Issue 6, 2016. December-January



Deloitte Georgia's customs expert Bondo Bolkvadze outlines what reforms under the EU-Georgia Association AGreement mean for day-to-day business operations.

The trade deal, known as the Deep and Comprehensive Free Trade Area or DCFTA , foresees several major changes in customs procedures. The reforms are designed to bring Georgian customs and transit laws in line with EU standards by 2018.

They will impact everything from benefit programs like the Authorized Economic Operator scheme to protection of intellectual property rights at the border.

Several changes will have the largest impact on Georgian traders, and international businesses trading between EU member countries and Georgia. The Authorized Economic Operator, also known as AEO, is a voluntary system traders can join if they meet set criteria. The status provides several benefits but requires traders to meet a stringent list of requirements.

A new system of customs' audits - the Post Clearance Audit - will streamline border controls, while tweaks to the customs code will require that traders make some adjustments to their processes.

Authorized Economic Operator (AEO) Concept

Traders who opt to meet a range of criteria are eligible to work in close cooperation with customs authorities to assure supply chain security and are entitled to certain benefits. The program is open to all supply chain actors. Any economic operator involved in customs-related operations in Georgia may apply for AEO status.

Potential beneficiaries may include port operators, container terminals, warehouses, freight-forwarders, transporters, importers, exporters, customs clearance agents, among others.

Criteria & Benefits

EU has two types of authorization, which differs according to criteria and benefits. AEOC stands for simplified customs procedures, while AEOS focuses on safety and security standards granted to economic operators whom are identified as the most secure links of the international supply chain.

Benefits of the program include:

- AEOs will spend less time and resources on regular customs procedures.
- AEOs are desired trade partners domestically and abroad because their efficiency is measured and recognized.
- AEOs may become recognized as reliable in the third countries, increasing Georgia's export potential especially in EU.

Impact on business and expected challenges

AEO reform provides an opportunity for traders; there are no obligations. Georgian companies may find it challenging to meet EU standards to join the program, however. Authorization conditions set out in EU guidelines require sophisticated quality management, business process management, human resource management, safety and security standards, modern technologies (including IT), etc. Not many Georgian companies may achieve the necessary level of efficiency to become AEOs.

AEO vs Gold List

The Georgian customs administration's "Gold list" program is similar to the AEO concept, although there are key differences including the type of companies that are eligible and the criteria to join the program.

- AEO program is open for SMEs as well while Gold List program welcomes only large-scale companies above fixed threshold of annual trade turnover.
- AEO applicants may be subject to a complex pre-authorization audit and permanent post-authorization monitoring. The audit will look at an applicant's record keeping standards, IT systems, technology used in logistics, accounting standards, business process efficiency, internal audit systems, safety and security measures within the organization, etc. Gold List applicants are simply checked in customs databases against specific criteria like the company's turnover, evidence of tax and customs fraud, existence of tax liabilities, VAT status.
- Gold List program members are not recognized by third country customs administrations while AEOs could be recognized under future Mutual Recognition Agreements.
- Gold list program is designed for importers and exporters only, while AEO status provides preferences for any business dealing with customs. (e.g. freight-forwarders, shipping companies, terminal-warehouse operators, customs clearance agents, etc.)

Entry into Force

The AEO program is expected to launch in 2018, according to DCFTA. It may not directly replace the current Gold List program but two programs will coincide at the beginning. It is possible that the Gold List may be eventually replaced.

Post Clearance Audit (PCA) Concept

The Georgian customs administration has a comprehensive action plan for the development of post-clearance audit practice, known as PCA.

The Revised Kyoto Convention defines the practice as "as the measures by which the Customs satisfy themselves as to the accuracy and authenticity of declarations through the examination of the relevant books, records, business systems and commercial data held by persons concerned."

