Analytical report

Commission Opinion on Serbia's application for membership of
the European Union 3.29. Chapter 29: Customs Union

The EU acquis in this sector consists of the Community Customs Code and its implementing provisions, the EU's Combined Nomenclature (CN), the Common Customs Tariff including trade preferences, tariff quotas and tariff suspensions and other customs-related legislation outside the scope of the Customs Code. Member States must ensure that the necessary implementing and enforcement capacity, including links to the relevant EU computerized customs systems (tariff-related systems, NCTS, ECS, ICS, etc.) are in place. The customs authorities must also ensure adequate capacity to implement and enforce special rules laid down in related areas of the EU acquis such as on external trade, health and security.

The Interim Agreement establishes a free-trade area with the EU and the progressive removal of customs duties on a wide range of products. It places an obligation on Serbia to adopt the Combined Nomenclature. It also provides for administrative cooperation on customs matters and lays down rules of origin which have to be observed in order for EU and Serbian operators to benefit from the trade preferences. In addition, it paves the way for gradual approximation of the Serbian customs legislation to the EU acquis.

In terms of customs legislation, Serbian law is largely aligned with the EU acquis. The Customs Law adopted in March 2010 is basically harmonised with the EU Customs Code. In January 2011, the relevant implementing legislation entered into force. The Combined Nomenclature (CN) is applied and the classification rules are largely in line with the EU acquis. However, classification practice, including decisions on binding tariff information, is still to be upgraded to EU standards.

In June 2011 Serbia also abolished administrative customs fees for regular activities, thereby bringing the system into line with the requirements of the Interim Agreement and the EU acquis. Preferential tariff quotas are managed by the Information System of Customs Services (ISCS) on a first-come, first-served principle on a daily basis. The country does not apply erga omnes tariff quotas or tariff ceilings and lacks an automated system for collecting statistics. The system of autonomous suspensions and tariff quotas needs to be brought into line with the provisions applied in the EU.

Serbia implements preferential rules of origin and methods of administrative cooperation that largely reflect those used by the EU in its free-trade agreements. Furthermore, it applies diagonal cumulation with the EU and other countries subject to the European Union Stabilisation and Association Process. The status of approved exporter also exists. Serbia complies with EU law on customs value.

The national legislation on duty relief is well harmonised with the EU acquis, but some discrepancies still exist, notably the rules on duty relief for equipment imported by, and for, passengers or the monetary threshold for duty relief and the rates for simplified declaration.

Serbia is observer in the Common Transit Convention and intends to join it once all the legal and technical requirements are met. The Customs Administration needs to encourage further use of simplified customs procedures in the framework of specific authorisations.
The legislation on customs-related security initiatives, including authorised economic operators, has been adopted, but implementing provisions are missing. Post-clearance controls and the risk analysis systems have been relatively successful over the last year, but need to be used more frequently for systematic planning and execution of ex-post controls. The risk analysis capacity is also hampered by an insufficient IT system and lack of strategy. Customs perform a high percentage of physical controls but is not producing proportionate findings. Risk analysis and management need to be changed to a thematic system targeting risk control, similar to the system applied in the EU, supported by an adequate IT application.

In line with the requirements of the Interim Agreement, the Customs Administration of Serbia (CAS) has made efforts to reach the EU level of protection of intellectual property rights (IPR). It has substantially tightened up the control procedures at the border and should now further reinforce effective means of enforcement. On drug precursors, Serbia has put in place a system for pre-export notification, while on cultural goods Serbia still has to adopt legislation and apply controls in line with the EU requirements. The provisions on cash control do not meet the requirements of the EU legislation.

Concerning administrative and operational capacity, the CAS has been continually strengthening its administrative capacity for effective enforcement of customs legislation. It is well-organised and implements sound procedures and working methods allowing the competent staff to enforce the customs and related legislation sufficiently. However, there are still room for improvement. A properly equipped and functioning customs laboratory is missing and the overall operational capacity needs to be strengthened to ensure further enforcement of legislation (for example, on IPR and safety The coordination between the Ministry of Finance and the CAS needs to be better streamlined. In 2010, the CAS, in cooperation with the World Customs Organisation, initiated a pilot project on strengthening the integrity of customs officials and stepping up the fight against corruption. However, further efforts are needed in fields such as office management, the performance appraisal system, ethics and training. Moreover, the audit resources need to be reinforced and the central customs administration should be allowed to carry out audits.

In December 2010 the Customs Administration adopted a business strategy for 2011-2015. A customs IT strategy was adopted in early autumn 2011. The CAS currently uses the Information System of Customs Services (ISCS). There are plans to merge the ISCS with the Integrated Customs Tariff TARIS. Although around 90% of customs declarations are submitted electronically, data exchange for customs formalities is only partially processed through the IT system. In general, Serbia has progressed on customs computerisation and is planning future interconnectivity with EU customs IT systems. However, further upgrading of the customs IT systems is needed.

Serbia joined the Customs 2013 Programme in April 2009 and has participated regularly in activities under it ever since. Through the conclusion of agreements on international cooperation, the customs authorities share information with other foreign institutions. In terms of trade facilitation, the customs administration formalised procedures for exchanging prearrival information with neighbouring countries. Implementation of the integrated border management strategy and action plan continued (see also Chapter 24 – Justice, freedom and security ).

The customs procedures and formalities to guarantee correct application of the EU acquis need to be applied at the administrative boundary line (ABL) between Kosovo and Serbia, in particular at gates 1 and 31 to the north of Kosovo. At the ABL, insufficient controls create the risk of VAT carrousels, fraud with excises, illicit trade and imports without paying customs duties. Serbia needs to prevent this illicit trade in a way that respects that Kosovo is a separate customs territory. Impact of the modifications to VAT refund rules adopted in September 2011 in this respect as regards oil and oil derivatives, will have to be assessed.

The agreement on accepting the Kosovo customs stamps needs to be implemented in full compliance with CEFTA rules.

Conclusion

The customs legislation is almost fully aligned with the EU acquis. The obligations stemming from the Interim Agreement are being met well. The administrative and operational capacity of the Serbian Customs Administration is good. It has the administrative structures and adequate resources to implement and enforce the customs legislation and make sure that procedures and working methods are implemented effectively. However, in order to be able to address the future challenges, the Customs Adminitration will need to be reinforced, notably to increase post-clearance controls based on risk analysis, expand use of simplified procedures for reliable economic operators, step up use of the guarantee management system and upgrade interconnectivity and interoperability with the EU IT systems. Customs procedures to guarantee correct application of the EU acquis at the ABL with Kosovo have to be introduced.

Overall, Serbia is already well on the way to meeting the EU acquis and remains committed to reforms in the area of customs. If it continues its efforts, Serbia should, in the medium term, have the capacity to comply with the requirements of the EU acquis in the field of customs.