Source: EURLEX
Language: en
Format: md

**EUROPEAN COURT OF AUDITORS**
**12, rue Alcide De Gasperi**
**1615 Luxembourg**
**LUXEMBOURG**

**Tel. +352 4398-1**

**E-mail: eca-info@eca.europa.eu**
**Internet: http://eca.europa.eu**

**Twitter: @EUAuditorsECA**
**YouTube: EUAuditorsECA**

**More information on the European Union is available on the Internet (http://europa.eu).**

**Luxembourg: Publications Office of the European Union, 2014**

**ISBN 978-92-9241-842-7**

**doi:10.2865/63011**

**© European Union, 2014**
**Reproduction is authorised provided the source is acknowledged.**
_Printed in Luxembourg_

### **EN 2014**

# **N0 02**

##### **Special Report Are preferential** **trade arrangements** **appropriately managed?**

(pursuant to Article 287(4), second subparagraph, TFEU)

## **Contents 02**

**Paragraph**

**Abbreviations**

**Glossary**

**I–V**
**Executive summary**

**1–19** **Introduction**

**1–6** **Preferential trade arrangements**

**7–14** **Assessment of the effects of PTAs by the Commission**

**15–19** **Supervision and controls on PTAs**

**20–25** **Audit scope and approach**

**21** **–** **22** **Assessment of the economic effects of PTAs**

**23** **–** **25** **Supervision and controls on PTAs**

**26–106** **Observations**

**26–53** **Despite improvements over time the Commission has not appropriately assessed all the economic**
**effects of PTAs**

**27–31** **The Commission did not always carry out an assessment of all the economic effects of PTAs**

**32–53** **The assessments carried out in most cases contained inaccuracies and were not fully useful or**
**comprehensive, but there have been improvements**

**54–55** **The interim evaluation of the GSP shows that the policy has not yet delivered all its intended**
**benefits**

**56–80** **Customs controls applied by the authorities of the selected Member States are weak**

**58–67** **Weaknesses in control strategy and risk management**

**68–73** **Weaknesses in the management of the administrative cooperation by the authorities of the selected**
**Member States**

## **03**

**74–75** **Member States’ risk management systems do not always include MA communications**

**76–80** **Errors in recovery procedures in three of the selected Member States**

**81–99** **There are weaknesses in the Commission’s supervision of Member States and beneficiary/partner**
**countries in respect of PTAs**

**82–86** **The Commission has carried out few prior evaluations and no monitoring visits to countries benefiting**
**from preferential treatment**

**87–89** **The Commission has taken steps to ensure the smooth working of the administrative cooperation**
**arrangements, but problems remain**

**90–92** **OLAF’s origin investigations are essential but there are weaknesses in their financial follow-up**

**93–99** **Insufficient use of preventive and reactive measures to protect the financial interests of the EU**

**100–106** **The legal provisions of the PTAs do not contain sufficient safeguards to protect the financial**
**interests of the EU**

**100–103** **Complexity of cumulation rules**

**104–105** **Replacing certificates of origin and movement certificates with self-certification**

**106** **Limited legal powers to counter fraud**

**107 – 120** **Conclusions and recommendations**

**Annex I** **— Statistical data on PTAs in 2011**

**Annex II** **— Overview of Commission’s** _**ex ante**_ **evaluations on PTAs**

**Annex III — Overview of Commission’s interim and/or** _**ex post**_ **evaluations on PTAs**

**Annex IV — Audit approach in selected Member States**

**Annex V** **— Limitations of the CGE model**

**Reply of the Commission**

## **Abbreviations 04**

**ACP** African, Caribbean and Pacific Group of States

**AC** Administrative cooperation

**AMA** Mutual assistance concerning agricultural or fishery products

**CCC** Community Customs Code

**CCIP** Customs Code Implementing Provisions

**CGE** Computable General Equilibrium Model

**CLWP** Commission’s legislative work programme

**EPE** _Ex post_ evaluation

**EPA** Economic partnership agreement

**EU** European Union

**FAO** Food and Agriculture Organisation of the United Nations

**FTA** Free trade agreement

**GSP** Generalised system of preferences

**GTAP** Global Trade Analysis Project

**IA** Impact assessment

**ILO** International Labour Organisation

**MA** Mutual assistance

**OLAF** European Anti‑Fraud Office

**PTAs** Preferential trade arrangements

**SIA** Sustainability impact assessment

**TOR** Traditional own resources

**TRIPS** Agreement on Trade‑Related Aspects of Intellectual Property Rights

## **Glossary 05**

**Administrative cooperation (AC)** : exchange of information between beneficiary/partner countries, the
Commission and the Member States, whereby the former inform the Commission, which conveys this information
to Member States, of the authorities competent to issue certificates of origin or movement certificates and the
specimen of stamps used therein. Member States send requests to these authorities in order to confirm the validity
and/or authenticity of proofs of preferential origin and movement certificates.

**Cariforum** : body that comprises Caribbean ACP states for the purpose of promoting and coordinating policy
dialogue, cooperation and regional integration, mainly within the framework of the Cotonou Agreement between
the ACP and the European Union and also the Cariforum–EU Economic Partnership Agreement (EPA).

**Comext** : the statistical database on trade of goods from and between European Union countries (intra and extra
EU). These statistics cover the transactions of more than 11 000 goods classified in the Combined Nomenclature.

**Computable General Equilibrium Model (CGE)** : a quantitative economic model used to simulate how an economy
reacts to changes in policy, in areas such as taxation, migration and trade policy. It assumes that markets in an
economy tend toward equilibrium, if not disturbed by shocks, and in principle lead to an efficient allocation of
resources. The first CGE model was constructed by Leif Johansen in 1960.

**Cumulation** : a system that allows products originating in country A to be further processed or added to products
originating in country B, as if they had originated in country B. The resulting product would have the origin of
country B. The working or processing carried out in each beneficiary/partner country on originating products does
not have to be ‘sufficient working or processing’ as set out in the list rules.

**Customs controls** : specific acts performed by customs authorities in order to ensure the correct application
of customs rules; such acts may include examining goods, verifying declaration data and the existence and
authenticity of electronic or written documents, examining the accounts of undertakings and other records,
inspecting means of transport, inspecting luggage and other similar acts.

**Customs declaration** : the act whereby a person indicates a wish to place goods under a given customs procedure.

## **06**

**Glossary**

**EU’s generalised system of preferences (GSP)** : a unilateral trade arrangement by which the EU grants developing
countries and territories preferential access to its market in the form of reduced tariffs for their goods upon entry in
the EU market. The standard GSP provides preferences to developing countries and territories over more than 6 200
tariff lines, whereas the special GSP in favour of sustainable development and good governance, known as GSP +,
offers additional tariff reductions to assist vulnerable developing countries in their ratification and application of
international agreements in these fields. The EBA ‘everything but arms’ scheme supplies quota free duty‑free for all
products for the least developed countries.

**Free trade areas and customs unions** : preferential trade arrangements, which represent an exception to the most
favoured nation (MFN) treatment rule of the GATT and the GATS by virtue of which trader partners grant reciprocally
preferential access to their products and services in order to facilitate trade between them. While both lead to the
reciprocal elimination of tariffs and quotas in the constituent territories and the discrimination of non‑members’
trade, the latter implies the establishment of a common customs tariff among them.

**Global Trade Analysis Project (GTAP)** : a global network of researchers and policy makers conducting quantitative
analysis of international policy issues. GTAP is coordinated by the Center for Global Trade Analysis in Purdue
University. A regional single country CGE model developed by the Australian Industry Commission provided the
inspiration for the GTAP project in 1990–91. The centrepiece of the Global Trade Analysis Project is a global database
describing bilateral trade patterns, production, consumption and intermediate use of commodities and services.

**Impact assessment (IA)** : an _ex ante_ evaluation prepared by the Commission in order to provide policymakers with
evidence of the advantages and disadvantages of possible policy options by assessing their potential impact.

**Local clearance procedure** : a simplified procedure whereby a trader receives the goods directly at his/her
premises (or the designated place) and usually the customs declaration is lodged and the goods are released by
means of an entry in the trader’s own records.

**Mutual assistance (MA) communication** : transmission to Member States by the Commission of information
concerning operations which constitute, or appear to constitute, breaches of customs or agricultural legislation that
are of particular relevance at EU level.

**Mode 4** : Supply of services in cross‑border trade delivered within the territory of a trade partner, with the EU
supplier present as a natural person.

## **07**

**Glossary**

**REM–REC applications** : claims for remission/repayment of the customs debt or for waiver of subsequent entry
in the accounts thereof submitted by the Member States’ customs authorities to the Commission pursuant to
Articles 871 and 905 of the CCIP.

**Revenue foregone** : the revenue that the EU forfeits due to the tariff preferences granted to beneficiary/partner
countries of PTAs.

**Revenue lost** : customs duties due which can no longer be collected.

**Risk management/risk analysis** : the systematic identification of risk and implementation of all measures necessary
to limit exposure to risk, preferably using automated data-processing techniques. This includes activities such as
collecting data and information, analysing and assessing risk, prescribing and taking action and regular monitoring
and review of the process and its outcomes, based on international, EU‑wide and national sources and strategies.

**Risk profile** : a combination of risk criteria and control areas (eg. type of goods, countries of origin) which indicates
the existence of risk and leads to a proposal to carry out a control measure. When these criteria are developed at EU
level following a common risk management framework they are known as EU risk profiles.

**Simplified declaration procedure** : a simplified procedure whereby a trader presents goods to customs and lodges
either a simplified declaration form or a commercial document (e.g. an invoice) instead of a detailed standard
declaration.

**Sustainability impact assessment (SIA)** : an independent study carried out by external consultants to provide
negotiators with an evidence‑based analysis of the potential economic, environmental and social impacts that
a trade agreement might have, both in the EU and in the partner countries. External consultants are bound by the
guidelines and terms of reference contained in the Commission’s handbook on trade SIAs.

**Time‑barring of the customs debt** : the fact that a customs debt can no longer be notified to the debtor because
a period of 3 years has passed from the date on which the customs debt was incurred.

#### **Executive** **summary**

###### **I**

Preferential trade arrangements (PTAs) allow trading
partners to grant preferential terms in the context of
their trade with each other. They can be either recipro­
cal or unilateral. The former reduce tariff barriers with
the objective of increasing trade, economic growth,
employment and consumer benefits for both par­
ties. With the latter the EU grants preference without
reciprocity with the objective of providing developing
countries tariff‑free access to the EU market, thereby
contributing to poverty eradication and to promoting
sustainable development.

###### **II**

The objective of the Court’s audit was to evaluate
whether the Commission has appropriately assessed
the economic effects of PTAs and whether the controls
thereon are effective in ensuring that imports cannot
wrongly benefit from a preferential tariff, resulting in
the loss of EU revenue.

###### **III**

The Court found that:

(a) the Commission has not appropriately assessed

all the economic effects of PTAs; however, the
use of the impact assessment tool has increased
and there has been progress in the quality of the
analysis conducted;

(b) the interim evaluation of the generalised system

of preferences (GSP) shows that the policy has not
yet fully delivered its intended benefits;

(c) there are weaknesses in customs controls applied

by the authorities of the selected Member States;

## **08**

(d) there are weaknesses in the Commission’s super­

vision of Member States and beneficiary/partner
countries in respect of PTAs; and

(e) the legal provisions of the PTAs do not contain suf­

ficient safeguards to protect the financial interests
of the EU.

###### **IV**

In order to improve the assessment of the economic
effects of PTAs the Commission should:

(a) unless duly justified, carry out an impact assess­

ment (IA) and a sustainability impact assessment
(SIA) for each PTA, providing an in‑depth, compre­
hensive and quantified analysis of the expected
economic effects, including an estimate of rev­
enue foregone;

(b) involve Eurostat routinely in the quality assess­

ment of the statistical data sources used in SIAs,
and ensure the timeliness of the analysis carried
out for negotiators;

(c) carry out interim and _ex post_ evaluations in order

to assess the extent to which PTAs with a sig­
nificant impact meet their policy objectives and
how their performance can be improved in key
economic sectors and including an estimate of
revenue foregone.

## **09**

**Executive summary**

###### **V**

In order to improve the protection of the EU’s financial
interests the Commission should:

(a) create EU risk profiles on PTAs so that Member

States have a common approach to risk analysis in
order to reduce losses to the EU budget;

(b) verify that Member States improve the effective­

ness of their risk management systems and control
strategy to reduce losses to the EU budget;

(c) encourage Member States to adopt appropriate

precautionary measures upon receipt of a mutual
assistance (MA) communication;

(d) evaluate and carry out monitoring visits on a risk

basis to countries benefiting from preferential
treatment notably regarding the rules of origin
and cumulation;

(e) require the Member States to improve the qual­

ity of the information they provide concerning
administrative cooperation;

(f) improve the financial follow‑up of OLAF investiga­

tions in order to prevent losses to the EU budget
due to time‑barring;

(g) reinforce the EU’s position in reciprocal PTAs and

make more use of precautionary and safeguard
measures including them in all future trade agree­
ments; and

(h) promote the replacement of origin and movement

certificates with exporters’ self‑certification.

## **10**
#### **Introduction**

**Preferential trade**
**arrangements**

###### **01**

Preferential trade arrangements (PTAs)
allow trading partners to grant pref­
erential terms in the context of their
trade with each other. They can be
either reciprocal or unilateral. The
former reduce tariff barriers with the
objective of increasing trade, econom­
ic growth, employment and consumer
benefits for both parties. With the
latter the EU grants preference without
reciprocity with the objective of pro­
viding developing countries tariff‑free
access to the EU market, thereby con­
tributing to poverty eradication and to
promoting sustainable development.

###### **02**

At the end of 2013, 39 PTAs were in
force covering trade between the EU
and 180 countries and territories. In
2011 the value of goods imported into
the EU under PTAs amounted to more
than 242 billion euro, representing
14 % of EU imports. _**Annex I**_ provides
an overview of the data for the 10
Member States which imported the
most, and the 10 beneficiary/partner
countries which exported the most,
under PTAs that year.

###### **03**

According to the Treaty on the Func­
tioning of the EU [1], common commer­
cial policy is the exclusive competence
of the Union. The procedure for estab­
lishing PTAs is set out in its Articles 206
and 207.

###### **04**

The Commission is responsible for
negotiating the PTAs, assessing and
evaluating their economic, social and
environmental impacts and supervis­
ing their implementation by Mem­
ber States and beneficiary/partner
countries.

###### **05**

The Member States’ customs author­
ities bear the main responsibility for
overseeing the EU’s international
trade. In particular, they implement
measures to safeguard the financial in­
terests of the EU and to protect it from
unfair or illegal trading practices, while
encouraging legitimate trade.

1 Article 3(1)(e) and Article 3(2)
TFEU.

## **Introduction 11**

###### **06**

The authorities of the beneficiary/
partner countries are responsible for
checking that the arrangements are
adhered to and they therefore play an
essential part in the initial determina­
tion of the ‘originating’ status of the
products.

