Special Report No 7/2001 concerning export refunds — destination and placing on the market, together with the Commission's replies
Date: 2001-07-11
Institutions: European Court of Auditors
Subjects: EU control, export refund

8.11.2001

EN

Official Journal of the European Communities

C 314/1

I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 7/2001

concerning export refunds — destination and placing on the market, together with the
Commission’s replies

(pursuant to Article 248(4), second subparagraph, EC)

(2001/C 314/01)

CONTENTS

Paragraph

Page

LIST OF ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I-VIII

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE COURTS AUDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FINANCIAL BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CLEARANCE OF ACCOUNTS AUDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

QUALITY OF CHECKS ON PROOFS OF ARRIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE EFFECT OF THE PROOF OF ARRIVAL SYSTEM ON RELEASE OF GUARANTEES . . . . . .

APPROVAL AND CONTROL OF SUPERVISORY COMPANIES . . . . . . . . . . . . . . . . . . . . . . . . . .

COORDINATION OF THE PROCEDURES FOR APPROVAL OF SUPERVISORY COMPANIES
FOR EXPORT REFUNDS AND FOOD AID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

RELIABILITY OF PROOFS OF ARRIVAL ISSUED BY MEMBER STATES’ EMBASSIES . . . . . . . .

TYPES OF PROBLEMS AND/OR IRREGULARITIES WHICH HAVE BEEN DETECTED IN
EXPORTS TO SPECIFIC DESTINATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Jordan — circumvention of UN embargo on supplies to Iraq . . . . . . . . . . . . . . . . . . . . . . . .

Russia — falsified import declarations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Egypt — treatment of shortages and rejected products . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Morocco — justification for refund rate and shortages . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lebanon — shortages — inconsistent follow-up by Member States . . . . . . . . . . . . . . . . . . .

1-3

4-5

6

7-8

9-13

14-16

17-32

33-34

35-38

39-80

40-42

43-47

48-53

54-57

58

Estonia — trade agreements creating the danger of carousels . . . . . . . . . . . . . . . . . . . . . . . .

59-64

Possible diversion of cheese to Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

North Korea — proof of market penetration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Japan — justification for refund rates for cheese not destined for direct consumption . . . . .

65

66-70

71-74

2

3

4

4

4

6

6

7

7

8

9

9

9

10

11

11

12

12

13

13

14

C 314/2

EN

Official Journal of the European Communities

8.11.2001

Paragraph

Page

Uruguay, Ukraine, Croatia — import declarations not evidencing clearance into free
circulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Albania — irregular proofs of arrival for imports from Greece . . . . . . . . . . . . . . . . . . . . . .

CONTAINER MOVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

75-79

80

81-83

84-91

ANNEX — PRINCIPAL REQUIREMENTS FOR THE ISSUE OF PROOFS BY SUPERVISORY

COMPANIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

14

15

15

17

18

LIST OF ABBREVIATIONS

DG AGRI

Directorate-General for Agriculture

DG RELEX

Directorate-General for External Relations

EAGGF

European Agricultural Guidance and Guarantee Fund

HZA

Ofival

OLAF

PVE

UCLAF

ZA

German paying agency

French paying agency — meat products

European Anti-fraud Office

Dutch paying agency — meat products

Unit for the Coordination of Fraud Prevention

Austrian paying agency

8.11.2001

EN

Official Journal of the European Communities

C 314/3

SUMMARY

I. Export refunds cost the EU taxpayer some 5 billion euro each year. The export refund system provides for
refund rates for certain products to be differentiated by destination, provided satisfactory evidence (proof of
arrival) is presented that the goods have been placed on the market at the declared destination. A variety of
documents can be accepted as such evidence, ranging from customs import declarations issued by the country
of destination, to bank documents evidencing payment. There are special rules for the issue of documents by
international supervisory companies.

II.
In the Court’s opinion, it is also a requirement that products attracting non-differentiated refunds, i.e. one
rate for the same product to all destinations, are placed on the market in a country which is not a member of
the EU (non-member country). However, evidence for goods attracting non-differentiated refunds is only
required in cases of doubt.

III. Ensuring that proofs of arrival are valid is a complex, time-consuming task and there is always the pos-
sibility of an uncertain result. In 1992, the Commission provided a catalogue of model proofs to assist Member
States in this task but this has not been updated. There are large disparities between Member States as regards
checks carried out on proofs of arrival (see paragraphs 9 to 13).

IV. Whilst the Commission evaluates proofs presented for transactions it has selected for testing under its
clearance of accounts procedure, it has not audited the proof of arrival system apart from that identified in
paragraph 7. It has nevertheless identified major weaknesses in Member States’ checks at the time of export,
which have resulted in financial corrections amounting to 188 million euro (see paragraphs 7 and 8).

V. Some Member States have not carried out the required audits of approved supervisory companies. Where
such audits have been carried out, serious shortcomings and irregularities have been detected. These have not
always been satisfactorily followed up. When approval has been withdrawn in one Member State, the with-
drawal has not been effective for other members of the same group of companies approved in other Member
States. Approvals were not always withdrawn when they should have been (see paragraphs 17 to 32).

VI. Member States did not issue guidelines to their embassies on checks to be carried out before issuing cer-
tificates of unloading. Embassy proofs were, for the most part, issued on the basis of documentary checks.
Physical checks at the time of unloading were rarely performed (see paragraphs 35 to 38).

VII. OLAF and DG AGRI have detected or caused to be detected a number of serious irregularities and sus-
pected frauds in some of the most important export refund destinations. Supervisory companies are implicated
in some of these irregularities. The Court’s audit has uncovered further suspected irregularities and instances
where the justification for payment of refunds to certain destinations is questionable (see paragraphs 39 to
80). The suspected irregular payments referred to in this report amount to some 100 million euro. The Com-
mission should ensure that recovery action is initiated in those cases where this has not already been done.

C 314/4

EN

Official Journal of the European Communities

8.11.2001

VIII. The Court considers that for those products where export refunds are required it would be preferable to
apply one refund rate for each product to all destinations. However, the Court recognises that at the present
time for various reasons, including existing trade agreements, this is not possible. In view of the compliance
cost burden on administrations and trade alike, and in view of the minimal assurance provided by the system
of proofs of arrival, consideration should therefore be given:

— to requiring proofs of arrival only in cases of doubt, or for high risk destinations,

— to intensifying the a posteriori checks carried out by Member States on placing on the market to include
consultation of shipping and container movement databases and records held by hauliers for all transac-
tions selected for audit (see paragraphs 84 to 86).

INTRODUCTION

THE COURT’S AUDIT

1. Export refunds are paid to exporters of agricultural products
to non-member countries. Their purpose is to compensate export-
ers for the difference between EU internal market prices and those
prevailing on the world market. Thereby, they enable exporters to
open, or keep open, export markets for EU products (1). They also
contribute to maintaining the internal market equilibrium. Pay-
ment of export refunds is not justified where the operation is not
a normal commercial transaction (2), since it has no real eco-
nomic purpose and is effected solely to obtain a payment from
the Community (3).

2. For some products, such as beef and cheese, rates of refund
vary according to the destination (differentiated refunds) and the
exporter’s entitlement to the refund is therefore dependent on the
submission of proof that the goods have been placed on the mar-
ket in the declared destination (proofs of arrival) (4). For other
product groups there is a single rate of refund for all destinations
for each individual product (non-differentiated refunds). Except in
cases of doubt, exporters are not required to submit proofs of
arrival for non-differentiated transactions. In the Court’s opinion,
it is, nevertheless, a requirement that products attracting non-
differentiated refunds are imported into a non-member country
within 12 months of the date of export (5).

4. This report deals with the placing of goods on the market in
non-member countries. It examines the Commission’s manage-
ment of this requirement including the justification for differenti-
ated refunds; the problems created by such a system; and Member
States a priori checks on the validity of proofs of arrival (6).

5. The observations in this report are based on evaluation of
Member States’ systems for acceptance of proofs of arrival; evalu-
ation of proofs of arrival; consultation of shipping and container
movement databases and information on imports held by non-
member countries; and, examination of information at OLAF
concerning export refund destination irregularities. The period of
reference for transaction testing was the 1998 EAGGF year. How-
ever, some of the cases described in the report relate to other
EAGGF years.

FINANCIAL BACKGROUND

3. Accredited agencies in Member States are responsible for
making payments to exporters. The control of the legality and
regularity of export refund claims is, in the first instance, the
responsibility of Member State authorities.

(1) Observations submitted by the Commission in ECJ cases C-125/75

and C-89/93.
(2) Excluding food aid.
(3) Commission Regulation (EC) No 800/1999, recital 24 (OJ L 102,

17.4.1999).

(4) Article 16 of Commission Regulation (EC) No 800/1999 (OJ L 102,

17.4.1999).

(5) Article 20(1)(c)(i) of Commission Regulation (EC) No 800/1999

(OJ L 102, 17.4.1999).

6.
In the 1998 EAGGF year, refunds totalled some 4 800 million
euro (some 12,4 % of the EAGGF budget). Table 1 shows the dis-
tribution of payments by measure; Table 2 by exporting Member
State; and Table 3 principal destination. Payments of some 900
million euro were differentiated by destination. Table 4 shows the
principal destinations for these payments.

(6) These are checks carried out by paying agencies on proofs of arrival
submitted by the exporters prior to the release of the guarantee. They
also include the system of approval of supervisory companies for the
purpose of issuing certificates of unloading and release for consump-
tion.

8.11.2001

EN

Official Journal of the European Communities

C 314/5

Distribution of export refund payments by measure — 1998 EAGGF year

Table 1

No of budget heading

Measure

2 0 0 0-2 0 0 3
1 1 0
2 1 0
3 0 1 0-3 0 1 9
1 0 0 0-1 0 0 3
2 3 1 0-2 3 1 1
2 3 0 0
1 5 0 0-1 5 1 0
1 8 5 0
1 6 0
3 1 1 0-3 1 1 9
1 2 0
3 0 0

Refunds on milk and milk products
Refunds on sugar and isoglucose
Refunds on beef/veal
Refunds on certain goods obtained by processing agricultural products
Refunds on cereals
Refunds on eggs and poultrymeat
Refunds on pigmeat
Refunds on fresh fruit and vegetables
Refunds on rice
Refunds on products of the vine-growing sector
Refunds in connection with food aid
Refunds on olive oil
Refunds on cereals exported in the form of certain spirituous beverages

Outturn 1998

Percentage of
total

(Mio EUR)

Cumulative

1 427
1 265
774
544
429
91
74
58
50
41
35
25
12
4 826

Total

30
26
16
11
9
2
2
1
1
1
1
1
0

30
56
72
83
92
94
95
97
98
99
99
100
100

NB: The amounts are rounded.
Source: Budget outturn 1998.

