Top five challenges for European customs in 2025

(Blog written in August 2024)

Someone recently asked me what are the current top challenges for customs in Europe. The article is an attempt to summarise the answer to this question. These are the five issues that, in my opinion, are likely to impact the customs industry in the upcoming months and years. Some are more across-the-board and some are a bit more niche and local. The article comes from the author’s personal experience of working in the industry and across the private and public sectors and is therefore a personal perspective. By no means an exhaustive list.

Introduction

Customs has been through a number of changes in recent years. About two years ago I had the pleasure of participating in a panel on the EU customs reform organised by the American Chambers in Brussels. In his keynote speech, a Belgian Customs representative talked about how customs in the EU has been in a perpetual state of firefighting and responding to new challenges pretty much since 9/11.

With the COVID-19 pandemic, war in Ukraine and increasing geopolitical tensions between the US and China, controlling which goods enter and leave a customs territory has become a question of strategic importance.

As a result, the number of controls that fall within the broad scope of customs responsibilities has been increasing. One example might be the growing number of border restrictions and prohibitions, including product safety requirements or bans and sanctions.

In principle, we can see what I often refer to as a growing conflict between trade facilitation efforts and trade policy. While the WTO, Trade Facilitation Agreement aimed to simplify, streamline and harmonise border procedures, we are seeing more and more new trade policy measures and barriers applied at the border[1]. But there is more to come.

Some of these issues are self-inflicted, i.e. result from applying new customs-related policies. Some are a response to external developments. Here is a look at those that, in my view, are likely to impact our industry the most in the near future.

Challenge one: sustainability

There is a reason at CustomsClear we decided to run a summer series on customs and sustainability. There is an entire new range of regulations and controls resulting from the EU’s sustainability and environmental, social, and governance (ESG) agenda. With the European Union’s ambitious climate and sustainability policy objectives, the Green Deal and the ‘Fit for 55’ package, the role of customs is about to expand even further, far beyond its traditional scope. The reason these policies impact customs is because in many cases the border is a natural place to apply controls, verify information and check compliance. Customs is the language of the border.

Carbon Border Adjustment Mechanism (CBAM) is a case in point. One of the first sustainability-related policies to enter into force, it has a strong customs element. The products in scope for CBAM are listed in the Annex[2] to the Regulation by commodity code. The liability for submitting the reports falls on the importer. The de minimis is applied based on customs value. Non-preferential origin determines whether the product can be exempt from CBAM reporting.

The EU Deforestation Regulation becomes applicable in December 2024, in just a few months[3]. Here again, in order to be in scope, imported goods need to be listed in Annex I of the regulation and be made from a commodity listed in Annex I. We are still awaiting full details of how this regulation will be implemented, but we know that the country of non-preferential origin will be important in terms of determining whether the goods come from a country of low or high risk.

New EU policies and measures related to imports of electric vehicles (EVs) or batteries for EVs also fall into sustainability category. However one could argue these policies are not just about sustainability and would fit more into the restrictions and bans category.

The scope of both CBAM and Deforestation Regulation might be expanded in the future. There are also other areas where current policy measures may lead to further border-related controls, for example, critical minerals.

At the same time, there might be an upside here for customs professionals. Having worked as a customs consultant for a number of years, one of the most difficult tasks is convincing companies of the need and importance of customs compliance.

One of the effects of the new sustainability-related measures is the unprecedented need for supply chain transparency and traceability (due to the legislation mentioned above but also Corporate Sustainability Due Diligence reporting etc.). Companies can no longer ignore the fact that compliance is something achieved throughout a supply chain, together with their suppliers and customers. This might just make the customs compliance professionals’ and customs authorities’ task a little easier.

Challenge two: e-commerce

E-commerce is quickly becoming a headache for customs authorities not only in the EU but worldwide. While e-commerce is by far not a new issue, what’s new is the scale of the problem. Namely, volumes and particularly in the B2C category. According to EuroCommerce 2023 e-commerce report[4], “B2C e-commerce increased from €849bn in 2021 to €899bn in 2022”. The creation of companies like Shein or Temu has exacerbated the issue.

There are a number of reasons why e-commerce is potentially problematic:

tax avoidance resulting from undervaluation of B2C parcels;
unfair competitive advantage resulting from subsidies or dumping practices;
damage to domestic industry resulting from imports from countries with lower production costs and where product standards and labour rights are not the same as in the EU;
violation of intellectual property rights; or
increased illicit trade and contraband.

The concerns over the impact of e-commerce on product safety and difficulties with in controlling the number of parcels are also not new. They were raised by the EU back in 2015[5]. Yet the topic is gaining momentum due to the EU customs reform and the proposal to remove the de minimis threshold. The concerns over the growing number of B2C parcels have been mirrored by other countries, for example, Turkey where new policies were introduced in August 2024[6].

