The European Court of Justice (ECJ) concluded on Tuesday that the UK had “failed to fulfil its obligations” in relation to customs control by failing to “combat fraud with regards to undervalued imports of textiles and footwear from China”.
The UK remains subject to ECJ jurisdiction for any breaches of EU law during its time as a member state.
The case dates back to 2017, when the EU’s anti-fraud office said British authorities had allowed criminals to evade customs duties by making false claims about clothes and shoes imported from China.
It found that more than half of all textiles and footwear imported into the UK from China were below “the lowest acceptable prices”.
The European Commission has been seeking £1.7 billion in compensation from the UK to the EU budget.
A statement from the ECJ on “Commission v United Kingdom” said: “The United Kingdom has failed to fulfil its obligations in relation to customs control and the availability of EU own resources by failing to adopt the measures necessary to combat fraud with regards to undervalued imports of textiles and footwear from China.
“The United Kingdom should have taken account of the risk profiles and the types of customs control recommended to it by the European Anti-Fraud Office (Olaf) and the Commission.”
It said Olaf informed member states in 2007, 2009 and 2015 of the risk of “extreme undervaluation of imports of textiles and footwear from China by shell companies registered for the sole purpose of giving fraudulent transactions the appearance of legitimacy”.
According to Olaf, fraudulent imports significantly significantly in the UK “on account of the inadequate nature of the checks carried out by the United Kingdom customs authorities, encouraging the shift of fraudulent operations from other member states to the United Kingdom”, the statement said.
However, according to Olaf, the UK did not follow its recommendations, instead releasing the products into the internal market without conducting appropriate customs controls.
As a result, “a substantial proportion of the customs duties due were not collected or made available to the European Commission”.
The statement said: “The Grand Chamber of the Court of Justice upholds the Commission’s action in part, ruling, in essence, that the United Kingdom has failed to fulfil its obligations under EU law by failing to apply effective customs control measures or to enter in the accounts the correct amounts of customs duties, and accordingly to make available to the Commission the correct amount of traditional own resources in respect of certain imports of textiles and footwear from China”.
The ruling said the full amounts involved have not yet been established “to the requisite legal standard”, adding it is now for the Commission to “recalculate the losses of EU own resources remaining due by taking account of the findings of the court regarding the quantum of the losses and the value to be attributed to them”.