Table 2

Table 3

Distribution of export refund payments by exporting Member
State — 1998 EAGGF year

Total export refund payments by principal destination — 1998
EAGGF year

Member State

Export
refunds

Percentage of
total

Cumulative
percentage

Destination

Refunds

Percentage of
total

Cumulative
percentage

(Mio EUR)

(Mio EUR)

France
Germany
Netherlands
Belgium
Italy
Ireland
Denmark
United Kingdom
Spain
Finland
Austria
Sweden
Greece
Portugal
Luxembourg

Total (1)

1 355
652
630
411
367
343
339
318
179
115
62
58
45
27
0
4 902

28
13
13
8
7
7
7
6
4
2
1
1
1
1
0
100

28
41
54
62
70
77
84
90
94
96
97
99
99
100
100
100

(1) Raw data, before reconciliation with Table 104 (‘EAGGF-Guarantee section
expenditure and forecasts’ — transmitted by each Member State to the Commis-
sion.

NB: The amounts are rounded.
Source: Export refund data supplied by Member States EAGGF year 1998.

Russia
Algeria
Saudi Arabia
Egypt
Syria
Iran
USA
Lebanon
Israel
United Arab Emirates
Japan
Iraq
Norway
Switzerland
Libya
Morocco
Mexico

Other

591
344
270
237
148
144
134
130
118
100
97
84
74
72
59
58
55
2 188

12,1
7,0
5,5
4,8
3,0
2,9
2,7
2,6
2,4
2,0
2,0
1,7
1,5
1,5
1,2
1,2
1,1
44,6

Source: Member States’ export refund data EAGGF year 1998.

12,1
19,1
24,6
29,5
32,5
35,4
38,2
40,8
43,2
45,2
47,2
48,9
50,4
51,9
53,1
54,3
55,4
100,0

C 314/6

EN

Official Journal of the European Communities

8.11.2001

Table 4

Differentiated export refund payments by destination — 1998
EAGGF year

Destination

Payments

Percentage of
total

Cumulative
percentage

(Mio EUR)

involved. For example, refunds of 1 million euro were paid for a
non-differentiated export of bulk sugar on the basis of a single
customs endorsement that the goods had left the Community
customs territory, whereas transport documents and proofs of
arrival were required in addition for the export of a container of
beef for which refunds of some 15 000 euro had been paid.

Russia
Egypt
Lebanon
Iran
Saudi Arabia
USA
Japan
Algeria
Morocco
South Africa
United Arab Emirates
Tunisia
Israel
Croatia
Angola
Other

Total (1)

299
138
70
63
62
35
26
23
15
11
10
10
9
8
8
142
929

32
15
8
7
7
4
3
2
2
1
1
1
1
1
1
15
100

32
47
55
61
68
72
75
77
79
80
81
82
83
84
85
100
100

(1) Raw data, before reconciliation with Table 104 (‘EAGGF-Guarantee section
expenditure and forecasts’ — transmitted by each Member State to the Commis-
sion.

Source: Export refund data supplied by Member States EAGGF year 1998.

CLEARANCE OF ACCOUNTS AUDITS

7. During the course of its audits of the regularity of export
refund payments the Commission has always evaluated the proofs
of arrival presented for selected transactions. Having identified
Germany as the principal user of supervisory company certifi-
cates, it has also initiated a specific investigation in respect of cer-
tificates of unloading presented by supervisory companies in that
Member State (see paragraphs 29 and 30). Prior to the Court’s
audit, it had not, however, specifically audited the system for evi-
dencing the placing of goods on the market in declared non-
member destinations.

8. The Commission’s clearance of accounts systems audits have
principally been directed at the quality and incidence of physical
controls of exported products. These audits have identified major
weaknesses in the physical checks of the descriptions and quanti-
ties of products exported with refunds. As a result, significant
financial corrections have been imposed, the latest of which have
been set at 5 % of export refund expenditure for Belgium, Den-
mark, Germany, Greece, France, Italy and the United Kingdom,
amounting in total to 188 million euro.

QUALITY OF CHECKS ON PROOFS OF ARRIVAL

10. A variety of documents may be accepted as proofs of
arrival (1). The preferred documents are customs import declara-
tions or certificates of importation issued by approved supervi-
sory companies (primary proofs). If these are unobtainable, other
documents, some of which are not accountable (2), ranging from
certificates of unloading to bank documents evidencing payment
for the goods in question, may be accepted (secondary proofs).

In October 1992, DG AGRI distributed the results of a study
11.
covering the documents used as proofs of arrival by 58 non-
member countries. Because of the constant changes to importa-
tion documents in non-member countries and the increasing use
of computerised customs clearance procedures, this document
rapidly became obsolete. At the moment, each paying agency
bears the entire responsibility for evaluating the validity of the
proofs of arrival which it receives. Apart from OLAF’s initiative
in the case of Russia (see paragraphs 43 to 47), there is no har-
monisation and no operational procedure for the evaluation of
the validity and regularity of primary and secondary proofs of
arrival. Thus, for the same destination, the same type of proof of
arrival may be accepted by one Member State and rejected by
another according to each Member State’s requirements.

12. The management and control systems for proofs of arrival
differ from Member State to Member State and from paying
agency to paying agency. Some paying agencies, such as the HZA-
Hamburg Jonas in Germany, ZA Salzburg in Austria, Ofival in
France and PVE in the Netherlands have a separate office respon-
sible for collecting, analysing, checking and archiving the various
proofs of arrival at destination which are attached to the applica-
tions for payment of refunds. These paying agencies have also
designed a monitoring system which enables comparative studies
to be made of the stamps, the signatures and the existence of the
customs offices in the countries of destination. Nevertheless, the
paying agencies in France and in the Netherlands do not exchange
their information on the proofs of arrival. In Belgium, Greece,
Spain and Finland, the paying agencies do not have an efficient
system ensuring identification and monitoring of the proofs of
arrival at destination.

13. Given the lack of coordination, the duplication in verifica-
tion of proofs and the inconsistency in acceptance of proofs, the
Commission should be responsible for coordinating verifications
with non-member countries and for maintaining and updating
the files of model proofs of arrival which Member States’ paying
agencies may accept.

9. Apart from the differences in the administrative requirements
for different product sectors reflecting their specific characteris-
tics, the requirement for presenting proofs of arrival creates a dis-
proportionate administrative burden in relation to the amounts

(1) Article 16 of Commission Regulation (EC) No 800/1999 (OJ L 102,

17.4.1999).

(2) An accountable document is, for example, one which is recorded in

an accounting system and against which a debt is settled.

8.11.2001

EN

Official Journal of the European Communities

C 314/7

THE EFFECT OF THE PROOF OF ARRIVAL SYSTEM ON
RELEASE OF GUARANTEES

14. Refunds are payable in advance on condition that a guaran-
tee is lodged. The guarantee is released when all required docu-
ments,
including proofs of arrival have been presented and
accepted.

15. The numbers of cases of non-released securities and corre-
sponding amounts for the various Member States are shown in
Table 5. Most of the open cases fall between 1995 and 1998, but
some date back to 1990.

Table 5

Outstanding guarantees — Advance payments and prefinanced
goods

Member State

No of cases

France/Ofival
Italy
Denmark
Germany
Spain
Austria

2 103
298
6 317
1 697
146
31

Source: Paying agency records.

Value

123,0
30,4
26,0
17,8
9,4
0,8

(Mio EUR)

Date

10.6.1999
31.12.1998
30.6.1998
16.11.1998
16.12.1998
21.12.1999

working paper also provides for control and verification proce-
dures to be followed by the agencies for the issue of certificates
and it defines Member States’ responsibilities for controlling the
performance of the agencies. The Annex contains a summary of
the main requirements. Since 1999, provisions for the approval
of supervisory companies have been incorporated in the basic
export refund regulation. The only sanction foreseen for compa-
nies who fail to fulfil approval conditions or who issue irregular
certificates is the withdrawal of the approval. When approval is
withdrawn it should apply in all Member States. There are cur-
rently 28 supervisory companies approved by Member States, 15
of the approved companies belong to just four groups.

18. The issue of proofs of arrival, for which a charge of about
250 euro per document is made, may form only a minor part of
the business services provided by supervisory companies to their
clients. There is therefore the risk of a confusion of interest. In
one case a supervisory company complied with the request from
its client to certify the bill of lading weight only (United King-
dom). In another case a supervisory company, approved in the
Netherlands, stopped issuing proofs because it wanted to keep its
reputation clean.

19. Belgium, Greece, Spain, France, Finland, and the United
Kingdom approved supervisory companies without prior audit to
ensure that the conditions of approval laid out in the guidelines
were fulfilled. Greece, France and the United Kingdom have recti-
fied this when renewing approvals.

16. The delays in release of the guarantees were variously justi-
fied as being old cases still before the national courts (all Member
States listed in Table 5); the non-reliability of Russian customs
documents (Denmark and Germany); the introduction of new
computer systems combined with a high turnover of staff (Den-
mark); the separation of administrative tasks (Spain); or staff
shortages (Italy). The system is further complicated in France
where the management of guarantees is split between Customs
and paying agencies. However, the number of non-discharged
guarantees is also attributable to the complexities of the system
of proofs of arrival.

APPROVAL AND CONTROL OF SUPERVISORY COMPANIES

20. Only Germany had checked supervisory companies’ meth-
ods for the issue of proofs on the spot in two non-member coun-
tries.

21. Belgium, Greece, the Netherlands and Finland have not
audited the regularity of refund claims supported by supervisory
company certificates against the underlying documentation held
by those companies.

17. Supervisory agencies have to be approved for the issue of
certificates of arrival by Member State authorities. The approvals
are for three years at a time. The basis for approval of these agen-
cies was laid out in a DG AGRI working paper in 1994 (1). The

(1) VI/2705/93 Rev. 7 26.10.1994.

22. Belgium, Denmark, Germany, Spain, Finland and the United
Kingdom could not readily identify claims supported by supervi-
sory company certificates and therefore could not select claims
for audit from the population of refund payments. Instead, cer-
tificates were selected for testing from the supervisory companies’
own records without assurance that such records were complete.

