COMMUNICATION FROM THE COMMISSION TO THE COUNCIL Action plan for monitoring the functioning of preferential trade arrangements
Date: 2014-02-26
Institutions: European Commission
Subjects: ACP countries, EU programme, customs cooperation, customs inspection, exchange of information, import (EU), originating product, overseas countries and territories, preferential agreement, surveillance concerning imports, tariff preference













EUR-Lex - 52014DC0105 - EN











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52014DC0105

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL Action plan for monitoring the functioning of preferential trade arrangements /* COM/2014/0105 final */









This
Communication from the Commission to the Council sets out an Action Plan for
monitoring the functioning of preferential trade arrangements.
Action Plan for monitoring the
functioning of preferential trade arrangements
TABLE OF
CONTENTS
1. Introduction
2. Legal
framework, obligations, management arrangements under the current system
3. Weaknesses of
the current system
4. Remedies
5. Summary
1.            INTRODUCTION
The aim of proper
monitoring the functioning of preferential arrangements is to ensure that the
legal framework is implemented correctly and that preferences are applied only
to imports genuinely originating in the partner/beneficiary country or region in
question.[1]

The Commission
has significant rights and powers available to it in connection with its
obligation to supervise and monitor the proper implementation of rules or
origin and when examining applications for repayment or remission of import
duties. Insufficient monitoring may have serious consequences, such as allowing
a ‘special situation’[2]
to be established under Article 239 of the Customs Code.
Monitoring thus
helps to protect the EU’s financial interests and makes for fair trade between
the EU and its trade partners.
The Commission
suggested in point 3.2.1 of Communication COM(2005) 100 final of 16 March
2005 that, initially, legal bases, technical modalities and funding of expenses
involved in monitoring should be identified and that a central point should be
established to which data on the practical use of preferential arrangements were
to be directed (see point 2.2.).  Since then the Commission has established a
Task Force[3]
to monitor the implementation of rules of origin and this acts as this ‘central
point’.
2.            LEGAL
FRAMEWORK, OBLIGATIONS AND MANAGEMENT ARRANGEMENTS UNDER THE CURRENT SYSTEM
2.1          Legal framework
2.1.1      Autonomous
and bilateral preferential arrangements
The Generalised
System of Preferences (GSP)[4] provides a legal framework for monitoring activity, including
verification visits by Commission or Member State customs officials.
The Overseas
Countries and Territories (OCT) Decision[5] does not provide a legal framework for monitoring activity, but the
future ‘Overseas Association Decision’[6]
will.
Pending the
conclusion and application of revised Economic Partnership Agreements (EPAs)
with the African, Caribbean and Pacific countries a temporary unilateral scheme
has been in place under the Market Access Regulation (MAR)[7]since 1
January 2008. . Annex I to the MAR contains a list of regions or states which
have concluded negotiations within the meaning of Article 2(2) and Article 4(3)
provides a legal framework for monitoring implementation of the rules of origin
in respect of trade with them. As of 1 October 2014, however, the list will
be restricted to countries with which there is an EPA applied and the scope of
monitoring under the MAR will be limited. As a result, the MAR ACP beneficiary
countries will remain only the EPA partner countries falling under these
bilateral agreements. 
No other autonomous
or preferential arrangement (apart from the GSP, the OCT Decision and the MAR) contains
explicit provisions on monitoring.
2.1.2      Management
of administrative errors (MAE) clause
If monitoring
activities with beneficiary/partner countries reveal that errors in the management
of preferential arrangements have led to EU import duties being lost, the management
of administrative errors clause may be triggered. Under this clause, which the
EU is proposing in new preferential trade agreements under negotiation, the
contracting party facing such losses may request that the body identified for
this purpose in the agreement examines possible measures to resolve the
situation.
2.1.3      Customs
cooperation, mutual administrative assistance and temporary withdrawal of
preferences
Preferential
trade arrangements usually include customs cooperation and mutual administrative
assistance[8]
provisions involving regular information exchange and liaison to ensure the
correct application of customs legislation, in particular by preventing,
investigating and combating illicit operations.
