EUROPEAN COMMISSION Brussels, 26.1.2018 COM(2018) 45 final REPORT FROM THE COMMISSION TO THE COUNCIL on the application of the Airworthiness Regulation

(period 2014-2016)



TABLE OF CONTENTS 1 Introduction 1.1 General 1.2 Questionnaire 2 Report on findings 2.1 Relevance of the Regulation 2.2 Effectiveness 2.3 Efficiency 2.3.1 Value of imports 2.3.2 Gains from reducing administrative burden 2.4 Coherence 2.5 Control activities 3 Conclusions



1Introduction 1.1General

Council Regulation (EC) No 1147/2002 (‘the Airworthiness Regulation’) provides for the temporary suspension of the autonomous common customs tariff duties on certain goods imported with airworthiness certificates. It enables simplified customs procedures for duty-free imports of parts, components and other goods from non-EU countries that are used to manufacture, repair, maintain, rebuild, modify or convert aircraft. In the past, these were imported under special customs procedures such as end-use, inward processing, customs or warehousing. Importing under the special customs procedures required prior and/or subsequent authorisation or supervision by customs, whereas under the Airworthiness Regulation authorisation can be granted upon presentation of a specific ‘airworthiness certificate’. This procedure is less burdensome than the previous suspensive ones. Under Article 4 of the Airworthiness Regulation, a report on the application of the Regulation must be submitted to the Council based on the information received from the Member States. The purpose of this report is to present findings and conclusions on the implementation of the Airworthiness Regulation based on the information received from Member States for the 3-year period 2014 to 2016 (‘period considered’). 1.2Questionnaire In order to collect the necessary information, on 29 June 2017 the Commission sent a questionnaire to all Member States. The questionnaire consisted of 11 questions which were divided into four areas: 1.effectiveness; 2.efficiency; 3.coherence; and 4.control activity. The data Member States submit to the Surveillance database has also been used when assessing ‘effectiveness’ in this report. Questionnaire replies were received from 21 Member States representing 93.1 % of imports under the Airworthiness Regulation in the period considered. Certain Member States provided answers and figures to all questions, whereas others were not always able to answer, in particular where quantifiable information was requested. A fifth area, the ‘relevance’ of the Airworthiness Regulation, was assessed using information received from Member States in response to a survey on possible improvements of the Airworthiness Regulation that was conducted in June 2014. 2Report on findings This section of the report presents the findings regarding the relevance, effectiveness, efficiency, coherence and control activities of the Airworthiness Regulation. These findings were derived from the information received from the Member States.

2.1Relevance of the Regulation As it stated in section 1.3, a survey of the Member States was conducted in 2014 to identify possible improvements to the Airworthiness Regulation. Their feedback provided important information on the implementation of the Regulation and useful guidance on certain areas that needed to be improved to take account of either legal or technological developments. In responding to the survey, Member States pointed to the significance of the Regulation, as it reduces the administrative burden for customs officials by allowing them to use alternative customs procedures, than the granting of end-use authorisations and the following up and supervising of other special customs procedures (e.g. inward processing, warehousing). However, a number of Member States pointed out that the Airworthiness Regulation needs further clarification with regard to the eligible authorised certificates for granting suspension of autonomous common customs tariff duties. In their view, clarity in this area would eliminate uncertainties as to which certificates are required and would encourage aircraft operators to make use of the possibilities under the Airworthiness Regulation. They also requested further improvements to the procedures for goods to be repaired. Member States were also open to the possibility of further simplifying matters for aircraft operators by allowing duty-free imports on the basis of certificates for military aircraft too. This is because very often parts can be used for both types of aircraft and the end-use is not always known upon importation. This would also be consistent with Article 324(1)(c) of Commission Implementing Regulation (EU) 2015/2447, which does not distinguish between civil and non-civil aircraft in respect of the simplified discharge of the inward processing procedure. Also, it is also in line with and complements Regulation (EC) No 150/2003 suspending import duties on certain weapons and military equipment. Responses were mixed regarding the listing of goods eligible for a suspension under the Airworthiness Regulation. Some Member State preferred the status quo, whereas others were in favour of a detailed list at CN heading or subheading level, provided it could be amended swiftly. It must also be recalled, in this respect, that the integration of the Airworthiness Regulation in TARIC has not been done for all CN codes of Chapters 25 to 97 of the CN, but that the list of codes was reduced during the discussions of the Customs Expert Group for TARIC matters. In response to these concerns, the Commission is in the process of preparing a proposal to the Council that will replace the Airworthiness Regulation and update, streamline and further simplify the procedures for duty-free imports of certain goods that may be incorporated in or used for aircraft. This process is expected to be finalised by the end of 2017. 2.2Effectiveness In assessing the effectiveness of the Airworthiness Regulation, three questions were addressed to Member States to identify the extent to which simplifying customs procedures for the economic operators and for customs authorities has helped achieve the objective of the Regulation. The responses are presented in the following graphs: Q1. The Airworthiness Regulation achieved its objective in simplifying customs procedures for duty free imports of parts, components and other goods used for the manufacture, repair, maintenance rebuilding, modification or conversion of aircraft? Table 1

