Oleksandr Moskalenko: Nobody in the World Likes Customs and Tax Officers. That's Normal
Special episode of Season III of Budget Talks – on the State Customs Service and its transformation. What should Ukrainian customs look like after Ukraine joins the EU? What should Ukrainian businesses be preparing for right now? Why does customs need law enforcement powers?
In the new episode of the Budget Talks podcast, we answer these and other pressing questions. Viktor Maziarchuk, Head of the Fiscal Policy Research Center, and Oleksandr Moskalenko, Director of the Customs Policy Department at the Ministry of Finance of Ukraine, discuss customs, European integration and the changes that are already under way.Special episode of Season III of Budget Talks – on the State Customs Service and its transformation. What should Ukrainian customs look like after Ukraine joins the EU? What should Ukrainian businesses be preparing for right now? Why does customs need law enforcement powers?
In the new episode of the Budget Talks podcast, we answer these and other pressing questions. Viktor Maziarchuk, Head of the Fiscal Policy Research Center, and Oleksandr Moskalenko, Director of the Customs Policy Department at the Ministry of Finance of Ukraine, discuss customs, European integration and the changes that are already under way.
VICTOR
Hello! This is Budget Talks from the Fiscal Policy Research Center. Today we are going to talk about something important: customs. Ukrainian customs is now undergoing what is perhaps one of its biggest transformations in decades.
We will be talking with Oleksandr Moskalenko, who is responsible for shaping policy in this area and heads a department at the Ministry of Finance of Ukraine (hereinafter – MoF). Thank you for joining us, and welcome to the podcast.
OLEKSANDR
Thank you, Viktor. Good afternoon, everyone. Thank you for the invitation and for the opportunity to explain the philosophy behind the changes and the policy being implemented in the country, which is, of course, based on our commitments under European integration. The key goal is for Ukraine to be the main beneficiary of this process. Our task, our role, is to prepare both business and the state so that, when we join the European Union, Ukrainian businesses are ready for the rules and processes that exist in the EU. We want Ukrainian businesses to be able to continue their customs operations from day one and not even notice the transition when Ukraine becomes an EU member.
As for customs, we have already implemented a very large part of the EU acquis, that is, the rules that exist in the European Union. According to the European Commission’s estimates, Ukraine has already transposed 80% of the provisions of the Union Customs Code (UCC) into national legislation.
What Customs We Are Building
VICTOR
In general, what kind of customs service are we building? How does MoF see it? We analysts very often assess customs by how much money it has collected and how much smuggling it has stopped. But is that the right way to assess it today? Where are we heading?
OLEKSANDR
The answer is very simple. There is no ideal customs service in any country in the world. In every country, collecting duties ranks among the TOP-5 or TOP-10 least popular professions. Collecting taxes is very specific work. The point is that if we do not build a customs service based on the same philosophy as in the European Union, it will be very hard for us to be a fully-fledged EU member. The philosophy of European customs rests on a core principle: balancing the legitimate interests of business with the functions of the state, its control functions. The mission of customs authorities, which we are enshrining in the new Customs Code of Ukraine, is the facilitation of legitimate trade. In other words, the key task of customs is to support legitimate trade.
The next element is enforcement. Nobody has ever abandoned the fiscal function. Even in the European Union, 75% of the import duty collected by customs authorities goes to the EU’s own resources. These funds are used today, for example, to finance the Ukraine Support Loan. So, the fiscal function remains. In the European Union it is watched very closely by DG Budget (Directorate-General for Budget), the most feared directorate in the European Commission. For any customs service in Europe, a DG Budget inspection is the most dreaded inspection there is, even worse than its own internal audit. So, unfortunately, we will not move away from the fiscal function.
The security function is, of course, one of the key ones. It means preventing dangerous goods from entering the territory. This concerns not only weapons and drugs, but also goods that could harm the environment or human life and health. We want to see a customs service that helps compliant businesses. There will certainly be control, but it will not be an obstacle for compliant businesses.
How do we get there, and how long will it take? When we drew up the first reform plans in 2017, with the support of academics and partners, I estimated that we would need 5–7 years just to understand the philosophy of these changes. Almost 10 years have passed since that initial work. And only in the last two or three years have I felt that the perception of this philosophy has started to change. So, the task is not just to adopt a new Customs Code, build IT solutions and learn to work with these rules. The task is also to change the philosophy itself…
VICTOR
…of how customs functions and, probably, how it is perceived?
