EU-Israel Trade Agreement

Part of the debate – in Westminster Hall at 4:29 pm on 27 January 2010.

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Photo of Sarah McCarthy-Fry Sarah McCarthy-Fry Parliamentary Secretary, HM Treasury 4:29, 27 January 2010

Her Majesty's Revenue and Customs is sensitive of the need to ensure that settlements products do not receive preferential tariff treatment incorrectly. Over the past eight years, it has been monitoring UK imports under the agreement and taking steps to identify consignments that have been mis-declared. Of course, the department is always happy to receive information to aid its targeting, and to listen to suggestions for ways in which controls and checks in this sensitive area may be improved. I am therefore grateful to my hon. Friend Dr. Starkey for highlighting a number of areas that merit further consideration.

In 2009, UK importers made claims to Israeli preference on some 20,300 import declarations; the total value of the goods concerned was £419 million. That was equivalent to 63 per cent. of all imports from Israel. Within that overall figure, there were about 3,600 claims to preference on agricultural products, which again equated to 63 per cent. of all imports of agricultural products from Israel.

The high total volume of imports means that Revenue and Customs must undertake checks, which may be the physical examination of goods at the time of importation or post-importation documentary checks on the basis of risk. In the case of physical examinations, Revenue and Customs and the UK Border Agency, which undertakes the examinations at the frontier, must ensure that the right balance is struck between the levels of customs controls and the free movement of legitimate goods, and that is particularly important with regard to perishable fresh produce.

Revenue and Customs selects imports for check on the basis of information and intelligence received from the European Commission, interested parties, the media and other Government Departments, and on the basis of irregularities it has already identified.

On 1 February 2005, the technical arrangements, to which my hon. Friend referred, came into force. They require exporters in Israel to insert the place of production and accompanying postcode on all proofs of preferential origin issued. However, it does not constitute a requirement for all goods to be marked with the place of production.

Revenue and Customs welcomed the technical arrangement, because it enables the department to check the place of production against the list of settlements locations, which have been circulated to member states' customs by the European Commission. The list was last updated in September 2009.

Under the terms of the arrangement, Revenue and Customs immediately refuses, without the need to return the certificate to Israel, a claim to preference made under the agreement where the place of production is in a settlement. Since 1 February 2005, the department has rejected some 515 proofs of preferential origin under the arrangement, and has issued customs duty demands totalling £289,000. The figure of 515 represents about 56 per cent. of all Israeli proofs of preferential origin, which have, to date, been checked on the basis of risk.

However, since the introduction of the technical arrangement, Revenue and Customs has initiated some 27 verification inquiries with the authorities in Israel when it has had concerns about the accuracy of the place of production that has been inserted on the proof of preferential origin.

I mentioned earlier that Revenue and Customs is always prepared to consider and act, where possible, upon any new intelligence that will help it to improve its risk assessment and targeting. It will, therefore, undertake further checks in respect of known settlements producers, and pay particular attention to imports of cosmetic products from Ahava.

My hon. Friend may be interested to know that each year, Revenue and Customs checks around 3,000 import declarations on which a preferential rate of duty has been claimed. Those checks result in around 370 verification inquiries, covering some 2,400 proofs of preferential origin. The monitoring of Israeli imports is an important part of those overall checks.

In June 2008, Revenue and Customs received information that suggested that the fact that an Israeli place of production and postcode is included on the proof of preferential origin does not necessarily mean that the products concerned-notably fresh fruit, vegetables and herbs-originated in Israel. There were concerns that the location and code may simply refer to a company's head office or distribution centre in the state, the produce concerned having actually been grown or produced on a farm in a settlement.

Such concerns were repeated in various press articles and television news stories, which also raised concerns about the labelling by UK supermarkets of fresh produce, such as herbs and avocado pears, which some had admitted to purchasing from Israeli-managed farms in the settlements. While the correct labelling of products after importation is not the responsibility of Revenue and Customs, it recognised that it is not possible to establish from documentary checks alone whether produce is labelled as originating in a place other than an Israeli location.

