EU’s Preferential Trade Agreements: why Lithuanian firms underutilize them?

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EU's Preferential Trade Agreements: why Lithuanian firms underutilize them?

Enrika Naujoke

Customs brokerage company UAB “Muita”

Abstract

It takes many years to negotiate a Preferential Trade Agreement (PTA). The goal is the economic benefits that utilization of PTAs brings. However, the European Commission found that utilization of some PTAs is very low. This study aimed to reveal what obstacles firms face and to recommend solutions. A literature review was done, and semi-structured interviews were conducted (eight participants were selected using the convenience sampling technique). The research questions were about the extent Lithuanian companies utilize PTAs, what they consider obstacles and how these can be overcome. The review of the literature revealed seven main issues. Semi-structured interviews highlighted one more important issue. One of the most significant issues revealed is the lack of interest of the Lithuanian customs administration in promoting PTAs' utilization.

The keywords: Preferential Trade Agreements, traders, customs administration, obstacles, rules of origin, harmonization.

Науйоке Е.

Угоди ЄС про преференційну торгівлю: чому литовські фірми їх недостатньо використовували? - Стаття

Анотація

preferential trade agreement economic

На погодження норм преференційних торговельних угод (ПТУ) потрібно багато років. Їх мета полягає в економічних вигодах, які забезпечує використання ПТУ. Однак Європейська комісія виявила, що використання деяких ПТУ є дуже незначним. Це дослідження мало на меті виявлення перешкод, з якими стикаються фірми, і пропонування можливих шляхів їх вирішення. Було проведено огляд літератури та напівструктуровані інтерв'ю (вісім учасників було відібрано за методом зручної вибірки). Питання дослідження стосувалися того, наскільки литовські компанії використовують ПТУ, що саме вони вважають перешкодами та можливості їх подолання. Огляд літератури виявив сім основних питань. Напівструктуровані інтерв'ю висвітлили ще одну важливу проблему. Однією з найбільш важливих виявлених проблем є відсутність інтересу литовської митної адміністрації до сприяння використанню ПТУ.

Ключові слова: преференційні торговельні угоди, трейдери, митне адміністрування, перешкоди, правила походження, гармонізація.

Науйоке Э.

Соглашения ЕС о преференциальной торговле: почему литовские фирмы недостаточно их использовали? - Статья

Abstract

Для согласования норм преференциальных торговых соглашений (ПТС) необходимо много лет. Их целью являются экономические выгоды, которые приносит использование ПТС. Однако Европейская комиссия обнаружила, что использование некоторых ПТС очень незначительно. Это исследование направлено на выявление препятствий, с которыми сталкиваются фирмы, и предложение возможных путей их преодоления. Был проведен обзор литературы и полуструктурированные интервью (восемь участников были отобраны с использованием метода удобной выборки). Вопросы исследования касались степени использования ПТС литовскими компаниями, а также того, что именно они считают препятствиями и каким образом возможно их преодоление. Обзор литературы выявил семь основных вопросов. Полуструктурированные интервью показали еще один важный вопрос. Одной из наиболее значительных выявленных проблем является отсутствие заинтересованности литовской таможенной администрации в содействии использованию ПТС.

Ключевые слова: преференциальные торговые соглашения, трейдеры, таможенное администрирование, препятствия, правила происхождения, гармонизация.

Introduction

The primary tool, which has the most significant potential to make trade freer globally, is the Preferential Trade Agreements (PTAs), as it is easier to address the various barriers in PTAs between two or more countries than through multilateral negotiations (Ornelas et al., 2021). The growing significance of PTAs is evident from the global numbers of PTAs concluded globally and the global scale of trade coverage. For instance, the EU has concluded PTAs with 77 partner countries representing around one-third of the total EU external trade (European Commission, 2020). Switzerland has a network of PTAs with 40 countries. Over 80 percent of Swiss trade is covered by PTAs (Lukaszuk & Legge, 2019).

