2003R1782 — EN — 05.04.2008 — 011.001

This document is meant purely as a documentation tool and the institutions do not assume any liability for its contents

Amended by:





Amended by:





Corrected by:









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COUNCIL REGULATION (EC) No 1782/2003

of 29 September 2003

establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers and amending Regulations (EEC) No 2019/93, (EC) No 1452/2001, (EC) No 1453/2001, (EC) No 1454/2001, (EC) 1868/94, (EC) No 1251/1999, (EC) No 1254/1999, (EC) No 1673/2000, (EEC) No 2358/71 and (EC) No 2529/2001







CONTENTS TITLE I SCOPE AND DEFINITIONS TITLE II GENERAL PROVISIONS Chapter 1 Cross compliance Chapter 2 Modulation and financial discipline Chapter 3 Farm advisory system Chapter 4 Integrated administration and control system Chapter 5 Other general provisions TITLE III SINGLE PAYMENT SCHEME Chapter 1 General provisions Chapter 2 Establishment of the amount Chapter 3 Payment entitlements Section 1 Payment entitlements based on area Section 2 Payment entitlements subject to special conditions Chapter 4 Land use under the single payment scheme Section 1 Use of the land Section 2 Set-aside entitlements Chapter 5 Regional and optional implementation Section 1 Regional implementation Section 2 Partial implementation Section 3 Optional exclusions Section 4 Optional transition TITLE IV OTHER AID SCHEMES Chapter 1 Specific quality premium for durum wheat Chapter 2 Protein crop premium Chapter 3 Crop specific payment for rice Chapter 4 Area payment for nuts Chapter 5 Aid for energy crops Chapter 6 Aid for starch potato Chapter 7 Dairy premium and additional payments Chapter 8 Specific regional aid for arable crops Chapter 9 Seed aid Chapter 10 Arable crops area payment Chapter 11 Sheep and goat premiums Chapter 12 Beef and veal payments Chapter 13 Grain legumes aid TITLE V TRANSITIONAL AND FINAL RULES ANNEX I List of support schemes fulfilling the criteria set out in Article 1 ANNEX II National ceilings referred to in Article 12(2) ANNEX III Statutory management requirements referred to in Articles 3 and 4 ANNEX IV Good agricultural and environmental condition referred to in Article 5 ANNEX V Compatible support schemes referred to in Article 26 ANNEX VI List of direct payments in relation to the single payment referred to in Article 33 ANNEX VII Calculation of the reference amount referred to in Article 37 ANNEX VIII National ceilings referred to in Article 41 ANNEX IX List of arable crops referred to in Article 66 ANNEX X Traditional production zones for durum wheat as referred to in Article 74 ANNEX XI List of seed species referred to in Article 99 THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty establishing the European Community, and in particular Articles 36, 37 and 299(2) thereof, Having regard to the proposal from the Commission, Having regard to the Opinion of the European Parliament ( 1 ), Having regard to the Opinion of the European Economic and Social Committee ( 2 ), Having regard to the Opinion of the Committee of the Regions ( 3 ), Whereas: (1) Common conditions should be established for direct payments under the various income support schemes in the framework of the common agricultural policy. (2) The full payment of direct aid should be linked to compliance with rules relating to agricultural land, agricultural production and activity. Those rules should serve to incorporate in the common market organisations basic standards for the environment, food safety, animal health and welfare and good agricultural and environmental condition. If those basic standards are not met, Member States should withdraw direct aid in whole or in part on the basis of criteria which are proportionate, objective and graduated. Such withdrawal should be without prejudice to sanctions laid down now or in the future under other provisions of Community or national law. (3) In order to avoid the abandonment of agricultural land and ensure that it is maintained in good agricultural and environmental condition, standards should be established which may or may not have a basis in provisions of the Member States. It is therefore appropriate to establish a Community framework within which Member States may adopt standards taking account of the specific characteristics of the areas concerned, including soil and climatic conditions and existing farming systems (land use, crop rotation, farming practices) and farm structures. (4) Since permanent pasture has a positive environmental effect, it is appropriate to adopt measures to encourage the maintenance of existing permanent pasture to avoid a massive conversion into arable land. (5) In order to achieve a better balance between policy tools designed to promote sustainable agriculture and those designed to promote rural development, a system of progressive reduction of direct payments should be introduced on a compulsory Community-wide basis for the years 2005 to 2012. All direct payments, beyond certain amounts, should be reduced by a certain percentage each year. The savings made should be used to finance measures under the rural development and allocated between Member States according to objective criteria to be defined. However, it is appropriate to establish that a certain percentage of the amounts should remain in the Member States where they have been generated. Until 2005, Member States may continue to apply the current modulation on an optional basis under Council Regulation (EC) No 1259/1999 of 17 May 1999 establishing common rules for direct support schemes under the common agricultural policy ( 4 ). (6) With a view to ensure that the amounts for the financing of the common agricultural policy (subheading 1a) respect the annual ceilings set in the financial perspectives, it is appropriate to provide for a financial mechanism to adjust, where necessary, the direct payments. An adjustment of direct support should be fixed when the forecasts indicate that the subheading 1a, with a security margin of EUR 300 million, is exceeded in a given budget year. (7) In view of the structure adjustments resulting from the abolition of rye intervention, it is appropriate to provide for transitional measures for certain rye production regions financed with part of the amounts generated by modulation. (8) In order to help farmers to meet the standards of modern, high-quality agriculture, it is necessary that Member States establish a comprehensive system offering advice to commercial farms. The farm advisory system should help farmers to become more aware of material flows and on-farm processes relating to the environment, food safety, animal health and welfare without in any way affecting their obligation and responsibility to respect those standards. (9) In order to facilitate the introduction of the farm advisory system, it should be provided for a time-period for Member States to set-up the system. Entry into the system should be on a voluntary basis for farmers with a priority for those who receive more than a certain amount per year in direct payments. Due to its nature of affording advice to farmers, it is appropriate for the information obtained in the course of the advisory activity to be treated as confidential, except in case of serious infringements of Community or national law. (10) Member States must, in accordance with Article 8 of Council Regulation (EC) No 1258/1999 of 17 May 1999 on the financing of the common agricultural policy ( 5 ), take the measures necessary to satisfy themselves that transactions financed by the ‘Guarantee’ Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) are actually carried out and are executed correctly, and prevent and deal with irregularities. (11) In order to improve the effectiveness and usefulness of the administration and control mechanisms, it is necessary to adapt the system established by Council Regulation (EEC) No 3508/92 of 27 November 1992 establishing an integrated administration and control system for certain Community aid schemes ( 6 ) with a view to including the single payment scheme, the support schemes for durum wheat, protein crops, energy crops, rice, potato starch, nuts, milk, seed, grain legumes and specific regional aids as well as controls on the application of the rules on cross compliance, modulation and the farm advisory system. Provision should be made for the possibility of including, at a later stage, other aid schemes. (12) For the sake of effective control and to prevent the submission of multiple aid applications to different paying agencies within one Member State, each Member State should set up a single system to record the identity of farmers submitting aid applications subject to the integrated system. (13) The various components of the integrated system are aimed at a more effective administration and control. Therefore, in the case of Community schemes not covered by this Regulation, the Member States should be authorised to avail themselves of the system, on condition they do not in any way act contrary to the provisions concerned. (14) Given the complexity of the system and the large number of aid applications to be processed, it is essential to use the appropriate technical resources and administration and control methods. As a result, the integrated system should comprise, in each Member State, a computerised data base, an identification system for agricultural parcels, aid applications from farmers, a harmonised control system and, in the single payment scheme, a system for the identification and recording of payment entitlements. (15) To enable the data collected to be processed and used for the verification of aid applications, it is necessary to set up high-performance computerised data bases which make it possible in particular to carry out cross-checks. (16) The identification of agricultural parcels is a key element in the correct application of schemes linked to surface area. Experience has shown that the existing methods have certain deficiencies. Therefore, provision should be made for an identification system to be set up, where necessary, with the aid of remote sensing. (17) For the sake of simplification, Member States should be authorised to make provision for the submission of a single application for several aid schemes and to replace the annual application by a permanent application subject only to annual confirmation. (18) Member States should be enabled to use amounts which become available as a result of payment reductions under modulation for certain additional measures in the framework of rural development support provided for under Council Regulation (EC) No 1257/1999 of 17 May 1999 on support for rural development from the European Agricultural Guidance and Guarantee Fund (EAGGF) ( 7 ). (19) Since the amounts which will become available as a result of cross compliance are not foreseeable sufficiently far ahead to be used for additional measures in the framework of rural development support, those amounts should be credited to the EAGGF ‘Guarantee’ Section, except for a certain percentage which should be retained by the Member States. (20) Payments provided for under Community support schemes should be made by the competent national authorities to beneficiaries in full, subject to any reductions provided for in this Regulation, and within prescribed periods. (21) The support schemes under the common agricultural policy provide for direct income support in particular with a view to ensuring a fair standard of living for the agricultural community. This objective is closely related to the maintenance of rural areas. In order to avoid misallocations of Community funds, no support payments should be made to farmers who have artificially created the conditions required to obtain such payments. (22) Common support schemes have to be adapted to developments, if necessary within short time limits. Beneficiaries cannot, therefore, rely on support conditions remaining unchanged and should be prepared for a possible review of schemes in the light of market developments. (23) In view of the significant budgetary implications of direct payment support and in order to better appraise their impact, Community schemes should be subject to a proper evaluation. (24) Enhancing the competitiveness of Community agriculture and promoting food quality and environment standards necessarily entail a drop in institutional prices for agricultural products and an increase in the costs of production for agricultural holdings in the Community. To achieve those aims and promote more market-oriented and sustainable agriculture, it is necessary to complete the shift from production support to producer support by introducing a system of decoupled income support for each farm. While decoupling will leave the actual amounts paid to farmers unchanged, it will significantly increase the effectiveness of the income aid. It is, therefore, appropriate to make the single farm payment conditional upon cross-compliance with environmental, food safety, animal health and welfare, as well as the maintenance of the farm in good agricultural and environmental condition. (25) Such a system should combine a number of existing direct payments received by a farmer from various schemes in a single