Rule of Origin, Origin Verifications and OLAF Investigation

Transcription

1 Rule of Origin, Origin Verifications and OLAF Investigation Philippe De Baere, Partner, Van Bael & Bellis Presentation to the Chinese National Federation of Industries, Taipei 11 February 2015

2 Part 1 WHAT ARE ORIGIN RULES? 2

3 INTRODUCTION Concept: economic nationality of a product Purpose: to determine the origin of a product, i.e. the country where a product is produced or manufactured (Relevance? Article I GATT) Main use: application of trade policy measures (e.g. anti dumping duties, embargos, preferential tariff treatment etc). Also for trade statistics, origin marking etc. Types: preferential and non preferential origin rules 3

4 NON PREFERENTIAL ORIGIN RULES Mainly used for trade policy measures (anti dumping duties, quantitative restrictions, trade embargoes, tariff quotas etc.) Legal basis: Art Community Customs Code ( CCC ) (Art. 35 and 36 Modernized CC) and Art and Annexes 9 of the Implementing Regulation ( CCIR ) Two basic criteria: 1) wholly obtained (Art. 23 CCC, 68 CCIR) 2) last substantial transformation (Art. 24 CCC, 69 CCIR) 4

5 NON PREFERENTIAL ORIGIN RULES 1) Wholly obtained (Article 23 CCC): 1. Goods originating in a country shall be those wholly obtained or produced in that country 2. The expression goods wholly obtained in a country means: (a) mineral products extracted within that country; (b) vegetable products harvested therein ( ) Only one country involved Mostly natural products and/or derived from wholly obtained product 5

6 NON PREFERENTIAL ORIGIN RULES 2) Last substantial processing (Article 24 CCC): Goods whose production involved more than one country shall be deemed to originate in the country where they underwent their last substantial, economically justified processing or working in an undertaking equipped for that purpose and resulting in the manufacture of a new product or representing an important stage of manufacture More than one country involved in the production 6

7 NON PREFERENTIAL ORIGIN RULES Methods to determine the last substantial transformation : (1) Change of tariff heading : the product obtained is classified under a different HS (sub )heading than the non originating materials used sufficiently worked or processed (e.g. basket and straw material) (2) Value added rule : value increase due to assembly and originating materials used represents certain percentage of the ex works price of the product; and (3) Specific processing criterion : certain manufacturing or processing operations must be carried out. 7

8 NON PREFERENTIAL ORIGIN RULES Article 24 CCC: General definition Cumulative criteria Specific criteria for certain products provided in Annex 9, 10 and 11 CCIR (mainly textile and some other sensitive products) Products not covered by specific rules: application of EC general principles (actually negotiation position): igin/non preferential/article_1621_en.htm 8

9 NON PREFERENTIAL ORIGIN RULES ECJ case law regarding the criterion of last substantial processing : technical test if the product resulting therefrom has its own properties and a composition of its own, which it did not possess before that process or operation. (Gesellschaft für Uberseehandel, C 49/76) value added test value added by the assembly, but only if technical test is not determining (Brother International, C 26/88) simple operations do not confer origin (e.g. simple assembly operations) value added less 10% is insufficient value added test 9

10 NON PREFERENTIAL ORIGIN RULES ECJ : large discretion granted to EC Commission in determining applicable specific origin rules: Joined cases C 447/05 and 448/05, Thomson Europe and Vestel France v. Administration des douanes Case C 372/06 Asda Stores Ltd. v. Commissioners of HMRC 10

11 NON PREFERENTIAL ORIGIN RULES Commission exercises its discretion in its so called Harmonisation Exercise undertaken in the context of the WTO Agreement on Rules of Origin Although officially mere negotiation position, the proposed rules are applied by the Member States as binding specific origin rules Creates legal uncertainty and lack of transparancy 11

12 Non preferential origin rules: new list rules Hoesch Metals and Alloys GmbH v Hauptzollamt Aachen, Case C 373/08, Judgment by the ECJ of 11 February 2010 [A]lthough those list rules drawn up by the Commission contribute to the determination of the non preferential origin of goods, those rules do not have binding legal force. Accordingly, the content of those rules must be compatible with the rules of origin as set out in Article 24 of the Customs Code, and may not alter the scope of those rules. That statement is equally valid for the Chapter Notes. 12