PTAs comprise a variety of arrangements that favor member parties over non-members by extending tariff and non-tariff preferences (Ahearn, 2011). The scope of the agreements evolved rapidly in the past decades. There are four types of PTAs: first- and second-generation agreements, Deep and Comprehensive Free Trade Areas, and Economic Partnership Agreements.

While first-generation agreements focus mainly on tariff elimination (for instance, EU agreements with Norway, Switzerland, eight Mediterranean countries, and Mexico), other types extend to new areas, including competition, protecting intellectual property rights, customs cooperation, commitments on services, and the establishment and sustainable development. For instance, EU agreements with South Korea, Colombia, Peru, Ecuador, and Central America) and even concentrate on tightening economic links between the EU and its neighbors by bringing their regulatory framework closer to EU law (for instance, agreements with Ukraine, Georgia, and Moldova).

Despite the many years of hard work (for instance, it took ten years to negotiate the EU- Canada Comprehensive Economic and Trade Agreement) and the achievements of PTAs' negotiators, there is a bottleneck in the utilization process of preferences. The European Commission points out in its First comprehensive implementation report of EU trade agreements, issued in November 2017 that EU producers do not take full advantage of PTAs. For instance, for cheese, only 4.3 percent of the total tariff-rate quota was used for exports to Peru, 7.9 percent to Colombia, and 44 percent to Central America. EU exporters used only 16,6 percent of the eligible exports to Costa Rica. The preference utilization rate for EU exports to South Korea was 71 percent in 2016, the highest rate so far (European Commission, 2017), although still not at a satisfactory level. From the point of view of the Association of Chambers of Commerce Eurochambers, a utilization rate of at least 85 % for agreed tariff preferences should be striven for across all agreements (DIHK Deutsche Industrie-und Handelskammer, 2020). In total - if all free trade agreements are considered - the EU's importers forfeit 600 million euros in reduced tariffs every year. This means higher prices for the manufacturing industry and consumers (UNCTAD, 2018). EC highlights the need to raise awareness among EU exporters of the benefits provided by PTAs.

The underutilization of PTAs is not restricted only to the EU. For instance, the average preference utilization rate of the North American Free Trade Agreement (NAFTA) was around 64 percent in 2000, and in the case of the ASEAN PTA, below 10 percent was utilized in 2002 (Yi, 2015). An examination of the use of PTAs by Japanese firms, conducted by Takashi & Urata (2009), revealed that only 3-13 percent of the responding firms had used Japan's PTAs with Singapore, Mexico, or Malaysia. Lukaszuk and Legge (2019) share the results of the analysis of data obtained from the database of the Swiss Federal Customs Administration: the utilization rate of PTA between Switzerland and the United Arab Emirates was nearly 0 percent, and exports from the United Kingdom to Switzerland utilized the preferences in less than half of the possible cases.

Many PTAs do not deliver the intended utilization rates, and the concern is gaining even more importance as the number of such preferential arrangements increases. Thus, there are issues of implementation of PTAs to be assessed before starting the complex multilateral negotiations on global harmonization and simplification of PTA's.

Given the importance of free trade and PTAs as its primary tool currently, the paper aims to reveal the issues that firms face in the context of PTAs. These issues form the basis for underutilization, and they need to be identified to start a discussion about possible solutions. The purpose of this paper is to summarize what issues are already identified and to reveal further issues; and to propose ways of how some of them might be solved.

Methodology

The hypothesis of this research was that the main issue is that firms in Lithuania lack awareness of PTAs and how to utilize the benefits they provide. The study aimed to answer research questions: 1. To what extent are Lithuanian firms utilizing PTAs? 2. What do firms (exporters, importers, service providers) and customs consider as obstacles to full utilization of PTAs? The author conducted a survey based on semi-structured interviews were invited from firms and customs. The main criterion based on which the participants were selected: regular work with preferential arrangements (not less than ten times a year) and experience working with at least two different PTAs. Participants were chosen using a convenience sampling technique from the pool of firms that the researcher works with and from public sources.

