The OLAF report on the smuggling of Chinese products to European Union through the United Kingdom, came at the right moment.

Indeed, EU sources told New Europe that in the context of the Brexit negotiations, the European Commission will use the damning evidence to prevent the UK from having a customs union agreement with the EU post-Brexit.

While the UK government White Paper on Brexit states that “[The UK] will not be bound by the EU’s Common External Tariff or participate in the Common Commercial Policy,” the economic impact of not entering a customs union with the European Union would be significant as goods leaving the UK would be subject to import tarrifs and extra administrative costs. Nearly half of the UK’s exports go to the European Union, according to the UK Office of National Statistics.

The OLAF report depicts a multifaceted, multidimensional scandal, which besides the United Kingdom, involves China as well.

How cooperative was the government of China with the European authorities on the matter?

Chinese authorities in Brussels (Delegation to the European Union) seems to be in shell-shock and are asking the Commission services to communicate that in this case, the government of China has been co-operative in tackling the problems discovered. Of course, literally speaking, the Chinese authorities have indeed been cooperative in the sense that they provided information for a small number of containers where the value of the merchandise exported from China did not correspond to the value of the merchandise imported into Europe. Yet we are talking of cooperation on a small number of containers – let’s say about 100 containers, when the illegal behaviour pertains to over hundreds of thousands of containers.

British VAT magic

As the goods coming from China were declared at a lower value then their worth, the import duties too were fraudulently avoided. Most interestingly, VAT tax was supposedly paid at the final destination of the product by the recipients.

The merchandize was imported by a firm in one place (i.e. Antwerp), was cleared for customs in another place (i.e. Dover – where the value of the produce was declared for less than the cost of the raw materials used to make them) and then the merchandise was distributed in various EU Member States.

In many cases, the VAT tax was not paid. Why? Because the importing company which had not paid VAT at the time of the arrival of the products, had already declared bankruptcy by the time the products were placed on sale in the China Town in another Member State. By using this merry-go-round, those invlolved also avoided paying VAT.

This was the multibillion Euro scandal uncovered by OLAF which involves in the look of the EU budget money both, the United Kingdom and the People’s Republic of China.

Outside for the UK

In the case of the United Kingdom, it is obvious that under the circumstances and given Brexit, anything being imported to the EU from the UK will be heavily scrutinized, with queues and waiting times inversely proportional to what is achieved during the negotiations. The OLAF case certainly strengthens the negotiating position of the EU, and adds more money to the Brexit bill.

Watching China

Meanwhile, European authorities are watching China increasingly closely as according to sources, large amounts of pesticides and fertilizers are being smuggled from China to Europe, mostly in Germany and Poland. The problem in this case is very serious both for consumers and the environment. All such chemicals are produced without any control and contain significantly higher amounts of chemicals, which while give much better results, but contaminate the soil for years and can be lethally harmful to the health of consumers and handlers.