Customs Intermediary Consultation

Rasim Huseynov

Managing Editor of Seamless Trade and International Trade Consultant at Tevolution Ltd

The UK Customs Regulator, HMRC, has initiated a consultation on voluntary standards for customs intermediaries. Tevolution Ltd has crafted a response to this consultation, which we are eager to share with our blog readers. If you have any comments or views on this subject, we welcome your input. Moreover, if you’re a stakeholder in this matter, you can voice your opinion on the .gov website by the end of August. Please follow the provided link:

https://www.gov.uk/government/consultations/introducing-a-voluntary-standard-for-customs-intermediaries/introducing-a-voluntary-standard-for-customs-intermediaries–3

Question: Do you agree that the primary objective of a voluntary standard for customs intermediaries should be to promote quality and consistency among customs intermediaries with an indication of quality, rather than to predominantly inform and educate? If not, what do you consider should be its primary objective, and why?

We absolutely agree, and there are several urgent inefficiencies that need to be taken in consideration and find certain reflection in the new voluntary code. Firstly, customs intermediaries act as agents, a role which carries with it several standard positions. The first element is the advanced expertise these agents possess in areas where traders often have more limited knowledge. The second point, which makes the situation more compelling, is that importers or exporters are frequently unaware of their liabilities. At times, an importer or exporter may not be interested in learning about the customs process and would rather focus on operational needs, such as handling the movement of goods.

In such scenarios, a customs agent must assume the responsibility of reducing information asymmetry. Although this can conflict with the benefits gained from their specialised knowledge, an appropriate balance should be struck. Another obligation of the agent should be to provide written details of the responsibilities of the importer and exporter, along with a detailed explanation of the principles of direct representation.

Quality and consistency should not be viewed separately from education and information dissemination. These elements should be integrated as part of the same process, with the implementation of a step-by-step guide being a beneficial practice. Decision trees, infographics, and clarifications could serve as valuable tools for traders.

In our opinion, all of this should be viewed as an integral part of a customs agent’s services, with the quality of declaration being naturally most important aspect. The quality of a customs declaration is a direct reflection of an agent’s skills in accurately transferring the requisite information regarding the movement of goods.

Indeed, it would be beneficial to require an engagement letter to be issued to clients. This document should clearly outline both the client’s and the agent’s responsibilities and what the agent will do and how he or she will do it. It should elaborate on the agent’s actions, the level of their expertise concerning various aspects of the declaration, and what the client should expect. Additionally, it should specify to what extent the client can rely on the agent’s professional opinion. Lastly, it should clarify how the agent associates the client with their liabilities, or whether this determination should be made by the client themselves. This transparency and clear communication can help set realistic expectations and avoid misunderstandings down the line.

Question: Do you agree that a voluntary standard for customs intermediaries should be suitable for independent, third-party verification that the standard has been met, in other words, certification? If not, what alternative form do you think the standard should take, and why?

We are uncertain about this proposition, primarily due to the potential additional cost. This could devolve into just another box-ticking exercise. A competent agent should devise a sound strategy for both themselves and their clients. This strategy should be equitable, sustainable, and aim to keep costs low.

In our opinion, the expectations for certifications are lofty, but in reality, organisations often lose sight of the standards or view certification as the final goal rather than the start of a strategic journey. Legal risks and a clear agreement may play a more effective role in maintaining a high level of conduct. Indeed, customs agents could be likened to accountants in their role as gatekeepers, responsible for audit and verification processes themselves. The aim would be to maintain a diverse and competitive field, which could foster innovation and uphold high standards of service. HMRC has knowledge and expertise to verify agents as it is maintains management of AEO and other approvals. If the cost of verifying the system’s integrity does become an unbearable burden for HMRC and could not be justified for funding, then the creation of an independent body, similar to the Financial Reporting Council, could be a viable solution. We could conceive of something like a “Cross-Border Trade Standards Board” to oversee and maintain the high standards of operation in the industry. This would ensure a consistent and rigorous approach to managing cross-border trade documentation. This body will be funded partially by organisations whom this body willing to regulate. To make it financially beneficial for private contributors it could act as buying consortium for members, reducing the cost for essential expenses.