OLEKSANDR
Not even that. The philosophy of the place of customs in the state. I’ll say it again: nobody in the world likes customs and tax officers, and that’s normal. But European customs legislation is built on a trust-based approach: authorised economic operators, authorisations and so on. Before a company starts dealing with customs, with actual goods and foreign trade operations, it goes through a procedure called authorization, which confirms that it meets certain criteria. In other words, before a company interacts with customs in a foreign trade operation, it proves that it is reputable and, where required, financially sound, and that it keeps proper accounts. It shows that after the goods have been released, for as long as the law requires records to be kept, you can always come to the company and find any information you need in its accounts.
This approach means that customs does not have to carry out a full physical inspection of goods, scrutinise every detail or hold up the vehicle with the goods. It is known that the company has qualified staff who know how to work with customs and how to control valuation, and there is a person who can determine the commodity code. All this has already been confirmed. A company that has received such an authorisation remains under ongoing monitoring. It must meet these criteria not only at the time of assessment but throughout the entire period in which it uses the authorisation. The customs officer knows that the company is reliable and can always be visited and checked, and this reduces the time needed for customs formalities.
When we say that in Ukraine the average customs clearance time, for example for release for free circulation, is 1 hour 40 minutes, while in the European Union it is up to 15 minutes, we need to understand how those 15 minutes are achieved. The company was checked beforehand, it is under monitoring, and it can always be checked afterwards. In the European Union, more than 80% of all economic operators hold some kind of authorisation.
VICTOR
So they go through a simplified procedure?
OLEKSANDR
They have been checked. And on the basis of their authorisation, they have certain simplifications. Some have a full authorisation, for example as an Authorised Economic Operator (AEO); others have an authorisation for Entry in the Declarant’s Records. When more than 80% of businesses have already been checked and their reliability confirmed, that is how you get an average customs clearance time of 15 minutes.
At the same time, European legislation sets no time limit on how long a customs officer may inspect goods. Our current Customs Code sets a limit of 4 hours, but there is no such cut-off in European legislation. A European customs officer will inspect for exactly as long as they need.
VICTOR
Let me try to sum up. The state makes things as simple as possible for legitimate businesses and concentrates its efforts where risks may exist and where it sees them.
OLEKSANDR
Let’s put it differently. The state does not simplify the procedures; the procedures are the same. But the state shifts the formalities that a customs officer would otherwise carry out onto an official of the company that benefits from this facilitation, that is, under the company’s responsibility. If the commodity code needs to be checked or the customs value determined, the checking function, which today lies with customs and for which the customs officer is responsible, is effectively transferred to the company. The message is: we trust you, we have checked you, you have trained staff, you will do it yourselves. We will also be watching, and if we don’t like something, we will come to you and help you calculate correctly.
Why Customs Needs Operational and Investigative Powers
VICTOR
A very controversial topic is whether customs should become a law enforcement agency with operational and investigative powers. There are two philosophies. Some say customs really needs this, because it has to do all the research and assessments and see them through to the end. Others say these functions do not belong to customs. So, should customs become part of the law enforcement system and have these powers?
OLEKSANDR
I’ll start from the end. In the European Union, 25 of the 27 member states give customs law enforcement powers: 23 have full powers, 2 have them with certain nuances, and 2 countries, Denmark and Slovenia, do not have them. In the European Commission’s annual Enlargement Reports, the first recommendation for Ukraine was to criminalise commodity smuggling. We remember how much resistance these provisions met in society. After Ukraine criminalised commodity smuggling, new recommendations appeared: to grant the State Customs Service of Ukraine (SCSU) operational and investigative powers and the right to conduct pre-trial investigations. But here we need to talk about why customs needs this and what this element is.
Operational and investigative powers are just one of the tools that ensure the rule of law and compliance with legislation. Suppose we say that everything is lawful, all goods cross the customs border without violations and there is no evasion. The next question is how this is achieved. There are many elements. One is clear legislation. Another is the knowledge, skills and training of customs officials. A third is well-trained, well-prepared businesses. A fourth is a culture in which everyone pays taxes. Then enforcement measures come in. Customs has administrative functions, post-clearance control and post-clearance audit. We can inspect, impose fines and hold people liable for detected violations. Customs offences that entail administrative liability in the form of fines, and sometimes confiscation, are a different story. Operational and investigative powers and criminal investigations complete the toolkit for ensuring what the Customs Code calls “customs security”, meaning that legislation is complied with.