These provisions
provide under certain conditions for the temporary withdrawal or suspension of preferences
in response to a beneficiary/partner country’s:
·      
repeated failure to verify originating status;[9]
·      
repeated refusal to carry out, and/or communicate
the results of, subsequent verification of the proof of origin, or undue delay
in doing so; and 
·      
repeated refusal to grant authorisation for
enquiry visits (to be initiated by OLAF and/or the Member States) to check the
authenticity of documents or accuracy of information relevant to the granting
of preferential treatment, or undue delay in doing so.
These provisions
are included in the GSP Regulation[10]
and the future OAD,[11]
and their inclusion is being proposed in new preferential arrangements.
2.1.4      Infringement
procedures against Member States
Serious
anomalies in the functioning of preferential trade arrangements may also stem
from a Member State's failure to comply with EU law. Where it detects such a
failure, the Commission may initiate the procedure for failure to fulfil an
obligation provided for in Article 258 of the TFEU.
2.2          The Commission’s obligations
It is the
Commission which must ensure that preferential trade arrangements are implemented
correctly.
Even if agreements
do not explicitly refer to monitoring, they may entail certain options for the
Commission, including:
·      
dialogue in the Joint or Cooperation Committees;
·      
general information requests; and 
·      
warning EU importers in cases of doubt as to the
correct implementation of the agreement.
In order to
ensure the effectiveness and efficiency of preferential rules of origin,
shortcomings need to be addressed and corrected. Ensuring compliance with
preferential origin rules including rules on administrative cooperation is
crucial for the credibility in the implementation of and during negotiations of
any future Free Trade Agreement.
2.3          Management arrangements
2.3.1      Periodical
reporting system
The information submitted
by Member States and collected through the Commission’s periodical reporting
system, focuses mainly on the number of verifications requested per beneficiary
country, replies received and compliance with reply deadlines.
The data are
evaluated and beneficiary/partner countries are selected for monitoring
meetings, in which Member State experts participate on a case-by-case basis.
The Commission is currently evaluating the idea of setting up a monitoring
database.
2.3.2      Specimen
Management System (SMS) database
Arrangements
providing for trade preferences usually include, in the chapter on
administrative cooperation, a provision requiring beneficiary/partner countries
to communicate to the Commission specimen impressions of the stamps their
authorities use when issuing movement certificates or certificates of origin.
The Commission stores
these impressions, along with the names of the authorities empowered to issue
and control proofs of origin, in its Specimen Management System (SMS) database.
The database is updated on an on-going basis and can be consulted by Member
States’ customs authorities when clearing goods or assessing the need to send
verification requests to beneficiary/partner countries.
2.3.3      Notices
to importers
In cases of
reasonable doubt as to the origin of goods imported under preferential tariff
arrangements, the Commission may publish notices to importers in the Official
Journal.[12]
Persons liable for customs debts in cases of incorrect proofs of origin cannot
plead good faith if the Commission has published a notice signalling grounds for
doubt as to the proper application of the arrangements by the country concerned.[13]
2.3.4      Registered
exporter (REX) system
The Commission
is currently finalising the IT required for the registered exporter (REX)
system, which should cover GSP beneficiary countries and OCT exporters from 1
January 2017 and is due at a later stage to be applied in the context of free trade
agreements.
Rather than the
competent authorities issuing proofs of origin, exporters in GSP beneficiary
countries will issue origin statements as:
(i) registered exporters — if the value of the
consignment exceeds EUR 6 000; or 
(ii) non-registered exporters — if the value of the
consignment does not exceed EUR 6 000.
The system will involve
a central database with the information supplied by beneficiary country authorities
(and Member State authorities using the same certification system for bilateral
cumulation).
To ensure
compliance with the rules of origin, beneficiary countries will verify the
originating status of goods at the request of Member State customs authorities and
carry out regular controls and audits on exporters on their own initiative.
3.            WEAKNESSES
OF THE CURRENT SYSTEM
The current monitoring
activities suffer from the following weaknesses:
·      
the periodical reporting system focuses mainly
on collecting quantitative information on the formalities of administrative
cooperation and only to a minor extent on ensuring compliance with the origin
rules as such;
·      
there is as yet no periodical reporting system on
beneficiary countries’ management and control of preferential origin;
·      
the data currently used for monitoring are basically
provided by Member States and, in some cases, other Commission services. Other
sources are not exploited and the verification visits referred to in Communication
COM(2005) 100 have not yet been carried out;
·      
any shortcomings detected are addressed in
writing or during monitoring meetings between the Commission, Member States and beneficiary/partner countries concerned. Such meetings are currently organised
on a case-by-case basis and in addition to meetings of the committees established
under bilateral agreements; other means of addressing shortcomings are not yet
exploited;  
·      
the Commission’s monitoring activity does not
cover Member States’ measures to ensure compliance with the origin rules, in
particular when issuing proofs of origin; and
·      
the Common Risk Management System [14]does not include risk profiles for origin rules.