**Assessment of the effects**
**of PTAs by the**
**Commission**

###### **07**

There are two types of _ex ante_ assess­
ments used to support decision‑
making in trade matters: impact as­
sessments (IAs) and sustainability
impact assessments (SIAs). IAs are
a Commission‑wide tool used to sup­
port decision-making in the case of
initiatives with expected significant
impacts. SIAs are a trade‑specific
instrument, providing a more detailed
analysis of trade agreements under
negotiation.

###### **08**

In 2002 [2] the Commission introduced
IAs to help identify the main options
for achieving the intended policy
objectives and analyse their likely
impacts in the economic, social and
environmental fields. IAs also set
out a framework for monitoring and
evaluation. IAs are carried out by the
Commission before the negotiation
mandate is proposed for adoption by
the Council.

###### **09**

Since 2003, the Commission has been
required to carry out an _ex ante_ evalu­
ation or an IA to respect legal obliga­
tions [3] or Commission rules [4] . This is

because PTAs entail a reduction in
revenue for the EU budget (revenue
foregone) and are major policy pro­
posals having economic impacts both
inside and outside the EU (see more
details in _**Annex II**_ ).

###### **10**

In 1999 the Commission ‘ _decided to_
_integrate sustainable development into_
_trade negotiations by developing a new_
_assessment tool called trade SIA’_ [5] .

###### **11**

After the trade negotiations have offi­
cially started but prior to the signature
of PTAs, the Commission outsources
SIAs, which are studies conducted by
external consultants used as a policy
tool for an _ex ante_ assessment of the
economic, social and environmental
implications of a trade negotiation.

###### **12**

Interim and _ex post_ evaluations as­
sess the actual impacts of the PTAs
as a result of their implementation.
In the Court’s view they should be
carried out in respect of all PTAs with
significant economic, social and envir­
onmental impact ideally after
3 years from their entry into force.
These allow policymakers, stake­
holders and European taxpayers to
assess whether PTAs are actually meet­
ing their policy objectives.

2 COM(2002) 276 final of
5 June 2002.

3 Pursuant to Article 21, under
the heading ‘Principle of
sound financial management’,
of Commission Regulation
(EC, Euratom) No 2342/2002
of 23 December 2002 laying
down detailed rules for the
implementation of Council
Regulation (EC, Euratom)
No 1605/2002 on the Financial
Regulation applicable to
the general budget of the
European Communities in
force from 1.1.2003 (OJ L 357,
31.12.2002, p. 1). However,
since 22 August 2006 this
article only requires _ex ante_
evaluations in respect of
‘programmes or activities
occasioning budget
expenditure’.

4 COM(2002) 276 final,
applicable from 2003,
and COM(2005) 12 final of
26 January 2005, on the
strategic objectives 2005–09.

5 Preface by Peter Mandelson,
former European
Commissioner for Trade, to the
handbook on trade SIA.

## **Introduction 12**

###### **13**

In its communication on ‘Trade,
growth and world affairs, trade policy
as a core component of the EU’s 2020
strategy’ [6], the Commission stated that
_ex post_ evaluations would be carried
out to monitor the impacts of existing
PTAs on a more systematic basis (see
more details in _**Annex III**_ ).

###### **14**

Revenue foregone is the revenue that
the EU forfeits due to the tariff prefer­
ences granted to beneficiary/partner
countries under PTAs. An _ex ante_ and
_ex post_ evaluation of this revenue
foregone allows the Commission to im­
prove the financial management of the
EU budget by providing the budget­
ary authority with an accurate yearly
forecast of customs duties collection
and calculation of the budgetary costs
associated with the PTAs.

**Supervision and controls**
**on PTAs**

###### **15**

The customs authorities of the Mem­
ber States, the authorities of the
beneficiary/partner countries and the
Commission should jointly manage
PTAs and cooperate to ensure that the
conditions required to benefit from
the preferential treatment are met.
The protection of the EU’s financial
interests by preventing losses to the
EU budget due to the import of goods
under PTAs not entitled to preferential
tariff treatment is the responsibility of
those three groups of authorities.

###### **16**

Certifying and verifying the preferen­
tial status of products is crucial and re­
quires detailed checks on the origin of
the goods and effective administrative
cooperation with exporting countries.

###### **17**

Rules of origin are used to ascertain
that products originate in a particular
country entitled to benefit from pref­
erences and thus meet the criteria for
the trade preference [7] . These rules have
three components _:_

(a) an _origin_ [8] _component_ (which

categorises products according to
where they are produced) _;_

(b) a _consignment standard_ (which

ensures that the products are not
subjected to manipulation by
requiring direct transport between
the country of origin and the EU
or by directly establishing the
so‑called non‑manipulation prin­
ciple); and

(c) a _documentary standard_ (adequate

documentation needs to be
provided as to the origin of the
product).

6 COM(2010) 612 final of
9 November 2010.

7 Each agreement contains
a list of working or processing
procedures to be performed
on non‑originating materials
so that the manufactured
product can obtain originating
status.

8 EU rules of origin are based
on process criteria: to have
the preferential origin of
a country, goods must be
wholly obtained (e.g. grown,
mined) there or, where this is
not the case, have undergone
sufficient processing there.

## **Introduction 13**

###### **18**

An example of the procedure for
determining whether products are
eligible for preferential treatment is
shown in _**Chart 1**_ .

###### **19**

Administrative cooperation between
the authorities of the Member States,
beneficiary/partner countries and the
Commission is used to confirm the
authenticity of the proofs of origin and
status of the products exported. The
granting or refusal of the tariff prefer­
ence requested by the importer will
depend in most cases upon the results
of this procedure. _**Chart 2**_ shows the
flowchart of controls on preferential
trade.

**Procedure to determine whether products are eligible for preferential tariff**
**treatment under GSP**

_Source:_ European Court of Auditors.

## **Introduction 14**

**Flowchart of controls on PTAs**

**Exporting beneficiary country (Non-EU)**

**Country of importation (Member State X)**

**Importer keeps**
**evidence and**
**records of the**
**preferential origin**
**during 3 years after**
**the end of the year**
**in which the import**
**takes place**

_Source:_ European Court of Auditors.

#### **Audit scope and** **approach**

###### **20**

The objective of the Court’s audit was
to evaluate whether the Commission
has appropriately assessed the eco­
nomic effects of PTAs [9] and whether

the controls thereon ensure that
imports cannot unduly benefit from
a preferential tariff, resulting in the
loss of EU revenue.

**Assessment of the**
**economic effects of PTAs**

###### **21**

The Court examined the _ex ante_ and _ex_
_post_ evaluations carried out by, or on
behalf of, the Commission of the eco­
nomic effects foreseen or realised. To
this end the Court analysed the docu­
mentation available at the Commission
in respect of a sample of 44 PTAs [10],
notably any IA reports, SIA studies, _ex_
_post_ evaluations and the arrangements
for future monitoring. An overview of
these PTAs is provided in _**Annexes II**_
and _**III**_ .

###### **22**

The requirements defined by the IA
and SIA guidelines, the reports of the
Impact Assessment Board, the activity
statements and annual activity reports
of the Commission and its relevant

communications on trade matters

were taken into consideration to as­
sess the quality of such evaluations.

Particular attention was paid to how
the Commission ensured the robust­

ness of data sources used in these

evaluations and also to the Commis­
sion’s follow‑up of previous findings
and recommendations of the Court
concerning IAs [11] and of the European
Economic and Social Committee con­
cerning SIAs [12] . The Court also verified
whether _ex post_ evaluations show that
the PTAs are delivering their intended
benefits.

**Supervision and controls**
**on PTAs**

###### **23**

The Court examined the effectiveness
of the supervision arrangements and
of the controls performed on PTAs
by the competent authorities in five
Member States [13], which represented
two thirds of the total value of imports
under PTAs benefiting from preferen­
tial tariff measures in 2011, carrying
out the testing described in _**Annex IV**_ .
The audit covered the control strategy
and risk management, the function­
ing of administrative cooperation
arrangements and the procedures for
the recovery of any traditional own
resources (TOR) due.

## **15**

9 Due attention was paid to
the analysis of the social
and environmental impacts
of unilateral PTAs and
EPAs, which have a strong
sustainable development
content.

10 Of these, 39 represent all PTAs

in force at the time of the audit
work and five not yet in force
at that time.

11 European Court of Auditors’

Special Report No 3/2010
‘Impact assessments in the EU
institutions: do they support
[decision‑making?’ (http://eca.](http://ec.europa.eu/governance/impact/planned_ia/docs/88_trade_gsp_regulation_en.pdf)
[europa.eu)](http://ec.europa.eu/governance/impact/planned_ia/docs/88_trade_gsp_regulation_en.pdf)

12 Opinions of the European

Economic and Social
Committee No 818/2011 on
SIAs and EU trade policy and
No 1612/2011 on the role of
civil society in the free trade
agreement between the EU
and India (http://www.eesc.
europa.eu).

13 Germany, Spain, France, Italy

and the United Kingdom,
which were the five Member
States that imported the most
under PTAs in 2010.

## **Audit scope and approach 16**

###### **24**

The Court assessed the Commission’s
prior evaluation and _ex post_ monitor­
ing function in the beneficiary/partner
countries, its role in the administra­
tive cooperation arrangements, its
inspections of Member States’ cus­
toms authorities, the review of origin
investigations carried out by OLAF and
the waiver of duty collection applica­
tions, and the adequacy of the legis­
lative framework in force in order to
ensure the completeness of revenue
collection.

###### **25**

The Commission’s supervisory and
control activities on PTAs were as­
sessed against the legal provisions in
force, the relevant mission statements,
activity statements and the Commis­
sion’s communications on rules of
origin and PTAs. Attention was paid to
the Commission’s follow‑up of previ­
ous findings and recommendations of
the Court concerning PTAs [14] .

14 European Court of Auditors’

Annual Report concerning the
financial year 2003, Chapter 3,
paragraph 3(30) (OJ C 293,
30.11.2004. p. 1).

## **Observations 17**

**Despite improvements**
**over time the Commission**
**has not appropriately**
**assessed all the economic**
**effects of PTAs**

###### **26**

The economic effects of PTAs should
be appropriately assessed by the Com­
mission both _ex ante_ and _ex post_ (see
paragraphs 7 to 14).

**The Commission did**
**not always carry out an**
**assessment of all the**
**economic effects of PTAs**

**Impact assessments or** _**ex ante**_
**evaluations**

###### **27**

IAs or _ex ante_ evaluations were not pre­
pared for seven of the 13 PTAs where
there was either a legal requirement
or a formal commitment to do so (see
further details in _**Annex II**_ ).

###### **28**

In the six IAs reviewed by the Court,
the impact of the different policy
proposals on the revenue of the EU
was only estimated [15] in the case of the
GSP [16] .

**Sustainability impact**
**assessments**

###### **29**

SIAs were not prepared for five of the
28 PTAs where there was a commit­
ment to do so (see further details in
_**Annex II**_ ). The revenue foregone has
not been estimated in any of the SIAs
reviewed by the Court.

**Interim and/or** _**ex post**_
**evaluations**

###### **30**

Even though an interim and/or _ex post_
evaluation should have been carried
out in respect of 27 PTAs in force,
pursuant to the Commission’s commit­
ment in this regard and the principle
of sound financial management and
public accountability, this has not been
done in 16 of them [17] (see more details
in _**Annex III**_ ).

###### **31**

Out of the 27 PTAs reviewed by the
Court where it considers an _ex post_
evaluation should have been con­
ducted, the revenue foregone was
only estimated in respect of the GSP.
The Commission’s statistical report
on the GSP [18 ] shows, over the period
2006–09, the impact on the EU budget
to be 8,6 billion euro, representing
nearly 14 % of the customs duties col­
lected in that period. The Commission
did not explain how this amount was
calculated.

15 The IA (SEC(2011) 536

final) concerning the GSP
that entered into force on
1 January 2014 estimates that,
in the preferred option, when
compared to the baseline
scenario, the combined
impact of exports from certain
former beneficiaries becoming
subject to higher duties, and
the increased exports from
third countries already subject
to duties, imply that tariff
revenue would increase in
the short run in the order of
2 billion euro (see Annex 6.4,
Table 6-4), which would add
to current tariff revenues of
around 19 billion euro.

16 Regulation (EU) No 978/2012

of the European Parliament
and of the Council of
25 October 2012 applying
a scheme of generalised tariff
preferences and repealing
Council Regulation (EC)
No 732/2008 (OJ L 303,
31.10.2012, p. 1).

17 PTAs with Turkey, the EEA,

Switzerland, the former
Yugoslav republic of
Macedonia, Croatia, Albania,
Montenegro, Bosnia and
Herzegovina, Serbia, Lebanon,
the occupied Palestinian
territory), Syria, Cariforum
(Caribbean countries), the
Pacific states, overseas
countries and territories and
Moldova.

18 COM(2011) 272 final of

17 May 2011.

## **Observations 18**

19 European Commission impact

assessment guidelines of
15.1.2009 (SEC(2009) 92) and
the earlier impact assessment
guidelines of 15.6.2005
(SEC(2005) 791).

20 IAs concerning central

America, the Andean
Community, the Republic
of Korea, India, Council
Regulation (EC) No 732/2008
of 22 July 2008 applying
a scheme of generalised
tariff preferences for the
period from 1 January 2009
to 31 December 2011 and
amending Regulations (EC)
No 552/97, (EC) No 1933/2006
and Commission Regulations
(EC) No 1100/2006 and (EC)
No 964/2007 (OJ L 211,
6.8.2008, p. 1) and Regulation
(EU) No 978/2012 of the
European Parliament and of
the Council of 25 October 2012
applying a scheme of
generalised tariff preferences
and repealing Council
Regulation (EC) No 732/2008
(OJ L 303, 31.10.2012, p. 1).

21 Commission Staff Working

Document, accompanying
document to the
recommendation for a Council
decision authorising the
Commission to negotiate
a free trade agreement
with the Republic of Korea
on behalf of the EC and
its Member States, impact
assessment of 27.11.2006
((SEC(2006) 1562).

22 Copenhagen Economics and

Prof. J. F. Francois, ‘Economic
impact of a potential FTA
between the EU and South
Korea’, March 2007.

**The assessments carried**
**out in most cases contained**
**inaccuracies and were**
**not fully useful or**
**comprehensive, but there**
**have been improvements**

**Impact assessments or** _**ex ante**_
**evaluations**

###### **32**

According to the Commission’s IA
guidelines [19], the impacts should be
quantified and monetised where pos­
sible and be based on robust methods

and reliable data.

###### **33**

In order to provide quality support for
IAs, an Impact Assessment Board was
set up in the Commission at the end
of 2006. In addition, the internal audit
capability of the Commission’s Directorate-General for Trade conducted an

audit of IAs and SIAs in 2007.

###### **34**

The Court analysed the six IAs [20] car­
ried out in respect of PTAs among the
13 for which the Court considers an
IA was required (see further details
in _**Annex II**_ ) and found the following
weaknesses.

**Weaknesses concerning the**
**robustness of the quantification**
**of the impacts in the IAs**

###### **35**

Of the six IAs reviewed, only the
one concerning the GSP Regulation
No 978/2012, contained a comprehen­
sive analysis of the economic effects
in the beneficiary countries based on
robust data sources.