Obstacles that Prevent Companies from Full Utilization of PTAs: Literature Review

The report (2017) of the European Commission identified the issue of underutilization of PTAs by EU companies. EC found three main reasons for the low take-up of the PTAs, including:

a lack of firms' awareness of the PTAs;

difficulties in understanding the rules of origin for each product, and

cumbersome procedures for obtaining documents needed to benefit from preferential treatment.

This echoes the points discussed in the same year (2017) at the First WCO Global Origin Conference. World Customs Organization emphasized the global scale of the issue of PTAs underutilization. It raised the need for contribution by customs to raising awareness of the private sector, especially SMEs, and the public on the benefit of regional integration and its enabling tools, including the origin. Some authors (Takashi & Urata, 2008) add the need for the involvement of other public and semipublic institutions such as the Ministry of Industry, Trade, and Economy; the Japan External Trade Organization; and the Chamber of Commerce. The firm level-based survey conducted by these authors in Japan revealed that a quarter of companies do not use PTAs because they do not know PTAs in detail or know how to use them. Similar results were revealed in another study of Japanese companies (Hiratsuka et al., 2008).

The European Commission is working to address the lack of knowledge about PTAs by improving the information available on its websites and preparing new digital tools and guides. One such tool is Access2Markets database, launched in 2020. It offers guidance in simple steps to determine the rules of origin for the products traded under EU PTAs. However, at the time of writing this paper, the tool is still under development and provides information only about a few PTAs and only in English.

WCO addresses the issue by organizing the WCO Global Origin Conferences (in 2017, the first, in 2021, the second). The First WCO Global Origin Conference is summarized in the Origin Compendium. WCO notes that the Origin Compendium aims to gather all information on origin rules published by the WCO in one document to facilitate immediate access to knowledge on all origin- related topics. However, these sources of knowledge have a notable limitation - they are accessible only to English speakers and some other language speakers. Therefore, it is essential to assess how national institutions promote PTAs and support their traders by providing relevant knowledge. This is addressed in the paper by the third research question.

Hiratsuka et al. (2008) provided several policy recommendations. Seminars on how to use the PTAs, especially for SMEs, should be held frequently throughout the country. The disclosure of operational guidelines, attached with several examples, is necessary. Information on RoO and phase-out tariff schedules should be well disseminated.

Many authors argue that the primary reason for the global underutilization of PTAs is the complexity of the rules of origin. The rules of origin determine the product's eligibility for preferential tariff rates. The more PTAs, the more rules of origin to comply with. As PTAs continue to proliferate, these rules are becoming increasingly complex - the tariffs and regulations vary according to the product's origin. Administration of the rules of origin becomes too complicated, and compliance costs are too high for companies. Therefore they often decide not to use PTAs (Yi, 2015; Hiratsuka et al., 2008). For instance, the compliance costs are estimated at approx. 8 % for the Pan European Union and 6,8 % for NAFTA (Cadot et al., 2006). Baldwin (1993) argues that the costs of complying with such rules will motivate businesses to force governments to harmonize them.

Takashi & Urata (2009) raise a similar issue, pointing out that the tariff preferences offered by PTAs have reportedly been eroded by the complicated rules of origin and the related compliance costs. In addition, the authors note that using PTAs appears to require enough human, financial, and other resources for obtaining certificates of origin. Therefore, large firms are likely to use PTAs, while small firms do not use them. Authors suggest that the costs of using PTAs should be reduced to expand their use - this is especially important for small firms, as they cannot afford to spend significant resources to obtain necessary information and/or documents. They also highlight the importance of simplifying the application procedure and aiding with using PTAs through public and semi-public institutions such as the Ministry of Industry, Trade, and Economy; the Japan External Trade Organization; and the Chamber of Commerce.

