How to assess the chances and possibilities of selling your product on the EU market? What do you need to know about import rules and procedures in the EU? How is the EU trading system organized in general? How is the value of your product calculated after import into the EU? We provide a short guide to the main issues encountered by a foreign seller when entering the European market.

Classification of goods

Any product traded on the EU market must comply with certain criteria, depending on the category in which it is classified. The EU has a common Commodity Classification System based on regulations for each product category, for instance:

• Classification of plastic products
• Classification of textiles
• Classification of computers and software
• Classification of edible fruits and nuts
• Classification of footwear
• Classification of herbal medicines
• Classification of leather products
• Classification of wood

The EU commodity classification system has three components:

1) Harmonized system or HS - nomenclature of the World Customs Organization.

2) The Combined Nomenclature (CN) adopted in the EU is an 8-digit coding system, composed of the HS nomenclature with a breakdown into additional subsections.

3) The unique EU Customs Tariff (TARIC)

Thus, each product in the EU is assigned a tariff code that includes information on the following:

• customs duties and other import and export duties (including VAT, excise duties, preferential rates, etc.);
• security measures;
• statistical data on foreign trade;
• import and export procedures and other requirements (i.e. a list of supporting documents required for customs clearance in the EU).

Security measures

Security or trade measures are trade restrictions that may be introduced in certain specific circumstances for protection against imports, also provided by tariff rates. These measures include:

• Anti-dumping actions – unfair competition countervailing duties charged to foreign exporters, applied only to dumping companies.
• Countervailing duties are duties charged to offset export subsidies granted by the government of the exporting country.
• Protective measures are tariffs or quotas to offset fair competition with imports that prejudice the fair industry.

Upon arrival in the EU (at any first customs point), the customs service assigns an appropriate procedure to all the goods or determines their destination:

1. Release for free circulation.

The goods are "released for free circulation" when all the conditions for import into the EU are satisfied:

• all the relevant customs duties, VAT and excise duties have been paid;
• all the relevant authorizations and certificates have been submitted (e.g. for quotas, hygiene requirements, etc.).

2. Transit procedure.

When goods move between two different customs authorities of the EU Member States, the formal customs procedures are carried out by the customs authorities of the beneficiary country.

3. Storage in a customs warehouse.

Imported goods may be stored in appropriate storage facilities and the payment of duties, taxes and the compliance with the trading policy measures will be temporarily suspended until the goods are assigned to another procedure carried out by the customs authorities.

4. Processing on the customs territory.

Goods can be imported into the EU without paying taxes, duties and without complying with trade policy measures, to be processed under the control of customs authorities and subsequently re-exported outside the EU. If the final product is not subsequently exported, it will be subject to appropriate duties and measures.

5. Temporary import.

Goods can be brought into the EU without the payment of import duties, if such goods are intended for re-export without any change. The maximum period for temporary import is of 2 years.

6. Import into a duty-free zone or warehouse.

Duty-free zones are special areas in the customs territory of the EU where the import of goods without customs duties, without payment of VAT and excise duties, without observance of trade policy measures is allowed until the goods are assigned another procedure approved by the customs authorities, or until they are re-exported. Moreover, under this procedure, goods can be subjected to simple operations, such as processing and repackaging.

The assignment of one of the previously described regimes or procedures is carried out through a Single Administrative Document (SAD). This is a standard document electronically filled in by any EU resident importer. It is important for an exporter to know and understand the content of the SAD, as it is filled in based on documents submitted by the exporter. The success of customs clearance of goods depends on the accuracy of the data included in these documents, on the issuance of certificates, invoices, waybills/bills of landing and all related documents.

Basic documents required for customs clearance:

• Fiscal invoice;
• Declaration of customs value;
• Bills of landing;
• Document regarding the insurance of goods;
• Packing list;
• Single administrative document.

Depending on the category of goods, this list is supplemented by various certificates and supporting documents. A complete list of the necessary documents regarding a specific product can be consulted in the unique TARIC database, based on a tariff code assigned to the relevant product category. For example, in the case of imports of products of animal origin (meat, milk, eggs, etc.), the goods must be joined by veterinary and health certificates. There are also special requirements for cosmetics, other food products, electronics and more.

Customs value of goods on import.

Goods can be released for free circulation in the EU only after the payment of all the duties and taxes. This is usually done at the customs clearance point. Most customs duties and VAT are expressed as a percentage of the value of the imported goods. The customs value is determined based on the commercial value of the goods at the time of their entry into the EU. This includes:

• the total purchase value (the price of the product on the invoice);
• the cost of delivery at the point of entry of the goods on the customs territory and the related costs (packaging, labeling, insurance, etc.)

In some cases, the value of the import transaction of the goods is subject to adjustment, which means that it may be increased or decreased. For instance:

• licensing fees or charges may be added to the price;
• transport costs within the EU (from the point of entry to the point of destination in the customs territory of the Community) must be deducted.