C 314/8

EN

Official Journal of the European Communities

8.11.2001

23. There were no requests from one Member State to another
to audit certificates which it had accepted and which had been
issued by a supervisory company approved in another Member
State (1).

24. Suspected irregularities detected during the course of Mem-
ber States’ audits of supervisory companies were not followed up
with a view to recovery (Belgium, Netherlands, United Kingdom).

25. Approvals were withdrawn for companies by the United
Kingdom for inadequate records; by Italy for suspected complic-
ity in an irregularity; and in Germany (see paragraph 29) and
Greece for issue of irregular certificates.

26. When approval was withdrawn by one Member State, the
approvals of associated companies within the same group were
not withdrawn by other Member States, even though all members
of the group use the same methods, personnel and information
in non-member countries. Any failure to carry out the required
checks at the destination would therefore apply equally to all
approved associated companies. The Commission should there-
fore be directly responsible for approval of supervisory compa-
nies in order to ensure uniform treatment.

27. Even though the Dutch authorities established that a super-
visory company had issued certificates without the necessary
checks having been carried out at the time of unloading and cus-
toms clearance of the goods in non-member countries, they did
not withdraw the approval of the company in question or initiate
recovery action.

28. One approved company was implicated in the issue of irregu-
lar proofs of arrival in Jordan (see paragraphs 40 to 42).

29. At the initiative of the Commission’s clearance of accounts
unit, Germany checked all proofs of arrival relating to export of
cattle and beef issued by supervisory companies. These checks
identified irregular proofs of arrival for refund claims amounting
to 72,1 million euro (17 % of the refunds paid between 1994 and
1996) and doubtful proofs for a further 175,5 million euro
(40 %) (2). Recovery orders, all of which are under appeal, have
been issued for 60,4 million euro, covering the irregular proofs
of arrival and inadequate transport documents. Based on the Ger-
man report and several bilateral discussions, the Commission has
imposed a financial correction of 25 %, some 20,8 million euro (3),
because of the grave systems weaknesses identified.

(1) As a result of the Court’s observations, Austria has initiated cross-

checks for a random selection of such proofs.

(2) Paragraph 9 of the Summary Report on the financial clearance of the

EAGGF Guarantee Section of 16 October 2000.

(3) Commission Decision 2001/137/EC (OJ L 50, 21.2.2001).

30. At the date of the audit, there had been no follow-up inves-
tigations in other Member States of certificates issued by the
supervisory companies concerned in the German investigation.
Companies belonging to the same group were also approved in
eight other Member States. In addition to this, Spain, Italy, the
Netherlands, Austria and Finland had accepted proofs issued by
supervisory companies in Germany. Only Austria has quantified
the refunds concerned which amount to some 3,7 million euro.
The Commission should initiate investigations of all certificates
issued by the companies concerned and accepted in other Mem-
ber States.

31. Since 1996, OLAF investigations have uncovered irregulari-
ties of some 10,6 million euro involving proofs of arrival issued
by supervisory companies approved in Germany, Italy and the
Netherlands. This amount mainly concerns exports of beef and
poultry to Jordan and wine to the former Yugoslav Republic of
Macedonia.

In view of the irregularities, the absence of necessary checks
32.
and lack of follow-up action identified in paragraphs 17 to 31,
little reliance can be placed on proofs of arrival presented by
supervisory companies.

COORDINATION OF THE PROCEDURES FOR APPROVAL OF
SUPERVISORY COMPANIES FOR EXPORT REFUNDS AND
FOOD AID

33.
In 1993, the Commission (DG RELEX) created a special
approval procedure for control and supervisory companies which
are candidates for the task of monitoring food aid programmes.
Exports of agricultural products carried out within the frame-
work of these programmes also allow the operators to take
advantage of export refunds.

34. From 1993 to 2000, the various public tendering proce-
dures launched by the Commission to select monitoring compa-
nies did not impose any obligation on the supervisory companies
to obtain, in advance, the approval stipulated in the Community
regulations concerning export refunds. The lack of co-ordination
between the Commission’s various departments (DG AGRI and
DG RELEX) and of harmonisation in the approval procedures
relating to control and supervisory agencies has led to non-
approved companies issuing proofs of arrival at destination which
were subsequently used to take advantage of export refunds.

8.11.2001

EN

Official Journal of the European Communities

C 314/9

RELIABILITY OF PROOFS OF ARRIVAL ISSUED BY MEMBER
STATES’ EMBASSIES

35. Member States’ embassies may certify a primary proof as
being a true copy of the original. They may also issue secondary
proofs in the form of certificates of unloading (1). These proofs
should certify that the products have left the port area, or at least
have not been reloaded for re-exportation. Regulatory conditions,
similar to those for approval of supervisory companies, and issu-
ing of certificates of unloading do not apply to embassies. It is
however implicit that in order to issue a certificate of unloading
the embassy should either carry out the same checks as those
required of supervisory companies i.e. physical checks at the time
of unloading (2) or, in duly justified exceptional cases where physi-
cal checks could not have been carried out, a posteriori checks on
the basis of documentation such as that recording unloading and
customs clearance. They should also maintain a file for each cer-
tificate issued. As a result of the Court’s observations the Com-
mission has pointed out to Member States that Member States’
embassies should carry out the same checks as supervisory com-
panies (3).

36. Denmark (4), France (5) and Ireland (6), (see paragraphs 48 to
53) the principal Member States using embassies to provide sec-
ondary proofs, and Germany, the Netherlands and Spain, who
also accepted embassy proofs to a lesser extent, did not have
guidelines for embassies on checks to be carried out before issu-
ing such proofs. In practice, the majority of such proofs have been
issued as a result of a posteriori documentary checks which, by
analogy with the conditions applying to supervisory companies,
should only be done in duly justified exceptional cases. Examples
were also found of failure to maintain files and of certificates
issued on the basis of documentation provided by the exporter
(Denmark) (7).

(1) Article 16(1)(a) and (2)(b) of Commission Regulation (EC) No 800/

1999 (OJ L 102, 17.4.1999).

(2) Denmark has replied to the Court’s observations, stating that it sees
no justification for embassy officials to carry out physical checks at
the time of unloading.

(3) Meeting of Trade Mechanisms Committee of 12 September 2000.
(4) As a result of the Court’s observations, the Danish Ministry of Foreign
Affairs has stated that it will ensure that its ‘Quality handbook for the
promotion of exports’ is updated and that embassies will scrupu-
lously adhere to guidelines for the issue of proofs of arrival.

(5) As a result of the Court’s observations, the French authorities have
announced that, from February 2000, embassy proofs will only be
accepted as a last resort.

(6) There is a trader notice concerning documents to be presented to the
Irish Embassy in Egypt in order to obtain the required certificates.
These certificates are intended to be endorsements of primary proofs,
but in practice are used as secondary proofs as the net weights taken
into account are those on the embassy certificates and not those on
the Egyptian import documents.
In these cases the goods were subject to unauthorised reloading in
Denmark without customs control, even though the goods were in
sealed containers consigned directly from Spain to Russia. There is
also conflicting information on one of the export declarations. As a
result of the Court’s observations, Spain has initiated an investigation
into exports to Russia by the company involved.

(7)

37. Because the precise source of proofs of arrival is not recorded
in paying agency databases, it was not possible to establish the
total value of refunds involved. In France, during 1997 and 1998,
1 584 refund claims were supported by embassy certificates of
unloading. Denmark could not establish the value of claims
involved because they could not be identified by computer. In Ire-
land, the majority of export refund claims for beef to Egypt were
supported by embassy certificates. In the 1999 EAGGF year, these
would have amounted to some 120 million euro.

38. The absence of guidelines on checks to be carried out and
the absence of physical checks constitute serious weaknesses in
the procedures for the issue of secondary proofs of arrival by
embassies. The validity of such proofs thus far issued must there-
fore be considered questionable.

TYPES OF PROBLEMS AND/OR IRREGULARITIES WHICH
HAVE BEEN DETECTED IN EXPORTS TO SPECIFIC
DESTINATIONS

39. The following paragraphs illustrate the unreliability of the
system of proofs of arrival and question the justification for
refunds, or differentiated refunds to certain destinations.

Jordan — circumvention of UN embargo on supplies to Iraq

40. Having identified a significant increase in exports of beef,
veal and poultry to Jordan in the years following 1991, UCLAF
carried out an investigation with German and Dutch officials in
Jordan in 1998 which confirmed irregularities designed to cir-
cumvent the UN trade embargo against Iraq. Refunds were not
payable for exports to Iraq unless the exporter had obtained prior
UN authorisation for the export in question. Large quantities of
meat and poultry declared through Jordanian Customs were sus-
pected as not being intended for domestic consumption there
(41 244 tonnes involving refunds of some 80 million euro). In
most of the transactions examined the final destination was Iraq.
To circumvent the embargo, the operators used forged or incom-
plete Jordanian documentation.

41. As a result of the investigation, in July 1998 UCLAF requested
Member States involved in the exports to Jordan to recover export
refunds unduly paid. At that stage transactions were already dis-
charged and guarantees released. Subsequently:

C 314/10

EN

Official Journal of the European Communities

8.11.2001

(a) Germany issued recovery notifications in 1999, totalling 23
million euro, all of which have been appealed and the cases
are pending;

(b) Italy issued recovery notifications for some 6 million euro in
1999 all of which have been appealed and the cases are pend-
ing. One beneficiary, notified for recovery of some 980 000
euro, has already been declared bankrupt;

arrival for export refund claims, were being falsified. OLAF estab-
lished an ongoing contact with the Russian Customs service in an
effort to validate import declarations referred by paying agencies
in Member States. Initially lists of valid codes for Russian Customs
offices, which appear on the import declarations, were obtained.
These were used as a first check of the validity of the import dec-
larations but were not circulated to all paying agencies.