payment, determined on the basis of previous entitlements, within a reference period, adjusted to take into account the full implementation of measures introduced in the framework of Agenda 2000 and of the changes to the amounts of aid made by this Regulation. (26) Since the benefits in terms of administrative simplification will increase if many sectors are included the scheme should, in a first stage, cover all products included in the arable crops regime as well as grain legumes, seeds, beef and sheep. The revised payments for rice and durum wheat as well as the payment in the milk sector once the reform is fully implemented, should also be integrated into the scheme. Payments for starch potatoes and dried fodder should also be included in the scheme, while separate payments for the processing industry should be maintained. (27) Specific measures should be laid down for hemp, to ensure that illegal crops cannot be hidden among the crops eligible for the single payment, thereby adversely affecting the common market organisation for hemp. Provision should therefore be made for area payments to be granted only for areas sown to varieties of hemp offering certain guarantees with regard to the psychotropic substance content. The references to the specific measures provided for by Council Regulation (EC) No 1673/2000 of 27 July 2000 on the common organisation of the markets in flax and hemp grown for fibre ( 8 ) should be adapted accordingly. (28) In order to leave farmers free to choose what to produce on their land, including products which are still under coupled support, thus increasing market orientation, the single payment should not be conditional on production of any specific product. However, in order to avoid distortions of competition some products should be excluded from production on eligible land. (29) In order to establish the amount to which a farmer should be entitled under the new scheme, it is appropriate to refer to the amounts granted to him during a reference period. To take account of specific situations, a national reserve should be established. That reserve may also be used to facilitate the participation of new farmers in the scheme. The single payment should be established at farm level. (30) The overall amount to which a farm is entitled should be split into parts (payment entitlements) and linked to a certain number of eligible hectares to be defined, in order to facilitate transfer of the premium rights. To avoid speculative transfers leading to the accumulation of payment entitlements without a corresponding agricultural basis, in granting aid, it is appropriate to provide for a link between entitlements and a certain number of eligible hectares, as well as the possibility of limiting the transfer of entitlements within a region. Specific provisions should be laid down for aid not directly linked to an area taking into account the peculiar situation of sheep and goat rearing. (31) To ensure that the total level of support and entitlements do not exceed current budgetary constraints at Community or national level and, where applicable, at regional level, it is appropriate to provide for national ceilings calculated as the sum of all funds granted in each Member State for the payment of aids under the relevant support schemes, during the reference period and taking into account later adjustments. Proportional reductions should be applicable if the ceiling is overshot. (32) In order to maintain the supply control benefits of set-aside, while reinforcing its environmental benefits under the new system of support, the set-aside conditions for arable land should be maintained. (33) In order to allow flexibility to respond to specific situations, Member States should have the option to define a certain balance between individual payment entitlements and regional or national averages and between existing payments and the single payment. A specific derogation to the prohibition on cultivating fruits and vegetables including table potatoes should be provided for avoiding that in case of regionalisation this does not lead to a disruption of the production whilst minimizing any effect on distortion of competition. Moreover, in order to take into account its agricultural specific conditions, it is appropriate to provide for the possibility for a Member State to ask for a transitional period to implement the single payment scheme while continuing to respect the budgetary ceilings fixed for the single payment scheme. In case of severe distortions of competition during the transitional period and in order to ensure the respect of the Community international obligations, it is appropriate that the Commission can take the necessary measures to cope with such situations. (34) In case of optional or transitional implementation, in order to protect the legitimate expectations of farmers, it is appropriate to fix a date before which Member States have to take their decision to apply the single payment scheme. Moreover, to ensure the continuation of the current regimes, certain conditions for entitlement to aid should be established, leaving to the Commission the powers to lay down the implementing rules. (35) In order to maintain the role of durum wheat production in traditional production area while strengthening the granting of the aid to durum wheat respecting certain minimum quality requirements, it is appropriate to reduce, over a transitional period, the current specific supplement for durum wheat in traditional areas and to abolish the special aid in established areas. Only cultivation which produces durum wheat suitable for use in the manufacture of semolina and pasta products should be eligible for that aid. (36) In order to strengthen the role of protein-rich crops and to provide an incentive to increase the production of these crops, it is appropriate to provide for a supplementary payment for farmers producing these crops. To ensure a correct application of the new scheme, certain conditions for entitlement to aid should be established. A maximum guaranteed area should be prescribed and proportional reductions applied if the maximum guaranteed area is exceeded. (37) In order to maintain the role of rice production in traditional production areas, it is appropriate to provide for a supplementary payment for rice producers. To ensure a correct application of the new scheme, certain conditions for entitlement to aid should be established. National base areas should be established and reductions applied if the areas are exceeded. (38) New support arrangements for nuts should be established to avoid the potential disappearance of nut production in traditional areas and the subsequent negative environmental, rural, social and economic consequences. To ensure a correct application of the new arrangements, certain conditions for entitlement to aid should be established, including a minimum tree density and plot size. In order to cater for specific needs, Member States should be entitled to provide additional aid. (39) To avoid budgetary overshoot, a maximum guaranteed area should be prescribed and proportional reductions applied if the maximum guaranteed area is exceeded, concentrated in Member States which overshoot their area. To ensure balanced application throughout the Community, this area should be allocated in proportion to areas of nut production in Member States. The Member States should be responsible for allocating the areas within their territory. Areas subject to improvement plans should not be eligible for aid under the new scheme until the plan has expired. (40) In order to capitalise on the success of improvement plans in regrouping supply, Member States may make entitlement to Community aid and national aid conditional on membership of producer organisations. To avoid disruption, a smooth transition must be ensured to the new scheme. (41) Currently, support for energy crops consists of the possibility to grow industrial crops on set-aside land. Energy crops account for the largest amount of non-food production on set-aside land. Specific aid for energy crops with the objective of increasing carbon dioxide substitution should be established. A maximum guaranteed area should be prescribed and proportional reductions applied if the maximum guaranteed area is exceeded. The arrangements should be reviewed after a prescribed period taking into account the implementation of the Community biofuels initiative. (42) In order to maintain starch production in traditional areas of production and to recognise the role of potato production in the agronomic cycle, it is appropriate to provide for a supplementary payment for potato starch producers. Moreover, in so far as the payment system for starch potato producers is to be partially included in the single payment scheme, Council Regulation (EC) No 1868/94 of 27 July 1994 establishing a quota system in relation to the production of potato starch ( 9 ) should be amended. (43) The inclusion of arable crops, beef and sheep extends the single payment scheme to premiums which are paid in the outermost regions and Aegean islands, in order to achieve further simplification and to avoid leaving in place a legal and administrative framework for a limited number of farmers in those areas. However, in order to maintain the role of certain type of production in these regions of the Community, it is appropriate to provide that Member States may decide that they need not include those payments in the single payment scheme. The same possibility should apply to the supplementary payments in certain regions of Sweden and Finland as well as to seed aid. In this cases, the continuation of the current regimes requires that certain conditions for entitlement to aid shall be established, leaving to the Commission the powers to lay down the implementing rules. (44) In order to facilitate the transition between the current regimes for arable crops payments and livestock premiums and the new single payment scheme, it is appropriate to provide for some adaptations to the current direct payments in those sectors. (45) Agricultural activity in the Azores is highly dependent on milk production. It thus is advisable to renew and extend the measures taken in Article 23 of Regulation (EC) No 1453/2001 of 28 June 2001 introducing specific measures for certain agricultural products for the Azores and Madeira ( 10 ) and to derogate for a period of six marketing years in total beginning in 1999/2000 from certain provisions of the common market organisation for milk and milk products as regard of limitation of production in order to take account of the level of development of and the conditions for local production. Over the period of its application, this measure should enable the sector in the Azores to continue being restructured without interfering with the milk market and without appreciably affecting the sound working of the levy scheme at Portuguese or Community level. (46) The application of the single farm payment scheme will de facto imply that the conversion programme of land currently under arable crops to extensive livestock farming in Portugal laid down in Regulation (EC) No 1017/94 ( 11 ) becomes without object. Regulation (EC) No 1017/94 should therefore be repealed by the entry into force of the single payment scheme. (47) As a result of the aforementioned changes and new provisions, Council Regulations (EEC) No 3508/92, (EC) No 1577/96 of 30 July 1996 introducing a specific measure in respect of certain grain legumes ( 12 ) and (EC) No 1251/1999 of 17 May 1999 establishing a support system for producers of certain arable crops ( 13 ) should be repealed. Regulation (EC) No 1259/1999 should also be repealed, except some provisions which provide for specific temporary and optional regimes. (48) The specific provisions concerning direct payments in Council Regulations (EEC) No 2358/71 of 26 October 1971 on the common organisation of the market in seeds ( 14 ), No 2019/93 of 19 July 1993 introducing specific measures for the smaller Aegean islands concerning certain agricultural products ( 15 ), (EC) No 1254/1999 of 17 May 1999 on the common organisation of the market in beef and veal ( 16 ), (EC) No 1452/2001 of 28 June 2001 introducing specific measures for certain agricultural products for the French overseas departments ( 17 ), (EC) No 1454/2001 of 28 June 2001 introducing specific measures for certain agricultural products for the Canary Islands ( 18 ) and (EC) No 2529/2001 of 19 December 2001 on the common organisation of the market in sheepmeat and goatmeat ( 19 ) have effectively lost their substance and should therefore be deleted. (49) At the time of entry into force of this regulation, the Community consists of 15 Member States. Taking into account the fact that, according to the Treaty of Accession of 2003, the accession of the new Member States is to take place on 1 May 2004, this Regulation should be adapted, by the date of accession, according to the procedures provided for by that Treaty, in order to make it applicable to the new Member States. (50) The measures necessary for the implementation of this Regulation should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission ( 20 ), Whereas: HAS ADOPTED THIS REGULATION:







TITLE I

SCOPE AND DEFINITIONS

Article 1

Scope

This Regulation establishes:

— ►C1 common rules on direct payments ◄ under income support schemes in the framework of the common agricultural policy which are financed by the ‘Guarantee’ Section of the European Agricultural Guidance and Guarantee Fund ►C1 (EAGGF) listed in Annex I, except those provided for under Regulation (EC) No 1257/1999 ◄ ;

— an income support for farmers (hereinafter referred to as the ‘single payment scheme’);

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— a transitional simplified income support for farmers in the new Member States (hereinafter referred to as the ‘single area payment scheme’);

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— support schemes for farmers producing durum wheat, protein crops, rice, nuts, energy crops, starch potatoes, milk, seeds, arable crops, sheep meat and goat meat, beef and veal, grain legumes, cotton, tobacco, hops, as well as for farmers maintaining olive groves.

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Article 2

Definitions

For the purposes of this Regulation, the following definitions shall apply:

(a) ‘farmer’ means a natural or legal person, or a group of natural or legal persons, whatever legal status is granted to the group and its members by national law, whose holding is situated within Community territory, as referred to in Article 299 of the Treaty, and who exercises an agricultural activity,

(b) ‘holding’ means all the production units managed by a farmer situated within the territory of the same Member State,

(c) ‘agricultural activity’ means the production, rearing or growing of agricultural products including harvesting, milking, breeding animals and keeping animals for farming purposes, or maintaining the land in good agricultural and environmental condition as established under Article 5,

(d) ‘direct payment’ means a payment granted directly to farmers under an income support scheme listed in Annex I,

(e) ‘payments in a given calendar year’ or ‘payments in the reference period’ means the payments granted or to be granted in respect of the year/years concerned, including all payments in respect of other periods starting in that calendar year/years,

(f) ‘agricultural products’ means the products listed in Annex I of the Treaty, including cotton, but with the exception of fishery products,

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(g) ‘new Member States’ means Bulgaria, the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Romania, Slovenia and Slovakia.

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TITLE II

GENERAL PROVISIONS







CHAPTER 1

CROSS COMPLIANCE

Article 3

Main requirements

1. A farmer receiving direct payments shall respect the statutory management requirements referred to in Annex III, according to the timetable fixed in that Annex, and the good agricultural and environmental condition established under Article 5.

2. The competent national authority shall provide the farmer with the list of statutory management requirements and good agricultural and environmental condition to be respected.

Article 4

Statutory management requirements

1. The statutory management requirements referred to in Annex III shall be established by Community legislation in the following areas:

— public, animal and plant health,

— environment,

— animal welfare.

2. The acts referred to in Annex III shall apply within the framework of this Regulation in the version as amended from time to time and, in case of Directives, as implemented by the Member States.

Article 5

Good agricultural and environmental condition

1. Member States shall ensure that all agricultural land, especially land which is no longer used for production purposes, is maintained in good agricultural and environmental condition. Member States shall define, at national or regional level, minimum requirements for good agricultural and environmental condition on the basis of the framework set up in Annex IV, taking into account the specific characteristics of the areas concerned, including soil and climatic condition, existing farming systems, land use, crop rotation, farming practices, and farm structures. This is without prejudice to the standards governing good agricultural practices as applied in the context of Council Regulation (EC) No 1257/1999 and to agri-environment measures applied above the reference level of good agricultural practices.

2. Member States shall ensure that land which was under permanent pasture at the date provided for the area aid applications for 2003 is maintained under permanent pasture. ►M3 The new Member States shall ensure that land which was under permanent pasture on 1 May 2004 is maintained under permanent pasture. ◄ ►A2 However, Bulgaria and Romania shall ensure that land which was under permanent pasture on 1 January 2007 is maintained under permanent pasture. ◄

However a Member State may, in duly justified circumstances, derogate from the first subparagraph, provided that it takes action to prevent any significant decrease in its total permanent pasture area.

The first subparagraph shall not apply to land under permanent pasture to be afforested, if such afforestation is compatible with the environment and with the exclusion of plantations of Christmas trees and fast growing species cultivated in the short term.

Article 6

Reduction or exclusion from payments

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1. Where the statutory management requirements or good agricultural and environmental conditions are not complied with at any time in a given calendar year (hereinafter ‘the calendar year concerned’), and the non-compliance in question is the result of an act or omission directly attributable to the farmer who submitted the aid application in the calendar year concerned, the total amount of direct payments to be granted, after application of Articles 10 and 11 to that farmer, shall be reduced or cancelled in accordance with the detailed rules laid down under Article 7.

The first subparagraph shall also apply where, the non-compliance in question is the result of an act or omission directly attributable to the person to whom or from whom the agricultural land was transferred.

For the purposes of application of the first and second subparagraphs for the year 2008, the calendar year shall correspond to the period of 1 April to 31 December 2008.

For the purpose of this paragraph ‘transfer’ means any type of transaction whereby the agricultural land ceases to be at the disposal of the transferor.

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2. The reductions or exclusions referred to in paragraph 1 shall only apply if the non-compliance relates to:

(a) an agricultural activity, or

(b) an agricultural land of the holding, including the parcels on set aside.