13 NON PREFERENTIAL ORIGIN RULES Art. 25 CCC: Any processing or working in respect of which it is established, or in respect of which the facts as ascertained justify the presumption, that its sole object was to circumvent the provisions applicable in the Community to goods from specific countries shall under no circumstances be deemed to confer on the goods thus produced the origin of the country where it is carried out within the meaning of Article

14 NON PREFERENTIAL ORIGIN RULES Article 25 CCC: Anti circumvention provision: obtaining favourable origin by limited activities ( origin shopping ). Restrictive interpretation. Only if processing/working is solely aimed at circumvention, will that country not be considered as the country of origin. Not included in the Modernized Customs Code, however established principle of Community law (Halifax plc and others,c 255/02). 14

15 PREFERENTIAL ORIGIN RULES Legal basis: Art. 27 CCC (Art. 39 Modernized Customs Code) Preferential treatment of products originating in certain countries, provided certain origin criteria fulfilled ( wholly obtained / substantial transformation ) Based on origin so customs union agreements excluded (e.g. EC Turkey customs union) Generally stricter than non preferential origin rules 15

16 PREFERENTIAL ORIGIN Applicable origin criteria laid down in specific preferential origin agreements: (1) Unilateral Agreements (Art CCIR) or (2) Bilateral Agreements (1) Unilateral Agreements: granted by the EC without reciprocity GSP (Generalized System of Preferences) countries (developing countries); (2) Bilateral agreements: reciprocal with creation of free trade area EFTA countries; Central and Eastern European countries; Western Balkan countries; Mediterranean countries; Other countries (e.g. ACP; Mexico;Chile; South Africa; Korea) 16

17 Part 2 PROOF OF ORIGIN AND ORIGIN VERIFICATIONS 17

18 Purpose of proof of origin To ensure the correct application of commercial or public policy instruments aimed at a specific country or region: Preferential tariffs (Article XXIV GATT) Trade defence instruments such as anti dumping or countervailing duties (Article VI GATT) Certain tariff quota Government procurement/aid programmes Embargoes (Article XX and XXI GATT) 18

19 Types of origin Non preferential origin rules determine the application of certain trade defence instruments and tariff quota Preferential origin rules will determine whether a specific product qualifies for a preferential import tariff under the generalized system of preferences ( GSP ) or FTAs 19

20 Types of proof of origin Non preferential origin: certificates of origin issued by a Chamber of Commerce in the exporting country Preferential origin: GSP: Form A FTAs: EUR1 certificate or supplier s declaration on invoice ( invoice declaration ) Evidence on direct transport 20

21 Verification mechanisms Non preferential proof of origin Origin certificates issued in third countries have no legal value in the EU ( territoriality principle ) Burden of proof is on the importer EU customs authorities may request the customs authorities of the exporting country to verify the manufacturer and may request to participate in such verifications under the provisions of the applicable agreement on mutual administrative assistance in customs matters 21

22 Verification mechanisms Preferential origin: Burden of proof is on the importer Invoice declaration and evidence of direct transport constitute such proof of origin but can be rejected: Manifestly wrong or incomplete documents After an a posteriori verification Following an on the spot verification in exporting country 22

23 Evidence on direct transport Article 13 Origin Protocol (a) evidence of the circumstances connected with transhipment or the storage of the originating products in third countries; (b) a single transport document covering the passage from the exporting Party through the country of transit; or (c) a certificate issued by the customs authorities of the country of transit: (i) (ii) giving an exact description of the products; stating the dates of unloading and reloading of the products and, where applicable, the names of the ships, or the other means of transport used; and (iii) certifying the conditions under which the products remained in the country of transit 23

24 Invoice declaration Article 16(3) origin protocol The exporter making out an invoice declaration shall be prepared to submit at any time, at the request of the customs authorities of the exporting Party, all appropriate documents proving the originating status of the products concerned including statements from the suppliers or producers in accordance with domestic legislation as well as the fulfilment of the other requirements of this Protocol. 24