###### **36**

The economic impacts of the PTA with
the Republic of Korea shown in its IA [21]
are based on a study carried out by
external consultants [22] . This study uses
the Computable General Equilibrium
(CGE) model and the Global Trade
Analysis Project (GTAP) database as
source data, whose inherent limita­
tions and weaknesses are set out in
paragraphs 44 to 46 below.

###### **37**

Of the six IAs examined, two IA reports
concerning the GSP were produced
after the Impact Assessment Board
started operations in 2007; they were
duly submitted to the board for quality
review. Recommendations made by
the latter to improve the quality of
those draft reports were largely taken
into account by the Commission and
did not require a resubmission.

## **Observations 19**

25 See Annex 6 of SEC(2011) 536

final.

26 COM(2002) 276 final and IA

guidelines.

27 IAs concerning central

America, the Andean
Community, the Republic of
Korea and India.

**Weaknesses concerning the**
**usefulness and completeness of**
**the IAs**

###### **38**

The objectives of the GSP are to
contribute to combating global pov­
erty, promote sustainable develop­
ment and ensure a better safeguard
for the EU’s financial and economic
interests [23] . However, the IA concern­
ing the scheme of GSP beginning on
1 January 2014 [24] has only covered the
GSP general objective of promoting
sustainable development and good
governance in respect of 10 out of the
85 potential beneficiary countries [25] .
The need to ratify and effectively im­
plement international conventions on
human and labour rights, the environ­
ment and good governance has only
been considered for these 10 countries
and not in respect of other beneficiary
countries (see _**Box 1**_ ).

###### **39**

Identifying core monitoring indicators
in order to prepare _ex post_ evaluations
of what has been achieved is a key pro­
cedural step of the IA process [26] .

###### **40**

Arrangements for monitoring were
included in all six IAs examined by the
Court. However, in four of them [27] the
Commission did not specify the tim­
ing, scope and indicators to assess the
effectiveness of the preferred option
and who would be responsible for car­
rying it out.

23 COM(2004) 461 final of

7 July 2004. See also the
roadmap (http://ec.europa.
eu/governance/impact/
planned_ia/docs/88_trade_
gsp_regulation_en.pdf)
and SEC(2011) 536 final of
10 May 2011 (this refers to the
GSP regulation, Regulation
(EU) No 978/2012).

24 SEC(2011) 536 final.

**Example of importance of ratifying and effectively implementing international**
**conventions on human and labour rights, the environment and good governance**

On 24 April 2013, an eight‑storey building in Bangladesh housing several garment factories (the Rana Plaza)
collapsed and led to the death of 1 129 workers. This accident has increased public concern that EU trade with
developing countries should not only ensure a cheap supply of clothing to EU firms and consumers but also
that they are manufactured under labour conditions in accordance with international standards, such as Inter­
national Labour Organisation (ILO) core labour standards. On 8 July 2013, the Commission, together with the
Government of Bangladesh and the ILO, launched a joint initiative (‘Compact’) for improving labour, health
and safety conditions for workers in Bangladeshi garment factories.

## **Observations 20**

###### **41**

The need for such monitoring actions
has been highlighted by the European
Economic and Social Committee in
respect of the PTA between the EU
and India. The European Economic and
Social Committee [28 ] recommended ‘ _the_
_immediate undertaking of new studies_
_that expressly take into account the true_
_impact of the FTA on the EU and Indian_
_civil society (in particular Mode 4, SMEs,_
_labour rights, women, consumer protec­_
_tion, the informal economy, agriculture_
_poverty and the impact on the accessibil­_
_ity of basic products such as live‑saving_
_medicines)’_ .

###### **42**

The IA concerning the scheme of GSP
beginning on 1 January 2014 shows
that one of the GSP objectives [29] is
to ensure a better safeguard for the
EU’s financial and economic interests.
Despite the fact that most of the fraud
investigations carried out by OLAF in
the field of PTAs concern GSP ben­
eficiary countries, the Commission
indicators to monitor the effectiveness
do not provide any link to fraud and
customs duties evasion. Therefore, the
stakeholders have no possibility to
check the vulnerability of GSP to fraud
and to measure any improvements in
the fight against fraud and customs
duties evasion.

**Sustainability impact**
**assessments**

###### **43**

The Court analysed 10 SIAs [30] and found
the weaknesses described below.

**Weaknesses concerning the**
**robustness of the quantification**
**of the impacts in SIAs**

###### **44**

In the SIAs external consultants apply
the Computable General Equilibrium
(CGE) model, based on the Global
Trade Analysis Project (GTAP) database.
This is a model widely used by inter­
national organisations. The model,
however, suffers from some limitations
(see _**Annex V**_ ).

###### **45**

The Court found that the GTAP uses
old data [31] which are insufficiently
verified for consistency and reliability.
Its use may therefore lead to wrong
conclusions in the SIAs. The Com­

mission has limited assurance on the
consistency of the statistical frame­
work between the different regions
and between EU Member States and
beneficiary/partner countries.

28 Opinion No 1612/2011 of the

European Economic and Social
Committee.

29 Pursuant to SEC(2011) 536 final.

30 SIAs concerning PTAs with

Chile, six EPAs with ACP
countries, Central America,
Andean Community,
Euro‑Mediterranean FTAs with
nine countries, the Republic
of Korea, Mercosur countries,
India and Canada, and the
DCFTA with Morocco.

31 For the purposes of the CGE

model, social accounting
matrices are compiled for each
region but in the most recent
versions of the GTAP the use
of technical coefficients and
structures of commodities for
final and intermediate uses
are based on supply and use
tables at current prices for the
reference year 2000, although
Eurostat (the Commission’s
statistics department)
currently has data available for
the years 2007, 2008 and 2009.

## **Observations 21**

###### **46**

Eurostat and the national statistical
institutes are best placed to provide
an opinion on the quality of the data
for Member States but DG Trade has
not requested the opinion of the
former on the quality of the data used
in the GTAP. The Court, in its Special
Report No 3/2010 [32,] found that inter­
nal sources such as Eurostat are not
actively used to determine the avail­
ability of Member State specific data
and to provide such data (for example
in cooperation with national statistics
offices).

**Weaknesses concerning the**
**usefulness and completeness of**
**the SIAs**

###### **47**

The timeliness of an SIA is very impor­
tant in order to ensure that it is useful
for negotiators. However in one case,
the PTA with Chile was already signed
before the SIA had been finalised.

###### **48**

IAs and SIAs analyse the impacts of
PTAs in the agricultural sector. How­
ever, the impact of the common agri­
cultural policy on the local econ­omies
of the partner countries has been
assessed only in the regional trade SIA
with the Caribbean countries, whereas
negative impacts have been cited in
international organisations’ reports
(ILO [33], FAO [34] ), especially in respect of
economic partnership agreements
(EPAs) [35] .

###### **49**

Furthermore, the SIA concerning EPAs
of 2007 does not address points dealt
within other SIAs, such as the impact
on public health of an intellectual
property rights chapter because re­
strictions on access to generic medi­
cines may negatively affect govern­
ments’ ability to improve public health
conditions. This puts into question
the completeness of the analysis car­
ried out because the Commission has
nevertheless introduced appropriate
safeguards measures in that sense in
the text of the agreement [36] .

**Interim and/or** _**ex post**_
**evaluation**

###### **50**

The Court analysed all the _ex post_
evaluations carried out by the end of
2012 [37] concerning PTAs and found the
following.

**The quantification of impacts**
**in some interim and/or** _**ex post**_
**evaluations**

###### **51**

The Court found that comprehensive,
quantitative and evidenced‑based
analysis of the economic outcomes
was carried out in the _ex post_ evalua­
tion of the PTA with Chile and in the

mid‑term evaluation of the EU’s GSP.
Both evaluations use, together with
econometric estimates, CGE simula­
tions (see paragraphs 44 to 46 and
_**Annex III**_ ).

32 See paragraph 70 of Special

Report No 3/2010.

33 ILO, _Trade and employment_

_from myths to facts_, 2011.

34 FAO, _The agricultural dimension_

_of the ACP–EU Economic_
_Partnership Agreements_, 2006.

35 PTAs creating an FTA between

the EU and the ACP countries.

36 Pursuant to Article 139(2)

of the EPA between the
Cariforum states, of the
one part, and the European
Community and its Member
States, of the other part, ‘The
EC Party and the Signatory
Cariforum States agree
that the principles set out
in Article 8 of the TRIPS
Agreement apply to this
Section. The Parties also agree
that an adequate and effective
enforcement of intellectual
property rights should take
account of the development
needs of the Cariforum States,
provide a balance of rights
and obligations between
rights holders and users and
allow the EC Party and the
Signatory Cariforum States
to protect public health and
nutrition. Nothing in this
Agreement shall be construed
as to impair the capacity of
the Parties and the Signatory
Cariforum States to promote
access to medicines’.

37 The mid‑term evaluation of

the EU’s GSP, the report on the
economic integration in the
Euro‑Mediterranean Area, the
evaluation of the economic
impact of the trade pillar
of the EU–Chile association
agreement and the _ex post_
assessment of six EU FTAs.

## **Observations 22**

**Weaknesses concerning the**
**completeness of the interim**
**and/or** _**ex post**_ **evaluations**

###### **52**

The _ex post_ evaluation of six PTAs [38]
limits the analysis of economic impacts
to trade flows and places emphasis on
their effects in the partner countries.
The Commission has not conducted
any sectoral analysis and the trade
flows are not broken down further
below the agricultural and industrial
product level.

###### **53**

The _ex post_ evaluation report for
the Euro‑Mediterranean countries [39]
contains a thorough analysis of the
economic outcomes of trade liberalisa­
tion. However, the added value of the
PTA to the baseline scenario in the EU

was not set out. No cost‑benefit ana­
lysis has been made and no arrange­
ment for future _ex post_ evaluation is
included.

**The interim evaluation of**
**the GSP shows that the**
**policy has not yet**
**delivered all its intended**
**benefits**

###### **54**

Regarding the GSP objective to con­
tribute to combating global poverty
and promote sustainable develop­
ment, the interim evaluation shows
mixed results. On the one hand, it
provides positive evidence that:

(a) the EU is offering improved pref­

erential access to those countries
with a greater developmental
need;

(b) the econometric evidence sug­

gests that, in aggregate, prefer­
ences do impact positively on
trade as well as on investment; and

(c) there is evidence that exporters

in least developed countries do
bene­fit from the preference mar­
gins and that the profit is not sim­
ply appropriated by the importers.

###### **55**

On the other hand, the Commis­
sion considers that GSP should help
developing economies increase their
industrial exports [40] and that provid­
ing preferences in industrial products
would help boost such exports and
contribute to diversification through
the development of a broader in­
dustrial base. However, the interim
evaluation of the GSP shows that it has
not been effective in increasing diver­
sification [41], and that there is no clear
evidence of an increase in economic
growth [42] or sustainable development [43]
in developing countries.

38 South Africa, Mexico, Morocco,

Tunisia, Chile and Jordan.

39 Lebanon, the occupied

Palestinian territory and Syria
were outside the scope of the
evaluation.

40 SEC(2011) 536 final.

41 According to paragraph 7(1) of

the mid‑term evaluation of the
EU’s GSP, ‘There is no evidence
that the GSP schemes have led
to any export diversification
and a move into new export
products on the part of the
beneficiary countries.’

42 Paragraph 7(1) of the mid‑term

evaluation of the EU’s GSP
states that ‘The evidence on
the extent to which preference
margins are associated with
indicators of development are
extremely mixed, and no clear
picture emerges which would
suggest that the preferences
are particularly well targeted
to those countries which are
most in need/vulnerable … it
is quite possible that the GSP
regime has been an important
factor for given countries in
their development. The point
is, however, that in aggregate,
there is no strong evidence that this is the case. _’_

43 Paragraph 7(1) of the mid‑term

evaluation of the EU’s GSP
introduces the following
caveat: ‘While there is some
evidence that the GSP+
scheme may have a positive
impact on the ratification
of given conventions, the
evidence that there is actual
active implementation of
the relevant conventions
(especially with regard to
labour standards) is much
weaker _’._

## **Observations 23**

**Customs controls applied**
**by the authorities of the**
**selected Member States**
**are weak**

###### **56**

The controls performed by the com­
petent authorities (Member States,
beneficiary/partner countries and the
Commission) as well as the manage­
ment of the administrative coopera­
tion should ensure the correct imple­
mentation of PTAs, thereby protecting
legitimate economic and financial
interests.

###### **57**

The Court reviewed the overall control
strategy applied to PTAs by customs
authorities in five Member States (see
paragraph 23). An appropriate control
strategy is one based on effective risk
analysis including a random element
to introduce a degree of uncertainty.

**Weaknesses in control**
**strategy and risk**
**management**

###### **58**

The effectiveness of control arrange­
ments was tested using two random
samples. A statistical [44] sample of 60
time‑barred [45] imports of 2009 under
PTAs was selected in each selected
Member State. The purpose of this
sample was twofold:

(a) to verify whether the imports

complied with all the conditions
required to benefit from preferen­
tial tariff measures, and whether
customs controls were capable of
detecting cases of non‑fulfilment
of such conditions and recovering
the customs debt incurred before
the latter became time‑barred; and

(b) to extrapolate the amount of the

definitive losses to the EU budget
when the customs debt was not
recovered in time to prevent
time‑barring.

###### **59**

The Court found weaknesses in the
control strategy and risk management
in Germany, France and the United
Kingdom leading to potential losses to
the EU budget.

44 A monetary unit sample

(MUS), based on the customs
value of the goods. Materiality
was set at 5 % and the
confidence level at 95 %.

45 Pursuant to Article 221(3) of

the Community Customs
Code (CCC), communication to
the debtor shall not take place
after the expiry of a period
of 3 years from the date on
which the customs debt was
incurred. Thus amounts due
become time‑barred after this
period has elapsed.

## **Observations 24**

###### **60**

In Germany weaknesses were found
concerning the risk management
system for PTAs: manual interven­
tion is required in order to assess the
results of the risk profiles and this is
time‑consuming, complex and burden­
some; only one new local risk pro­
file [46] was introduced in the system in
2011 and 2012; and the selection of im­
porters for post‑clearance audits does
not sufficiently take into account the
specific risk of time‑barring in PTAs [47] .

###### **61**

In France, preferential origin is taken
into account in combination with other
criteria. However, preferential origin is
not a priority in the risk management
system.

###### **62**

In the United Kingdom, the customs
authorities accept copies of the move­
ment and origin certificates when
they perform documentary checks on
imports under PTAs. Only originals can
fully provide assurance of the authen­
ticity of these certificates. In addition
the frequency of documentary checks
on imports under the simplified
declaration procedure [48] and the local
clearance procedure [49] was very low [50] .
Regarding post‑clearance audits PTAs
have not been selected as an audit

theme.

###### **63**

These weaknesses were confirmed
by the amount of revenue potentially
lost in these three Member States. By
extrapolating the errors found in its
sample of 2009, the Court has esti­
mated the amount of duties at stake

in these Member States because of
time‑barring to be 655 million euro [51] .
This represents around 6 % of the
gross amount of import duties collect­
ed in the five selected Member States
that year.

