Gill Nadel, Adv.
With the significant increase in the amount of Israeli certificates of origin examined by foreign customs agencies, Adv. Gill Nadel provides a number of clarifications and tips for the suggested manner of dealing with the examination and verification processes. As we know, the state of Israel is signatory to an increasingly large number of free trade area agreements, and it is sufficient to mention to agreements with the EU and with the US, which cover a sizable portion of Israeli export. One of the central elements of free trade area agreements is the cancellation of tariffs on products whose origin is in one of the states signatory to the trade agreement, and for the products to enjoy the customs exemptions, they must meet the rules of origin set in the agreements. Realizing the tariffs exemption is done by presenting documents to the customs authority in the importing state that verify that the imported goods are indeed products whose origin is in the state signatory to the agreement. These documents are called certificates of origin/ preference documents/ EUR1 movement certificates.
And in fact, the community of Israeli exporters regularly makes use of these trade agreements and many export shipments are accompanied by certificates of origin that grant an exemption from tariffs in the importing state.
Recently, a trend of increasing inspections of these documents can be argued. Free trade area agreements set mechanisms that allow the customs authority to check and verify the accuracy of the certificates of origin. The agreement with the European Community sets a detailed verification mechanism including cooperation between the customs authorities in Europe and the customs authorities in Israel. According to this mechanism, the customs authority in Europe interested in verifying the certificate of an Israeli exporter transfers the certificate to the Israeli Customs Authority, which will perform the verification with the Israeli exporter. The agreement with the US does not include a specific mechanism and in practice allows the US customs authority to require the party for whom the import entry was issued to supply data that support the declaration appearing on the certificate of origin.
The importance of cooperation with these verification requests is great. According to the agreement with the EU, for example, a European customs authority that does not receive a reply from the Israeli customs within 10 months, regarding the verification request, is permitted not to recognize the EUR1 certificate that accompanied that shipment and to require the importer to pay the tariff differentials. It can be assumed that the importer will pass this requirement onto the Israeli exporter. Failure to meet the demands of verification may also lead to other certificates being sent for verification, although this varies from case to case. The customs authority in the US has a different timetable, and is not generous in terms of granting extensions.
Trivial, perhaps, but even more important, is the duty to make sure that the certificate of origin is issued in accordance with the laws of origin, and to avoid inaccurate certificates of origin. We find it proper to raise this point as practice has taught that there have been such cases in the past. If we take the US law as an example, we will note that the US customs authorities are authorized to levy extremely heavy fines when it becomes clear to them that an importer released cargo with invalid certificates of origin. From the perspective of conducting oneself with regards to the US customs, when the Israeli exporter and importer are aware of a problems with their certificate of origin, it is preferable that they favorably weigh (depending, of course on the circumstances of each case) a process of voluntary discovery to the authorities, in order to avoid the levying of punitive fines and to be allowed to pay the customs differentials only. Colleagues from the US have told this author of the strong power of enforcement of the customs authorities in the US.
The proper way to deal with demands for verification of certificates of origin must be done in two ways:
Firstly, from the preventative aspect, to make very sure of the rules of origin relevant to the product, to check that the product meets the standards, and certainly never to assume that the very fact that the product has undergone some processing or manufacturing process in Israel grants it the status of Israeli origin. We have heard strange stories of exporters who have relied on the international forwarder having said (or their having thought he said) that the goods met the rules of origin.
The rules in the agreement with the US, for example, are uniform and apply to all products, without differentiations between different products. Under these rules, for a product to be defined as a product of Israeli origin for the purpose of receiving the tariff exemptions upon entry to the US, there is a requirement, inter alia, that the product be completely manufactured in Israel or that it undergo a substantial change, and also that the product be given an added Israeli value of at least 35%. Before a certificate of origin is signed, one must check these requirements. It is important to emphasize that these are complex and unclear conditions (upon which we will expand at another opportunity) and therefore it is proper and necessary to consult with a professional in this field.
The agreement with the EU includes a system of rules built according to the customs heading of each product. That is to say, to know whether a certain product will be considered Israeli/European or not, one first must know what is its customs heading (to four digits level), and then locate the relevant rule. Sometimes there is a requirement for a change of classification, that is that the final product be classified under a different customs heading than that of its raw materials, and sometimes there is a requirement of added local value of a certain amount. That issue to, includes many nuances which requires the treatment of a professional in the field.
Secondly, once the demand for verification had reached the exporter's desk (whether by the Israeli customs authority or by the overseas importer), he must first of all make sure he meets the deadlines, fore not replying by the scheduled time might lead to deficit payments. In addition, experience teaches that in such cases it is preferable and needed to consult with a professional, since even cases that appeared complicated were resolved.
When dealing with verification requests (and as a preventative step- even when signing the certificate of origin) it is important to drop the typical attitude of 'it'll be alright'. In the end, the work is done with the foreign customs authorities, that do not posses this mentality, and therefore the starting point must be professional: a detailed examination of the rules of origin, familiarity with the legal precedents, and application to the subject.
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