(c)

in January 2000, the Netherlands informed the Court that
export refunds of 9 million euro, including penalties, are to be
recovered. As of January 2001 these cases were before the
national commercial court and consideration was being given
to requesting alternative proofs from the exporters. Action in
respect of a further quantity of 1 546 tonnes of beef and poul-
try is still outstanding;

44.
In the period June 1999 to August 2000, Member States
referred 699 Russian import declarations to OLAF where there
were doubts as to their validity. As at August 2000, OLAF had
received replies from the Russian Customs service on their checks
of the validity of 424 import declarations. The replies indicated
that:

(d) France took no recovery measures in respect of a batch of 500
tonnes of beef and poultrymeat shipped to Aqaba/Free Zone
on 24 September 1993 because, according to French law, this
operation is statute-barred. It should be noted that, in October
1993, Ofival received a letter from a Jordanian company
describing in exact detail the conditions under which the
goods exported to Jordan were diverted to Iraq with the help
of forged proofs of arrival. The paying agency promptly
launched an inquiry through the Councillor to the French
Embassy in Jordan and informed the operators of the risks in
connection with exports to this destination. As no particular
anomaly was discovered, Ofival did not consider it worth-
while to inform the national investigation services or the
Commission;

(e) Ireland proved for 2 690 tonnes that the goods were legally
exported to Iraq with UN authorisation but there are still 510
tonnes which have not yet been accounted for;

(f) Denmark has not commenced recovery action in respect of
144 tonnes of beef and 113 tonnes of poultry because the
Dutch authorities have not provided details of the shipments
which were from Dutch ports;

(g) as of December 2000, Belgium had not informed OLAF of
any recovery action in respect of 748 tonnes of beef and 1 064
tonnes of poultry.

42. Member States’ follow-up action is unsatisfactory. Further-
more, OLAF does not have the powers to ensure a strict and
timely follow-up of its findings by Member States.

Russia — falsified import declarations

— 90 cases (21,2 %) were genuine,

— 10 cases (2,4 %) were too old to check,

— 324 cases (76,4 %) were irregular.

45.
It should be stressed that just because the Russian import
declarations were found to be false does not necessarily mean that
the export in question was not genuine. The incentive for Rus-
sian importers to misdeclare sound beef as offal in order to obtain
a lower rate of duty is as much as for an EU exporter to declare
offal as sound beef in order to obtain a higher rate of refund.
However, for this very reason they are unsatisfactory proofs for
export refund purposes.

46.
In recognition of this problem the Commission issued a
decision in July 1999 indicating a list of alternative proofs of
arrival which could be accepted (1). The Commission has also set
up a procedure for online exchange of information with the Rus-
sian Customs (2).

47.
It remains to be seen whether the introduction of the above
system of communication, which imposes additional require-
ments on the exporter and the ‘central body’ designated by Mem-
ber States, will increase the reliability of the system and facilitate
the discharge procedures of export refund claims or whether it
will further complicate administrative procedures.

43.
In the 1998 EAGGF year refunds on exports to Russia
amounted to some 591 million euro. During that year, it became
apparent that Russian import declarations, used as proofs of

(1) Commission Decision K(1999)2497 of 28 July 1999.
(2) Commission Regulation (EC) No 2584/2000 of 24 November 2000
establishing a system for the communication of information on cer-
tain supplies of beef, veal and pigmeat by road to the territory of the
Russian Federation.

8.11.2001

EN

Official Journal of the European Communities

C 314/11

Egypt — treatment of shortages and rejected products

48. Refunds on exports of beef to Egypt in the 1998 EAGGF year
amounted to 131,9 million euro, 21 % of all refunds on beef. The
proofs of arrival presented in the majority of cases were Egyptian
Customs import declarations. In a significant number of cases
examined (1) these declarations indicated differences between the
gross weights and numbers of cartons shown on the bills of lad-
ing (which correspond to the quantities on the export refund dec-
laration) and those released into free circulation on the Egyptian
market (2). The treatment of these differences, however, varied
according to Member State.

49. The Egyptian customs import declarations, accepted by the
Irish and French paying agencies, were accompanied by certifi-
cates from their embassies in Egypt to the effect that the net
weights, as shown on the bills of lading, had been released into
free circulation. Although these certificates indicated the differ-
ences in gross quantities and numbers of cartons identified on the
Egyptian customs declarations, the paying agencies accepted the
embassy certificates for the full net weight and released the guar-
antees (3) in full.

50. The Egyptian customs declarations accepted by the German
paying agency were accompanied by certificates from an unap-
proved supervisory company which also provided the transla-
tions. These certificates explained the differences in quantity as
samples taken by Egyptian Customs. The German paying agency
accepted the supervisory company certificates explaining the dif-
ferences and released the guarantees in full.

51. The Commission has confirmed that the differentiated part
of the refund is payable only on the actual quantity released for
consumption (but not on any quantity higher than that on the
refund declaration). Member States have therefore incorrectly
accepted weights certified on secondary proofs by embassies,
rather than those indicated on the primary proofs, the Egyptian
import declarations. These systematic irregularities have therefore
been referred to the Commission to follow up quantification and
recovery.

(1)

In the first six months of 1998 there were shortages in 14 of 25 ship-
ments from Ireland attracting export refunds.

(2) Export refunds are calculated on the net weight. Egyptian import
duties are ad valorem and therefore Egyptian customs do not check net
weights. However, their checks on gross weights and numbers of car-
tons give indications of shortages. The effect of these shortages on the
net weights should be calculated by the paying agencies.

(3) Differentiated refunds are paid subject to the claimant lodging a guar-
antee. This guarantee is released if satisfactory proof of arrival is pre-
sented by the claimant within 12 months of the date of export.

52. A continuing problem with exports of beef to Egypt is that
some consignments are rejected because the beef does not meet
the Egyptian health specifications or because it exceeds the Egyp-
tian maximum fat content limit (4). One transaction selected for
testing in Ireland involved such a rejection.

53. An Irish company exported 1 252 tonnes of beef to Egypt
in August 1997, with refunds amounting to some 1,07 million
euro. The Egyptian authorities rejected 1 000 tonnes which were
re-exported to Ireland in January 1998. Permission was granted
for temporary reimportation of the beef without loss of refunds,
provided it was re-exported from the EU by the end of March
1998. As at February 1999, the beef had still not been re-exported
and at the date of the audit in August 1999 the company had not
been requested to reimburse the refunds overpaid and penalty due
of 20 %, totalling some 1,3 million euro. The Irish authorities
have since initiated recovery action.

Morocco — justification for refund rate and shortages

54. Morocco is the principal destination for exports of pure-
bred bovine animals. Over the last 10 years, exports have amounted
to some 96 000 tonnes (equivalent to some 174 000 animals).
Refunds paid in the 1999 EAGGF year totalled some 8,5 million
euro. There are virtually no exports of animals for slaughter. The
refund rate for the type of pure-bred animal exported to Morocco
is 38,5 euro per 100 kg higher than the rate for equivalent ani-
mals destined for slaughter. Rates for most live animals are dif-
ferentiated. Those for pure-bred animals are, however non-
differentiated and therefore proofs of arrival are not required.
There is no duty on pure-bred animals imported into Morocco.
Animals for slaughter attract a duty rate of 300 %.

55. EU rules defining the conditions for classification of imported
animals as pure-bred require them to be kept for at least 12
months before slaughter (5). Failure to observe this condition
results in the reclassification of the animal as one for slaughter
and duties are charged.

56. By analogy this rule should apply to exports which are cov-
ered in the same regulation. However, as the EU has no ready way
of informing itself whether or not such a condition is respected
in the non-member country of destination, it is questionable
whether pure-bred breeding animals should attract a higher rate
of refund than the equivalent animals destined for slaughter.

(4) See also observations in the Court’s Annual Report on the 1996
financial year paragraphs 5.20 to 5.38. (OJ C 348, 18.11.1997).
(5) Commission Regulation (EEC) No 2342/92 (OJ L 227, 11.8.1992,

p. 12).

C 314/12

EN

Official Journal of the European Communities

8.11.2001

Information obtained by the Court from Morocco also indi-
57.
cates that some animals have been found dead on arrival and oth-
ers have not met the Moroccan conditions for classification as
pure-bred animals. The number of such cases is relatively small
but it illustrates the inconsistency of treatment with live animals
destined for slaughter, where a proof of arrival is required which
should result in a reduction of refunds to take account of the dead
animals. In Denmark and France the suppliers issued credit notes
in respect of the dead animals but refunds were not recovered at
that time. As a result of the Court’s observations investigations
have now been initiated.

Lebanon — shortages — inconsistent follow-up by Member
States

58. Lebanon is the principal destination for live bovine animals
destined for slaughter. Refunds paid in the 1998 EAGGF year
amounted to some 58 million euro. An OLAF investigation uncov-
ered a number of irregularities involving false proofs of arrival,
weight shortages, dead animals and incorrect classification of ani-
mals for slaughter as pure-bred. France has so far issued recovery
orders for some 161 000 euro. Investigations are continuing. In
Italy, however, the criminal case has been dismissed by the national
courts and recovery action for refunds overpaid has not been ini-
tiated.

Estonia — trade agreements creating the danger of carousels

59. The EU has a free-trade agreement with Estonia covering
milk products. Consequently, there are no duties payable on
imports into Estonia of butter from the EU and imports into the
EU of butter from Estonia are at reduced rates of duty (1). The EU
pays refunds on exports of butter to Estonia. In the 1998 EAGGF
year, refunds on butter to Estonia amounted to 6,9 million euro.
At the same time, the volume of imports of butter from Estonia
has been significant. Table 6 shows the quantities of butter imported
from and exported to Estonia from 1996 to 1999.

60. The risk of EU butter, exported with refunds to Estonia, being
reimported as Estonian butter was identified by OLAF in 1997
and Member States were informed.

61. On the basis of laboratory tests, the German Customs authori-
ties concluded that butter, declared on import to the EU to be of
Estonian origin, had not been manufactured there. It was there-
fore not eligible under the free-trade arrangements. Recovery
orders were issued in Germany for some 700 000 euro in under-
paid duties.

62. As a result of its investigations in Estonia, OLAF concluded
that it was difficult to trace the movement of EU butter once
cleared into free circulation. The investigation by the Estonian
authorities proved that an Estonian company, a major exporter of
butter to the EU, had insufficient evidence to support the issue of
movement certificates. These certificates are required in order for
the butter to benefit from reduced rates of duty on import into
the EU. In a 12-month period in 1996/1997 this company had
imported 1 056 tonnes of EU butter and exported to the EU 1 107
tonnes. The Member States concerned (Germany, France and the
Netherlands) have subsequently initiated action to collect duties
underpaid. These are estimated at some 3 million euro.

63. The free-trade arrangements in milk products with Estonia
should have taken into consideration the possibility of the ben-
efits which could be obtained from reimporting EU butter which
had been subsidised with export refunds. The refund rate on
exports of butter to Estonia should have been set at zero as has
recently been done for exports of cheese to that destination (2).

