ROADMAP. A. Context and problem definition

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1 TITLE OF THE INITIATIVE ROADMAP Commission Communication on EU Risk management and supply chain security LEAD DG RESPONSIBLE UNIT TAXUD B2 DATE OF ROADMAP 10 / 2012 This indicative roadmap is provided for information purposes only and is subject to change. It does not prejudge the final decision of the Commission on whether this initiative will be pursued or on its final content and structure. A. Context and problem definition (1) What is the political context of the initiative? (2) How does it relate to past and possible future initiatives, and to other EU policies? (3) What ex-post analysis of existing policy has been carried out? What results are relevant for this initiative? (1) After 11 th of September 2001, the Commission and the Member States have reinforced the role of customs in securing the external borders. A sophisticated risk management framework was put in place in order to tackle the security and safety risks of goods crossing the border. This framework aimed at contributing to border management for security and safety purposes if applied in an equal manner throughout the border. A gap in its application would be a risk for the whole EU. Recent events in the sector of air cargo security (the so called "Yemen incident") where a dangerous consignment had not been detected on time for security purposes highlighted the need for further actions at EU level to increase the effectiveness of the EU risk management approach to security. Amongst them: improvement to customs risk analysis of cargo information, fill in the gaps in data quality, sort out the lack of cooperation between agencies on security issues, need to address the risk at the best place of the logistic chain. It must be stated that the EU Risk Management Framework has brought innovative promising elements and tools but with somewhat disappointing effectiveness due to divergent implementation. It has indeed introduced a new regime with the obligation for operators to submit advanced information to customs electronically and the obligation for customs to screen this information in an equivalent manner on the basis of common standards and criteria. However the implementation of these criteria and standards is dependent on 27 different capabilities and processes which lead to de facto unequal implementation. (2) The role of customs in the security dimension and the strengthening of the protection of EU citizens and interests is an ongoing process of the last 10 years. The Commission Communication on the role of customs in the integrated management of external borders highlighted the need to strengthen the role of customs in the security domain, understood as being not only for public security but also to prevent health and safety, environmental risks. Following this communication, regulation 648/2005 introduced the concept of risk management of the supply chain as well as the creation of the conditions for a pre-arrival/pre-departure security 1 risk analysis. This regulation and its subsequent implementing provisions provided for far-reaching changes impacting both Customs and the trade community including the development and implementation of a common framework for risk management to protect the main interests of the EU and its Member States. The Yemen incident has revealed the strengths and weaknesses of the common risk management framework and in particular the problems of the quality of data (need to know the real parties involved in the transaction) and the lack of coordination between security agencies. Therefore, in response to incidents of this type, the Commission produced the EU Internal Security Strategy in Action (Five steps towards a more secure Europe) [COM(2010) 673] which underlined the need for an integrated approach to security at the external border (improved cooperation between agencies and actors of the security domain). It explicitly announced this Communication as the Customs contribution to the security debate. Shortly after, the High level Working Group report on strengthening air cargo security and the following Air Cargo Security initiative (2010) 2 proposed coordinated risk-based measures to further reinforce existing aviation security rules. Since then, the Commission is coordinating the work in the air cargo sector, in particular the pilot action to test the added value of getting data in a centralised way is ongoing and should bring results useful to make concrete proposals on the basis of this Communication. Therefore this communication is the customs contribution to the debate on ways to strengthen the security of goods at the external borders.

