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This does not in itself bring a Baltic customs union any closer and indeed, the decision of the EU to commence entry negotiations only with Estonia has somewhat diminished this prospect anyway. Nevertheless, it is an important step on the road to modernization of customs systems and practices and an essential precursor to eventual EU accession.
For almost two years, the EU has been funding the implementation of a common computer system in all three countries based upon a software package, ASYCUDA, developed by the United Nations in Geneva.
This project has recently moved up a notch, with the commencement of functional and technical assistance. A coordination unit, located in Vilnius, has been tasked with ensuring that the pan-Baltic benefits of introducing the new system are maximized. Such benefits, in areas such as transit control, VAT control and the movement of excise goods will be realized through the introduction of electronic interchange systems between the three states.
Delays at customs, and customs regulations in general, is a topic on which most businesses operating in the Baltic states have an opinion - usually negative. With this in mind, it is worth considering the main differences between the way in which customs in the Baltics work today and the way in which they work in the European Union.
The basic tenets of the creation of the Single Market of the EU included the free movement of goods, services, citizens and finance between member states. As a result, customs staff were withdrawn from internal frontiers and concentrated on the external borders of the EU.
Furthermore, the latest rounds of GATT negotiations have resulted in a general reduction in customs tariffs for goods entering the EU. Consequently, customs duties in the EU now represent a relatively small percentage of overall revenue receipts in comparison with direct taxation, VAT and excise duties.
The role of customs is changing from that of a revenue collection organization to that of a protection agency, attempting to control the movement of drugs, arms, pornography, strategic goods and hazardous materials.
The situation in the Baltic states is somewhat different. No customs union exists and accession to the EU for any of the Baltic states is unlikely to occur within the next three years. Receipts from customs duties represent a significant percentage of total state revenues in all three countries and will continue to do so. Nevertheless, there are two key procedural reforms that the EU coordination unit is hoping to encourage that do not depend on the existence of a customs union for their effectiveness.
The first is targeting. Most EU countries target particular loads very carefully and will actually check only about 5 percent of total imports. In the Baltic states at present, about 80 percent of cargoes are checked. This is a time consuming and often frustrating process for both importers and exporters.
The second is the amount of cargo actually checked at the port. In much of the EU, cargoes are increasingly checked at the point of destination rather than at the point of entry to the country. The primary advantage of this is the effect that it has on the capacity levels at the ports.
Since Estonia, Latvia and Lithuania derive a considerable part of their economic well-being from transit trade, it goes without saying that more efficient ports and border crossings would mean increased revenue for that industry and, of course, for the taxman.