The cumulative
effect of these weaknesses incites the Commission to further improve the
current system.
4.            REMEDIES
In order to address
the weaknesses of the current system, it is important to focus on the following
objectives.
4.1 Enhancing collection of data and identifying
failures in implementation
4.1.1      Collection
and analysis of data
The information relevant
for monitoring should be complemented by data from the Integrated Statistical
Database (ISDB), COMEXT, COMTRADE and TARIC data, and information from Member
States.
As a first step,
the Commission should carry out a general assessment of available data for the 89
GSP beneficiary countries, focusing on potential risks arising from trade flows
and differences in duty levels, and taking into account information from Member
States.
At a later stage,
information on other beneficiary/partner countries could be assessed.
4.1.2      Selection
of countries for further monitoring 
Based on its assessment,
the Commission will select a limited number of beneficiary/partner countries
for in-depth monitoring. In case of partner countries in whose preferential
arrangements there are no explicit provisions related to monitoring, the
partner country would have to explicitly agree to be subject to such
monitoring.
As from 2014,
the Commission will propose an annual monitoring plan focusing on countries and
products for which more in-depth monitoring is considered useful, with some
flexibility for short-term needs and risks.
4.1.3      Questionnaires
The Commission
will send to the selected countries detailed questionnaires on the practical
administration of origin rules and the issuing of proofs of preferential
origin.
The questions
will be adapted to particular circumstances and operations, particularly once
the REX system is in place.
The answers will
be evaluated and used to prepare monitoring meetings and visits.
4.2 Taking corrective measures
4.2.1      Monitoring
meetings, monitoring visits and Joint or Cooperation Committees
Once the data (see
point 4.1.1) and questionnaire answers (see point 4.1.3) have been evaluated,
the Commission will decide on a case-by-case basis whether to organise:
·      
monitoring meetings; 
·      
monitoring visits to the country concerned; or 
·      
Joint or Cooperation Committee discussions 
to address any concerns
as to the correct application of preferential rules of origin and provide detailed
explanations so as to raise awareness and give guidance.
In each case, the
Commission will draft a detailed report, to be shared with the beneficiary/partner
country, the findings of which will be fed into the following year’s monitoring
plan.
4.2.2      Using
corrective and safeguard mechanisms
Depending on
outcomes under this enhanced monitoring procedure (see point 4.2.1), the
Commission should decide on the action to be taken – if possible in cooperation
with the beneficiary/partner country – to address the risks identified.
Measures may include:
·      
providing additional targeted training or
technical assistance to officials in charge; 
·      
issuing notices to importers (see point 2.3.3);
or 
·      
when such remedy is provided for in the
preferential arrangement in question temporary withdrawal or suspension of
preferences.
4.2.3      Risk
profiles
The Commission
will also evaluate whether common risk profiles for origin should be developed
and implemented and, if so, in what form. Work will continue to establish and
keep up to date effective common standards in audit[15] and a
posteriori controls through the convergence of control standards project
and the customs audit guide.
4.2.4      Monitoring
of Member States’ activities
The need for the
correct and uniform application of EU customs legislation is not limited to provisions
relating to own resources, but relates to all aspects of customs law. As a
matter of credibility in the Union’s relations with beneficiary/partner countries,
the Commission should also monitor Member States’ arrangements for issuing of
proofs of origin. This is particularly important when it comes to ensuring the traceability
of preferential origin for the purposes of cumulation. Goods leaving a Member State may be used in the manufacture of products in a beneficiary/partner country
from which they are then brought back under cumulation arrangements.
The Commission will send questionnaires
on the practical administration of origin rules and the issuing of proofs of
preferential origin to all Member States. On the basis of their answers and any
other available information, the Commission will decide on the appropriate
action.
4.2.5      Amending
the Customs Code Implementing Provisions,[16] autonomous arrangements
and bilateral preferential agreements 
When assessing the temporary withdrawal or
suspension of preferential treatment under the GSP Regulation, the Commission
should consider, whether these measures can exclusively be applied to specific
CN headings in certain circumstances. This possibility is provided for in Articles
15, 19 and 21 of the GSP Regulation. As compared with hitting all preferential
imports from one or more beneficiary countries, withdrawal or suspension for
specific CN headings could be a more effective and efficient means of targeting
problem areas, when they concern exclusively certain CN headings.
