DOI: https://doi.org/10.62204/2336-498X-2023-4-14

THE IMPACT OF DIGITALIZATION ON OPTIMIZATIONOF

CUSTOMS’ PROCEDURES AND INCREASING THEIR EFFICIENCY

Viktoriia Lebid,
Candidate of Technical Sciences, Associate Professor,
National Transport University, Ukraine,
viktoriia.lebid@ntu.edu.ua; ORCID: 0000-0002-1260-3760
Nelia Kopiak,
Senior Lecturer of the Department,
National Transport University, Ukraine,
nelia.kopiak@gmail.com; ORCID: 0000-0001-8539-9193
Yuiia Meish,
Doctor of Technical Science, Professor,
National University of Live and Environmental Sciences of Ukraine,
juliameish@gmail.com; ORCID: 000-0001-7492-700X

 

Annotation. The processes of data exchange between foreign trade entities during customs procedures are currently the subject of many studies, especially in the context of the introduction of the new NCTS computerized transit system to improve and harmonize customs procedures. In light of the military operations in the customs territory of Ukraine, it is important to analyze the impact of these events on the efficiency of customs procedures and data exchange between foreign trade entities.

The analysis of modern customs policy in the example of Ukraine, including the mechanisms for using customs instruments to regulate foreign trade in the context of a military conflict, is becoming an important element for ensuring the required level of security and efficiency of border crossing in the context of the introduction of new approaches.

One of the ways to improve the efficiency of customs procedures in the context of military operations is to minimize personal contact between customs officers and customers, use electronic services and mobile applications, and quickly resolve issues related to temporary restrictions on border crossing and transportation of goods necessary to meet the needs of the front line and civilians.

In general, the analysis of the impact of martial law on customs procedures and data exchange in the context of foreign economic activity requires a comprehensive approach and consideration of the specifics of the situation at customs and the border. As a result, the customs authorities of Ukraine are forced to exercise stricter customs control over goods during their customs clearance compared to the EU countries and other countries already operating in the NCTS transit system.

Keywords: customs procedures, subject of the procedure, customs formalities, customs authorities, sender, recipient, computerized transit system NCTS.

Introduction. The topic of implementation of the new computerized system (hereinafter referred to as NCTS) in Ukraine is relevant in the context of harmonization of customs legislation with the rules of the European Union. The introduction of the common transit procedure and accession to the Convention is one of the prerequisites for Ukraine’s accession to the EU. Therefore, implementing the stages of accession to the Convention, which European partners are helping Ukraine to fulfill, is a priority task on the way to European integration.

It is worth noting that Ukraine’s customs system faces various challenges related to the development and implementation of legal, organizational, and economic solutions used within the European Customs Union. The EU pays great attention to issues related to customs services for participants in international supply chains. The problem is that the importance of the quality of customs services is underestimated in academic research on the optimal functioning of modern international supply chains and their efficiency. This can lead to insufficient attention to the quality of service during customs clearance of goods and disruption of logistics processes, which affects the efficiency and reliability of international trade operations [1].

Therefore, to improve and simplify customs procedures, one of the key initiatives in the field of digitalization in Ukraine is the introduction of the New Computerized Transit System. This system opens up new opportunities for automating and optimizing customs procedures, simplifying border crossing for goods, and reducing administrative barriers.

The implementation of the New Customs Transit System (NCTS) envisages the transition to electronic data exchange between customs authorities, authorized economic operators, and other stakeholders. This transition will help to reduce the time required for customs clearance and ensure greater transparency and reliability of the border crossing process. However, the implementation of the NCTS system also implies significant changes in internal customs procedures, as well as in data management and information and communication technologies. Therefore, it is important to study in detail all aspects of the implementation of this system, taking into account both the benefits and challenges that may arise during its implementation. It is also necessary to harmonize the new procedures with international standards and best practices to ensure their effectiveness and compatibility with the international trade environment.