Table 6

Butter — EU imports from and exports to Estonia

Year

1996
1997
1998
1999

Source: Comext.

Imports

3 987
12 014
3 419
222

(tonnes)

Exports

783
2 244
1 590
1 692

64. The problem related to free trade in milk products was not
limited to butter to and from Estonia. The free trade agreements
in milk products also include the other Baltic States, Latvia and
Lithuania, and other milk products such as cheese and skimmed
milk powder (SMP). There is a significant import-export trade in
cheese (Table 7) and a smaller trade in SMP. The Commission
should examine the justification for export refunds on products
covered by all free-trade agreements in order to eliminate the pos-
sibility of carousel trade.

(1) Commission Regulation (EC) No 2508/97 (OJ L 345, 16.12.1997,

(2) Commission Regulation (EC) No 1869/2000 (OJ L 222, 2.9.2000,

p. 31).

p. 8).

8.11.2001

EN

Official Journal of the European Communities

C 314/13

Summary of cheese imports from and exports to the Baltic States

Table 7

EU cheese exports to the Baltic States

EU cheese imports from the Baltic States

Estonia
Latvia
Lithuania

Total

1996

742
270
198
1 211

1997

585
236
231
1 053

1998

1999

544
263
115
922

453
204
199
857

1996

—
320
993
1 313

1997

—
1 047
2 032
3 079

1998

18
1 034
1 518
2 570

1999

—
1 451
1 814
3 265

(tonnes)

NB: The amounts are rounded.
Source: Comext.

Possible diversion of cheese to Canada

65. The rates of refund for exports of cheese to Canada have
always been lower than those for the equivalent cheese exported
to the USA. From September 1995 for example, refunds on cheese
to Canada were all set at zero, whilst there were still positive rates
for the USA. EU statistics for exports of cheese to Canada indicate
significantly lower quantities over the years 1995 to 1999 than
Canadian import statistics for cheese of EU origin (Table 8). This
suggests the possibility that some imports of EU cheese into
Canada have been effected through the USA thus attracting undue
refunds supported by invalid proofs of arrival. The case is cur-
rently under investigation by OLAF. If refunds were paid on the
difference in quantities from 1995 to 1999, the total amount is
likely to exceed 15 million euro.

Table 8

Comparison of statistics for imports of EU cheese into Canada

Year

EU export
statistics

Canadian import
statistics

Difference

(tonnes)

2000
1999
1998
1997
1996
1995

12 746
10 098
9 159
8 291
8 078
7 663

not available
12 935
12 776
13 074
12 901
12 228

2 837
3 617
4 783
4 823
4 565

NB: Figures exclude cheese exports from Austria, Finland and Sweden.
Sources: Comext and Canadian Department of Foreign Affairs and International

Trade.

North Korea — proof of market penetration

67. When exports of feta to Iran ceased in 1996, a considerable
quantity remained in stock. Some of the stock was sold to manu-
facturers of processed cheese within the EU and by late 1998 the
stock figure stood at around 3 200 tonnes.

68.
In December 1998, 3 200 tonnes of feta, manufactured in
early 1996, was shipped from Denmark to North Korea. The
expiry date for feta in tetrabrick packs is normally 18 months
after the date of production. The latest date of production for the
transactions examined by the Court was 8 March 1996. The feta
in question had therefore exceeded its expiry date by at least 12
months. The operation was not under any food aid programme
but the product was for distribution by the North Korean Flood
Damage Rehabilitation Committee. The feta was invoiced at 0,3
euro per kg compared to the refund rate of 0,7 euro per kg. The
invoice total was some 966 000 euro The exporter was paid nor-
mal export refunds totalling some 2,23 million euro.

69. The invoiced value of the feta, equivalent to 30 euro per 100
kg, is below the minimum free-at-frontier price of 230 euro per
100 kg necessary to qualify for export refunds (1). This rate was
set on 5 May 1996 and applied to all cheese. However, from
12 July 1996 to 3 February 1999, an exception was made for feta
manufactured from cow’s milk (2). Justification for this is ques-
tionable, it being the only exception to the free-at-frontier price
requirement, given that it coincided with the accumulation of a
large stock of feta which was proving difficult to dispose of.

70. The fact that the feta had exceeded its normal expiry date by
more than 12 months; that this was the only sale of feta to North
Korea in recent years (there have been none since); and that the
refund was more than double the invoiced value suggests that this
operation was not a normal commercial transaction designed to
penetrate a market. It had no real economic purpose and was

66. This case, concerning an export of some 3 200 tonnes of
Danish feta cheese to North Korea with the payment of some
2,23 million euro in export refunds, was referred by the Court to
OLAF for investigation.

(1) Commission Regulation (EC) No 823/96 (OJ L 111, 4.5.1996, p. 9).
(2) Commission Regulation (EC) No 1315/96 (OJ L 170, 9.7.1996,

p. 20).

C 314/14

EN

Official Journal of the European Communities

8.11.2001

effected solely to obtain a payment from the Community. Refunds
should therefore not have been paid because the product was not
marketable under normal terms (1).

Japan — justification for refund rates for cheese not destined
for direct consumption

71.
Japan is the third largest market for EU cheese. The EU
exports around 35 000 tonnes to Japan annually. Subsidies on
exports of cheese to Japan amount to around 25 million euro
each year. The main types of cheese exported are Danish Samsø,
Maribo and mozzarella, German Gouda and Steppenkase. The
rates of refund vary according to the type of cheese and are in the
range of 0,8 to 1 euro per kg.

72. Most cheese consumed in Japan is either processed or grated.
Japan has a quota for imports of cheese for processing (transfor-
mation into processed cheese). In 1999, the EU share of this quota
was some 2 150 tonnes. Some of the EU cheese imported into
Japan carries the proviso ‘industry only’ on its invoices and/or on
its packaging. Much of the other EU cheese imported into Japan
is destined for grating. For 1997, this figure was estimated at some
19 000 tonnes.

73. Until 2000 (2), the preamble to regulations fixing the rates of
refund for milk products always stated that the level of refund for
cheese was calculated for products intended for direct consump-
tion. The Commission has not provided any justification for the
removal of this provision. Since the rates of refund for both pro-
cessed and grated cheese are lower than for whole cheese, it is
questionable whether cheese specifically destined for such uses
should attract the rates applicable to cheese destined for direct
consumption.

74. There is also a difference between Japanese import and EU
export statistics. In 1999, Japanese statistics showed imports of
grated cheese from Ireland and Germany which are not reflected
in the EU export statistics or in the export refund payment data-
bases. The matter has been referred to OLAF for investigation.

Uruguay, Ukraine, Croatia — import declarations not
evidencing clearance into free circulation

75.
In some instances goods attracting differentiated export
refunds are placed in free zones or under warehousing or inward-

processing regimes in the non-member destination. Since it is a
regulatory requirement that the goods should be placed on the
market in the same destination (3) after warehousing or process-
ing, a free zone, warehousing, inward-processing or temporary
importation entry does not provide sufficient proof that the goods
were placed on the market in the declared destination.

76. Proofs of arrival accepted by the Danish paying agency for
exports of cheese to Uruguay were copies of Uruguayan customs
import declarations certified as true copies by the Danish Consul
General in Uruguay. However, the import declarations described
the type of importation as temporary and they did not corre-
spond to the model in the Danish file of valid proofs. They were
therefore not acceptable proofs of placing on the market in Uru-
guay, but had nevertheless been accepted by the Danish paying
agency.

77. Refunds unduly paid in the 1997 and 1998 EAGGF years
amount to some 268 000 euro. At the time of writing, the Dan-
ish authorities had not initiated any recovery action.

78.
In Austria, the paying agency rejected proofs of arrival in
Ukraine and Croatia, which indicated inward processing and
returned them to the beneficiaries who promptly altered the
documents to indicate clearance into free circulation and resub-
mitted them to the paying agency. These alterations were detected
and recovery procedures initiated. As a result of the Court’s obser-
vations, original proofs are no longer returned to beneficiaries.

79. Similar cases have also been identified by the Italian paying
agency for exports to the Ukraine. However, in these cases further
proofs were sought.

Albania — irregular proofs of arrival for imports from
Greece

80. To solve the problem posed by the irregular proofs of arrival
at destinations in Albania, the Greek authorities proposed to the
Commission to regularise all the files concerning export refund
payments which remained unsettled between 1995 and 1998
(approximately 820 000 euro) by applying the rule which allows
Member States to exempt the exporter from furnishing proofs of
arrival where the transaction concerned is the subject of an export
declaration giving entitlement to a refund, the differentiated part
of which does not exceed 1 000 euro (4). The Commission rejected
the proposal and the Greek authorities subsequently settled the

(1) The judgment of the ECJ in case C-12/73 is relevant here. It reads ‘A
product which could not be marketed within the Community under
normal conditions and under the description given in the claim for a
refund would not meet these requirements as to quality’.

(2) Commission Regulation (EC) No 74/2000 (OJ L 10, 14.1.2000,

p. 13).

(3) Article 15(2) of Commission Regulation (EC) No 800/1999
(OJ L 102, 17.4.1999). See also the judgment in the European Court
of Justice case C-74/98.

(4) Article 19 of Commission Regulation (EEC) No 3665/87 (OJ L 351,

14.12.1987, p. 1).

8.11.2001

EN

Official Journal of the European Communities

C 314/15

cases on the basis of the original documents presented. Follow-
ing the Court’s intervention, the Commission asked OLAF to con-
duct an inquiry.

that the Commission has identified serious weaknesses in Mem-
ber States’ physical checks on the description and quantity of
exported goods (see paragraph 8).

CONTAINER MOVEMENTS

81. During this audit, Member States were asked to obtain infor-
mation relating to the movement of selected containers carrying
goods which had attracted export refunds. The aim was to verify
that the description and quantity of the goods according to the
container company, matched that on the refund claim and that
the goods were removed from the container at the destination
declared on the refund claim.

82. Some Member States (Germany, Greece, France, Italy, and
Sweden) provided the information requested. However, the United
Kingdom did not consider that the Court had the right to ask
Member States to obtain and supply information which they did
not hold for their own purposes, the Netherlands did not obtain
all of the information because of the demand on its resources and
Denmark took over four months to provide incomplete informa-
tion.

