Communication from the Commission on the management of preferential tariff arrangements
Date: 1997-07-23
Institutions: European Commission
Subjects: administrative cooperation, customs fraud, tariff preference, trade policy

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels,  23.07.1997 
COM(97) 402 final 

COMMUNICATION FROM THE COMMISSION 

ON THE MANAGEMENT 

OF PREFERENTIAL TARIFF ARRANGEMENTS 

C O M M I S S I ON  COMMUNICATION  ON  T HE  M A N A G E M E NT  OF  P R E F E R E N T I AL  T A R I FF 

ARRANGEMENTS 

(summary) 

The importance  of preferential  tariff  arrangements 

As  the  leading  entity  in world  trade,  the  Community  puts  this  economic  advantage  to  use 
in  its  external  policies  of  which  preferential  tariff  arrangements  are  one  of  the  main 
implementing  instruments. 

These  arrangements  have  been  gathering  more  momentum 
in  successive  stages 
(association  of  the  Western-European  countries,  development-aid,  pre-accession  strategy 
for  the  CEECs,  Mediterranean  policy,  increasing  trade  with  Asian  countries),  and  now 
involve  very  significant  volumes  of  trade.  From  being  the  exception,  they  have,  in  many 
cases,  become  the  rule,  and  they  play  an  important  part  in  the  Community's  external 
policies and in dealings by traders. 

A global  set of problems 

Even  if  the  discrepancies  in  applying  the  arrangements  are  essentially  customs  problems, 
the Commission  considers that they  should be  seen in a wider  political  context. 

The  requirement  for  clarifying  the  conditions  for  applying the  arrangements  implies  taking 
their  objectives  into  account  :  furthering  the  development  of  the  beneficiary  countries 
(particularly,  in  the  light  of  the  Singapore  Conference),  promoting  cooperation  between 
partner-countries,  preparing the integration  of candidates for  accession. 

Political  advantage for  the Community  as a whole 

The  European  Parliament  is  greatly  concerned  by  two  essential  characteristics  of  this 
problem  : the fight against fraud,  and the Community's  external  policy on  development. 

Due  to  the  discovery  of  these  discrepancies,  the  Council  decided,  on  28  May  1996,  to 
request  the Commission to initiate, in particular,  a study  of the  conditions  for  the  recovery 
of the customs duties which are due. 

To  be effective,  the  study requested  should  reconcile two  non-conflicting  aims : 

- the simplification  of formalities  in trade 

-  the fight against  the fraudulent  use of the arrangements,  so that the tariff  preferences  are 
granted  only to the designated  beneficiaries. 

Strengthening  of the preferential  arrangements  through  analysis of their  discrepancies 

The  actual  Communication  should  be  composed  of  two  parts  : firstly,  a  detailed  analysis 
of  the  discrepancies;  secondly,  as  a  result  of  this  analysis,  proposals  aiming  at  reforming 
the conditions  of  application. 

< *- 

3 

The players in preferential  tariff  arrangements 

The players in preferential tariff arrangements are often reponsible for such a situation, but 
they are also a victim of it. 

- Community traders : they use these arrangements to their benefit,  but they are also the 
first to  be  affected  by  the  discrepancies,  especially  the  importers  who  are  liable  for  the 
customs  debt.  In this  respect,  there  exists  a legal  precedent  which  weighs  the  importers 
down with the burden of "commercial risk" whenever they use the arrangements; 

-  Customs authorities of  the Member States  : they are the main  ones  reponsible  for  the 
application of the arrangements, in that they are called upon to detect fraud  and violations, 
and to recover unpaid duties; 

- Authorities in the beneficiary countries : they are reponsible  for  issuing  certificates  of 
origin; 

- Producers and exporters in third countries : it is they who have to ask for  the issue of 
certificates  of origin from the authorities in third countries. 

The answers to be provided 

For the provision of the answers, it will be necessary, amongst other things : 

- to settle previous cases on the basis of the regulations existing at the time that  the  facts 
were  established,  in  conformity  with  the  legal  precedent  setting  out  that  faith  in  the 
certificate  of origin is not normally protected, but constitutes a "normal commercial risk"; 

- to restore confidence  in the arrangements, particularly by making sure that the Member 
States, first and foremost  responsible in the application  of them,  attain this in an  uniform 
and harmonized manner; 

-  to  make  all  of the  players  in the  arrangements  aware  of their  responsibilities,  in  their 
common interest,  so that they assume their obligations on this question and to put them in 
a position to do so; 

- to legislate, whenever it becomes necessary. 

1. 

Introduction 

Table of Contents 

1.  Preferential tariff arrangements : the Community at the heart of the largest set of 

preferential trade agreements and arrangements 

1.2  Numerous discrepancies in implementing preferential tariff arrangements 

1.3  The purpose of this Communication 

2.  Preferential  arrangements: raison d'être* form and impact 

2.1  Political, historical and geographical justification 

2.2  Major  political  and economic impact 

2.3  Preferential tariff arrangements : two legal forms 

3.  Functioning of the preferential tariff  arrangements 

3. /  Types of trade covered 

3.2  Preferential rules of origin 

3.2.1  The purpose  of preferential rules of origin 

3.2.2  Basic mechanisms 

4.  The players in preferential  tariff arrangements 

4.1  Economic players 

4.1.1  Traders outside of the Community 

4.1.2  Community importers 

4.1.3  Good faith  on the part  of the importer, and commercial risk 

4.2  Authorities in beneficiary countries 

4.3  Authorities in the Member States 

5.  Discrepancies  in the application  of preferential  tariff  arrangements 

5.1  Types of irregularity or fraud  in preferential origin 

5.2  Products concerned 

5.3  Responsibilities of the traders and of the authorities in case of discrepancies. 

5.3.1  Traders outside of the Community 

5.3.2  Traders inside of the Community 

5.3.3  Authorities  of the beneficiary countries 

5.3.4  Authorities  of the Member States 

5.4  The importers ' grounds for  complaint 

5.5  Discrepancies in the particular context of developing countries 

6.  Consequences of difficulties  in applying preferential tariff  arrangements 

6.1  Consequences on Community policies 

6.1.1  Consequences for  manufacturers 

6.1.2  Consequences for  importers 

6.2  Economic consequences for  third countries 

6.3  Consequences for  the Member States and the Commission 

7.  The future  of preferential  tariff arrangements 

7. /  Preparation for  enlargement,  and its impact on preferential tariff arrangements 

7.2  Reduced tariff advantages for  certain products 

7.3  Appropriateness of the rules of origin in the new context of world trade 

8.  Options for the Commission 

9.  Actions  necessary  for  remedying  the  discrepancies 

in  preferential  tariff 

arrangements 

9 1  Actions under development 

9.1.1  Modernization of the preferential  rules of origin 

9.1.2  Attributing 

the  management  of  preferential 

tariff  arrangements 

to 

the  customs 

administrations of the beneficiary countries 

9.1.3  Raising  the awareness of the beneficiary countries 

9.1.4  Controlling the practical  application of preferential  arrangements in the Community 

9.2  The mechanisms : state of play  and loopholes 

9.2.1  Existing mechanisms 

9.2.2  Loopholes and missing provisions 

9.3  Actions to he taken 

0.3.1  Promotion of a more rigorous application of the existing provisions 

9.3.2  Lessening the impact of loopholes by means of appropriate provisions 

9.3.3  Strengthening the provisions with supplementary measures 

9.3.4  Preparing for  the future 

Annexes 

I 

(a) List of agreements and other preferential tariff arrangements (1.7.1997) 

(b) List of customs unions to which the Community is party 

(c) Internal measures 

II  Detected fraud 

1. 

Introduction 

In compliance with the provisions of Article 152 of the Treaty, the Council requested 
the  Commission  (Decision  No  96/C  170/01  of  28  May  1996,  on  post-clearance 
recovery  of  customs  debt1)  to  carry  out  a  study  with  a view  to finding an  overall 
solution  to  various  problems  which  have  arisen  in  the  application  of  preferential 
customs  arrangements,  especially the problems of recovery; in part,  the problems  of 
recovery  stem  from  irregularities,  committed  by  the  authorities  of  the  beneficiary 
countries, which Community traders cannot reasonably detect. 

should  also  be  examined,  wherever 

While  satisfying  the  Council's  request,  the  Commission,  already  aware  of  the 
necessity,  considers  that  other  aspects  in  the  application  of  preferential 
tariff 
arrangements 
there  are  numerous 
discrepancies. Solutions  to  be  provided  for  these  discrepancies  should  be  sought, 
while bearing  in mind  the  Community's  commitments  on  the  issue  of  development-
aid, the necessity for cementing economic relations with its partners, compliance with 
customs regulations,  and  respect  for  the  legitimate  interests  of traders  and  those  of 
the Community budget. 

/. 1  Preferential tariff arrangements : the Community at the heart of the largest set of 

preferential trade agreements and arrangements 

The Community  is unquestionably  the most-accessible  market  in the world,  and  it is 
largely through the openness of its trade policy that  it has been  able to  carve itself a 
major political role on the world-stage. 

The  Community  has  contracted  agreements  with,  or  granted  tariff  preferences  to, 
almost  two  hundred  countries  and  territories.  In  fact,  every  country  in  the  world, 
with  the  exception  of  the  United  States,  Japan  and  a  few  others,  benefits  from 
preferential  tariff  arrangements  with  the  Community  (cf.  Annex  I).  Product-
coverage,  as  well  as  the  preferential  margin  relative  to  the  MFN-duties  ('most-
favoured  nation" clause), varies from  one system to another.  Current  estimates  show 
that  about  half of the goods  coming  into the Community  do  so within  the  scope  of 
one of these systems. 

Correspondingly,  the  customs  unions,  to  which  the  Community  is  party,  also  fall 
within this set of problems. 

1.2  Numerous discrepancies in implementing preferential tariff arrangements 

"' The  Commission  is  regularly  informed,  by  its  own  departments  for  investigation 
and/or  control,  by the Court  of Auditors  or by the Member  States,  of  discrepancies 
in the preferential  tariff  arrangements. For some time now, the Commission has been 
working  with  the  Member  States  to  monitor  the  situation  and  to  identify  the 
problems  which  arise  in  applying  the  arrangements.  It  has  emerged  that  these 
discrepancies  result  from  the  way  in which  the  various  participants  (authorities  and 
traders, in the beneficiary  countries and in the Community) apply or do not  apply the 
arrangements, as well as from  a certain lack of legislation. 

1  OJ No C 170 of  14.6.1996, p. 1. 

As  will  be  seen  later,  the  commercial  advantage,  obtained  by  the  misuse  of  the 
preferential  system (in particular, through non-observance of the rulesof origin), is at 
the  very  root  of the  problem  of these  discrepancies.  Besides  the  negative  effect  on 
the  tariff  (granting  preferential  customs  duties unduly),  this  unfair  advantage  has  a 
perverse  effect  on  commercial  policy,  including  those  aspects  which  are  the  most 
sensitive  for  the  Community's  economy  (circumvention  of  anti-dumping  measures 
and of-quantitative quotas). 

Investigations,  carried  out  by  the  Community  in  the  beneficiary  countries,  have 
shown that  the suspicions of fraud  are well-founded,  with the  irregularities  detected 
often  representing 70 -  100 % of the imports which are checked.  The table in Annex 
II gives an overall picture of the damage caused by such behaviour. 

Such fraud  is politically  and  economically  intolerable  and threatens the pursuit  of 
the aims of these  arrangements,  the  competitiveness  and  the  survival  of  Community 
industry,  and fair  trade. Furthermore,  it undermines the legitimate  confidence  which 
traders  should  have  in the  arrangements;  it  also  creates  a  considerable  loss  for  the 
Community's own resources. 

Given  the  scale  of  the  problem,  the  Commission  decided  to  carry  out  a  general 
overview, the findings of which are the subject of this communication. 

1.3  The purpose of this Communication 

This  Communication,  therefore,  sets  out  to  analyse  the  discrepancies  which  have 
occurred in the application of these arrangements, in relation to the objectives which 
they are supposed to attain. 