VAT

The EU has common rules for determining VAT rates. However, each Member State may set its own tariffs under certain general restrictions:

• the standard share must be of at least 15%;
• Member States may apply one or two reduced shares of not less than 5%, which may be applied to the specific transport of goods;
• for some products and services, the reduced share (basic share) is of at least 12%;
• some Member States have the right to maintain low shares
• below the minimum of 5% (highly reduced share).

Currently, the following VAT shares (%) apply in EU Member States:

Sanitary and phytosanitary requirements

Goods imported into the EU must meet EU sanitary and phytosanitary requirements in order to protect the health of humans and of animals. 

The main requirements can be divided into the following groups:

• food and animal feed safety,
• veterinary rules,
• phytosanitary standards;
• health.

Food and animal feed safety 

The main goal of European food safety legislation is to ensure a high level of protection of public health and consumer interests with regard to food; in turn, EU rules on animal feed aim at protecting the health of the population and of the animals and, to some extent, at protecting the environment.

The import of food must meet general conditions, including:

• general principles and requirements of food law for all stages of food/animal feed production;
• traceability - food and feed importers must identify and register the supplier in the country of origin;
• general food hygiene rules and hygiene requirements for food products of animal origin;
• rules on the presence of residues, pesticides, veterinary medicines and contaminants on and inside food products;
• special requirements for genetically modified food and feed, bioproteins and novel foods;
• special rules for certain food groups (e.g. mineral water, cocoa, IQF products) and products for certain groups of the population (e.g. baby and children food);
• special requirements for the marketing and labeling of combined feed materials intended for specific food purposes;
• general conditions regarding materials intended for direct contact with the food;
• official control mechanisms and checks to ensure compliance with EU food and food regulations.

In the event of an issue occurring on the territory of a third country which is in all likelihood a serious threat to human or animal health or the environment, the European Commission may take protective measures to establish special conditions or to suspend all or part of the import of products from the concerned third country.

Veterinary regulations

The European legislation on animals and products of animal origin aims at protecting and improving the health of animals (particularly of food-producing animals). Imports of animals and animal products must comply with certain international health standards and obligations, including the following general rules:

• the exporting country must be included in the list of countries that have the right and authorization to export the appropriate category of goods to the EU;
• products of animal origin can only be imported into the EU if they were produced at an authorized facility in that particular third country;
• health certificates signed by an official of a competent veterinary authority in the exporting country must join the import of animals and products of animal origin;
• each batch is checked in terms of health at the border inspection post (BIP) of an EU Member State.

The European authorities may take temporary protection measures as a matter of urgency if an outbreak of a disease in a third country poses a serious risk to human or animal health. Such measures may consist in suspensions of imports from all or part of the concerned territory or in adopting special conditions in respect of products imported from that territory.

Phytosanitary regulations

When plants or products of plant origin (including fruit, vegetables and forest products) are imported into the EU, confirmation is required that the products comply with EU phytosanitary laws. The main goal of phytosanitary measures is to prevent the import and spread of organisms that are harmful to plants and plant products on EU territory. Mainly, these requirements imply that:

• certain specified bodies are forbidden for import into the EU, except certain special circumstances;
• the specified plants or plant products must be joined by a phytosanitary certificate.

It must be taken into account that the phytosanitary requirements also apply to the wood used for packaging, to wooden platforms and to non-food products. Therefore, even if the main object of export is, for example, fish products or toys, the phytosanitary requirements must be taken into account when using wood for packaging and transporting goods. This requirement does not apply to processed vegetable goods, such as furniture or wooden objects.

When imported into the EU, plants and products of plant origin must:

• be joined by a phytosanitary certificate issued by the competent authority of the exporting country;
• pass the customs controls at the point of entry into the EU;
• be imported into the EU by an officially registered importer in a Member State;
• be declared to the customs authorities before arriving at the border crossing point.

If shipments of plants or products of plant origin from third countries may present a danger on the territory of the EU, Member States or the European Commission may take temporary emergency measures.

Packaging materials used

Any packaging materials placed on the EU market must satisfy a number of compositional and recycling requirements. The purpose of these requirements is to prevent the generation of waste from packaging materials, to facilitate the reuse of packaging (recycling or other ways of reusing packaging materials) and thus to reduce the final disposal of this waste.

In particular, the packaging must:

• have a minimum weight and cost;
• contain a minimum amount of harmful substances (especially heavy metals);
• present possibilities for reuse, recovery and recycling;
• have labels specifying the composition (to simplify the procedure of collection, reuse and recycling).

In practice, these requirements often play a huge role in the process of determining the prices of a finished product. For example, the so-called environmental tax on glass containers for pickled vegetables can exceed by 50% the cost of the product itself.

