Appeal Number: EDN/08/7007

[2009] UKFTT 220 (TC)

TC00170

Appeal number: EDN/08/7007

Binding Origin Information; Council Regulation (EC) No 1528/2007 (Market Access Regulation); Article 12; direct transport rule; Lamb’s Navy Rum.

FIRST-TIER TRIBUNAL

TAX

ALFRED LAMB INTERNATIONAL LIMITEDAppellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (VAT)Respondents

TRIBUNAL JUDGE: J Gordon Reid, QC., F.C.I.Arb.,

(Members):Mr K Pritchard, OBE., BL., WS

R L H Crawford, BA., CA., CTA

Sitting in public at Edinburghon Thursday 2 July 2009

Amanda Brown, KPMG for the Appellant

Andrew Scott, Shepherd + Wedderburn, LLP instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

DECISION

Introduction

This is an application for a Binding Origin Information Ruling (“BOI”). The application concerns pre-blended rum originating in Guyana, Barbados, Trinidad and Jamaica which is nowimported into Canada for maturing, blending and bottling before being exported into the European Community. The intention is to ensure thatthe change in the supply chain is structured in such a way that the rum continues to obtain a preferential origin status on import into the European Union (with a consequent nil rate of import duty). The rum in question is Lamb’s Navy Rum. Hitherto, the spirit has been imported in bulk directly into the EU where it was matured, blended and bottled. The change means inter alia that the rum is imported into the EU in its finished, bottled state.
The application wasmade for the purpose of qualifying for a preferential rate of duty under Council Regulation 1528/2007, referred to as the Market Access Regulation or MAR. That Regulation introduced or continued preferential rates of duty for products originating in certain African, Caribbean and Pacific (“ACP”) States. Since 2002 the Community has been negotiating Economic Partnership Agreements with the ACP States. MAR is an interim or transitional arrangement until these Partnership Agreements are put in place and effective. The amount potentially at stake is unknown. An Economic Partnership Agreement was entered into in 2008 with the CARIFORUM States (see OJ 30/10/08 L 289/1/3) but the text of that Agreement is not relevant to this appeal.
The Appellants were represented by Amanda Brown of KPMG, Manchester. She led the evidence of David James Doyle, the director of Research & Development for Pernod Ricard Americas. He spoke to a written statement previously produced. A written statement by Howard Charles Kirke was also produced. Its contents were not in dispute. Mr Kirke is Vice President for international Markets for Corby Distilleries Limited and is based in Toronto. The Respondents (“HMRC”) were represented by Andrew Scott of Shepherd & Wedderburn. He led no evidence. A Statement of Agreed Facts and two Inventories of Productions wereproduced. There was no dispute as to the authenticity, and where appropriate, the transmission and receipt of these documents. AmandaBrown produced a comprehensive and elegantly framed Skeleton Argument to which she spoke in her closing submissions.

A Preliminary Matter

During the period of statutory internal review by HMRC which Alfred Lamb International Limited had requested, the proposed supply chain for importation of the rum altered. Originally, Alfred Lamb International Limited was the intended importer. The original application for a BOI was made by Alfred Lamb International Limited. On its refusal they sought a statutory review. During the period of review the proposed supply chain changed. The intention now is that the rum will be shipped by Corby Distilleries Limited (of which Alfred Lamb International Limited is a 100% subsidiary). Nothing now turns on this although HMRC did contend, at one stage, that the Appellants had no appealable matter before the Tribunal. The proposed holder of the BOI is still Alfred Lamb International Limited. It is a matter of agreement between the parties that Alfred Lamb International Limited is the proper Appellant.

