The visa-free customs has started in Ukraine. Сarriers are going to win first of all, but now they will have to worry about a financial guarantee
The benefits of the new regime will be felt by all export-oriented companies, but their number is decreasing in the country
On 1 October, Ukraine launched an updated regime for the movement of goods to the territory of the European Union and some other countries, which is called the visa-free customs regime (VFC). The relevant law establishing the prerequisites for the implementation of this practice was adopted by the Ukrainian parliament on 30 August and entered into force 30 days later. Mind found out what opportunities the document opens for Ukrainian entrepreneurs.
What does the introduction of VFC in Ukraine imply?
Despite the loud name that hints at a liberal trade regime the VFC, in fact, means Ukraine's accession to the convention on the common transit procedure and simplification of formalities in trade in goods. In practice, this means that Ukrainian companies will be connected to the New Computerised Transit System (NCTS), which has been generally applicable in the European Union and other countries since 2006. In total, NCTS is used by 36 countries, and about 50,000 references are made to this system in the EU every day.
By joining it, Ukrainian carriers will receive unified rules for declaring goods and controlling their transit movement and will be able to import goods from the EU to Ukraine and vice versa without additional re-registration.
The system also allows the exchange of information on all stages of customs clearance of goods using electronic messages in real time and increases the efficiency of the risk analysis mechanism.
Previously, only a limited number of Ukrainian players – usually super-large exporters – had access to the system's capabilities.
"Visa-Free Customs" is one of the visa-free regimes promptly adopted by Ukraine. Earlier, transport and aviation visa-free regimes were ratified, as well as a single European roaming zone was announced. Industrial visa-free regime is considered to be the largest and most expected.
What will change for companies from October 1 and are all the changes positive?
First of all, thanks to the connection to the NCTS system, Ukrainian carriers will be able to use a single declaration to move goods across 36 countries of the world on the principle of "one vehicle – one declaration – one guarantee". These are EU members, Great Britain, Turkey, Serbia, North Macedonia, Iceland, Norway, Liechtenstein and Switzerland. Thus, time is saved and logistics efficiency is increased.
According to expert estimates, automation with the NCTS saves about 132 million euros per year on average in Europe by reducing time and labour costs and delivery times.
Another absolute plus is the unification of customs declarations. The form of the unified document will be based on the terms of the convention, and the requirements for the drawing up and use of customs declarations have already been brought in line with the legislation. The Government invalidated its 5 August 2020 Resolution on the use of certain types of customs declarations.
Transport liberalisation and the reduction of bureaucracy in general will increase the ability to plan transportation, as the uncertainty in obtaining permits at various stages of the movement of goods becomes history.
Work in the European countries' unified electronic system and data exchange will help to increase transparency and reduce corruption risks at customs – an effect that is not out of place for Ukrainian realities.
However, the VFC introduces another innovation that may seem at least burdensome to market participants. According to the convention, all cargoes must be accompanied by a financial guarantee. Such a requirement is currently valid only for excisable goods, certain food products and a limited number of categories in Ukraine
The financial guarantee is the amount of taxes on the commodity. It is calculated based on the value of the cargo declared or indicative value (at the discretion of the customs).
Now all commodities are a priori guaranteed, but certain exceptions are introduced to this rule.
Ukraine has formed a list of goods that are exempt from such financial security – for the period of martial law and one year after its termination. The list is compiled taking into account the goods necessary to increase the country's defence capability. Joining the NCTS gives the right to use the general financial guarantee.
Will the VFC contribute to intensification of exports ?
Given that the European Union remains a leading export destination even after the unblocking of ports, this positive service effect will be very tangible for business.
According to Taras Kachka, Deputy Minister of Economy – Trade Representative of Ukraine, Ukrainian exports to the European Union almost reached the pre-war level in August. And according to the results of Q1-3, it will even exceed the corresponding pre-war figures.
"Today, trade between Ukraine and the European Union has actually resumed. In August, exports to the EU amounted to 90% of the level of exports recorded in August 2021. And in the first three quarters of 2022, despite the war, we exported to the EU even a few percent more than in the first three quarters of 2021," he said.
The main driver of export growth was the abolition of duties and quotas on a number of Ukrainian goods, primarily agricultural. The reorientation of trade flows also played a role, some of which became impossible, particularly to the countries of Asia and North Africa, due to the naval blockade.
At the same time, total exports fell by half – from more than $6 billion per month before the war to the current $3+ billion per month. But since the European direction has remained afloat due to a combination of factors, any improvements that can be made to increase and facilitate exports to the EU will have a positive impact on the entire economy and trade balance.
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