Source: Member States’ responses to the questionnaire Q2: To what extent do you feel that the administrative burden for economic operators in the aircraft sector was alleviated by the Airworthiness Regulation in so far as it reduced the need for them to use suspensive customs procedures (e.g. end-use, inward processing, customs warehousing)? Table 2 Source: Member States’ responses to the questionnaire Q3: To what extent was the administrative burden for customs authorities alleviated by the Airworthiness Regulation in so far as it reduced the need for economic operators to use suspensive customs procedures (e.g. end-use, inward processing, customs warehousing)? Table 3 Source: Member States’ responses to the questionnaire The Member States’ replies show that the vast majority of administrations (more than 85 % of respondents) consider that the Airworthiness Regulation has achieved its aim of alleviating the administrative burden on economic operators in the aircraft sector. The vast majority also consider that the Regulation has helped reduce the administrative burden for the national customs authorities. The cost savings for EU businesses importing parts, components and other goods under the suspension scheme can have wider benefits, such as boosting the competitiveness of the EU aeronautics industry, making production methods more efficient, and creating or keeping jobs in the EU. However, two Member States reported there are still cases where economic operators insist on the inward processing procedure and do not use the simplified procedures offered by the Airworthiness Regulation.

2.3Efficiency Data from the Surveillance database were used to quantify the value of imports under the Regulation in the period considered. This information is given in section 2.3.1, broken down by origin of imports, importing Member State and by CN subheading. 2.3.1Value of imports Table 4: Import value in EUR for 2014-2016, by country of origin Import values per country of origin 2014 2015 2016 Grand total for

2014-2016 United States of America 8 658 536 103 11 112 281 769 14 010 541 826 33 781 359 698 Canada 630 774 271 822 536 320 960 885 100 2 414 195 690 Singapore 253 882 594 252 674 439 255 790 579 762 347 612 Japan 184 631 396 242 008 025 278 012 288 704 651 709 Turkey 85 705 800 173 137 100 233 401 407 492 244 307 China 111 280 770 172 631 537 168 208 313 452 120 619 Mexico 72 617 669 155 400 109 205 357 625 433 375 404 Switzerland 135 621 526 97 256 260 103 608 054 336 485 840 Philippines 47 909 481 63 139 468 164 470 527 275 519 476 Taiwan 50 860 474 76 550 593 66 832 444 194 243 511 Grand total of top 10 countries 10 231 820 084 13 167 615 619 16 447 108 162 39 846 543 865 Grand total of all countries 11 289 774 034 14 906 427 347 18 522 590 954 44 718 792 334 Source: Surveillance database The total value of all imports into the EU for the period considered, amounted to EUR 44 718 792 334. The top 10 countries of origin by the volume of imports make up EUR 39 846 543 865 (89.1 %) of the grand total amount. The table above shows a steady increase in import values in the period considered. The table clearly shows that the United States of America was by far the main country of origin in EUR trade value for the entire period considered. Canada recorded the second highest trade value with rising trends in the period considered. Singapore had the third highest trade value, with a value of exported goods remaining rather stable over the period considered. The value of imports increased significantly for Japan (+51 %), Turkey (+172 %), Mexico (+182 %) and the Philippines (+243 %). Table 5: The first and last column of Table 4, transposed into chart format showing the percentage of the values of imports (top 10 countries of origin and the grand total of all countries of origin for 2014-2016) Table 6: Value of imports in EUR by Member State for 2014-2016 Import values per Member State 2014 2015 2016 Grand total Germany 3 953 545 804 4 888 963 973 5 801 425 448 14 643 935 225 United Kingdom 3 067 202 607 4 112 329 609 5 302 307 837 12 481 840 053 France 2 283 119 979 3 402 016 736 4 453 822 183 10 138 958 898 The Netherlands 577 602 997 717 607 299 865 998 485 2 161 208 781 Spain 406 207 547 391 394 246 432 677 834 1 230 279 626 Italy 142 749 661 269 796 330 361 276 115 773 822 106 Luxembourg 204 498 753 210 331 595 225 266 316 640 096 664 Poland 131 030 197 168 749 737 214 885 793 514 665 727 Czech Republic 81 283 683 153 500 591 114 602 786 349 387 060 Belgium 76 789 159 80 363 341 120 178 533 277 331 033 Grand total of top 10 Member State importers 10 924 030 386 14 395 053 456 17 892 441 331 43 211 525 173 Grand total of all Member States 11 289 774 034 14 906 427 347 18 522 590 954 44 718 792 334 Source: Surveillance database Table 7: The first and last column of Table 6, transposed into a chart format showing the percentage of the values of imports per Member State for 2014-2016