Such  an  analysis  should  cover  the  causes  and  the  consequences  of  these 
discrepancies,  for  the  Community,  as  well  as  for  the  beneficiary  countries,  the 
economic  operators  and  the  Community's  own  resources,  in  order  to  be  able  to 
propose appropriate solutions, with the following two-fold  aim in mind: 

to  make  the  arrangements  more  effective  by  reminding  the  various  parties, 
involved  in  implementing  them  in  the  Community  or  in  the  beneficiary 
countries,  of their  responsibilities,  without  as  such  overburdening  exclusively 
one or other of the parties with the responsibility for the discrepancies ; 

to  guarantee  compliance  with  the  Community's  commercial  policy,  thus 
ensuring its uniform  application,  and with the pursuit  of the aim of  supporting 
the development of its partners, notably the least-developed  countries. 

2.  Preferential  arrangements: raison d'être, form and  impact 

2.1  Political, historical and geographical justification 

Through  these  arrangements,  the  Community  has  been  pursuing  the  aim  of 
development-aid.  The  Lomé  Convention  and  the  arrangements  for  the  Overseas 
Countries  and  Territories  (OCT)  were  so  negotiated.  In  the  same  way,  under  the 
aegis  of the  United  Nations,  the  Community  runs the  largest  scheme  of  generalized 
preferences  (GSP)  in  the  world,  mainly  benefiting  the  countries  of  Asia  and  Latin-
America. 

The  Community  has  prepared  for  each  new  wave  of  accessions,  since  the  early 
'Seventies,  by  negotiating  agreements  to  phase  in  free  trade  with  prospective 
Member  States  prior  to  full  membership.This  strategy  was  employed  with  the 
countries  of  the  European  Free  Trade  Association  (EFTA)  and,  now,  with  the 
Central  and  Eastern-European  Countries  (CEEC).  The  agreements  provide  for 
preferential  tariff  arrangements  to  be  granted  to  the  relevant  countries  before  they 
join the Community. 

The  Community  also  maintains  close  economic  links  with  its  neighbours,  such  as 
Norway,  Iceland  (through  the  European  Economic  Area  (EEA)),  Switzerland 
(through  EFT A),  and  the Mediterranean  countries  or  those  countries  with  which  it 
has concluded  a customs union (Andorra,  San Marino and Turkey). 

2.2  Major political  and economic impact 

Under  these  arrangements,  goods,  particularly  manufactures,  enter  the  Community 
free of customs duty or at a reduced  rate of duty. 

In  general  terms,  the  arrangements  are  part  of the  Community's  commercial  policy 
and  are  a  key  component  of  its  external  policies.  They  are  thus  instrumental  in 
forging  special  relationships with  the  Community's  partners,  such  as third  countries 
in the EEA. In fact,  the resulting tariff preferences  provide an incentive to the traders 
to  get  their  supplies  from  partner-countries.  In other  respects,  the  arrangements  are 
an instrument  for  development  policy,  aiming at the  speedy  sale,  on the  Community 
market,  of products  originating  in the  developing  countries,  and  thus  to  encourage 
industrialisation,  investment  and the processing  of raw materials.  The final objective 
of these arrangements is to promote, gradually  and harmoniously,  long-lasting  social 
and economic development in these countries. 

It  should  be  noted  that,  in  its  Communication  on  improving  market-access  for  the 
least-developed  countries  (COM  97/156  final,  of  16  April  1997),  the  Commission 
presented  its  assessment  and  its goals  in  opening  up  the  Community  market  to  the 
least-developed  countries  so  as to  give them  a foothold  in the  world  economy.  The 
Commission  has also  presented  a 'Green  Book" on relations between  the  European 
Union  and  the  ACP  countries  at  the  dawning  of the  21 st  century,  with  the  aim  of 
strengthening political and economic links with these States. 

2.3  Preferential tariff arrangements : two legal forms 

In  accordance  with  the  provisions  laid  down  by the  bodies  governing  international 
trade,  preferential  tariff  arrangements  may  take  one  of  two  legal  forms,  each  of 
which has consequences for the way they operate. They are: 

contractual  (agreement-based), i.e. negotiated  accords,  most  of which  are 
fully  or  partially  reciprocal  (EEA,  EFTA,  CEEC,  Mediterranean  Agreements, 
Lomé Convention, customs unions); 

-  autonomous,  i.e.  non-negotiated  and  not  reciprocal  (OCT,  GSP,  some 
countries of former  Yugoslavia). 

10 

3.  Functioning of the preferential tariff arrangements 

3.1  Types of trade covered 

Trading  with  beneficiary  countries  is  not  necessarily  carried  out  under  these 
arrangements. 

The fact  that  a country  is eligible for  tariff  preferences  does not  mean that  all of its 
exports are carried  out in the context of the Community's preferential  arrangements. 
All  of  the  preferential  agreements  and  arrangements  set  economic  and  customs 
criteria  (nomenclature,  customs  value  and,  most  importantly,  rules  of  origin) which 
the  goods  must first satisfy,  in order  to  qualify  for  preferential  treatment.  Products 
which  are not  covered  by the agreements  or which fail  the  criteria  must  be charged 
the full  common customs tariff (CCT) duty on entry into the Community. 

One significant  point is that the arrangements are merely optional. 

3.2  Preferential rules of origin 

Of the criteria mentioned in item 3.1  above, the essential one is that known  as 'rules 
of origin". Normally,  these rules are enshrined  in a protocol  or  separate  instrument, 
most commonly annexed to to the agreements or arrangements concerned. 

3.2.1  The purpose of preferential rules of origin 

The aim of the preferential  rules of origin is to allow only those products  from 
partner-countries or from beneficiary  countries to benefit  from the  preferences, 
without leading to a deflection  of traffic  which would  prejudice  trade with the 
Community.  In  accordance  with  these  principles,  the  rules  tend  to  favour  an 
economic  integration  based  on  the  reciprocal  advantages  to  be  gained  in 
conventional relationships,  and to contribute to the development  of industry in 
the beneficiary  countries by giving them  the  means  of  controlling  the  running 
of their  own resources.  To  achieve these ends, the rules  of origin,  which vary 
little from  one  system to  another,  introduce  standards  for  limiting  the  use  of 
raw materials from non-beneficiary  countries, and  for  maintaining  most  of the 
processing activity in the partner-countries or beneficiary  countries. 

To  meet  the  needs  of  economic  integration, 
the  rules  of  origin  are 
complemented  by provisions  for  'cumulation",  thereby  allowing  a  beneficiary 
country  to  use  goods  originating  in another  beneficiary  country  and/or  in the 
Community.The  extent  of  the  cumulation  is  adapted  to  the  desired  level  of 
integration. 

3.2.2  Basic mechanisms 

By way of example, under the rules of origin in the Protocols, which have been 
in force since the start of the year, among the Community, the EFT A countries 
.  and the CEECs1, preferential  treatment  is granted  only to those goods, coming 

from these countries, which: 

i 

E.g., OJ N° L343 of 31.12.1996 on the Europe Agreement between the EC and the Czech Republic 

11 

have been wholly obtained  in these countries or have undergone  sufficient 
working  there (the conditions  are laid  down,  product-by-product,  and  appear 
in an annex to the protocols); 

-  have  been  subject  to  the  levying  of  customs  duties  (and  on  which  such 
duties have not  been reimbursed)  in respect  of  any third-country  components 
used  in  the  manufacture  of  products  deemed  to  have  undergone  sufficient 
working; 

-  have been shipped directly to the Community; 

are  accompanied  by  a  specific  certificate  proving  that  they  satisfy  the 

- 
relevant conditions. 

Preferential treatment is also granted to: 

-  goods  produced  using  components  from  two  partner-countries,  e.g.  the 
Community and Slovakia (bilateral cumulation); 

-  goods  produced  using  components  from  three  or  more  partner-countries, 
e.g. the Community, Switzerland and Slovenia (diagonal cumulation); 

-  goods  produced  using  components  from  several  member  countries  of  a 
regional  group,  e.g.  Vietnam,  Indonesia  and  Singapore,  all  of  which  are 
members of ASEAN (regional cumulation); 

-  goods  obtained  by  successive  transformations  within  the  EEA  (total 
cumulation). 

4.  The players in preferential tariff arrangements 

4.1 Economic players 

Preferential  treatment  is  on  offer  as  an  ease-of-access  in  trading  with  certain 
countries.  It  is  not  granted  automatically  and  is  dependent  on  the  traders  deciding 
what steps to take  : the exporter who proposes or accepts to  supply his client with a 
certificate leading to the preference,  and the importer who may decide to submit it to 
the customs authorities at the time of importation. 

4.1.1  Traders outside of the Community 

After  checking  that  the products  satisfy  the  criteria  to  qualify  for  preferential 
treatment,  the  exporters  are  required  to  make  a  formal  request  to  the 
competent  authorities  of the exporting country for  the issue of a certificate  of 
origin,  while  providing  them  with  all  of  the  relevant  information.  Given  the 
financial  advantage  to be obtained,  the  provision  or  otherwise  of  a  certificate 
of origin is included in the calculations when the contract is negotiated with the 
Community importer (or successive contracts when there is amiddleman, agent 
or distributor involved). 

Once  issued,  the  certificate  of  origin  is  forwarded,  by  the  exporter,  to  the 
importer, either directly or through a middleman. 

12 

4.1.2 Community importers 

From  the  negotiations  described  in  item  4.1.1  above,  it  follows  that,  in 
practice, the importer knows if the goods will be sold to him with or without  a 
certificate  of origin,  even before  any request  is submitted  to  the  authorities in 
the exporting country. 

The importer  is responsible for  the accuracy  of all of the details in the  import 
declaration (type, origin, value, quantity, application for  preferential  treatment, 
etc.)and  is  therefore  legally  liable,  in  the  eyes  of  the  administrations  of  the 
Member  States,  for  the  consequences  of  any  inexactitude  in  one  or  other  of 
these references. 

4.1.3 Good faith  on the part of the importer,  and commercial risk 

For  obvious  commercial  and  technical  reasons  (organisation  of  after-sales 
service,  health  policy,  etc.)  the  importer  usually  checks  on  the  quality  of  the 
products,  before  signing the  contract  and  while it  is being  carried  out,  which 
puts  him  in  the  position  of  knowing  the  pertinent  facts  as  to  the  originating 
status  of  the  products.  Such  information  may  be  passive  (received  from  the 
exporter)  or active (when he insists that his supplier uses  specific  components 
or raw materials, or that he will obtain them for him). 

In  this  respect,  the  Commission  points  out  that  faith  in  the  validity  of  a 
certificate  of origin is not protected,  this being  a normal  'commercial  risk" as 
given by the Court of Justice of the European Communities1. 

The plea of good  faith  can only be invoked by the importer  in the event  of an 
error made by the competent authorities in respect of origin certificates,  that is 
'only if it was the competent authorities themselves which created the basis for 
the  expectations'  (Judgment  of  14  May  1996  of  the  EC J,  Joined  Cases  C-
153/94 and C-204/94 - "Faroe  Seafood"). 

In  this  context,  it  is  to  be  noted  that  instances  of  genuine  '£ood  faith",  as 
regularly  pleaded  by importers  in an attempt  to  avoid  recovery  of  duties,  are 
not  common.  In these particular  cases, the concept  of  'commercial  risk'  itself 
stands in the way of the importers being released  from  the obligations  defined 
by the Community Customs Code, 

It  is  altogether  possible,  however,  and  is  often  the  case,  that  the  importers 
include  protection-clauses  in their  contracts,  so  that  their  suppliers  are  liable 
for  the financial  consequences  of any false  declarations  of  origin,  in the  same 
way as they do for other elements in their transactions (quality, quantity, terms 
of delivery, etc.) 

4.2  Authorities in beneficiary countries 

Customs  offices  in the Member  States  are not  always in a position  to  determine,  at 
the time  of importation,  whether  the goods  are eligible for  preferential  treatment  or 
not.  Community  agreements  and  regulations  on  preferential  arrangements  make  the 

Case Van Gend & Loos NV; Joined Cases 98 and 230/83; Judgment of the ECJ of 13.11.1984 

13 

beneficiary  countries responsible for  issuing the certificates  of origin,  in the  spirit  of 
cooperation and trust. 