###### **64**

In the absence of the necessary sup­
porting evidence, the goods are not
entitled to preferential tariff treatment.
The errors found include the absence
of the origin or movement certificates,
the absence of the evidence of the
direct transport, cases of certificates
not signed or not stamped by the com­
petent authorities of the beneficiary/
partner country or showing a stamp
that does not correspond to the au­
thentic stamp communicated to the
Commission by the authorities of the
latter, and certificates not matching
with the supporting documents of the
import. These errors occurred in 10 %
of the cases in Germany, 11 % in France
and 38 % in the United Kingdom.

###### **65**

The second statistical sample of 30 im­
ports under PTAs of 2011 was checked
by the Court in each of the five Mem­
ber States to determine:

(a) whether the imports were entitled

to preferential tariff measures and
if not,

(b) whether customs had started

the post‑clearance verification of
non‑compliant cases using admin­
istrative cooperation.

46 A combination of risk criteria

and control areas (e.g. type
of goods, countries of origin)
which indicates the existence
of risk and leads to a proposal
to carry out a control measure.

47 The period of up to 10 months

that beneficiary/partner
countries have to reply to the
administrative cooperation
requests should be taken
into account in order to avoid
time‑barring.

48 A simplified procedure

whereby a trader presents
goods to customs and lodges
either a simplified declaration
form or a commercial
document (e.g. an invoice)
instead of a detailed standard
declaration.

49 A simplified procedure

whereby a trader receives
the goods directly at his/her
premises (or the designated
place) and usually the customs
declaration is lodged and the
goods are released by means
of an entry in the trader’s own
records.

50 No such declarations relating

to imports under PTAs
were selected by the risk
management system for an
_ex post_ documentary check
in 2009 or 2010, whereas in
2011 and 2012, the percentage
of such declarations selected
for a documentary check was,
respectively, 0,0209 % and
0,0289 %.

51 Made up of 167 million euro

in respect of Germany,
176 million euro in respect of
France and 312 million euro
in respect of the United
Kingdom.

## **Observations 25**

###### **66**

The results of this sample showed
control weaknesses in Germany, Spain
and the United Kingdom. The errors
found were similar to those found in
the sample of 2009: the absence of the
origin or movement certificates, cases
of certificates showing a stamp or is­
sued by a customs office that do not
correspond to those communicated
to the Commission by the authorities
of the beneficiary/partner countries,
and certificates not matching with the
supporting documents of the importa­
tion. These errors occurred in 7 % of
the cases in Germany, 7 % in Spain and
23 % in the United Kingdom.

###### **67**

However, errors in the 2011 sample will
not be time‑barred until 2014 and up
to that time the customs authorities of

Member States can send the movement
and origin certificates to the benefi­
ciary/partner countries to be verified
under administrative cooperation ar­
rangements. Any resulting debt can still
be recovered, and therefore the Court
did not extrapolate the errors found.

**Weaknesses in the**
**management of the**
**administrative cooperation**
**by the authorities of the**
**selected Member States**

###### **68**

Administrative cooperation requests
are sent by Member States’ author­
ities to beneficiary/partner countries
in cases of reasonable doubt about the
preferential treatment or on a random
basis. In the first case, if there is no
reply or satisfactory response within
ten months, the preferential tariff treat­
ment should be refused and a recovery
initiated [52] . In the case of random re­
quests, the preferential tariff treatment
is maintained if no reply from benefi­
ciary/partner countries is received.

###### **69**

Administrative cooperation arrange­
ments were tested via an additional
sample of 30 requests sent in 2011 by
each selected Member State to bene­
ficiary/partner countries. Thus, the
Court tested whether:

(a) once the initial deadline to reply

(usually six months) had expired,
a reminder was sent to the benefi­
ciary/partner country;

(b) if there had been no reply or no

satisfactory response received
within the further deadline of
four months, a recovery action had
been initiated.

###### **70**

The Court found shortcomings in the
management of administrative co­
operation in Spain, France and Italy.

###### **71**

In Spain, 11 requests were sent by the
Spanish customs to the Philippines and
the letters were returned undelivered.
No action either to find any other way
of contacting the competent authori­
ties of the beneficary country or to
start the post‑clearance recovery of
the debt was taken by the Spanish

customs.

52 Provided that all the

conditions set in the relevant
provisions and case‑law,
notably in the judgment of the
Court of 9 March 2006 in Case
C-293/04 Beemsterboer [2006]
ECR I-2284, are complied with.

## **Observations 26**

###### **72**

In Italy, the customs authorities did
not start a post‑clearance recovery by
February 2013, even though the pref­
erential treatment had been denied
by the beneficiary country in its reply
in respect of four administrative co­
operation requests. In 10 other cases
the post-clearance recovery proceed­
ings were delayed.

###### **73**

The French customs authorities do not
start post‑clearance recovery when
the beneficiary/partner countries send
late replies to random administrative
cooperation requests. Even in cases
where these late replies confirm that
the movement certificates or certifi­
cates of origin are indeed either invalid
or not authentic no recovery action is
taken by the French customs author­
ities (see paragraph 68).

**Member States’ risk**
**management systems do**
**not always include MA**
**communications**

###### **74**

Whenever OLAF becomes aware of
operations which constitute, or appear
to constitute, breaches of PTA provi­
sions, it issues mutual assistance (MA)
communications to Member States.
In order to prevent losses to the EU
budget, the latter should introduce
this information into their risk manage­
ment systems.

###### **75**

The Court reviewed a sample of 30
imports covered by MA communica­
tions issued by OLAF in each of the five
selected Member States. It found that
Germany, Spain and France did not
introduce the relevant information into
their risk management systems.

**Errors in recovery procedures**
**in three of the selected**
**Member States**

###### **76**

The Court checked whether selected
Member States reacted promptly to
OLAF reports. These reports summar­
ise the results of the origin investiga­
tions and may lead Member States
to identify imports that may not be
entitled to preferential tariff treat­
ment and to proceed to the recovery
of the customs debt. Member States’

customs authorities should start this
recovery action within 3 months [53] . Any
delay could lead to the customs debt
becoming time‑barred.

###### **77**

The Court found two cases, in Spain
and the United Kingdom, amount­
ing to over 2 million euro, which had
become time‑barred due to the late re­

action of the Member States’ customs
authorities to OLAF reports. In another
case, French customs authorities did
not launch a recovery procedure after
their Spanish counterparts notified
them of the invalidity of a movement
certificate.

53 A period of 3 months from the

sending of the letter by the
Commission in order to notify
the debtor of the import
duties legally due has been
quoted by the Court of Justice
in its judgment of 1 July 2010
in Case C- 442/08, European
Commission _v_ Federal
Republic of Germany,
paragraphs 47, 59 and 81.

## **Observations 27**

###### **78**

In order to ensure the uniform applica­
tion of EU law, customs law confers on
the Commission the power of decision
in regard to REM‑REC applications [54] .
The judgment of the Court of Justice
of 20 November 2008 in Case C-375/07,
Heuschen and Schrouff, rules that _‘_ a
national court, … ruling on an ap­
peal against a notice for recovery of
import duties, must therefore, when
it becomes aware in the course of the
proceedings before it that the matter
has been referred to the Commission
… avoid giving decisions which would
conflict with a decision contemplated
by the Commission ... That means that
the referring court, which may not
substitute its own determination for
that of the Commission, can stay pro­
ceedings pending the Commission’s
decision. _’_

###### **79**

Pursuant to this judgment, a national
court should not rule on cases pending
decision at the Commission. However,
the Court found a case in Spain where
a national court did not suspend
proceedings even though this case
had been submitted to the Commis­
sion for decision. The ensuing loss
to the EU budget amounted to over
600 000 euro.

###### **80**

Thus, there is the risk that import­
ers refer the matter simultaneously
to both layers and choose the most
favourable, thereby undermining the
usefulness and effectiveness of the
REM‑REC system.

**There are weaknesses in**
**the Commission’s**
**supervision of Member**
**States and beneficiary/**
**partner countries in**
**respect of PTAs**

###### **81**

The Court reviewed the Commission’s
monitoring and inspection activity
intended to ensure the reliable and
consistent implementation of PTAs in
Member States and beneficiary/part­
ner countries and found the following
weaknesses.

**The Commission has carried**
**out few prior evaluations**
**and no monitoring visits to**
**countries benefiting from**
**preferential treatment**

###### **82**

The Commission should evaluate the
continuing capacity of the country
benefiting from preferential treatment
(or group of countries) to administer
the arrangement and the related rules
and procedures on a risk basis [55] . The
Court found that prior evaluation has
taken place only in respect of a limited
number of partner countries.

54 Request for remission/

repayment and waiver of _ex_
_post_ recovery pursuant to
Articles 871 and 905 of the
Customs Code Implementing
Provisions (CCIP).

55 Pursuant to paragraph 3(2)

of COM(2005) 100 final of
16 March 2005.

## **Observations 28**

###### **83**

According to the relevant Commission
communication [56] monitoring visits to
the countries benefiting from pref­
erential treatment should take place.
The Commission has not conducted
any such monitoring visits to check the
correct implementation of the scheme.

###### **84**

This could lead to significant finan­
cial consequences as the absence of
a monitoring visit can justify import­
ers’ claims for the repayment or remis­
sion of the customs debt recovered _ex_
_post_ when it transpires that the goods
were not eligible for preferential
treatment [57] .

###### **85**

In addition, the Commission communi­
cation provides for a periodical report­
ing system by beneficiary countries
on their management and control of
preferential origin. The Court verified
whether such a system has been set
up in GSP countries and found that this
was not the case.

###### **86**

The Court also reviewed the Commis­
sion’s inspection activity in the area
of PTAs and found that it usually deals
with preferential origin matters during
its TOR inspections in Member States,
including the control strategy thereon.
TOR inspections cannot be carried out
in beneficiary/partner countries.

**The Commission has**
**taken steps to ensure the**
**smooth working of the**
**administrative cooperation**
**arrangements, but problems**
**remain**

###### **87**

In the field of administrative coopera­
tion the Commission has strived to

ensure that there is a seamless and

streamlined communication of the
necessary information under adminis­
trative cooperation between the Mem­
ber States, the beneficiary countries
and itself.

###### **88**

However, the Member States selected
informed the Court that they encoun­
tered difficulties with countries such
as the Philippines, India, Indonesia,
Malaysia, Vietnam, the Dominican Re­
public and the United Arabs Emirates
concerning late replies to administra­
tive cooperation requests and poor
quality of the replies.

###### **89**

The Commission regularly asks Mem­
ber States for statistics concerning the
administrative cooperation requests
sent to beneficiary/partner countries.
This information is the starting point
to plan the monitoring activity and to
select the countries that need particu­
lar attention. However, the quality of
the information provided by Mem­
ber States was poor because it was
not possible to distinguish between
requests sent on a random basis and
those sent in case of reasonable doubt
(see paragraph 68).

56 See footnote 55.

57 In its judgment in Case

C-204/07P, the Court of
Justice found that where,
in a particular case, the
Commission has not made
full use of the supervising
and monitoring rights and
powers which it has under the
association agreement with
a view to ensuring the proper
implementation thereof, its
failure to fulfil obligations
constitutes a special situation
for the purposes of Article 239
of the Community Customs
Code, which justified the
repayment or remittance
of import duty levied on
the basis of irregular or
inauthentic certificates.

## **Observations 29**

**OLAF’s origin investigations**
**are essential but there are**
**weaknesses in their financial**
**follow‑up**

###### **90**

In addition to issuing MA communica­
tions to Member States to alert them
of suspicious imports related to the
circumvention of the origin condition,
OLAF carries out origin investiga­
tions in beneficiary/partner countries
to ascertain, in cooperation with the
competent authorities, whether goods
imported into the EU were indeed
eligible for preferential tariff measures.
In order to verify the effectiveness of
OLAF’s role in the protection of the
financial interests of the EU concerning
PTAs, the Court reviewed a sample of
10 preferential origin investigations. It
found that, except for one investiga­
tion [58], OLAF was successful in dem­
onstrating that the imported goods
were not eligible for preferential tariff

measures.

###### **91**

The performance indicators currently
used by OLAF to assess the effective­
ness and the efficiency of its investi­
gations (e.g. number of cases opened
triggering an investigation, number of
investigations leading to a recommen­
dation) do not provide a link between
the case, the amount of TOR at stake
and the amount actually recovered.

###### **92**

The Court found cases of time‑barring
in the financial follow‑up of OLAF
investigations because of the lack of
timely recovery by Member States [59] or
where the actual recovery rate of the
amount of evaded duties estimated
by OLAF in its report could not be
established [60] .

**Insufficient use of preventive**
**and reactive measures to**
**protect the financial interests**
**of the EU**

###### **93**

The Court reviewed other Commis­
sion activities to protect the financial
interests of the EU by preventing
ineligible goods from being imported
under preferential tariff measures, and
recovering the TOR due if this is not
the case.

###### **94**

Member States have not always
adopted appropriate measures upon
receipt of an MA communication, such
as the provision of a guarantee for the
imports under investigation.

58 Concerning imports of surimi

declared as originating in
Thailand.

59 Spain and the United

Kingdom, see paragraph 77.

60 The United Kingdom.

## **Observations 30**

###### **95**

The absence of such measures has led

Member States to declare amounts as
irrecoverable when the importer be­
comes insolvent and ceases economic

activities (see _**Box 2**_ ).

###### **96**

Precautionary and safeguard measures
should be used in the event of insuf­
ficient control or the failure to provide
cooperation, including assistance in
investigations against fraud. These
measures include notices to import­
ers [61], suspension of preferences [62]
where foreseen and possible financial
responsibility of the country at fault [63] .

###### **97**

Member States have to communicate

to the Commission [64] the amount of
TOR repaid/remitted or post-clearance
recoveries waived due to administra­
tive errors committed by beneficiary/
partner countries’ authorities. For the
period 2007–12, the amount of TOR
lost in this way was more than 5 mil­
lion euro. This represents a definitive
loss to the EU budget.

###### **98**

In order to tackle this situation, the
Commission has introduced the MAE

clause in all PTAs that have been ne­
gotiated since 2006. This is a positive
step in the protection of the financial
interests of the EU.

###### **99**

Other examples of insufficient use of
preventive and reactive measures can
be found in _**Box 3**_ .

**The legal provisions of**
**the PTAs do not contain**
**sufficient safeguards to**
**protect the financial**
**interests of the EU**

**Complexity of cumulation**
**rules**

###### **100**

Cumulation allows products origi­
nating in country A to be further
processed or added to products
originating in country B, as if they had
originated in country B. The result­
ing product would have the origin of
country B. The working or processing
carried out in each beneficiary/partner
country on originating products does
not have to be ‘sufficient working or
processing’ as set out in the standard
origin rules [65] .

61 Pursuant to Article 220(2) (b)

of the CCC _in fine_, importers
cannot plead good faith in
their applications for waiver
of subsequent entry in the
accounts if the Commission
has published a notice in the
_Official Journal of the European_
_Union_ stating that there are
grounds for doubt concerning
the proper application of the
preferential arrangements by
the beneficiary country.

62 The so‑called anti‑fraud

clause.