Three Member States [DE, UK and FR] have the highest import values for the period considered, which can be explained by the fact that the largest aviation manufacturer in the EU has production facilities there. Their imports constitute EUR 37 264 734 176 (83.3 %) of the total value of EUR 44 718 792 334 for this period. However, the import values for the other Member States (notably NL, IT and PL) also increased over the period considered. Table 8: 15 most used CN subheadings in EUR for 2014-2016 15 most used CN subheadings Description Grand total

for 2014-2016

in EUR 8411 91 Parts of turbojets or turbopropellers 19 384 532 811 8803 30 Other parts of aeroplanes or helicopters 3 383 005 487 8411 12 Turbojets of a thrust exceeding 25 kN 3 329 771 994 9014 20 Instruments and appliances for aeronautical or space navigation (other than compasses) 1 200 399 757 8803 20 Undercarriages and parts thereof 840 848 278 8537 10 Boards, panels, consoles, desks, cabinets and other bases, equipped with two or more apparatus of heading 8535 or 8536, for electric control or the distribution of electricity, including those incorporating instruments or apparatus of Chapter 90, and numerical control apparatus, other than switching apparatus of heading 8517 — for a voltage not exceeding 1.000 V 734 716 410 8411 22 Turbopropellers of a power exceeding 1.100 kW 673 655 101 8481 80 Taps, cocks, valves and similar appliances for pipes, boiler shells, tanks, vats or the like, including pressure-reducing valves and thermostatically controlled valves 516 308 529 8411 99 Parts of other gas turbines 508 717 133 8411 21 Turbopropellers of a power not exceeding 1.100 kW 472 935 098 9032 89 Automatic regulating or controlling instruments and apparatus: (other than manostats and thermostats) 448 780 830 8544 30 Ignition wiring sets and other wiring sets of a kind used in vehicles, aircraft or ships 354 191 153 8411 11 Turbojets of a thrust not exceeding 25 kN 350 993 592 8526 91 Radio navigational aid apparatus 334 871 961 9031 80 Measuring or checking instruments, appliances and machines, not specified or included elsewhere 324 608 356 Source: Surveillance database The goods with the highest trade volume for the period considered are under the subheading 8411 91 — Parts of turbojets and turbopropellers (2.7 % duty rate), and 8803 30 — Parts of aeroplanes or helicopters (2.7 % duty rate). Subheading 8411 91 accounts for 43.3 % of the total import value. 2.3.2Gains from reducing administrative burden Information that makes it possible to quantify the gains from any reported reduction in the administrative burden on customs authorities is very valuable in assessing efficiency. To further assess efficiency, Member States were asked the following question: Q4: What are the estimated gains in terms of full time equivalents by the reduction of the administrative burden that this Regulation has achieved for your administration? Member States indicated that using the simplified customs procedure under the Regulation has a significant impact both for their customs administrations and for economic operators. However, they cannot quantify the estimated gains in terms of full time equivalents brought by the reduction in administrative burden, either because they have not estimated the statistics or because they are impossible to determine.

