Israeli Export and Certificates of Origin- Just Don’t Say “It’ll be fine”

 Gill Nadel adv.

With the significant growth in the number of Israel certificates of origin that are being inspected by foreign customs authorities, Gill Nadel adv. provides a number of clarifications and tips regarding the suggested way to deal with the inspection and verification processes.

As is commonly known, the state of Israel has signed a growing number of free trade zone agreements; we will mention only the agreements with the EU and the US which cover a substantial portion of Israel export. One of the central elements of free trade zone agreements is the voiding of duties on products that originate in one of the countries that has signed the trade agreement. In order to benefit from this relief from duties, the products need to meet the origin rules established in the agreements.

Realization of the duties relief is done through presentation of documents before the customs authorities in the importing country that certify that the imported goods are, in fact, products that originate in the country that has signed the agreement. These documents are called certificates of origin/ preferential documents/ EUR1 movement certificate.

And, in fact, the Israel community of exporters regularly makes use of these trade agreements, and many export shipments are accompanied by origin certificates which provide an exemption from duties in the importing countries.

Recently, we can witness a trend towards increased inspection of these documents. Free trade zone agreements establish mechanisms that enable the customs authorities to check and verify the accuracy of the certificates of origin. The agreement with the European Commonwealth establishes a detailed verification mechanism that includes cooperation between the customs authorities in Europe and in Israel. According to this mechanism, the customs authorities in Europe who are interested in verifying the certificate of an Israeli exporter transfer the certificate to the Israeli customs authorities, which perform the verification on the Israeli exporter. The agreement with the United States does not include a detailed mechanism, and allows, in practice, for the US customs authorities to request that the party that issued the export license provide data that support the declaration that appears of the certificate of origin.

The importance of cooperation with verification requests is huge. According to the European Commonwealth, for instance, a European customs authority that does not receive a reply within ten months from Israeli Customs regarding the verification request is permitted to not recognize the Euro1 certificate that accompanies the shipment and to demand that the importer pay the difference in customs. It can be assumed that the importer will pass this requirement onto the Israeli exporter. Failure to respond to the verification requests can also lead to sending additional certificates for verification, although things differ from case to case. The US Customs Authorities have different time tables, and are not generous with extensions.

Trivial, perhaps, but even more important, is the obligation to make sure that the certificate of origin is issued according to the origin rules, and to avoid incorrect certificates of origin. We raise the issue since practice has taught that there have been similar issues in the past. If we take the American law as an example, we can note that the Customs Authorities in the US are authorized to levy extremely heavy fines when it becomes clear to them that the importer released shipments with improper certificates of origin. From the point of view of dealing with US customs, when the Israel exporter and the importer are aware of the problems in the certificate of origin, they should weigh favorably (obviously, depending on the circumstances of each case) the process of voluntary disclosure to the authorities, in order to prevent punitive fines and to pay the difference in customs only. Colleagues in the US have told the author about the strong enforcement power of the US customs authorities.

Dealing with verification requests regarding the certificate of origin correctly must be done in two ways:

Firstly, from the preventative perspective, confirming the rules of origin relevant to the product well, checking that they are met, and never starting with the assumption that the very fact that the product goes through some manufacture/working process in Israel provides it with the status of Israeli origin. We have already heard odd stories about importers who relied on what the international forwarder told them (or what they understood from him) about the goods meeting the origin rules.

The rules in the agreement with the US, for example, are uniform and apply to all products, without differing from product to product. According to these rules, in order for a product to be defined as originating in Israel for the purposes of customs relief upon entering the US, it is necessary, among other things, that the product be wholly manufactured in Israeli or that it undergo a significant change, and also that the product receive an additional Israeli value of at least 35%. Before the certificate of origin is signed, these requirements must be checked. It is important to emphasize that these are complex conditions (that we will expand on at a later opportunity), and therefore it is correct and necessary to consult with a professional in this field.

The agreement with the EU includes a system of rules built according to the duties ID of each product. I would say that to know whether a specific product would be considered Israeli/European or not, one must first know its duties ID (to 4 digits) and then locate the relevant rule. Sometimes, there is a requirement for a change in classification- that is, that the final product will be classified in a different duties ID than its raw materials, and sometimes the requirement is for a local additional value of a certain amount. There are also numerous nuances that require the attention of a professional.

Secondly, when the verification request has already reached the desk of the exporter (whether through the Israel customs authorities or through the foreign importer) one must firstly and most importantly insist on timetables, since failure to receive reply on time can lead to losses. Additionally, experience teaches that in these cases, it is proper and advisable to consult with a professional, since solutions have been found even for cases that appeared problematic at first.

When dealing with a verification request (and as a preventative step- already at the time of signing the certificate of origin) it is important to abandon the typical approach that “It’ll be fine.” In the end, the work done with foreign customs authorities doesn’t work according to this mentality, and therefore the starting point must be professional: a detailed examination of the customs rules, familiarity with legal precedents, and application according to the case.