Collection of European Self-Proofing Documents

2.2.2.2. REX Self-Certification of Origin Mechanism

Based on the above summary table, it can be seen that in the self-certification mechanism of the European Union (EU), the entity that can create self-certification documents of origin is mostly the exporter registered on the REX system. The EU is widely using the self-certification mechanism of origin through the REX (Registered Exporter) system - registered exporter. This mechanism allows exporters to self-certify the origin of their goods when participating in international trade transactions. The EU applies this mechanism throughout the Union and to beneficiary countries within the framework of the Generalized System of Preferences (GSP) program.

In its inception, the EU GSP program was created to support exports from poor and developing countries to EU countries. The EU started the program in 1971 and has since been amended several times, with the latest update coming into effect on January 1, 2014. Aimed at supporting poor and developing countries, the GSP program is a unilateral program from the EU, and therefore does not require the countries involved to apply the provisions of the program. However, the EU strictly requires proof of origin of goods from countries in the GSP program to receive tariff preferences.

On 16 March 2005, the EU issued a notice specifying the requirements for new customs procedures that should be developed with the aim of ensuring the correct application, compliance with obligations and good control of the use of preferences. In October 2007, the EU published an Impact Assessment 56 in support of the proposed reform of the rules of origin in the GSP. Subsequently, in November 2010, the result of the discussion and adjustment was the system

55 EC, Preferential Trade-Guidance on the Rules of Origin, available at https://ec.europa.eu/taxation_customs/system/files/2020-

06/01_2019_guidance_preferential_origin.pdf , accessed on 10/1/2022

56 EC, TAXUD/C5/RL D (2007), 2007, Impact assessment on Rules of Origin for the Generalized System of Preference (updated on November 1, 2010)

The REX system was established in the Regulation of the EU Commission No. 1063/2010 57 . At that time, the REX system was still in its infancy and had not really taken shape. It was not until January 2017 that the REX system as it is today came into effect and was widely applied as a self-certification system of origin by licensed exporters within the framework of Europe and GSP countries. In addition, the REX system is also applied to other multilateral and bilateral trade agreements of the EU (such as the EU-Japan and EU-Canada agreements). Beneficiary countries in the GSP are given a 3-year extension to apply the REX system, and no later than June 30, 2020. 58 From 1 July 2020, all exporters from the EU to GSP beneficiary countries are required to use the REX self-certification system and the “statement on origin” is the only declaration of origin document, replacing the form A certificate of origin.

In terms of functionality, the REX system allows exporters who are registered with the competent authority in that country to be assigned a code on the system. This code allows the exporter to self-certify the origin by creating a declaration of origin. Under the EU GSP system, the requirement for an exporter to have a REX code is only necessary in cases where the value of the shipment is over 6,000 EUR. On the EU importer side, they can access the REX database to verify a valid REX code and make a request for preferential import tariffs. On the other hand, EU exporters are required to become registered exporters through the REX system in order to be able to export EU origin products to other preferential tariff beneficiary countries.

In terms of requirements for countries applying the REX system, the EU sets out two requirements as follows:

(1) Countries need to submit a commitment to the EU Commission that they can maintain the necessary structures and administrative systems within the framework of REX 59 ,

57 Community Customs Code Committee, Origin Section the Commission Regulation (EU) No 1063/2010 on November 18, 2010

58 Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code, Article 79 Paragraph 4 https://eur-lex.europa.eu/legal- content/EN/ TXT/?uri=celex%3A32013R0952

59 Union Customs Code (UCC) Article 70

(2) States should provide the EU Commission with the contact details of the competent authority responsible for registering exporters and ensure cooperation in administrative matters .

2.2.2.3 Self-certification of origin mechanism in the PEM Convention

The self-certification of origin mechanism used in the PEM Convention (The Pan-EU-Mediterranean convention) is the licensed exporter mechanism. Licensed exporters are issued a declaration on the invoice regardless of the value of the goods concerned and can regularly carry out shipments under the terms of the Convention. Article 22.1 of the PEM Convention defines a licensed exporter as an exporter who has been authorized by the Customs Authority of the exporting Party. Article 22.2 of the PEM Convention states that the Customs Authority may grant the status of approved exporter under any conditions it deems appropriate. This provision allows each Member State to set the criteria it feels are appropriate to its domestic economic and trade situation. Therefore, according to Clause 3,4 Article 22 of the PEM Convention, the Customs of the exporting country is also responsible for monitoring, supervising and managing exporters licensed to issue certificates of origin.

2.2.3 Evaluation

2.2.3.1. Advantages

a) The mechanism of self-certification of origin through the EU REX system has demonstrated many outstanding advantages. First of all, this mechanism is quick and helps simplify registration procedures. From an economic perspective, this directly reduces costs for businesses. From a legal and state management perspective, the use of the REX system for self-certification of origin has contributed to reducing the administrative and legal burden for public agencies. This is an advantage of the self-certification mechanism of origin that the EU has been very successful in building.

The REX system has transformed a regime in which the competent authority in the exporting country is responsible for certificates of origin to a system

60 Union Customs Code (UCC) Article 72

in which the exporter makes his own “statement on origin”. First of all, this change is fully consistent with the EC’s objective as set out in Commission Regulation (EC) No 1063/2010, which is to protect EU resources. Specifically, the EC stated: “Currently, the competent authorities of the beneficiary country certify the origin of the product, and if the origin is declared incorrectly, the importer is often exempted from paying duties because he acted in good faith and the fault lies with the competent authority. As a result, the EU loses out on duties and the burden falls on EU taxpayers. Since exporters are in the best position to know the origin of their products, it is appropriate to ask exporters directly to provide a declaration of origin.”