25 Approved Exporter Article 17 Origin Protocol 1. An exporter seeking such authorisation must offer to the satisfaction of the customs authorities all guarantees necessary to verify the originating status of the products as well as the fulfilment of the other requirements of the Protocol. 2. The customs authorities may grant the status of approved exporter subject to any conditions which they consider appropriate. 3. The customs authorities must monitor the use of the authorisation by the approved exporter. 4. The customs authorities may withdraw the authorisation at any time. 25

26 Supporting Documents Article 22 Origin protocol direct evidence of the processes carried out by the exporter, supplier or producer to obtain the goods concerned, contained for example in his accounts or internal bookkeeping; documents proving the originating status of materials used, issued or made out in a Party where these documents are used as provided for in its domestic law; documents proving the working or processing of materials in a Party, issued or made out in a Party where these documents are used as provided for in its domestic law; proofs of origin proving the originating status of materials used issued or made out in a Party in accordance with this Protocol; and appropriate evidence concerning working or processing undergone outside territories of the Parties by application of Article 12, proving that the requirements of that Article have been satisfied. 26

27 Verification of Proofs of Origin Article 27 Origin Protocol Three methods: Prima facie check upon importation A posteriori verification On the spot verification involving customs authorities of the importing country and, in the case of the EU, OLAF 27

28 Verification of Proofs of Origin Prima facie (Explanatory Note 9 to the Origin Protocol) Prima facie check upon importation: Is invoice declaration and evidence on direct transport available? Have the documents been submitted on time? Are they formally correct? 28

29 Verification of Proofs of Origin A posteriori check Is a control after importation not only of the formal validity of the proof of origin ( authenticity )but also of whether the origin requirements were actually met ( correctness ). Are carried out at random or whenever the customs authorities of the importing party have reasonable doubts as to the correctness of the origin determination or the direct transport. 29

30 Verification of Proofs of Origin A posteriori check (Article 27 Origin Protocol) When requesting an aposterioriverification, the customs authorities of the importing Party shall return the proofs of origin or a copy of these documents, to the customs authorities of the exporting Party giving, where appropriate, the reasons for the enquiry. The verification shall be carried out by the customs authorities of the exporting Party. For this purpose, they shall have the right to call for any evidence and to carry out any inspection of the exporter's accounts or any other check considered appropriate. 30

31 Verification of Proofs of Origin A posteriori check (Article 27 Origin Protocol) The customs authorities requesting the verification shall be informed of the results of this verification including findings and facts, as soon as possible. These results must indicate clearly whether the documents are authentic and whether the products concerned can be considered as products originating in a Party and fulfil the other requirements of this Protocol. If in cases of reasonable doubt there is no reply within 10 months of the date of the verification request or if the reply does not contain sufficient information to determine the authenticity of the document in question or the real origin of the products, the requesting customs authorities shall except in exceptional circumstances, refuse entitlement to the preference. 31

32 Verification of Proofs of Origin A posteriori checks Weaknesses of the a posteriori verification system: Depends on the diligence of the authorities in the exporting country; Slow in case the exporting country does not react immediately; To a large extent based on mutual trust. 32

33 Verification of Proofs of Origin A posteriori checks The importing country can put pressure on the importer by: Requesting that the importer submits a separate statement certifying that the origin rules are met; Suspend the preferential treatment while awaiting the results of the a posteriori verification; Refuse preferential treatment if the exporting country does not respond to a verification request in time or fails to do do in a satisfactory manner. 33

34 Verification of Proofs of Origin On the spot verifications Governed by Article 7 of the Protocol on Mutual Administrative Assistance Carried out jointly by EU customs officials and Korean officials Is often the result of an OLAF investigation into suspected customs fraud. In such cases OLAF officials will lead the EU delegation 34

35 Verification of Proofs of Origin On the spot verifications Article 7(3) and (4) of the Protocol on Mutual Administrative Assistance: 3. Duly authorised officials of a Party may, with the agreement of the other Party involved and subject to the conditions laid down by the latter, be present to obtain in the offices of the requested authority or any other concerned authority, information relating to activities that are or may be operations in breach of customs legislation which the applicant authority needs for the purposes of this Protocol. 4. Duly authorised officials of a Party involved may, with the agreement of the other Party involved and subject to the conditions laid down by the latter, be present at enquiries carried out in the latter s territory. 35

