2. Customs Union

A Customs Union can be defined as full trade liberalisation between two countries/regions, plus a single external tariff. The Customs Union is one of the key components of the European Union, whereby free movement of goods is ensured between EU countries, while non-EU countries exporting products to the EU are charged the same tariff regardless of which EU country is importing the goods.

Article 23 of the EC Treaty highlights the core elements of the Customs Union. It provides the Customs Union shall cover all trade in goods and shall involve the prohibition between Member States of customs duties on imports and exports and all charges having an equivalent effect. According to the Treaty, the Customs Union also involves the adoption of a Common Customs Tariff (CCT) for relations with third countries.

Accordingly, the Customs Union can be divided into two sections: the internal section or the free movement of goods and the external section or the common commercial policy. The elimination of customs duties set up with effect from July 1, 1968 and the elimination of quantitative restrictions to trade (quotas) applied as of December 31, 1969, with the exception of certain agricultural products for which restrictions were maintained until 1974 as well as the abolition of qualitative restrictions between Member States represents the internal section of the Customs Union, the common market. The external section of the Customs Union took shape from July 1, 1968 onwards with the adoption of a Common Customs Tariff applied to Third country imports and the common commercial policy applied in the economic relations with third states. Member States agreed to merge their different customs tariffs into a single tariff applicable throughout the European Community.

External section of the Customs Union

Whilst the principle of the free movement of goods is the internal face of the Customs Union, the common commercial policy, including the Common Customs Tariff, the Community Customs Code (CCC) and the commercial relations with third countries and international economic organisations form its external aspect.

Common tariffs

When declared to customs in the Community, goods must generally be classified according to the Combined Nomenclature or CN. Imported and exported goods have to be declared stating under which subheading of the nomenclature they fall. This determines which rate of customs duty applies and how the goods are treated for statistical purposes. The CN is a method for designating goods and merchandise which was established to meet, at one and the same time, the requirements both of the Common Customs Tariffand of the external trade statistics of the Community. The CN is also used in intra-Community trade statistics.

The CCT nomenclature is a very important instrument, not only for the collection of customs duties but also in establishing statistics on foreign trade and applying measures under the trade, agricultural, fiscal or monetary policies. It is known as the "combined nomenclature" as it is used for both tariff and statistical purposes, and is based on an international classification tool, the Harmonised System, which is administered by the World Customs Organisation.

The CCT makes it possible to apply uniform customs duties to products imported from third countries, irrespective of the Member State of destination.

Calculation of customs

The three 'elements of customs” that provides the basis for assessment of the customs debt, which is the technical term for the amount of duty that has to be paid, are the value of the imported good, the origin of the goods and the customs tariff. As to the calculation of the value of the good the EU applies an internationally accepted concept of customs value.

• value of the goods = Most customs duties are expressed as a percentage of the value of goods being declared for importation. Thus, it is necessary to dispose of a standard set of rules for establishing the goods' value, which will then serve for calculating the customs duty. This method is the concept of customs value.

• Common Customs Tariff
• Country of origin = Origin is the "economic" nationality of goods in international trade. There are two kinds of origins in trade terms: non-preferential and preferential. Non-preferentialorigin is used for determining the origin of products subject to all kinds of commercial policy measures (such as anti-dumping measures, quantitative restrictions) or tariff quotas. Other provisions, such as those related to public tenders or origin marking, are also linked with the non-preferential origin of the products. In addition, the EU's export refunds in the framework of the Common Agricultural Policy are often based on non-preferential origin. Preferential origin confers certain benefits on goods traded between particular countries, namely entry at a reduced or zero rate of duty.

Parallel to the introduction of the Combined Nomenclature (CN), the computerised database TARIC (integrated tariff of the European Communities) was established in order to identify the Community provisions applicable to each good

The European Commission has worked out a Binding Tariff Information (BTI) system as a tool to assist economic operators to obtain the correct tariff classification for goods they intend to import or export.

Quantitative restrictions toward third countries

For a number of products, a reduction of the customs duty payable is allowed for limited quantities of imports. This limitation takes the form of tariff quotas or of tariff ceilings. As the Community is a Customs Union, tariff quotas and ceilings are managed centrally by the Commission.

The database for tariff quotas and ceilings on the QUOTA web-site . Displays the balances of each tariff quota and ceiling applicable in the present year and in the past year.

A further instrument of the customs policy is the Single Administrative Document (SAD) (See more information in Annex 3, created in 1988, which greatly simplified the procedures since it replaced 150 customs documents. By the abolishment of the internal control of the goods in 1993 the SAD is not used anymore in intra-Community trade.

The elimination of customs formalities in 1993 resulted in the introduction of the Intrastat system for the collection of statistical information on trade in goods between the Member States directly from traders.

Common customs procedures

The Community Customs Code , adopted in 1994, established a common legal framework for customs controls, supplemented by special measures in the fields of veterinary medicine and plant-health, cultural goods, drugs and psychotropic substances, international trade in protected species and the fight against counterfeiting. The abolition of internal frontiers has required active cooperation between Member States administration in the field of customs, taxation, fight against fraud, statistical data collection etc.

Strong cooperation among the administrative authorities of the various Member States and between these authorities and the European Commission is essential. The Community has established many instruments for this purpose, such as databases, uniform procedures and the Member States have signed special agreements in this respect. To promote the uniform application of customs legislation throughout the Community the Customs 2007 program provides available financial support for the Member States authorities.

Practical issues of the EU customs rules

There are no limits on what private persons can buy and take with them when they travel between EU countries, as long as the products purchased are for personal use and not for resale, with exception of new means of transport. Taxes ( VAT and excise duty) will be included in the price of the products in the Member State of purchase and no further payment of taxes can be due in any other Member State. However, special rules apply in the case of goods subject to excise duty, such as alcoholic beverages and tobacco products. (See furher information in Annex 5 and Annex 6.). Where new means of transport (car) are purchased in another Member State, special rules apply, and the purchase is taxable in the Member State of registration of the means of transport, rather than the Member State in which it is purchased.

Practical questions on the customs declaration (see in Annex 2.)

Exercise: Customs union