PRESS BRIEFING

 EU TAXATION AND CUSTOMS UNION COMMISSIONER LASZIO KOVÁCS

  MONDAY, MARCH 5, 2007

  Transcript by:

Federal News Service

Washington, DC

  ANTHONY SMALLWOOD:  Good afternoon, ladies and gentlemen. I'm Anthony Smallwood, Spokesperson for the Delegation, very recently arrived, so those of you that are used to other faces, my apologies.

It's my great pleasure to welcome Commissioner Kovács, Taxation and Customs Union. He is here on a fairly brief but very important mission. We've got 45 minutes, of which the first 30 in séance breniere (ph), and then we would like to set aside 15 minutes, if we could, for the Hungarian colleagues amongst us, who I will ask to stay behind afterwards.

So, Commissioner.

COMMISSIONER LASZIO KOVÁCS:  Thank you very much for having come and for the opportunity to share my views concerning EU-US cooperation on customs-related issues.

And the point of departure is that for the EU, we are facing a dual challenge: first, the rapidly growing trade, which requires very smooth and rapid control, and the second is the rapidly growing and alarming phenomena like international terrorism, organized crime, and also the new trends in counterfeiting, counterfeiting which started long ago as the production of fake, fancy - expensive, fancy clothing, jewelry, watches, and which show now much more alarming features like the growing proportion of fake medicines, fake foodstuffs, pharmaceuticals, children's toys and even car spare parts.

So counterfeiting is not more endangering only the revenue of the Treasury of the member states, not only the profit of the producers, the manufacturers, but also the safety and the health and sometimes even the life of our citizens. If, for instance, we find some confiscated, fake medicines, which are supposed to be very effective medicines for some heart problems and it comes clear that the content of the capsule is brick powder and yellow paint a furniture polish, then you know what I'm speaking about. And also the violation of intellectual property rights, which is growing rapidly. One of the reasons is that it gives more profit than drugs with much less risk. The profit on one kilogram fake DVD is much higher than on one kilogram of cannabis, and the risk is much less.

So this is of concern - concern about international terrorists and counterfeiting, and also how to reconcile the two criteria to have more rapid and more easy, more smooth control to facilitate trade and to, at the same time, to increase the trends in the security. And the US have got the same challenges and the same problems. They also are very much interested in trade facilitation and also against - the combat against terrorism and counterfeiting. And having in mind that 40 percent of the world trade comes from the bilateral trade between the EU and the US now I think there is good reason to come and visit the US and there is good reason for them to come to Brussels and to strengthen cooperation between EU and US.

So cooperation is a key word, a key issue because we do believe, and I personally do believe, that bilateral and even multilateral cooperation is much more effective than any unilateral election, and my visit has been planned and prepared for a long time because the first time I met Secretary Chertoff in May 2005, soon after he had been sworn in, he came to introductory visit to Brussels, then we met for the first time, then he just followed Tom Ridge, his predecessor. Then we agreed that one day I would come. It was delayed, but I'm here, and as far as the draft deal, which was adopted in the House of Representatives on the 100 percent scanning of sea container, it is just a coincidence, so it came to our knowledge in January when we already fixed a date for the visit and even the program, but it gave some even more concrete subject to discuss.

As far as the 100 percent scanning is concerned, we have very serious doubts and concerns that it is effective. There is no experience because the US has not introduced it on the domestic shipments. We understand that it would need quite a huge amount of money investment in the technology, investment in the infrastructure, and also the operation of the system would cost quite a lot. But it's certainly the money but also the possible impact on international trade - bilateral trade between EU and US, which, as I already referred to, 40 percent of the total world trade, but also it could be easily interpreted and understood by the international community as a negative signal to world trade, and the question of reciprocity would be raised sooner or later. That would result in bottlenecks - bottlenecks, and would slow down international trade and would certainly increase the expenses.

So, from the talks we understood that the administration shares the same view, or very, very similar view, concerning the problems of the 100 percent scanning proposal, and we agreed with Secretary Chertoff that bilateral and multilateral cooperation are the best way to present an alternative to unilateral elections because unilateral elections is not the solution.