63 The so‑called management

of administrative errors (MAE)
clause. Typically, this reads
as follows: ‘In case of error by
the competent authorities
in the proper management
of the preferential system
at export, and in particular
in the application of the
provisions of the protocol
to the present agreement
concerning the definition
of originating products and
methods of AC, where this
error leads to consequences in
terms of customs duties, the
contracting party facing such
consequences may request
the (institutional body under
the agreement) to examine
the possibilities of adopting
all appropriate measures
with a view to resolving the
situation’.

64 Pursuant to Articles 871 and

905 of the CCIP (REM‑REC
cases); Articles 870(1), and
904a(1) of the CCIP (listing
cases notified to DG Budget);
and Articles 870(2) and 904a(2)
of the CCIP (listing cases
notified to DG Taxation and
Customs Union).

65 Typically to add a certain

percentage of the final value
of the exported goods.

**Example of customs duties not collected because of the absence of preventive and**
**reactive measures adopted by Member States**

In 2007, Polish customs proceeded to collect the customs duties owed for the importation of garlic from Tur­
key covered by false movement certificates. The recovery was unsuccessful because of the insolvency of the
importer. An amount of 0,4 million euro was declared irrecoverable and lost to the EU budget in 2012.

This situation would have been prevented with the provision of a guarantee.

## **Observations 31**

###### **101**

Beneficiary/partner countries request
the application of cumulation dur­
ing trade negotiations so that their
exports can fully benefit from the PTA,
especially when they lack adequate in­
dustrial infrastructure to carry out the
processing required by the standard
rules of origin.

###### **102**

Cumulation rules are very complex and
require the authorities in the benefi­
ciary/partner countries to have a high
degree of expertise and command of
these complex rules. Indeed, several
OLAF investigations [66] have revealed
the lack of administrative capacity
of certain beneficiary countries to
understand the complexity of the GSP
cumulation rules.

66 E. g: OLAF tuna investigations

in Seychelles, Colombia,
El Salvador, Ecuador and
Thailand; investigation in
Curaçao concerning imports
of raw cane sugar declared as
originating in the Netherlands
Antilles; investigation in
Cambodia concerning the
export of bicycles to the EU
under the GSP scheme.

**The Court found insufficient use of preventive and reactive measures by the**
**Commission to counter fraud and to protect the financial interests of the EU**

(a) A notice to importers concerning imports of tuna from Thailand was published by DG Taxation and Cus­

toms Union two years after OLAF’s request to do so. In addition, according to OLAF _‘consideration may be_
_given to propose suspension of the preferential regime applicable to processed tuna products ... declared as_
_originating in Thailand’_ . No such suspension was proposed by the Commission.

(b) The Commission did not publish in either Slovak or Hungarian a notice to importers concerning imports of

sugar products from Croatia [67] . Had this notice been published in those languages, the importer would not
have been able to invoke good faith [68], one of the reasons for the non‑recovery of 1 million euro [69] .

(c) The Commission has not taken any action following publication of the notice to importers concern­

ing imports of tuna from El Salvador [70] . This was despite a communication [71] requiring it to follow up the
post‑clearance verification of the origin of the imported tuna. As a result of this follow‑up, the Commission
should decide whether to propose to withdraw the tariff preferences.

(d) The anti‑fraud clause has not been included in the PTA with the Republic of Korea _._ OLAF has issued several

MA communications [72] concerning misdescription of origin of imports from this country.

67 Croatia joined the European Union on 1 July 2013.

68 Pursuant to the fifth paragraph of Article 220(2)(b) of the CCC.

69 Commission Decision of 21 October 2010 finding that it is justified to waive post‑clearance entry in the accounts of import duties in a particular

case (REC 03/2010).

70 OJ C 132, 21.5.2010, p. 15.

71 OJ C 348, 5.12.2000, p. 4.

72 Inter alia MA 2007/002, MA 2007/022, MA 2007/047 and AMA 2010/027.

## **Observations 32**

###### **103**

Furthermore, cumulation should be
between countries having identi­
cal rules of origin in order to prevent
circumvention. However, in the current
GSP the existing cumulation possibil­
ities between countries in the same
regional group is maintained despite
the differentiation in rules of origin in
some cases between the least devel­
oped countries and other beneficiary
countries.

**Replacing certificates**
**of origin and movement**
**certificates with**
**self‑certification**

73 Pursuant to Articles 220(2)(b)

and 236(1) of the CCC.

###### **104**

The Court stated in its Annual Report
of 2003 that increased use of self‑
certification by means of invoice dec­
laration to certify origin would present
advantages from the own resources
point of view. This is because under
the current provisions the importers
cannot claim the repayment/remis­
sion or the waiver of post clearance
recovery due to administrative errors [73]
on the part of beneficiary/partner
countries’ authorities when an in­

voice declaration or another form of

self‑certification is used. This would
considerably reduce traders’ litigation
concerning PTAs.

**‘Mexican’ garlic?**

###### **105**

However, the use of certificates of ori­
gin and movement certificates is still
widespread.

**Limited legal powers to**
**counter fraud**

###### **106**

The possibilities to counter fraud are
limited in the case of reciprocal PTAs.
In order to recover the duties related
to OLAF’s findings, the authorities of
the partner country in which the irreg­
ularities have been discovered must
accept them and declare the invalidity
of the unduly issued certificates (see
_**Box 4**_ ).

A consignment of garlic imported into Spain in March 2012 and declared as originating in Mexico was found
to originate in China by the results of a laboratory test requested by OLAF on a sample of this consignment.
Spanish customs could not proceed to the post‑clearance recovery of the evaded customs duties applicable to
the imports of garlic from China because the Mexican authorities confirmed in August 2013 the validity of the
certificates of origin in their reply to the administrative cooperation request sent by the Spanish customs.

Other cases of imports of garlic, declared as originating in Mexico but where there is evidence that they orig­
inate in China, are currently occurring in other Member States (e.g. the United Kingdom) but the Commission
has asked Member States not to suspend or reject preferential treatment without requesting verification of
the relevant proofs of origin from the Mexican authorities.

## **Conclusions and 33**

#### **recommendations**

###### **107**

The Court has found that the Commis­
sion has not appropriately assessed all
the economic effects of PTAs and that
the completeness of revenue collec­
tion is not ensured. However, the use
of the impact assessment tool has in­
creased and there has been progress in
the quality of the analysis conducted.

**Assessment of the economic**
**effects of PTAs**

###### **108**

The Commission has not always car­
ried out _ex ante_ and _ex post_ evalu­ations
to assess the economic effects of the
PTAs. Policymakers, stakeholders and
European taxpayers are therefore
insufficiently informed of the main
advantages and disadvantages of the
different trade policy options and of
whether the implemented policy de­
livered its intended results. Evalu­ation
of the revenue foregone has only been
carried out for the GSP. The Commis­

sion does not have information on
the revenue foregone in each budget
year as a result of the PTAs in force or
a forecast of revenue that will be fore­
gone (see paragraphs 26 to 31).

###### **109**

The Court found weaknesses concern­
ing the robustness of the quantifica­
tion of the impacts and its source data
in both _ex ante_ and _ex post_ evaluations.
Moreover, the usefulness and com­
pleteness of the analysis carried out
in both IAs and SIAs has been limited.
These shortcomings may affect the
quality of the information available
to negotiators and policymakers (see
paragraphs 32 to 53).

**Attainment of objectives of GSP**

###### **110**

The interim evaluation of the GSP
shows that the policy is not delivering
all its intended benefits (see para­
graphs 54 and 55).

**Recommendations 1 to 4**

In order to improve the assessment of
the economic effects of PTAs and the
sound financial management of PTAs
the Commission should:

(1) unless duly justified, carry out

an IA and an SIA for each PTA,
providing an in‑depth, compre­
hensive and quantified analysis of
the expected economic effects,
including an estimate of revenue
foregone;

(2) involve Eurostat routinely in the

quality assessment of the statis­
tical data sources used in SIAs, and
ensure the timeliness of the ana­
lysis carried out for negotiators;

(3) carry out interim and _ex post_ evalu­

ations in order to assess the extent
to which PTAs with a significant
impact meet their policy objec­
tives and how their performance
can be improved in key economic
sectors _,_ including an estimate of
revenue foregone; and

(4) monitor the scheme of GSP begin­

ning on 1 January 2014 to make
sure that it better meets its policy
objectives to contribute to com­
bating global poverty and promot­
ing sustainable development.

## **Conclusions and recommendations 34**

**Customs controls applied by**
**the authorities of the selected**
**Member States**

###### **111**

Revenue collection is put at risk be­
cause there are weaknesses in cus­

toms controls of PTAs in the selected
Member States, leading to potential
losses to the EU budget estimated
at 655 million euro in 2009. This
represents around 6 % of the gross
amount of import duties collected in
the five selected Member States that
year (see paragraphs 56 to 73, and
paragraphs 76 to 77).

###### **112**

Member States’ risk management sys­
tems do not always include MA com­
munications, which prevents Member
States from ensuring an equivalent
level of protection of the financial
interests of the EU (see paragraphs 74
and 75).

**Commission’s supervision of**
**Member States and beneficiary/**
**partner countries**

###### **113**

The REM‑REC system has weaknesses
because national authorities and the
Commission can take diverging deci­
sions on the same matter (see para­
graphs 78 to 80).

###### **114**

The capacity of the countries benefit­
ing from preferential treatment to ad­
minister the arrangements has rarely
been evaluated by the Commission.
In addition, no monitoring visits have
been made. The Commission therefore

has no assurance that these countries
are able to ensure that only eligible
goods are exported under PTAs (see
paragraphs 81 to 86).

###### **115**

The Commission has taken steps to
ensure the smooth working of the ad­
ministrative cooperation arrangements
in beneficiary/partner countries, but
problems remain (see paragraphs 87
to 89).

###### **116**

In some cases the financial follow‑up
of OLAF’s investigations has not been
effective and has resulted in amounts
due being lost because they became
time‑barred (see paragraphs 90 to 92).

###### **117**

There has been insufficient use of
reactive measures to protect the fi­
nancial interests of the EU (see para­
graphs 93 to 99).

**Legal provisions**

###### **118**

The complexity of cumulation rules
hampers their implementation by
beneficiary/partner countries (see
paragraphs 100 to 103).

## **Conclusions and recommendations 35**

###### **119**

Although certificates of origin and
movement certificates are prone to
litigation, their use is still widespread,
which makes the _ex post_ collection
of customs duties cumbersome (see
paragraphs 104 and 105).

###### **120**

The EU’s position in reciprocal PTAs
does not adequately protect its finan­
cial interests (see paragraph 106).

**Recommendations 5 to 13**

In order to improve protection of the
EU’s financial interests the Commission

should:

(5) create EU risk profiles on PTAs so

that Member States have a com­
mon approach to risk analysis in
order to reduce losses to the EU
budget;

(6) verify that Member States improve

the effectiveness of their risk
management systems and control
strategy to reduce losses to the EU
budget _;_

(7) encourage Member States to

adopt appropriate precautionary
measures upon receipt of an MA
communication;

(8) evaluate and carry out monitoring

visits on a risk basis to countries
benefiting from preferential treat­
ment, notably regarding the rules
of origin and cumulation;

(9) require the Member States to

improve the quality of the informa­
tion provided by them concerning
administrative cooperation;

(10) follow up those countries benefit­

ing from preferential treatment
where problems concerning ad­
ministrative cooperation exist;

(11) improve the financial follow‑up of

the OLAF investigations in order
to prevent losses to the EU budget
due to time‑barring;

(12) reinforce the EU’s position in re­

ciprocal PTAs and make more use
of precautionary and safeguard
measures, including them in all
future trade agreements; and

(13) promote the replacement of origin

and movement certificates with
exporters’ self‑certification.

## **Conclusions and recommendations 36**

This Report was adopted by Chamber IV, headed by Mr Louis GALEA, Member of
the Court of Auditors, in Luxembourg at its meeting of 18 March 2014.

_For the Court of Auditors_

Vítor Manuel da SILVA CALDEIRA

_President_

## **Annexes 37**

**Statistical data on PTAs in 2011**

**List of Member States which imported the most under PTAs in 2011**

|Member State|Value of imports<br>(billion euro)|Percentage|
|---|---|---|
|Germany|55|23 %|
|France|30|12 %|
|Italy|29|12 %|
|United Kingdom|27|11 %|
|Netherlands|22|9 %|
|Spain|19|8 %|
|Belgium|12|5 %|
|Sweden|7|3 %|
|Austria|7|3 %|
|Poland|5|2 %|
|Others|30|12 %|
|**Total**|**243**|**100 %**|

**List of beneficiary/partner countries which exported the most under PTAs in 2011**

|Beneficiary/partner|Value of exports<br>(billion euro)|Percentage|
|---|---|---|
|Switzerland|38|16 %|
|Turkey|37|15 %|
|India|18|8 %|
|Norway|13|6 %|
|Bangladesh|8|3 %|
|Russia|7|3 %|
|Tunisia|7|3 %|
|South Africa|6|3 %|
|Morocco|6|3 %|
|Thailand|6|2 %|
|Others|97|38 %|
|**Total**|**243**|**100 %**|

_Source:_ Comext.

## **Annexes 38**

**Overview of the Commission’s** _**ex ante**_ **evaluations on PTAs**

**Standards**

_**Ex ante**_ **evaluations** : Pursuant to Article 21, under the heading ‘Principle of sound financial management’, of
Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the
implementation of Council Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the
general budget of the European Communities, ‘all proposals for programmes or activities occasioning expend­
iture or a reduction in revenue for the budget shall be subject to an _ex ante_ evaluation’. This provision was in
force from 1 January 2003 until 21 August 2006.

**Impact assessments (IAs)** : In 2003, the Commission introduced a requirement to conduct integrated IAs of all
its most important policy initiatives: _‘_ IA will be applied to the major initiatives presented by the Commission in
its Annual policy strategy or its work programme, be they either regulatory proposals or other proposals having
an economic, social and environmental impact … such as negotiating guidelines for international agreements
that have an economic, social or environmental impact [1] .’ Since 2005, _‘_ IA, including on competitiveness, before
initiatives are launched and throughout the legislative process, **must become second nature** ’ [2] .

‘IAs are necessary for the most important Commission initiatives and those which will have the most far‑­
reaching impacts. This will be the case for all legislative proposals of the Commission’s Legislative Work Pro­
gramme (CLWP) and for non‑CLWP legislative proposals which have clearly identifiable economic, social and
environmental impacts and for non‑legislative initiatives which define future policies [3] ’.