To this effect,  it is up to the third  countries to  designate the  authorities  responsible 
for  verifying,  at  the  time  of  exportation,  if  the  goods  satisfy  all  of  the  conditions 
necessary for preferential treatment, prior to the issue of the certificates  requested by 
the exporters. These authorities are obliged, also, to provide the Member States with 
the relevant information  (within a prescribed time-limit) to allow the latter, in case of 
doubt at the time of importation or later, to make sure that the goods can  effectively 
be granted  preference. 

The conditions, for the assistance to be given by the beneficiary  countries, are given, 
in all of the agreements on preferential  arrangements, under the heading 'Methods of 
administrative cooperation". 

4.3  Authorities in the Member States 

The  customs  authorities  in  the  Member  States  are  reponsible  for  verifying  and 
accepting  import  declarations,  and  for  carrying  out  any  controls  which  they  deem 
necessary when goods are brought onto the customs territory of the Community. 

These  authorities  have  the jurisdiction  to  exercise  their  independent  powers,  also, 
when imports are made under preferential  tariff  arrangements. Given the difficulty  of 
verifying  the  origin  of  the  goods  at  the  point  of  entry,  the  authorities  have  the 
additional power of calling on the beneficiary  countries for  assistance, as pointed  out 
in item 4.2. 

The  authorities  of  the  Member  States  may  ask  the  authorities  of  the  beneficiary 
countries to verify  the authenticity  and  content  of the  certificates  supposedly  issued 
by  them,  and  to  communicate  all  the  information  necessary  to  make  sure  that  the 
goods do indeed qualify for preferential  treatment. 

In  the  event  of  random  sampling  or  when  there  is  'reasonable  doubt",  the 
information  requested  must be communicated, therefore,  within a strict time-limit.  If 
the answer is not received within the time-limit, or if the answer is insufficient,  then it 
cannot be confirmed  that the goods qualify  for  preferential  treatment.  This results in 
a refusal by the Member States to grant preferential treatment,  and in the consequent 
recovery of the customs duties due. 

If an investigation is to be carried out, the authorities of the Member States may give 
the  importer  the  option  of  having  the  goods  cleared,  against  the  appropriate 
guarantees,  if it  is decided  not  to  grant  preferential  treatment  until  the findings are 
obtained.  Practically,  and as intended  by the scheme, this means that  the  guarantees 
to be taken should be at the level of the full  duties due, as soon as there is reasonable 
doubt. 

The  possibility  which  Member  States  have,  of  appealing  for  administrative 
cooperation,  is  therefore  a  decisive  element  in  the  process  of  verifying  the  proper 
application  of these arrangements. Experience shows, however, that controls, carried 
out  in  this  manner,  become  much  more  effective  when  preceded,  accompanied  or 
followed,  as necessary, by verifications  and investigations carried  out by the Member 
States themselves, either on their own or co-ordinated  at Community level. 

14 

Moreover,  since  the  infringement  of  the  preferential  rules  of  origin  is  a  natural 
consequence  of some irregularity  or  fraud,  the Member  States  are bound  to  inform 
the Commission  of their  suspicions or their findingson this question,  seeing that this 
information  is  of  interest  to  the  Community,  in  accordance  with  the  provisions  of 
Regulation  (EEC)  No  1468/81,  as  amended,  on mutual  assistance  between  the  the 
administrative  authorities  of the Member  States  and  cooperation  between  the  latter 
and  the  Commision  to  ensure  the  correct  application  of  the  law  on  customs  and 
agricultural matters1. 

Finally,  as  recently  confirmed  by the  European  Court  of  Justice  ('Faroe  Seafood" 
Judgment,  mentioned  above),  the  Member  State  authorities  may  proceed  with  the 
recovery  of  duties  when  a  Community  fact-finding  mission  concludes  that  the 
disputed goods do not qualify for preferential  treatment. 

Administrative  cooperation  is,  therefore,  a  vital  factor  for  the  arrangements  to 
function  properly,  but  its  effectiveness  depends  on the authorities  of the  beneficiary 
countries and of the Member States making use of its provisions to the full. 

5.  Discrepancies in the application of preferential tariff arrangements 

Despite  the  existence  of an instrument  for  administrative  cooperation  with  partner-
countries, much improved upon and extended  in re-negotiated  agreements  and in the 
introduction  of the new GSP scheme, it must be admitted  that  the  discrepancies  are 
numerous and  are becoming worse, with the result that  goods which are not  eligible 
are benefiting  in correctly from preferential  treatment. 

Preferential  treatment  can  be  obtained  incorrectly  by  using  the  wrong  tariff 
classification  for  the goods,  or by giving a false  indication  of the  customs value,  or, 
as is becoming  more  common, by the traders  concerned  not  abiding by the  rules  of 
origin. 

In  the  main,  discrepancies  are  detected  through  inquiries  or  fact-finding  missions, 
whether they are co-ordinated  at Community level or carried  out within the Member 
States  (for  example,  textile  products  from  Bangladesh);  given  their  widespread 
nature, they can be identified  by the the variety of problems created. 

Investigations  are  focused  on  imports  of  those  products  which  are  the  most 
susceptible  to  fraud,  and  have  shown  that  discrepancies  are  likely  to  appear  under 
any of the arrangements and that there is not necessarily a direct  correlation  between 
the standard of administrative infrastructure  and the type of fraud. 

5.1 

Types of irregularity or fraud  in preferential origin 

From analysis of the cases so far  recorded,  several types of irregularity  or fraud  can 
be  identified,  as  described  below.  Needless  to  say,  the  irregularities  or  instances  of 
fraud  which are the most difficult  to detect are those which are most rampant. 

•  certificates  which  are irregular  as to  form  (incomplete,  not  signed  and/or  not 
stamped  by the official  authorities),  certificates  which  are authentic  but  which 

1  OJ No L144, 2.6.1981, as amended in OJ No L90, 2.4.1987. 

15 

have been issued in respect of a product which is not covered by the agreement 
or arrangements, false or falsified  certificates. 

There is generally little difficulty  in detecting such cases. 

certificates  which  are  authentic  but  which  have  been  issued  for  goods  which 
have  not  been  obtained  in  the  beneficiary  country.  The  detection  of  such 
irregularities, made possible through administrative cooperation,  may require a 
delicate approach if there is complicity between the authorities, responsible  for 
the issue or control of the certificates,  and the fraudsters; 

certificates  which  are  authentic  but  which  have  been  issued  for  goods  which 
have been  obtained  in the beneficiary  country  without  respecting  the  rules  of 
origin  - these  are,  by far,  the  most  common  (for  example,  orange-juice  from 
Israel). 

The  implementation  of  administrative  co-operation  plays  an  important  part  in  the 
investigation  of 
detection  of 
traders'operations which should, in any case, be carried out by the Member States. 

irregularities,  but 

is  no  substitute 

the 

for 

5.2  Products concerned 

No  category  of  products  is untouched  by  such  discrepancies,  but  investigations,  in 
general  reflection  of  the  specialisation  of  the  export-industries  in  those  countries 
benefiting  from  arrangements,  concentrate  on the  most-sensitive  products,  the  ones 
which  are  the  most  attractive  to  traders  for  the  purposes  of  fraud  (for  example, 
televisions from Turkey). 

The tables in Annex II contain instances of fraud  and the effective  levels of recovery. 
The  extent  of  the  problem,  and  the  most-sensitive  products,  can  be  identified 
therefrom,  as well as an assessment  of the negative impact, on the proper  functioning 
of these arrangements taken as a whole, resulting from  not capitalizing on the results 
obtained. 

5.3  Responsibilities of the traders and of the authorities in case of discrepancies 

5.3.1  Traders outside of the Community 

The rules  of  origin  are  conceived  in  such  a way  as to  give  the  traders  every 
opportunity to know whether the products they manufacture  are in accordance 
or not. Moreover,  the traders usually manufacture  a limited  range of products, 
often  subject  to  such rules, for  the same market.  Investigations  show that  it is 
not  usual  to find an  importer  who  is  really  not  aware  of  the  rules  of  origin. 
Nevertheless, some problems have arisen concerning the interpretation of these 
rules, such as confusion  among the various preferential  arrangements. 

In providing Community importers with a certificate  of origin for  goods which 
•  do  not  qualify,  these  traders give them with  the  means of eluding  payment  of 
the  customs  duties  normally  due. When  they  negotiate  the  sale  of the  goods, 
they  are  aware  that  the  provision  of  a  certificate  of  origin  is  a  definite 
advantage to the importer. 

16 

In  the  majority  of  cases  investigated,  unscrupulous  traders  have  obtained 
certificates  of  origin  by  simply  concealing  the  real  status  of  the  products. 
During investigations, some traders have exerted pressure on the authorities in 
an attempt to delay or influence the issue. 

5.3.2 Traders inside of the Community 

Since  they  are  responsible  for  the  accuracy  of the  declarations  they  make  to 
customs authorities, importers are presumed to know the rules of origin, in the 
same  way  that  they  should  know  the  tariff  nomenclature  and  other  customs 
regulations. 

The fact  that a certificate  of origin is presented with the import  declaration  - a 
deliberate  act  on the  part  of the importer  - makes  the  importer  liable for  any 
duties not paid at the time of importation,  as has already been stated  earlier by 
the Commission. 

In awareness of this, it is up to the importer to take the necessary precautions, 
in  order  to  meet  his responsibilities,  especially  at  the  time  of  negotiating  the 
contract.  Even  before  concluding  a  commercial  contract,  for  example,  the 
importer  can  also  apply  to  customs  authorities  in  the  Community  for  an 
evaluation  of the  origin  of  his  product,  by means  of the  new  'binding  origin 
information"  procedure.  Apart  from  the  fact  that  this  instrument  gives  him 
some  guarantee  for  his  commercial  operation,  it  could  also  be  an  element  of 
proof  in  determining  his  good  faith  in  the  case  of  a  dispute  at  the  time  of 
clearance through customs1. 

Investigations  show that  a de facto  solidarity  can  develop  between  traders  in 
beneficiary  countries, which have been  subjected  to  an inquiry,  and  traders in 
the Community, in view of their common interest in protecting and maintaining 
trade  relations  in  an  environment  made  favourable  by  the  possibility  of 
preferential  treatment.  This  solidarity  is  often  practised  jointly,  especially  to 
put  pressure  on  the  authorities  in the  beneficiary  countries,  in  an  attempt  to 
avoid the foreseeable  consequences of an inspection or to cancel its  effects. 

5.3.3  Authorities of the beneficiary countries 

Investigations  show that the most  significant  fraud  detected  over the  past  few 
years  concerns  goods  imported  from  countries  at  very  different  stages  of 
development  (for  example,  fabric  from  the  Maldives,  shrimps  from  the  Faroe 
Islands).  It  stems  from  a  disregard  for  the  provisions  for  administrative 
cooperation, and from frailties  in the administrative structure. 

5.3.4  Authorities of the Member States 

Though  aware that  the provisions  for  administrative  cooperation  are  enforced 
to  very  different  extents  by  the  beneficiary  countries  and  that,  therefore, 
recourse  to  them  is  very  uncertain,  the  Member  States  too  often  persist  in 

Regulations  (EC) No 82/97 of  19.12.1996  (OJ No L  17, 21.1.1997, p.l)  and No  12/97 of  18.12.1996 
(OJNoL9,  13.1.1997, p.l). 

17 

relying upon them, without  coming to an operational  decision on the  question 
of investigation and recovery. 

The  safeguard  measures,  which  should  come  into  operation  when  checks 
become  necessary,  especially 
in  cases  of  reasonable  doubt,  are  not 
implemented in the same way by all Member States. This favours the  deflection 
of trade,  complicates  the  issue  of recovery  of duties in the  case  of  a  positive 
result, and leads to the unequal treatment of traders. 

