Opinion of the Economic and Social Committee on the "Proposal for a decision of the European Parliament and of the Council on Computerising the movement and monitoring of excisable products" (COM(2001) 466 final — 2001/0185 (COD))
Date: 2002-05-29
Institutions: European Economic and Social Committee
Subjects: excise duty, fraud, free movement of goods, information technology applications

17.9.2002

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Official Journal of the European Communities

C 221/1

II

(Preparatory Acts)

ECONOMIC AND SOCIAL COMMITTEE

Opinion of the Economic and Social Committee on the ‘Proposal for a decision of the European
Parliament and of the Council on Computerising the movement and monitoring of excisable
products’

(COM(2001) 466 final — 2001/0185 (COD))

(2002/C 221/01)

On 20 December 2001, the Council decided to consult the Economic and Social Committee, under
Article 262 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for the Single Market, Production and Consumption, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 8 May 2002. The rapporteur was Mr
Wilkinson.

At its 391st plenary session (meeting of 29 May 2002), the Economic and Social Committee adopted the
following opinion by 79 votes to one, with one abstention.

1.

Introduction

1.1. With the introduction of the Internal Market, funda-
mental changes were made to the arrangements for the
movements of goods subject to excise duties (1). Physical
controls at national frontiers were replaced by administrative
controls, based on documents to accompany goods sent from
one Member State (MS) to another or imported to, or exported
from, the EU.

1.2.
Tax rates (excise and VAT) applied to such goods were
not harmonised, and still remain very widely different (2). This
gives the prospect of significant profits, in some cases, from
fraud. The weaknesses in the system are now being exploited
on a major scale, increasingly by organised crime.

1.3.
In 1996 the High Level Group (HLG) — study involving
the authorities in all MS estimated that revenue losses from
tobacco and alcohol products totalled about EUR 4,8 billion
for that year (3). In the same year the total of revenues received
by MS from excise goods was about EUR 234 billion, equating
to about 8,1 % of their total tax revenues (4). For different MS
the sums received and the percentage of revenues that these
represented varied quite widely.

1.4.
In 1998 the ECOFIN Council accepted the recommen-
dation of the Commission to introduce a computerised control
system for excisable goods (5) (to reduce fraud), as a long-term
to the outcome of a Feasibility Study. The
goal subject
Feasibility Study (6) was completed in 2000. COM(2001) 466
final makes a proposal for the introduction of such a computer-
based system. It is normally referred to as EMCS (Excise
Movement and Control System). The proposal has the dual
aim of reducing fraud and simplifying the system.

( 1) Council Directive 92/12/EEC.
( 2) — For example, the differences between highest and lowest MS

taxes are:

— mineral oils: unleaded petrol 2.1:1; diesel 2.6:1
— alcohol: spirits 9.1:1; beer 17:1. For still wine the rates range

(3) Of this total 69 % was from fraud on tobacco products and 31 %

from alcohol products.

(4) This total includes the excise duties on fuel oils, which were not

considered in the study.

(5) Excise goods are mineral oils, alcoholic products and tobacco

from zero to 2 900 EUR per hectolite pure alcohol

products.

— tobacco (overall excise rate): 4.6:1.

(6) Carried out by Alcatel TITN Answare.

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2. General comments

2.1.
The current system is not good, relying as it does on
passing paper documents to discharge movements under duty
suspension. Where the correct documents are not returned, or
are returned with faults, the sender (who has no control over
such failings) can face very significant financial penalties. The
operators therefore strongly support the proposed move to a
computer-based system of recording transactions. They hope
that such a move will help legitimate trade while allowing MS
to exercise effective control. They stress that EMCS would have
to be applied uniformly by all MS and all operators (1).

2.6.
There are estimated to be 80 000 economic operators
at present, to which number we would have to add the
economic operators from however many Candidate Countries
will have acceded to the EU before 2007, since this is the
earliest date when the system could be operational (4). The
Commission estimates that the total number of economic
operators — after enlargement — will be close to 200 000.

2.7.
The Committee fully supports the proposal to move to
EMCS as soon as possible, both because of the need to fight
fraud and because of the need for improvement
to the
operation of movements under duty suspension that is necess-
ary towards completing the internal market. Further, it will be
welcomed by EU citizens who will value improvements that
can help in the fight against fraud.

2.2.
However, since EMCS cannot be operational before
2007 at the earliest, the Committee stresses the need for
the Commission (in consultation with MS and economic
operators) to continue to strive for improvements to the
current system (2); these will also help the introduction of
EMCS. Such interim improvements should not be allowed to
increase the current levels of bureaucracy or complexity (3).

3. Costs

2.3.
All MS also support the system, although it is clear
that some have more to gain than others since the scale of
fraud varies considerably as does the trade in alcohol and
tobacco products.

3.1.
The costs estimated for the project are high. For the
Commission, they are EUR 35 million for development and
deployment and thereafter EUR 4 million per year for
operating costs. For each Member State, and according to the
Feasibility Study, the development and deployment phases
should cost each between Euro 5 and 12 million and thereafter
EUR 1,7 to 10 per year. Each Member State is currently
estimating its own costs.

2.4.
As the Commission proposal acknowledges, EMCS
would be a ‘huge, highly complex and costly project’. It would
have to include various elements of all the MS Administrations,
the Commission, OLAF and economic operators (producers,
bottlers, warehouses, traders, etc.) in all 15 MS. Security would
also be a vital element.