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3. Notwithstanding paragraph 1 and in accordance with the conditions laid down in the detailed rules referred to in Article 7(1), Member States may decide not to apply a reduction or exclusion amounting to EUR 100 or less per farmer and per calendar year.

Where a Member State decides to make use of the option provided for in the first subparagraph, in the following year the competent authority shall take the actions required to ensure that the farmer remedies the findings of non-compliance concerned. The finding and the remedial action to be taken shall be notified to the farmer.

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Article 7

Detailed rules for reduction or exclusion

1. Detailed rules for the reductions and exclusions referred to in Article 6 shall be laid down in accordance with the procedure referred to in Article 144(2). In this context, account shall be taken of the severity, extent, permanence and repetition of the non-compliance found as well as of the criteria set out in paragraphs 2, 3 and 4 of this Article.

2. In case of negligence, the percentage of reduction shall not exceed 5 % and, in case of repeated non-compliance, 15 %.

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In duly justified cases Member States may decide that no reduction shall be applied where, given its severity, extent and permanence, a case of non-compliance is to be considered as minor. Cases of non-compliance which constitute a direct risk to public or animal health shall however not be considered as minor.

Unless the farmer has taken immediate remedial action putting an end to the non-compliance found, the competent authority shall take the actions required that may, where appropriate, be limited to an administrative check, to ensure that the farmer remedies the findings of non-compliance concerned. The finding of minor non-compliance and the remedial action to be taken shall be notified to the farmer.

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3. In case of intentional non-compliance, the percentage of reduction shall not in principle be less than 20 % and may go as far as total exclusion from one or several aid schemes and apply for one or more calendar years.

4. In any case, the total amount of reductions and exclusions for one calendar year shall not be more than the total amount referred to in Article 6(1).

Article 8

Review

By 31 December 2007 at the latest, the Commission shall submit a report on the application of the system of cross compliance accompanied, if necessary, by appropriate proposals notably with the view of amending the list of statutory management requirements set out in Annex III.

Article 9

Amounts resulting from cross compliance

The amount resulting from the application of this Chapter shall be credited to the EAGGF ‘Guarantee’ Section. Member State may retain 25 % of those amounts.







CHAPTER 2

MODULATION AND FINANCIAL DISCIPLINE

Article 10

Modulation

1. All the amounts of direct payments to be granted in a given calendar year to a farmer in a given Member State shall be reduced for each year until 2012 by the following percentages:

— 2005: 3 %,

— 2006: 4 %,

— 2007: 5 %,

— 2008: 5 %,

— 2009: 5 %,

— 2010: 5 %,

— 2011: 5 %,

— 2012: 5 %.

2. The amounts resulting from application of the reductions provided for in paragraph 1, after deducting the total amounts referred to in Annex II, shall be available as additional Community support for measures under rural development programming financed under the EAGGF ‘Guarantee’ Section according to Regulation (EC) No 1257/1999.

3. The amount corresponding to one percentage point shall be allocated to the Member State where the corresponding amounts have been generated. The remaining amounts shall be allocated to the Member States concerned in accordance with the procedure referred to in Article 144(2) on the basis of the following criteria:

— agricultural area,

— agricultural employment,

— gross domestic product (GDP) per capita in purchasing power.

However, any Member State shall receive at least 80 % of the total amounts which the modulation has generated in that Member State.

4. By way of derogation from the second subparagraph of paragraph 3, if in a Member State the proportion of rye as part of its total cereal production exceeded 5 % on average during the period 2000-2002 and its proportion of the total Community production of rye exceeded 50 % during the same period, at least 90 % of the amounts which the modulation generated in the Member State concerned shall be reallocated to that Member State, until 2013 included.

In such a case, without prejudice to the possibility provided for by Article 69, at least 10 % of the amount allocated to the Member State concerned shall be available for measures referred to in paragraph 2 of this Article in rye producing regions.

For the purpose of this paragraph, ‘cereals’ mean the cereals referred to in Annex IX.

5. Paragraph 1 shall not apply to direct payments granted to farmers in the French overseas departments, in the Azores and Madeira, in the Canary and Aegean islands.

Article 11

Financial discipline

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1. Starting with the 2007 budget, with a view to ensuring that the amounts for the financing of the common agricultural policy currently under subheading 1a (market measures and direct aids) respect the annual ceilings set out in the Decision of the Representatives of the Governments of the Member States, meeting within the Council on 18 November 2002, concerning the Conclusions of the European Council meeting in Brussels on 24 and 25 October 2002, an adjustment of the direct payments shall be fixed when the forecasts for the financing of the measures under subheading 1a for a given budget year, increased by the amounts given in Articles 143d and 143e and before application of modulation provided for in Article 10(2), indicate that the abovementioned annual ceiling, taking into account a margin of EUR 300 million below that ceiling, will be exceeded. This is without prejudice to the financial perspective for 2007 to 2013.

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2. The Council, on a Commission's proposal presented not later than 31 March of the calendar year in respect of which the adjustments referred to in paragraph 1 apply, shall fix these adjustments at latest by 30 June of the calendar year in respect of which the adjustments apply.

Article 12

Additional amount of aid

1. An additional amount of aid shall be granted to farmers receiving direct payments under this Regulation.

The additional amount of aid shall be equal to the amount resulting from the application of the percentages of reduction for that calendar year under Article 10 to the first EUR 5 000 or less of direct payments.

2. The total additional amounts of aid which may be granted in a Member State in a calendar year shall not be higher than the ceilings set out in Annex II. Where necessary, Member States shall proceed to a linear percentage adjustment of additional amounts of aid in order to respect the ceilings set out in Annex II.

3. The additional amount of aid shall not be subject to the reductions referred to in Article 10.

4. Starting with the budget 2007, the Commission, in accordance with the procedure referred to in Article 144(2), shall review the ceilings set out in Annex II in order to take into account structural changes of the holdings.

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5. For the new Member States, the ceilings referred to in paragraph 2 shall be fixed by the Commission in accordance with the procedure referred to in Article 144(2).

Article 12a

Application to new Member States

1. Articles 10 and 12 shall not apply to the new Member States until the beginning of the calendar year, in respect of which the level of direct payments applicable in the new Member States is at least equal to the then applicable level of such payments in the Community as constituted on 30 April 2004.

2. In the framework of the application of the schedule of increments provided for in Article 143a to all direct payments granted in the new Member States, Article 11 shall not apply to the new Member States until the beginning of the calendar year, in respect of which the level of direct payments applicable in the new Member States is at least equal to the then applicable level of such payments in the Community as constituted on 30 April 2004.

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CHAPTER 3

FARM ADVISORY SYSTEM

Article 13

Farm advisory system

1. By 1 January 2007, Member States shall set up a system of advising farmers on land and farm management (hereinafter referred to as the ‘farm advisory system’) operated by one or more designated authorities or by private bodies.

2. The advisory activity shall cover at least the statutory management requirements and the good agricultural and environmental condition referred to in Chapter I.

Article 14

Conditions

1. Farmers may participate in the farm advisory system on a voluntary basis.

2. Member States shall give priority to the farmers who receive more that EUR 15 000 of direct payments per year.

Article 15

Obligations of approved private bodies and designated authorities

Without prejudice to national legislation concerning public access to documents, Member States shall ensure that private bodies and designated authorities referred to in Article 13 do not disclose personal or individual information and data they obtain in their advisory activity to persons other than the farmer managing the holding concerned, except any irregularity or infringement found during their activity which is covered by an obligation laid down in Community or national law to inform a public authority, in particular in case of criminal offences.

Article 16

Review

By 31 December 2010 at the latest, the Commission shall submit a report on the application of the farm advisory system, accompanied, if necessary, by appropriate proposals with a view of rendering it compulsory.







CHAPTER 4

INTEGRATED ADMINISTRATION AND CONTROL SYSTEM

Article 17

Scope

Each Member State shall set up an integrated administration and control system, hereinafter referred to as the ‘integrated system’.

The integrated system shall apply to the support schemes established under Titles III and IV of this Regulation and under Article 2a of Regulation (EC) No 1259/1999.

To the extent necessary, it shall also apply to the administration and control of the rules laid down in Chapters 1, 2 and 3.

Article 18

Elements of the integrated system

1. The integrated system shall comprise the following elements:

(a) a computerised data base,

(b) an identification system for agricultural parcels,

(c) a system for the identification and registration of payment entitlements as referred to in Article 21,

(d) aid applications,

(e) an integrated control system,

(f) a single system to record the identity of each farmer who submits an aid application.