One more suggestion can be derived from the very essence of the issue, as Hiratsuka et al. (2008) point out that rules of origin and corresponding application differ in every PTA because the General Agreement on Tariffs and Trade has no specific rules governing the identification of the country of origin of goods in international commerce, accordingly, creating respective rules would solve the issue. WCO (2017) tackles the same subject by pointing out one more option in the question: “How can the WCO Revised Kyoto Convention and other WCO origin tools play a better role in further simplifying and harmonizing Customs procedures?”.

However, the complexity of the rules of origin should not be mixed up with a specific restrictive design. The latter may be caused by the protectionist nature of the rules of origin. For example, Yi (2015) points out that rules of origin employ different methodological discriminations and that these have varying degrees of stringency. Restrictive rules of origin require firms to use ineffective members' input to produce finished goods. Therefore, countries and trade blocks are exploiting such rules of origin as new mechanisms to protect domestic industries and promote the relocation of manufacturing processes within the trade area. Issues of this kind and the lack of clarity of the rules are also called ambiguities of the rules of origin (European Commission, 2003). On the other hand, some authors consider rules of origin in their general nature as an essential barrier to trade (Crook & Gordon, 2017). Especially in the light of the global fragmentation of production, which implies complex international supply chains, which are particularly constrained and distorted by the rules of origin.

Discussing the issue of procedures for obtaining documents needed to benefit from preferential treatment, one should consider that such issues are twofold and include obtaining proof of origin and compliance management responsibilities. The latter involves both an importer and an exporter. The exporter takes care of both central components of preferential origin - fulfilling the rules of origin (due to complexity, a separate issue in itself) and issuing proofs of origin. The importer has minimal access (most often no access) to these processes, but he bears the financial risk of non-compliance. Furthermore, the importers' financial risk keeps existing for quite a long period - the customs have the right for up to three years after the import declaration is submitted, and a preferential tariff is applied to conduct a post-clearance audit (Jung, 2016, p. 102). In case of incompliance with rules of origin, the importer must pay import duties applying the MFN duty rate and the interest for delayed payment. This unequal way of allocating ownership of compliance management and risk might result in the importer's decision not to apply PTAs.

For example, the Court of Justice of the European Union in the case Hauptzollamt Hamburg-Hafen vs Afasia Knits Deutschland GmbH ruled that, in circumstances where the proofs of origin issued for the importation of goods into the European Union are canceled on the ground that the issue of those documents was marred by irregularities and that the preferential origin indicated on those documents could not be confirmed during a subsequent verification, the importer cannot object to the post-clearance recovery of the import duties by claiming that the possibility cannot be ruled out that, in reality, some of those goods may have the preferential origin.

Other compliance-related issues lay in the lack of institutional cooperation and exporters involved in fraud. For instance, in the court case Muitines departamentas v. UAB “Kotryna”, Lithuanian customs asked the customs of exporting country (Cambodia) to verify the certificate of origin. This request was repeated several times without a response. Therefore, the application of preferential import duty was denied. In terms of fraud, in the annual (2018) OLAF report, it is stated that “organized crime groups are involved in some areas of customs fraud, and often their illegal activities span several risk areas (undervaluation, misdeclaration of origin, misdescription of goods, illicit tobacco, etc.), they act in the multiple Member States and exploit the structure of the EU single market”. The importers may not knowingly buy the goods with an invalid proof of origin. For example, see court cases Valsts ienemumu dienests v. Veloservis SIA and Valsts ienemumu dienests v. Aqua Pro SIA. However, they are also denied applying the duty tariff preferences in such a case.

The issue concerning the proof of origin (the certificate) also includes the stringency of verification procedures by the issuing customs authority, which leads to costs and delays in obtaining the certification (Yi, 2015). Therefore, World Customs Organization (2018) aims to solve these questions: How can procedural harmonization facilitate trade? How can the WCO Revised Kyoto Convention and other WCO origin tools play a better role in further simplifying and harmonizing customs procedures? How can the trade community and customs actively contribute to and initiate a helpful roadmap for the way forward on the rules of origin? It must be noted that the implementation of the self-certification system - the Registered Exporter System (REX) - is already in place in the EU. It is set out in the Union Customs Code, which has applied since 2016 in some of the so-called new generation PTAs, for instance, with Canada (CETA), and the United Kingdom. As EC describes on its website, “the REX system is a system of certification of origin of goods based on a principle of selfcertification. The economic operators themselves declare the origin of goods employing so-called statements on origin”.