This change also has direct implications for the recovery of duties in cases where preferential tariffs have been incorrectly applied. Under the system of certification of origin by competent authorities, when preferential tariffs are incorrectly applied due to incorrect declarations of origin, the EU authority will issue a notice of recovery of outstanding duties. However, this is subject to the defense of importers based on the so-called “legitimate expectation” (a legal concept that a person is acting in good faith and relying on the promise or approval of the competent authority), in which they argue that the recovery of duties from importers is unreasonable because the fault is with the competent authority, that the competent authorities issuing the certificates know and should know whether the goods meet the prescribed conditions or not. In this connection, reference may be made to the CJEU Case Laws of 14 May 1996 No. C-153/94 in relation to Faroe Seafood and No. C-204/94 in relation to Arthur Smith 61 . Accordingly, the European Court of Justice (ECJ) announced the development of this measure to protect legitimate expectations, ending the situation where the importer was exposed to virtually unlimited risks.

61 1 ECJ, judgment of 14.05.2996, C-153/94 and C-204/94 R. v. Commissioners of Customs & Excise, ex parte: Faroe Seafood Ltd.,Føroya Fiskasøla L/F and Commissioners of Customs & Excise, ex parte: John Smith and Celia Smith trading as Arthur Smith [1996] ECR I-2465, para. 24 to 26. (CJEU case law dated May 14, 1996 No. C-153/94

https://curia.europa.eu/juris/showPdf.jsf;jsessionid=37E011BDC915F18166F0A6C30C645707?text=&docid

=99811&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=6981297

in transactions. The system of administrative cooperation between the customs authorities of the exporting and importing countries when determining the preferential origin of goods can create a basis for the legitimate expectations of importers, protecting their confidence in the correctness of the preferential certificate of origin issued by the customs authorities of the exporting country.

After the transition to the REX system, public authorities are no longer directly involved in the process of issuing certificates of origin, so the justification for errors related to the declaration of origin on the basis of legitimate expectations is also reduced62 .

b) With the application of information technology, the REX system is highly automated. Exporters in countries enjoying preferential tariffs will be registered in the system, this registration information is widely shared and made public according to regulations (5 types of information that are widely published are specified in Article 82, paragraph 8, EU Regulation No. 952/2013, Union Customs Code 63 (abbreviated as UCC)

. Therefore, importers in the EU can refer to determine whether the preferential import tax rate is applicable or not. In addition, the REX system is a system entirely developed and technically responsible by the EU. For countries in the GSP program, the only technical requirement to use the system is to have at least one technological device that can connect to the Internet 64 . It can be seen that the technical requirements to use the REX system are extremely simple.

c) Retroactive function: REX mechanism has a retroactive function. This function allows importers with a successfully registered REX code to request the Customs of the importing country to refund the tax on their shipment within 2 years, calculated from the date the cargo ship arrives at the port in the importing country to the date of the retroactive request.

62Mr . Pulles.EP, The REX system and the legitimate expectation principle, , Rotterdam School of Management, Erasmus University, 2017

6 3 Paragraph 8 Article 82, EU No. 952/2013 regulating UCC, available at: https://eur - lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:269:0001:0101:EN:PDF

64 EC, REX-Registed Exporter system, available at: https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/rules-origin/general-aspects- preferential-origin/arrangements-list/generalised -system-preferences/the_register_exporter_system_en, accessed January 7, 2022

d) The right to revoke the exporter's registration in the REX system when fraudulent behavior is detected

EU Customs and the European Union Anti-Fraud Organization have the right to conduct surprise inspections by telephone or visit production facilities in the exporting country. If they detect fraudulent behavior, they have the right to impose sanctions on the EU importer and revoke the REX code of the exporting enterprise. The right to revoke the registration of the exporter is regulated by the EU Commission in Article 90 of the UCC.

The EU’s provision of the right to revoke this registration is seen as a sanction for countries that benefit from tariff preferences. This forces the competent authorities of the countries to cooperate better with the customs authorities of the EU Member States in verifying the validity and accuracy of origin declarations when requested. In addition, the competent authorities of the beneficiary countries are also highly required to self-monitor the export activities as well as the exporters from their own countries by methods such as: requesting exporters to provide copies, lists of the declarations of origin they have made, inspecting the production facilities of the goods, etc. 65

2.2.3.2. Limitations

a) The use of EU self-certification of origin through the REX system is not uniform across all countries.

Although the EU has high expectations for the universalization of the REX system not only within the EU itself but also covering other countries through the GSP program and trade agreements signed with the EU, the implementation of self-certification of origin in other countries still has many inconsistencies. Take the example of self-certification through REX in Vietnam. Because the EU and Vietnam have signed the EVFTA Agreement, and Vietnam is a country in the GSP, businesses do not know in which cases they should use REX, or whether REX can be applied to some goods receiving GSP incentives and some other goods using EVFTA depending on whether the tariff incentives under the regulatory framework of which system are higher or not. In reality, the use of

65 Article 108 Paragraph 1 UCC