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2. In the event of Articles 67, 68, 69, 70 and 71 beingapplied, the integrated system shall incorporate a system forthe identification and registration of animals set up inaccordance, on the one hand, with Regulation (EC) No1760/2000 of the European Parliament and of the Councilof 17 July 2000 establishing a system for the identificationand registration of bovine animals ( 21 ) and regarding the labelling of beef and beef products and, on the other hand,with Council Regulation (EC) No 21/2004 of 17 December2003 establishing a system for the identification and registrationof ovine and caprine animals ( 22 ).

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Article 19

Computerised data base

1. The computerised data base shall record, for each agricultural holding, the data obtained from aid applications.

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This data base shall, in particular, allow direct and immediate consultation, through the competent authority of the Member State, of the data relating to the calendar and/or marketing years starting from the year 2000 and, for aid granted under Chapter 10b of Title IV, from 1 May 1998.

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2. The Member States may set up decentralised data bases on condition that these, and the administrative procedures for recording and accessing data, are designed homogeneously throughout the territory of the Member State and are compatible with one another in order to allow cross-checks.

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Article 20

Identification system for agricultural parcels

1. The identification system for agricultural parcels shall be established on the basis of maps or land registry documents or other cartographic references. Use shall be made of computerised geographical information system techniques including preferably aerial or spatial orthoimagery, with a homogenous standard guaranteeing accuracy at least equivalent to cartography at a scale of 1:10000.

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2. For the Member states applying the aid for olive groves provided for in Chapter 10b of Title IV, the identification system shall include a geographical information system for olive cultivation, consisting of a computerised alphanumerical database and a computerised graphical reference database for olive trees and areas concerned.

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3. Member States not applying the aid for olive groves provided for in Chapter 10b of Title IV may decide to include the geographical information system for olive cultivation referred to in paragraph 2 in the identification system for agricultural parcels.

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Article 21

System for the identification and registration of payment entitlements

1. The system for the identification and registration of payment entitlements shall be set up allowing verification of entitlements and cross-checks with the aid applications and the identification system for agricultural parcels.

2. This system shall allow direct and immediate consultation, through the competent authority of the Member State, of the data relating to at least the previous three consecutive calendar and/or marketing years.

Article 22

Aid applications

1. Each year, a farmer shall submit an application for direct payments subject to the integrated system, indicating, where applicable:

— all agricultural parcels of the holding,

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— in the case of an application for the aid for olive groves provided for in Chapter 10b of Title IV, or where the Member State is applying the option referred to in Article 20(3), the number of olive trees and their positioning in the parcel,

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— the number and amount of payment entitlements,

— any other information provided for by this Regulation or by the Member State concerned.

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2. A Member State may decide that the aid application needs to contain only changes with respect to the aid application submitted the previous year. A Member State shall distribute pre-printed forms based on the areas determined in the previous year and supply graphic material indicating the location of those areas and, where appropriate, the positioning of olive trees.

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3. A Member State may decide that a single aid application shall cover several or all support schemes listed in Annex I or other support schemes.

Article 23

Verification of eligibility conditions

1. Member States shall carry out administrative checks on the aid applications including a verification of the eligible area and the corresponding payment entitlements.

2. Administrative checks shall be supplemented by a system of on-the-spot checks to verify eligibility for the aid. For this purpose, Member States shall draw up a sampling plan of agricultural holdings.

Member States may use remote sensing techniques as a means to carry out on-the-spot checks on agricultural parcels.

3. Each Member State shall designate an authority responsible for coordinating the checks provided for in this Chapter.

Where the Member State provides for the delegation of some aspects of the work to be carried out under this Chapter to specialised agencies or firms, the designated authority shall retain control over, and responsibility for, that work.

Article 24

Reductions and exclusions

1. Without prejudice to reductions and exclusions provided for in Article 6 of this Regulation, where it is found that the farmer does not comply with the eligibility conditions relevant to the granting of the aid as provided for in this Regulation or by Article 2a of Regulation (EC) No 1259/1999, the payment or part of the payment granted or to be granted for which the conditions of eligibility have been meet shall be subject to reductions and exclusions to be laid down in accordance with the procedure referred to in Article 144(2) of this Regulation.

2. The percentage of reduction shall be graduated according to the severity, extent, permanence and repetition of the non-compliance found and may go as far as total exclusion from one or several aid schemes for one or more calendar years.

Article 25

Controls on cross compliance

1. Member States shall carry out on-the-spot-checks to verify whether the farmer complies with the obligations referred to in Chapter 1.

2. Member States may make use of their existing administration and control systems to ensure compliance with the statutory management requirements and good agricultural and environmental condition referred to in Chapter 1.

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These systems, and notably the system for identification and registration of animals set up in accordance with Directive 92/102/EEC, Regulation (EC) No 1760/2000 and Council Regulation (EC) No 21/2004 establishing a system for the identification and registration of ovine and caprine animals and amending Regulation (EEC) No 1782/2003, shall be compatible, within the meaning of Article 26 of this Regulation, with the integrated system.

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Article 26

Compatibility

For the purpose of applying the support schemes listed in Annex V, Member States shall ensure that the administration and control procedures applied to these schemes are compatible with the integrated system in the following respects:

(a) the computerised data base;

(b) the identification systems for agricultural parcels;

(c) administrative checks.

To this end, these systems shall be set up so as to allow, without any problems or conflicts, a common functioning of, or the exchange of data between, them.

Member States may, for the purposes of applying Community or national support schemes other than those listed in Annex V, incorporate in their administration and control procedures one or more components of the integrated system.

Article 27

Information and checks

1. The Commission shall be kept regularly informed of the application of the integrated system.

It shall organise exchanges of views on this subject with the Member States.

2. After informing the competent authorities concerned in good time, authorised representatives appointed by the Commission may carry out:

— any examination or control relating to the measures taken in order to establish and to implement the integrated system,

— checks at the specialised agencies and firms referred to in Article 23(3).

Officials of the Member State concerned may take part in such checks. The aforementioned powers to carry out checks shall not affect the application of national law provisions which reserve certain acts for officials specifically designated by national law. The authorised representatives appointed by the Commission shall in particular not participate in home visits to or the formal interrogation of suspects under the national law of the Member State. They shall, however, have access to the information obtained thereby.

3. Without prejudice to the responsibilities of the Member States for the implementation and application of the integrated system, the Commission may seek the assistance of specialised bodies or persons in order to facilitate the establishment, monitoring and utilisation of the integrated system, in particular with a view to providing the competent authorities of the Member States with technical advice, should they request it.







CHAPTER 5

OTHER GENERAL PROVISIONS

Article 28

Payment

1. Save as otherwise provided for in this Regulation, payments under support schemes listed in Annex I shall be made in full to the beneficiaries.

2. Payments shall be made once a year within the period from 1 December to 30 June of the following calendar year.

However, the additional amount of aid provided for in Article 12 shall be paid by 30 September at the latest of the calendar year following the calendar year concerned.

3. By way of derogation from paragraph 2 of this Article and in accordance with the procedure referred to in Article 144(2), the Commission may:

(a) extend the date of payment for the payments provided for in Article 5(1) of Regulation 136/66/EEC of the Council of 22 September 1966 on the establishment of a common organisation of the market in oils and fats ( 23 );

(b) provide for advances;

(c) authorise the Member States, subject to the budgetary situation, to pay prior to 1 December advances in regions where, due to exceptional conditions, farmers face severe financial difficulties: — of up to 50 % of the payments, — or — of up to 80 % of the payments in case advances have already been provided for.

Article 29

Restriction of payment

Without prejudice to any specific provisions in individual support schemes, no payment shall be made in favour of beneficiaries for whom it is established that they artificially created the conditions required for obtaining such payments with a view to obtaining an advantage contrary to the objectives of that support scheme.

Article 30

Review

Support schemes listed in Annex I shall be applied without prejudice to possible review at any moment in the light of market developments and the budgetary situation.

Article 31

Evaluation

In order to gauge their effectiveness, payments under support schemes listed in Annex I shall be subject to evaluation designed to appraise their impact with respect to their objectives and to analyse their effects on the relevant markets.

Article 32

Interventions under Regulation (EC) No 1258/1999

The support schemes listed in Annex I shall be considered as ‘intervention’ as referred to in Article 1(2)(b) and Article 2(2) of Regulation (EC) No 1258/1999.