1 COM(2002) 276 final.
2 COM(2005) 12 final.
3 SEC(2009) 92 — IA guidelines.

## **Annexes 39**

|Col1|Cases in which an IA or ex ante evaluation was required<br>IA / Ex ante evaluation report Adequacy of this evaluation|Col3|
|---|---|---|
|**PTAs with**|**PTAs with**|**PTAs with**|
|Montenegro|No_ex ante_ evaluation|N/A|
|Bosnia and Herzegovina|No_ex ante_ evaluation|N/A|
|Serbia|No_ex ante_ evaluation|N/A|
|Central America|IA|X|
|Andean Community|IA|X|
|Republic of Korea|IA|X|
|India|IA|X|
|Canada|No IA|N/A|
|Morocco (deep and comprehensive free trade agreement)|No IA|N/A|
|GSP Regulation (EC) No 980/2005|No_ex ante_ evaluation|N/A|
|GSP Regulation (EC) No 732/2008|IA|X|
|GSP Regulation (EU) No 978/2012|IA|√|
|Moldova|No IA|N/A|

Legend:
N/A = Not applicable √ = Adequate X = Overall inadequate

In the following PTAs an IA or _ex ante_ evaluation was not required:

Andorra, Turkey, San Marino, Faeroe Islands, European Economic Area (Iceland, Liechtenstein and Norway),
Switzerland, the former Yugoslav republic of Macedonia, Croatia, Albania, Algeria, Egypt, Israel, Jordan, Leba­
non, Morocco, the occupied Palestinian territory, Syria, Tunisia, Chile, Mexico, South Africa, Mercosur, Cariforum
states, Ivory Coast, Cameroon, ESA (Comoros, Madagascar, Mauritius, Seychelles, Zambia and Zimbabwe), SADC
(Botswana, Lesotho, Mozambique and Swaziland), Pacific states, market access regulation with ACP states, over­
seas countries and territories, Ceuta and Melilla.

## **Annexes 40**

**Standard**

**Sustainability Impact Assessment (SIAs)** : In 1999 the European Commission _‘_ decided to integrate sustainable
development into trade negotiations by developing a new assessment tool called trade SIA [4] ’.

|Col1|Cases in which a SIA was required:|Col3|
|---|---|---|
|**PTAs with**|**SIA**|**Adequacy of this evaluation**|
|Croatia|No SIA|N/A|
|Albania|No SIA|N/A|
|Montenegro|No SIA|N/A|
|Bosnia and Herzegovina|No SIA|N/A|
|Serbia|No SIA|N/A|
|Algeria|SIA5|X|
|Egypt|SIA|X|
|Israel|SIA|X|
|Jordan|SIA|X|
|Lebanon|SIA|X|
|Morocco|SIA|X|
|Occupied Palestinian territory|SIA|X|
|Syria|SIA|X|
|Tunisia|SIA|X|
|Central America|SIA|√|

Legend:
N/A = Not applicable √ = Adequate X = Overall inadequate

4 Preface by Peter Mandelson, former European Commissioner for Trade, to the Commission’s handbook on trade sia.

5 The SIA on the Euro‑Mediterranean free trade area concerns PTAs with Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, the occupied Palestinian

territory, Syria and Tunisia.

## **Annexes 41**

|Col1|Cases in which a SIA was required:|Col3|
|---|---|---|
|**PTAs with**|**SIA**|**Adequacy of this evaluation**|
|Chile|SIA|X|
|Andean Community|SIA|X|
|Republic of Korea|SIA|√|
|India|SIA|X|
|Canada|SIA|√|
|Morocco DCFTA|SIA|X|
|Mercosur|SIA|X|
|Cariforum states|SIA6|X|
|Ivory Coast|SIA|X|
|Cameroon|SIA|X|
|ESA<br>Comoros, Madagascar, Mauritius, Seychelles,<br>Zambia, Zimbabwe|SIA|X|
|SADC<br>Botswana, Lesotho, Mozambique, Swaziland|SIA|X|
|Pacifc states<br>Papua New Guinea, Fiji|SIA|X|

Legend:
N/A = Not applicable √ = Adequate X = Overall inadequate

In the following PTAs an SIA was not required:

Andorra, Turkey, San Marino, Faeroe Islands, European Economic Area (Iceland, Liechtenstein and Norway), Swit­
zerland, the former Yugoslav republic of Macedonia, Mexico, South Africa, market access regulation with ACP
states, overseas countries and territories, GSP Regulation (EC) No 980/2005, GSP Regulation (EC) No 732/2008,
GSP Regulation (EU) No 978/2012, unilateral PTA with Moldova and Ceuta and Melilla.

6 The SIA on the economic partnership agreements with ACP countries concerns EPAs with Cariforum states, Ivory Coast, Cameroon, ESA (Comoros,
Madagascar, Mauritius, Seychelles, Zambia, Zimbabwe), SADC (Botswana, Lesotho, Mozambique, Swaziland) and Pacific states (Papua New Guinea,

Fiji).

## **Annexes 42**

**Overview of the Commission’s interim and/or** _**ex post**_ **evaluations on PTAs**

**Standard**

In the Court’s view, interim and _ex post_ evaluations should be carried out in respect of all PTAs with significant
economic, social and environmental impacts after 3 years from their entry into force. These would allow policy­
makers, stakeholders and European taxpayers to assess whether PTAs are actually meeting their policy objec­
tives in accordance with the principles of sound financial management and public accountability.

In its communication on ‘Trade, growth and world affairs, trade policy as a core component of the EU’s 2020
strategy’ [1], the Commission stated that _ex post_ evaluations would be carried out to monitor the impacts of exist­
ing PTAs on a more systematic basis.

|Col1|Cases in which an interim and/or ex post evaluation (EPE) is required|Col3|
|---|---|---|
|**PTAs with:**|**Interim and/or****_ex post_
**<br>**evaluation**|**Adequacy of this evaluation**|
|Turkey|No EPE|N/A|
|European Economic Area<br>(Iceland, Liechtenstein,<br>Norway)|No EPE|N/A|
|Switzerland|No EPE|N/A|
|Former Yugoslav republic of<br>Macedonia|No EPE|N/A|
|Croatia|No EPE|N/A|
|Albania|No EPE|N/A|

1 COM(2010) 612.

## **Annexes 43**

|Col1|Cases in which an interim and/or ex post evaluation (EPE) is required|Col3|
|---|---|---|
|**PTAs with:**|**Interim and/or****_ex post_
**<br>**evaluation**|**Adequacy of this evaluation**|
|Montenegro|No EPE|N/A|
|Bosnia and Herzegovina|No EPE|N/A|
|Serbia|No EPE|N/A|
|Algeria|EPE2|X|
|Egypt|EPE|X|
|Israel|EPE|X|
|Jordan|EPE|X|
|Lebanon|No EPE|N/A|
|Morocco|EPE|X|
|Occupied Palestinian territory|No EPE|N/A|
|Syria|No EPE|N/A|
|Tunisia|EPE|X|
|Chile|EPE|√|
|Mexico|EPE of six FTAs|X|
|South Africa|EPE of six FTAs|X|
|Cariforum states|No EPE|N/A|
|Pacifc states<br>(Papua New Guinea, Fiji)|No EPE|N/A|
|Overseas countries and<br>territories|No EPE|N/A|
|GSP Regulation (EC)<br>No 980/2005|Interim evaluation|√|
|GSP Regulation(EC)<br>No 732/2008|Interim evaluation|√|
|Moldova|No EPE|N/A|

Legend:
N/A = Not applicable √ = Adequate X = Overall inadequate

In the following PTAs an _ex post_ evaluation was not required:

Andorra, San Marino, Faeroe Islands, central America, Andean Community, Republic of Korea, India, Canada,
Morocco (deep and comprehensive free trade agreement), Mercosur, Ivory Coast, Cameroon, ESA (Comoros,
Madagascar, Mauritius, Seychelles, Zambia and Zimbabwe), SADC (Botswana, Lesotho, Mozambique and Swazi­
land), market access regulation with ACP states, GSP Regulation (EU) No 978/2012 and Ceuta and Melilla.

2 The _ex post_ evaluation on the Euro‑Mediterranean free trade area concerns PTAs with Algeria, Egypt, Israel, Jordan, Morocco and Tunisia.

## **Annexes 44**

**Audit approach in selected member states**

The auditors reviewed national instructions and procedures, risk management and risk profiles, _ex ante_ and _ex_
_post_ controls and administrative cooperation. The Court reviewed the overall control strategy applied to PTAs
by customs authorities in five Member States. The value of their imports under PTAs represented more than two
thirds of the total imports benefiting from preferential tariff measures.

Customs controls in the five selected Member States were evaluated by testing the following random samples.

(a) 60 imports under PTAs carried out in the time‑barred period of 2009, in order to check whether the goods

were actually entitled to preferential tariff measures and also the preventive, deterrent and corrective meas­
ures adopted by the customs authorities to ensure this entitlement and to collect the duties due when this
was not the case. An extrapolation of the underpayments detected in the sample was carried out in order to
estimate the amount of TOR potentially lost to the EU budget.

(b) 30 imports under PTAs in 2011, in order to check whether the goods were actually entitled to preferential

tariff measures and also the preventive, deterrent and corrective measures adopted by the customs author­
ities to ensure this entitlement and to collect the duties due when this was not the case.

(c) 30 imports in 2009 subject to an MA communication in order to check whether Member States had consist­

ently introduced automated risk profiles in their risk management systems.

(d) 30 requests sent in 2011 by Member States to beneficiary /partner countries under administrative coop­

eration in order to test the timely collection of the customs duties due in cases where the goods were not
entitled to preferential tariff measures.

## **Annexes 45**

**Limitations of the CGE model**

###### **1**

According to the European Economic and Social Committee [1] ‘the results of modelling presented in SIAs are …
without any real informative value for negotiators or stakeholders, since they do not indicate significant or suf­
ficiently targeted impacts. As a result of the absence or shortage of reliable statistics in the informal sector, the
SIA does not take sufficient account of the possible impact on this sector’.

###### **2**

Both the Commission and the external consultants have also highlighted the inherent limitations of the CGE
model:

(a) the CGE model can only be used for simulation purposes and not for forecasting [2 ] and its simulation of

long‑run effects is tenuous [3] ;

(b) its somewhat tautological construction, i.e. all results are implicitly linked to the assumptions and calibra­

tion made [4] ;

(c) commodities are grouped within a broad category so that it is impossible to usefully determine the impact

on specific products within a broad category, e.g. medium‑quality wheat in the context of the estimated
impact on ‘wheat’ [5] ;

(d) diverse countries such as Russia, Norway, Switzerland and Turkey are combined into a single grouping, limit­

ing the useful interpretation that can be made from the CGE estimates for this group [6] ;

(e) the formal modelling’s inability to account for the impact of investment liberalisation and measures that

facilitate the movement of professionals [7] ; and

(f) the CGE model results are not well suited for social impact assessments due to their lack of disaggregated

information at the household level [8] .

1 Paragraph 2(6) of Opinion No 818/2011 of the European Economic and Social Committee.

2 Paragraph 11(5) of Annex 8 to Commission IA guidelines.

3 According to Commission services’ position paper on the SIA for the FTA between the EU and the Republic of India of March 2010, ‘ _the long‑run_
_effects are among the most tenuous parts of CGE modelling because the capital accumulation process inevitably relies on basic assumptions and ignores_
_the dynamic effects of enhanced integration and competition’_ .
4 Paragraph 11(5) of Annex 8 to Commission IA guidelines.
5 EU–Canada SIA final report briefing document, June 2011.

6 idem.

7 idem.
8 EU‑Andean trade sustainability impact assessment, final report, October 2009.

#### **Reply of the** **Commission**

**Executive summary**

**I**
The economic gains associated with trade liberal­
isation are well known and thoroughly documented
by the entire economic literature available. For
instance, it has been shown that finalising all
on­going negotiations (Doha Round and bilateral
agreements) would lead to an increase of EU GDP of
more than 1 % than it would be otherwise. Consum­
ers are expected to benefit from access to a wider
variety of goods and services. Finally, there are
more than 36 million jobs in Europe that depend,
directly or indirectly, on our ability to trade with the
rest of the world [1] .

Moreover, the GSP scheme is effectively the EU’s
development‑through‑trade arm; firstly, through
the ‘everything but arms’ (EBA) scheme it provides
duty‑free and quota‑free access to the EU market
on all products (except weapons) to the 50 poor­
est countries in the world; secondly, through the
additional benefits under the GSP+ sub‑scheme, it
incentivises developing countries to pursue sustain­
able development objectives.

**III (a)**
Since 1999 all major multilateral and bilateral trade
negotiations have been accompanied by a sustain­
ability impact assessment (SIA). In addition, since
2010, with one exception [2], all important trade
negotiations have been also preceded by an impact
assessment (IA).

All its trade arrangements have been able to draw
on high-quality analysis of economic and other
impacts. In doing this, the Commission has always
strived to meet the applicable standards, which
have evolved over time.

1 ‘Trade, growth and world affairs — Trade policy as a core
component of the EU’s 2020 strategy’.

2 In 2011 the Foreign Affairs Council and the European Council
responded to the Arab Spring by calling for the launch of
negotiations with Morocco, Tunisia, Egypt and Jordan. This
political decision made conducting an IA redundant and would
have introduced excessive delay in the launch of the negotiation
process.

## **46**

## **47**

**Reply of the Commission**

## **48**

**Reply of the Commission**

**V (a)**
The Commission will further evaluate in which par­
ticular cases such risk profiles are useful and how
they should be implemented in the area of rules of
origin under PTAs.

**V (b)**
In the course of its inspections in recent years, the
Commission has placed a special focus on the effec­
tiveness of the Member States’ risk management
systems and control strategies. It has produced
thematic reports on its inspections of customs
control strategy (2009), local clearance (2011) and
transit (2012) and has presented these reports to the
Member States in the Advisory Committee on Own
Resources and in the Customs Policy Group. It will
continue to verify that Member States improve the
effectiveness of their risk management systems and
control strategies.

**V (c)**
The Commission will continue to encourage Mem­
ber States to take all appropriate precautionary
measures upon receipt of MA communications.

**V (d)**
The evaluation of the capacity of a beneficiary
country is an integral part of the negotiation pro­
cess with each partner. It is not, however, reflected
in a formal evaluation report. The Commission will
include an assessment of this capacity in the formal
scoping exercises that preceed new negotiations.

Generally, the negotiations provide the appropri­
ate framework for the Commission to assess the
capacity of the authorities of the partner countries
to administer properly the agreement.

**V (e)**
The Commission will raise this issue with Member
States (during monitoring) with a view to improving
the quality of the information the Member States
provide concerning administrative cooperation. The
reporting procedure will also be simplified.

## **49**

**Reply of the Commission**

Currently the Commission is negotiating the inclu­
sion of provisions for the temporary withdrawal
of preferences in PTAs with a number of partners,
including Japan, Vietnam, Morocco, Thailand and
Canada.

The Commission will continue to propose inclusion
of the MAE clause in all future trade agreements
where no self‑certification is agreed.

**V (h)**
The Commission will continue promoting the
replacement of origin and movement certificates
with exporters’ self‑certification.

**Introduction**

**07**
The Court is right to highlight IAs and SIAs. How­
ever, it does not give credit to tools such as feasi­
bility studies and other economic analysis, which
in the past have also been an important element
in decision‑making on some of the agreements
included in the Court’s sample.

**08**
While the system of IAs was introduced in 2002, its
scope has gradually evolved and PTAs with signifi­
cant impact were not included fully in its scope
until 2009.

**09**
The Commission has a different interpretation
concerning the legal obligation to carry out _ex ante_
evaluations for PTAs between 2002 and 2006.

The requirement to conduct impact assessments
has gradually been introduced since 2003.

Since 2005, IAs have been required for all initiatives
set out in the CLWP and since 2009 for the most
important Commission initiatives and those with
the most far‑reaching impact.

