Analysis of aspects of uniform tariff classification. Executive summary
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1 Analysis of aspects of uniform tariff classification Executive summary November 2014
2 Europe Direct is a service to help you find answers to your questions about the European Union. Freephone number (*): (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you). PREPARED BY: Copenhagen Economics A/S Sigurd Næss-Schmidt Tine Jeppesen Jori Veng Pinje Mie la Cour Sonne Deloitte Belgium Julien Pauwels Daan De Vliger Sarah Torfs FOR THE EUROPEAN COMMISSION: Directorate-General for Taxation and the Customs Union Directorate A Customs Policy, Legislation, Tariff Unit A.4 Combined Nomenclature, Tariff classification, TARIC & Integration of Trade Measures TAXUD-UNIT-A4@ec.europa.eu European Commission B-1049 Brussels LEGAL NOTICE This document has been prepared for the European Commission however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet ( Luxembourg: Publications Office of the European Union, 2014 ISBN doi: / European Union, 2014 Reproduction is authorised provided the source is acknowledged.
3 Executive summary The European Binding Tariff Information system (EBTI) is designed to provide legal certainty to traders with regard to the tariff classification prior to the goods actually being imported into or exported from the European Union. This provides clear added value to traders in making decisions as the level of tariffs applied might have a substantial impact on the economic viability of a particular import or export transaction. The basic principle is that the trader provides an application to national customs authorities who then, based inter alia on the information provided by the trader, decide the classification to be applied in the form of a so-called BTI decision. The BTI is only binding for the holder and does not offer legal certainty to other traders exporting or importing identical goods. The value of the BTI system for individual traders as well as the EU as a whole depends on a number of features, in particular how quickly a BTI application results in a decision and whether the BTI decisions being taken are consistent i.e. that multiple applications for BTI of identical products leads to the same classification across the EU. Put differently, the issuing of BTI decisions should not be too slow or lead to so-called divergent BTIs. The study suggests that the current system does have some shortcomings. The assessment is based upon questionnaires submitted to and completed by customs authorities and traders, as well as interviews with selected traders and much aggregated statistics extracted from the so-called EBTI-3 system. The word suggests is chosen deliberately as our information sources lack some depth and coverage. Despite serious efforts to target the likely most interested users of BTI, the questionnaire we have constructed to solicit views from traders on the workings of the system, as well as options for reform, provided a low overall response rate. Moreover, the aggregated nature of the data made available to us from the EBTI-3 system for the purpose of this study, imposed a number of limits on the level of detail with which the data could be analysed. Finally, while the views expressed by officials from 10 selected Member States have been extremely useful, it must be stressed that their view might not be fully representative for all Member States nor indeed interpreted as a formal consultation of the Member States. 1 With these reservations in mind, we have identified the following shortcomings: Long BTI decision time (perceived delays ): Although there is substantial variation across Member States we find, based on records from the EBTI-3 system covering the period 2009 to 2011, that on average only 70% of BTI decisions were taken within 4 months after application across all Member States and on average 10% of decisions only being issued 6 months or more after application. Divergent classifications: Customs officials from 5 of the 10 consulted Member States reported that they frequently encounter divergent classifications, whereby certain product groups dominate. Divergent practices between customs authorities during discussions in the CCC, with some authorities taking preliminary measures such as issuing informal classification decisions or even formal BTI decisions, where others do not and merely inform the applicant of the status. 1 The customs authorities survey was distributed to the authorities in 12 selected Member States, but responses were obtained only from 10 of these. 2
4 Perceived lack of information given to traders when a BTI is not issued or revoked or when the process for granting BTI is suspended due to discussions in the CCC. Our analysis has also identified what we see as the drivers of the shortcomings. The findings indicate that: Divergent BTIs are caused primarily by three factors, namely: Differences in the interpretation of rules and procedures among Member States combined with a lack of precise product descriptions in the EBTI-3 system which is a guide for Member States in their decision concerning tariff classification; Linguistic challenges associated with having a common understanding of complicated product descriptions described in Member States using many different languages; Inadequate use of the EBTI-3 system in the BTI decision making process. Delays are the results, partly of the three factors above, but in addition also: Extended discussions in the Customs Code Committee of Member State officials and the European Commission about the proper classification. The purpose of such discussion is mainly to ensure a proper and uniform classification but that might also lead to longer decision times; Lack of information regarding the product from traders i.e. potentially missing information in applications as seen by the customs authorities concerned; Resource constraints in individual, in particular smaller, Member States administrations. Divergent practices between customs during discussions in the CCC are due mainly to individual customs authorities acting against official guidelines, while a perceived lack of information seems to be due mainly to what is perceived by the traders to be a lack of reasoning behind tariff classifications on final BTI, and a lack of exchange of information during the application process. From the above description it is clear that the identified shortcomings are as much the result of the way Member States comply with and administer rules, procedures and tools, as well as the result of the regulatory framework or inadequate available help tools. The identified shortcomings lead to unequal treatment of traders across Member States and have real consequences, both for traders and for the functioning of the internal market. While this study does not include a quantitative assessment of such costs, information from traders provides some perspective. The divergent BTI is of course a distortion to the functioning of the internal market as essentially identical products or product categories are imported and circulated with different customs duties imposed at the border. Classification may also impact non-trade barriers as these are also linked to tariff codes, compounding distortions from divergent tariffs. Based upon readings of 17 case law examples from the records of the Court of Justice of the European Union, we suggest that such effects might not be trivial. For example, in a borderline case, linked to the import of stove pipes, an anti-dumping duty of 58.6 % could be added depending on the classification.. 2 Long issuing times for BTI decisions have direct financial consequences for traders in terms of customs duties and compliance costs and also create uncertainty. The latter might make traders unwilling to engage in long-term contracts or cause them to delay import decisions or undertake changes to their sourcing strategies. As pointed out in the responses from traders, financial and economic consequences are particularly high in industries with short production and delivery cycles, for example footwear or where trading margins are very slim. 2 CURIA documents Case C-450/12 3