Since the end of July 2008, officials in the UK Border Agency have, at the request of Revenue and Customs, undertaken 51 targeted physical examinations of dates, frozen sweetcorn, fresh herbs, avocado pears, grapes and tomatoes imported under the EU-lsrael agreement. We now understand that in the case of avocados, the intelligence received may have been flawed.

Only two labelling irregularities have been identified so far, and they concerned imports of fresh herbs. The packaging showed that the produce originated in the Jordan valley, while the accompanying proof of preferential origin showed that the herbs were produced in a location in the state of Israel.

There is no blanket legal requirement for the place of production to be inserted on all produce or its packaging. In the absence of such a marking, as was the case in a number of the examinations undertaken to date, there is little that Customs can do when the accompanying proof of preferential origin shows that the produce was produced in an Israeli location. Similarly, the department does not have sufficient evidence to the effect that the goods were not produced in Israel where "produce of Israel" has been inserted on the product or its packaging. Most of the products that have been examined to date bore such an origin marking.

With the voluntary labelling guidelines that Revenue and Customs contributed to DEFRA's issuance of its guidelines, we are hopeful that those UK supermarkets that decide to implement the voluntary arrangement will persuade their suppliers to display clearly the place of production on their products or their packaging. That could have a useful knock-on effect in helping Revenue and Customs with its series of targeted physical examinations. In the meantime, we will extend our series of targeted examinations to include peppers, halva and tahini.

We are aware that certain supermarkets may be able to identify the origin of their products from their tracking systems and we would be very happy to utilise those systems, where possible, to refuse claims to preference immediately at the time of importation into the UK. However, when we look at our import declaration database, supermarkets are rarely shown as the importers on the customs declaration. In effect, it would be possible only to utilise a tracking system post-importation of the goods and the checks would have to start at the supermarket end of the chain.

We are prepared to explore with supermarkets the feasibility of using their tracking systems to link particular products that the systems show as originating in the settlements with particular customs import declarations and any claims to preference made on them.

The Revenue and Customs delegate to the European Union's origin committee has advised the European Commission and other member states in the committee's meetings of the UK's actions in respect of monitoring of the EU-Israel agreement, particularly in relation to the series of targeted physical examinations.

Outside of those meetings, Revenue and Customs has asked the Commission to ensure that the Israelis are correctly complying with the requirements of the 2005 technical arrangement by inserting the precise place of production rather than a head office or distribution centre on the proof of preferential origin. We will continue to press this point with the Commission.

We are aware of the Commission's fact-finding missions to Israel and Palestine in 2009 and we have asked the Commission to provide us with reports of those missions as soon as they are available.

My hon. Friend referred to provisions in section 167 of the Customs and Excise Management Act 1979, which enable Revenue and Customs to take action against traders who commit an offence. Under those provisions, we can only take criminal action against the UK importer where there is firm evidence to the effect that they knew that the goods originated in a settlement but nevertheless claimed Israeli preference. The provisions do not enable the department to take action against the exporter in Israel who has drawn up a proof of preferential origin containing an incorrect place of production or an incorrect origin declaration.

However, new civil penalty provisions came into force on 24 December 2009, as a result of which Revenue and Customs can issue a financial penalty where an importer persistently claims preference on products that are not entitled to such treatment, which will be in addition to the liability to pay the full rate of customs duty.

Although legal constraints mean that the department has no alternative other than to initiate verification inquiries with the Israeli customs authorities, it is happy to make improvements to its risk assessment and to include further fresh produce in its series of targeted physical examinations. We will also pay further attention to imports of particular products, such as cosmetics, which were mentioned by my hon. Friend. We will explore with supermarkets the possibility and feasibility of using their tracking systems post-importation to identify imports of goods that were not entitled to the preference claimed.

We will continue to work closely with the European Commission and other Departments with the objective of ensuring compliance with the rules in this complex and sensitive area. That will include pressing the Commission to monitor the operation of the 2005 technical arrangement even more closely.

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