Lessons from the Union Customs Code and Brexit

By Pooja Nayyar, Principal, Netcompany

The issue of border management is a hot topic that has gathered urgency due to the combined impact of the pandemic, trade and travel sanctions related to Russia, with regards to the Ukraine conflict and global supply chain disruption. Borders play a critical role in managing security, public health and safety, and commerce between nations.

The issue is highly political, as evidenced during Brexit negotiations, when one of the major sticking points – still a contentious issue today – was around implementing the necessary customs regulations between Northern Ireland and Ireland in the absence of a hard border between the countries. A common theme among government communications at the time was that a “technological solution” would be capable of tracking goods and ensuring the correct declarations and authorisations were made, without requiring physical checks.

The negotiators were considering a solution that would integrate with the Union Customs Code (UCC), a legal framework for customs rules and procedures in the EU customs territory, adapted to modern trade and communication tools. However, with the original implementation date for the Code extended to 2025, and many member states at risk of missing that deadline too, what can we learn about the challenges and complexities of implementing legislation that depends heavily on technology solutions? Furthermore, on the challenging issue of the future of UK customs post-Brexit, what are the technology solutions the UK Government plans to implement?

The UCC: Ambitious aims but considerable challenges

On the surface, the Union Customs Code makes perfect sense. The code has simplicity, service and speed as its key objectives and today’s advanced digital communication systems offer innovative ways to achieve these objectives. It is a digital transformation project on a continental scale, with the aim of supporting the fast and frictionless transport of goods across borders to boost trade, increase security, and prevent fraud.

However, harmonising IT systems and approaches to achieve seamless integration across multiple countries comes with a unique set of challenges. There are a few common obstacles that can inform future approaches to projects of this type at both the country and continental level:

• Externally imposed deadlines:the schedule for designing and implementing the technology to support the legislation has been designed at the EU level, considering the starting position of each country and setting deadlines for each stage of implementation. The solutions must be implemented in the correct order and states need a plan that includes the correct level of resourcing during critical implementation periods. States that started late are finding they are struggling to meet these deadlines, so it is advisable to start work as early as possible and build in as much contingency as possible.
• Underestimating the complexity, time pressures, and volume of work required: customs processes involve multiple import, export, and transit stages, each requiring that data is handled in the correct way and shared with multiple stakeholders. The transaction volumes are enormous – the Netherlands alone handles between 30 and 40 percent of EU import and export volumes, operating 24/7 – which means timing for major system switchovers is critical.
• Stakeholder engagement: there are a huge number of stakeholders in the customs system, extending throughout the entire supply chain. Everyone from individual traders to postal operators, transport specialists, health and safety departments, port authorities and technology specialists are involved in supporting various stakeholders with particular requirements. It is necessary to set up lines of communication with all these participants, and sometimes daily interactions are required. This is especially critical when agreeing the timing of switchovers, as per the previous point, because it affects everyone in the chain.
• Varying start points and legacy technology issues: member states were at very different starting points. Older member states had more of a challenge as much of the technology behind their customs systems is nearing retirement and hard to upgrade. Newer member states, with more recently installed systems, had an easier job of transitioning to new software.
• Strong project management is crucial: the multiple technology companies involved in building and delivering UCC-compliant systems must be effectively managed with a strong hand in ensuring that the project is progressing to the right specification and time frame. The expertise developed by leaders on this project will be invaluable for future initiatives on a similar scale.

One of the biggest long-term advantages of the UCC is the fact that 27 member states, which were operating heterogeneous IT systems, have now harmonised within the same structure and format framework to solve the customs challenge. In the future, this means all 27 states will be using the same IT “language”, which should ease the implementation of further projects. It has also broken down the siloes that previously existed between different components of the customs chain.

The British approach: Innovations and outlook for UK customs systems post-Brexit

Of course, while the 27 member states focused on harmonising IT systems, Britain was going its own way down the path toward Brexit. The key challenges lay around helping businesses understand the changes to customs and trading laws and procedures, alongside the issue of having two separate borders to manage – the main UK border and the Northern Ireland border, with all the political tension surrounding this, giving stakeholders twice as much to grapple with.

UK border and customs are currently targeting the most effective border visibility which guarantees the secure and effective flow of goods and passengers, protects public health and environment and ultimately upgrades the country to become an international trade partner. The key commitment of the 2025 Border Strategy is a Single Trade Window designed to streamline trader interactions with border agencies. The aim is to eliminate the need for traders to enter data multiple times with different entities to facilitate trade. Instead, parties will be able to lodge standardised information and documents through a single-entry portal to fulfil all import, export, and transit-related regulatory requirements. This will dramatically reduce the administrative burden on traders and the supply chain by eliminating the considerable duplication that currently exists.

Crucially, achieving this requires the UK government to facilitate data sharing between customs, borders and related agencies such as the Department for Environment, Food & Rural Affairs (DEFRA) and the Department for International Trade (DIT). It will also need to draw in other commercial third-party providers that already offer solutions in the space.

In reality, creating a Single Trade Window will require not just one solution, but an ecosystem of integrated solutions where having one data entity is key. Each solution delivers different aspects – from the process-specific aspects like declarations and health and safety data, to identity and access management. These must interoperate seamlessly to create a unified view for users and the UK government. This will demand intensive coordination between stakeholders across government and supply chain, and strong management at the strategic level.

When we look at the lessons that have been learned from implementing the UCC in EU member states, many of the same challenges will arise in building a Single Trade Window for the UK. The result could be transformational, but only if these key challenges are addressed along the way. The key to success across EU member states is data and information sharing, risk and compliance principles across government departments, reduction of cumbersome regulatory procedures and documentation, and seamless trade facilitation.

To learn more about the challenges and opportunities of implementing the UCC, watch Netcompany’s latest GovTech News broadcast at https://govtechevents.netcompany.com/customs-implementing-the-ucc-1