Question: Do you think certification bodies that provide that external verification should themselves be checked to ensure they are capable of assessing conformity to the standard, in other words, accreditation? Please provide details to explain your answer.

This again, will escalate the cost, and the market itself – a professional body or an independent board from representatives of the industry – will probably do a better job than a ‘check the checker’ scenario. Companies have two options: they can pay for certification and get certified, or they can invest in a mutual ecosystem. The latter, undoubtedly, would be a better investment.

Question: Do you agree with the key principles for the design and implementation of a standard as set out above (in other words a credible, collaborative approach between government and stakeholders, freely and readily accessible, monitored for usage and effectiveness)?

Indeed, this approach is pivotal to success. If the aim is to shift compliance responsibilities away from the border and onto the traders, then each customs intermediary should strive to maintain standards equivalent to those of an Authorised Economic Operator (AEO as this was anticipated in strategic sense).

Question: In your view, how could usage of the standard be encouraged?

This approach mirrors the Authorised Economic Operator (AEO) system, involving recognitions such as accreditation or privileges akin to those granted to AEOs. It’s about striking a good balance between privileges, rights, and responsibilities. This essentially constitutes a business operation, similar to a license, which can be revoked if an agent does not behave as declared. Indeed, privileges should not be misconstrued as rights, as they can be revoked. Unlike rights, which are generally inherent and inviolable, privileges are granted and can be withdrawn if certain conditions aren’t met.

Privileges could encompass not only simplifications but also benefits such as expedited access to customer service from regulators though dedicated contacts, or the status of being an accredited organisation. These advantages can significantly enhance the efficiency and reputation of the beneficiary, further highlighting the importance of maintaining a high standard of conduct to retain these privileges. Certain countries, even within the European Union, have legislation that maintains the privileges of customs intermediaries. For instance, the General Customs Act of 2008 in the Netherlands grants privileges to customs brokers to mitigate the counterparty default risk they exposed from importers. These brokers are given a preferential status as creditors in the collection of debt.

All these factors should motivate regulated organisations to maintain the required level of standard. It underscores the importance of continuous improvement and adherence to guidelines, for the benefit of both the organisation and the larger system in which it operates.

Question: What are your views on the above suggested components of the voluntary standard? Please include any suggestions for potential specific requirements within these general areas.

• competence and/or education and/or experience, to include ways of demonstrating sufficient understanding of customs processes and rules

A customs agent should possess knowledge at least equivalent to Level 3 of the National Qualification Framework, which could be acquired either through training or experience. While this approach has been the standard up to now, any decision to raise the threshold should be carefully considered.

Ideally, the requirement might be a Bachelor’s level of training, or Levels 5 or 6, but this would significantly reduce the number of potential entrants into the profession. On the flip side, a higher qualification requirement could attract more graduates, as the prestige of the profession would increase.

It could be beneficial to establish a specific qualification for customs accounting in the UK, one which combines skills in international trade, taxation, and sustainability. This specialised accreditation would elevate the professional standing of customs agents, while ensuring they are fully equipped to handle the complexities of their role.

• staff development, to include commitments to CPD

Yes, a minimum commitment is indeed necessary in the customs trade industry. Given the complexity and ever-evolving nature of international trade, a high threshold for ongoing professional development is required. For instance, agents might need at least 50 hours of training per year to stay current with regulatory changes, technology advancements, and best practices in the field. This will ensure they continue to provide the highest level of service and expertise to their clients.

• systems and data, to include quality assurance processes

Yes, maintaining a user-friendly system that simplifies management should indeed be a key goal. The importance of data, particularly broker data, cannot be overstated as it plays a crucial role in enabling traders to meet their requirements.