36 Verification of Proofs of Origin Conclusion Primary responsibility rests with the customs authorities of the exporting country: Grant and monitor approved exporter status (Art.17); May request evidence proving the correctness of the invoice declaration from the exporter (Art. 16(3)); Monitor use of accounting segregation (Art. 11) Carry out the a posteriori verifications requested by the authorities of the importing country (Art.27). 36

37 Verification of Proofs of Origin Conclusion The authorities of the importing country may, however: carry out prima facie checks, and Suspend preferential treatment pending the outcome of an investigation; request to participate in on the spot verifications in the exporting country; In the latter case, the EU investigation will normally be driven by OLAF 37

38 Role of OLAF Office pour la Lutte Anti Fraude (EUAnti Fraud Office); Employ currently about 400 staff; The majority of the OLAF staff has experience gained in the customs, police and judicial services of the Member States of investigations concerning complex fraud cases, analysis and evaluation of information; Staff includes officials with legal and accounting background; OLAF carries out both internal and external investigations; 38

39 Role of OLAF External investigations cover, inter alia, investigations into the suspected violation of customs rules resulting in a significant loss for the budget of the EU; OLAF works closely with the other Commission DGs (TAXUD) and the customs offices of the Member States. In case the Member States fail to cooperate, the import duties lost as a result may be deducted from the allowances this Member State receives out of the EU budget. 39

40 Procedure followed by OLAF OLAF may: initiate itself investigations; request assistance from the Member States; Request assistance from third countries that have signed mutual assistance agreements (e.g. Korea) and carry out on the spot investigations; Issue recommendations to the Member States customs authorities 40

41 Procedure followed by OLAF OLAF cannot: Collect customs or anti dumping duties (Member States); Impose penalties or start criminal proceedings (Member States); Invalidate preferential origin certificates or invoice declarations (the authorities of the issuing country). 41

42 OLAF investigating procedure No standardized questionnaires or investigation procedures; very much ad hoc ; Very limited rights of defence granted to importers and exporters caught up in an OLAF investigation: No access to the file No right to be heard Impossible to challenge the OLAF findings before the European Courts 42

43 Examples of OLAF investigations Textiles from Malaysia (GSP)(2001): As a result of an investigation and administrative co operation mission organised by OLAF, joint enquiries have been carried out with the competent authorities of Malaysia in relation to the fraudulent use of Malaysian preferential Certificates of Origin for textile products principally denim jeans. A single importer, based in Germany had presented false documents misstating origin and value of the products involved. According to the analysis of one Member State (the Netherlands), the resultant fraud, for illegal imports from Malaysia alone, approached 10% of total annual Community imports for the products concerned. Similar fraudulent imports had taken place earlier claiming the origin of the products to be Cambodia, Laos, Myanmar, Vietnam and Lesotho. The overall minimum economic impact is 30 million, with own resources at risk of 4.5 million. 43

44 Examples of OLAF investigations Stainless steel wire (AD)(2002): In July 2000, OLAF opened an investigation concerning imports into Europe of stainless steel wire from the United Arab Emirates. Anti dumping duties of up to 55.6 % were imposed on such goods originating in India. Fraud was suspected, in particular on the basis of an apparent diversion in the movement of these goods from India towards the United Arab Emirates. In the UAE, a Community team composed of OLAF officials and representatives from certain Member States inspected the production facilities of the six UAE companies concerned, and assessed the production processes carried out on the stainless steel wire imported from India so as to determine whether the processing involved could confer the UAE preferential or non preferential origin on the goods. The alleged UAE producers had claimed to process the Indian raw material to an extent which conferred UAE origin. The results of the mission proved that the origin of the product remained India and that the duties should therefore have been declared at import into the Community. 44

45 Examples of OLAF investigations Stainless steel wire (AD)(2002) (2): To date more than 4 million of the evaded duties have been recovered. Criminal proceedings and prosecutions against importers and Indian principals have taken place or are still ongoing in Germany. 45

46 Examples of OLAF investigations Persulphates (AD) (2003) In March 2003, OLAF closed an investigation into the fraudulent importation of persulphates into the European Union. The investigation established that persulphates originating from China had been imported into the territory of the European Union in violation of antidumping regulations. The applicable regulations, in force between 1995 and April 2002, applied an anti dumping duty of 83.3% on the value of the imported goods. By means of false declarations of origin, more than 5 million of anti dumping duties were evaded. Recovery of the evaded duties is currently being undertaken by the Member States in accordance with the applicable national legislation. To date more than 2.5 million of the evaded duties have been 46 recovered.