5 To address the identified shortcomings, we have reviewed a number of policy options. The least radical solutions focus on what we call information facilitation. This includes the establishment of a Helpdesk: basically a central service where Member State officials and traders can get expert advice. This can speed up and improve the quality of the application process. It might be particularly helpful for Member States with a lack of resources and critical knowledge. Helping Member States use the EBTI-3 system is also seen as a promising option, as a lack of or inadequate use of its functionalities has been identified as a driver for both divergent BTIs and subsequent delays. In this context, a targeted improvement of functionality of the system might also be envisaged. The proper use of the system can be encouraged/enforced by audits or other measures. We conclude that options focusing on such information facilitation tools might have a high impact for what could prove to be relatively low level of resources while also requiring limited changes in the regulatory framework. The key issue is the introduction of mechanisms to ensure that tools developed are also used. More elaborate solutions focus on what we call co-operation models. One aspect is to encourage a better knowledge flow among stakeholders, i.e. national authorities, the European Commission and traders. Practical instruments can be the establishment of virtual communication platforms, possibly linked to the use of the EBTI-3 system, issuance of guiding notes/opinions by the Commission services. A more elaborate version is the establishment of centres of excellence where a number of Member States pool resources. This is seen as a potentially attractive option, in particular by smaller Member States and in particular in areas where classification issues tend to be concentrated. Such centres can be constructed in a number of different ways, and is discussed in more depth in the study. The key issue is what status the decisions of the centres of excellence would have vis-à-vis the Member States that sponsor them. Analysis of difficult cases by joint teams is arguably a variant of the centre of excellence proposals. The idea is again to ensure better decisions by drawing on expert advice with team members chosen on the basis of their specialised knowledge of classifications in different areas. As for the centres of excellence a number of challenges are related to the competence they might have. Would they simply be organised as an expert group that can help speed up the decision process while actually decision making is largely unchanged or would they take over actual responsibility for taking BTI decisions? We conclude that co-operation models have additional potential when compared to information facilitation, in particular by drawing more on the specialised knowledge of experts and by the pooling of resources in several dimensions. The centres of excellence and joint teams are more ambitious, but have also wider potential regulatory implications in terms of possible changes in formal decision making than, for example, the establishment of communication platforms. The most radical models are what we call increased models of centralisation. Essentially, they imply the transfer of decision either for the entire process of BTI decisions or parts of it. Moreover, the transfer could be to the European Commission or another central body, presumably a dedicated agency with no other responsibilities. Our analysis is that such models offer the largest potential for dealing with the drivers of problems, but they also require the most substantial overhaul of the existing regulatory set-up and will involve a larger movement of work from Member States to the Commission with budgetary implications also. We discuss these issues in more detail in the study. Our overall assessment is to focus on information facilitation and co-operation models, and in particular four variants, namely: Introduction of a Helpdesk Increased use and upgrade where necessary of the EBTI-3 system, Increased knowledge sharing Analysis of difficult cases by joint teams. 4
6 Our recommendation is backed up by six arguments: A substantial part of the problem with delays and divergent BTIs is linked to failures of compliance with the existing guidelines and tools at the disposal of the Member States and, to a certain extent, traders. We suggest it would be cost-effective to encourage better use and targeted improvement of the tools already available as well as enhancing co-operation between stakeholders before embarking on wide ranging changes. Our analysis of problems in the BTI system has been based on data from , while there are indications that policy efforts undertaken from 2012 onwards may have improved the situation already and may continue to impact on performance in the coming years. While traders have supported more substantial changes, the response rates have been low, calling for cautious interpretation. The EU is engaged in substantive trade negotiations with key trading partners that, if successful, may have a substantial impact on the demand for BTI because of the reduction of overall trade barriers such as customs tariffs. In other words, the benefits associated with the options with the highest gross benefits might be undermined by a dynamic baseline reflecting both an improved functioning of the current systems as well as potentially reduced demand for BTI due to potential wide ranging trade policy reforms. Although most of the Member State customs administrations that participated in this study are convinced that changes to the current policy on tariff classification should be considered, some administrations still believe current procedures suffice. Among those administrations in favour of change, we see that divergent opinions exist on what those changes should be and how far they should go. This suggests that the most ambitious reforms will be difficult to attain in practice before the other and less controversial reforms have been tried. 5
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