February 24, 2022 became a key moment in history for Ukraine, especially for the State Customs Service. On this day, the country switched to a “war footing,” and the customs service faced unique challenges that had previously been difficult to face in world history.
Difficult wartime conditions required the Ukrainian customs not only to adapt to new realities, but also to introduce non-standard solutions to maintain the functioning of an important part of the state infrastructure. New challenges included not only ensuring security and control of the movement of goods, but also the need to maintain trade and economic activity of the country in conditions of war.
Beginning of the war: working under fire
With the beginning of the full-scale invasion of the Russian Federation, the president and the government identified the main tasks: to maintain the controllability and uninterrupted operation of the State Customs Service, and also to take care of the lives of workers. The evacuation of employees from the northern and eastern regions of Ukraine began - some customs officers risked their lives and removed servers, documents, personal files so that the enemies would not get it.
Since the start of the full-scale invasion, 500 customs officers (about 5% of the total number of employees) have voluntarily joined the Ukrainian Defense Forces. Some of them were killed, injured, missing or captured.
The State Customs Service switched to round-the-clock operation, and additional personnel were appointed in the South and West of the country, including those who were evacuated from the temporarily occupied regions of Ukraine and combat zones. At the same time, physical customs control procedures have been minimized and the time required for customs clearance has been significantly reduced.
An integral part of the hostilities was the geographical limitation of Ukraine's trade. The northern direction was blocked by Belarus, and the eastern direction by Russia. In addition, the latter blocked all seaports of Ukraine, which made it impossible to use the southern direction (through the Black and Azov Seas) for Ukraine’s foreign trade. As a result, transport flows through checkpoints on the section of the state border of Ukraine with EU member states and the Republic of Moldova have increased significantly. Customs began to face challenges in the field of logistics.
Because of the war, it was necessary to redirect the movement of goods from the seaports of southern Ukraine to the border with the countries of the European Union using the railway, but its capabilities are limited. As well as the possibility of an infrastructure of automobile checkpoints on the borders with EU countries, designed for normal functioning in a period of peace.
Challenges and obstacles
The main challenge was the acceleration of the departure of refugees from Ukraine. The rapid operation of checkpoints around the clock was ensured, and the number of pedestrian corridors was increased (allocation of traffic lanes for pedestrians) to avoid queues at the border. Passage was carried out using a simplified system.
The war in Ukraine has caused the biggest migration crisis in Europe since World War II. The main flows of refugees were sent to EU countries. According to UN experts, as of October this year, almost 6 million Ukrainian refugees were registered in Europe.
The next step was to regulate the import of goods most necessary for the country's life support and defense.
Thus, the government’s decision provided a simplified procedure for the import of humanitarian aid: goods were recognized as humanitarian aid on a declarative basis, customs control was reduced to a minimum. It has become possible to declare humanitarian aid in electronic form. The import of dual-use and military goods, in particular radios, binoculars, monoculars, collimator and optical sights, thermal imagers, and night vision devices, was simplified. In addition, helmets and body armor are completely exempt from export controls. Simplified passage of fuels and lubricants, unmanned aerial vehicles (UAVs) and their parts across the customs border
The war with Russia led to food and fuel crises. Ukraine and the world are faced with the threat of global famine without the export of Ukrainian grain to the countries of Asia, Europe and Africa. The Grain Initiative started working, but Russia’s unilateral withdrawal from this agreement in July 2023 led to new difficulties in the work of customs. The aggressor country began almost daily missile attacks and kamikaze drone strikes on Ukrainian ports, which is why the infrastructure of the Black Sea ports and ports of the Danube cluster is suffering. Despite this, customs continues to fulfill its duties in the Odessa region in full.
With the onset of cold weather last year, the Russians launched attacks on Ukraine's power grid, leading to blackouts across the country and causing an energy crisis. To resolve this situation, many measures were taken, in particular, goods such as generators, batteries, their spare parts and components, as well as equipment for satellite Internet were exempted from VAT and import duties.
However, the greatest problems arose due to the destruction of traditional trade ties. To support the Ukrainian economy, a number of countries (Great Britain, European Union countries, Canada and the United States of America) decided to abolish import duties for Ukrainian products.
An important step was the creation of tariff benefits for Ukrainian goods, including exemption from import duty, reduction of import duty rates and the establishment of tariff quotas.