As far as bilateral cooperation is concerned, it is based on the work of the Joint Customs Co-operation Committee, which had its last recent session in January here in Washington, and it is working on issues like the mutual recognition of programs like the Authorized Economic Operator program for the European Union or the C-TPAT program for the United States for the Continuous Security Initiative, and I want to mention that we're already going to introduce a pilot project in a second report of the European Union, that is Southampton in the U.K., where we will introduce 100 percent scanning in order to learn the experiences and the lessons. And then it will provide another argument whether it's feasible or not, whether we can sort of think of that or not, but our expectation is that this 100 percent scanning would have much more handicaps than benefits, and if any benefits can be conceived of.

So this is what I wanted to tell you as some introductory remarks. The next meeting will be with Undersecretary Sullivan in the Department of State. Then in the afternoon I will meet one of the presidential advisors, Mr. Baker. Then I will also attend a roundtable conference on some tax matters, which is the other part of my portfolio as - customs and taxation are the two parts. So I'll meet some tax professionals here and speak about the philosophy of the tax policy of the European Commission, and also about some complete initiatives that the Commission has already tabled or which are in the pipeline, because these complete initiatives, what we are going to table and which will be hopefully adopted by the European parliament and the European Council, certainly will concern the US companies that are doing business in Europe that have established some business in the various member states of the European Union.

So it will make their life easier because unlike the governments that are certainly interested in increasing the tax revenues or the taxpayers that are seeking ways and means to reduce their tax burdens, the Commission is neither interested in increasing the tax revenue of the national treasuries nor to decrease the tax burden of the taxpayers. What we are interested in is to remove the tax-induced obstacles in the internal market because we have now, after the accession of Romania and Bulgaria, the largest competitive single market in the world with nearly 500 million consumers, and it's a fantastic asset if it works property. But with 27 different tax systems, with 27 different methods of calculating the corporate tax base, we cannot speak very much about a real single market, from certain points. Therefore, our endeavors are focusing on removing these tax-induced obstacles and to make the operation of the single market much better than today in order to raise the competitiveness of the EU member states and the EU economy and the companies, and also to provide more jobs, more growth. Those are the reasonable objectives of the act.

Thank you very much. Now I'm expecting your questions. Yes?

Q:  I'm Brian Beary from Europolitics. Are you going to meet anyone on the Hill today, because it was a bill in the House of Representatives? Aren't they the people you need to be talking to?

And secondly, a follow-up, you mentioned the question of reciprocity. Are you saying that if this bill is adopted, that Europe would be considering imposing a semi or 100 percent rule on shipments coming from the US?

COMMISSIONER KOVÁCS:  Yeah, I spoke on the rest of the program today, but tomorrow I'll go to Capitol Hill and will meet some representatives of the Congress, like I'm going to meet Senator Joe Lieberman and also Representative Edward Markey, and the chair of the Foreign Affairs Committee of the House, Tom Lantos. These are the three programs which I have already fixed for tomorrow, and I will also attend a Transatlantic Business Dialogue roundtable. Then I will go to New York and I will visit the Port of New York and New Jersey to have some complete, on-the-spot experiences. So these are the major items of the program.

Q:  And reciprocity?

COMMISSIONER KOVÁCS:  As far as reciprocity is concerned, it is just - for the time being, of course I cannot say anything more concrete, but following the logic of international trade, if any major player introduced some measures unilaterally, then it is logically followed by some reciprocal measures by the other countries or groups of countries. So therefore, for the time being, it's not more than a fear, a concern that reciprocity may follow the unilateral step by the US Congress, but I do hope that finally, at the end of the day, this 100 percent scanning will not be introduced, and first of all, certainly and hopefully not before we have the experiences of the Southampton pilot project. And I do believe that the experiences of the Southampton pilot project will not justify the 100 percent scanning.

And speaking more generally of this unilateral US measure, on the last day of April we are going to have the annual summit between the United States and the European Commission - European Union. The German presidency and also the president of the Commission will participate, and I'm certain that President Barroso, on behalf of the Commission but also the German presidency, may and will raise this issue with President Bush.

So it even might have some non-favorable implication. I do not want to use any stronger word, but some non-favorable and non-encouraging implication on the general relations, the partnership between the US and the European Union, but I hope that these concerns will not be justified.