3.2.
For economic operators, all of whom would have to be
part of the system, the costs involved should be comparatively
small, except where a major operator decides to develop its
own individual application to interface with the Community
system. Estimates in this case are EUR 140 000 for develop-
ment and EUR 15 000 per year for operating costs.

2.5.
The system would have to be very robust to ensure
that it is available 24 hours a day, 365 days a year and with a
very short recovery time for any stoppages (emergencies or
maintenance). The number of transactions is estimated in the
Feasibility Study as 16 million per year (EU 15 for tobacco and
alcohol). When mineral oils are added, and allowing for the
addition of new MS, this figure will be very much larger.

( 1) The application of the current system is not uniform, for example
in the approaches of MS to alternative evidence of discharge.
( 2) Most important among these are improvements to the System
for Exchange of Excise Data (SEED) and flexibility for traders
concerning alternative evidence for the discharge of AAD move-
ments.

( 3) In particular, the so-called Early Warning System should be

reconsidered.

3.3.
The estimates presume that economic operators will
receive the necessary training from their own MS at the MS’s
expense, as well as the necessary software.

3.4.
There should be savings for economic operators com-
pared with the current paper-based system which would
reduce compliance costs; these savings are not estimated in
the proposal. MS would expect to recover their costs through
reducing fraud. Therefore, assuming that the estimates are fair,
the system would be cost effective.

(4) The proposal says that work on development and implementation
must start within nine months of the decision entering into force
(see Article 2 of the proposal) and will take five years to complete.

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The Committee notes that the proposal

3.5.
(financial
statement) only includes the detailed expected costs up to the
end of 2006. This should be extended to at least 2007 (see
paragraph 2.2 above) and should also indicate the later
expected costs for including future accession countries into
the system.

3.6.
Because of the key role to be played by the Commission
in the proposed system, there must be no reduction in
the staffing projected as necessary.
Indeed, to allow the
Commission to continue to make very necessary improve-
ments to the current paper-based system (see point 2.2 above)
while working on EMCS, there is a good case for them to be
allocated more staff than foreseen in the proposal.

5. Security

5.1.
Responsibility for the security aspects will be of
particular importance. These must cover the legal operation of
the system and the ownership and handling of the commer-
cially confidential information that will be held on the system.
Because of the wish to use the very latest security arrangements
that are available when the system is launched, it is noted that
details cannot be included in the proposal at this stage.

5.2.
The system must make it possible to identify clearly
who is legally responsible for any goods that are under duty
suspension anywhere in the internal market area.

4. Participation

As the proposal makes clear, EMCS will only be
4.1.
effective if all MS and the Commission give binding commit-
ments to their legal and financial obligations under the
proposal. Given the scope and complexity of EMCS it must be
accepted that the resource estimates in the Feasibility Study
may be quite inaccurate.

4.2.
Because of the timescale it seems certain that several
Candidate Countries will accede to the EU before the system
comes into operation. Article 9 should reflect this by making
clear that Candidate Countries will (not ‘may’) be kept fully
informed and that not only may they take part in the tests to
be carried out, but that they will be eligible for assistance in
the preparation and deployment of the system. Such an
undertaking will have financial consequences; these should be
recognised.

A further concern is that some Candidate Countries
4.3.
still do not have systems for the control of excisable goods
that meet the requirements of Directive 92/12/EEC. No doubt
this is being covered in the accession negotiations, but the
countries concerned will need to have experience of the EU
system before they can expect to take part in EMCS.

6. Technical

There is a very high assurance that EMCS is technically
6.1.
feasible. To some extent this judgement is based on the
successful
introduction of the New Computerised Transit
System (NCTS).

6.2.
The relationship between EMCS and the New Com-
puterised Transit System (NCTS) should be made clearer in the
proposal (and not just in the explanatory memorandum) since,
for example, it is planned that both systems will share some
reference lists, yet participation in the two systems will be
different. Compatibility with other systems, such as the G7
project on Customs simplification, will also need attention.

6.3.
The present proposal only covers excise goods moved
under duty suspension within the single market. The proposal
needs to make clear the need for adequate links between the
EU system (linked warehouses), and EU production facilities
and entry and exit points for imports and exports (respectively)
from third countries.

6.4.
It notes that some MS intend to offer all services
electronically by 2005. It will be important to ensure that such
services are fully compatible with the proposed EMCS.

7. Summary

The addition of the new MS to EMCS could well

4.4.
lengthen the time before the system is operational.

7.1.
The Committee fully supports the proposal, both
because of the need to fight fraud more effectively and because
of the improvement expected for economic operators within
the single market.

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7.2.

However, it makes the following comments:

— Detailed costs expected should be extended to include at

— It is vital that each MS, and each Candidate Country
before their accession, give a binding commitment to
their legal and financial obligations under the proposal.
Without this the proposal cannot work.

— Because of the inadequacies of the existing paper-based
system, and the long period before EMCS can be in
the Committee urges the Commission to
operation,
continue their efforts to improve the current system as
early as possible.

Brussels, 29 May 2002.

least 2007.

— Full account must be taken of the expected accession of
several Candidate Countries in the timescale foreseen;
they will need to be kept fully informed and should be
offered help in the preparation and deployment of EMCS.

— All aspects of security of EMCS must be fully covered.

— The relationship of EMCS with NCTS and other systems

should be clarified.

— Any special provisions for movement from production
facilities, and for exports and imports to/from third
countries must be clarified.

The President

of the Economic and Social Committee

Göke FRERICHS