Preferential regimes

In April 2014, the EU introduced the so-called Autonomous Preferential Arrangements (RPA) for Ukraine, in which the latter was granted unilateral cancellation of customs duties for a number of goods and within certain allocated quotas.

At the same time, a Generalized Scheme of Preferences (GSP) is operating in the EU for a number of third countries.

It is important to understand that each actual product manufactured in Ukraine can fall under both regimes simultaneously, so an importer and an exporter must decide which of the regimes will be more profitable to import one product or another into the EU. In turn, this involves choosing a specific certificate of origin that will be issued for a particular product. For this, it is necessary to compare the tax rates in the applied regimes.

For example, the import duty for GSP sunflower oil is 2.9%, while in the RPA it is 0%. Therefore, a certificate according to the EUR1 form is more profitable for this product. However, it should be noted that the RPA regime operates within the quotas granted to Ukraine by the EU and becomes null when a maximum volume of quotas is reached.

At the same time, the import tax for ceramic tiles in the GSP regime is 3.5%, and in the RPA it is 5.2%. Therefore, a certificate issued according to form A (Form A) will be more profitable for this product.

If the goods do not fall under any of the previously described preferential arrangements, the general system for calculating import duties, i.e. a 'duty for all' (ERGA OMNES), will apply.

Shares 

Information on quotas (total volume granted and current situation) for various goods is available on the European Commission's website. It is important to understand that the Government of Ukraine does not distribute quotas for the supply of goods in the EU. The following principle works: "Whoever arrives first at the customs, whoever has registered first the goods in the EU, that is the one who delivers the goods".

Authorized Economic Operator (AEO)

When choosing a partner in the EU, it is important for a foreign contractor to know that certain categories of economic entities can be defined as trustworthy entities in terms of carrying out customs activities in the EU and entitled to facilities on the territory of the EU. 

A holder of the AEO "Simplification of customs procedures" certificate is entitled to:

• simplification of customs procedures;
• less checks with the application of physical controls and based on documentation;
• priority when going through customs checks;
• the possibility to submit a request for customs checks at a certain location.

A holder of the AEO "Security and Safety" certificate is entitled to:

• the possibility of a prior notification;
• reducing the volume of data in simplified statements;
• less checks with the application of physical controls and based on documentation;
• priority when going through customs checks;
• the possibility to submit a request for customs checks at a certain location.

The AEO (Authorized Economic Operator) certificate means that a certified unit is a reliable and solvent partner, operating in accordance with certain safety standards and relevant legal regulations.

Voluntary certification 

There are two certification systems in the European Union - voluntary and compulsory. Compulsory certification works at national level. Compulsory certification represents only 5%, if we take as 100% the entire volume of certification in the EU.

The paradox of voluntary confirmation of compliance in the EU is the "obligation" of non-compulsory certification. This situation reminds of the "rules of good manners" which are generally optional, but compulsory in high society. The main trend in the voluntary certification of the European Union is the intend to unify the activities of voluntary confirmation of compliance in order to facilitate the movement of goods between European countries.

Some types of voluntary certification:

• Fair Trade
• Independent forest certification (IFC)
• Programme for the Endorsement of Forest Certification (PEFC)
• Marine Sustainable Council: Sustainable Fishing (MSC)
• Trust in textiles (????-???)
• Eco-label (Euro-Flower)

Codex Alimentarius

It is a set of international food standards adopted by the FAO/WHO International Commission for the implementation of a codex of food standards and regulations.

Codex Alimentarius develops international food standards, handbooks and instructions regulating the safety and quality of food entering the world market and make sure that "fair trade" conditions are satisfied.

The provisions of the Code relate to: requirements for the hygiene and nutritional value of food products, including microbiological criteria, requirements for food additives, traces of pesticides and veterinary medicines, contaminants, labeling and appearance, as well as methods for sampling and risk assessment.

The main products included in the Codex Alimentarius:

• cereals, legumes and derivatives, including vegetable proteins;
• fats, oils and related products;
• fish and fish products;
• fresh fruits and vegetables;
• processed and frozen fruits and vegetables;
• fruit juices;
• meat and meat products; soups;
• milk and dairy products;
• sugar, cocoa products, chocolate and other products.

The format of the standards includes the following categories of information:

• Scope - name of the food product and purpose of its use;
• Description - defining the products to which the standard applies;
• Mandatory composition - information about the composition and distinctive features of the product;
• Food additives - the names of the additives and the maximum number allowed in the content of the food products;
• Contaminants - information on the maximum permissible level of contaminants that may be present in the product;
• Hygiene - hygienic rules;
• Weights and measures - provisions for filling containers and dry weight of the product;
• Labeling - provisions concerning the name of the food product and special requirements on consumer information;
• Methods of analysis and sampling.