Q:  Jim Berger of Washington Trade Daily. First of all I want to apologize because I'm going to have to leave early to cover a congressman, but one question I have on the CSI, how close is the EU and the US to a mutual recognition agreement on the authorized - I forgot what the term is - the authorized -

COMMISSIONER KOVÁCS:  Authorized Economic Operator. We are working on that and I do have the feeling - I don't know whether there is an illegal -

 MR.          :  First of January.

(Confers with colleague.)

COMMISSIONER KOVÁCS:  - 2008 because we even had some confusion in the - (inaudible). So it will be operational on the first of January 2008 on the EU side.

Q:  Oh, okay.

COMMISSIONER KOVÁCS:   And I do not feel any reluctance from the US to recognize it. And in ratification they will also accept - (inaudible) - the C-PTAT.

Q:  Could I also ask about the customs case that the United States brought against the EU and the WTO?  Did you discuss that at all, or will you be discussing issues with US Trade Representative's Office?

COMMISSIONER KOVÁCS:  No, because it's over. So having in mind the rather limited time for the consultations, we look forward to negotiations with Secretary Chertoff. If I had one more hour, then I certainly would have expressed my appreciation that it is over, and this time of course, when the time is limited, it's much better to concentrate on the future than to just referring back to some of our events.

Q:  Hi, I'm Charles Mathingher (ph) with Excellence (?) International. I wondered if during your meetings here in Washington you'll be discussing any issues related to tax havens and cooperation with the US to fight against tax havens, and whether you might distrust (?) US participation in the EU Savings Tax Directive.

COMMISSIONER KOVÁCS:  I will raise this issue this afternoon when I'm going to make some introductory speech on this roundtable conference, hosted by the CSIS and the Tax Analyst. These are the two organizations which are hosting this event. Then, speaking about the tax policy of the European Union, I will certainly speak about the Savings Tax Directive and the network of bilateral agreements between the EU and some non-EU member European countries, countries like Switzerland, Lichtenstein, Monaco, Andorra and San Marino, and the dependent territories of the United Kingdom and the Netherlands because this is the current network.

The Commission recently got a mandate from the European Council, from the ECOFIN Council, the council of the ministers of finance, to launch, to start exploratory talks with three major international financial centers outside Europe. The three are Singapore, Hong Kong and Macau. In Hong Kong, where I happened to visit one year ago - a bit more than one year ago - I raised this issue not officially, just because I had the chance to be the Commissioner responsible for taxation and customs issues in the Hong Kong authorities - I raised this issue and I found no reluctance, but some openness as far as Hong Kong is concerned. So far we haven't got any experience from Singapore and Macau. I already wrote a letter to these two, as you call them, for your reasons, tax havens, but so far I don't think we have received any answer.

So anyhow, we have got a mandate and I will speak about it. And as far as the US is concerned, we have more or less the same rules as far as saving taxations are concerned, but I think that it would be also in the interest of the United States to extend this network of bilateral agreement because the problem is that right after we agreed with countries like Lichtenstein, Switzerland and others on the taxation of savings that they had two options - either to withhold some tax or not to tax the non-residents but to send information to the country of residence, to the tax authorities of the country of residence - and then immediately some deposits started to move from the banks of these countries to these Far Eastern tax havens.

So this is what we run to (to talk ?) this process, and therefore I hope that it will make some sort of sense.

Q:  Eric Kulisch, American Shipper Magazine. To turn back to the security front, two things. On the mutual recognition of the public-private partnerships or security partnerships, I understand the European Union, the AEO system, is somewhat different or there are different principles associated with it than C-TPAT or maybe there is not going to be physical validation or auditing overseas of the supply chain. So at what point will that mutual recognition be resolved?  And then on that pilot program for the containers, any thought that it's possible to implement that in the CSI ports only, in a way that you just - is the delay in trying to analyze in real time the images, or can you maybe scan 100 percent and use them later to check while it's in transit?

COMMISSIONER KOVÁCS:  I will give you the first part of the answer, which is the political one, and I will request Mr. Pulford, or any of you from the - (unintelligible) - experts who are much more familiar with the technical details than I am.