83. At the time of drafting this report this aspect of the audit
was therefore incomplete. Based on the information received at
that time, some 5 % of the cases required follow up by Member
States (Germany, France, Italy and Austria) because prima facie
the container numbers were incorrect or the movement details
did not match those on the refund claim.

CONCLUSIONS AND RECOMMENDATIONS

84. Some major weaknesses have been found in the approval
and control of supervisory companies and in the system of issue
of proofs by Member States’ embassies. Many irregularities and
suspected frauds have been uncovered by OLAF and at the initia-
tive of DG AGRI. Some of these involve supervisory companies
approved for the issue of proofs of arrival. The Court’s audit has
revealed further suspected irregularities. Little reliance can there-
fore be placed on the system of proofs of arrival (1) (see para-
graphs 17 to 80). This conclusion is all the more disturbing given

85.
It is important, however, to distinguish between the validity
of the proofs and the genuineness of the transaction. There is no
evidence that the majority of transactions giving rise to refunds
are not genuine commercial transactions. This calls into question
the requirement for the systematic presentation of proofs of
arrival. The system is complex and onerous, with considerable
compliance costs for administrations and trade alike, and gives
little assurance. Most of the irregularities and frauds have been
detected after the proofs have been accepted by paying agencies.

86. The Court considers that for those products where export
refunds are required it would be preferable to apply one refund
rate for each product to all destinations. However, the Court rec-
ognises that at the present time for various reasons, including
existing trade agreements, this is not possible.

87.
In respect of the system for checking that goods have been
placed on the market in non-member countries the Court recom-
mends that:

— proofs of arrival should only be required in cases of doubt, or

for high risk destinations,

— transport documents and commercial invoices should be pre-
sented to paying agencies for all claims exceeding the de mini-
mis limit (2),

— a posteriori checks (3) on placing on the market should be
intensified and shipping and container movement databases
should be consulted for the transactions selected for a poste-
riori checks.

If the requirement for the systematic presentation of proofs

88.
of arrival is perpetuated:

— checks to be carried out for the issue of proofs by Member
States’ embassies should be the same as those for supervisory
companies (see paragraphs 35 to 38),

(1) See also Annual Report on the 1987 financial year, where the Court
concluded that, ‘While differentiated rates of refund apply, the Court
has difficulty in envisaging any system of controls over proof of arrival
which would provide sufficient safeguard against a determined attempt
at fraudulent declaration’ (OJ C 316, 12.12.1988).

(2) Article 17 of Commission Regulation (EC) No 800/1999

(OJ L 102,17.4.1999, p. 11).

(3) Council Regulation (EEC) No 4045/89 (OJ L 388, 30.12.1989, p. 18).

C 314/16

EN

Official Journal of the European Communities

8.11.2001

— the Commission should take over the responsibility for the
approval of supervisory companies (see paragraph 26) as is
already the case for food aid,

89. The Commission and OLAF should ensure that when frauds
and irregularities are detected they are followed up assiduously in
all of the Member States concerned.

— when an approval is withdrawn from a supervisory company
it should apply to all companies within the same group (see
paragraph 26),

— consideration should be given to introducing penalties for
irregular proofs of arrival issued by supervisory companies
(see paragraph 17),

90. The suspected irregularities identified in this report involve
more than 100 million euro. The Commission should also ensure
that, where it has not already been done, recovery action is initi-
ated promptly. In other cases, such as the dismissal in Italy of the
case concerning live animals to Lebanon, the Commission should
consider action under the clearance of accounts procedure.

— the Commission should be responsible for maintaining and
updating files of model proofs of arrival which can be accepted
and should coordinate verifications in non-member countries
(see paragraph 13).

91. Finally, refunds should not be paid on products which are
subject to reduced rates of import duty in non-member countries
and in the EU under trade agreements where this creates the pos-
sibility of carousels (see paragraphs 59 to 64).

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 11 and 12 July 2001.

For the Court of Auditors

Jan O. KARLSSON

President

8.11.2001

EN

Official Journal of the European Communities

C 314/17

PRINCIPAL REQUIREMENTS FOR THE ISSUE OF PROOFS BY SUPERVISORY COMPANIES

Article 16(5) of Commission Regulation (EC) No 800/1999

ANNEX

The minimum requirements for the approval of international control and supervisory agencies are the following.

(a) Control and supervisory agencies shall be approved at their request by the competent authorities of the Member States

for a three-year period. Approval shall be valid for all Member States.

(b) Where the primary and secondary proofs referred to in point (b) of paragraph 1 and point (c) of paragraph 2 are drawn
up, the control and supervisory agencies shall carry out all the checks necessary to determine the nature, characteristics
and quantity of the products mentioned in the certificate. A file shall be opened for every certificate issued in which all
surveillance activities are recorded. The checks shall be carried out on the spot at the moment of import, except in duly
justified exceptional cases.

(c) The control and supervisory agencies referred to in point (b) of paragraph 1 and point (c) of paragraph 2 shall be
independent of the parties involved in the transaction under scrutiny. In particular, neither the control and supervisory
agency carrying out the controls for a particular transaction, nor any subsidiary company belonging to the same finan-
cial group, may take part in the operation as exporter, customs agent, carrier, consignee, warehousekeeper or in any
other capacity likely to give rise to a conflict of interest.

(d) Without prejudice to Article 8 of Regulation (EEC) No 729/70 and Article 3 of Council Regulation (EEC) No 4045/
89 (1), Member States shall inspect the activities of the control and supervisory agencies at regular intervals or when
there is reason to doubt whether the conditions for approval have been observed.

(e) Member States shall withdraw approval, wholly or partly, if it is found that the control and supervisory agency cannot
any longer guarantee compliance with the conditions governing approval. The Member State concerned shall immedi-
ately inform the other Member States and the Commission of the withdrawal of approval. This information shall be the
subject of an exchange of views within all relevant management committees. The withdrawal shall be valid for all Mem-
ber States.

(1) OJ L 388, 30.12.1989, p. 18.

C 314/18

EN

Official Journal of the European Communities

8.11.2001

THE COMMISSION’S REPLIES

SUMMARY

I.
In order to understand the reasons why export refunds in the beef and the milk sector are differentiated, as
well as the consequences of this in terms of the general economy of these sectors, the Commission, before
answering the individual observations from the Court, wants to explain clearly the rationale of the system in
place, present financial figures and stress that differentiated refund rates are very limited.

— The Commission considers the present system fully justified:

— differentiated export refunds are fixed at a lower rate than general refunds, reducing the cost to the

EAGGF budget,

— international commitments oblige the EU to refrain from introducing any measure that would have a
consequence on the price level in trade (export refund as well as sale at reduced prices from interven-
tion stocks) for beef to be exported to South Korea, Taiwan, Japan, Singapore and Malaysia (these coun-
tries are among the major beef importing countries in the world). Similarly in the milk sector, inter-
national agreements oblige us to pay lower or zero rates of refund to respect our international
obligations in quantity and outlay terms (e.g. the EU eliminated the refunds for certain destinations on
cheese, to reduce demand for export licences with refund and stay within the GATT limits). But inter-
national agreements also enable the EU in some cases to pay lower refunds (e.g. milk products for
Canada and the USA),

— furthermore, the EU allows an annual import quota at preferential duties of 52 100 tonnes of bovine
meat (deboned weight) from a number of ACP countries (Council Regulation (EC) No 1706/98,
Article 4). No export refunds are granted for those destinations.

The consequence of this distinction between countries for which a refund can or cannot be granted is
the appearance of a de facto differentiation.

— The budgetary cost of the system should also be taken into consideration.

— expenditure on export refunds has been substantially reduced over the past decade and this trend is

continuing,

— it plays an important role in stabilising the internal market of the EU and minimising the need to
purchase into intervention. In today’s situation 1 tonne of meat (carcasse weight equivalent) being pur-
chased into intervention generates a cost for the EAGGF of about EUR 1 900. The export refund for
the same quantity of male carcasse beef is EUR 970. A similar example for the milk sector in May 2001
shows that 1 tonne of SMP generates a cost of EUR 500 to intervention whereas the same quantity can
be disposed of for EUR 50 through export refunds.

— For about 90 % by value of total exports of beef and milk a single refund rate applies. For the remaining
exports a substantially lower rate is applied, particularly for exports to the candidate countries. About 21 %
of the total quantity of cheese and 7 % of the beef exported from the Community is exported without any
refund.

II. The Commission takes Article 3 of Regulation (EC) No 800/1999 to mean that where a single refund rate
applies to all non-member countries, entitlement to a refund is acquired on leaving the customs territory of
the Community.

Where there are grounds for suspicion (serious doubt), however, the paying agency, before paying out the
refund, may require evidence that the goods have been imported into a non-member country or undergone
substantial working or processing.

8.11.2001

EN

Official Journal of the European Communities

C 314/19

III. The current system generally provides for proof of arrival to be furnished in the form of official docu-
ments such as customs import documents. A catalogue of customs documents and stamps valid in 58 non-
member countries was issued to Member States in 1992. The Commission is willing, for some non-member
countries at least, to consider compiling a compendium which would be kept continuously updated.

IV. The Commission has undertaken a specific audit in respect of proofs of arrival issued by supervisory
companies. For the reasons outlined in points 34 and 35 this audit was carried out in Germany, which was in
practice the only Member State accepting such certificates on a large scale. The enquiry resulted in a financial
correction of about EUR 20 million.

It is further true that the Commission has always evaluated proofs of arrival for transactions selected for test-
ing under the clearance-of-accounts procedure. This evaluation has given rise to other financial corrections
under past clearance exercises.

V. The approval conditions for supervisory companies will be evaluated during the ongoing audit (started in
May 2001) on differentiated refunds carried out under the clearance of accounts. When the Commission
learned that a Member State had withdrawn approval from a company belonging to a particular group it asked
Member States where other members of the group were located to check whether those companies exhibited
the same shortcomings.

VI. The Commission departments concerned have commenced talks with the Member States about the best
way of aligning and improving practice regarding certification by embassies.

VII. According to the information received from the Court, the amount relates largely to suspected irregulari-
ties established in one Member State in the period 1994 to 1996 (EUR 60 million) and to irregular exports to
Iraq after the embargo was imposed in 1991 (about EUR 40 million). The cases are being followed up by the
Commission, and are being handled in accordance with the rules. For the other cases appropriate action will
be taken by the Commission.