Takahashi and Urata (2010) address the issue of a low preference margin and note that firms do not take advantage of PTAs because the tariff differentials between the common duty rates and preferential duty rates are relatively small for many products. Lukaszuk and Legge (2019) argue that larger tariff savings lead to higher utilization rates and state that increasing the savings potential by 1 percent results in a 3.2 percent higher preference utilization rate. Other authors note the same issue. They point out that the preference margin under some PTAs is insufficient to cover the costs required to generate the preference (Manchin et al., 2007). Estevadeordal and Suominen (2004) argue that tariffs and the restrictiveness of rules of origin are the results of the same political economy. European Commission reports that in 2019 there was an increase in bilateral EU-Japan trade of 6 percent following the entry into force of the EU-Japan Economic Partnership Agreement and notes that the most significant growth was in products with higher MFN tariff rates, such as wine, meat, textiles, clothing, and footwear.

Besides, some research highlights other obstacles to utilizing PTAs, primarily related to companies' internal planning or procedures. Battisti et al. (2014) argue that small firms do not utilize the PTAs because of international marketing strategies, such as sales-driven marketing strategy, where the awareness of PTAs lies with the buyer; or relationship-based marketing, which is not affected by PTAs at all. Companies do not utilize PTAs when their trade with these countries is small in volume, and they cannot see that paying the cost of obtaining necessary documents for using the relevant PTA would yield them any profit (Takashi & Urata, 2008). The complication in tariff liberalization stems from sensitive lists, the quota system, the reciprocal principle, and the phase-out tariff reduction schedule, which can reach even over 18 years, like in the case of Australia-US PTA (Crook & Gordon, 2017). Also, some requirements may be viewed as a burden by companies, such as providing confidential information in application forms, which may constitute significant risks or requirements of “direct shipment” that complicate logistics (Hiratsuka et al., 2008).

Empirical research

Empirical research is based upon eight semi-structured interviews. Firms, participating in the survey fall under several categories: multinational companies (Interviews 1 and 2), small and medium enterprises (SME) (Interviews 3, 4, and 5), a consulting company (Interview 6), and a lawyer company (Interview 7). Also, one interview was made with a representative of the Lithuanian customs (Interview 8).

The interview course followed the order set out in the Interview Guide. At the beginning of the interview, the participants were provided with background information about the issue of underutilization of the PTAs and the reasons for underutilization revealed in the First comprehensive implementation report of EU trade agreements by the European Commission (2017) and the literature (literature review conducted by the researcher). The researcher considered this important because the participants might not have been aware of/ might not have considered all the issues related to the utilization of PTAs.

The questions were formulated as open-ended questions to encourage the respondents to elaborate on the research points. The questions were formulated keeping in mind the importingexporting firms. Therefore, when interviewing other participants, the researcher adjusted them to the specific situation.

The interview questions were divided into three groups: questions related to the company, the responsible persons, and the utilization of the PTAs.

The first group of questions aimed to re-confirm that the firm meets the requirement of a predefined sufficient experience dealing with PTAs. The second group of questions aimed to establish who (which department and which position) is responsible for the preference-related processes in the company to evaluate the level of participants' involvement in the work with PTAs. The third group of questions aimed to find out: the core information about the obstacles encountered utilizing the preferences in practice or what reasons influenced the decisions not to utilize the preferences at all, and the solutions and other recommendations on what could increase the utilization of PTAs by the firm and in general in Lithuania/EU. The questions of this group: “Do you encounter any obstacles utilizing PTAs? Please consider the ones mentioned in the introductory part, too. What are the ways to eliminate the obstacles (if any are identified)? Do you have other suggestions on how the European Commission could enhance the utilization of PTAs?”.

