1. Pablo Muñiz Van Bael & Bellis 4 July 2014
Origin: the risks of the EU preferential trade regulatory framework WCO Knowledge Academy 2014
Pablo Muñiz
Van Bael & Bellis
4 July 2014

2. “It should be borne in mind that a prudent trader aware of the rules must, in calculating the benefits from trade in goods likely to enjoy tariff preferences, assess the risks inherent in the market which he is considering and accept them as normal trade risks”

3. Managing origin-related risks
Proof of preferential origin
Is the proof of origin the end of the road?
Verification mechanisms are in place
Managing the risks involved in benefiting from preferential arrangements
Is good faith a valid defence under EU law?

4. Proof of preferential origin

5. Proof of preferential origin
Origin certificate proving that the goods satisfy the requirements to obtain originating status
However:
FTA such as Korea FTA
System of “approved exporter”
GSP
System of “registered exporter” (as of 2017)
“Approved exporter” / “Registered exporter” system makes importer more vulnerable to risks!

6. Is the proof of origin the end of the road?

7. Verification mechanisms
Mechanisms to verify the validity of the origin certificates
FTA v. unilateral preferences granted by the EU
Weight of the conclusions reached by the exporting country
Obligation to keep documents
OLAF

8. Verification of origin - FTA
FTA: verification of proofs of origin (Article 27 PoO)
The verification shall be carried out by the customs authorities of the exporting Party. For this purpose, they shall have the right to call for any evidence and to carry out any inspection of the exporter’s accounts or any other check considered appropriate.
The customs authorities requesting the verification shall be informed of the results of this verification including findings and facts, as soon as possible. These results must indicate clearly whether the documents are authentic and whether the products concerned can be considered as products originating in a Party and fulfil the other requirements of this Protocol.
If in cases of reasonable doubt there is no reply within 10 months of the date of the verification request or if the reply does not contain sufficient information to determine the authenticity of the document in question or the real origin of the products, the requesting customs authorities shall, except in exceptional circumstances, refuse entitlement to the preference.

9. Verification of origin - FTA
Weight of the conclusions reached by the exporting country
“With regard, in particular, to the subsequent verification of the EUR.1 certificates issued by the exporting State, the findings of the authorities of the exporting State are binding on the authorities of the importing Member State. The cooperation established by a protocol with regard to the origin of goods can function only if the importing State accepts the determinations legally made in that regard by the exporting State (Case C‑97/95 Pascoal & Filhos [1997] ECR I-4209, paragraph 33; Case C‑442/08 Commission v Germany, paragraphs 72 and 73; and Case C‑386/08 Brita [2010] ECR I‑1289, paragraph 62).
Afasia (Case C-409/10), Court of Justice, 15 December 2011

10. Verification of origin - FTA
Obligation to keep supporting documents
“However, (…) it was impossible in the present case for the customs authorities to establish whether the information provided for the issue of an EUR.1 certificate was correct or not, since the exporter had not retained possession of the supporting documents, notwithstanding the obligation flowing from Article 28(1) of Protocol 3 to keep for at least three years the appropriate documents proving the originating status of the products concerned”. Case C-293/04, Beemsterboer
If the documents have not been kept, the preferential treatment will be refused.
The authorities no longer have to prove that the exporter submitted incorrect information. The burden of proof shifts to the exporter.
See also C-409/10, Afasia, para. 51

11. Verification of origin - GSP
GSP - Verification of proofs of origin (IP to Community Customs Code – Art. 97t)
1. Subsequent verifications of certificates of origin Form A and invoice declarations shall be carried out at random or whenever the customs authorities of the Member States have reasonable doubts as to the authenticity of such documents, the originating status of the products concerned or the fulfilment of the other requirements of this section.
5. If, in cases of reasonable doubt, there is no reply within the six months specified in paragraph 3 or if the reply does not contain sufficient information to determine the authenticity of the document in question or the real origin of the products, a second communication shall be sent to the competent authorities. If after the second communication the results of the verification are not communicated to the requesting authorities within four months from the date on which the second communication was sent, or if these results do not allow the authenticity of the document in question or the real origin of the products to be determined, the requesting authorities shall, except in exceptional circumstances, refuse entitlement to the tariff preferences.

12. Verification of origin - GSP
Weight of the conclusions reached by the exporting country
“It follows from those considerations, first of all, that the need for the customs authorities of the Member States to recognize the assessments made by the customs authorities of the exporting country does not arise in the same way where the preferential system is established not by an international agreement binding the Community to a non-member country on the basis of reciprocal obligations, but by a unilateral Community measure.”
Faroe Seafood (Cases C-153/94 and C-204/94), Court of Justice, 14 May 1996

13. Verification of origin - GSP
Obligation to keep supporting documents – GSP
“Unlike the free trade agreement in question in Beemsterboer Coldstore Services, Regulation No 980/2005 does not place the exporter under any obligation to keep the supporting documents, owing to the fact that it is not possible for the European Union unilaterally to impose obligations on economic operators in non-member countries.
« However, the absence of such an obligation on the exporter cannot, in itself, lead to a situation in which the person liable for payment is relieved of the duty to exercise all due diligence or freed from all risk as regards the verification and determination of the origin of the goods at the stage of a subsequent verification ».
Moreover,(…) where the customs authorities of the importing State had to prove the inaccuracy of the facts provided by the exporter, but were unable to do so owing to the exporter having ceased its activities, could create a risk of conduct incompatible with the objectives of the generalised tariff preferences scheme. Even if the cessation of production represents, in principle, an everyday economic decision, the possibility cannot be excluded that it could nevertheless constitute improper behaviour on the part of the exporter, designed to circumvent the rules of the generalised tariff preferences scheme, through being used by that exporter as a means of concealing the real origin of goods originating from a State which is not admitted to the preferential arrangements”.
(Case C-438/11, Lagura)

14. Verification of origin - OLAF
Office pour la Lutte Anti-Fraude (EU Anti-Fraud Office);
External investigations cover, inter alia, investigations into the suspected violation of customs rules resulting in a significant loss for the EU budget.
OLAF may:
Initiate investigations itself;
Request assistance from the Member States;
Request assistance from third countries that have signed mutual assistance agreements and carry out on-the-spot investigations;
Issue recommendations to the Member States' customs authorities.

