Origin: the risks of the EU preferential trade
regulatory framework
WCO Knowledge Academy 2014
Pablo Muñiz
Van Bael & Bellis
4 July 2014
“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”
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?
Proof of preferential origin
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!
Is the proof of origin the end of the road?
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
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.
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
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
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.
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
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)
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.
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.
Managing the risks involved in benefiting from
preferential arrangements
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 !!
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.
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Is good faith a valid defence under EU law?
Good faith defence under EU law

Error of the competent customs authorities (Article 236/220 Community
Customs Code - CCC)

Special circumstances (Article 239 CCC)
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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.
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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
Article 220/236 CCC – Error of the customs authorities
Error of the customs authorities
v.
approved exporter
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.
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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
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Article 239 CCC – Special situation

Commission Communication on “Action plan for monitoring the
functioning of preferential trade arrangements” – COM(2014) 26.02.2014
 “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
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 500.000 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
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EU Court of Auditors – Report 21 May 2014
“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
“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”
Thank you
Pablo Muñiz
Partner
VAN BAEL & BELLIS
Avenue Louise 165 1050 Brussels Belgium
Tel. + 32(0)2.647.73.50 Fax. + 32(0)2.640.64.99
pmuniz@vbb.com www.vbb.com
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