47 Examples of OLAF investigations Shrimps (GSP) (2004) Shrimps exported from the Philippines to the Community were suspected to be of Chinese origin. By declaring the shrimps to be of Philippine origin the importers made false claims to preferential duty treatment as well as evading a Community health prohibition. In order to obtain proof to support the allegations OLAF officials visited the Philippines in March As a direct result of this exercise in administrative cooperation, Community own resources (customs duties and import VAT) in the region of 2.5 million are expected to be recovered by the Member States authorities. In addition, information obtained during the mission will be used by the Netherlands and Spain in their investigations into possible criminal actions by the importing companies. 47

48 Examples of OLAF investigations Sweaters from Jamaica (preferential origin) (2005) In March 2005 the Jamaican Customs authority invalidated all EUR.1 movement certificates issued for more than 21 million pieces of knitted textiles (mainly jerseys, pullovers and cardigans) exported to the European Community in the three previous years. This was the result of a Community mission carried out in this country by a team composed of OLAF officials and representatives from the customs authorities of the Member States and assisted by the Jamaican authorities. 48

49 Sweaters from Jamaica (preferential origin) (2005) (2) OLAF carried out extensive research in preparation of the joint verification mission. The research revealed that the alleged Jamaican manufacturers had sourced only very small quantities of yarn. These could not possibly have sufficed for the production of the huge quantities of ready made garments exported to the Community. Indeed, the subsequent investigation concluded that most of the goods exported to the Community were either manufactured in the country from pieces of imported knitted fabric already cut to form or were re exports of finished garments originating from Asia. The Asian goods were supplied by a network of companies belonging to a multinational textile group which also operated the companies in the Caribbean. The latter had applied to local Customs for the issuance of the EUR.1 certificates. They had falsely declared that the goods exported had been manufactured from yarn. To date, the Member States concerned have initiated recovery proceedings in respect of more than 20 million of customs duties evaded by falsely declaring the goods at importation into the Community as originating in Jamaica. 49

50 Examples of OLAF investigations CTVs from Thailand (AD) (2005) In 2001, OLAF started an investigation in exports of CTVs that were declared as having Thai origin. Investigation of the main components used showed that these were of Korean or Chinese origin. OLAF requested the assistance of the third country's authorities in December An initial preparatory visit to the Asian manufacturer took place in February A verification mission took place in January 2004, led by OLAF, in which four Member State customs investigation services and the local authorities also participated. These investigations established that the company concerned did indeed export CTVs of falsified origin to the Community. All relevant reports and data were forwarded to Member States customs services for follow up action including recovery of anti dumping duties. Civil debt recovery procedures for an estimated 18 million in anti dumping duties have already been notified to the importers in 8 Member States. Appeals against the debt recovery are underway in a number of Member States 50

51 Examples of OLAF investigations Ring Binder Mechanisms (AD) (2005) Following an anti circumvention investigation against imports of ring binder mechanisms from Laos, Vietnam and Thailand, OLAF opened its own investigation. OLAF requested the assistance of the national authorities in Asia in July Community verification missions took place in November and December 2004 led by OLAF. Three Member State customs investigation services and the local national authorities participated. These investigations established that the company concerned did indeed export RBMs of falsely declared origin to the Community. The companies in all three countries are linked. All relevant reports and data for both cases have been forwarded to Member States customs services for the necessary follow up action including recovery of anti dumping duties. Civil debt recovery procedures for an estimated 6 million in anti dumping duties have already been notified to the importers in six Member States and criminal investigations are also underway in a number of Member States. 51