TITLE III

SINGLE PAYMENT SCHEME







CHAPTER 1

GENERAL PROVISIONS

Article 33

Eligibility

1. Farmers shall have access to the single payment scheme if:

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(a) they have been granted a payment in the reference period referred to in Article 38 under at least one of the support schemes referred to in Annex VI or, in the case of olive oil, in the marketing years referred to in the second subparagraph of Article 37(1), or, in the case of sugar beet, cane and chicory, if they have benefited from market support in the representative period referred to in point K of Annex VII, or, in the case of bananas, if they have benefited from compensation for loss of income in the representative period referred to in point L of Annex VII, or, in the case of fruit and vegetables, ware potatoes and nurseries, if they were producers of fruit and vegetable products, ware potatoes or nurseries in the representative period applied by Member States for those products in accordance with point M of Annex VII.

▼B

(b) they have received the holding or part of the holding, by way of actual or anticipated inheritance, by a farmer who met the conditions referred to in point (a), or

(c) they have received a payment entitlement from the national reserve or by transfer.

2. In case the farmer who has been granted a direct payment in the reference period changes his legal status or denomination in that period or not later than 31 December of the year preceding the year of application of the single payment scheme, he shall have access to the single payment scheme under the same conditions as the farmer originally managing the holding.

3. In case of mergers during the reference period or not later than 31 December of the year preceding the year of application of the single payment scheme, the farmer managing the new holding shall have access to the single payment scheme under the same conditions as the farmers managing the original holdings.

In case of scissions during the reference period or not later than 31 December of the year preceding the year of application of the single payment scheme, the farmers managing the holdings shall have access, pro rata, to the single payment scheme under the same conditions as the farmer managing the original holding.

Article 34

Application

1. The first year of application of the single payment scheme, the competent authority of the Member State shall send an application form to the farmers referred to in Article 33(1)(a) indicating:

(a) the amount referred to in Chapter 2 (hereinafter referred to as the ‘reference amount’);

(b) the number of hectares referred to in Article 43;

(c) the number and value of payment entitlements as defined in Chapter 3.

2. Farmers shall apply to the single payment scheme by a date, to be fixed by Member States, but not later than 15 May.

However, the Commission, in accordance with the procedure referred to in Article 144(2), may allow the date of 15 May to be postponed in certain zones where exceptional climatic conditions render the normal dates inapplicable.

3. Except in case of force majeure and exceptional circumstances within the meaning of Article 40(4), no entitlements shall be allocated to farmers referred to in Article 33(1)(a) and (b) and to those who receive payment entitlements from the national reserve, if they do not apply to the single payment scheme by 15 May of the first year of application of the single payment scheme.

The amounts corresponding to those entitlements not allocated shall revert to the national reserve referred to in Article 42 and shall be available for reallocation by a date to be fixed by the Member State but not later than 15 August of the first year of application of the single payment scheme.

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Article 35

Double claims

1. The area corresponding to the number of eligible hectares as defined in Article 44(2) in respect of which a single payment application is submitted may be the subject of an application for any other direct payment as well as for any other aid not covered by this Regulation, save as otherwise provided.

2. Farmers who have participated in the tobacco quota buy-back scheme according to Regulation (EEC) No 2075/92 shall be entitled to either the single payment or the quota buy-back price. However, where the quota buy-back price is higher than the amount calculated for tobacco to be included in the reference amount, the farmer shall still be entitled, in addition to the single payment, to a part of the buy-back price corresponding to the difference between the price amount and the amount calculated in accordance with point I of Annex VII to this Regulation.

▼B

Article 36

Payment

1. Aid under the single payment scheme shall be paid in respect of payment entitlements as defined in Chapter 3, accompanied by an equal number of eligible hectares as defined in Article 44(2).

2. Member States may decide to combine payments under the single payment scheme with payments under any other support scheme.







CHAPTER 2

ESTABLISHMENT OF THE AMOUNT

Article 37

Calculation of the reference amount

1. The reference amount shall be the three-year average of the total amounts of payments, which a farmer was granted under the support schemes referred to in Annex VI, calculated and adjusted according to Annex VII, in each calendar year of the reference period referred to in Article 38.

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However, for olive oil the reference amount shall be the four-year average of the total amounts of payments which a farmer was granted under the olive oil support scheme referred to in Annex VI, calculated and adjusted according to Annex VII, during the marketing years 1999/2000, 2000/01, 2001/02 and 2002/03.

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For sugar beet, cane and chicory used for the production of sugar or inulin syrup the reference amount shall be calculated and adjusted in accordance with point K of Annex VII.

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For bananas the reference amount shall be calculated and adjusted in accordance with point L of Annex VII.

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For fruit and vegetables, ware potatoes and nurseries the reference amount shall be calculated and adjusted in accordance with point M of Annex VII.

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2. By way of derogation from paragraph 1, when a farmer commences an agricultural activity in the reference period, the average shall be based on the payments he was granted in the calendar year or years during which he exercised the agricultural activity.

Article 38

Reference period

The reference period shall comprise the calendar years 2000, 2001 and 2002.

Article 39

Application of modulation and cross-compliance laid down under Regulation (EC) No 1259/1999

In case of application of Articles 3 and 4 of Regulation (EC) No 1259/1999 during the reference period, the amounts referred to in Annex VII shall be those that would have been granted before application of the said Articles.

Article 40

Hardship cases

1. By way of derogation from Article 37, a farmer whose production was adversely affected during the reference period by a case of force majeure or exceptional circumstances occurring before or during that reference period shall be entitled to request that the reference amount be calculated on the basis of the calendar year or years in the reference period not affected by the case of force majeure or exceptional circumstances.

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2. If the whole reference period was affected by the case of force majeure or exceptional circumstances, the Member State shall calculate the reference amount on the basis of the 1997 to 1999 period.

In the case of sugar beet, cane and chicory, the reference amount shall be calculated on the basis of the closest marketing year prior to the representative period chosen in accordance with point K of Annex VII. In the case of bananas, it shall be calculated on the basis of the closest marketing year prior to the representative period chosen in accordance with point L of Annex VII. In the case of fruit and vegetables, ware potatoes and nurseries, it shall be calculated on the basis of the closest marketing year prior to the representative period chosen in accordance with point M of Annex VII. In those cases, paragraph 1 shall apply mutatis mutandis.

▼B

3. A case of force majeure or exceptional circumstances, with relevant evidence to the satisfaction of the competent authority, shall be notified by the farmer concerned in writing to the authority within a deadline to be fixed by each Member State.

4. Force majeure or exceptional circumstances shall be recognised by the competent authority in cases such as, for example:

(a) the death of the farmer;

(b) long-term professional incapacity of the farmer;

(c) a severe natural disaster gravely affecting the holding's agricultural land;

(d) the accidental destruction of livestock buildings on the holding;

(e) an epizootic affecting part or all of the farmer's livestock.

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5. Paragraphs 1, 2 and 3 of this Article shall apply, mutatis mutandis, to farmers who, during the reference period, were under agri-environmental commitments in accordance with Regulations (EEC) No 2078/92 ( 24 )and (EC) No 1257/1999, to hop farmers who, during the same period, were under a grubbing-up commitment in accordance with Regulation (EC) No 1098/98 ( 25 ), as well as to tobacco farmers who have participated in the quota buy-back programme in accordance with Regulation (EEC) No 2075/92.

In the case where the measures referred to in the first subparagraph covered both the reference period and the period referred to in paragraph 2, Member States shall establish, according to objective criteria and in such a way as to ensure equal treatment between farmers and to avoid market and competition distortions, a reference amount in accordance with the detailed rules to be laid down by the Commission in accordance with the procedure referred to in Article 144(2).

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Article 41

Ceiling

1. For each Member State, the sum of the reference amounts shall not be higher than the national ceiling referred to in Annex VIII.

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In the case of chicory and taking into account the latest data made available to it by the Member States until 31 March 2006, the Commission may, in accordance with the procedure referred to in Article 144(2), reallocate the national amounts set out in point K(2) of Annex VII and adapt the national ceilings set out in Annex VIII accordingly without changing the global amounts or the ceilings respectively.