2 It is related to other EU policies transport, home affairs, trade (IPR, trade facilitation), health and safety (of goods). It is also linked to crisis management in the EU. (3) In addition to the work in the air cargo sector, a reflexion on the future of the customs Union was carried out by a contractor (Deloitte) and produced a study on the Business Architecture for the EU Customs Union 3. This has underlined the added value of resources pooling mechanisms and has indicated that risk management was the domain of action where it would be most profitable. This could be an option to be considered if the Communication is endorsed by the Council and the European Parliament. Moreover, a study carried out by PWC 4 has assessed whether the customs response to common risks has an equivalent effect/impact (high level of protection and equivalent treatment of operators) throughout the external border. It has revealed the main gaps in the current approach to Risk management and the security of the supply chain and in particular: the problem of the quality of data from the trade seen as an obstacle to effective risk management Differences in the Member States capacity to implement common standards for risk management the need to reinforce the EU dimension of customs risk management the lack of coordination and exchange of information with other border control agencies and intelligence services. What are the main problems which this initiative will address? Based on the results of the above-mentioned PWC study, the Communication will in particular address the following problems: the lack of quality and availability of data for risk analysis; the gaps in the current application of the risk management framework (i.e. variance in capacity and differential burden); the need to reinforce the role of economic operators in securing the supply chain; the lack of cooperation and exchange of information with other authorities and agencies - the need for improving equal high level risk analysis of data by adapting working methods and tools. Who will be affected by it? Customs administrations from the Member States Economic operators Is EU action justified on grounds of subsidiarity? Why can Member States not achieve the objectives of the proposed action sufficiently by themselves? Can the EU achieve the objectives better? The EU has exclusive competence in the field of the customs union and on the customs aspects of the common commercial policy. It will be crucial that the EU rules are applied in an equivalent way in the 27 Member States. Member States are required to implement the common rules in national systems. However analysis is showing strong differences and a lack of treatment of the trade with an EU perspective. For instance, the risk information exchange between Member States varies considerably and is inadequate to support credible risk analysis and mitigation for goods crossing the external border. From all the analysis made, these gaps cannot be totally resolved by Member States in isolation, but require action at EU level to complement and reinforce the efforts deployed at national level. The communication will therefore underline elements which require an "EU level" action to close further the identified gaps and elements which still can effectively be implemented at national level. What are the main policy objectives? B. Objectives of the initiative The Communication makes an analysis of the current situation and suggests possible directions needed for the future, in particular: The urgent need to address identified weaknesses of the current customs risk management framework to improve the security of the movement of goods: need to improve the quality of data (real parties motivating the transaction, HS code), need to improve the availability of data (accessible to multiple Member States), need to address weaknesses at national level (via common trainings, adjustment of national electronic risk engines, ) The added value of strengthening the role of economic operators in securing the movement of goods in 2

3 the supply chain; (raise awareness of the importance of the quality of data, build up partnership with legitimate business and trade community to enable to concentrate controls on suspicious transactions) The necessity to identify possible ways to reinforce the EU dimension of customs risk management;(explore ways to pool capacity and resources of Member States to achieve EU security risk management objectives in a more cost effective way) The opportunity to strengthen the international dimension of customs risk management (through strong and constructive cooperation with EU main trading partners with a view to expand the knowledge and information needed for effective risk management, including strengthened information exchange, promoting standards in multilateral organisations, ) The Communication aims at testing the willingness of Member States and the European Parliament to pursue the development of the EU risk management Framework in those directions. Do the objectives imply developing EU policy in new areas? No C. Options (1) What are the policy options (including exemptions/adapted regimes e.g. for SMEs) being considered? (2) What legislative or 'soft law' instruments could be considered? (3) How do the options respect the proportionality principle? (1) The Communication will identify possible ways to move forward towards a more integrated and effective EU framework for risk management. Possible options to be considered: First option: To keep the status quo, i.e. to elaborate actions within the existing EU framework for risk management. Second option: To move towards a centralised EU risk management framework through drawing up an action plan addressing all the gaps identified in the Communication with the full political support of the Council and the EP. Third option: To develop actions to improve the existing framework in those areas supported by the Council and the EP. All options could lead to different legislative proposals that will be subject to an evaluation of the feasibility and to impact assessment. (2) No legislative instruments are recommended at this stage. They might be considered in the future based on the action plan that will result from the orientations from the Council and the European Parliament and will need to be subject, when necessary, to the evaluation of their feasibility and impact. Guidelines, group of experts, monitoring visits in the Member States may be needed to improve the implementation of the risk framework (both at national and/or "EU level") and to encourage greater coordination and exchange of information with other authorities. (3) Depending on the level of willingness of the MS to move towards a more efficient EU risk management framework, the Commission will put forward proposals in the future respecting the proportionality principle. D. Initial assessment of impacts What are the benefits and costs of each of the policy options? Option 1 Status quo/ No endorsement: the Commission will continue to work with existing tools and structure. This option will indeed imply individual responses to national implementation gaps tailored to each Member State IT system and structure. In addition Member States will have significant investment to make in their IT system for each new adjustment of the risk management framework this approach has proven to be inefficient and unable to ensure the uniform protection of the EU external border. Therefore the cost will be significant for the Member States and the Commission services and the objectives will only partially be met. There are no obvious benefits of this option. Option 2 and 3 -, This option would enable the Commission to explore how new tools and structure can contribute to a better implementation of the Risk Management Framework and introduce an EU dimension to supplement the national level. It may thus require the development of some electronic risk analysis engine available centrally or in the Member 3