52 Examples of OLAF investigations Fishery products from Oman (GSP)(2006) In late 2005 certain Member States raised their concerns with OLAF about the origin of raw materials used for the production of fishery products exported to the Community from Oman. Although those specific concerns proved unfounded, research and analysis carried out by OLAF revealed a serious risk of incorrect declaration of origin of fishery products exported from Oman due to the existence of significant quantities of fish caught by third country vessels. Following an OLAF led investigation (with the participation of Member State and Omani authorities) in March 2006 into four Omani exporting companies it was established that significant quantities of fishery products exported under cover of preferential certificates of origin were not entitled to benefit from the reduced GSP tariff preferences, due primarily to incorrect declarations of origin by the exporters and, in certain cases, the use of forged documents. 52

53 Examples of OLAF investigations Bicycles from the Philippines (AD) (2006) A verification mission to the Philippines led by OLAF took place in October During the course of this verification mission, information, documents and statements were obtained in the Philippines (and also subsequently from Hong Kong) which demonstrated the true Chinese origin of the bicycles. In fact, it was established that the bicycles had been shipped from China via Hong Kong to the Community, that the containers had never passed through the Philippines and that the documents purporting to show Philippines origin were false. Furthermore, it was found that the Community importer was the owner and effectively controlled the two alleged "exporting" companies in the Philippines. As such he is suspected of being the organiser of the fraud and to have guilty knowledge of it. In addition to the civil action to recover the evaded duties, a criminal proceeding is also under way against the Community importer in question as he is suspected of having knowingly evaded the anti dumping duties by declaring them as of Philippines origin when he was aware of the true Chinese origin. 53

54 Examples of OLAF investigations Textile products from Bangladesh (GSP)(2007) Textiles of Chinese origin were imported into the Community under cover of GSP Forms for Bangladesh. In most cases, it was suspected that the goods were shipped directly from China to the Community and accompanied by false or incorrect GSP A Forms. It was also suspected that in some cases, based on the false information provided by the exporter in Bangladesh, genuine GSP Forms were issued in good faith by the authorities in Bangladesh for goods not qualifying for the GSP. It was suspected that this fraud had gone on for several years. 54

55 Textile products from Bangladesh (GSP)(2007) (2) An OLAF led Community administrative cooperation mission to Bangladesh took place in March The mission identified around 1400 forged or invalid GSP A Forms. The estimated amount of Community own resources (customs duties) evaded on these consignments was in the region of 5 million. The evasion of customs duties is punishable under the criminal laws of the Member States concerned. Importers found to be involved in this fraud would therefore be liable for criminal prosecution in those Member States. During the course of the investigation coordinated by OLAF, several other Member States identified thousands of doubtful A Forms, which are under investigation. 55

56 Examples of OLAF investigations Energy saving lamps (AD)(2008) In 2003, OLAF received well documented information from European Industry representatives that Chinese CFL i were being imported into the Community with falsely declared origins from a variety of countries and under different customs tariff codes (CN) by which the anti dumping duties were avoided. OLAF opened several investigations and alerted the Member States by a number of Mutual Assistance Communications. These Communications resulted in controls at importation, investigations and post verification controls by the national Customs authorities. In some cases, the investigations led to the initiation of criminal proceedings against EC importers, who were found to be aware of the true origin or who had actively participated in the frauds. 56

57 Energy saving lamps (AD)(2008) (2) OLAF has coordinated most of the investigation carried out by the Member States and organised joint investigation missions in Vietnam, Pakistan and Thailand in 2005, Malaysia in 2006, Philippines and the U.A.E. in 2007 and Tunisia in As a result of these missions OLAF and the EU Member States' authorities obtained evidence which initiated recovery proceedings for more than 33 million of evaded Customs and anti dumping duties. In addition, criminal proceedings have been initiated in Denmark, Germany and Italy. In Sweden four people have been convicted and sentenced to terms of imprisonment). 57

58 Do not forget The fact that a product has Taiwanese origin does not prevent the EU from initiating anti dumping and anti circumvention investigations against those products; Origin fraud will not only lead to the collection of all duties evaded on past imports but also lead to the imposition of fines and, in case of manifest fraud, criminal prosecution. 58

59 THANK YOU Philippe De Baere Partner Van Bael & Bellis Brussels 59