The following article is an interview of Mr. Raphaël Barazza, Avocat at the Paris Bar (www.customs-lawyer.fr), and Deputy Representative at the Trade Contact Group for the Sporting Goods Industry in Brussels. Mr. Barazza is Braumiller Law Group’s co-counsel in Europe.
Olga Torres: Raphaël, tell us a little about yourself?
Raphael Barazza: I graduated from Sorbonne University with a specialty in International Trade and spent the last decade practicing law as a trade and customs attorney in Paris. I have been involved in discussions regarding the Union Customs Code (UCC) reforms as a Deputy Representative for the Sporting Goods Industry at the Trade Contact Group in Brussels.
Olga: I heard that the UCC will undergo major changes, can you tell us more about the background leading to such changes?
Raphaël: Modernizing the customs union of the EU has been a long term project. Our current customs code has been amended many times and the international trade environment has drastically changed since the nineties. Actually, a « Modernized Customs Code » (MCC) was approved in 2008, but never came into force.
Olga: Why is that?
Raphaël: To make it simple, since then, the EU member states adopted the Lisbon Treaty, which among other things, gave new powers to the European Commission, so that the MCC needed to be recast.
Olga: So this time you believe the reform will be adopted?
Raphaël: The Commission worked hard with the Member States and other stakeholders such as the Trade Contact Group to make it happen. The customs code itself has already been published, but we are still waiting for the implementing provisions (Implementing Act and Delegated Act) to be published. I am positive that the reform will be adopted and enforced.
Olga: What are the milestones of this reform?
Raphaël: The whole package will become effective on 1st May 2016, with a transition period concerning pending authorizations up to 2019. We are currently discussing an IT transition for the inter-operability of all member states IT systems, which will be accomplished in 2020.
Olga: 2020 seems very far away!
Raphaël: The main provisions of the UCC will be effective 1st May 2016, so businesses need to prepare and adjust their procedures now. The 2020 deadline concerns the Information Technology (IT) “modernization” side of the reform. As an example, in order to operate the new EU centralized clearance procedure we need our national IT systems to facilitate clearing goods in France, even though they arrived elsewhere, such as in the Netherlands or in Spain. Currently, this is not the case, as the various IT systems among EU countries do not speak to each other.
Olga: What are the main impacts for U.S. businesses?
Raphaël: There are many ways in which companies doing trade with the EU will be impacted. One of the key topics is customs valuation. The UCC provides for significant changes in this area. As an example, we used to allow the first sale scheme, which is when the goods are subject to multiple sales, the importer is allowed to declare an earlier sale, subject to certain conditions of course. That will not be available anymore.
Olga: Do you mean you will repeal the first sale rule, which we still apply in the U.S.?
Raphael: Correct. It was determined that this should be repealed, following the WCO decision, to harmonize our interpretation with that of the technical committee. Importers using the first sale scheme will still have until the end of 2017 to adapt their procedures and comply with the new rule. However, importers will be subject to an almost impossible condition. They will need to have a signed contract reflecting such first sale pricing for import purposes and prior to the Implementing Act’s entry into force.
Olga: I guess the importer wouldn’t have the contract reflecting such agreement for import purposes because generally speaking this is none of the exporter’s business …
Raphaël: That’s right. Plus, having to re-open a negotiation over a purchase agreement for the single purpose to state that such price will be declared for importation in the EU does not seem to make a great deal of sense.
Olga: Are there any more changes affecting valuation?
Raphaël: Yes, there are changes impacting the treatment of royalties. The UCC Implementing Act will also provide for a new definition of the “condition of sale.” This seems to me as a “catch all” clause. Whereas this condition was originally meant to capture the restrictions imposed by the seller over the buyer, we will now contemplate the condition of “purchase.” Among other things, this provision states that the condition is met when the buyer “cannot purchase the goods” without paying the royalty. If you take the condition of purchase, rather than the condition of sale, I do not suppose you will find many license agreements stating that it is OK to use the right in question, without paying for the royalty. Although the Commission announced guidelines to set the limits, I am not too confident. As you will see, UK Customs has already stated in their website that “under the UCC, royalties and license fees will generally be paid as a condition of the sale of the goods and should be included in the customs value.” Also, the UCC will now capture “unsuccessful development costs” as dutiable assists. It does not seem too logical with respect of the WTO rules.
Olga: What about customs procedures?
Raphaël: There are some interesting developments, and more to come. We will implement “self-assessment,” which allows for the economic operators to perform their own controls and calculate the customs duties to be paid on behalf of the customs administration. Also, interestingly enough, we will allow for a sort of “legal smuggling” i.e. an import/export without declaration! We call it “Entry in the Declarants Records (EIDR).” The declarant will no longer have to file a customs declaration, but will instead have to declare the transaction in his account statements. Regarding these two innovations, my understanding is that it will not apply May 2016, as there are more rules to be enacted on how they work, but what is sure is that these will be AEO-only procedures.
Olga: Can you elaborate on AEO?
Raphaël: Authorized Economic Operator, the equivalent to the C-TPAT, is an approved trusted trader for customs facilitation and / or safety-security. The UCC put forward this concept which we adopted a few years ago, and a lot of facilitations will be reserved to the AEO – or operators who qualify for AEO.
Olga: Indeed, this reform seems to be quite important. What is your advice for U.S. companies preparing for these changes?
Raphaël: U.S. companies and international businesses in general must conduct an impact assessment over the upcoming reforms in order to be prepared to deal with the changes. They should review the transition period in order to prioritize, and should begin planning for the future. It is important to note that there are benefits resulting from the proposed reforms to the UCC, such as centralized clearance. Although, there are some IT adjustments to be made, the French customs administration (DGDDI) has been very pro-active in preparing these changes and we are ready to assist businesses locating their customs clearance in France.