In  spite  of  the  Commission's  attempts  at  co-ordination,  the  findings  of 
Community  fact-finding  missions  are not  used  to  their  full  extent.  This  paves 
the way for dubious imports without involving any great risk for traders. 

Another  problem  arises when  Member  States  claim  that  the  certificates  have 
not been  invalidated  by the third  country,  as a reason for  not  recovering  duty 
after  some  irregularity  has been found.  Such  grounds  are  provided  for  by the 
regulations,  and  are  not,  therefore,  an  acceptable  excuse.  Case  law  in  the 
Community has constantly confirmed  that the decisive criterion for  recovery is 
ineligibility. 

By adopting such course of action, the Member  States, artificially  and  without 
any  legal  justification,  are  transferring  their  own  responsibility  onto  the 
authorities in the beneficiary countries. 

5.4  The importers ' grounds for  complaint 

Community importers  also complain  often  about  these  discrepancies  which  occur in 
the arrangements,  especially  since actions for  recovery can come into  operation  two 
or three years after the importation has taken place. 

However,  it  has  been  found,  in  many  instances  of  investigation,  that  importers  are 
usually  informed  that  their  operations  are  being  investigated,  either  in  the  initial 
stages by the Member State, or by the exporters when it is underway.  In this context, 
they  are  aware  of  the  results  of  the  verification,  even  before  the  results  have  been 
communicated  to  the  requesting  authorities,  but  they  do  not  always  make  the 
necessary arrangements to put their house in order,  despite the time available  before 
the procedures for  recovery can come into being. In so doing, they contribute to the 
continuance  of  the  negative  effects  of the  discrepancies,  to  the  detriment  of  those 
importers who abide by the rules, and of Community producers. 

5.5  Discrepancies in the particular context of developing countries 

Awareness  of these  discrepancies  and  the  responsibilities  of  traders  and  authorities 
alike in the matter does not exonerate the Community from  examining the underlying 
causes of such a situation,  especially in so far  as development  policy is concerned.  It 
has to  be  pointed  out,  in this  respect,  that  the  partner  beneficiary  countries  do  not 
find  themselves  on  the  same  footing  vis-à-vis  Community  rules.  Many^ of  them, 
especially  those  coming  from  the  emerging  economies  in  Asia,  have  certainly  been 
able  to  avail  themselves  considerably  of  the  advantages  offered  to  them  by  the 
Community,  and  have  been  able,  in  accordance  with  the  objectives  of  the  rules  of 
origin,  to  intensify  their  industrialisation-process  by  integrating  their  production-
network  from  top  to  bottom,  with  the  aid  of  internal  and  external  investment, 

18 

relieved,  if  needed,  through  regional  cooperation.  Nevertheless,  there  are  other 
countries,  especially  the  least-developed  ones  (LLDCs)  and  those  having  a  similar 
level of development  (sub-Saharan Africa,  insular  states), which have  not  been  able 
to take full  advantage of the substantial commercial benefits  made available to them, 
because  of their  economic,  institutional,  administrative  or  financial  structures  which 
often  do  not  allow  them  to  start  up  an  industrial  process.  Because  of  these 
weaknesses,  some  of  these  countries  are  trying  to  develop  an  industrial  basis  by 
concentrating  an  intensive  labour-force  on  the  activity  of  'last  working  or 
processing",  which  does  not  always  meet  the  requirements  for  the  rules  of  origin. 
The  Commission  has  recently  examined  this  problem  in  its  Communication  on 
improving access to the Community market for LLDCs. 

Steps  are  necessary  to  confront  this  situation.  On the  one  hand,  it  is  certainly  not 
conceivable that  insistence  on genuine  controls  and  abidance by the rules  should  be 
forgone,  since this would  only lead to jeopardising the preferential  arrangements,  to 
the  detriment  of their  ultimate  aim  of  promoting  development.  On  the  other  hand, 
however,  it  is just  as  inconceivable  to  let  these  countries,  which  are  amongst  the 
poorest  in the world,  fail  to  avail themselves  of benefits  vital to  their  survival.  The 
Commission  has  already  put  forward  concrete  proposals,  in  the  context  of  the 
abovementioned  Communication,  to improve the rules of origin by simplifying  them 
and  clarifying  the  conditions  for  applying  them..  The  same  concerns  are  also  taken 
into consideration  in the definition  of the necessary  actions,  discussed  in item 9,  for 
remedying the discrepancies of the preferential  arrangements. 

6.  Consequences of difficulties  in applying preferential  tariff arrangements 

6.1  Consequences on Community policies 

Political  and  economic  relations  with  the  countries  concerned  are  affected  by  this 
situation.  In  particular  these  discrepancies  have  negative  consequences  on  the 
commercial policy of the Community, thwarting its effectiveness  and endangering the 
development  and  economic  integration  of  the  beneficiary  countries  which  are 
precisely the raison d'être  of the preferential tariff regimes. 

6.1.1  Consequences for manufacturers 

On  the  other  hand,  the  industrial  community  is  affected  by  the  distortion  of 
competition  thus  created  and  complains  about  the  lack  of  firmness  of  the 
measures  adopted  and  of  their  application.  They  emphasise  the  serious 
consequences,  in terms  of  employment  and  the  closing-down  of firms in  the 
Community. 

Thus,  Community  production  faces  competition  which  had  not  been 
anticipated.  The  imported  goods  benefit  not  only  from  entry  into  the 
Community  at  reduced  duties,  but  also  from  the  conditions  specified  for  a 
particular  concession  not  being  applied  (for  example,  allowing  the  use  of 
components  which  are  even  cheaper  than  those  actually  produced  in  the 
beneficiary  country). In this way, the price of such products on the Community 
market  can  be  artificiallly 
to  force  Community 
manufacturers  of identical or similar products into bankruptcy. 

lowered,  and  helps 

19 

Community  industry  is  sometimes  unwilling  to  accept  certain  concessions 
granted  to  third  countries  by  the  Community.  Industry  is  quite  justified  in 
insisting that these concessions be limited  to  those products  and  countries  for 
which  they  are  intended  and  and  which  meet  the  conditions  and  basic 
requirements for the arrangements. This is all the more justified  when fraud  in 
preferential  origin  circumvents  commercial measures  such  as quotas  and  anti 
dumping duties. 

Many  manufacturers  have  protested  at  this  situation,  both  to  the  Member 
States and to the Commission, and put a lot of faith in their capacity to react in 
such a way as to end this detrimental situation or, at least, to limit its negative 
effects. 

6.1.2  Consequences for  importers 

> 

Those importers who use the regimes in the proper way are facing  direct  unfair 
competition  from  imports  of  products  which  do  not  qualify  but  which  have 
been  wrongly  granted  preferential  treatment.The  very  economic  survival  of 
these  importers  could  be  seriously  threatened,  if  such  unfair  competition  is 
allowed to  continue. It  should not be forgotten  that they play  a central  role in 
the  implementation  of preferential  arrangements,  arrangements  which  are  still 
of vital importance to a number of developing countries. 

6.2  Economic consequences for  third countries 

Given the  objective  of the rules  of origin in relation  to  the preferential  treatment  of 
the goods, it has to be noted that operations which violate these rules do not give the 
exporting  countries the real  economic  advantage  intended  by the  arrangements,  due 
to the fact  that the value added there is non-existent  or very low. This is particularly 
obvious  when  products  are  not  manufactured  in  the  country,  but  simply  trans 
shipped  there.  Even  if there is  some  industrial  activity  involving final processing  or 
subcontracting,  it is likely to be short-lived  and the profit  in terms of development  is 
very low, seldom involving long-term investment,  transfer  of technology,  or training 
of local staff 

However,  for  some  LLDCs,  it  is  true  that  an  industrial  activity  giving  little  local 
added value often  represents  a godsend.The goods thus produced  do not  qualify  for 
preference  (other than in specific  individual  cases on the basis of an ad hoc  decision 
for  derogation:  Communication  on  improved  access  to  the  Community  market, 
mentioned  above,  paragraph  1.2,  'rules  of  origin'),  and  it  is  important  that  the 
Community makes full  use of the stimulant  effect  of preferences  in the  establishment 
of a more complete industrial network in these countries. 

6.3  Consequences for  the Member States and the Commission 

Due to  the  prevalence  of laxity in the implementation  of  administrative  cooperation 
and, hence, to its lack of credibility,  customs  departments  have serious difficulties  in 
making traders abide by these arrangements. 

However, on analysis, the proper application (for which the Member States alone are 
competent) of the provisions for administrative cooperation and of the conclusions of 

20 

Community fact-finding  missions would be a positive contriburion towards  rectifying 
the current situation and towards dissuading a number of unscrupulous traders. 

Responsible for  co-ordinating the management of the arrangements and the activities 
of  investigation  and  control,  the  Commission  is  too  often  forced  to  go  beyond  its 
competence  and  to  intervene,  on  behalf  of the  Member  States,  with  respect  to  the 
beneficiary  countries. 

Given that its powers of action and control are somewhat limited, the Commission is 
often  not  able to  prevent  the negative effects,  on commercial policy,  on  Community 
policies  and  on  own  resources,  of  these  discrepancies  which  arise  from  the  non-
observance of the arrangements by those participants directly involved. 

With regard to  own resources, it should be noted that the revenue not collected as>a 
result of these discrepancies has to made up in another way; to some extent, this loss 
of revenue  is balanced  out  and  borne  by the  rest  of the  European  taxpayers  rather 
than by the importers who should normally have paid them. 

7.  The future of preferential  tariff arrangements 

7.1  Preparation for  enlargement,  and its impact on preferential tariff arrangements 

Pressure  on  these  arrangements  has  increased  in recent  years,  due  to  the  necessary 
extension or reinforcement  of preferential  measures granted to countries applying for 
membership. 

Preparation  for  enlargement  is  a  special  opportunity  to  encourage  these  countries, 
both at the level of the traders and the authorities, to apply correctly the procedures 
for managing and controlling these preferences within a cooperation framework with 
the  Union.  The  future  will be  better  prepared  for  these  countries,  the  sooner  these 
procedures are put into use 

In so doing, by managing the arrangements,  and by obtaining real means of appraisal 
to act or react according to the circumstances and in transparency,  the Union will be 
able to  determine  the  suitable  conditions  for  a progressive  transition  ensuring  these 
countries full participation in the Union. 

7.2  Reduced tariff advantages for  certain products 

This  reduction  comes  from  the  general  lowering  of  CCT-duties,  as  a  result  of  the 
conclusions  of  the  Uruguay  Round,  the  application  of  which  comes  to  an  end  in 
2004.  With  this  general  reduction  in tariff  advantages,  products  will  attract  duty  of 
less than two or three per cent, and application for the preferential  arrangements will 
eventually  be  of  little  interest.  Of  course,  the  preferential  arrangements  will  still  be 
attractive  for  sensitive  products  with  higher  duties,  such  as  agricultural  and fishery 
products or textile products and shoes. 

This gives an indication  of the need to  adapt  the rules of origin to  the micT-term and 
long-term  situations.  However,  for  the  time  being,  tariff  reductions  granted  by  the 
Community  are  still  considerably  attractive.  It  is  therefore  advisable  to  define  the 
means which will enable these instruments to continue playing their rôle fully. 

21 

7.3  Appropriateness of the rules of origin in the new context of world trade 

It could be asked whether there is a link between the amount of discrepancies and the 
way that  the preferential  rules  of  origin  are  structured.  In its  Communication  of  16 
April  97,  the  Commission  gave  an  initial  breakdown  in  this  respect  and  proposed 
guidelines for  improving the situation, notably by targeting the more coherent  use of 
derogations and the simplification  of these same rules. 

8.  Options for the Commission 

On the problem of discrepancies, the option of expanding the concept  of good  faith, 
thereby  sheltering unscrupulous  traders  and penalizing the traders who  abide by the 
rules of the game, is clearly not acceptable. The Commission considers that the only 
possible option is to improve the way that the arrangements work,  in the interests of 
all  of the  parties  concerned.  As for  the  past,  that  can  be  dealt  with  only  under  the 
legislation in force at the time. 