1a. Where some of the quantities of the quota sugar or the quota inulin syrup were produced in a Member State on the basis of sugar beet, cane or chicory grown in another Member State during any of the marketing years 2000/2001, 2001/2002, 2002/2003, 2003/2004, 2004/2005 or 2005/2006, the ceilings set out in point K of Annex VII and the national ceilings set out in Annexes VIII and VIIIa of the Member States concerned shall be adapted by transferring the amounts corresponding to the relevant quantities from the national ceilings of the Member State where the relevant sugar or inulin syrup was produced to those of the Member State where the relevant quantities of sugar beet, cane or chicory were grown.

The Member States concerned shall inform the Commission by 31 March 2006 of the quantities concerned.

The transfer shall be decided by the Commission in accordance with the procedure referred to in Article 144(2).

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2. Where necessary, a Member State shall proceed to a linear percentage reduction of the reference amounts in order to ensure respect of its ceiling.

Article 42

National reserve

1. Member States shall, after any possible reduction under Article 41(2), proceed to a linear percentage reduction of the reference amounts in order to constitute a national reserve. This reduction shall not be higher than 3 %.

2. The national reserve shall further include the difference between the ceiling referred to in Annex VIII and the sum of the reference amounts to be granted to farmers under the single payment scheme, before the reduction referred to in paragraph 1 second sentence.

3. Member States may use the national reserve to grant, in priority, reference amounts to farmers who commence their agricultural activity after 31 December 2002, or in 2002 but without receiving any direct payment in that year, according to objective criteria and in such a way as to ensure equal treatment between farmers and to avoid market and competition distortions.

4. Member States shall use the national reserve for the purpose of establishing, according to objective criteria and in such a way as to ensure equal treatment between farmers and to avoid market and competition distortions, reference amounts for farmers finding themselves in a special situation, to be defined by the Commission in accordance with the procedure referred to in Article 144(2).

5. Member States may use the national reserve for the purpose of establishing, according to objective criteria and in such a way as to ensure equal treatment between farmers and to avoid market and competition distortions, reference amounts for farmers in areas subject to restructuring and/or development programs relating to one or the other form of public intervention in order to avoid abandoning of land and/or in order to compensate specific disadvantages for farmers in those areas.

6. In application of paragraphs 3 to 5 Member States may increase the unit value, within the limit of the regional average of the value of entitlements, and/or the number of entitlements allocated to farmers.

7. Member States shall proceed to linear reductions of the entitlements in case their national reserve is not sufficient to cover the cases referred to in paragraphs 3 and 4.

8. ►M14 Except in the case of a transfer by actual or anticipated inheritance and of mergers and scissions, and by way of derogation from Article 46, the entitlements established using the national reserve shall not be transferred for a period of five years starting from their allocation. In the case of a merger or scission, the farmer(s) managing the new holding(s) shall keep the entitlements which were originally allocated from the national reserve until the remaining part of the five-year period. ◄

By way of derogation from Article 45(1), any entitlement which has not been used during each year of the five year period shall revert immediately to the national reserve.

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However, in the case of application of paragraph 5, Member States may decide that, for 2007, unused payment entitlements corresponding to an equivalent number of hectares declared by the farmer and used for ware potatoes or for fruits and vegetables shall not revert to the national reserve.

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9. By way of derogation from Articles 33 and 43, in case of sale or lease for six or more years of the holding or part of it or premium rights in the reference period or not later than ►M4 15 May 2004 ◄ , part of the entitlements to be allocated to the seller or the lessor may revert to the national reserve under conditions to be defined by the Commission, in accordance with the procedure referred to in Article 144(2).







CHAPTER 3

PAYMENT ENTITLEMENTS







Section 1

Payment entitlements based on areas

Article 43

Determination of the payment entitlements

1. Without prejudice to Article 48, a farmer shall receive a payment entitlement per hectare which is calculated by dividing the reference amount by the three-year average number of all hectares which in the reference period gave right to direct payments listed in Annex VI.

The total number of payment entitlements shall be equal to the above mentioned average number of hectares.

However, in the case referred to in Article 37(2), the total number of payment entitlements shall be equal to the average number of hectares of the same period used for the establishment of the reference amounts ►C1 and Article 42(8) shall apply to these payment entitlements. ◄

2. The number of hectares referred to in paragraph 1 shall further include:

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(a) in the case of potato starch, dried fodder, seed, olive groves, and tobacco aids listed in Annex VII, the number of hectares whose production has been granted the aid in the reference period, as calculated in accordance with points B, D, F, H and I of Annex VII;

(aa) in the case of sugar beet, cane and chicory, the number of hectares as calculated in accordance with point 4 of point K of Annex VII;

(ab) in the case of bananas, the number of hectares as calculated in accordance with point L of Annex VII;

(ac) in the case of fruit and vegetables, ware potatoes and nurseries, the number of hectares as calculated in accordance with point M of Annex VII;

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(b) all forage area in the reference period.

3. For the purpose of paragraph 2(b) of this Article, ‘forage area’ shall mean the area of the holding that was available throughout the calendar year, in accordance with Article 5 of Commission Regulation (EC) No 2419/2001 ( 26 ), for rearing animals including areas in shared use and areas which were subject to mixed cultivation. The forage area shall not include:

— buildings, woods, ponds, paths,

— areas used for other crops eligible for Community aid or for permanent crops or horticultural crops,

— areas qualifying for the support system laid down for the producers of certain arable crops, used for the aid scheme for dried fodder or subject to a national or Community set-aside scheme.

4. The payment entitlements per hectare shall not be modified save as otherwise provided.

Article 44

Use of payment entitlements

1. Any payment entitlement accompanied by an eligible hectare shall give right to the payment of the amount fixed by the payment entitlement.

2. ‘Eligible hectare’ shall mean any agricultural area of the holding taken up by arable land and permanent pasture except areas under permanent crops, forests or used for non agricultural activities.

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‘Eligible hectare’ shall also mean one of the following:

(a) areas planted with hops or being under a temporary resting obligation;

(b) areas under olive trees;

(c) areas planted with bananas;

(d) areas with permanent fruit and vegetables crops;

(e) nurseries.

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3. The farmer shall declare the parcels corresponding to the eligible hectare accompanying any payment entitlement. ►M19 Except in case of force majeure or exceptional circumstances, these parcels shall be at the farmer’s disposal on the date fixed by the Member State which shall be no later than the date fixed in that Member State for amendment of the aid application. ◄

4. Member States may, in duly justified circumstances, authorise the farmer to modify his declaration on condition that he respects the number of hectares corresponding to his payment entitlements and the conditions for granting the single payment for the area concerned.

Article 45

Unused payment entitlements

1. Any payment entitlement which has not been used for a period of 3 years shall be allocated to the national reserve.

2. However, unused payment entitlements shall not revert to the national reserve in case of force majeure and exceptional circumstances within the meaning of Article 40(4).

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3. However, for 2007, in Member States that have not made use of the option in Article 71 and that are not making use of the option set out in the second subparagraph of Article 51, unused payment entitlements corresponding to an equivalent number of hectares declared by the farmer and used for ware potatoes or for fruit and vegetables shall not revert to the national reserve.

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Article 46

Transfer of payment entitlements

1. Payment entitlements may only be transferred to another farmer established within the same Member State except in case of transfer by actual or anticipated inheritance.

However, even in the case of actual or anticipated inheritance, payment entitlements may only be used in the Member State where the payment entitlements were established.

A Member State may decide that payment entitlements may only be transferred or used within one and the same region.

2. Payment entitlements may be transferred by sale or any other definitive transfer with or without land. In contrast, lease or similar types of transactions shall be allowed only if the payment entitlements transferred are accompanied by the transfer of an equivalent number of eligible hectares.

Except in case of force majeure or exceptional circumstances as referred to in Article 40(4), a farmer may transfer his payment entitlements without land only after he has used, within the meaning of Article 44, at least 80 % of his payment entitlements during at least one calendar year or, after he has given up voluntarily to the national reserve all the payment entitlements he has not used in the first year of application of the single payment scheme.

3. In case of sale of payment entitlements, with or without land, Member States may ►C1 , acting in compliance with the general principles of Community law, ◄ decide that part of the payment entitlements sold revert to the national reserve or that their unit value is reduced in favour of the national reserve, according to criteria to be fixed by the Commission in accordance with the procedure referred to in Article 144(2).