• customer service, to include complaints procedures, dispute resolution mechanisms and timeliness

Indeed, establishing a complaint procedure with an ombudsman’s type of organisation oversight could be a practical approach, depending on the results seen in other industries. This system could be particularly beneficial in protecting smaller customers from the potential misconduct of customs brokers such as small businesses or individuals. It’s important to note that the majority of formal customs flow is business-to-business.

Small businesses and individuals could be treated similarly to retail investors in financial services, receiving regulation and oversight. Larger corporations, on the other hand, should typically have the resources to maintain internal professional expertise.

Facilitating dispute resolution procedures could also help reduce potential costs by avoiding litigation. However, the maintenance of minimum standards required from agents is crucial and should be incorporated into a voluntary code.

I lean towards maintaining minimum standards and promoting a competitive market, thereby enabling customer exit if they are unsatisfied with the service provided. A well-regulated market with strong consumer protections can foster a healthier and more dynamic customs sector.

A complaints procedure is essential, but it should not be so burdensome that it hampers efficient business operations. The process should be straightforward, transparent, and effective in order to quickly resolve any issues, without causing undue disruption to the normal functioning of the business. The key is to strike a balance between addressing grievances and maintaining operational efficiency.

• administration, to include record keeping and insurance

The proposed code could indeed clarify the mutual responsibilities of a client and a broker regarding record-keeping. This would expedite inquiries and offer better understanding of what’s included in the scope of work for both the agent and the client, enhancing efficiency and communication. Insurance cover for professional indemnity or may be any other areas such as cyber insurance could be required to display or produce on request of customer.

Question: Should any of the suggested components not be included?

We are not sure what meant by adhering to statutory requirements as they have to be adhered anyway or I may misunderstood question. This all depends whether codes confirms adherence to all standards or focuses on specific standards as common standards and norms followed by implication.

Question: Are there any areas missing that you feel should be included?

We will specify three areas where additions will look suitable. Indeed, the proposed voluntary code should contain provisions against anti-competitive behaviour and exaggerated claims. The code should encourage a culture of mutual respect, supporting the release of goods to other appointed agents without hindrance. This contributes to a healthy competitive environment and promotes more streamlined operations.

Concerning exaggerated claims of liability, it’s essential to strike a balance. While the importance of compliance cannot be overstated, it’s crucial that customs brokers or consultants give a fair picture of potential penalties, rather than only highlighting the maximum penalties to induce compliance. Therefore, it’s important to provide a comprehensive understanding of both the risks and rewards, fostering innovation and agility in trade. Furthermore, customs brokers must be cautious not to engage in ‘compliance washing’—a practice where they overstate the potential penalties or legal consequences associated with importing goods, driven by their commercial interest in selling their consultancy services. Such exaggeration can have the unintended effect of discouraging traders from participating in legitimate trade altogether, as they might prefer to avoid the trade rather than risk the perceived severe penalties. Compliance should not be used as a scare tactic but should be based on an objective assessment of the legal and operational implications.

In sum, the proposed code should promote transparency, fair competition, and balanced communication about compliance and liabilities, fostering a more robust, agile, and innovative customs sector. It’s important to understand that every aspect of business carries some risk. Mitigation strategies and calculation of acceptable risk, including a customs risk-based approach to controls, should indeed be clearly explained. This helps in making informed decisions and ensures effective risk management within the customs framework.

Moreover, the principles of a new voluntary code must respect human rights, environmental considerations, and uphold standards for fair and transparent governance. It’s undeniable that international trade significantly contributes to environmental degradation, perhaps more so than any other activity. The cooperation of customs intermediaries is critical in gathering and maintaining climate and ESG (Environmental, Social, and Governance) related data. This information is vital for accounting processes and verification, ultimately supporting efforts toward environmental sustainability.

Additionally, companies must build robust processes for identifying illicit and suspicious activity. International fraud is becoming increasingly sophisticated, so customs agents need equally advanced tools to identify the risks posed by fraudsters.

Question: Do you anticipate any unintended consequences arising from including any of the suggested content?

This all possible and therefore hope this will be well scrutinised by stakeholders. I will anticipate issues of escalation of cost and administration for agents in particular. Also, requirements to level of training could create additional barriers.