15. Verification of origin - OLAF
OLAF cannot:
Collect customs or anti-dumping duties (Member States);
Impose penalties or initiate criminal proceedings (Member States);
Invalidate preferential origin certificates or invoice declarations.

16. Managing the risks involved in benefiting from preferential arrangements

17. Addressing the risks
The EU importer is liable for the customs debt (up to three years) and for penalties
You should audit your suppliers
Inform them about the applicable origin rules and its application
You should check your contracts
Who is responsible in case of incorrect origin
Obligations on the supplier concerning origin issues
You should keep records of all actions taken !!

18. Addressing the risks
The exporter in the third country must ensure that the goods concerned acquire originating status
The authorities of the exporting country can receive requests from the EU importing country to verify the origin
The exporter:
must keep records to prove the origin of the goods;
must have a full understanding of the applicable origin rules;
should be made aware of the importance of complying with the origin rules. 18

19. Is good faith a valid defence under EU law?

20. Good faith defence under EU law
Error of the competent customs authorities (Article 236/220 Community Customs Code - CCC)
Special circumstances (Article 239 CCC) 20

21. Article 220/236 CCC – Error of the customs authorities
Error on the part of the customs authorities
“not only the authorities competent for taking action for recovery but any authority which, acting within the scope of its powers, furnishes information relevant to the recovery of customs duties and which may thus cause the person liable to entertain legitimate expectations”
The error could not reasonably have been detected by the person liable for payment.
Acting in good faith and having complied with all the provisions laid down by the legislation in force as regards the customs declaration.
The request must be submitted within 3 years of the notification of the customs claim. 21

22. Article 220/236 CCC – Error of the customs authorities
Issuance of incorrect certificates of origin by a third country constitutes an error of the customs authorities
Except when the exporter submitted an incorrect account of the facts
Burden of proof on investigating authorities
Unless it is evident that the issuing authorities were aware or should have been aware that the goods did not satisfy the conditions laid down for entitlement to the preferential treatment
Burden of proof on the importer

23. Article 220/236 CCC – Error of the customs authoritiesv.
approved exporter

24. Article 239 CCC – Special situation
Duties can be repaid or remitted (principle of equity):
Special circumstances
No deception or obvious negligence can be attributed to the person concerned
exceptional situation when compared with other operators engaged in the same business and that, in the absence of such circumstances, would not have suffered the disadvantage caused by the claimed duties
Repayment/remission request must be submitted to the competent customs office within 12 months from the date on which the amount of the duties was communicated to the debtor. 24

25. Article 239 CCC – Special situation
“Post-clearance checks would be rendered almost useless if the use of forged, falsified or invalid documents could, of itself, justify repayment or remission: traders must take the necessary measures to protect themselves from such a posteriori recoveries” (European Commission)
“However, if serious shortcomings on the part of the competent customs authorities or of the Commission contributed to the improper use of the document, repayment or remission may be allowed” (European Commission)
serious failings on the part of the competent customs authorities or the Commission when applying the rules in force and monitoring their implementation, where such errors are such as to contribute to irregularities 25

26. Article 239 CCC – Special situation
Commission Communication on “Action plan for monitoring the functioning of preferential trade arrangements” – COM(2014)
“The Commission has significant rights and powers available to it in connection with its obligation to supervise and monitor the proper implementation of rules or origin and when examining applications for repayment or remission of import duties. Insufficient monitoring may have serious consequences, such as allowing a ‘special situation’ to be established under Article 239 of the Customs Code”
Additional monitoring and enhanced collection of data should be expected in the future

27. Remission / repayment request procedure
Request is submitted to the customs authority which issued the customs claim
Request is forwarded to the EU Commission when:
The special situation is the result of the Commission failing in its obligations or the Commission committed an error
The amount involved is EUR or more
The Commission communicates its objections to the applicant if it intends to reject the request : one month for the submission of comments
The Commission consults with the Group of Experts composed of Member State representatives
The Commission adopts a decision within 9 months from the time the request was received from the Member State 27

28. EU Court of Auditors – Report 21 May “Are preferential trade arrangements appropriately managed?
Custom controls carried out by the Member States’ customs authorities are weak
Deficient management of the administrative cooperation by the Member States
Slow response to OLAF reports in recovery procedures and weaknesses in the follow-up to OLAF’s origin investigations
Lack of coordination between national courts and the Commission
Flaws in the Commission’s supervision of Member States and beneficiary/partner countries
Problems with the administrative cooperation arrangements
Insufficient preventive/reactive measures to protect the financial interests of the EU
Complexity of cumulation rules

29. “It should be borne in mind that a prudent trader aware of the rules must, in calculating the benefits from trade in goods likely to enjoy tariff preferences, assess the risks inherent in the market which he is considering and accept them as normal trade risks”

30. Thank you Pablo Muñiz Partner
VAN BAEL & BELLIS
Avenue Louise Brussels Belgium
Tel. + 32(0) Fax. + 32(0)