4 States. It would enable to apply new elements immediately at that level for all the Member States and make it applicable at the same time at all the external border points. It will have significant economies of scale and help to avoid duplication of controls and/or un-necessary controls. This option will in any way require further research and evidence before being submitted to the Council and European Parliament. The study from PWC indicates that options could be to create a sort of central capability that would be able to provide "an increased ability and capacity to better manage and integrate multiple information and intelligence flows, ( ) and serve as a nexus for gathering information from a wide variety of sources both internal and external to customs. ( ) it will also enable the Commission and the Member States to have an EU-wide coordinated targeting approach for critical risks that enables more effective and efficient allocation of resources through integrated targeting and operational coordination and in this way contribute to the achievement of EU customs security objectives in a prioritised manner. This supports a more uniform approach throughout the EU, potentially leading to the detection of anomalies at a much higher rate and in a more organised and concentrated fashion". More detailed cost/benefit analysis and Impact Assessment will need to be conducted to support concrete proposals reflecting the priorities of Member States expressed in reply to the current Communication. Could any or all of the options have significant impacts on (i) simplification, (ii) administrative burden and (iii) on relations with other countries, (iv) implementation arrangements? And (v) could any be difficult to transpose for certain Member States? (i) Simplification: No. The changes will be more about improving the implementation and effectiveness of the measures. (ii) Administrative burden: If the Communication is approved by the Council and the European Parliament, the concrete proposals that will flow from it will entail significant economies of scale by avoiding duplication of controls, by decreasing unnecessary controls through better targeting consignment at risk. (iii) Relations with other countries: Yes by the strengthening of international cooperation. (iv) Implementation arrangements: It will lead to concrete proposals to improve the current implementation of EU measures on customs risk management. In addition, any central IT support to MS should be seen as simplifying the national IT implementation. (v) No. (1) Will an IA be carried out for this initiative and/or possible follow-up initiatives? (2) When will the IA work start? (3) When will you set up the IA Steering Group and how often will it meet? (4) What DGs will be invited? The current Communication only asks for the political support of the Council and the European Parliament on the future direction of EU customs risk management and security of the supply chain. Impact assessment will be required, if legislative action is envisaged among the options considered. (1) Is any option likely to have impacts on the EU budget above 5m? (2) If so, will this IA serve also as an ex-ante evaluation, as required by the Financial Regulation? If not, provide information about the timing of the ex-ante evaluation. No E. Evidence base, planning of further work and consultation (1) What information and data are already available? Will existing IA and evaluation work be used? (2) What further information needs to be gathered, how will this be done (e.g. internally or by an external contractor), and by when? (3) What is the timing for the procurement process & the contract for any external contracts that you are planning (e.g. for analytical studies, information gathering, etc.)? (4) Is any particular communication or information activity foreseen? If so, what, and by when? An exhaustive study has been prepared by PWC in May 2012 with a view to assess possible ways to enhance EU-level capabilities for customs risk analysis and targeting. This study can be seen as an ex post evaluation of the policy. It contains data that can be used to give evidence of gaps and weaknesses of the current risk management framework. Further research may be needed if this Communication is approved to make concrete proposals on ways to better tackle risks at the border (increased availability of data, better targeting of controls, better uniform tackling of risks at the border). Current data exist at the IT level to measure the added value of adding an EU layer to the existing 27 national systems. Data may also be conveyed to show the cost of unnecessary controls. It would 4

5 unable to back up the concrete proposals with strong arguments. Which stakeholders & experts have been or will be consulted, how, and at what stage? The trade sector is consulted and informed in different ways. The main importers and exporters are informed/consulted regularly via the Trade contact group (made up of representatives of customs and trade). There have also been and there will continue to be regular interaction/consultation with air carriers (IATA,), maritime (shipping industry WSC World shipping Council), postal services (PostEurop), express industry (EEA- European express associations). This ensures to take account of specificities of specific business models. All Member States were informed and discussions were conducted within the customs code committee (section on risk management and customs controls) and the Customs Policy Group. 1 The term security is understood in its broad sense: fight against illicit, restricted, prohibited goods; fight against terrorist and criminal activities; control of goods which pose a risk to public health, the environment and consumers as well as protection of the EU and Member States financial interests /1/10 REV 1 AVIATION 184 JAI 1021 ENFOPOL 353 of 30 November 2010 and 17563/10 of 2 December 2010 (The Council conclusions) 3 4 TAXUD/R3/VDL D(2010) Study on possible ways to enhance EU-level capabilities for customs risk analysis and targeting, May

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