This  option  is  fully  in  line  with  the  declaration  that  the  Commission  put  in  the 
Minutes of the Council Session of 28 May  1996, an extract of which is given below : 

The Commission "... takes due note of the Council's request to carry out this study. 

It  observes nevertheless that  the  thrust of  the  Council's request would  lead  to the 
substantial amendment of current regulations. 

The Commission draws attention  to the role, under current law, of  importers who, 
as pointed  out  by  the  Commission in  its  Work Programme (COM  (96)  17) on the 
fight  against  irregularities and fraud,  and in accordance with the decisions  of the 
European Court of Justice, remain, in principle, legally and financially liable. 

However, it will examine this request in a constructive manner, and in the  light of 
the recent decisions of the Court, while bearing in mind the criteria for  the smooth 
operation  of  Community policies  and giving priority  to  the  strengthening  of  the 
coherence of  the rules and of the current provisions, as well as  the need  to protect 
the financial interests of the  Union." 

9.  Actions necessary for  remedying the discrepancies  in preferential  tariff 

arrangements 

Actions already taken by the Commission  and by the Member  States  should  help  to 
rectify  the  situation,  but  will  not  be  enough,  and  other  actions  will  have  to  be 
contemplated. 

To  a  large  extent,  such  actions  should  be  based,  in  particular  on  the  various 
programmes  of work  or  action,  for  example in the  customs field ('Customs  2000') 
aimed,  amongst  other  things,  at  standardizing  and  clarifying  the  conditions  for 
applying the  common  commercial  policy and protecting the financial interests  of the 
Community. 

22 

9.1  Actions under development 

9.1.1 Modernization of the preferential rules of origin 

At  the  Commission's  instigation,  the  Community  has,  for  a  number  of years, 
been overhauling, unifying  and simplifying  the preferential  rules of origin. This 
is  a  result  of  the  explosion  in  the  number  of  conventional  preferential 
agreements  since  the  start  of  the  decade,  and  of  the  need  to  make  the  rules 
more accessible and more transparent. 

Since  1 July  1997, the preferential  rules of origin applied by the Community in 
dealings  with  Europe  (EEA,  EFT A,  CEECs,  i.e.  more  than  thirty  countries) 
are  identical.  The  same text  has  been  proposed  to  the  twelve  Mediterranean 
> 
countries, and some of them are about to accept it. 

This  action  of  standardizing  and  improving  the  preferential  rules  of  origin  is 
based,  inter  alia,  on  simplification  of  the  documentation  (abolition  of  the 
EUR. 2  and  APR.1,  and  general  use  of  invoice  declarations),  on  the  use  of 
largely-standardised  wording  (for  example,  for  the  basic  definitions,  such  as 
'Wholly obtained'), or on the promotion of a new type of relation with traders 
(generalization of the concept of "approved exporters"). 

Moreover,  where  it  was  possible,  some  of  these  new  rules  have  also  been 
incorporated  into the ACP/OCT Conventions, as well as into the GSP. 

9.1.2  Attributing  the  management  of  the preferential  tariff  arrangements  to  the 

customs administrations of the beneficiary countries 

The main task of the administrations of the Member  States in this matter lies in 
checking  certificates  of origin and their  content,  both  at import  and  at  export. 
It is not a question of checking every certificate,  but to carry out checks on the 
basis  of  risk-analysis  techniques.  These  administrations  also  have  the  task  of 
issuing  binding  origin  information,  which  has  been  part  of  the  Community 
customs regulations since the beginning of 1997. 

Clearly,  the  workload  of  these  administrations  has  increased  as  a  result,  but 
such is the price for  the  smooth  operation  of a system of preferential  rules  of 
origin.  Just  as the Community  customs  administrations  take  full  responsibility 
for managing the rules of origin, so it seems essential that their counterparts in 
partner  countries  do  the  same,  provided  that  these  customs  administrations 
really  do  have the  necessary  power  and  competence,  and  especially  that  they 
make  real  use  of  them,  in  particular  with  regard  to  controlling  traders.  This 
would allow full use of the knowledge of customs law, common to all customs 
administrations.  In large  part,  the  customs  law  is harmonized  at  international 
level (classification,  value, etc.). Action in this direction is ready to be started. 

9.1.3  Raising the awareness of the beneficiary countries 

The first preferential  arrangements  go  back  to  the  'Seventies.  Since then,  the 
Community has made great  efforts  to explain what the preferential  origin rules 
mean, how they should be applied  and why greater  administrative  cooperation 
is necessary. 

23 

These  acts  are  intended  in  particular  for  the  central  authorities  of  the  third 
countries  concerned,  and  then  proceed  to  training  activities  for  the  people 
responsible for  managing and  applying the origin rules in practice.  During  the 
last three years, about twenty such seminars were organized  by the Community 
in various parts of the world. 

In  addition,  the  Community  has  called  on  specialized  organizations  to  help 
these  countries  gain  a better  grasp  of the  rules  and  differentiate  between  the 
Community  rules and those that  these  same countries have  also  to  apply  with 
respect to other donor-countries of preferences. 

Moreover,  although  it  is  not  their  raison d'être, the  Community  fact-finding 
missions can also have indirect teaching effects,  in the same way as information 
seminars  organized  in  these  countries,  by  helping  the  local  adminstrations 
improve their knowledge as regards control. 

Lastly, since  1994, the Commission has organized regular meetings (ten or so) 
within the framework  of the Customs Code Committee (Origin  Section), open 
to  EFTA/CEEC/Baltic  countries,  as  well  as  to  all  of  the  Mediterranean 
countries. 

9.1.4  Controlling  the  practical  application  of  preferential  arrangements  in  the 

Community 

During recent years, several  control-and-monitoring campaigns on origin  have 
taken  place  in  the  Member  States,  particularly  concerning  preferential 
arrangements,  in order  to  examine  all of the  aspects  of the  application  of the 
preferential  rules of origin, both on imports and on exports. 

These  controls,  carried  out  during  the  years  1992-1995,  gave  rise  to  the 
observation of various anomalies; the most serious being as follows: 

the  rules  of  origin  are  not  always  interpreted  uniformly  by  the 
Member States; 

the customs of some Member States are very decentralized;  therefore, 
the overall examination of fraud  is not always carried  out centrally; 

the simplified  procedures allow greater flexibility  for  the benefit  of the 
companies, but at the same time limit the possibilities of control by the 
customs authorities; 

it is often  difficult,  within the intended  deadline, to  obtain  satisfactory 
answers  to  retrospective  controls  of  the  evidence  of  the  origin;  this 
has  created  enormous  difficulties  for  the  collection  of  outstanding 
custom duties. 

These  control  measures  are  additional  to  other  similar  campaigns  carried  out 
by  the  Commission  within  the  framework  of  the  follow-up  to  the  annual 
reports of the Court of Auditors. 

24 

9.2 

The mechanisms : state of play  and loopholes 

9.2.1  Existing mechanisms 

-  The  agreements  all  contain  a  protocol  on  mutual  assistance  in  customs 
matters,  applicable  within  the  framework  of  prevention  of  and  fight  against 
fraud,  as well as the rules of origin contained in those agreements. 

-  Provision  for  intra-Community  co-ordination  and  cooperation  on  customs 
matters  (mutual  assistance,  circulation  of  information,  etc.)  is  made  by  a 
horizontal measure (Regulations  1468/81 and 515/97) 

-  In both  autonomous  arrangements  (GSP, former  Yugoslav  Republics,  etc.) 
and in the conventional agreements (Europe Agreements, EFTA, etc.), there Is 
a  verification  procedure  for  cases  of  reasonable  doubt.  If  there  is  no  reply 
within  10  months,  or  the  reply  is  insufficient,  the  preferential  treatment  is 
refused. 

-  In  the  framework  of  the  GSP,  when  it  appears  that  there  has  been  an 
infringement  of  the  rules,  the  Union  has  the  possibility  to  carry  out 
investigations in collaboration with the authorities of the beneficiary  country. 

-  With  regard  to  the  GSP,  Regulations  3281/94  and  1256/96  (Article  9) 
provide  for  the  possibility  of  withdrawing  preferential  treatment  in  cases  of 
fraud  or in the absence of administrative cooperation. 

- 

In  conventional  agreements,  difficulties,  between 

the  customs 
administrations  of  the  two  parties,  in  the  application  of  the  verification 
procedures  are  raised  at  the  Association  Committee,  without  prejudice  to 
national provisions applicable to  infractions 

9.2.2  Loopholes and missing provisions 

-  With  regard  to  the  Union's  internal  situtation,  there  is  no  legally-binding 
Community  instrument  to  ensure  that  Member  States  do  not  apply  different 
safeguard  measures, in cases of reasonable doubt, with the resulting possibility 
of trade circumvention. 

- With regard to beneficiary  countries, firstly  in the framework  of the GSP, use 
has never  been  made  of the  provisions  contained  in Article  9,  in cases where 
there has been  a lack  of administrative  cooperation,  because they  are  onerous 
and  their  application  is dependent  on  the  Member  States.  Furthermore,  there 
are  no  provisions  to  enable  the  rapid  implementation,  by  the  Commission,  of 
intermediate and provisional  measures which could be adapted to the scale and 
specific  nature of the different  situations encountered. 

-  In  the  case  of  other  preferential  arrangements,  again  there  are  no  legal 
provisions  enabling  the  Commission  or  the  Member  States  to  adopt 
appropriate  provisional  mesures  and  there  are  also  no  provisions  similar  to 
those contained inArticle 9 of the GSP. 

25 

Therefore : 

-  In the framework  of conventional agreements,  no provisions are foreseen  in 
cases  where  the  Association  Committee  is  unable  to  resolve  differences  of 
opinion. 

-  Likewise,  in this  conventional  context,  it  is not  always possible  to  confirm 
whether the provisions have been fully  implemented  in a partner country (as in 
the  case  of  televisions  from  Turkey),  or  whether  the  third-country  customs 
administrations really have the legal competence to check the originating  status 
of products covered by certificates  of origin which they have issued; there are 
even  cases  where  they  have  claimed  they  were  unable  to  carry  out  such 
controls (as in the case of orange-juice from Israel). 

9.3 

Actions to be taken 

Restoring confidence  in the preferential  tariff  arrangements involves all of the parties 
who  use  and  manage  these  arrangements,  whether  inside  the  Union  or  in  third 
countries, or whether administrations or traders. 

In  the  first  instance,  this  step  should  be  based  on  an  initial  reminder,  to  all  of  the 
players,  of  their  responsibilities,  rights  and  obligations,  and  on  abidance  by  the 
existing provisions,  so that the situation can be rectified  and sanctions can be applied 
for any violations if these obligations are not met. However, the Union should  obtain 
additional  instruments  necessary  to  compensate  for  the  weaknesses  iin  the  current 
system. 

The Council and the Commission should cooperate closely to define the priorities for 
such actions and to agree on the time-table for carrying them out. 

