• Topic: IT systems, databases 

 

Obviously, customs could not stay aside from all the processes related to the economic downturn, being an important element in the global supply chain. Customs regulation can significantly affect the course and results of international trade in both directions: either to aggravate problems or to contribute to their solution. What customs trends can be identified today?

Main reasons creating a threat of a general economic downturn

Over the past two decades, the world economy has faced many challenges and trials. That led governments to review their priorities in economic policy and approaches to managing the economy, and to use innovative measures. Now, rising inflation is one of the main reasons creating a threat of a general economic downturn. There are many reasons for this; let us consider the main ones.

1. Unprecedented ‘pump-priming’ by governments. These measures were intended to restart economies after the property-led crash of 2007 – 2008. In general, ‘pump-priming’ takes the form of stimulation of government expenditures and public consumption in order to increase aggregate demand. That, in turn, should encourage economic growth.
2. Zero interest rates. On the one hand, these measures were aimed to make the investment climate more attractive. On the other hand, they distorted investor behaviour and created expectations of long-term low rates.
3. Covid-19 has had serious negative consequences for the world economy. In particular, it has led to disruptions in global supply chains and consequently severe supply side constraints. It is also worth reminding of the so-called helicopter money that governments injected into the economies by supporting citizens who suffered financial losses due to the pandemic.
4. War in Ukraine. The terrible effects of war are obvious. At the same time, one of the main economic consequences is a significant increase in energy prices. The situation is aggravated by OPEC+ production restrictions. It means that the world’s major oil exporters including Russia have agreed to reduce production despite the difficult situation on the energy market. 

Under the current economic and political conditions, it is quite difficult to counteract the existing challenges at the moment. Europe and the rest of the world have not learnt to function in such circumstances. We are already seeing Governments attempting to alleviate cost of living pressures by more spending, to compensate for inflation and rising interest rates. Unfortunately, it will take some time to recover from the shock.

Political factors

As we have already mentioned the political conditions in the context of an environment for an economic downturn, it is worth referring to them in more detail. Change and uncertainty in geopolitical culture significantly shake economic stability, and can have a direct and profound impact on international trade. Overall, there is a strong trend towards protectionism and deglobalisation. In this regard, the following developments seem most important:

• efforts to restrict China;
• rise of nationalistic governments;
• increasing regulatory control on imports/exports;
• war in Ukraine – sanctions against Russia, restricted supply, concerns for global security and security of supply chains.

Brexit is another political factor that continues to destabilise the trading situation in the EU. Despite the transition period as well as a relatively long post-Brexit time, which should ensure a gradual transition to a new economic reality, we cannot yet see a complete win over this crisis. In fact, the European economy is still in a state of post-Brexit stress, meeting the challenges with varying degrees of success. It is no exaggeration to claim that Brexit: 

• questioned the established order in Europe;
• damaged one of the world’s major economies;
• disrupted trade in the EU.

Unfortunately, it is not clear how much time Europe may need to finally absorb or overcome the consequences of Brexit. Moreover, external factors such as Covid pandemic and the Russian-Ukrainian war significantly reduce the pace of reformatting the EU-UK relations and the European economy in general.

A final major contributor to change is the Climate Change imperative, which has both economic and political aspects, driving policymakers to consider new production and supply techniques, to limit trade in certain goods and to seek to limit environmental damage from transport and other polluting activities.

What about customs trends?  

Obviously, customs could not stay aside from all these processes, being an important element in the global supply chain. Customs regulation can significantly affect the course and results of international trade in both directions: either to aggravate problems or to contribute to their solution.

What customs trends today can be identified in regard to the above-mentioned things? The main one is a strong tendency towards tighter controls. It is specifically traced in the following:

• Proliferation of non-Tariff regulation. There are 378 pieces of prohibition and restriction legislation in the EU (this does not include national regulations). Of these, 252 legal acts have appeared since 2015.
• Abolition of VAT ‘de minimis’. This means that since 1 July 2021 every import transaction regardless its value has been subject to VAT and a customs declaration. In this regard a new form of customs declaration (H7) was created for low-value consignments up to 150 euros. 
• Increasing the use of computerised analysis leading to increasing complexity of datasets (EUCDM 6.2)
• New standards published for customs brokers (EN 16992). This European Standard is intended to ensure competency requirements for customs representatives in accordance with the EU legislation.
• ‘Wise Persons’ report [1] focuses on security and protection, and does not mention facilitation of trade as a goal.
• Growing emphasis on AEO/Trusted Trader and on pre-shipment information, creates the prospect of more dominance of trade by the largest companies.

Challenges and opportunities

Deglobalisation combined with economic slowdown will increase the challenges of international trade. Undoubtedly, these challenges also affect customs, which needs to remain effective in such changing conditions to support safe and effective trading. This is challenging, especially in a heterogeneous and dynamic political environment. In our opinion, the main challenges in the field of international trade can be identified as follows:

• A decrease in the purchasing power of consumers slows down global demand. The latter, in turn, leads to slowdown in trade volumes, especially in the number of transactions. 
• Cost of customs clearance is likely to rise, against the background of increasing regulation and restriction, customs clearance will become more complex, and inflation of the cost of goods themselves and the services related to customs clearance will also contribute. 
• Cost of transport will not return to pre-Covid levels in the short term due to energy crisis increasing costs, and reducing the number of service providers, etc.
• Complex supply chains will be more difficult to maintain because of sanctions, restrictions, and logistics problems.
• New regulation and stricter control will necessitate retraining and upskilling of customs brokers that will take additional time and costs. Moreover, this can cause a shortage of competent and skilled brokerage personnel for some time.  
• Extending risk analysis beyond the declaration requires more integrated record systems. 

At the same time, living and functioning in the era of global transformations and challenges has its benefits, which should be used by companies, countries and the world in general.

One of the biggest upcoming opportunities is the ‘Single Window‘ system. The ‘Single Window’ integration will help with controlled goods. We can find a lot of information about the advantages of this system. Without repeating the obvious things, this is really a new level of trade simplification and digital cooperation between authorities at EU borders. 

Positive moments and new opportunities include the fact that moving further from reliance on customs declarations will force greater supply chain integration. We consider blockchain-type solutions to offer many possibilities for these purposes. 

The desire to increase Authorised Economic Operator’s numbers will lead to enhanced benefits and establishment of more trusted relations between businesses and customs administration.

Pressure for harmonisation may decrease national variations. Started 50 years ago by the Kyoto Convention, harmonisation is taking on new forms and manifestations today. This, in turn, will reduce the time and financial costs absorbed by the need for research and adaptation to various national peculiarities.

Increased focus on costs will encourage use of expert advice and professional service providers. Using the services of professionals is, if not a guarantee, then a big step towards trade and customs compliance. The probability of violating a contract or law will decrease as well as the chances of being penalised.

Concluding remarks

In the described conditions of economic downturn, small traders and small customs specialists will suffer most. Attempts by governments to support them may have a positive effect, but not a long-term one. Therefore, it is necessary to take matters into one’s own hands and learn to work in new conditions, unite, cooperate, and look for other ways out. Troubled times call for tough and sometimes unpopular decisions. Surviving and thriving depends on offering the best service at lowest cost – this requires sophisticated digital systems operated by highly skilled and knowledgeable people. Here is our advice: invest in staff competence, training and systems or at least use the services of professional providers and consultants. Finally, do not focus on one thing that is familiar and stable – explore diversification and move forward.

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[1] ‘Putting more Union in the European Customs‘ – European Commission, Brussels, March 2022

• Market: Global 

Copyright of the journal: CC Learning, UAB