Duty-bound to obey the Union’s customs laws

Date: 04/09/1997

By Ian S. Forrester QC

CUSTOMS law is not regarded as a very exciting topic.

European lawyers get turned on by competition, intellectual property, cartels, free movement, environmental problems and much else. But customs law is an unfashionable and obscure issue, pursued by anorak-wearing nerds.

I confess that I myself engage in this field of legal perversion; and I take the liberty of stating that the field is even stimulating. It has recently been attracting a lot of attention.

It must be acknowledged that customs legislation evolves at a glacial pace. National officials are very cautious about making changes which may lead to duty being lost; and officials in the Directorate-General for customs and indirect taxation (DGXXI), themselves often graduates of national customs administrations, are constrained in the making of any reforms.

However, the customs function is central to international commerce. Elaborately negotiated trade concessions have to be reflected in how goods pass the scrutiny of a customs officer.

We do not know whether to like customs officers or not. They are heroes who detect drugs and child pornography and who limit the flow of 'dumped' products. Indeed, in France, customs officers have long been among the republic's shock troops deployed in the government's intermittent efforts to defy economic gravity.

In the Chatain case, pharmaceutical companies were accused of criminal customs fraud on the grounds that they paid too much duty: this was to encourage firms to sell pharmaceuticals more cheaply. (Likewise, French customs officers regularly make audits of company files and propose painful 'transactions' in respect of relatively minor infringements which involve severe penalties but would not attract punishment elsewhere.)

On the other hand, customs officers are a nuisance. They slow down frontier operations, they check how much duty-free liquor we carry and they possess Draconian powers. If they are diligent, they are petty-minded brakes on honest trading; and if they are lax, the state is the loser.

Companies which devote time and skill to customs matters can save large sums of money. Those who are careless or merely optimistic can expose themselves to fierce penalties. A good example is the current flap about preferential origin.

The origin of a product is its economic nationality. There are two kinds of origin: non-preferential and preferential. Non-preferential origin means that a product can fairly be regarded as “made in “. This is interesting for statistical purposes and may be relevant when deciding whether a photocopier assembled in America from Japanese parts is to be regarded as Japanese for anti-dumping purposes.

Preferential origin, on the other hand, means that the product is not just “made in “ but that it is eligible for duty preferences because it is closely associated with the economy of a country to whose originating export products the Community gives tariff concessions.

Problems can arise. It is widely believed that over-generous access to duty preferences has cost at least 250 million ecu annually. This is not surprising.

First, customs officers at export and at import can check only a small percentage of the traffic through a port. Otherwise, chaos and paralysis would ensue.

Second, certificates of origin, which are the tickets of entry to duty free paradise, are issued cheerfully and usually free of charge. When a Moroccan customs officer stamps the EUR-1 form presented by the exporter, this certification that the products are eligible for preferential origin treatment costs Morocco nothing and helps the Moroccan economy.

Third, the preferential rules of origin are very complex: specific trade treaties have specific origin protocols, and specific products have very specific origin criteria. Originating bread can be made only from originating flour, semiconductors must be locally diffused, and so on. It is very easy and very tempting for the exporting customs authorities to be generous. This puts the trader in a difficult position: he is acting in good faith, he received duty concessions on the basis of an official certificate, he has sold the goods, and then is asked to pay a huge sum in arrears of duty. Bankruptcy may well result.

In the present enthusiasm for cracking down on laxity, two points should be borne in mind. First, there is huge confusion about what the preferential origin rules provide. Some companies believe that the non-preferential and preferential rules are identical and there is no systematic manner of ensuring that the exporting customs authorities are properly careful when issuing, or more accurately stamping, certificates prepared by the trader. The Commission and customs lawyers have a major task of education to tackle.

Second, retrospective collection of duty may often be unfair on innocent importers, who genuinely did not know that the certificates issued to them or, even worse, issued to their foreign supplier, might prove to be of controversial validity.

The solution to the first problem is better information, an area where the Commission is making progress. The solution to the second problem is flexibility and moderation, qualities which national customs services are not paid to manifest.

HThis article reflects the personal views of the author.