The following  are, essentially, the actions to be taken : 

9.3.1  Promotion of a more rigorous application of the existing provisions : 

by applying the rules strictly and by not  exceeding the required  time-limits, in 
the event of lack of administrative cooperation,  or by requiring the invalidation 
of certificates  and  by applying  stronger  sanctions  against  states  which  do  not 
meet their general obligations; 

with  regard  to  conventional  agreements,  by exploiting  resolutely all means of 
dialogue  and  all  existing  mechanisms  in  order  to  convince  the  beneficiary 
countries  to  take  all  of  the  appropriate  measures  when  discrepancies  are 
observed in the application of these arrangements; 

by  encouraging  the  Member  States  to  make  full  use  of  the  system  for 
communicating to the Commission all the irregularities observed  or suspected 
by the Member States; 

by  making  sure  that  the  measures and  controls  set  up  by  the  contracting 
countries, to  which they commit themselves at the time of the  signature  of an 
agreement, are  effective; 

26 

by requiring, as far as possible, our partners to provide copies of their national 
legislation and, if necessary, by helping them to set it up, in order to make sure 
that  they  will  be  able  to  have  the  internal  legal  means  of  satisfying  the 
obligations resulting from  the agreements; 

9.3.2  Lessening the impact of loopholes by means of appropriate provisions  : 

by improving Community texts, through an across-the-board  measure, with the 
aim  of standardizing actions taken by the Member States for  the recovery  of 
duty or for taking precautionary measures for  duty, as a result of observations 
made,  amongst  other  things,  in  the  findings  of  a  Community  fact-finding 
mission ; 

by  using  systematically  an  early-warning system for  importers  whenever va 
justified  doubt  concerning  origin  is established,  so that  the  plea  of good  faith 
cannot be invoked unduly; 

by  providing  for  the  possibility  of  monitoring  actions  in  the  beneficiary 
countries  by  introducing  into  the  texts  the  possibility  for  the  Community  to 
carry out controls in these countries regarding the implementation of the origin 
rules provided for in the agreements; 

by  obtaining  horizontal  legal  powers,  making  it  possible  to  take  uniform  and 
rapid  action  throughout  the  Community  with  respect  to  third  countries  not 
respecting  their  obligations,  in  particular  by  introducing  the  possibility  of 
adopting provisional  measures (for  example:  guarantee  for  duties,  temporary 
withdrawal  of  preferences,  temporary  quantitative  controls,  etc.)  at  the 
initiative  of  either  the  Commission  or  the  Member  States,  subject  to 
confirmation  at  a  later  date  by  the  Council;  these  provisions  should  to  take 
account,  according  to  the various  preferential  arrangements  concerned,  of the 
obligations resulting from  the Community's international commitments; 

by imposing  responsibility  on the authorities  of the  GSP beneficiary  countries 
by effective  application  of the  provisions  of Article 9 of the  GSP  Regulations 
(which can lead to the total or partial  suspension of  the arrangements) in the 
event  of  fraud  or  failure  with  regard  to  the  rules  for  administrative 
cooperation; 

by introducing, into the text  of the preferential  arrangements, the possibility of 
providing, for  example, for  temporary restrictive measures or the withdrawal 
of  some  preferences. Such  provision  could,  if  need  be,  lead  to  the  full 
withdrawal  of the  arrangements,  in  proportion  to  the  size  and  seriousness  of 
the  case  concerned,  and  in  relation  to  the  Community's 
international 
commitments. 

9.3.3  Strengthening the provisions with supplementary measures : 

by organizing,  for  the representatives  of the beneficiary  countries, information 
actions on administrative  cooperation; 

27 

by  adopting,  for  national  administrations  and  operators,  a  training  and 
information  programme  in  the  various  third  countries,  as  well  as  in  the 
Member States of the Community; 

by the regular  organisation  of working meetings, within the framework of the 
Customs  Code Committee enlarged  to include groups of beneficiary  countries 
and within the framework  of the joint customs cooperation committees, with a 
view to  examining the conditions for  applying these arrangements, their  future 
development and desirable improvements; 

by imposing responsibility on the traders and by personalizing their relations 
with the customs authorities; 

by including them in the distribution-list  for the Explanatory Notes concerning 
preferential  agreements and arrangements; 

by  drawing  up  a  handbook,  specially  for  them,  specific  to  the  various 
arrangements (ACP / CEECs / GSP / Mediterranean); 

by  making  available  to  third  countries  and  the  general  public  useful 
information  (legislation,  handbooks,  binding  origin  information  issued  in  the 
Community) on modern computer media (diskettes,  CD-ROM, Internet); 

by publishing a notice in the Official  Journal of the European Communities, C-
series,  encouraging  traders  to  apply  for  binding  origin  information  for  the 
goods  which  they  import,  while  drawing  their  attention  to  the  risks  arising 
from the acceptance of false certificates of origin. 

9.3.4  Preparing for  the future  : 

by  putting  into  effect  the  actions  envisaged  in  the  u Communication on  the 
improvement of Community market-access for  the least-developed countries''' 
and  in  particular,  wherever  justified,  by  enacting  the  derogations  from  the 
origin rules, as provided for by current regulations; 

by encouraging the setting up of regional-cooperation  structures, in particular 
those  allowing  cooperation,  including investment,  between  advanced  and  less 
advanced  developing  countries; by encouraging the use of regional  cumulation 
within this  framework; 

by preparing the Community reflection  on world harmonization of GSP origin 
rules, announced by the UNCTAD as an action in the next few years; 

by simplifying the system of preferential rules of origin to take account of the 
future  context of the world trade following the Uruguay Round; 

by  considering,  in  accordance  with  the  results  of  the  above  policy  for 
encouraging  regional  cooperation,  the  future  need  for  an  exemption  as 
generalised as possible for  the least-developed countries  and  countries  at a 
similar level of development. 

28 

(a) List of agreements and other preferential tariff armagements (1.7.1997) 

A n n ex  I 

ORIGIN 

EEA 
94/1/EEC 
(OJ LI, 03/01/94) 
EEA Decision 
(OJ L86, 20/4/95) 

EEA  Decision 
(OJL21, 23/1/97) 
Norway 
not yet published 

Iceland 
not yet published 

Switzerland 
not yet published 

Poland 
not yet published 

Hungary 
97/230/ECSC, EC, Euratom 
(OJ L92, 7/4/97) 

Czech Republic 
96/751/Euratom, ECSC, EC 

(OJ L 343, 31/12/96) 

Council & Commission Decision of 13 December  1994 - Protocol 4 to 
the EEA Agreement on rules of origin 
Decision of the EEA Council No  1/95 of 10 March  1995 on the entry 
into force of the Agreement on the EEA for the Principality of 
Liechtenstein. 
Decision of the EEA Joint Committee No 71/96 of 22 November  1996 
amending Protocol 4 to the EEA Agreement, on rules of origin. 

,t 

Decision  1/96 of the EEC-Norway Joint Committee of 20 December 
1996 amending Protocol 3 to the Agreement between the European 
Economic Community and the Kingdom of Norway concerning the 
definition of the concept of "originating products" and methods of 
administrative cooperation. 

Decision  1/96  of the EEC-Iceland Joint Committee of 19 December 
1996 amending Protocol 3 to the Agreement between the European 
Economic Community and the Republic of Iceland concerning the 
definition  of the concept of "originating products" and methods of 
administrative cooperation 

Decision  1/96  of the EEC-Switzerland Joint Committee of 19 December 
1996 amending Protocol 3 to the Agreement between the European 
Economic Community and the Swiss Confederation  concerning the 
definition  of the concept of "originating products" and methods of 
administrative cooperation. 

Decision no  1/97  of the Association Council between the European 
Communities and their Member States, of the one part and Poland of 
the other part, of 30 June  1997 amending Protocol 4 to the Europe 
agreement establishing an association between the European 
Communities and their Member States, of the one part and Poland of 
the other part 

Decision no 3/96 of the Association Council between the European 
Communities and their Member  States, of the one part and the Republic 
of Hungary of the other part, of 28 December  1996 amending Protocol 
4 to the Europe agreement establishing an association between the 
European Communities and their Member States, of the one part and 
the Republic of Hungary of the other part 

Decision no 3/96 of the Association Council between the European 
Communities and their Member States, of the one part and the Czech 
Republic of the other part, of 29  November  1996 amending Protocol 4 
to the Europe agreement establishing an association between the 
European Communities and their Member States, of the one part and 
the Czech Republic of the other part 

29 

Slovak  Republic 
(not yet published) 

Romania 
97/127/ECSC, EC, Euratom 
(OJ L54, 24/2/97) 

Bulgaria 
97/302/ESCS, EC, Euratom 
(OJ L134, 24.5.1997) 

Latvia 
97/268/ECSC, EC, Euratom 
(OJ L  111,28.4.1997) 

Lithuania 
97/309/ECSC, EC, Euratom 
(OJ L 136, 27.5.1997) 

Estonia 
97/267/ECSC, EC, Euratom 
(OJ L  111, 28.4.1997) 

Slovenia 
96/752/Euratom, ECSC, EC 

(OJ L 344, 31/12/96) 

Faroe Islands 
97/126/EC 
(OJ L 53, 22/2/97) 

Decision no 2/97 of the Association Council between the European 
Communities and their Member States, of the one part and the Slovak 
Republic of the other part, of 9 January  1997 amending Protocol 4 to 
the Europe agreement establishing an association between the 
European Communities and their Member States, of the one part and 
the Slovak Republic of the other part 

Decision no  1/97 of the Association Council between the European 
Communities and their Member States, of the one part and Romania of 
the other part, of 31 January  1997 amending Protocol 4 to the Europe 
agreement establishing an association between the European 
Communities and their Member States, of the one part and Romania of 
the other part 

Decision no  1/97 of the Association Council between the European 
Communities and their Member States, of the one part and the Republic 
of Bulgaria of the other part, of 6 May 1997 amending Protocol 4 to^he 
Europe agreement establishing an association between the European 
Communities and their Member States, of the one part and the Republic 
of Bulgaria of the other part. 

'*___ 

Decision no  1/97 of the Joint Committee between the European 
Communities, of the one part and the Republic of Latvia of the other 
part, of 20 March  1997 amending Protocol 3 to the Agreement on free-
trade and trade-related matters between the European Community, the 
European Atomic Community and the European Coal and Steel 
Community, of the one part, and the Republic of Latvia of the other 
EÊË 

Decision no  1/97 of the Joint Committee between the European 
Communities, of the one part and the Republic of Latvia of the other 
part, of 25 February  1997 amending Protocol 3 to the Agreement on 
free-trade  and trade-related matters between the European  Community, 
the European Atomic Community and the European Coal and Steel 
Community, of the one part, and the Republic of Lithuania of the other 
part 

Decision no  1/97 of the Joint Committee between the European 
Communities, of the one part and the Republic of Estonia of the other 
part, of 6 March  1997 amending Protocol 3 to the Agreement on free-
trade and trade-related matters between the European Community, the 
European Atomic Community and the European Coal and Steel 
Community, of the one part, and the Republic of Estonia of the other 
part 

Council and Commission Decision of 25 November  1996 on the 
conclusion of the Interim Agreement on trade and trade-related  matters 
between the European Community, the European Coal and Steel 
Community and the European Atomic Energy Community, of the one 
part, and the Republic of Slovenia, of the other part 
Protocol 4 concerning the definition  of the concept of "originating 
products" and methods of administrative cooperation 

~" 

Council Decision of 6 December  1996 - Protocol 3 to the Agreement 
with the Faroe Islands concerning the definition  of the concept of 
"originating products" and methods of administrative cooperation. 

30 

Ceuta and Mellila 
88/1135/EEC 

(OJL  114,02/05/88) 
ACP 
90/0523/EEC 
(OJ L 290, 30/10/90) 

91/400/ECSC, EEC 
(OJ L 229,  17/08/91) 
93/514/EEC 

(OJ L 242, 28/09/93) 
93/514/EEC 

(OJ L 242, 28/09/93) 
94/18/EC 

(OJ L  12, 15/01/94) 
94/386/EC 

(OJ L  176, 09/07/94) 
94/946/EC 

(OJL 371, 31/12/94) 

96/557/EC 

(OJL 243, 24/09/1996) 

96/558/EEC 

(OJ L 243, 24/09/96) 

OCT 
91/0482/EEC 
(OJL 263,  19/09/91) 
94/724/EC 

(OJL 288, 09/11/94) 

95/375/EC 

(OJ  L 222, 20/9/95) 

96/529/EC 

(OJ L 223, 04/09/1996) 

Cyprus 
73/1246/EEC 
(OJL  133, 21/05/73) 

77/2907/EEC 

(OJ L 339, 28/12/77) 

Council Regulation of 7 March  1988 concerning the definitions  of the 
concept of originating product and methods of administrative 
cooperation between the EEC, Ceuta and Mellila. 