For its part, the Ukrainian government also took tax measures unusual for peacetime: tax rates were reduced and the volume of preferential imports was increased. Parliament adopted a number of laws that liberalized the taxation of certain transactions for the import of goods into the customs territory of Ukraine. The government allowed a deferment of customs duties when importing certain goods to simplify the procedures for customs clearance of goods, and simplified the procedure for exempting medicines, medical devices and auxiliary products from VAT taxation.
At the same time, such measures significantly influenced one of the key aspects of the activities of the State Customs Service - the administration of customs payments. In 2022, the customs service ensured the fulfillment of the indicative indicator of receipts of customs duties to the state budget by 56.9% (actually 300.8 billion UAH were transferred out of the planned 528.3 billion UAH). Receipts of customs payments to the general fund of the state budget over the past year, compared to the corresponding period in 2021, decreased by 32.7%, which corresponds to the annual forecast of the National Bank of Ukraine of a fall in GDP in 2022 by 31.5%.
Another challenge that customs faced was the development of infrastructure during war. Last year, the construction of two checkpoints was completed in the Chernivtsi region on the border with Romania. In addition, Ukraine is expanding the practice of joint control, in particular on the Ukrainian-Moldovan border.
While the Ukrainian customs, despite the war, complies with international norms and standards, the customs of the aggressor country at the state level is engaged in smuggling, disguised with the euphemisms of “gray” or “parallel” imports. Ukraine, the EU and partner countries supported the suspension of the work of Russia and Belarus in the World Customs Organization.
The war failed to slow down European integration
Resisting large-scale armed Russian intervention, experiencing enormous human, financial and economic losses, Ukraine received the status of a candidate for EU membership.
The State Customs Service of Ukraine today is acquiring unique experience of not just maintaining in working order, but also radically reforming for integration into the customs space of the European Union in a new phase of European integration of Ukraine.
The European Commission highly appreciated the results of Ukraine’s rapprochement with the Customs Union - level 4 of preparation out of 5 possible (based on the results of the EC Conclusions regarding Ukraine’s application for EU membership in 2023). The Ukrainian Customs Code is largely consistent with the EU Customs Code, in particular in the key areas of transit, AEO and the system of simplifications, guarantees and intellectual property rights.
During the war, Ukraine joined the so-called “customs visa-free regime” (Convention on the Joint Transit Procedure), which was an important step towards EU membership.
In November 2021, a preliminary assessment mission of DG TAXUD was conducted to assess Ukraine's readiness to accede to the Convention on the Joint Transit Procedure. Despite active hostilities in February 2022, the State Customs Service managed to convince its European colleagues that the project cannot be stopped. Already in March 2022, working consultations were resumed, and work on the launch was successfully completed in May 2022, when the enemy had already been driven out of northern Ukraine.
In addition, the deployment of a national node for an international secure network (CCN/CSI) was ensured, providing connection to the NCTS - the common telecommunications network of the customs and tax authorities of the EU Member States of the European Transit System.
On October 1, 2023, a year has passed since the start of international application of NCTS by Ukraine. As of November 1, 2023, in the countries participating in the Convention on the Joint Transit Procedure, more than 24 thousand movements initiated by the customs authorities of Ukraine were successfully completed. In Ukraine, more than 5 thousand movements that began in other countries party to the Convention have been successfully completed. The State Customs Service of Ukraine has already provided 154 authorizations for the use of transit simplifications, more than 50 applications from enterprises are at various stages of consideration.
Ukrainian companies today are actively obtaining the status of Authorized Economic Operators (AEO), which contribute to bringing the customs legislation of Ukraine closer to European standards. This not only simplifies and facilitates international trade, but also ensures the participation of Ukrainian AEOs in the formation of secure supply chains for goods. To date, 20 companies have already received this status; at the beginning of 2022, only one company had this status.
As an example of reaching important agreements with European partners, we can note the recently ratified agreement on Ukraine’s accession to the EU Customs Program, which deepens Ukraine-EU customs cooperation and strengthens the institutional capacity of the State Customs Service, allows to improve the qualifications of Ukrainian customs officers and participate in the use of European electronic systems.
The provisions of the EU Customs Code are gradually being implemented into Ukrainian legislation. This convergence of customs rules helps to improve the business environment, simplify trade transactions and increase the competitiveness of Ukrainian goods and services in the European market.
Practical steps are being taken in the context of implementing integrated border management, in particular to introduce the exchange of advance information on goods and means of transport with EU Member States.