- PCA is considered a key element of balancing customs control and trade facilitation. The practice reducing border control on behalf of audit based control, which makes customs clearance procedures more efficient. PCA offers several benefits:
- Compliant trade is facilitated because the border control measures have been reduced;
- Customs can gain better information on and understanding of clients' business;
- Risk levels can be more easily assessed and reviewed by arranging on-site visits to the traders' operations;
- Facilitates education, long-term and comprehensive compliance management;
- Customs administrations' resources are more effectively deployed;
- Customs can promote the concept of voluntary compliance;
- Best international practice identifies three types of customs audit/verifications:
- Post-clearance transaction verification is based on a risk management system identifying shipments that may be released by customs but are still subject to double-checking. The data in the individual customs declarations will be verified by a customs officer.
- Desk audits are conducted based on information available to customs from internal databases, official correspondence or telephone. Desk audits can turn into a field audit if customs decide to go into further in details.
- Field audits takes place at a company's premises to capture a complete picture of the business. A field audit examines liabilities, duty exemptions, transaction costs, customs valuations, import-export restrictions and prohibitions, etc.

The list of potential auditees may include:

- Importers, exporters;
- Customs clearance agents;
- Warehouse and storage agents;
- Transporters or freight forwarders;
- Consignees and owners of imported goods.


Georgia has recently started field audits, while transaction verifications and desk audit have been practiced for the past several years. The German Federal Customs Service, together with several international donor organizations, is supporting the Georgian Revenue Service in customs audit capacity building. The Georgian Revenue Service plans to have a fully functional and capable PCA unit by the end of 2018.

Impact on business and expected challenges

Customs audits facilitate legitimate trade by removing border controls. Challenges are expected from field audit, which will be a new level of scrutiny for businesses.

This might lead to more customs-imposed sanctions if traders do not update their practices and pay proper attention to details affecting cargo valuations and subsequent duties.

Assuming that customs auditors will soon be capable to detect all customs irregularities, traders will need adequate capacity-building programs to avoid sanctions.

Customs Legislation

The DCFTA stipulates that Georgia will have to align its customs regulations with EU legislation, which may lead to the adoption of a new customs code.

Currently Georgia does not have a separate customs code, as it was merged with the tax code in 2010.

No dramatic changes are expected in the customs regulatory framework, however, because the past ten years of customs reforms have been driven by the EU approximation agenda.

All key elements and administrative procedures, including customs-approved treatments, methods of control, risk -based approaches, duty-relief regimes, preferential treatment regimes, etc., are already in place.

Minor procedural changes will not seriously affect traders, although traders may still need to make slight adjustments in their processes and capacity building. In addition, effective public-private dialogue is necessary to ensure the private sector is prepared and understands the changes.

The updated legislation should go into effect in September 2018.

Transit Convention

Georgia has agreed to join the New Computerized Transit System (NCTS), a Europe-wide customs system based on electronic declaration and processing.

NCTS was designed to replace the paper-based system and to provide better management and control of both internal community transit and international transit across the EU borders.

The system involves all EU member states and each country is connected through a central domain in Brussels to all of the other countries.

NCTS benefits customs officials and companies: pre-arrival information allows customs in a transit countries to perform risk assessment more quickly and traders benefit from more expedient customs procedures.

Connected traders receive electronic responses advising of key decisions during the procedure, such as acceptance of declarations, release of goods and the notification of discharge. For Georgia, a major challenge will be integrating the current system used in the country, Automated System for Customs Data customs system with the NCTS system. The Georgian Revenue Service has created a working group for transit system reform and negotiated technical assistance with the EU. Georgia should become part of the system no later than September, 2018.

Border Measures for Protection of Intellectual Property Rights (IPR)

The DCFTA requires that Georgian law and border inspections meet the EU's standards for Intellectual Property Rights (IPR), and the Georgian Revenue Service's customs department has developed a plan to reform Georgian legislation.

This reform will facilitate legitimate trade; IPR protection measures will support the development of innovative products in Georgia. The harmonization process has three parts: 1) Expansion of border measures to cover all customs procedures. Currently, it only applies to imported or exported goods; 2) Expansion of types of intellectual property rights protected by customs; 3) Introduction of "ex officio" control, which enables customs administration to hold a shipment and seize counterfeit goods without a formal request or approval of the owner of an intellectual property right. The harmonization process should be completed by 2018.