The key reason why the State Customs Service should have this tool is that the European Union is a customs union, and all customs services operate under the same rules and principles. Customs services must be able to exchange information with each other, including risk information and information in criminal cases, and to conduct joint operations. Ukraine is becoming the EU’s eastern border. In effect, Ukrainian customs must have the same set of tools, so that it can function naturally as the eastern border and work jointly with other countries to stop dangerous goods and smuggling from entering the European Union as a common space.
VICTOR
To be honest, you surprised me with the figure that almost all customs services have these powers. What exactly are these functions? Why does customs need operational and investigative powers?
OLEKSANDR
I wanted to give an example. I would like nobody to ever encounter these customs functions. The ones who do are company representatives, economic operators or individuals who deliberately break the law, because criminal liability generally arises for intentional acts. If there was no intent, other factors may apply, such as negligence… I want to reassure honest businesses first of all: without intent, it is quite difficult to bring criminal charges.
We are talking about a certain segment of the black market: organisations that consciously and deliberately commit such acts. Let me explain. For example, we talk a lot about minibuses crossing the border, saying “let’s defeat the minibus schemes”…
VICTOR
These are small consignments of goods that go unrecorded?
OLEKSANDR
In fact, they cross the border legally. Our legislation, both the Customs Code and the Tax Code, allows travellers to bring in goods worth up to EUR 500 by road and EUR 1,000 by air. So, you can buy gifts or goods and bring them in. And we see situations where five people get into one minibus, each of them entitled to bring in goods worth EUR 500, and they carry everyday consumer goods, let’s say nappies. A person may bring in EUR 500 worth of such goods quite legally, and the customs officer at the border crossing point has no grounds to stop them. If the person bought these goods for themselves and uses them, there is no problem.
But suppose the person did not buy them for themselves. The minibus arrives at a distribution or consolidation centre, where five minibuses unload all the nappies. Now we have a commercial consignment, and 72 hours later the people get back into the minibus and cross the border for a new batch. Meanwhile, other people are making the same trips. It is a whole business. When this consignment starts being sold on a market, a tax liability effectively arises. If the person in the minibus had handed the goods over to a consignment shop, they would have paid personal income tax on the amount received. So, tax evasion actually occurs at a later stage, after the border crossing. At the moment of crossing the border, there is no violation yet.
So, the question is how operational and investigative powers can help here. When we see such a situation, we need to fight these schemes. We can stop people at the border and ask them what they are carrying and where. But if we worked only with the usual customs methods, these control measures would be disproportionate. Operational and investigative powers, or other work in this area, make it possible to find the organisers. This is the key point: identifying the circle of people who organised this tax evasion scheme. We will see not one minibus but the whole system. It can be documented, the circle of people identified, and, most importantly, these tools let us go after the organisers rather than the couriers, the minibus drivers. Drivers can be replaced, minibuses can be replaced, other people can be put in them.
From the point of view of public spending, any control has a cost, and so does the administrative function. Working on the consolidation centres costs taxpayers less than checking every minibus at every border crossing point.
"If We Raise Customs Salaries Fivefold, We Will Not Get Five Times More Revenue for the State Budget"
VICTOR
You touched on a very important topic: capacity. You can write and adopt a new Customs Code, build a state-of-the-art IT system and change procedures, but in the end it all comes down to customs and its staff, and their ability to do their job well. The vetting of customs officers is now under way. What is its main goal? To test knowledge – whether they know the Code and the procedures? Or to test integrity?
OLEKSANDR
The answer may seem unusual at first glance. The key goal of this process is to restore trust in the customs service as an institution. Without the trust of businesses and citizens, we will not be able to build a strong customs service that can implement new procedures and rules.
Unfortunately, customs has historically had the lowest level of public trust. But recent surveys conducted under international programmes on perceptions of corruption show that over the last three years these indicators have fallen significantly, from 40% to 20%. That is very substantial progress in terms of trust.