Results

Following the data gathered from the semi-structured interviews, the issues (obstacles) for utilization of PTAs fall under seven broad categories: compliance-, information-, regulations-, customs-, certification-, preference margin, and harmonization- related obstacles.

The first category is labeled as compliance-related issues. All the participants were concerned with compliance-related issues, which in their turn can be divided into three subcategories:

difficulties complying with rules of origin: “difficult to trace origin to the very farmer” (Interview 2), “time-consuming work, we considered even to hire a separate person” (Interview 3), “hardly possible to ensure 100 percent compliance” (Interview 5), “very complex, if 20 agreements are utilized, 20 sets of different rules apply to the same product” (Interview 8);

lack of knowledge by suppliers/exporters, which means high financial risks for the importer: “suppliers have no clue about what the requirements are, for instance, when asked for INF4 document to verify the origin” (Interview 3), “exporters do not care about compliance, the goal is to provide the certificate of origin” (Interview 6), “companies show little interest, do not want to spend time reading and understanding requirements” (Interview 8);

post-clearance audits: “requirement to keep documents four years long ready for audit is perceived by firms as an administrative burden” (Interview 8); “non-compliance is found during a postclearance audit, firms choose not to utilize preferences due to high risk” (Interview 7); “post-clearance checks are complex and timeconsuming” (Interview 4).

The second category: is information-related issues. These issues were mentioned by all firms, including the lawyer and the consultant, but not by the customs official, in whose opinion the issue is businesses unwilling to read the information available. The participants emphasized the complexity of legal regulations and difficulties in finding the relevant information: “a lot of information and regulations, it is hard to find the relevant information” (Interview 6), and “relevant PTAs are difficult to find” (Interview 5), “there are different rules in various PTAs, many PTAs, it is hard to find the relevant rule”, “Lithuanian customs website is outdated and not user-friendly in general”, “European Commission as well does not provide convenient tools” (Interview 7), “lack of information in Lithuanian” (Interview 4).

The third category: is regulations-related issues. Many participants emphasized the difficulties in reading and understanding the legal requirements set out in PTAs, EU, and national laws: “regulations are difficult to understand, complicated specific language, there is a lack of explanations” (Interview 7), “legal requirements are tough to understand” (Interview I), “the wording of product-specific rules is not always clear” (Interview 3).

The fourth category is customs-related issues. The results of the interviews reveal that firms expect and seek support and information from customs: “customs is not helpful, uses specific terminology that businesses cannot understand” (Interview 3), “customs says that business has to have the knowledge, but it is their main work, not the expertise of the business” (Interview 4), “customs is of no help if one does not have sufficient knowledge in the field” (Interview 6), “the competency of customs officials is low, they do not provide clear explanations”, “lack of spread of information is a general customs issue” (Interview 7), “customs shows no initiative to encourage firms to use PTAs” (Interview 5).

The fifth category is obstacles related to certification procedures. The process of receiving the proof of origin from customs was also indicated as an obstacle: “certification procedure is very complex” (Interview 4), and “it takes much time to receive the proof of origin from customs” (Interview 5).

The sixth category is preference margin-related issues. As administrative costs are pretty high, some of the participants expressed their concerns regarding whether it is worth in some cases to utilize the PTAs: “in some cases, savings are not that high to outweigh administration costs” (Interview 6), “preference margin for some of our products is quite low” (Interview 3).

The seventh category is harmonization-related issues. Two participants emphasized these issues: “non-unified procedures, there are cases when the same origin documents are accepted in one EU Member State, but not accepted in Lithuania” (Interview 2), and “non- harmonized rules of origin in various PTAs are a big issue” (Interview 7).

The comparison between the categories of obstacles for PTAs utilization (Table 1) identified in the literature review and the empirical study shows at least five matches. At the same time, the empirical study did not confirm the significance of such categories of obstacles as lack of awareness of PTAs, the protectionist nature of the rules of origin, and the uncertainty in production costs. The most interesting result of the interviews, which is almost not covered by other sources, are the issues falling under the customs- related category: the lack of communication and consultations from the side of customs.

