Due to the recent internationally opposed events,[1] countries worldwide have imposed sanctions on The Russian Federation (Russia).[2] The European Union (EU) has put in place ‘severe European sanctions following the Russia-Ukraine war’,[3] including export controls and restrictions.[4] Unquestionably, this has affected the trade between the EU and Russia, resulting in the blocking of approximately 30.000 containers for further checks by the Customs authorities in the Netherlands.[5] Whilst a number of containers have been released, after being verified as not being subject to sanctions, an estimated 2100 containers are currently blocked because information regarding the goods in question was lacking.[6]
The director of the Enforcement Policy and International Affairs of the Dutch Customs Authority has requested clear indications what the containers hold, along with having available the underlying documentation, to prevent the containers in doubt being contained.[7] This shows that an indispensable component of applying sanctions is the ability of customs authorities to identify the goods. This article shall look into how goods are identified by customs authorities and its importance in international trade and the enforcement of sanctions.
The different codes
Goods are indicated on customs documents through codes. The World Customs Organisation (WCO)[8] provides for a basis for all so-called customs codes in its Harmonised system, known as HS-codes or commodity codes.[9] These HS-codes consist of 6 digits and are used, amongst others, to determine import and other duties and taxes along with providing for trade statics on a global level.[10] The HS-code is elaborated with a 7th and 8th digit, as found in the combined nomenclature (CN) of the European Union.[11] The 8th digit is especially important as customs duties, bans, restrictions and other additional aspects are decided on this basis.[12] For export declarations, 8 digit codes are required.[13] The 9th and 10th digit extending the CN code are known as the Integrated Tariff of the European Communities (TARIC) code. These digits stand for antidumping rules, duty suspensions or tariff quotas, which may be established by the European Commission.[14] In some cases, an 11th digit is added on a national basis, indicating VAT rates or national bans or restrictions.[15] The TARIC codes or the 11 digits code are required for imports into the EU.[16]
Of course, new goods are introduced over time and are ever developing, as is the world of international trade. To ensure that the codes used are up to date, the European Commission adopts a new version of codes (along with the corresponding duty rates) on a yearly basis.[17] The amendments are published by way of a Regulation in the Official Journal of the European Communities before the first of November, after which the updated codes are applicable from the first of January.[18]
The codes used are intended to specify the good and must be chosen and applied with utmost care. The following illustrates how a code relates to a particular good. Take the example of a handmade leather briefcase. The HS-code for leather briefcases is 42 02 11 (provided by the WCO). The CN code for (the export of) leather briefcases is 42 02 11 10. The TARIC-code for (the import of) leather briefcases 42 02 11 10 10. Here, it should be noted that had the leather briefcase not been handmade, the TARIC code would differ, namely, 42 02 11 90 90.[19] This example illustrates the level of detail required to determine the right code and the importance of indicating this to the customs documents, along with the ability to provide the underlying documentation (in this example, the documentation that the briefcase is indeed handmade).
Occasionally, players involved in the international supply chain are uncertain on what code to apply to goods, a majority of which are not physically seeing or checking the goods. In some cases, the national customs authorities are requested to provide binding tariff information (BTI) for the goods, meaning that the authorities determine what the applicable code is for the particular good.[20] This BTI is binding on the requesting party for a period of three years and is communicated throughout the EU.[21] Once obtained, the BTI must be used and cannot be derogated from, with all applicable consequences.
The importance of codes
When importing and exporting goods, the codes provided are of great importance. Not only does the CN code provide for prohibitions, conditions and export restrictions, the TARIC code also provides for the import tariffs and other required certificates and standards.[22] As briefly discussed above, the codes play a crucial role when deciding what amount of duties and VATs apply. An erroneous application of codes, could result in serious consequences in relation to tax evasion and a company’s tax strategy,[23] exposing companies to criminal liabilities during the process.[24] This is particularly important as customs authorities are authorised to retroactively check customs and accompanying information (and the fulfilment of applicable standards) for a period of 7 years.[25] Moreover, as illustrated by the example of the port of Rotterdam, it could result in significant hurdles in the fast moving supply chains, bringing about costs, delays and, in some events, fines and criminal charges.
Sanctions and enforcement
Having a brief understanding of the codes and their consequences, it is worth taking a brief look at how sanctions can be checked in relation to a particular good code.