## **50**

**Reply of the Commission**

An estimate of revenue foregone has been included
in IAs carried out since 2011. However, such an _ex_
_ante_ calculation can only give an estimate of the
likely reduction of own resources in the form of cus­
toms duties, based on the most likely scenarios aris­
ing from the final agreement. As to the economic
effects, it should be noted that while PTAs lower
duty rates they also entail benefits from increased
trade flows that may even result in an increase in
the amount of customs duties collected.

**Audit scope and approach**

**21**
The Court’s conclusion is based on the analysis
of a period during which the Commission impact
assessment system was progressively established
and the systematic evaluation of policies still to
be developed. Therefore, a number of agreements
within the sample could not have been subject to
either an IA or an SIA given the moment of their
proposal and/or entry into force.

**22**
IA working methods were established progressively
in the Commission with guidelines introduced in
2005 and revised in 2009. Current more rigorous
standards should not be used to assess earlier IAs,
when the systems was evolving. In order to build
on the experience of the first 5 years, SIA guidelines
were introduced through the publication by the
Commission services of the SIA handbook in 2006.

**Observations**

**26**
The Commission agrees with the importance of
appropriately assessing both _ex ante_ and _ex post_ the
economic and other effects of PTAs. It believes this

to be the case since 1999.

**27**

The Commission considers that IAs or _ex ante_ evalu­
ations need not have been prepared for the seven
PTAs identified by the Court. In most of the cases
an IA or _ex ante_ evaluation would have been of
little added value and represented a disproportion­
ate use of resources, for example because political
choices had already been made at the highest level
to pursue an agreement or the measures envisaged
had more limited effects or were transitional in

nature.

**28**

The Commission has estimated the revenue fore­
gone in all IAs relating to trade agreements pro­
duced since 2010.

**29**

The Commission does not consider that there was
a commitment to carry out SIAs for the five agree­
ments identified by the Court. The commitment
to conduct SIAs during a trade negotiation was
originally made in 1999 by the trade commissioner
and related to those negotiations which are led by
the commissioner for trade. The generalised use of
SIAs for negotiations led by other commissioners on
behalf of the Commission has never been subject
to a College decision, which is the reason for the
absence of an SIA in the five cases.

**30**
Since 2010, the Commission has been strengthening
its system of evaluating legislation and policies and
is committed to conduct evaluations on a more sys­
tematic basis. Priorities need to be set in pursuing
a programme of evaluations, with first priority given
to the ‘evaluate first’ principle, i.e. evaluating before
an initiative is revised; to those initiatives with the
most significant impact; and, finally, in terms of the
scarce resources available.

## **51**

**Reply of the Commission**

**35**
Of the six IAs reviewed by the Court, four were
conducted in 2006/07, when the methodology to
analyse the impact of trade agreements was still
under development. All IAs conducted since 2010
contain a comprehensive analysis of the economic
effects in the beneficiary countries.

**36**
The Commission assesses economic impacts, by
using state-of-the-art economic modelling and
datasets, keeping pace with most recent develop­
ments in the theoretical and empirical literature
regarding the effects of free trade agreements.

**38**
The GSP scheme consists of a general arrange­
ment and two special arrangements. The general
arrangement is granted to all those developing
countries which share a developing need and are in
a similar stage of economic development without
the need to ratify or implement any international
conventions.

The EU’s GSP+ sub‑scheme has been designed to
include additional incentives for vulnerable coun­
tries willing to take extra steps towards sustainable
development and good governance, leaving the
choice to those countries of whether to seek the
additional benefits or not. This approach, endorsed
by Council and Parliament, represents a policy
choice. The need to ratify and effectively imple­
ment international conventions on human and
labour rights, the environment and good govern­
ance has, therefore, been considered for these 10
countries and not in respect of other beneficiary
countries of the general arrangement.

## **52**

**Reply of the Commission**

**Box 1**
Bangladesh is a good example of where GSP ben­
efits have significantly contributed to the develop­
ment of the country, a least developed country
(LDC), leading to growth, poverty reduction and
increased employment opportunities, in particular
for women. The availability of GSP benefits creates
the political space for the EU to influence develop­
ments in human and labour rights as shown by the
Rana Plaza event. In addition, the Commission has
closely followed the International Labour Organisa­
tion (ILO) work in the country aimed at improving
working conditions. It is doubtful if Bangladesh
would have accepted the conditions imposed by
the compact had it not been a GSP beneficiary.

**40**
The Commission acknowledges that in the light of
experience it has tightened the requirement for
monitoring and evaluation to be more effectively
addressed in IAs. This has reflected the gradual
evolution of the IA system.

In all the IAs carried out since 2010 in the area of
trade, clear and quantifiable indicators have been
identified complying with the 2009 IA guidelines.
The IAB positive opinions on these IAs confirm this.

**41**
An in‑depth study of the nature outlined in the
EESC recommendations in the Indian context would
be unlikely to produce reliable findings, as a major­
ity of the vulnerable sectors of society are in the
informal economy where quantitative data is not
easily available.

However, the results of the SIA for the India FTA are
relevant in the context of the EESC recommenda­
tions. The SIA concluded that an FTA with India (in
all scenarios analysed) should lead to significant
increases in real wages of both skilled and unskilled
workers as well as to moderate pro‑poor effects.
In addition, negotiators have regular consultations
with civil society, allowing the issues mentioned in
the EESC recommendations to be discussed.

**42**
The IA did not identify fraud or customs evasion as
a salient shortcoming of the previously applied GSP
scheme. Therefore, there was no major adaptation
of the anti‑fraud provisions in the reformed scheme.

On the other hand, the IA highlighted that the safe­
guard mechanisms within the GSP scheme (where
imports may cause or threaten to cause serious
difficulty to EU producers) were not operational and
could allow preferential imports to harm the finan­
cial and economic interests of EU industry. Options
were identified to remedy them and, as a result, the
new GSP, in force since 1 January 2014, strength­
ened them.

By November 2017, the Commission must submit
a report to the European Parliament and to the
Council on the application of the GSP regulation.
For the purpose of the report, the Commission
will assess fraud and customs duty evasion issues
and, where appropriate, will consider measures to
address them.

**44**
The Commission agrees that, as in any modelling,
there are limitations but considers that CGE is the
best instrument available. All modelling frame­
works have shortcomings, but CGE models are best
equipped to quantify the economic impact of PTAs.
The objectives are to quantify the impact of trade
policy changes, _ceteris paribus_, based on the most
robust and relevant methodological approaches
available in the economics profession for trade pol­
icy analysis. Such economic analyses are not based
on ‘the’ CGE model but on different CGE models
that are adapted to best suit the policy question at
hand in each IA and SIA.

## **53**

**Reply of the Commission**

**45**

The GTAP database is built on the most reliable
international data sources (including Eurostat
data for EU countries), and it undergoes constant
scrutiny by the different stakeholders (World
Bank, OECD, IMF, WTO, United Nations, FAO). Most
economic data used in the GTAP database (such
as trade flows, protection patters, GDP, final con­
sumption) are updated to the latest year available.
In this case, outdated data refers only to technical
coefficients of the EU supply and use tables (SUTs).
The Eurostat raw data shows that the change in the
technical coefficients in EU SUT tables is minimal for
the period 2000–09.

The Commission, as part of the GTAP consortium,
will seek to ensure that GTAP uses updated EU use
and supply and input–output tables when avail­
able and that in the metadata of GTAP it is stated,
country by country, what the sources are and which
year of data is used.

As shown by the January 2014 report by the Joint
Research Centre (JRC) of the European Commis­
sion, updating EU technical coefficients to the most
recent year available only marginally changed the
simulated impact of the EU–South Korea FTA.

**46**

As the source of most EU data in the GTAP database

is Eurostat or national statistical offices in the first
place, the involvement of Eurostat in a second­
ary quality assessment of the GTAP data might be
superfluous.

**47**
The Commission agrees that the timeliness of an SIA
is very important in order to ensure that it is useful
for negotiators. The Commission services are com­
mitted to launch SIAs no later than 6 months after
the start of the negotiation to ensure reports feed
into the negotiations. Out of the 18 SIAs conducted
since 1999, the Chile SIA was the only SIA where the
final report was only delivered after the initialling of
the association agreement.

**48**
IAs and SIAs analyse the likely impact of the trade
agreement itself on the relevant sectors, taking into
account the existence of all the relevant EU policies.
In doing so, they may (as for the Caribbean coun­
tries) or may not explicitly mention the common
agricultural policy (CAP).

**49**
The Commission recognises that the SIA concerning
the EPAs does not have the same level of coverage
and depth as more recent SIAs. In part this reflected
the very broad geographical and thematic cover­
age of this specific SIA — more than 75 countries.
No SIA could have given full coverage of all possible
issues for all potential signatories.

**52**
The study was an econometric assessment of the
impact of six PTAs on trade. Its stated objective was
to analyse if the agreements have had a measurable
and statistically significant impact on EU exports
and imports. It was not intended to have a broader
scope or to be a fully fledged _ex post_ evaluation.
The Commission has subsequently conducted full
_ex post_ evaluations for two of the countries con­
cerned (Mexico and Chile).

**53**
Whilst the _ex post_ evaluation report for the Euromed
countries did not contain any arrangements for
future evaluation, the Commission can confirm that
such an _ex post_ evaluation is likely to be carried out
once ongoing negotiations are out of the way and
agreements fully implemented.

**55**
Following the interim evaluation of the GSP, sub­
stantive changes were made to the scheme, which
entered into force on 1 January 2014, to address the
shortcomings identified in the interim evaluation of
the scheme.

## **54**

**Reply of the Commission**

For example, the number of GSP beneficiaries was
substantially reduced so as to focus benefits to the
countries most in need (from over 170 to around
90 countries). Moreover, export opportunities for
poorer countries have been increased through the
elimination of benefits for very competitive sectors
from certain countries, such as textiles from China
and India.

**61**

The Commission considers that the inclusion of ori­
gin in combination with other risk elements is even
more effective because it is more closely targeted.

**62**
The errors found by the Court in import declara­
tions in which preference was claimed under
simplified procedures were low (three). The UK has
undertaken to review its control strategy for pref­
erential origin. However, while PTAs has not been
selected as an audit theme in the UK, this does not
mean that origin controls have not been carried out
in the context of other post‑clearance audits. The
issues raised by the Court will be followed up by the
Commission.

**63**
The Court’s extrapolation is made on the basis of
individual errors that comprise missing documents
or evidence that should have been retained by the
importers at the time of the Court’s audit. However,
these errors do not automatically substantiate that
the imported goods were not of the preferential
origin declared at the time of importation. In its
follow‑up of the individual errors detected by the
Court, the Commission will give the Member States
in question the possibility to prove that the docu­
ments and evidence of origin were available at the
time of clearance and that they can still be supplied.
Only where evidence is not supplied is there likely
to be amounts of TOR due from the Member States
if they result from their administrative errors.

The Commission further notes that the non‑­
extrapolated potential loss reported by the Court to
the three Member States in relation to the individ­
ual errors detected, amounted to 1 million euro, of
which 91 % concerns one Member State.

**64**
Some of the missing documents or evidence may
yet be supplied as a result of the Commission’s
follow‑up of the ECA’s findings. Therefore the end
result may well show substantially lower rates. In
addition, the Commission inspections of simpli­
fied procedures in 21 Member States did not show
high error rates in the sample of origin declarations
checked and the financial impact of the errors was
low.

The results of the examination of originals of origin
documents carried out by the Commission in its
inspections in the UK are not in line with the find­
ings of the Court.

**66**
The errors found by the Court mainly comprise
missing supporting documents or evidence. Where
the origin certificates show a stamp or are issued
by an office not communicated to the Commis­
sion by the authorities of the beneficiary/partner
countries they may be sent for verification to those
authorities.

Also in relation to paragraph 64 above, the Commis­
sion points out that nowadays almost all the sup­
porting documents are held by the importers and
should be kept by them at the customs authorities’
disposal in accordance with Article 77 of the EU Cus­
toms Code. There cannot be a 100% check of docu­

ments and the checks need to be carried out on the
basis of risk analysis as stipulated in Article 13 of the
EU Customs Code.

## **55**

**Reply of the Commission**

**67**
The errors identified by the Court will be followed
up by the Commission and where amounts of
traditional own resources are found to be due, the
Member States will be requested to take measures
to recover these amounts and pay any interest
applicable.

**71**
The 11 requests sent by Spain to the Philippines and
returned undelivered have subsequently been sent
again to the Philippines to the correct addresses.

**72**
The Commission is following up these post‑­
clearance cases with the Italian authorities. Interest
will be charged where applicable.

**73**
The Commission will follow up with the French
authorities the cases where post‑clearance recovery
has not been started following confirmation that
the certificates are invalid or not authentic and will
request recovery of any amounts of TOR due and
the payment of interest, if applicable.

**74**

The Commission considers that the Member States

should take account of the information in its overall
customs risk and control strategy and, to the extent
that the information from the mutual assistance
communication impacts the Member State, to take
measures to recover amounts of TOR due and pre­
vent future losses.

**75**

In all the cases mentioned the information has
been analysed and taken into account by the
Member States in their risk assessments. It is for the
Member State to decide, following analysis of its
trade pattern, whether to enter information from
mutual assistance communications in the form of
risk profiles into its risk management systems but
it is not obliged to do so. France has explained
that the creation of a risk profile in the case of the
mutual assistance communication notice in ques­
tion would be ineffective because the information
had no impact in France. In the case of Spain, the
sample related to operators that were excluded
from ‘pre‑release’ control circuits. The Commission
had already requested the Spanish authorities to
correct this practice. The Commission considers that
a risk profile based on the information contained in
a mutual assistance communication request need
only be established if the information has an impact
for the Member State.

**77**
All these recovery cases are being followed up by
the Commission with the Member States’ author­
ities, and where amounts of TOR are due as a result
of administrative error they will be asked to make
available these amounts with interest, if applicable.

The UK has been requested to make available the
amount of traditional own resources relating to
the MA communications concerned which it has
acknowledged has become time‑barred because of
ineffective internal controls. France has contested
this finding and the Commission has requested
additional information.

**78**

The Commission underlines that in this case the
Member State concerned has already taken appro­
priate measures to avoid a similar situation occur­
ring in the future.

See the Commission’s reply to paragraph 79.

## **56**

**Reply of the Commission**

**79**
The Commission has already been informed by
the Member State concerned that their customs
authorities had high-level exchanges with the
national judicial authorities and that they are in the
process of amending the national tax law to prevent
a similar situation occurring in future.

The Commission will follow up this issue with the
Spanish authorities.

**80**
See Commission reply to paragraph 78.

**82**
The evaluation of the capacity of a beneficiary
country is an integral part of the negotiation
process with each partner, including the scoping
exercise. It is not, however, reflected in a formal
evaluation report.

Generally, the negotiations provide the appropri­
ate framework for the Commission to assess the
capacity of the authorities of the partner countries
to administer properly the agreement taking into
account, for instance, experiences with existing cus­
toms cooperation agreements and other coopera­
tion mechanisms. More detailed prior evaluations
have taken place with regard to the SAAs with the
Balkan countries.

**83**
A Commission action plan on monitoring of pref­
erential rules of origin has been elaborated, under
which visits in a country benefiting from preferen­
tial treatment are one of the suggested activities.
The action plan will cover both, unilateral arrange­
ments such as GSP and bilateral agreements with
partner countries.