However, the EU’s proposal for tackling e-commerce is controversial. It not only removed the de minimis but also changes the rules for the classification of goods below EUR 150 and makes the online platform instead of the consumer act as the importer for these kinds of shipments. CLECAT suggested that this could in fact lead to more rather than fewer controls[7]. Companies that purposefully undervalued their parcels, which was one of the reasons for the change stated by the EU[8], could now simply misclassify them. In the end, the result would be similar.

Other organizations have also expressed their concerns over this part of the proposal. American Chambers of Commerce highlighted a number of areas where the proposal needs to be effectively implemented and ensure a level playing field between all marketplaces[9]. A European Express Association has commissioned Copenhagen Economics to conduct an in-depth study on EU de minimis and the impact of its removal[10]. It concluded that de minimis thresholds are “cost-efficient” and “their removal would translate into increasing trade frictions”.

As the EU Customs Reform proposal continues to go through the legal process the discussion on the removal of de minimis is likely to continue. It will also be interesting to see how the developments in other countries (e.g. Turkey) influence what happens in the EU.

Challenge three: changes in IT systems

There are already a number of ongoing customs-related IT projects in the EU. For example, migration from Import Control System (ICS) to ICS 2[11], transition to New Computerised Transit System Phase 5 (NCTS 5) etc.

In addition to that, the EU and the UK are currently working on their respective Single Trade Window systems. Single Trade Windows (STW) are part of each country’s commitment under the WTO Trade Facilitation Agreement[12]. But STWs can range from a glorified user interface to comprehensive one-stop-shop tools for all parties to a cross-border transaction. The EU’s STW project has been ongoing for over a decade[13]. The project aims to streamline the electronic exchange of customs and non-customs documents and information required for imports, exports and transit. It’s supposed to connect the systems of all Member States. At the same time, individual Member States have been upgrading their internal systems.

The recent proposal for the EU Customs Reform envisaged the creation of the EU Data Hub. The Data Hub would be a single interface for all customs-related data in the EU[14]. It would also create a centralised place for all customs data to be held, shared and exchanged between the authorities and the private sector. But what it means is that a number of national and EU-level IT initiatives now need to be reconsidered and replanned. This is undoubtedly going to take time and resources which would be better spent on other projects. For example, CLECAT called the Data Hub project “ambitious”:

“With the ongoing implementation of the UCC, until 2025 and beyond, both trade and customs continue to face a wave of changes to national systems and interfaces, that require considerable investments in human and financial resources. The data hub implies an enormous change in IT, just after the UCC implementation”[15].

This is also an important point in the context of the expanding scope of customs controls. Both the Single Trade Window as well as Data Hub projects are ambitious undertakings. On top of everything else, they will need to be future-proof and ready for a number of new policies affecting customs.

In the UK, the Border 2025 Strategy envisaged the deployment of the STW in 2025. We already know that the first version will be very limited in its functionality which will be gradually expanded[16]. While the first version was supposed to be available to the public in 2024 and the solution is currently being tested, the project has faced a number of challenges, for example, a dispute resolution with the project’s initial supplier[17].

That is on top of all the other IT-related projects (e.g. just completed transition to CDS, NCTS5 etc.) and ongoing implementation of new border measures.

Challenge four: change of customs processes

Some of the above IT changes are related to a deeper change in customs processes. Some of these changes relate to how customs authorities exchange data with traders. An example might be the changes to the EU’s trusted trader programme, Authorised Economic Operator, under the proposed EU customs reform. The Trust and Check proposal entails traders “offering maximum transparency of their supply chains”[18]. These traders will be required to “connect and provide real-time data” to allow the authorities to have a “full supply chain overview”. This idea of taking the data directly from the supply chain and the trader is also present in the UK. While the Border 2025 Strategy[19] does not talk about it directly, it covers creating the most efficient border and eliminating the duplication of submitting data by traders. The strategy focuses on the optimisation of border processes and mentions “building supply chain data pipelines direct to government”. Other projects such as the Ecosystem of Trust[20] focused on how technology can support this goal and move the checks away from the border. It talked about the Government continuing to “develop the variety of ways by which data can be exchanged between supply chain participants and government agencies at the border”.

Overall we’re seeing more examples of changes based on the idea of less data input from traders, reusing data submitted to various governmental agencies and taking data directly from the supply chain. During stakeholder calls with the UK customs authorities, the last two points were referred to as “tell us once” and “tell us never” principles.

These efforts are an interesting area of customs and trade facilitation. If successful and done well they can help to counteract the increasing amount of data required from traders due to other points on this list. Still, this will require careful planning and designing and raises questions about data privacy and the commercial sensitivity of data.

Challenge five: Northern Ireland

Northern Ireland is a fairly local problem and it could be argued that it’s not an actual challenge since the Windsor Framework has been agreed. And while it might not be as much of a burning issue as some of the other points on this list, it’s also on it for a reason.

First, it’s a complicated solution to an even more complicated problem. Trying to avoid a land border between Northern Ireland and a Republic of Ireland has led to a bit of a Frankenstein solution which is still causing confusion for companies moving goods between Great Britain, Northern Ireland and the EU. As a reminder, under the Framework there is a complex set of criteria that determine whether the goods are “at risk” or “not at risk” of entering the EU from Northern Ireland. This is determined at the point where goods enter Northern Ireland and the tariffs are paid accordingly. This is a completely unique solution.