The purpose of the study is to examine and analyze the use of modern digital technologies in the customs authorities of countries with developed economies, using the example of the European Union countries, and compare their experience with Ukrainian practice to identify opportunities and ways to introduce innovations in customs procedures to achieve optimization and improve the efficiency of Ukrainian customs. This approach will allow us to build a study based on the analysis of international experience and take it into account when developing recommendations to improve customs procedures in Ukraine [2].

Thus, the object of the study is the impact of martial law and threats to national security on the processes of digitalization of customs procedures. The authors consider possible obstacles and challenges faced by the State Customs Service on the way to optimize and improve the efficiency of customs control using digital tools. The authors also analyze possible ways of adapting digital technologies to the conditions of military conflict and their impact on ensuring the security and efficiency of customs procedures in such conditions.

Objective of the study. Customs should be the center of transparent and uniform rules for all participants in customs operations, which are key to the efficient movement of goods across the border. To improve its operations, the State Customs Service of Ukraine is actively promoting international experience and standards, in particular, European ones, implementing their best practices. However, the question arises as to how this can be realized when a business is operating under martial law?

Although current international practice shows that the introduction of electronic customs control systems, such as NCTS, contributes to a significant improvement in the efficiency of customs procedures, it is still important to carefully analyze and take into account potential challenges and problems that may arise during the implementation of such systems. These include coordination issues in the context of military operations on the customs territory of Ukraine, as the implementation of a new transit system may require cooperation between different agencies and government bodies, which can be challenging in terms of coordination and joint action.

The main part. Ukraine is actively restructuring its customs system, harmonizing it with the norms and requirements of the European Union. Changes in national legislation should be clear and transparent, and not be vague or have problematic aspects in the implementation of international agreements into national legislation. The introduction of the common transit procedure appears to be one of the strategic aspects of economic cooperation between Ukraine and the EU. Accession to the Convention on Common Transit became a mandatory step under the EU-Ukraine Association Agreement. This process was made possible thanks to the support and funding from the European Union through the EU4PFM and RST programs. The NCTS system provides communication between the customs services of the countries participating in the Convention, facilitating the exchange of customs data for the effective control of transit traffic [3,4,5].

Due to the fact that the customs authorities continuously control all goods crossing the borders of the EU countries or imported into Ukraine around the clock and throughout the year, under martial law at the customs of Ukraine, the State Customs Service of Ukraine needs to focus on the speed, ease and efficiency of service provision and information processing. An important factor is also a well-developed customs infrastructure that ensures rapid exchange of information with both domestic and neighboring customs. Therefore, the digitalization of customs processes is one of the most important strategic initiatives for the adaptation of Ukraine’s customs system to European standards.

Ukraine exchanges pre-clearance information with the European Union (EU) and other countries participating in the Common Transit System (NCTS). This exchange takes place in the context of the implementation of national legislation in line with European standards and practices [6]. Organizational aspects such as data management, logistics, and customs control processes are also important in this context. Implementation of IT solutions to ensure data exchange and automation of customs procedures is a key element of this process. In addition, staff training on new procedures and technologies plays an important role in the successful implementation of these initiatives. A comparative analysis of customs procedures between Ukraine and the EU countries in the context of the formation of the main elements in the direction of NCTS implementation is presented in Table 1.

Table 1

Comparative analysis of customs procedures between Ukraine and the EU countries in the areas of NCTS implementation

Criteria Ukraine EU countries
Legislation National European
Practice Local United
Organization State State
IT solutions Own (based on EU experience) Joint
Training Own (based on EU experience) Joint

Of course, when implementing a new transit system in a country, not only Ukraine but also other countries may face certain problems that affect the performance of customs formalities [7]:

  1. Technical difficulties: the implementation of a new transit system may require significant technical efforts, in particular, the development and debugging of software to ensure the reliability of the system and the absence of failures in its operation. It is worth noting that Ukraine has made significant progress in fulfilling its European integration obligations by implementing IT solutions based on MASP-C. It is the implementation of MASP-C-based IT solutions that allows optimizing customs procedures, ensuring faster and more efficient customs clearance of goods, reducing the risk of customs violations and increasing security. These systems automate many customs processes, such as collecting and processing cargo data, checking documentation, monitoring and analyzing risks, and cooperating with other customs services and law enforcement agencies to reduce customs violations.
  2. Harmonization with existing systems: If a new transit system is not compatible with existing customs procedures and systems, it can cause delays and difficulties in international trade.
  3. Bureaucratic obstacles: The implementation of a new transit system may involve bureaucratic procedures such as obtaining permits and approvals from relevant government agencies.
  4. Data security concerns: Storing and processing large amounts of data in a new transit system may pose risks in terms of cybersecurity and data privacy.
  5. Inadequate support and training: Lack of adequate support and training for staff on how to use the new system can lead to inefficient use and reduced productivity.
  6. Coordination issues: The implementation of a new transit system requires proper cooperation between customs authorities and businesses, which can be challenging in terms of coordination and joint action for the smooth functioning of customs procedures and international trade. It is the well-established coordination between the customs authorities and business enterprises that allows foran increase in the effectiveness of combating customs offenses. Violations of customs rules during international trade operations complicate coordination between customs authorities and business enterprises. This can lead to the following problems:
  7. Undermining trust: violations of customs rules undermine trust in the customs authorities and their effectiveness, which can negatively affect the business environment and investment climate of the country.
  8. Increased risks: violations of customs rules increase risks for businesses, such as fines, confiscation of goods, and even legal prosecution, which can negatively affect their stability and reputation.
  9. Threat to national security, especially during martial law: violations of customs regulations can pose a threat to national security, for example, by illegally importing prohibited goods or items that could potentially harm society.
  10. Violation of international treaties: violation of customs rules may lead to violation of international trade treaties and agreements, which may create tensions in international relations and cause trade conflicts.
  11. Economic losses: violation of customs rules can lead to economic losses for the country, such as losses from non-payment of customs duties and fees, as well as losses from the depreciation of goods due to illegal actions.
  12. Loss of reputation: violation of customs rules may lead to the loss of the country’s reputation as a reliable partner in the international community, which may affect its image and international business reputation, which Ukraine is currently struggling to achieve in the international market.

For transparency and control over the implementation of European integration processes, on February 15, 2023, the European Commission monitored Ukraine’s compliance with the requirements for Ukraine’s approximation to the customs union with the EU. The European Commission highly appreciated the results of Ukraine’s approximation to the customs union. The European Commission’s conclusion emphasizes Ukraine’s significant achievements in the customs area, especially given the martial law in the country’s customs territory. Ukraine became a party to the Convention on a Common Transit Procedure and the Convention on the Simplification of Formalities in Trade in Goods on October 1, 2022. In addition, the country is connected to the EU’s Common Customs Information System (CCN) and is already successfully using the New Computerized Transit System (NCTS). Ukraine has also fulfilled approximately 80% of its customs obligations under the Association Agreement with the EU [8,10]. The main focus is on key aspects of transit, facilitation systems, rights, and intellectual property rights, as well as on proper support of business enterprises by the customs authorities through development assistance, consultations, and other services aimed at supporting and facilitating customs clearance and international trade.

In addition, the country has a national Authorized Economic Operator (AEO) program, and Ukraine is a contracting party to the Pan-Euro-Med Convention on Rules of Origin. For example, the legislation on the control of cultural property has been brought into line with EU norms, as well as the organization of assistance by customs authorities in the protection of intellectual property rights to trademarks [11, 13].