Council Decision of 8 October  1990 on the procedure concerning 
derogations from the origin rules set out in Protocol No 1  to the 4th 
ACP/EEC Convention. 
Decision of the Council and the Commission of 25 February  1991 on 
the conclusion of the Fourth ACP-EEC Convention. 
Decision 2/93 of the ACP/EEC Customs Co-operation  Committee 
derogating from the concept of "originating products" to take account 
of the special situation of Mauritius with regard to canned tuna. 
Decision 3/93 of the ACP/EEC Customs Co-operation Committee 
derogating from the concept of "originating products" to take account 
of the special situation of Senegal with regard to canned tuna. 
Decision 4/93 of the ACP/EEC Customs Co-operation  Committee 
derogating from the concept of "originating products" to take account 
of the special situation of the Seychelles with regard to canned tuna. 
Decision  1/94 of the ACP/EEC Customs Co-operation  Committee 
derogating from the concept of "originating products" to take account 
of the special situation of Fiji with regard to certain garments. 
Decision 2/94 of the ACP/EEC Customs Co-operation  Committee 
modifying Decision No 4/93 derogating from the concept of 
"originating products" to take account of the special situation of the 
Seychelles with regard to canned tuna. 
Decision  1/96 of the ACP/EEC Customs Co-operation Committee of 
02.09.1996 derogating from the concept of "originating products" to 
take account of the special situation of the Kingdom of Swaziland with 
regard to its manufacturing  of yarn (HS Code 5402.52 and 5402 62). 
Decision 2/96 of the ACP/EEC Customs Co-operation Committee  of 
02.09.1996 derogating from the concept of "originating products" to 
take account of the special situation of Fiji, Mauritius and  Senegal 
regarding the production of canned tuna and tuna loins. 

Council Decision of 25 July  1991 on the association of overseas 
countries and territories with the EEC. 
Commission Decision of 31 October  1994 derogating from the 
definition of the concept of "originating products" to take account of 
the special situation of Montserrat with regard to goods of CN 8536 90 
10. 
Commission Decision of 8 September  1995 amending Decision 
94/724/EC derogating from the definition  of the concept of 
"originating products" to take account of the special situation of 
Montserrat with regard to connections and contact elements for wire 
and cables falling within CN 8536 90  10. 
Commission Decision of 29 July  1996 derogating from the  definition 
of the concept of "originating products" to take account of the special 
situation of Saint Pierre and Miquelon with regard to frozen  fillets of 
cod of CN code 0304 20. 

Council Decision of  14 May  1973 concerning the conclusion of an 
Agreement establishing an Association between EEC and the Republic 
of Cyprus. 
Council Decision of 20 December  1977 on the conclusion of the 
Additional Protocol.to the Agreement establishing an association 
between the EEC and the Republic of Cyprus. 

31 

87/607/EEC 

(OJ L 393, 31/12/87) 

88/4264/EEC 

(OJ L 378, 31/12/88) 

89/2428/EEC 

(OJ L 230, 08/08/89) 

90/3 203/EEC 

(OJ L 307, 07/11/90) 
95/576/EC 

(OJ L 326, 30/12/95) 

95/3056/EC 

(OJ L 326, 30/12/95) 
Malta 
76/939/EEC 

(OJ L  111, 28/04/76) 

89/2229/EEC 

(OJ L 217, 27/07/89) 

90/2175/EEC 

(OJL  198, 28/07/90) 
91/3451/EEC 
(OJ L 327, 29/11///91) 

91/607/EEC 

(OJ L 331, 03/12/91) 

Israel 
96/206/ECSC, EC 

OJ. L71, 20/03/96) 

Council Decision of 21 December  1987 on the conclusion of the 
Protocol laying down the conditions and procedures for the 
implementation of the second stage of the Agreement establishing an 
Association between the EEC and the Republic of Cyprus and 
adapting certain provisions of the Agreement. 
Council Regulation of 13 December  1988 on the application of 
Decision  1/88 of the EEC/Cyprus Association Council amending, as a 
result to the introduction of the HS, the protocol defining  "originating 
products" and administrative co-operation. 
Council Regulation of 28 July  1989 on the application of Decision No 
1/89 of the EEC-Cyprus Association Council derogating from  the 
provisions concerning the definition  of the concept of "originating 
products" laid down in the agreement establishing an association 
between the EEC and the Republic of Cyprus. 
Council Regulation of 22 October  1990 on the application of Decision 
4/90 of the EEC/Cyprus Association Council again amending Articles 
6 and  17 of the Protocol concerning the definition  of the concept of 
"originating products" and methods of administrative  co-operation. 
Council Decision No  1/95 of the EC-Cyprus Association Council of 22 
December  1995 derogating from the provisions concerning the 
definition of the concept of "originating products" laid down in the 
agreement establishing an association between the EEC and the 
Republic of Cyprus. 
Council Regulation of 30 October  1995 on the implementing  methods 
for decision  1/95  of the EEC/Cyprus Association Council  derogating 
j from certain provisions  laid down in the Association Agreement. 
I 

Council Regulation of 23 April  1976 concluding the Financial 
Protocol and the Protocol laying down certain provisions relating to 
the Agreement establishing an association between the EEC and 
Malta. 
Council Regulation of 18 July 1989 on the application of the Decision 
No  1/89  of the EEC-Malta Association Council amending, as a result 
of the introduction of the HS, Protocol No 2 concerning the  definition 
of the concept of "originating products" and methods of administrative 
co-operation. 
Council Regulation of 23 July 1990 on the application  of Decision 
2/90 of the EEC/Malta Association Council again amending Articles 6 
and  17 of the Protocol concerning the definition  of the concept of 
"originating products" and methods of administrative  co-operation. 
Council Regulation of 25 November  1991 implementing the joint 
declaration attached to Decision  1/89 of the EEC/Malta  Association 
Council. 
Decision No  1/91 of the EEC-Malta  Association Council of 25 
November  1991 amending Annex III of Protocol No 2 concerning the 
definition  of the concept of "originating products" and methods of 

[  administrative co-operation. 

Decision of the Council and the Commission of 22 December  1995 on 
the conclusion of an Interim Agreement on trade and trade-related 
matters between the European Community and the European Coal and 
Steel Community, of the one part and the State of Israel on the other 
part 
Protocol No 3 concerning the definition  of the concept of "originating 
products" and methods of administrative cooperation 

__ 

32 

Algeria 
78/2210/EEC 

(OJ L 263, 27/09/78) 

Egypt 
78/2213/CEE 

(OJ L 266, 27/09/78) 

89/3171/EEC 

(OJ. L310, 26/10/89) 
(OJ L310, 26/10/89) 

89/3172/EEC 

(OJL310, 26/10/89) 

(OJ L310, 26/10/89) 

Lebanon 
78/2214/EEC 

(OJ L267, 27/0978) 

80/2742/EEC 

(OJ. L286, 29/10/80) 

Decision 3/80 

(OJ L286, 29/10/80) 

Morocco 
78/2211/EEC 

1 

Council Regulation of 26 September  1978 concerning the conclusion 
of the Cooperation Agreement between the European Economic 
Community and the People' s Democratic Republic of Algeria 
Protocol No 2 concerning the definition of the concept of "originating 
products" and methods of administrative cooperation 

; 

Council Regulation of 26 September  1978 on the conclusion of the 
Cooperation Agreement between the European Economic Community 
and the Arab Republic of Egypt 
Protocol No 2  concerning the definition of the concept of  "originating 
products" and methods of administrative cooperation 
Council Regulation of 16 October  1989 on the application of Decision 
No 1/89 of the EEC - Egypt Cooperation Council amending, as a 
consequence of the introduction of the harmonised system, Protocol  ' 
No 2 concerning the definition  of the concept of  "originating 
products" and methods of administrative cooperation 
Decision No  1/89  of the EEC - Egypt Cooperation Council, of 30  v 
August  1989,  amending, as a consequence of the introduction of the 
harmonized  system, Protocol No 2 concerning the definition  of the 
concept of  "originating products" and methods of administrative 
cooperation 
Council Regulation of 16 October  1989 on the application of Decision 
No 2/89 of the EEC - Egypt Cooperation Council amending, on 
account of the accession of Spain and Portugal to the European 
Communities, the Protocol concerning the definition  of the concept of 
"originating products " and methods of administrative  cooperation 
Decision No 2/89 of the EEC - Egypt Cooperation Council, of 30 
August  1989, amending, on account of the accession of Spain and 
Portugal to the European Communities, the Protocol concerning the 
definition  of the concept of "originating products" and methods of 
administrative cooperation 

Council Regulation of 26 September  1978 concerning the conclusion 
of the Cooperation Agreement between the European Economic 
Community and the Lebanese Republic 
Protocol No 2  concerning the definition  of the concept of "originating 
products" and methods of administrative cooperation 
Council Regulation of 27 October  1980 on the application of 
EEC-Lebanon  Cooperation Council Decision No 3/80 amending the 
Protocol on the definition of the concept of originating products and 
methods of administrative cooperation to the Cooperation  Agreement 
between the European Economic Community and the Lebanese 
Republic 
Decision No 3/80 of the EEC-Lebanon Cooperation Council amending 
the Protocol on the definition  of the concept of originating products 
and methods of administrative cooperation to the Cooperation 
Agreement between the European Economic Community and the 
Lebanese Republic 

Council Regulation of 26 September  1978 concerning the conclusion 
of the Cooperation Agreement between the European Economic 
Community and the Kingdom of Morocco 
Protocol No 2  concerning the definition  of the concept of "originating 
products" and methods of administrative cooperation 

(OJ L 264, 27/09/78) 

| 

33 

Syria 
78/2216/EEC 

(OJ L269, 27/09/78) 
Tunisia 
78/2212/EEC 

(OJ L265, 2709/78) 
79/0561/EEC 

(OJ. L80, 31/03/79) 

OJ L80, 31.03.79 

89/3900/EEC 

(OJ. L375, 23/12/89) 

(OJ L 375, 23/12/89) 
Jordan 
78/2215/EEC 

(OJ L 268, 27/09/78) 

91/3579/EEC 

(OJ. L345, 14/12/91) 

(OJ L 345, 14/12/91) 
9 'i H J80/EEC 

(OJ. L345,  14/12/91) 

Council Regulation of 26 September  1978 concerning the conclusion 
of the Cooperation Agreement between the European Economic 
Community and the Syrian Arab Republic 
Protocol No 2  concerning the definition  of the concept of "originating 
products" and methods of administrative cooperation 

Council Regulation of 26 September  1978 concerning the conclusion 
of the Cooperation Agreement between the European Economic 
Community and the Republic of Tunisia 
Protocol No 2  concerning the definition  of the concept of  "originating 
products" and methods of administrative cooperation 

Council Regulation of 5 March  1979 on the application of 
EEC-Tunisia Cooperation Council Decision No 3/78 amending the 
Protocol on the definition  of the concept of originating products and 
methods of administrative cooperation to the Cooperation  Agreement 
between the European Economic Community and the Republic of 
Tunisia 
Decision No 3/78 of the EEC-Tunisia Cooperation Council amending 
the Protocol on the definition of the concept of originating products 
and methods of administrative cooperation to the Cooperation 
Agreement between the European Economic Community and the 
Republic of Tunisia 
Council  Regulation  of 4 December  1989  on the application of 
Decision No 2/89 of the EEC-Tunisia Cooperation Council amending, 
oil account of the accession of Spain and Portugal to the European 
Communities, the Protocol concerning the definition  of the concept of 
"originating products" and methods of administrative cooperation 
Decision No 2/89 of the EEC-Tunisia  Cooperation Council amending, 
on account of the accession of Spain and Portugal to the European 
Communities, the Protocol concerning the definition  of the concept of 
"originating products" and methods of administrative  cooperation 

Council Regulation of 26 September  1978 concerning the conclusion 
of the Cooperation Agreement between the European Economic 
Community and the Hashemite Kingdom of Jordan 
Protocol No 2  concerning the definition  of the concept of "originating 
products" and methods of administrative cooperation 
Council Regulation of 25 November  1991 on the application of 
Decision No 3/91 of the EEC-Jordan Cooperation Council amending, 
as a consequence of the introduction of the harmonized  system, 
Protocol 2 concerning the definition  of the concept of originating 
products  and methods of administrative cooperation 
Decision No 3/91 of the EEC-Jordan Cooperation  Council amending, 
as a consequence of the introduction of the harmonized  system, 
Protocol 2 concerning the definition  of the concept of originating 
products and methods of administrative cooperation 