**84**
In the Court of Justice judgment mentioned by the
Court of Auditors, the fact that the Commission did
not make full use of the rights and powers con­
ferred upon it by the association agreement with
Turkey refers just to a specific case and therefore
cannot lead to a general conclusion.

Articles 220(2)(b) and 239 of the Community Cus­
toms Code provide for exceptions to the general
principle of recovery of import duties. In those
cases, despite the existence of a customs debt and
the fact that the conditions for preferential treat­
ment of the goods had not been fulfilled, the appli­
cant (supported by its national authorities when the
file is submitted to the Commission for decision)
asks for an exception to the principle of recovery or
non‑remission/repayment of import duties.

The provisions governing these exceptions must be
interpreted restrictively and are assessed on a case
by case basis.

The exceptions to the principle of recovery require
either (a) the existence of an error on the part of
the customs authority which could not reasonably
have been detected by the person liable acting in
good faith and complying with the provisions of the
customs declaration or (b) the existence of a special
situation in which no negligence or deception can
be attributed to the debtor.

**85**
The Commission will carefully consider such
a periodical reporting system within its new and
enhanced monitoring actions.

**89**

The Commission will look at this issue within the
framework of its newly planned monitoring actions,
so as to improve the quality of information pro­
vided by Member States and to ensure, inter alia,
that reporting by Member States more efficiently
focuses on anomalies calling for remedial action.

## **57**

**Reply of the Commission**

## **58**

**Reply of the Commission**

**96**
Since 2001, the Commission has proposed that all
EU preferential trade regimes, whether autono­
mous or conventional, include the possibility of
temporary withdrawal of preferences in the event
of particular problems with the management of the
preferences and/or other significant breaches of
customs legislation or non‑cooperation. They also
include a possibility to issue notices to importers.
The Commission will continue to propose the inclu­
sion of these safeguards in all future preferential
trade arrangements.

The Commission proposes the inclusion of the
MAE clause in all trade agreements where no self‑­
certification is agreed and will continue to do so in
all future trade agreements and in those which are
renegotiated.

**97**
See reply under paragraph 84. The cases notified to
the Commission refer to exceptions to the general
principle of recovery of import or export duties
and require that the errors of the customs authority
could not be detectable by a debtor acting in good
faith and complying with the provisions applicable
or the existence of a special situation provided that
the debtor was not negligent. It is for the decision­
making customs authority to assess whether these
conditions are met.

**98**
The Commission will continue to propose inclusion
of the MAE clause in all trade agreements where no
self‑certification is agreed.

**Box 3 (b)**
The non‑publication was related to translation dif­
ficulties in the run‑up to accession.

**Box 3 (c)**
Concerning the follow‑up to the notice to importers
about imports of tuna from El Salvador, the Com­
mission has meanwhile reacted to the Court’s audit
finding and sent out a letter with detailed questions
to El Salvador.

**Box 3 (d)**
See reply to paragraph III (e).

**102**
The OLAF investigations referred to by the Court
demonstrating that beneficiary/partner countries
lack the expertise to apply these rules relate to the
period before the GSP rules of origin reform. Under
the reform, GSP regional cumulation rules have
been simplified, making them easier for partner
countries to manage.

**103**
The Court identifies a particular cumulation chal­
lenge, where different rules apply for countries in
the same region. The flexibility introduced in the
GSP rules was destined to facilitate cumulation
of origin between developing countries even in
cases where different rules of origin apply. This is
particularly important for least developed coun­
tries, which are subject to different rules as com­
pared with other GSP beneficiary countries. There
are mechanisms in the GSP regulation to prevent
circumvention.

**Box 4**
EU–Mexico preferential trade relations are gov­
erned by an agreement‑based preferential system
under which requesting subsequent verification of
preferential origin by the country of export is man­
datory before considering any denial of preference.
The Commission is considering the further action
that may need to be taken in these cases.

## **59**

**Reply of the Commission**

**Conclusions and recommendations**

**108**
While the Commission’s _ex ante_ and _ex post_ evalu­
ations to assess the economic and other effects
of PTAs have evolved over time, the Commission
considers that the policymakers, stakeholders and
European taxpayers are today fully informed of the
main advantages and disadvantages of the different
trade policy options.

Since 1999, all major multilateral and bilateral trade
negotiations have been accompanied by an SIA
which analysed in detail the expected economic
(but also social and environmental) impact of the
PTA. Since 2010 (with one exception, see Commis­
sion reply to paragraph III(a)), all important trade
negotiations have been preceded, before their
launch, by an IA assessing the likely economic
effects of the PTA, including an evaluation of the
revenue likely to be foregone.

**109**
Although the Commission acknowledges that there
is room for improvement, it does not fully share the
Court’s assessment. Considerable effort will con­
tinue to go into producing high-quality IAs and SIAs
in the future. The Commission notes the Court’s
choice of a sample which included only one IA con­
ducted under the new IA guidelines issued in 2009.
As a consequence, the Court’s analysis does not
sufficiently acknowledge the substantial progress in
IAs in support of PTAs since 2010.

As far as the _ex post_ evaluations are concerned,
relatively few have been completed, reflecting the
long periods for PTAs to be fully in force. However,
the Commission is now moving up a gear in this
respect.

**110**
A scheme like the GSP is only one tool in address­
ing developing countries’ needs and one should
not overestimate its capacity to resolve develop­
ing countries’ issues. The scheme has — within the
framework of WTO law — just been reformed draw­
ing on the interim analysis findings.

## **60**

**Reply of the Commission**

(4) The Commission accepts the Court’s

recommendation.

See reply to paragraph 55 above. Following
the interim evaluation of the GSP, substantive
changes were made to the scheme to address
these shortcomings. As the tariff preferences
under the new GSP regulation (Regulation
978/2012) only apply as from 1 January 2014,
the Commission will be reviewing the scheme
and reporting to the European Parliament and
Member States by 2016 on the effects of the
scheme and by 2017 on the overall operation of
the new regulation.

**111**
The Court’s extrapolation is made on the basis of
individual errors that comprise missing documents
or evidence that should have been retained by the
importers at the time of the Court’s audit. However,
these errors do not automatically substantiate that
the imported goods were not of the preferential
origin declared at the time of importation. In its
follow‑up of the individual errors detected by the
Court, the Commission will give the Member States
in question the possibility to prove that the docu­
ments and evidence of origin were available at the
time of clearance and that they can still be supplied.
Only where evidence is not supplied is there likely
to be amounts of TOR due from the Member States
if they result from their administrative errors.

The Commission points out that nowadays almost
all the supporting documents are held by the
importers and should be kept by them at the
customs authorities’ disposal in accordance with
Article 77 of the EU Customs Code. There cannot be

a 100 % check of documents and the checks need
to be carried out on the basis of risk analysis as
stipulated in Article 13 of the EU Customs Code.

The Commission further notes that the non‑­
extrapolated potential loss reported by the Court to
the three Member States in relation to the individ­
ual errors detected, amounted to 1 million euro, of
which 91 % concerns one Member State.

**112**

The information from MA communications does not
always lead to the creation of a risk profile as the
information may not impact the Member State.

In all the cases mentioned the information has been
analysed and taken into account by the Member
States in their risk assessments.

**113**

The Court bases its conclusion on the weaknesses of
the REM-REC system on one specific case in Spain.
The Commission has already been informed by the
Member State concerned that its customs author­
ities had high-level exchanges with the national
judicial authorities and that it is in the process of
amending the national tax law to prevent a similar
situation occurring in future.

The Commission will follow up this issue with the
Spanish authorities.

**114**

There are means other than formal evaluation
reports to be satisfied about the capacity of the
third country to administer properly the PTA. Evalu­
ation takes place during the negotiating process of
bilateral agreements.

As regards monitoring, the Commission uses dif­
ferent tools such as notices to importers, providing
advice to beneficiary countries, etc., notably in the
context of the GSP. A Commission action plan on
monitoring of preferential rules of origin has been
elaborated, under which visits to a beneficiary
country are one of the suggested activities. The
action plan will cover both unilateral arrangements
such as GSP and bilateral agreements with partner
countries.

Furthermore, the Commission also refers to its
replies under paragraphs 81 to 86.

**115**
The Commission will follow up cases identified by
the Court and address problems in cooperation
with Member States and the countries benefiting
from preferences both in the context of unilateral
arrangements and bilateral agreements.

## **61**

**Reply of the Commission**

**116**
Although the Commission accepts that time‑barring
poses difficulties for recovery, it recalls that it is
the duty of Member States to take the appropriate
measures to ensure the timely recovery of import
duties to the maximum extent possible.

The Commission systematically follows up all
identified cases of Member States’ financial liability
resulting from delays in recovery procedures. It will
follow up the findings of the Court and will request
the payment of traditional own resources and of
interest where the amounts due are the result of

administrative errors.

**117**
See replies to paragraphs 96 and 99.

The Commission will continue to propose inclusion
of the MAE clause in all trade agreements where no
self‑certification is agreed.

**120**
See replies to paragraphs III (d) and (e), V (d)
and (g), 82, 83, 96, 99 (d), 106 and 114, and to
recommendation 12.

**Recommendations 5 to 13**
(5) The Commission will further evaluate in which

particular cases such risk profiles are useful and
how they should be implemented in the area of
rules of origin under PTAs.

(6) In the course of its inspections in recent years,

the Commission has placed a special focus on
the effectiveness of the Member States’ risk man­
agement systems and control strategies. It has
produced thematic reports on its inspections of
customs control strategy (2009), local clearance
(2011) and transit (2012) and has presented these
reports to the Member States in the Advisory
Committee on Own Resources, and in the Cus­
toms Policy Group. It will continue to verify that
Member States improve the effectiveness of their
risk management systems and control strategies.

(7) The Commission will continue to encour­

age Member States to take all appropriate
precautionary measures upon receipt of MA
communications.

(8) The evaluation of capacity of a country benefit­

ing from preferential treatment is an integral part
of the negotiation process with each partner. It is
not, however, reflected in a formal evaluation re­
port. The Commission will include an assessment
of this capacity in the formal scoping exercises
that preceed new negotiations.

Generally, the negotiations provide the
appropriate framework for the Commission
to assess the capacity of the authorities of the
partner countries to administer properly the
agreement.

(9) The Commission will raise this issue with Mem­

ber States (during monitoring) with a view to
improving the quality of the information the
Member States provide concerning administra­
tive cooperation. The reporting procedure will
also be simplified.

(10) The Commission will follow up countries ben­

efiting from preferential treatment in which the
audit by the Court revealed that problems con­
cerning administrative cooperation exist. A Com­
mission action plan on monitoring of preferential
rules of origin has been elaborated, which sug­
gests different remedial activities.

(11) The Commission notes that financial recovery is

the responsibility of the Member States.

OLAF will continue to provide Member States’
competent authorities with all necessary infor­
mation to facilitate their recovery actions.

## **62**

**Reply of the Commission**

New provisions introduced in Regulation
883/2013 on OLAF investigations [13] require
Member States to provide OLAF with informa­
tion on actions they have taken following OLAF
recommendations, inter alia, on recovery of
amounts due. This strengthens the monitoring
of recovery action by Member States and fur­
ther improves the financial follow‑up of OLAF
investigations.

The Commission systematically follows up all
identified cases of Member States’ financial
liability resulting from delays in recovery pro­
cedures. It will continue to do so.

(12) Since 2001, the Commission has proposed that all

EU preferential trade regimes, whether autono­
mous or conventional, include the possibility of
temporary withdrawal of preferences in the event
of particular problems with the management of
the preferences and/or other significant breach­
es of customs legislation or non‑­cooperation.
The Commission considers that these safeguards
have proved to be sufficient and will continue to
propose their inclusion in all future preferential
trade arrangements.

At the end of 2013, the possibility of tempo­
rary withdrawal of preferences was already
included in four autonomous arrangements
(including GSP) covering almost 200 countries,
and preferential agreements with more than 30
countries.

Currently the Commission is negotiating the
inclusion of provisions for the temporary with­
drawal of preferences in PTAs with a number of
partners, including Japan, Vietnam, Morocco,
Thailand and Canada.

The Commission will continue to propose inclu­
sion of the MAE clause in all future trade agree­
ments where no self‑certification is agreed.

13 Regulation (EU, Euratom) No 883/2013 of the European

Parliament and of the Council of 11 September 2013 concerning
investigations conducted by the European Anti‑Fraud Office
(OLAF) and repealing Regulation (EC) No 1073/1999 of the
European Parliament and of the Council and Council Regulation
(Euratom) No 1074/1999, OJ L 248, 18.9.2013.

(13) The Commission will continue promoting the re­

placement of origin and movement certificates
with exporters’ self‑certification.

**Reply to Annex V**

**1**
CGE models are state-of-the-art tools and, as
opposed to other available models, they are best
suited to measure the economy‑wide impact of
trade policy changes producing results on a wide
range of sectoral socioeconomic indicators (tar­
iff revenues, imports, exports, production prices,
wages, CO 2 emissions, etc.). This is of critical impor­
tance to negotiators and stakeholders. SIAs com­
plement CGE results with qualitative and sectoral
analyses, including on the informal sector, when
data allows. So far, data on the informal sector were
not sufficiently reliable to be used.

**2**
(a) The long‑run effects of trade policy changes have

been assessed by numerous academics and inter­
national organisations and the results are widely
used and accepted by governments.

(b) CGE models are used for simulation purposes,

not for forecasts. They are built on strong theor­
etical foundations while at the same time being
based on real economic data which replicate
agents’ economic behaviour.

(c) The aggregation of commodities and countries

into broader categories is decided based on the
specificities of the economies under considera­
tion. If considered useful, CGE results are comple­
mented with partial equilibrium analyses which
can differentiate between, for example, different
categories of wheat.

## **63**

**Reply of the Commission**

(d) As in the case of commodity aggregation, the

aggregation of regions is adapted to the specific
situation of each IA/SIA at hand and is done with
the objective of focusing on what is considered
to be of main interest.

(e) In recent years, significant progress has been

made in these areas. The Commission financed
the construction of a global foreign direct invest­
ment database, now used in CGE modelling, and
as a GTAP board member supports a new global
migration database.

(f) CGE modelling is also complemented by addi­

tional quantitative modelling (in particular of
social and environmental effects) and more de­
tailed sectoral analyses.

**HOW TO OBTAIN EU PUBLICATIONS**

**Free publications:**

- one copy:
via EU Bookshop (http://bookshop.europa.eu);

- more than one copy or posters/maps:
from the European Union’s representations (http://ec.europa.eu/represent_en.htm);
from the delegations in non-EU countries (http://eeas.europa.eu/delegations/index_en.htm);
by contacting the Europe Direct service (http://europa.eu/europedirect/index_en.htm) or
calling 00 800 6 7 8 9 10 11 (freephone number from anywhere in the EU) (*).

(*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you).

**Priced publications:**

- via EU Bookshop (http://bookshop.europa.eu).

**Priced subscriptions:**

- via one of the sales agents of the Publications Office of the European Union
(http://publications.europa.eu/others/agents/index_en.htm).nts/index_en.htm).