Whilst the EU adopts these sanctions, the customs authorities of each EU country, being the executive body for the adopted sanctions, must enforce these.[26] The Dutch Customs Authority, under the direction and guidance of the Ministry of Foreign Affairs,[27] currently oversees the monitoring of a myriad of sanction regulations.[28] Whilst the Dutch Customs Authority is used to enforcing sanctions, the sanction packages against Russia are different as these encompass a vast amount of measures on a diverse package of goods.[29]
The Dutch Customs Authorities provide for a website where anyone can look up the laws, regulations, standards and bans of a good code by filling in the code, or finding the good by description in the chapters.[30] Once the goods in question match the description and a code is provided, the website shows the applicable measures and legal basis in relation to the particular country. For example, the export of a shotgun for military purposes to Russia (CN code 9306 90 10) is subject to export controls, for which the conditions and EU regulations are provided.[31]
Since the imposition of the 5 recent sanctions regulations, restricting the export of a wide array of goods,[32] export declarations to Russia submitted to the Dutch Customs Authority have seen a sharp decline.[33] Before the recent events, more than 40.000 export declarations from the Netherlands to Russia were made within a week, whereas currently less than 50 declarations have been made in a period of two weeks.
The imposition of these broad sanctions mean that more shipments and goods will be checked by the Dutch Customs Authority, which is done by inter alios checking the customs declarations, the provided good codes and the underlying documentation.[34] Whilst these checks are impactful, the Dutch Customs Authority is well aware that active and retroactive checks on the administrative compliance with sanctions (by checking the administration and administrative trails of companies) is equally important. Here, education, fines and criminal prosecution are used to ensure (retroactive) compliance.
As of the 4th of April, the Dutch Customs Authorities have subjected an astonishing 49.000 export declarations to Russia (and the Republic of Belarus), of which 3.300 have been subjected to additional checks (physical or administrative controls).[35] In the latter period, 53 shipments were found to be in violation of the sanctions, out of which 9 were withheld from being exported.[36] The Dutch Customs Authority, however, expects the export declarations to Russia to increase over time.[37] Whilst these sanctions are being put upon the enforcing shoulders of the Customs Authorities, the impact these sanctions have on the wider economy, citizens and of course worldwide trade, is yet to be seen.
[1] BBC, ‘War in Ukraine: Russia launches new attacks after peace promise’ (BBC News, 1 April 2022) <https://www.bbc.com/news/world-europe-60925713> accessed 5 April 2022 ; Government of the Netherlands, ‘Russian invasion of Ukraine’ (Government of the Netherlands, 5 April 2022) <https://www.government.nl/topics/russia-and-ukraine> accessed 5 April 2022.
[2] BBC, ‘What sanctions are being imposed on Russia over Ukraine invasion?’ (BBC News, 5 April 2022 ) <https://www.bbc.com/news/world-europe-6012565> accessed 5 April 2022.
[3] European commission, ‘EU announces severe European sanctions following the Russia-Ukraine war’ (European Commission – Representation in the Netherlands, 24 February 2022) <https://netherlands.representation.ec.europa.eu/nieuws/eu-kondigt-zware-europese-sancties-aan-nav-de-oorlog-rusland-oekraine-2022-02-24_nl?etrans=en>accessed 5 April 2022.
[4] European Commission, ‘Statement by President von der Leyen on further measures to respond to the Russian invasion of Ukraine’ (European Commission – Statement by Statement by President von der Leyen on Ukraine, 27 February 2022) <https://ec.europa.eu/commission/presscorner/detail/en/statement_22_1441> accessed 5 April 2022.
[5] Douane, ministerie van financiën, ‘Belastingdienst actueel: Update handhaving sancties tegen Rusland en Belarus (2)’ (Douane, Ministerie van Financiën, 08-04-2022) <https://www.belastingdienst.nl/wps/wcm/connect/bldcontentnl/berichten/nieuws/douane/update-handhaving-sancties-tegen-rusland-en-belarus-2> accessed 9 April 2022.
[6] ibid.
[7] Evofenedex, ‘Goede samenwerking douane en bedrijfsleven waardevol in Oekraïnecrisis’ (EvoFenedex actualiteit, 9 March 2022 ) <https://www.evofenedex.nl/kennis/actualiteiten/goede-samenwerking-douane-en-bedrijfsleven-waardevol-oekrainecrisis> accessed 5 April 2022.
[8] World Customs Organisation, ‘World Customs Organisation’ (World Customs Organisation) <http://www.wcoomd.org> accessed 5 April 2022.
[9] World customs organisation, ‘Harmonized System Database’ (World Customs Organisation) <http://www.wcoomd.org/en/topics/nomenclature/instrument-and-tools/tools-to-assist-with-the-classification-in-the-hs/hs-online.aspx> accessed 5 April 2022.
[10] Central Customs Authority, ‘Customs Tariff’ (Zoll) <https://www.zoll.de/EN/Businesses/Movement-of-goods/Import/Duties-and-taxes/Normal-customs-clearance/Customs-Tariff/customs-tariff_node.html> accessed 9 April 2022.
[11]Annex 1 Council Regulation (EEC) No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff [1987] OJ 2 256/1.
[12] Central Customs Authority (n 10).
[13] European commission, ‘The Combined Nomenclature’ (Taxation and Customs Union) <https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/customs-tariff/combined-nomenclature_nl> accessed 9 April 2022.
[14] Council Regulation (n 11) art 12.