VICTOR
So, trust is growing?
OLEKSANDR
Yes, trust in customs is growing. And as for testing customs officers’ knowledge or skills, they have already passed so many tests. There were competency tests in 2019, and there were programmes when officials were transferred from the State Fiscal Service (SFS) to the State Customs Service, when the fiscal service was split into customs and tax services. Today we have no questions or doubts about customs officers’ professional knowledge.
Of course, there are some shameful cases, unfortunately, which we see in the press, where it is genuinely hard to explain the origin of someone’s wealth. But until there are court rulings, we cannot say whether someone is corrupt or not.
The Verkhovna Rada (in other words, Parliament) passed a bill, which then became law and introduced a one-time vetting. This was done in the police when it was created, then in the Prosecutor General’s Office, and it is now taking place in the Economic Security Bureau of Ukraine (ESBU). The same process now awaits the State Customs Service. The first stage of vetting has already begun, with testing of heads of customs authorities, customs offices and structural units. The process is moving forward actively. At the second stage, all other officials will be tested. The main goal of all this is to restore trust in the customs service as an institution.
VICTOR
Integrity is important here, so that people don’t create additional obstacles for businesses.
OLEKSANDR
To understand how to fight corruption, we need to address basic needs. The first is the salaries we must provide to customs officials. This is a basic need. The next step is to provide a proper workplace, so that a customs officer has a laptop and a computer and doesn’t have to figure out who will pay to change a light bulb, so to speak. These first steps will remove a large number of people willing to engage in corrupt practices. But the problem is that there is no simple answer; as always, it takes a set of measures.
On the other hand, when we say “let’s raise customs officers’ salaries”, the question arises that first of all we need to raise the pay of our soldiers who defend us. Thanks to them we are here in the studio, talking about the future, working on that future and taking part in reforms. This is part of our commitments, the work we do to secure funding from our partners, to whom we are also grateful for their support.
So, on salaries. When the question is whose pay to raise, there are clearly priorities. There is a lot of talk about teachers, librarians and doctors. Let’s be realistic: if we raise customs salaries fivefold, we will not get five times more revenue for the State Budget. Let’s be frank about it. Revenue depends on the state of our economy and the volume of trade. Of course, a certain amount of goods remains in the shadows, and we are fighting that. And I can tell you that, according to estimates by the National Bank of Ukraine (NBU) as well, the shadow economy has been shrinking significantly since 2022.
Coming back to integrity. Our aim is a customs service where everyone is trained, motivated and honest, has new procedures, knows how to apply them and has embraced the philosophy we talked about at the beginning of our conversation.
The customs service relies on a large number of people who have worked in the system for many years and do not own houses abroad, in Monaco. These are usually older officials who carry a great deal of the formalities. So, the vetting procedure itself raises certain concerns for us about whether the customs service will retain the capacity to perform the tasks it now faces as an organisation.
How the "Right to Be Heard" Will Work in Determining Customs Value
VICTOR
Customs value is an eternal conflict between two sides: the state, represented by customs, and society, represented by business. The business says: I bought the goods at this price and brought them to the border. The customs officer says: no, that’s not the price, you’ve undervalued them. Can this conflict be resolved? By its nature, it seems unresolvable to me, because each side has its own goals. The state wants to maximise budget revenue, and business wants to maximise profit. The state wants to tax as much as possible and collect the revenue due, while business wants to pay as little as possible and earn more. Can this problem be solved? And if so, how?
OLEKSANDR
There is actually no conflict here. What taxes are collected at customs? Import duty (of various kinds), value added tax (VAT) and excise duty. VAT is neutral in our system: it is paid at customs, recorded as input VAT credit, then passes along the supply chain, reducing liabilities by the amount of the input credit. So, VAT should be neutral for business. Next, import duty. Our duty rates range from 0 to 50% of the value for some items, sugar for example.
The weighted average import duty rate is 2.1–2.2%. So, if we import goods worth, say, UAH 1,000 but declare UAH 100, we pay on average UAH 2 of duty on those UAH 100. Those goods worth UAH 1,000 can then be sold for UAH 2,000. The difference between UAH 100 and UAH 2,000 is UAH 1,900. What do we get? Profit. And what is our corporate income tax rate? We all know.