VIII. Relaxing the conditions for presenting proofs of arrival in the way recommended by the Court is not
workable, because requiring proof of arrival only in cases of doubt, or for high-risk destinations, could lead to
loss of control over exports to countries for which an export refund is not fixed. It will also expose the Com-
munity to fundamental criticism of the way the EU monitors and controls its subsidised trade with non-
member countries, particularly taking into consideration its international undertakings to refrain from grant-
ing export refunds for specific markets.

Therefore, relaxing the requirements for proof of arrival is bound to generate a potential risk for the Com-
munity budget.

— As a matter of priority, the Commission will discuss with the departments responsible for a posteriori
checks how to include consultation of shipping and container movement databases in the audit pro-
grammes.

INTRODUCTION

2. The Commission takes Article 3 of Regulation (EC) No 800/
1999 to mean that entitlement to a (non-differentiated) refund is
acquired on leaving the customs territory of the Community. In
circumstances, however, described in
certain exceptional

Article 20(1)(a), (b) and (c), the paying agency, before paying the
(non-differentiated) refund, will require proof that the products
have been imported into a non-member country or undergone
substantial working or processing within 12 months of the date
of export. Different rules apply after a refund has been paid
(Article 20(4)).

C 314/20

EN

Official Journal of the European Communities

8.11.2001

CLEARANCE-OF-ACCOUNTS AUDITS

APPROVAL AND CONTROL OF SUPERVISORY COMPANIES

7. As a result of the findings in Germany it was decided to carry
out an enquiry in all other Member States to evaluate the proofs
of arrival they accept (customs import documents, embassy proofs,
etc.). The enquiry is currently under way.

17. When a Member State decides to withdraw its approval from
a control and supervisory company the Commission duly noti-
fies the other Member States, explaining the reasons for the deci-
sion whenever it can. The reasons may have to do either with the
way the company is organised within the Member State or the
checks it carries out in non-member importing countries.

QUALITY OF CHECKS ON PROOFS OF ARRIVAL

10. The current system distinguishes between primary and sec-
ondary proofs of arrival. If an exporter is unable to obtain the
primary proof of his choice (a customs import document or cer-
tificate of unloading and importation issued by a supervisory
company), he may substitute a secondary proof; the forms this
may take are listed exhaustively in Article 16(2) of Regulation (EC)
No 800/1999. These documents are just as reliable and have the
same effects in law.

11. At a Member State’s request the Commission will contact the
authorities in non-member countries to find out whether they
recognise the document queried by that Member State as valid.

The Commission agrees that it is within the competence of the
individual Member States to check the particulars of proofs of
arrival. However, it would emphasise that the requirements for
these proofs are the same throughout the EU.

12. The forthcoming enquiry on differentiated refunds to be car-
ried out under the clearance-of-accounts procedure intends to
focus on evaluation of the management and control systems for
proof of arrival applied in the different Member States.

13. The Commission will discuss with the Member States the
possibility of keeping a register of model proofs of arrival which
they are prepared to accept and ways of improving coordination.

THE EFFECT OF THE PROOF-OF-ARRIVAL SYSTEM ON
RELEASE OF GUARANTEES

16. One of the purposes of introducing proofs of arrival was to
deter deflection of trade flows. The Commission believes that the
stringent rules of the present system are necessary in order to
ensure proper control.

The Commission will also discuss with the Member States whether
approval of supervisory companies might be made conditional
on the provision of a security.

18. The Commission has considered the danger of conflicts of
interest in connection with supervisory companies and has drafted
a working paper setting out guidelines on this matter. One of its
recommendations is that no supervisory company (or other mem-
ber of the same financial group) involved in an export transac-
tion under Article 16 of Regulation (EC) No 800/1999 may act in
the same transaction as customs agent, haulier, forwarding agent
or warehousekeeper etc., or in any other capacity that might
occasion a conflict of interests.

19 to 23. As stated, inter alia, in the comments on points V and
34, according to the information available to the clearance-of-
accounts unit only Germany in practice accepted certificates from
supervisory companies on a large scale. Traders in other Member
States only presented such proofs in exceptional cases; they usu-
ally present customs import documents to the paying agencies.
However, the Commission will carry out an audit of differenti-
ated refunds and will consider financial corrections should it find
systems errors concerning checks on such certificates.

25 to 28. The Commission will try to devise a system that would
place greater responsibility on supervisory companies.

26. The approval and monitoring of the activities of supervisory
companies in connection with the system of proofs of arrival has
always been the Member States’ responsibility. At one time the
Commission had plans for a Community-wide approval proce-
dure (Regulation (EEC) No 887/92) but it remained a dead letter
and was repealed by Regulation (EC) No 2955/94, experience
having shown that the Member States were best placed to judge
whether a company merited approval. Following extensive discus-
sions with the Member States, therefore, the Commission drew up
a paper which was circulated in 1995 setting out guidelines for
them to follow in approving and monitoring supervisory compa-
nies. In the interests of legal certainty some of the guidelines, par-
ticularly for approval, were then incorporated into the general

8.11.2001

EN

Official Journal of the European Communities

C 314/21

legislation governing refunds (Article 16(5) of Regulation (EC)
No 800/1999).

RELIABILITY OF PROOFS OF ARRIVAL ISSUED BY MEMBER
STATES’ EMBASSIES

27 and 28. The Commission has drawn the problems mentioned
by the Court to the attention of OLAF, which is currently carry-
ing out the enquiry.

35. Embassies and consulates have a different legal status to
supervisory companies. Specific provision is made in the Com-
munity rules for the latter (Article 16(5) of Regulation (EC) No 800/
1999).

29 and 30. After becoming aware of the problems in Germany,
the Commission wrote to all the Member States asking them how
many supervisory company certificates their paying agencies had
accepted during the period concerned. It appeared that 7 546 cer-
tificates had been accepted, 7 280 of them in Germany (97 %) and
only 266 (3 %) in all the other Member States combined.

38. These matters will be followed up in the course of the spe-
cific audit of differentiated refunds referred to in point 12. The
Commission would also point out that it is the clear responsibil-
ity of the Member States to guarantee the soundness of these
proofs.

The decision was therefore taken to focus the checks on Germany,
which until the end of 1995 allowed a supervisory company to
issue primary proof of arrival even when it had not received timely
instructions from the exporter to be present at the moment of
unloading in order to carry out checks. No indication was found
in other Member States that the same systems error existed there.

TYPES OF PROBLEMS AND/OR IRREGULARITIES WHICH
HAVE BEEN DETECTED IN EXPORTS TO SPECIFIC
DESTINATIONS

Jordan — circumvention of UN embargo on supplies to Iraq

The rate of correction applied to these cases (i.e. those account-
ing for 97 % of the total) was equivalent to 25 % of the expendi-
ture at risk, representing EUR 20 million. This is a very high rate,
to be applied only in exceptional cases.

40 to 42. For the purposes of recovery OLAF must abide by the
underlying principles of Community law, including the right to
appeal to an appropriate (administrative or judicial) body.

The Commission therefore considers that controls were effec-
tively targeted on the expenditure at risk. In addition, as noted
above, it has decided to carry out an audit of differentiated refunds
in order to examine what proofs of arrival other Member States
accept (given that they rarely use supervisory companies) and
what checks they carry out in respect of these proofs.

Russia — falsified import declarations

43. At the Sixth Conference of Directors of EU paying agencies
(6 May 1999), OLAF (UCLAF, as it then was) invited the agencies
concerned to contact it with a view to getting the available codes
for Russian customs offices.

31. OLAF is following up these cases.

32. Over the years the Commission has done its best to address
the problem of how best to provide proof of arrival at destina-
tion. To make it easier for Community exporters to obtain proof
of importation it provided, in Regulation (EEC) No 887/92, that
certificates issued by supervisory companies, already listed as sec-
ondary proof, could be used as primary proof in the same way as
customs import documents.

47. The Commission notes with satisfaction that the Court
acknowledges the measures it has taken with regard to the accept-
ability and control of proofs of arrival for exports to Russia.

Egypt — treatment of shortages and rejected products

The Commission’s view is that supervisory company certificates
should continue to be categorised as primary proof, as this gives
exporters greater scope and prevents them from being wholly
reliant on importers in non-member countries for primary proof
of import (since in normal commercial practice it is usually the
importer who has access to the customs import document).

48. There is no difference of opinion between the Commission
and the Court on how to deal with differences between weight at
departure and weight at destination. The Court’s request relates
purely to the follow-up of the individual cases concerned. In so
far as the discrepancies observed relate to samples taken by the
authorities in the non-member country (if demonstrated to be the
case), Article 15(4) of Regulation (EC) No 800/1999 allows for the
refund to be granted on the weight of the samples.

C 314/22

EN

Official Journal of the European Communities

8.11.2001

These cases will be examined during the clearance-of-accounts
unit’s audits of differentiated refunds in the course of their mis-
sions to Ireland, Germany and France.

been asked to provide fuller information about the irregularities
detected, the amounts concerned and the number of export trans-
actions for which the misleading certificates of unloading were
issued. France notified irregularities involving three companies for
the year 2000, to a total value of FRF 1 061 506,85.

Morocco — justification for refund rate and shortages

54 to 56. The danger identified by the Court, that cattle for
slaughter may attract the refund for breeding cattle, materialised
in a real case detected by the Commission in Germany at the time
of unification. The Commission investigated a massive cattle
export to Poland, declared as being breeding cattle. On investiga-
tion, the animals were found to be slaughter cattle. (See clearance-
of-accounts summary report of 1991, point 6.1.2).

The Commission’s findings related to:

— the absence of pedigree certificates issued by official herd
books showing the results of performance tests and the results
of the assessment of the genetic value of the animals, their
parents and their grandparents,

— the health certificates for breeding animals satisfying the

requirements of the importing countries,

— the lack of age criteria and a general failure to check the com-

mercial evidence (price, delivery conditions, etc.).

In the light of these findings certain conditions were laid down in
Article 3 of Regulation (EEC) No 2342/92 that have to be met in
order to qualify for the refund for breeding cattle. This shows that
the Commission has taken the necessary steps to have reasonable
assurance that only genuine breeding cattle obtain the higher
refunds. In addition, in doubtful cases, Article 20 of Regulation
(EC) No 800/1999 should be applied (doubts regarding real des-
tination). Regulation (EEC) No 4045/89 (a posteriori bookkeeping
checks) also offers an appropriate tool for carrying out checks on
trade in breeding cattle.