Looking at the practice of European countries, it can be seen that Ukraine has actively begun to implement programs and initiatives similar to those of the EU, as an example of the introduction of the Authorized Economic Operator (AEO), which operates in Ukraine and was introduced during a period of uncertainty, namely the impact of Covid19 and the risk of a full-scale military invasion of the customs territory of Ukraine. For example, in the European Union (EU), there is a Registered Authorized Economic Operator (R-AEO) program that provides businesses with certain advantages in customs procedures. This program simplifies customs control processes and provides for the acceleration of customs operations for supply chain participants who have the status of Registered Authorized Economic Operator [14,15].

  1. Concerning the Pan-Euro-Med Convention on Rules of Origin, it is worth noting that many EU countries also follow similar rules and use them in their trade relations with other countries. These rules simplify customs procedures and provide greater transparency in trade, helping businesses to more easily take advantage of foreign economic relations.
  2. Thus, Ukraine, by adopting and implementing such programs and initiatives, reflects its readiness to integrate into European and global trade structures, using best practices and standards to improve the efficiency and competitiveness of its business.
  3. Thus, after Ukraine acceded to the NCTS Convention, Ukrainian business received several opportunities, even during the period of martial law in its customs territory, that helped to simplify and speed up the process of customs clearance and movement of goods across the customs border. In particular:
  4. Businesses can operate on the principle of “one vehicle – one declaration – one guarantee”, which helps to speed up the passage of goods across the customs border.
  5. There is an opportunity to use transit simplifications at the international level in 36 countries party to the Convention.
  6. Possibility to use simplifications without the status of an Authorized Economic Operator (AEO).

Application of reduced customs rates on raw materials for the production of goods for the domestic market, which contributes to predictability and business development.

It is worth noting that during the first three months of the international application of the Convention, the customs authorities of Ukraine issued 444 declarations under the joint transit procedure, and closed 264 declarations for goods received from the territories of the participating countries. And on October 1, 2023, a year has passed since Ukraine started applying the NCTS internationally. During this period, more than 19.5 thousand movements initiated by the customs authorities of Ukraine were completed in the countries participating in the Convention on the Common Transit Procedure.

Thus, Ukraine continues to actively work on improving the procedures of the common transit and implementing the NCTS system. The plans for the near future include the transition to NCTS in Phase 5, which is scheduled to be completed by the end of 2023. To this end, a contract has already been signed for the development of the relevant software, and the necessary measures are being taken to deploy the updated software. This opens up new opportunities to improve and accelerate customs procedures, which will facilitate trade operations and increase efficiency and transparency in international trade.

Conclusions. The study revealed insufficient automation in the customs clearance procedure and established that the customs authorities have a large number of obligations, the effectiveness of which would be more appropriate at other stages of the supply chain in the framework of export-import operations. To improve customs procedures in trade between Ukraine and the EU so that each party has to fulfill a minimum of customs formalities for goods coming from the other party, these customs procedures should be optimized and simplified. Therefore, trading countries should take several mutual steps to adapt legislation and implement it to strengthen the customs system, unify norms, procedures, and information exchange systems, and avoid duplicate customs checks.

It is established that the lack of automation of certain customs processes (the failure of customs authorities to fully apply effective control measures for the cargo of large companies) and the lack of control over the circulation of goods within the country are the most significant shortcomings in the performance of customs formalities. Thus, compared to the EU countries, the control of goods during customs clearance by the customs authorities of Ukraine should be more thorough. Therefore, to harmonize customs relations, one of the most important areas of stakeholder activity is to simplify customs clearance procedures use modern information technologies for this purpose, and provide access to them for all participants in the international trade process.

Given that the customs procedures of each country are based on international standards, Ukraine’s position in international trade rankings remains low. That is why it is worth implementing automation and simplification of customs procedures and using a strategy aimed at applying innovative technologies. This approach will improve the efficiency of customs regulation and help increase the country’s attractiveness for export and import operations.

It should be emphasized that stimulating greater coordination between customs authorities and foreign trade entities should improve the effectiveness of cross-sectoral cooperation between different ministries and agencies, and as a result, strengthen the customs system as a whole.

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