VICTOR
And what if we bring them in for UAH 100 and then don’t pay anything?
OLEKSANDR
Exactly. We need to build – and this has been repeated like a mantra for many years – supply chain control, control over the movement of goods at every point.
VICTOR
Could you explain what that would achieve?
OLEKSANDR
It would mean that you could not import goods for UAH 100 at one stage, then lose them somewhere in the records, have them reappear with someone at UAH 1,800 and be sold at UAH 1,900, with corporate income tax of UAH 20 instead of UAH 400.
VICTOR
But then that isn’t a question for customs.
OLEKSANDR
It’s a question for the state, and it is the answer to how to ease tensions over customs value. That’s where we started our conversation. The question for us is how to make sure there is no gap in the chain within the country. And this is the most painful issue. We remember the debates over VAT for Individual Entrepreneurs (in Ukraine, literally “natural person–entrepreneurs”, or FOPs), the abolition of the simplified tax system and the narrowing of its scope. Objectively, until we resolve our domestic accounting and traceability in this area, we will have problems with customs value. As soon as it is no longer possible to lose value in the chain, these goods will appear further down the chain at a high value. When such a gap is no longer possible, there will be no point in playing games with customs value. It will be cheaper to pay taxes on the real customs value, because the duty rate is 2% and the corporate income tax rate is 18%. So, it turns out to be cheaper to pay the duty on the honest value. For some reason, other countries don’t have such an acute problem.
VICTOR
They have this supply chain control?
OLEKSANDR
They do, but let’s not idealise it. We see cases in the news, both in EU countries and in the UK, where someone undervalues goods and evades duties. Doing nothing and changing nothing would also be wrong.
We have a large number of court rulings against customs. And again, there is no simple answer. Sometimes customs receives a reply from another country to a request to verify the authenticity of documents. The reply shows that different documents were submitted for customs clearance of that consignment, with a value somewhat higher than the one declared to Ukrainian customs. And yet Ukrainian customs loses the case in court because something was not done properly, since under the Customs Code a customs officer may only adjust the value on a strictly limited list of grounds…
VICTOR
On technical grounds?
OLEKSANDR
Yes. Even when there are already signs of fraud, we sometimes lose such cases on formal grounds. The State Customs Service examines the reasons in each case, but the problem still exists today.
In the new Code, we took the following path. Customs officials often do not fully take into account factors they should consider, for example certain features of the transaction such as discounts, and make decisions that do not fully reflect the actual operation. There should be an administrative appeal procedure, that is, pre-trial dispute resolution, so as not to overload the courts with a large number of cases. The problem today lies in the mechanism of the current Customs Code. The customs official who disagrees with the value declared by the declarant issues a customs value adjustment decision stating what the value should be and what taxes should be paid. So, there is a formal document stating that the underpayment on this declaration is, say, UAH 500. Then, in the administrative appeal, an official has to decide that these UAH 500 were assessed unlawfully. At this point oversight bodies such as the State Bureau of Investigation (SBI) come in. They often see it this way: there was a formalised amount of UAH 500 that should have been paid to the budget, and someone cancelled it. As a result, officials handling administrative appeals are afraid to make decisions and overturn assessments, even when they can see that the original decision was unlawful.
The State Tax Service of Ukraine reviews such matters through commissions, but that system isn’t ideal either, because in effect someone has already made the determination.
In the new Code – and here we must give credit to our business community: the working group on the Code included business representatives, and we are very grateful to those who devoted so much attention to it – we proposed changing the procedure after a very difficult dialogue with business. We introduced the so-called right to be heard for customs value. Before a customs authority issues a customs value adjustment decision, which is an adverse decision for the declarant, it must notify the declarant that it intends to issue such an adverse decision. At this stage, the UAH 500 have not yet been formalised. The declarant is given the opportunity to provide additional documents and justification and to take part in the process while no amount has been formalised and no decision has been made. That’s the first element.
The second element concerns a conflict at the level of, say, a customs post, where an official disagrees with the value declared by the declarant. In this case, we inform the declarant, who provides additional arguments, explanations and documents. The decision will then be made by a competence centre or a directorate, that is, by a different official, not the first one. At this second stage, the declarant has the right to take part in the review, either in person or by videoconference. Only after these consultations will the competence centre or the customs office directorate decide on those notional UAH 500.