Thought could also be given to whether a
legal framework for monitoring could be introduced in other autonomous schemes
or negotiated under bilateral preferential arrangements. In the case of the
latter, the approach might require careful further evaluation. 
In addition, the Commission should assess
in more detail how the periodical reporting system on beneficiary countries’
management and control of preferential origin (as referred to in point 3.2.1 of
Communication COM (2005) 100) can be incorporated in the various
preferential arrangements.
4.3 Means and Follow-up activities
4.3.1      Funding
The monitoring
activities referred to above will contribute to the objectives of the multi-annual
Customs 2020 programme[17]
and be proposed for funding as regards:
(i)     travelling costs for Member State experts’ participation in meetings and monitoring missions; and
(ii)    the development of IT programmes and
databases.
Training
activities for beneficiary/partner countries may be funded under the 2014-20 EU
External Assistance Programmes.[18]
4.3.2      Reporting
and sharing information
At the end of each
calendar year, the Commission will publish a report on its monitoring activity.
It will also share with Member States any relevant information it has gathered.
5.            SUMMARY
Better
monitoring of the functioning of preferential trade arrangements should be
achieved by:
·      
periodical reporting systems related to
beneficiary/partner countries and Member States;
·      
Enhanced collection of data, and
·      
analysing available information and identifying
countries and products for which further monitoring appears necessary.
This monitoring should then be undertaken through:
·      
contacts with the countries concerned;
·      
the completion of questionnaires; and 
·      
if necessary, monitoring meetings or visits. 
Based on the
outcome of the above measures, the Commission will
assess the need for further action.
The implementation
of this action plan should start directly after adoption of this Communication.
The Commission
invites the Council to fully support the actions set out in this Communication.
[1]     Countries benefiting from autonomous trade measures are
referred to as ‘beneficiary countries’, whereas those with which the EU has
agreed bilateral preferential arrangements are referred to as ‘partner
countries’.
[2]     A special situation results from circumstances in which no
deception or obvious negligence may be attributed to the person concerned. 
[3] The Task Force was set up by amending DG TAXUD’s organigram in
September 2013.
[4]     Currently Article 97k and as of 1 January 2017 Articles 68 and
69 of Regulation (EEC) No 2454/93 (Customs Code Implementing Provisions), as
amended by Regulation (EU) No 1063/2010.
[5]     Council Decision No. 2001/822/EC of 27 November 2001 on the association
of the overseas countries and territories with the European Community (OJ L
314, 30.11.2001).
[6]     Article 51 of Annex VI to the OAD proposal (COM(2012) 362
final, 16.7.2012).
[7]     Council Regulation (EC) No 1528/2007.
[8]     OLAF is in charge of the latter.
[9]     I.e. that the product(s) actually originate(s) in the region or
state to which the preference has been granted.
[10]    Article 21 of Regulation (EU) No 978/2012 (OJ L 303,
31.10.2012).
[11]    Article 46 of the OAD proposal (COM(2012) 362 final, 16.7.2012).
[12]    See Communication 2012/C 332/01 (OJ C 332, 30.10.2012, p. 1).
[13]    See Article 220(2)(b) of the Customs Code.
[14] The European Commission on 8 January 2013 adopted a Communication
on Customs Risk Management and the Security of the Supply Chain (COM/2012/793).
It sets out a strategy to enable customs to better tackle risks associated with
goods being traded in international supply chains.
[15]Customs controls are identified as a priority under Art. 5 (2)b) of Regulation
(EU) No 1294/2013 of the European Parliament and of the Council establishing an
action programme for customs in the European Union for the period 2014-20
(Customs 2020) and repealing Decision 624/2007/EC.
.
[16]    Regulation (EEC) No 2454/93.
[17]    Regulation (EU) No 1294/2013 of the European Parliament and of
the Council establishing an action programme for customs in the European Union
for the period 2014-20 (Customs 2020) and repealing Decision 624/2007/EC.
[18]    Development Cooperation Instrument, European Development Fund
(2014-20), European Neighbourhood Instrument, Pan‑African Instrument. The
legislative proposals for financing these measures are still under preparation.