55. The Commission will take the appropriate action.

57. The cases reported here show the importance of such con-
trols and the possibility of tracing back cases where refunds have
to be reimbursed.

Refunds are not granted for animals that die en route. Exporters
are required in every case to declare the number of animals that
have been cleared through customs in the importing country
(Article 5(2) of Regulation (EC) No 615/98).

Lebanon — shortages — inconsistent follow-up by Member
States

Estonia — trade agreements creating the danger of carousels

59. The Commission does not agree with the Court that no
export refund should be paid on butter going to Estonia because
there is a zero duty rate on the entry of Estonian butter into the
Community.

Nevertheless it is prepared to examine the situation in light of the
Court’s comments. The Commission’s present position is that
milk prices in Estonia are among the lowest in the candidate
countries (e.g. Estonia: EUR 13/100 kg, Poland: EUR 24/100 kg),
and consequently Estonian butter prices are close to the world
market price.

In the Estonian case it is worth noting that the rules estab-
60.
lished are fulfilling their function and the competent authorities
within and outside the EU are cooperating to combat cases of
irregularity. While the Estonian authorities claim they cannot
identify the origin of butter in free circulation such a claim has to
be judged in the light of the veterinary certification which must
be issued by the country of origin and which must accompany
products at all times for health reasons. Research on the potential
use of isotopes, which is at an advanced stage, but which will
require the cooperation of non-member countries, will in future
make it possible for the origin of butter to be identified and
checked.

62. The Commission does not agree with the Court that in the
context of the free-trade arrangements with Estonia for milk
products the export refund for butter should have been set at
zero, as was done for cheese.

If the Commission were to fix zero refunds for butter to Estonia it
would have to do the same for the other milk products covered
by the agreement. It would thereby shut EU milk products out of
the market of a candidate country and allow other countries to
absorb the EU’s share of that market.

In the Commission’s opinion, encouraging trade flows between
the EU and the candidate countries is an important medium-term
objective in the light of Estonia’s future accession to the single
market. For the EU to exclude itself from the lower-priced Esto-
nian market by fixing export refunds at zero is not the Commis-
sion’s preferred option.

58. With regard to exports of live bovine animals to Lebanon on
which refunds were paid, the competent Italian authorities have

Nevertheless, in the light of the Court’s comments the Commis-
sion will continue to monitor the situation closely, and will give

8.11.2001

EN

Official Journal of the European Communities

C 314/23

consideration to the Court’s view that export refunds should not
be paid on certain products when the import duty on those prod-
ucts is either zero or less than the normal rate of import duty.

Uruguay, Ukraine, Croatia — import declarations not
evidencing clearance into free circulation

77 to 79. Under Article 3 of Regulation (EEC) No 595/91 OLAF
must be notified of such irregularities.

North Korea — proof of market penetration

66 to 69. As the investigation is still under way, OLAF does not
feel it appropriate to comment on this case.

80. OLAF is dealing with this case.

CONTAINER MOVEMENTS

70. OLAF will determine in due course whether the transaction
was a commercial one and decide whether the goods were not
marketable under normal terms.

81 to 83.
It is possible to use information extracted from data-
bases such as Lloyds (on the movement of vessels) or, if feasible,
information obtained from container companies in order to form
an opinion as to the genuineness of individual export operations.

Japan — justification for refund rates for cheese not destined
for direct consumption

Both kinds of check can give an insight into the physical move-
ment within a given period, of a chartered means of transport or
a chartered container.

71 to 74. The Commission clearly explained its reasons for
modifying the preamble to the export refund Regulation in its
note to the Court dated 19 February 2001 (AGR 004898). There
was never a provision in the Articles of the Regulation corre-
sponding to the particular phrase in the preamble. The text was
brought into line on the basis of legal advice by deleting the phrase
in the preamble because it was impossible to implement it in
practice.

The Commission shares the Court’s view that refunds on cheese
for processing, in appropriate market circumstances, could in
theory be lower than on natural cheese in an appropriate presen-
tation for direct consumption. It is virtually impossible to check
the end use in a non-member country. Refunds are fixed to bridge
the gap between internal prices and external prices taking into
account the general situation on the markets. Since the removal
of the phrase in the preamble, the market situation and the EU’s
cheese exports have been such as to justify maintaining the status
quo with regard to the refund, whether the cheese is intended for
processing in a non-member country or for direct consumption.
The refund paid on a cheese is closely linked to its dry-matter
content. That dry-matter content does not change if the intended
use of the cheese in a non-member country is switched from
direct consumption to processing. Therefore there are good rea-
sons for treating the milk dry-matter exported in the same way
irrespective of the intended use of the cheese in a non-member
country. Nevertheless, the Commission will continue to monitor
and keep the matter under review.

However, they can never provide acceptable proof of the weight,
nature or characteristics of the exported commodities, nor can
they constitute proof of products being imported into a non-
member country.

Consequently, although the Commission is open to exploring the
scope for use of this kind of check in individual cases, for example
where irregularities are suspected, it does not believe that such
checks can be applied to all exports.

CONCLUSIONS AND RECOMMENDATIONS

84. The Commission agrees with the Court’s findings that sig-
nificant weaknesses have been established in certain specific areas,
such as the way approved control companies carry out their duties
or the lack of the requisite certainty as to the genuineness of some
proofs. Accordingly, measures have already been adopted in order
to strengthen the procedures in place or allow access to alterna-
tive forms of proof. The Commission will discuss with the Mem-
ber States the points raised by the Court in this connection.

The Commission will continue with its audits under the clearance-
of-accounts procedure in order to minimise the financial risk for
EU expenditure.

74. The Commission departments concerned will fully cooper-
ate with OLAF to clarify the differences between EU export data
and Japanese import data. The investigation is still under way.

85. The Commission is pleased that in general the Court does
not question the genuineness of the commercial transactions
involved.

C 314/24

EN

Official Journal of the European Communities

8.11.2001

86. On about 90 % of total beef and milk exports by value, the
same refund rate is applied. For the remaining exports a substan-
tially lower rate is applied, particularly for exports to the candi-
date countries.

must keep files of all certificates issued, noting the checks carried
out to support certification.

The Commission will think about sectors in which the applica-
tion of a tender system might be workable and feasible.

87.

— Relaxing the conditions for presenting proofs of arrival in the
way recommended by the Court is not workable, because
requiring proof of arrival only in cases of doubt, or for high-
risk destinations, could lead to loss of control over exports to
countries for which an export refund is not fixed. It will also
expose the Community to fundamental criticism of the way
the EU monitors and controls its subsidised trade with non-
member countries, particularly taking into consideration its
international undertakings to refrain from granting export
refunds for specific markets.

Therefore, relaxing the requirements for proof of arrival is
bound to generate a potential risk for the Community budget.

— Where differentiated refunds apply, the Commission does not
believe that presenting transport documents or commercial
invoices would offer adequate assurance that the goods have
arrived in the non-member country for which the refund is
paid. As part of the administrative streamlining of procedures
for proofs of arrival, however, it will consider the feasibility of
increasing the levels set in Article 17 of Regulation (EC)
No 800/1999,

— the Commission will discuss with the departments respon-
sible for a posteriori checks how to include consultation of
shipping and container movement databases in the audit pro-
grammes.

88.

— The Commission has no plans to change the current system,
considering that the Member States are closer to events on
the ground and in a better position to judge whether a con-
trol agency should be approved. If the Commission were to
take over that responsibility it would in any case have to rely
on the Member State’s experience and opinion of the com-
panies concerned.

A posteriori checks offer an opportunity to verify that companies
have complied with Community rules and the guidelines set out
by the Commission.

— The Commission will be discussing the idea put forward in
this indent with the Member States, but two points will need
to be clarified:

— the financial criteria — effective control or membership

of a single group,

— what part of the supervisory company is being examined.
The impact of any shortcomings found to exist will be
greater in the case of a subsidiary outside the EU which is
providing services to all members of a group within the
EU (e.g. agency in Angola). In that case approval should
clearly be withdrawn from all the group’s affiliates in the
Community.

— If a supervisory company is found to have issued a mislead-
ing certificate the act and its consequences are attributable to
the beneficiary of the refund (see Article 52(4) of Regulation
(EC) No 800/1999, attracting repayment of the refund and a
penalty under Article 51.

At the same time the Commission will try and devise a system
that places greater responsibility on the supervisory companies.

— The forthcoming clearance-of-accounts inspections will look
at the quality of checks carried out by Member States. The
audit started in May.

It will also very shortly be considering the feasibility of creating
and maintaining an up-to-date catalogue of customs forms and
stamps used in non-member countries, possibly for selected coun-
tries only.

In a statement delivered at the meeting of the Trade Mechanisms
Management Committee on 12 September 2000 the Commission
reminded Member States that for embassy certificates to be accept-
able as secondary proofs they must show the quantity, type and
characteristics of the products. It also pointed out that embassies

89.
In recent years, the clearance-of-accounts unit has inten-
sively audited the expenditure on export refunds declared by the
Member States, and important financial corrections have been
applied in cases where it was found that the payments had not
been made in accordance with the rules.

8.11.2001

EN

Official Journal of the European Communities

C 314/25

Proofs of arrival for transactions selected for testing under the
clearance-of-accounts procedure have always been evaluated, and
where necessary financial corrections have been made under past
clearance exercises.

for Germany, which corresponds to 25 % of the expenditure at
risk. In 2001 and 2002 the clearance unit will examine the con-
trol procedures applied in respect of proof of arrival in other
Member States.

90. According to the information received from the Court, the
amount relates basically to suspected irregularities established in
one Member State in the period 1994 to 1996 (EUR 60 million)
and to irregular exports to Iraq after the embargo was imposed
in 1991 (about EUR 40 million). These cases are being followed
up by the Commission, and are being handled in accordance with
the rules. The Commission will take appropriate action in the
other cases.

After an enquiry which lasted five years, during which thousands
of certificates issued by supervisory companies were examined in
detail, a financial correction of EUR 20 million has been applied

For Italy a financial correction of about EUR 33 million was
applied because of deficient controls. In respect of the criminal
case concerning exports of live animals to Lebanon dismissed by
the Italian courts, we would point out that such cases should be
notified to OLAF.

91. The Commission will give consideration to the Court’s view
that export refunds should not be paid on certain products when
the EU import duty on the products is either zero or less than the
normal rate of duty. The Commission, as indicated in its com-
ments on point 59, will consider this point in the context of the
EU-Estonia situation.