As for the political part of the question is concerned, of course the basic elements and the criteria for the Authorized Economic Operator program and the C-TPAT program are not identical, but the logic are the same: to have some distinction for those economic operators, for those players who has shown a great deal of predictability, responsibility, and who have already proven that they are prepared to comply with all the rules and regulations to give them some benefit, some priorities in the course of the customs control procedure and to encourage the other players to try to get this status. That is the logic and that will make not only the life of the beneficiaries easier, but also the life of the customs authorities easier because that would reduce the time for control and it will make the control more simple because that is - having in mind the very rapidly developing amount of trade, it's absolutely necessary.

So that is the first part of the answer. Then which of you will volunteer for answering the second part?  John.

JOHN PULFORD:  John Pulford. I can answer the question. On the AEO/C-TPAT, we are working very closely with our American to compare the two programs to see how they mesh together. And in fact, we have now done already an agreement. We have a custom cooperation agreement in comparison - (inaudible) - comparison, and the next stage of the process is to compare in practice the validation approach and how we work with the companies in the US or in the EU to see whether we can arrive at suitable standards to give a guarantee - (inaudible).

As the Commissioner said, with 40 percent of the world trade being between two big blocs, we feel recognition would bring very good benefits to business, and we are working very quickly now towards that. Both from the EU side and the US side there is a lot of pressure to arrive at a conclusion. We have just this week exchanged the names of companies who we believe we should pilot this action with, and this was the go-ahead in the current weeks, and we hope for very positive results we can use to take this forward.

COMMISSIONER KOVÁCS:  Being also responsible for taxation, I want to clearly differentiate between two things: cooperation and harmonization, or harmonization and the mutual recognition, which is a broader - which is a kind of cooperation which are very, very different.

So the last question?

ROBERT VERRUE:  May I ask one small point on this? 

COMMISSIONER KOVÁCS:  Yes.

MR. VERRUE:  This current -

COMMISSIONER KOVÁCS:  Mr. Verrue is the director general of DG Taxation & Customs Union.

MR. VERRUE:  Thank you. This current negotiation between the US and us, between C-TPAT and AEO demonstrates a more fundamental shift from approaches to customs control. We are now progressing and moving from controls and transactions, transaction by transaction, to controls based on common platforms of rules, objectives, criteria or systems instead of transactions. And the system would be the whole box of, as I say, criteria, procedures and so on, which the offending operators would adopt and commit to implement, making therefore the life of customs easier and permitting customs to focus more on dubious, dangerous transactions and would bring control and systems to be more in the hands of operators. That's a big change. It's a structural change in the policy approaches.

MR. SMALLWOOD:  The Commissioner has time for one other question or two very short ones.

COMMISSIONER KOVÁCS:  It depends on the length of the question and the length of the answer. (Laughter.) 

MR. SMALLWOOD:  Let's take one more question.

Q:  Joann Weiner, now with Tax Analyst. Would you care to elaborate a little bit on the US impact or role in your sort of three-pronged cooperation conversation and mutual agreement approach to tax reform in the EU?

COMMISSIONER KOVÁCS:  To tax?

Q:  The tax area.

COMMISSIONER KOVÁCS:  Of course, there is one more because it was mentioned - one issue was mentioned which is a common concern. That is the taxation on the savings income. But there is another one. That is quite a heavy issue which covers the relations of the US, the relations of the EU to the rest of the world, mostly with the developing countries, and that is - the key expression is good governance, because both the US and the EU are interested in having good governance in developing countries, which means fair tax competition, for instance, transparent rules for taxations, and other criteria which certainly are needed when we want economic cooperation with these countries, and there are around 100 countries which are concerned. So that is a field of common interest - common concern and common interest.

So what I want to underline once again, that the main message which I try to deliver here is that against the danger of international terrorism, against the alarming problem of counterfeiting, and for the facilitation of trade, bilateral and multilateral cooperation are far more effective than any unilateral action. That is the main message. Thank you.

MR. SMALLWOOD:  Commissioner, thank you very much, indeed.

Can I ask the Hungarian colleagues to remain behind?  I would like to thank the rest of you very much indeed.

COMMISSIONER KOVÁCS:  Thank you.

(END)