Member States were of the opinion that using airworthiness certificates — for which no customs authorisation or supervision is required — had significantly reduced the administrative burden because it saved time which would otherwise be needed to grant the end-use authorisation or supervise the inward processing or warehousing procedures. The significant value of goods imported under the Airworthiness Regulation shows the magnitude of efficiency gains for operators that this Regulation has generated. 2.4Coherence Under Article 2(3) of the Airworthiness Regulation, simplified procedures can be applied when goods are released for free circulation. The questionnaire included two questions on this, aiming to measure the complementarity and coherence of the Regulation with other areas of customs legislation: Q5 and Q6: Which is the number of cases in the period considered where the goods under suspension were released for free circulation under simplified procedures (field 44 of the Single Administrative Document was filled in) and what is the percentage of simplified procedures in relation to the total of cases where suspension was granted? Table 9: The percentage of simplified procedures in relation to the total number of cases where suspension was granted Source: Member States’ responses to the questionnaire The chart shows that the number of cases submitted under simplified procedures remained steady in relation to the total number of cases where suspension was granted. The figures on import values for 2014-2016 show that cases under simplified procedures account for slightly over 50 % of the total number of cases where suspension was granted. The above reporting by Member States shows that the Airworthiness Regulation is complementary with customs legislation regarding simplified import procedures. 2.5Control activities In addition to normal customs controls based on risk analysis, the Airworthiness Regulation acknowledges the risk of falsified airworthiness certificates and provides for recourse to expert opinions from representatives of the national aviation authorities. The questionnaire therefore included questions regarding the controls customs administrations carry out to implement the Regulation.

Q7: In the period considered how many customs controls have your administration carried out on goods imported under this Regulation? Member States pointed out that economic operators are expected to provide the customs authorities with all relevant information for the customs control. If they wish to apply the simplified customs procedures under the Regulation, economic operators are required to present an airworthiness certificate. This is a condition for granting favourable tariff treatment for release for free circulation. The customs authorities therefore have to carry out the requisite checks and verify whether the airworthiness certificate corresponds to the model of the certificate. Member States provided different answers regarding the number of controls carried out. In addition to the total number of customs controls, some Member States also provided numbers on control activities such as documentary checks, physical checks and post-clearance audits. Table 10: Customs controls carried out on goods imported under the Airworthiness Regulation for the period 2014-2016 Question 7: Number of controls Physical checks 97 Documentary checks 13 981 Certificate checks 142 Post clearance audits 7 Customs controls (not specified) 6 705 Total 20 932 Source: Member States’ responses to the questionnaire Q8: In the period considered what is the total amount of duties collected in view of irregular behaviour or operators? Most Member States did not have statistics on this, nor have they detected any serious irregularities regarding the use of the Airworthiness Regulation. The majority of Member States reported that they carry out post-clearance audits to check the validity of the procedure. The highest amount of duties collected by a Member State after detecting irregularities was EUR 21 681. It is noteworthy that there were cases where declarations with preference code 119 were refused by the Member States' customs authorities because airworthiness certificates were in fact certificates of conformity, which are clearly not covered by the Airworthiness Regulation. Some Member States also responded that their customs authorities always request a certification of consignment in addition to the customs controls (documentary or physical). This is to ensure that the components accompanied by the airworthiness certificate have indeed been incorporated or used in the aircraft. If a certificate of consignment is not provided, Member States reported that they would initiate the procedure to recover the relevant duties. Q9: In the period considered on how many occasions has your administration requested an expert opinion from a representative of the national services of your national aviation authorities (Article 3)? The Member States’ replies showed that if they have good reason to suspect that airworthiness certificates have been falsified, they do request an expert opinion from a representative of the national aviation authorities. Furthermore, in several cases, Member States proceeded to informal consultations with the national civil aviation authorities to validate the authenticity and accuracy of the certificates. Q10: What is the total number of falsified certificates detected by application of Article 3 in the period considered? None of the Member States had detected falsified certificates in the period considered. However, most of them had received a copy of the certificate with a ‘TRUE COPY’ stamp on it. Q11: From the application of Article 3 of the Regulation what has been the average cost of procuring the expert opinion from your national aviation authorities?