VICTOR
So, some of these conflicts may disappear, and where there really are grounds, people can go to court if they wish.
OLEKSANDR
Yes, then it goes to court. And customs officials will defend their position there.
How Businesses Can Prepare for the New Customs Code
VICTOR
You mentioned the Customs Code. MoF, the State Customs Service, businesses and experts have been working on this systemic document for quite a long time. What other innovations and new rules for business does it contain? And why did you decide to adopt a new Customs Code rather than take the classic approach of amending individual articles of the current one? As I understand it, the new Customs Code represents a new philosophy.
OLEKSANDR
It completes the transition to the European philosophy. First, we need the new Customs Code so that we can use the same terminology…
VICTOR
As Europe.
OLEKSANDR
And not only as Europe, but also as the Ministry of Economy and the State Service of Ukraine on Food Safety and Consumer Protection. They are also transposing EU acts into their legislation and using the same building blocks, terms and approaches, for example in phytosanitary control or the control of non-food products. We have already adopted many of these new terms, such as “authorisation”. A concrete example: today we have 14 customs regimes, including import, export, transit, customs warehousing, temporary admission, temporary export and so on. In the European Union, the equivalent is the “customs procedure”. But the EU has no temporary export regime, for example, and no destruction regime. Ukraine has a destruction regime, while the European Union has the inward processing procedure, and destruction of goods is one of the operations that can be carried out when goods are placed under this procedure. Through terminology, we are fully moving to speaking the same language as our partners, the European Union and businesses’ counterparties.
VICTOR
What should businesses start doing now to be ready when the new Customs Code comes into force?
OLEKSANDR
I don’t want to offend anyone, but businesses will start reading the new Customs Code the day before it takes effect. That’s what practice shows, unfortunately. But for our part, we will carry out all the necessary outreach, explain things and keep working on it. Of course, a large part of the business community will prepare in advance. But our job is to make sure that businesses, by and large, don’t feel the transition: first to the new rules of the new Customs Code, and then from the new Customs Code directly to the Union Customs Code. When countries joined the European Union, their national customs codes ceased to apply, and the single Union Customs Code applied instead. Our new Customs Code will fully comply with the Union Customs Code. Its aim is that, when it ceases to apply, Ukrainian businesses will not feel the switch to the European code.
But the key point – and this is what we are doing now, in the transition between the current code and the new one, and will do again in the transition to the European one – is that the requirements and criteria for companies are already the same as in the European Union. So, if a company has met the first, second and third criteria and uses a simplification, say release at the authorised location or a reduced comprehensive guarantee, its requirements will not change when we switch to the new Customs Code. We know the company has already been checked, is under monitoring and complies with all the rules. When the new Customs Code takes effect, it will not need to confirm all this again. It will continue to use its simplifications.
As for EU accession, the current code already has the same requirements as the Union Customs Code. So, we will not need to reconfirm the company’s compliance directly with EU customs law, because it has already been confirmed here and the company is under monitoring. In effect, we will just need to complete a bureaucratic procedure: enter this authorisation into the European system and obtain a number in the pan-European system rather than a local Ukrainian one. But all the criteria will already have been confirmed.
To answer your question about what companies should do: don’t wait for the new Customs Code to take effect or for EU accession – start moving towards obtaining authorisations now. Even if it seems unnecessary at first glance, start with the simplest one, such as an authorisation for a comprehensive guarantee. The requirements there are minimal: no serious violations of the law and a trained person on staff, roughly speaking. The point is that there is no need to wait for accession; these authorisations can be obtained now.
VICTOR
And build them up gradually.
OLEKSANDR
Yes. Look at what we have already done with our customs brokers. They are not happy with this regulation, of course, but we told them: in the European Union, admission to this profession is governed by national law. Each country decides for itself: some have exams, others impose serious requirements on customs brokers. Each EU country regulates access to this activity under its own legislation. In Ukraine, we have made it so that to obtain an authorisation, a customs broker must submit the same self-assessment questionnaire (SAQ) as an Authorised Economic Operator, with less data, of course. So, customs brokers have already seen what the questionnaire looks like and how the first criterion is filled in.
VICTOR
The initial shock has worn off for them.