Legal Framework

Article 131 of the EC Treaty provides that the common commercial policy is to take into account the favourable effect which the abolition of customs duties between member states may have on the increase in competitive strength of undertakings in member states. The aim is to contribute to the harmonious development of world trade and the lowering of customs barriers. Article 133 provides that the common commercial policy is to be based on uniform principles, particularly in regard to changes in tariff rates, and the conclusion of tariff and trade agreement. Reference is also there made to the making of agreements with one or more states and the need for compatibility with internal Community policies and rules.
The Community Customs Code (Council Regulation 2913/92) sets out the basis on which inter alia import or export duties on goods are to be applied. Article 20.3(d) of the Code provides that the Customs tariff of the European Communities is to comprise inter aliathe preferential tariff measures contained in agreements which the Community has concluded with certain countries or groups of countries and which provide for the granting of preferential tariff treatment. Articles 23 to 26 define the non-preferential origin of goods for the purposes of applying the Customs Tariff with the exception of inter alia the measures referred to in Article 20.3(d) (see Article 22). Article 23.2 defines goods originating in a country as those wholly obtained or produced in that country. That phrase is, in turn, defined as meaning inter alia vegetable products harvested therein (Article 23.2(b)). Where the production of goods involves more than one country, Article 24 provides, that the goods are deemed to originate in the country where they underwent their last, substantial, economically justified processing or working in an undertaking equipped for that purpose and resulting in the manufacture of a new product or representing an important stage of manufacture.
Article 27 provides that the rules on preferential origin are to lay down the conditions governing acquisition of origin which goods must fulfil in order to benefit from the preferential tariff measures referred to in Article 20.3(d) referred to above. In the case of goods covered by Article 20.3(d) agreements, the rules are to be determined by those agreements. Thus, for present purposes, these rules are to be found in the Market Access Regulation referred to above.
Article 58 of the Code (and other provisions in section C) set out various matters relating to the storage of goods in customs warehouses. A customs warehouse means any place approved by and under the supervision of the customs authorities where goods may be stored under the conditions laid down (Article 98.2).
For many years there have been trade agreements between the EEC and the ACP group of states which now consist of six regions comprising the Caribbean, Central Africa, Eastern and Southern Africa, the PacificIslandStates, the South African Development Community and West Africa. These arrangements support the gradual integration of the ACP economies into the rules-based world trading system, thereby fostering their sustainable development and contributing to the overall effort to eradicate poverty and to enhance living conditions in the ACP countries. The aim is to provide duty free access and no tariff rate quotas for all products with the exception of arms.
Formal trade agreements between the EEC and the ACPStates date back to 1970 when the first Lome Convention was signed. The Lome Conventionspassed through four editions and remained in force until 1 August 2000. On 23 June 2000 a new agreement was signed in Cotonou between the EC and the ACPStates. Whilst Cotonou did not come into force until 1 April 2003, by virtue of Decision 1/2000 the ACP-EC Council Ministers decided that with effect from 2 August 2000 certain provisions of the Cotonou Agreement were to be put into early application.
On 27 September 2002, negotiations were commenced for new partnership agreements. They intended to promote, inter alia, regional integration and economic development as well as to operate as trade agreements. It came into force with effect from 1 January 2008.
The fundamental aim of the Cotonou Agreement is set out in article 1 of that agreement:

“In order to promote and expedite the economic, cultural and social development of the ACP States, with a view to contributing to peace and security and to promoting a stable and democratic political environment.

The partnership shall be centred on the objective of reducing and eventually eradicating poverty consistent with the objectives of sustainable development and the gradual integration of the ACT countries into the world economy”.

The Cotonou Agreement is built on five linked pillars. The first is political, with emphasis on political dialogue, peace building policies, human rights and democracy and good governance. The second is called the ‘participatory approach’, which is intended to promote the wider involvement in matters relating to the ACT/EC partnership. The third is the creation of development strategies, with poverty reduction as its central objective. The forth consists of the establishment of new trading arrangements. The fifth is reformed financial cooperation which is concerned with cooperation in relation to development finance.
The Cotonou Agreement also provides at Article 37 for a series of individual Partnership Agreements between individual ACPStates and the EU. In the original Economic Partnership Agreement between the EU and the CaribbeanStates the rules of origin were contained in Annex V which expired on 31 December 2007 and were replaced by Annex II Regulation 1528/2007.
Annex V Article 1 of the Cotonou Agreement provides that products originating in the ACP States are to be imported into the Community free of customs duties and charges having equivalent effect. This position is restated in Article 3(1) Regulation 1528/2007.
The preamble to Council Regulation 1528/2007 (the Market Access Regulation) records inter alia that:-

“(8)The rules of origin applicable to imports made under this Regulation should for a transitional period be those laid down in Annex II to this Regulation. Those rules of origin should be superseded by those annexed to any agreement with the regions or states listed in Annex 1 when that agreement is either provisionally applied, or enters into force, whichever is the earliest.”

[Annex 1 lists numerous African and CaribbeanStates]

The following provisions of the Market Access Regulation, were referred to in the course of the hearing:-

Article 4

Rules of Origin

1. The rules of origin set out in Annex II shall apply in orderto determine whether products originate in the regions or stateslisted in Annex I.

2. The rules of origin set out in Annex II shall be supersededby those annexed to any agreement with the regions or stateslisted in Annex I when that agreement is either provisionallyapplied, or enters into force, whichever is the earlier.

ANNEX II

Rules of origin

CONCERNING THE DEFINITION OF THE CONCEPT OF ‘ORIGINATING PRODUCTS’ AND METHODS OF

ADMINISTRATIVE COOPERATION

......

Article 1

Definitions

For the purposes of this Annex:

(a) ‘manufacture’shall mean any kind of working or processing including assembly or specific operations;

(b) ‘material’shall mean any ingredient, raw material, component or part, etc., used in the manufacture of the product;

(c) ‘product’shall mean the product being manufactured, even if it is intended for later use in another manufacturingoperation;

(d) ‘goods’shall mean both materials and products;

(e) ‘customs value’shall mean the value as determined

(f) ‘ex-works price’shall mean the price paid for the product ex works to the manufacturer in whose undertaking the lastworking or processing is carried out, provided the price includes the value of all the materials used, minus any internaltaxes which are, or may be, repaid when the product obtained is exported

Further definitions contained in this Article are set forth in the Appendix to this Decision.