[15] Central Customs Authority (n 10).
[16] ibid.
[17] Council Regulation (n 11) art 12.
[18] European commission, ‘Customs: Commission publishes the 2022 version of the Combined Nomenclature’ (Taxation and Customs Union, 29 October 2021) <https://ec.europa.eu/taxation_customs/news/customs-commission-publishes-2022-version-combined-nomenclature-2021-10-29_en> accessed 9 April 2022.
[19] Douane belastingdienst, ‘Search goods nomenclature’ (Tariff) <https://tarief.douane.nl/arctictariff-public-web/#!/taric/nomenclature/sbn?sd=22-3-2022&d=I&cc=&l=en&ql=en&ea=false> accessed 9 April 2022.
[20] European Commission, ‘Binding Tariff Information (BTI)’ (Taxation and Customs Union) <https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/customs-tariff/ebti-european-binding-tariff-information_en> accessed 9 April 2022.
[21] ibid.
[22] European commission, ‘EU Customs Tariff (Taric) ‘ (Taxation and Customs Union) <https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/customs-tariff/eu-customs-tariff-taric_nl> accessed 9 April 2022.
[23] European anti-fraud office, ‘Customs fraud’ (European Anti-Fraud Office) <https://ec.europa.eu/anti-fraud/policy/policies-prevent-and-deter-fraud/customs-fraud_en>accessed 9 April 2022.
[24]C-273/90 Meico-Fell v Hauptzollamt Darmstadt Judgement of the Court (Sixth Chamber) of 27 November 1991 [1991] ; Mr. Tom Meevis, Mr. Maxim Hodak, ‘Dutch customs: the risks and consequences of bringing forbidden products into the Netherlands’ (Law & More Attorneys and Tax Advisors, 30 April 2017) <https://lawandmore.eu/blog/dutch-customs-risks-consequences-bringing-forbidden-products-netherlands/> accessed 9 April 2022 ; Article 10 Algemene Douanewetboek <https://wetten.overheid.nl/BWBR0023746/2022-01-01#Hoofdstuk10> accessed 9 april 2022.
[25] Wolters Kluwer, ‘Fiscale bewaarplicht: 7 punten waar je niet omheen kunt’ (fiscaal en accounting, financieel juridisch. 06 December 2021) <https://www.wolterskluwer.com/nl-nl/expert-insights/fiscale-bewaarplicht-7-punten-waar-je-niet-omheen-kunt> accessed 9 April 2022.
[26] Customs administration of the Netherlands, ministry of finance, ‘Sanctions'(Customs Administration of the Netherlands, Ministry of Finance) <https://www.belastingdienst.nl/wps/wcm/connect/bldcontenten/belastingdienst/customs/safety_health_economy_and_environment/cdiu_cluster/sanctions/sanctions> accessed 9 April 2022.
[27] Government of the Netherlands, ‘Policy Dutch government on international sanctions’ (International Sanctions) <https://www.government.nl/topics/international-sanctions/policy-international-sanctions> accessed 9 April 2022.
[28] Npo radio 1 , ‘Heeft Douane genoeg middelen om toezicht te houden op naleving sancties?’ (Geld of je Leven , 29 March 2022) <https://www.nporadio1.nl/fragmenten/geld-of-je-leven/5535f11a-1732-43fa-9323-d1309e63dea8/2022-03-29-heeft-douane-genoeg-middelen-om-toezicht-te-houden-op-naleving-sancties> accessed 9 April 2022.
[29] Ibid.
[30] Douane (n 5).
[31] Council Regulation (EU) 2022/328 of 25 February 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine [2022] OJ 2 049/01; Douane, belastingdienst, ‘Query measures for commodity code’ (Tariff) <https://tarief.douane.nl/arctictariff-public-web/#!/taric/measure/mcc/search?sd=31-3-2022&d=E&cc=93069010&ad=&co=RU&cu=EUR&l=en> accessed 9 April 2022.
[32] De Nederlandsche Bank, ‘De sanctiepakketten tegen Rusland op een rij'(Algemeen nieuws, 02 March 2022 ) <https://www.dnb.nl/actueel/algemeen-nieuws/nieuwsberichten-2022/de-sanctiepakketten-tegen-rusland-op-een-rij/>accessed 9 April 2022 ; Rijksdienst voor ondernemend nederland, ‘Informatie over sancties Rusland'(Rusland, 8 April 2022) <https://www.rvo.nl/onderwerpen/internationaal-ondernemen/landenoverzicht/rusland/sancties> accessed 9 April 2022.
[33] Douane (n 5).
[34] ibid; Rijksoverheid, ‘Beleid voor internationale sancties’ (Internationale Sancties) <https://www.rijksoverheid.nl/onderwerpen/internationale-sancties/beleid-voor-internationale-sancties> accessed 9 April 2022.
[35] Douane (n 5).
[36] ibid.
[37] ibid.
Corax Foundation 