Question: Do you envisage any issues with measuring against these areas for the purposes of certifying intermediaries against this standard?

Certainly, education remains a fundamental pathway to certification, despite its associated costs. The primary goal of these standards is to maintain what’s promised, which should be made publicly available and incorporated into terms and conditions. A standardised model for these terms could indeed reduce costs, much like the model articles of association created during the implementation of the Companies Act 2006.

Whether an agent upholds the promised standards will largely depend on the community and the enforcement mechanisms in place. For instance, are there audits for Continued Professional Development (CPD) hours, and is the maintenance of professional qualifications through CPDs strictly regulated and checked?

While a voluntary code may have a limited number of external influences, its effectiveness largely depends on the community’s commitment to uphold these standards. Nonetheless, establishing rigorous checks and balances, like audits for CPD hours, can help ensure compliance and maintain the integrity of the profession. Indeed, for serious misconduct, there could be a system in place where an agent’s privileges are put on a temporary warning status before potential withdrawal. This would serve as a deterrent for unprofessional behaviour and ensure accountability within the profession. Such a mechanism needs to be clearly defined in the code to maintain trust and standards.

Question: If you are an intermediary, do you or your organisation use external training offerings? Please provide details to explain why/why not.

Yes, we are using many external providers. They are split between taxation, customs and law and statutory reporting. They all highly relevant to customs intermediary role.

Question: If you are an intermediary, do you or your organisation provide internal training? Please provide details to explain why/why not.

We are potentially looking to use this in the future as this is too costly at the moment.

Question: If you answered ‘yes’ to Question 15 or Question 16, what aspects of your work do you use external and/or internal training for? If you use both external and internal training, please explain if you use them for different aspects of your work (such as external training on customs processes, but internal training on using CDS).

We use external training for absolutely all aspects of work as an intermediary. This could include anything from tariff classification, product conformity, or new statutory requirements. Changing and new regulations are the most frequently visited topics. We will also undergo training in corporate finance, for example, to be able to understand valuation options used in transfer pricing calculations or new statutory reporting requirements. Additionally, we need to understand carbon trading and reporting in anticipation of the introduced Carbon Border Adjustment Mechanism. There are direct taxable elements related to the process, as well as a wider spectrum of education required. I don’t see how customs intermediary could develop without understanding all aspects of the new drivers in international trade.

Question: If you answered ‘yes’ to both Question 15 and Question 16, have you found either external or internal training to be more beneficial to your day-to-day work?

External training is highly beneficial, as it not only reduces ambiguity and errors but also enables participants to learn from established practices

Question: Do you think there are currently sufficient, adequate training offerings available to intermediaries? Please provide details to explain why/why not.

There is no single national body for training customs intermediaries that covers training for both the public and private sectors, encompassing all theoretical and practical aspects of the customs business. The skills required by brokers are diverse and extensive, encompassing areas such as law, taxation, corporate finance, sustainability, and financial reporting. Currently, there are either theoretical modular trainings for intermediaries or practical software-based trainings for customs systems provided by independent trainers. Significant efforts in this field already carried by public and private organisations must be acknowledged.

It would be highly beneficial for the trade if institutions could join forces and establish a single academy that combines the efforts of various institutions. Such an academy would provide comprehensive training, addressing the needs of customs intermediaries and offering a unified approach to education in this field. This collaborative effort would prove to be rewarding for the trade industry as a whole.

Question: Considering the training and qualifications available to and undertaken by intermediaries, how do you think competence or education should be referenced within a voluntary standard? Please provide details to explain your answer.

Credentials and education of customs intermediaries should be prominently displayed on their profiles and form an integral part of the model terms and conditions. This ensures transparency and provides clients with essential information about the qualifications and expertise of the intermediaries they are considering hiring. By including this information, it enables clients to make informed decisions and establishes a higher level of trust in the services provided. Additionally, incorporating credentials and education into the terms and conditions emphasises the importance of knowledge and qualifications in the customs intermediary profession.