TITLE II

DEFINITION OF THE CONCEPT OF ‘ORIGINATING PRODUCTS’

Article 2

General requirements

1. For the purpose of the application of the provisions of this Regulation, the following products shall be considered asoriginating in the ACP States of Annex I, hereafter, for the purpose of this Annex, referred to as ‘ACP States’:

(a) products wholly obtained in the ACP States within the meaning of Article 3 of this Annex;

(b) products obtained in the ACP States incorporating materials which have not been wholly obtained there, provided thatsuch materials have undergone sufficient working or processing in the ACP States within the meaning of Article 4 ofthis Annex.

2. For the purpose of the implementation of paragraph 1, the territories of the ACP States shall be considered as beingone territory.

Originating products made up of materials wholly obtained or sufficiently worked or processed in two or more ACP States shall be considered as products originating in the ACP State where the last working or processing took place, provided the working or processing carried out there goes beyond that referred to in Article 5 of this Annex.

Article 4

Sufficiently worked or processed products

1. For the purposes of this Annex, products which are not wholly obtained shall be considered to be sufficiently workedor processed in the ACP States or in the Community, when the conditions set out in the list in Appendix 2 or, alternatively, in Appendix 2A are fulfilled. The conditions referred to above indicate, for all products covered by this Regulation, the working or processing which must be carried out on non-originating materials used in manufacturing and apply only in relation to such materials. Accordingly, it follows that if a product, which has acquired originating status by fulfilling the conditions set out in the list is used in the manufacture of another product, the conditions applicable to the product in which it is incorporated do not apply to it, and no account shall be taken of the non-originating materials which may have been used in its manufacture.

2. Notwithstanding paragraph 1, non-originating materials which, according to the conditions set out in the list, shouldnot be used in the manufacture of a given product may nevertheless be used, provided that:

(a) their total value does not exceed 15 per cent of the ex-works price of the product;

(b) none of the percentages given in the list for the maximum value of non-originating materials are exceeded through theapplication of this paragraph.

This paragraph shall not apply to products falling within chapters 50 to 63 of the Harmonised System

......

Article 5

Insufficient working or processing operations

1. Without prejudice to paragraph 2, the following operations shall be considered as insufficient working or processing to confer the status of originating products, whether or not the requirements of Article 4 are satisfied:

(a) operations to ensure the preservation of products in good condition during transport and storage (ventilation, spreading out, drying, chilling, placing in salt, sulphur dioxide or other aqueous solutions, removal of damaged parts, and like operations;

(b) simple operations consisting of the removal of dust, sifting or screening, sorting, classifying, matching (including the making-up of sets of articles), washing, painting, cutting up;

(ii) simple placing in bottles, flasks, bags, cases, boxes, fixing on cards or boards, etc., and all other simple packagingoperations;

(d) affixing marks, labels and other like distinguishing signs on products or their packaging;

(e) simple mixing of products, whether or not of different kinds; mixing of sugar with any other material;

(f) simple assembly of parts to constitute a complete product;

(g) a combination of two or more of the operations specified in points (a) to (f);

(h)slaughter of animals;

(i) husking, partial or total bleaching, polishing and glazing of cereals and rice;

(j) operations to colour sugar or form sugar lumps; partial or total milling of sugar;

(k) peeling, stoning and shelling of fruits, nuts and vegetables.

2. All the operations carried out in either the ACP States or the Community on a given product shall be consideredtogether when determining whether the working or processing undergone by that product is to be regarded as insufficientwithin the meaning of paragraph 1.

Article 12

Direct transport

1. The preferential treatment provided for in this Regulation shall apply only to products that satisfy the requirements ofthis Annex and are transported directly between the territory of the ACP States, of the Community, of the OCT or of SouthAfrica for the purposes of Article 6 without entering any other territory. However, products constituting one single consignmentmay be transported through other territories with, should the occasion arise, transhipment or temporary warehousingin such territories, provided that they remain under the surveillance of the customs authorities in the country oftransit or warehousing and do not undergo operations other than unloading, reloading or any operation designed to preservethem in good condition. Originating products may be transported by pipeline across territory other than that of an ACPState or of the Community.

2. Evidence that the conditions set out in paragraph 1 have been fulfilled shall be supplied to the customs authorities of the importing country by the production of:

(a) a single transport document covering the passage from the exporting country through the country of transit; or

(b) a certificate issued by the customs authorities of the country of transit:

(i) giving an exact description of the products;

(ii) stating the dates of unloading and reloading of the products and, where applicable, the names of the ships or the other means of transport used; and

(iii) certifying the conditions under which the products remained in the transit country;or

TITLE IV

PROOF OF ORIGIN

Article 14

General requirements

1. Products originating in the ACP States shall, on importation into the Community, benefit from the provisions of thisRegulation upon submission of either:

(a) a movement certificate EUR.1, a specimen of which is given in Appendix 3; or

(b) in the cases specified in Article 19(1), a declaration, the text of which appears in Appendix 4, given by the exporter onan invoice, a delivery note or any other commercial document which describes the products concerned in sufficientdetail to enable them to be identified (hereinafter referred to as the ‘invoice declaration’).

2. Notwithstanding paragraph 1, originating products within the meaning of this Annex shall, in the cases specified in