflects the growing awareness of a number of countries regarding the transition to a circular economy.
Beyond these policy trends, there are likely to be a multitude of possible responses to the circular economy at the national level, closely related to the balance between the protection of national economic interests and environmental protection.
Updating changes in the monitoring of the transition to a circular economy is of primary importance for Customs. This highlights the importance of tracking the flows of circular economy goods and developing more exhaustive practical knowledge about the trade-offs between benefits and risks during the transition. While the potential offered by international trade is often viewed as a “tool” or an enabler for globalizing a circular economy, the proliferation of circular economy policies may also have uncertain effects on future trade. The critical point is to understand the potential trade-off between the benefits and risks involved, throughout the transition process…”.

Moreover, it is interesting to quote “ Role of Artificial Intelligence in Circular Manufacturing: A Systematic Literature Review” of Federica Acerbi, Dai Andrew Forterre and Marco Taisch about the relationships between the artifical intelligence (AI), circular economy (CE) AI and supply chain (therefore customs): “…AI could highly stimulate the transition towards circular systems by involving all supply chain actors, thanks to the gathering of real-time information on resource consumption and waste. This enables to efficiently analyse the current situation and adapt the system according to the environment (Rajput and Singh, 2019). Actually, the transition towards this new paradigm has impacted different aspects of companies, among which their interactions and logistics…”.

Artifical intelligence and an approach based on block chain and machine learning will boost the deployment of the special regimes. Indeed, the customs procedure with economic impact (CPEI) help the trasformation of raw material and the development of strong supply chain also in a economic context where “…The transition from a linear, extractive, produce-use-discard model to a more circular approach promoting resource efficiency and the decoupling of economic outputs from material inputs implies a significant change in business models. In today’s highly integrated world economy, international trade is likely to play a critical role in facilitating this transition, by exploiting existing comparative advantages and allowing economies of scale. Goods and services related to the circular economy (CE) already cross borders at virtually all stages of the value chain, from upstream design services to remanufactured goods and secondary raw materials…” in “The circular economy and international trade” of Christophe Bellmann.

The special regimes managed by the AI solutions need a strong care for all the aspects related to the customs compliance and the AEO; it is possibile the AI will enter the self assessment questionnaire (SAQ) as main element of a huge number of questions.

The AEO is the unique authorization by which, the owner is recognized as reliable. This is the main peculiarity of this customs decision: indeed, this is the unique authorization which modifies the status of the economic operators which, therefore, is, in the scheme of the customs obligation, the debtor of the customs duties and other taxes due for the import operation. Such a reliability is granted and mantained by the AEO only if this company is able to prove: a) very specific and high professional care (diligenza qualificata) in fulfilling the processes directly and indirectly linked to customs operations; b) the monitoring of all the main elements which can affect the customs/trade compliance.