Table 1. The categories of obstacles for PTAs utilization, literature review, and empirical study comparison

Another question of the empirical study was, “How can the obstacles to PTAs utilization be overcome?”. The suggestions provided by the participants fall under five categories: information-, certification-, harmonization-, customs- and compliance-related suggestions,

The first category is information-related suggestions. As regards the information, the participants had the following suggestions: “information should be provided in a structured manner”, “database of PTAs should be created and a step-by- step guide provided” (Interview 1), “information in national EU languages should be available” (Interview 7), “customs should point out that there is an option to utilize preferences” (Interview 5), “customs can be invited to various events to speak about preferences” (Interview 8).

Under the second category, the issues of certification, there were these suggestions: “electronic certificates would save time” (Interview 2), “it would be great to use electronic certificates” (Interview 5), and “self-certification might be a good solution” (Interview 4), “self-certification is being implemented in trade with some countries and will be used more widely in the future” (Interview 8).

The third category is harmonization suggestions. Two participants found it very important to harmonize the rules and procedures: “procedures should be harmonized first in all the EU Member States” (Interview 2), “harmonization of the rules of origin is essential, and only where it is not possible to agree, special rules should apply” (Interview 7).

Under the fourth category, customs-related suggestions, participants shared these recommendations: “customs should act proactively and inform businesses that there is an option to utilize preferences”, and “there should be clear information from customs on the benefits of PTAs and what are the requirements to use them” (Interview 5), “customs has to improve the dissemination of information to business” (Interview 7).

In the fifth, the compliance category, Interview 6 suggested that there should be training or another kind of education on how to prevent risks and ensure compliance.

Discussion

European Commission's Directorate-General for Trade negotiates PTAs intending to increase trade with partner-country and boost the economic growth, however, the results of utilization (despite enormous efforts, as the negotiations might last for more than ten years) are not the ones expected. The study researched the issue from the point of view of a small EU member state, in which the English language is not the mother tongue. This means that information (legal guidelines, instructions, explanations, online tools, etc.) in English is inaccessible to many stakeholders. The same issue was indicated by participants of the Survey on the Rules of Origin of the Commission (2018), where 44 % suggested providing information in their mother tongue. The national customs administrations play an essential role in such (non-English speaker) EU member states, especially when questions arise, businesses revert first to the customs or the customs website, as it was revealed during interviews. The results of the Commission's survey (2018) confirm the finding that the economic operators look for information on rules of origin mainly on the websites of member states' customs authorities. If the customs administration does not take the ambassador's role for the utilization of PTAs and dedicates its efforts to the goal, the efforts of the European Commission will be less effective in these member states. The study reveals the need for the involvement of national customs administrations to achieve the common EU-level goals.

The utilization of PTAs is not obligatory and not self-evident to businesses, and therefore the promotion of it plays a crucial role in pursuing the goal of high utilization rates. During the second WCO Global Origin conference, which took place this year (2021), South Korea was mentioned as a role model for promoting PTA activities. The interviews revealed that neither Lithuanian customs nor any other institution took any actions to promote the utilization of PTAs by Lithuanian companies. On the contrary, companies complain about the low quality and lack of information from customs officials and on the customs website. This is a solid indicator for the national institutions and, first, to the Ministry of Finance (the Customs Department is under the Ministry of Finance) that Lithuania is not utilizing the possibility of increasing its competitive advantage in the global market and boosting economic growth.

Conclusions

The practical implementation (utilization) of PTAs is under development in many countries. The process is complex, and it starts with actively promoting PTAs to traders and ends with finding and fixing bottlenecks. The main finding of the research was that in the EU, national administrations play an essential role as they are the primary contact point and source of information for businesses. Active engagement of customs administrations would contribute significantly to work done by EC.

References

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