Signals from customs professionals on the ground are not great when it comes to compliance levels and companies’ ability to determine which category their goods fall under. It also does not help that the official advice companies are getting can differ significantly. As a result, based on anecdotal evidence from local customs compliance professionals, goods declared as not at risk often end up entering the EU. This combined with a lack of compliance enforcement is guaranteed to make the situation worse over time.

On top of that, other deadlines are approaching. In September the UK Carrier Scheme[21] will apply to parcels sent from Great Britain to Northern Ireland (B2B, C2B and C2C). From October Safety and Security declarations will be required for goods moving directly from Ireland to Great Britain.

By itself, this would not be a big issue. What is an issue is the fact that we seem to have a leaking border between the two territories. With a growing number of border restrictions and new policies, that border is likely to be increasingly problematic. For example, there is a requirement to report CBAM goods imported into the EU since October 2023. Yet there is still no official response to the question of whether Northern Ireland will be in the scope of EU CBAM or not. The hope is that by the time this question will absolutely need to be answered (the beginning of the definitive period) the UK will decide whether it intends to link its CBAM with that of the EU and thus solve the problem. Yet for companies trading with the EU from Northern Ireland, this is already an important question. Such questions will continue to multiply and the frustration and confusion in the private sector will continue to grow. At the same time, no one on either side of the Channel wants to revisit the question of this border. Therefore, perhaps smaller and definitely more localised than other challenges on this list – this one will be very difficult to fix.

Conclusions

As mentioned at the beginning of this article, this was meant to be a non-exhaustive overview of the key challenges ahead. There are obviously other challenges that are likely to affect different areas of the industry. For example, customs brokers will continue to grapple with the question of liability as new legislation (e.g. CBAM) transfers obligations and responsibilities from traders to indirect customs representatives. At the same time, they are likely to lose some of the flexibilities under the current AEO scheme under the Trust and Check programme[22].

Customs is an ever-changing field and borders are under constant pressure. It’s important for all customs professionals, whether in the private or public sector, to be aware of the upcoming challenges and changes. Expect the unexpected seems to be the motto of our industry.

Endnotes:

[1] See for example the Global Trade Alert monitor of policy interventions https://www.globaltradealert.org/global_ dynamics

[2] You can find the text of the Regulation, the Annex and guidance on this page https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en#legislative-documents

[3] The text of the Regulation can be found here: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R1115&qid= 1687867231461

[4] https://ecommerce-europe.eu/wp-content/uploads/2023/11/European-Ecommerce-Report-2023-Light-Version.pdf

[5] For example, see DG GROW presentation – https://unece.org/fileadmin/DAM/trade/ wp6/SectoralInitiatives/MARS/Czech Republic_June2015/02_M._Hendriksen_ MH_DG_GROW_e-commerce_key_challenges_REV.pdf

[6] Read our recent article on the topic: https://www.customsclearance.net/en/ articles/changes-to-e-commerce-legislation-in-turkiye

[7] See CLECAT position paper – https://www.clecat.org/media/clecat-pp-customs-reform-2023-.pdf

[8] According to the EU, up to 65% of parcels below EUR 150 entering the EU are currently undervalued, to avoid customs duties on import. https://taxation-customs.ec.europa.eu/customs-4/eu-customs-reform_en

[9] See: https://www.amchameu.eu/system/files/ position_papers/eu_customs_reform.pdf

[10] Available here: https://copenhageneconomics.com/wp-content/uploads/2023/06/Copenhagen-Economics_Study-on-customs-duty-de-minimis.pdf

[11] Many materials available on this topic but see the latest CLECAT position paper from August 2024 – https://www.clecat.org/news/news/ics2-maritime-rollout-key-steps-for-sea-freight-fo

[12] Read about STWs here: https://www.tradeready.ca/2024/topics/ supply-chain-management/simplifying-international-trade-with-single-windows/

[14] Source: https://ec.europa.eu/commission/ presscorner/detail/en/qanda_23_2644

[15] Source: https://www.clecat.org/media/clecat-pp-customs-reform-2023-.pdf

[16] Source: https://www.gov.uk/government/ publications/overview-of-the-single-trade-window/introduction-to-the-single-trade-window

[17] Source: https://www.computerweekly.com/news/ 366585397/HMRC-Single-Trade-Window-project-hits-turbulence

[18] Source: https://ec.europa.eu/commission/ presscorner/detail/en/qanda_23_2644

[19] Source: https://assets.publishing.service.gov.uk/ media/5fdb2bcdd3bf7f40d85bcfd0/ 2025_UK_Border_Strategy.pdf

[20] Source: https://assets.publishing.service.gov.uk/ media/64edcb6513ae1500116e2f54/ Ecosystem_of_Trust_Evaluation_Report_ August_2023.pdf

[21] Source: https://www.gov.uk/guidance/check-if-you-can-apply-for-the-uk-carrier-scheme