OLEKSANDR
Because when goods need to be placed under the processing procedure, an authorisation is required. It can be obtained either through the declaration or through an application. Through the declaration, it can be done on a case-by-case basis, a limited number of times a year, for a value of no more than EUR 10,000. So, anyone engaged in processing on a regular basis still has to apply for an authorisation. We grant this authorisation on the basis of an application, which is exactly the self-assessment questionnaire. A customs broker who has already gone through the authorisation procedure for themselves knows perfectly well what to do when told that a processing authorisation is needed, because they have been through it. In effect, we are already using many elements that will apply both after the new Code takes effect and after EU accession.
VICTOR
And finally, let’s imagine customs in 3–5 years. I very much hope that Ukraine will be an EU member by then and that our customs space will be fully integrated. What will distinguish tomorrow’s customs from today’s?
OLEKSANDR
I thought about the three-year horizon. That’s the first horizon. By then, the initial shock of applying the new legislation will probably have passed. There will certainly be difficulties; we are prepared for them, as we have implemented more than one law before. There will always be those who have prepared and those who, for various reasons, have not managed to. We all understand perfectly well the conditions our economy is in: martial law, Russian aggression, destroyed infrastructure, complicated logistics. Even at the planning stage, these pose very significant, serious challenges for our businesses. What businesses need now is not new procedures but survival. That’s understandable.
The five-year horizon will be about stabilising processes. In the first year, everyone will figure out how to work with the new rules, and some things will be corrected. Besides the Customs Code, we also need to adopt secondary legislation, and its volume is colossal – several times larger than the Code itself – with new procedures that must also be based on EU law. So, by year five we will have gone through a full cycle in which procedures and practice have been reviewed and refined. And I think that after five-plus years we will be calmly working with this model under the new Code.
The key thing I want to say is that customs must be ready at the “minus two” horizon. Why? In other areas of integration, such as the environment or agriculture, there may be transition periods: until Ukraine brings something into line, it cannot use a particular EU support system. Once it has done so, it gains access to the Common Agricultural Policy (CAP) or other instruments. In the environmental field, Ukraine will have five years after accession to complete this. If it does not, other enforcement measures will apply.
But customs has to become new in a single moment, work in a single IT system under common rules and be part of the customs union’s border. So, it must be 100% ready on the first day of EU membership. Nobody will give us a grace period, either for IT or for procedures. That is how we are building our policy now. And we are grateful to business – as I have said at more than one meeting with business, we are grateful that you put up with us in this respect. In fact, businesses are now acting as a driver and engine of our European integration. Europe will assess customs not only by the Customs Code, secondary legislation and the readiness of IT solutions. The European Union will also assess Ukraine’s readiness for accession in the customs cluster by how things work in practice, both for businesses and for customs. In other words, the EU expects a country that is already prepared, knows how to work and operates under the same rules from day one. So, all the difficult measures being taken now serve this purpose: unfortunately, without customs being ready, we will not get the opportunity of European integration.
VICTOR
Thank you very much. And first of all, I would like to thank our defenders for the opportunity to breathe in a free country. This podcast would not have been possible without the support of the ACCORD project (Accountability and Capacity-building for Customs Oversight and Reform Development), implemented by our partners.
Oleksandr, thank you for your time and for sharing your thoughts and plans. I very much hope that you will be able to implement all your ideas as soon as possible, and that businesses will say nothing but “thank you”, even if they have to take additional steps, because this will make them better adapted to the new European rules.
OLEKSANDR
Thank you, Viktor, for the invitation. Just one short remark. I think businesses will say “thank you” on a horizon of 10-plus years. But for now, once again, thank you to our defenders who make this work possible. For our part, we are doing our utmost to ensure our defenders have both weapons and money. The reforms we have talked about are one of the conditions for receiving assistance from the European Union and other partners. So, we are doing our job despite the difficulties we face in implementing it. But these are not the difficulties that, unfortunately, our men and women on the front lines face.
VICTOR
Thank you.
This podcast was produced under a subgrant of the project “ACCORD: Accountability and Capacity-building for Customs Oversight and Reform Development”, funded by the European Union and implemented by the IAA – Institute of Analytics and Advocacy and Technologies of Progress. Its content is the sole responsibility of the ACCORD project subgrantee, the Fiscal Policy Research Center, and does not necessarily reflect the views of the European Union.