Council Regulation of 25 November  1991 on the application of 

Decision No 4/91 of the EEC-Jordan  Cooperation  Council amending, 
on account of the accession of Spain and Portugal to the European 
Communities, the Protocol concerning the definition  of the~concept of 
originating products and methods of administrative cooperation 
Decision No 4/91 of the EEC-Jordan Cooperation  Council amending, 
on account of the accession of Spain and Portugal to the European 
Communities, the Protocol concerning the definition  of the concept of 

(OJ. L345,  14/12/91) 

|  originating products and methods of administrative cooperation 

34 

Palestine 
not yet published 

GSP 
93/2454/EEC 

(OJL 253,  11/10/93) 

Modified by: 
97/12/EC 
(OJL 9,  13/1/97) 
Bosnia-Herzegovina  and 
Croatia; Federal Republic of 
Yugoslavia; Former Yugoslav 
Republic of Macedonia 
93/2454/EEC 

(OJL 253,  11/10/93) 

Modified by: 
97/12/EC 
(OJ L 9,  13/1/97) 

Council Decision concerning the conclusion of an interim Association 
Agreement on trade and cooperation between the EC and the Palestine 
Authority 

Commission Regulation of 2 July 1993 laying down provisions for the 
implementation of Council Regulation (EEC) No 2913/92  establishing 
the Community Customs Code (Articles 67 to 97 relating to the 
definition of the concept of "originating products" and methods of 
administrative cooperation applicable to the importation into the 
Community of products originating in the developing countries 

Commission Regulation of 2 July 1993 laying down provisions for the 
implementation of Council Regulation (EEC) No 2913/92  establishing 
the Community Customs Code (Articles 98 to  123 relating to the 
definition  of the concept of "originating products" and methods of 
administrative cooperation applicable to the importation into the 
Community of products originating in the Republics of Bosnia-
Herzegovin and Croatia; Federativ Republic of Yugoslavia; Former 
Yugoslav Republic of Macedonia and Territories of the West Bank 
and the Gaza Strip 

35 

Turkey 
64/73 2/EEC 
(OJ L 217, 29/12/64) 

Reg 2760/72 

(OJ L 59, 5/3/72) 

(OJ L  142, 4/6/75) 

96/142/EEC 
(OJ L 35, 13/2/96) 
96/488/EEC 
(OJ L 200, 9.8.1996) 

96/528/ECSC 

(OJ L 227, 07/09/96) 

Andorra 
90/0680/EEC 
(OJ L 374, 31/12/90) 

92/116/EEC 
(OJ L 43,  19/2/92) 

91/3915/EEC 

(OJL 372, 31/12/91) 
95/502/EC 
(OJ L 288,  1/12/95) 

96/465/EC 
(OJ L  192, 2/8/96) 

San Marino 
92/561/EEC 
(OJ L 359, 9/12/92) 

Annex I 

(b) List of customs unions to which the Community is party 

Council Decision of 23 December  1963 concerning the conclusion of 
an agreement establishing an Association between the EEC and Turkey 

Council Decision of 23 November  1970 on the conclusion of the 
Additional Protocol to the Agreement establishing an association 
between the EEC and Turkey 
Decision No 4/72 of the Association Council on the definition  of the 
concept of "originating products" from Turkey for implementation of 
Chapter I of Annex No 6 of the Additional Protocol to the Ankara 
Agreement 
Decision No  1/75 of the Association Council amending Decision No * 
4/72 of the Association Council on the definition  of the concept of 
"originating products" from Turkey for implementation of Chapter I of 
Annex No 6 of the Additional Protocol to the Ankara  Agreement 
Decision No 1/95 of the Association Council EC-Turkey on 
implementing the final phase of the Customs Union 
Decision No  1/96  of the EC-Turkey Customs Cooperation Committee of 
20 May  1996 laying down detailed rules for the application of Decision 
No  1/95  of the EC-Turkey Association 
Commission Decision of 29 February  1996 on the conclusion of an 
Agreement between the European Coal and Steel Community and the 
Republic of Turkey on trade in products covered by the Treaty 
establishing the European Coal and Steel Community 
Protocol  1  on rules of origin 

Council Decision of 26 November  1990 concerning the conclusion of 
an agreement between the EEC and  Andorra. 
Appendix  concerning the definition of  'originating products ' and 
methods of administrative cooperation 

[Decision no 7/91 of the Joint Committee of 31 December  1991 
derogating from the definition  of originating products to take account of 
the particular situation of the Principality of Andorra in the field of its 
production of certain agricultural goods 
Council Regulation of  19 December  1991 laying down rules for the 
application of Decision 7/91 of the EEC/Andorra Joint Committee to 
allow for derogation from origin rules in certain agricultural goods. 
Decision no 2/95 of the Joint Committee of 6 November  1995 
derogating from the definition  of originating products to take account of 
the special situation affecting  cattle farming  in the Principality of 
Andorra 
Decision no 3/96 of the Joint Committee modifying  Decision no 7/91 of 
the Joint Committee of 31 December  1991 derogating from  the 
definition  of originating products to take account of the particular 
situation of the Principality  of Andorra in the field  of its production of 
certain agricultural  goods 

Council Decision of 27 November  1992 concerning the conclusion of 
an interim agreement on trade and customs union betweenjhe  EEC 
and the republic of San Marino. 

36 

Annex I 

(c) Internal measures 

Internal  measures 
83/3351/EEC 

(OJ L 339, 05/12/83) 

91/1911 /EEC 
(OJ  L171, 29/06/91) 

Council Regulation of 14 November  1993 on the procedure to 
facilitate the issue of certificates EUR 1  and the making out of forms 
EUR 2 under the provisions covering preferential  trade between the 
EEC and certain countries. 
Council Regulation of 26 June 1991 concerning the application of 
| Community provisions to the Canary Islands. 

I 

37 

1. Number of cases and financial  impact 

ANNEX H 

The reports produced by the Commission on the fight  against fraud  and irregularities  for 
the years  1995 and  1996 include numerous cases which illustrate this problem. A number 
of general aspects must however be mentioned : 

Cases of irregularity and fraud  involving the preferential  regimes have an impact on the 
Communities' traditional own resources. These cases are either dealt with by the Member 
States and must then be communicated to the Commission on the basis of Regulation no 
1552/89 or dealt with by the Commission in cooperation with the Member States (mutual 
assistance on the basis of Regulations nos  1468/81 and 515/97). Given that these 
irregularities offen  involve several Member States and that the investigations regularly 
require on the spot inspections in a  non member country, it is the cases which have a 
higher budgetary impact which are in general dealt with by the Commission in cooperation 
with the Member States. 

During the period  1989 to  1995, the Member States communicated  796 cases of 
irregularity affecting  traditional own resources and involving the preferential  regimes. The 
overall budgetary impact for these cases alone was ecu  111 million. 

For the year  1995, the Member States communicated to the Commission 322 cases of 
irregularity involving the preferential  regimes. The overal budgetary impact of these cases 
was ecu 52.6 million. This corresponds to  18% of all the cases of irregularity 
communicated in the area of own resources (see graph I). (As communications in this area 
are made on a 6 monthly basis, the full figures for  1996 are not yet available). 

In  1996 the Commission handled, in cooperation with the Member States in the 
framework  of mutual assistance, 39.1  c a s es  involving the preferential  regimes. For these 
cases alone the estimated global impact on traditional own resources (customs duties and 
anti-dumping duties) was ecu 220 million^. This amount corresponds to 49% of the 
estimated total number of cases of irregularity handled by the Commission in  1996 in the 
framework  of mutual assistance (see graph II) and to 47% of the estimated total number 
of cases involving traditional own resources handled in 1996 by the Commission (see 
graph I). 

Of course, these figures  only indicate cases of irregularity actually detected  either by a 
Member State (and notified  to the Commission), or by the Commission. It is therefore 
only the visible part of the iceberg. 

New cases or new investigations 

Almost  half  of  this  amount  (104  Mecu)  concerns  duties  which  have  been  formally  identified 

and are therefore  recoverable. 

38 

•f 

This is all the more so since the Member States do not fully cbmply with their obligations 
which should provide a full picture of the situation regarcjjng detected cases of 
irregularity. However, the obligations for the Member States to inform the Commission 
on the position regarding recovery procedures in progress were strengthened  with the 
most recent amendment of Regulation  1552/89  *. But, up to now, the Member States 
have not informed  the Commission on a systematic basis if their recovery efforts  have 
been successful.  Experience and practice show however that the rate of recovery by 
Member States remains low and is only about 10%. 

2. Products concerned 

Cases of irregularity involving preferential  regimes concern the following products : 

a) 

Cases communicated by the Member States in  1995 (see graph III) : 

v 

v 

agricultural products : 
. fishery products 
. electronic products  : 
. textile products  : 
. other industrial products : 

Number of cases 
20 
30 
97 
94 
81 

Budgetary impact 
15% 
17% 
32% 
24% 
12% 

100% 

b) 

Cases handeled by the Commission in 1996 in cooperation with the Member States 
(see paragraph 4) : 

. agricultural products : 
. fishery products 
. electronic products : 
. textile products : 
other industrial products : 

2 
8 
7 
15 
7 

8% 
26% 
6% 
34% 
2 6% 

Regulation no  1255/96. 

39 

TRADITIONAL  OWN  RESOURCES 
1993  r 1996 

Table  -j 

IRREGULARITlEo FORMALLY 
COMMUNICATED (#) by 
MEMBER STATES 

INQUIRIES carried put by 
the COMMISSION together 
with MEMBER STATES 

NUMBER of CASES 

2,500  i 

2.000 

1.500 

•1.000 

5PÔ 

0  4 

500 -, 

2.213 

2J&6 

2.500  -, 

2.000 A 

1.50Q 

1.000  A 

500  H 

1993 

1994 

1995 

1996 

1993 

1994 

1995 

1996 

1<& 

120 

Hi 

• H-

AMOUNTS in MILLIONS of ECU 

467 

600 -i 

«00  \ 

300  \ 

200  A 

100 

1993  1994  1995  1996 

1993  1994  1995  1996 

(<0 under Regulation (EEC) 1SS2/B9 : IncludingesUmalc (or the second haliyear 1S96. 

Ub 

ûrajih  2 

INQUIRIES CARRIED OUT BYTHE COMMISSION TOGETHER WITH MEMBER STATES 
IN 1996 
( IN THE CONTEXT OF MUTUAL ASSISTANCE) 

TOTAL estimated financial impact on  Community budget : 
448  Million  ECU  ( Customs and Antidumping duties) 

OTHER SCHEMES 
34% 

TRANSIT 
17% 

PREFERENTIAL SCHEMES 
49% 

Graph  3 

PREFERENTIAL SCHEMES : 
cases  communicated  by Member States for 1995 
TOTAL FINANCIAL IMPACT ; 52,8 Million ECU 

ELECTRONIC  PRODUCTS 
3 2* 

TEXTILE PRODUCTS 
24% 

AGRICULTURAL  PRODUCTS 
«% 

OTHER INDUSTRIAL  PRODUCTS 
12% 

RSKERY  PRODUCTS 
!7% 

PREFERENTIAL SCHEMES ; 
Inquiries carried out by the Commission together w'rfh  Member States in 1996 
( m the context of Mutual Assistance ) 
TOTAL ESTIMATED FIN. IMPACT : 220 Million ECU 

Graph 4 

FISHERY PRODUCTS 
2«tf 

OTHSl INDUSTRIAL PRODUCT? 
26%. 

AGRICULTURAL PRODUCTS 

ELECTRONIC PRODUCTS 
6* 

TEXTILE PROOUCTS' 
34%" 

•ST 

ISSN 0254-1475 

COM(97) 402 final 

DOCUMENTS 

EN 

02  09  10 

Catalogue number  :  CB-CO-97-427-EN-C 

ISBN 92-78-23777-9 

Office  for Official  Publications of the European  Communities 

L-2985 Luxembourg 

Hi