Management of Preferential Trade Arrangements does not fully safeguard EU financial interests

21 May 2014 11:42 AM

A report published today by the European Court of Auditors (ECA) reveals that while the EU Commission has increased the quality of its impact assessments, it still does not sufficiently analyse the economic impact of preferential trade agreements. Moreover, the EU loses revenue because of weak Member State customs controls that fail to prevent some imports from wrongly benefiting from preferential tariffs. “Preferential trade arrangements cover trade between the EU and 180 countries and territories. The value of goods imported in the EU under these agreements amounted to more than € 242 billion, representing 14% of EU imports.” stated Mr Baudilio Tomé Muguruza, the ECA Member responsible for the report,“Trade brings economic benefits to both the EU and its partner countries and promotes sustainable development and poverty eradication in developing countries. Preferential trade arrangements are an essential instrument of EU trade policy, but they need to be managed carefully to safeguard EU interests.” Preferential trade arrangements allow trading partners to grant preferential terms when trading with each other. Reciprocal arrangements reduce tariff barriers with the objective of increasing trade, economic growth, employment and consumer benefits for both parties. Through unilateral arrangements, the EU grants preferences to developing countries for tariff-free access to the EU market, thereby contributing to poverty eradication and to promoting sustainable development. The Commission is responsible for negotiating preferential trade arrangements, assessing and evaluating their economic, social and environmental impacts and supervising their implementation by Member States and partner countries. The Member States’ customs authorities bear the main responsibility for ensuring that only eligible imports benefit from preferential treatment. The EU auditors found that impact assessment has increased and there has been progress in the quality of the analysis conducted, but more needs to be done. Moreover, the auditors found instances of goods that had been imported under preferential tariffs without the necessary evidence that the goods indeed originated in countries entitled to such treatment, resulting in a loss of revenue.

Notes to the editors:

European Court of Auditors (ECA) special reports are published throughout the year, presenting the results of selected audits of specific EU budgetary areas or management topics.

This special report (No 2/2014) entitled “Are Preferential Trade Arrangements appropriately managed?”, assessed whether the Commission has appropriately assessed the economic effects of preferential trade arrangements (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.

The ECA found that:

• the Commission has not appropriately assessed all the economic effects of PTAs,

• the interim evaluation on the Generalised System of Preferences (a unilateral trade arrangement by which the EU grants developing countries and territories preferential access to its market) shows that the policy has not yet delivered all its intended benefits;

• the completeness of revenue collection is not ensured because customs controls applied by the authorities of key Member States are weak;

• there are weaknesses in the Commission’s supervision of Member States and beneficiary/partner countries in respect of PTAs; and

• the legal provisions of the PTAs do not contain sufficient safeguards to protect the financial interests of the EU.

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

• unless duly justified, carry out an impact assessment and a sustainability impact assessment for each PTA, providing an in-depth, comprehensive and quantified analysis of the expected economic effects, including an estimate of revenue foregone;

• involve Eurostat routinely in the quality assessment of the statistical data sources used in sustainability impact assessments, and ensure the timeliness of the analysis carried out for negotiators; and

• carry out interim and ex post evaluations in order to assess the extent to which PTAs with a significant impact meet their policy objectives and how their performance can be improved in key economic sectors and including an estimate of revenue foregone.

 

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

• 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;

• verify that Member States improve the effectiveness of their risk management systems and control strategy to reduce losses to the EU budget;

• encourage Member States to adopt appropriate precautionary measures upon receipt of a mutual assistance communication;

• evaluate and carry out monitoring visits on a risk basis to countries benefiting from preferential treatment notably regarding the rules of origin and cumulation;

• require the Member States to improve the quality of the information they provide concerning administrative cooperation;

• improve the financial follow-up of OLAF investigations in order to prevent losses to the EU budget due to time-barring;

• reinforce the EU’s position in reciprocal PTAs and make more use of precautionary and safeguard measures including them in all future trade agreements; and

• promote the replacement of origin and movement certificates with exporters’ self-certification.

A short video interview with the ECA Member responsible for the report is available at: https://www.youtube.com/user/EUAuditorsECA