Section 2

Payment entitlements subject to special conditions

Article 47

Payments giving right to payment entitlements subject to special conditions

1. By way of derogation from Articles 43 and 44, the following amounts resulting from payments granted in the reference period shall be included in the reference amount under the conditions provided for in Article 48 and point C of Annex VII:

(a) the deseasonalisation premium provided for in Article 5 of Regulation (EC) No 1254/1999;

(b) the slaughter premium provided for in Article 11 of Regulation (EC) No 1254/1999;

(c) the special premium for male bovine animals and the suckler cow premium, where the farmer was exempted from the stocking rate requirement pursuant to Article 12(1) of Regulation (EC) No 1254/1999, provided that the farmer did not apply for the extensification payment provided for in Article 13 of that Regulation;

(d) additional payments provided for in Article 14 of Regulation (EC) No 1254/1999 where paid in addition to aid provided for under (a), (b) and (c) of this paragraph;

(e) the aids provided for under the sheep and goats aid scheme: — in the calendar years 2000 and 2001, in Article 5 of Regulation (EC) No 2467/98 and in Article 1 of Regulation (EEC) No 1323/90 ( 27 ), — in the calendar year 2002, in Articles 4, 5 and 11(1) and in the first, second and fourth indent of Article 11(2) of Regulation (EC) No 2529/2001.

2. Starting from 2007 and by way of derogation from Articles 33, 43 and 44, the amounts resulting from dairy premium and additional payments, provided for in Articles 95 and 96 and to be granted in 2007 shall be included in the single payment scheme under the conditions provided for in Articles 48 to 50.

Article 48

Determination of the payment entitlements subject to special conditions

When farmer was granted payments referred to in Article 47, but had no hectares as referred to in Article 43 in the reference period, or the entitlement per hectare results in an amount higher than EUR 5 000, the farmer shall have right, respectively, to a payment entitlement:

(a) equal to the reference amount corresponding to the direct payments he was granted in the three-year average period;

(b) for each EUR 5000 or fraction of the reference amount corresponding to the direct payments he was granted in the three-year average period.

Article 49

Conditions

1. Save as otherwise provided for in this section, the other provisions of this Title shall apply to the payment entitlements subject to special conditions.

2. By way of derogation from Articles 36(1) and 44(1), a farmer who has such payment entitlements for which he did not have hectares in the reference period, shall be authorised by the Member State to derogate from the obligation to provide a number of eligible hectares equivalent to the number of entitlements on the condition he maintains at least 50 % of the agricultural activity exercised in the reference period expressed in livestock units (LU).

In case of a transfer of the payment entitlements, the transferee may benefit from this derogation only if all the payment entitlements subject to the derogation are transferred.

3. The payment entitlements determined according to Article 48 shall not be modified.

Article 50

Dairy premium and additional payments

1. Without prejudice to Article 48 and by way of derogation from Articles 37 and 43, a farmer shall receive a supplementary amount per entitlement resulting by dividing the amounts to be granted under Articles 95 and 96 by the number of entitlements he owns in 2007 except set-aside entitlements.

The unit value of each payment entitlement he owns in 2007 shall be increased by this supplementary amount.

2. In cases where he does not own any entitlement, Articles 48 and 49 shall apply mutatis mutandis. In this case, for the purpose of applying Article 48, the term ‘hectares’ shall mean the eligible hectares the farmer owns in 2007.







CHAPTER 4

LAND USE UNDER THE SINGLE PAYMENT SCHEME







Section 1

Use of the land

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Article 51

Agricultural use of the land

Farmers may use the parcels declared in accordance with Article 44(3) for any agricultural activity except for permanent crops. However, farmers may use the parcels for the following:

(a) hops;

(b) olive trees;

(c) bananas;

(d) permanent fruit and vegetable crops;

(e) nurseries.

By way of derogation from the first subparagraph, a Member State may decide, by 1 November 2007, that until a date to be fixed by the Member State but no later than 31 December 2010, the parcels in one or more regions of the Member State may continue not to be used for:

(a) the production of one or more of the products referred to in Article 1(2) of Regulation (EC) No 2200/96 and in Article 1(2) of Regulation (EC) No 2201/96. However in this case, Member States may decide to allow secondary crops to be cultivated on the eligible hectares during a maximum period of three months starting each year on 15 August; however, at the request of a Member State, this date may be modified in accordance with the procedure referred to in Article 144(2) for regions where cereals are normally harvested earlier for climatic reasons; and/or

(b) the production of ware potatoes; and/or

(c) nurseries.

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Article 52

Production of hemp

1. In case of production of hemp, the varieties used shall have a tetrahydrocannabinol content not exceeding 0,2 %. Member States shall establish a system for verifying the tetrahydrocannabinol content of the crops grown on at least 30 % of the areas on hemp. However, if a Member State introduces a system of prior approval for such cultivation, the minimum shall be 20 %.

2. In accordance with the procedure referred to in Article 144(2), the granting of payments shall be made subject to the use of certified seeds of certain varieties.

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Section 2

Set-aside entitlements

Article 53

Determination of the set-aside entitlements

1. By way of derogation from Articles 37 and 43 of this Regulation, where in the reference period a farmer was subject to the obligation to set aside part of the land of his holding pursuant to Article 6(1) of Regulation (EC) No 1251/1999, the three-year average amount corresponding to the compulsory set-aside payment calculated and adjusted according to Annex VII and the three-year average number of compulsory set-aside hectares shall not be included in the determination of the entitlements referred to in Article 43 of this Regulation.

2. In the case referred to in paragraph 1, the farmer shall receive an entitlement per hectare (hereinafter referred to as ‘set-aside entitlement’) which is calculated by dividing the three-year set-aside average amount by the three-year average number of hectares set-aside, as referred to in paragraph 1.

The total number of set-aside entitlements shall be equal to the average number of compulsory set-aside hectares.

Article 54

Use of set-aside entitlements

1. Any set-aside entitlement accompanied by a hectare eligible for set-aside entitlement shall give right to the payment of the amount fixed by the set-aside entitlement.

2. By way of derogation from Article 44(2), ‘hectare eligible for set-aside entitlement’ shall mean any agricultural area of the holding taken up by arable land, except areas which at the date provided for the area aid applications for 2003 were under permanent crops, forests or used for non agricultural activities or under permanent pasture. ►M3 For the new Member States, the reference to the date provided for the area aid applications for 2003 shall be construed as a reference to 30 June 2003. ◄ ►A2 However, for Bulgaria and Romania, the date provided for the area aid applications shall be 30 June 2005. ◄

However, the following areas may be counted as being set aside, as a result of an application made after 28 June 1995:

— areas set aside pursuant to Articles 22 to 24 of Regulation (EC) No 1257/1999, which are neither put to any agricultural use nor used for any lucrative purposes other than those accepted for other land set aside under this Regulation, or

— areas afforested pursuant to Article 31 of Regulation (EC) No 1257/1999.

3. Farmers shall set aside from production the hectares eligible for set-aside entitlements.

4. Set aside areas shall not be less than 0,1 ha in size and 10 metres wide. For duly justified environmental reasons, Member States may accept areas at least 5 metres wide and 0,05 ha in size.

5. Member States may, on terms to be determined in accordance with the procedure referred to in Article 144(2), derogate from first subparagraph of paragraph 2 of this Article, provided that they take action to prevent any significant increase in the total agricultural area eligible to set-aside entitlements.

6. By way of derogation from Articles 36(1) and 44(1), set-aside entitlements shall be claimed before any other entitlement.

7. The set aside obligation shall continue to apply in respect of the set-aside entitlements which are transferred.

Article 55

Exemption from set-aside

A farmer shall not be subject to the obligation referred to in Article 54 if:

(a) his entire holding is managed for the totality of its production in compliance with the obligations laid down in Council Regulation (EEC) No 2092/91 of 24 June 1991 on organic production of agricultural products and indications referring thereto on agricultural products and foodstuffs ( 28 );

(b) the land set-aside is used for the provision of materials for the manufacture within the Community of products not primarily intended for human or animal consumption, provided that effective control systems are applied.

Article 56

Use of the set aside land

1. The land set aside shall be maintained in good agricultural and environmental condition as established under Article 5.

Without prejudice to Article 55, it shall not be used for agricultural purposes and shall not produce any crop for commercial purposes.

2. It may be subject to rotation.

3. If the quantity of by-products for feed or food uses likely to be made available as a result of the cultivation of oilseeds on land set-aside under Article 55(b), will, on the basis of the forecast quantities covered by contracts made with farmers, exceed 1 million tonnes annually expressed in soya bean meal equivalents, in order to limit such quantity to 1 million tonnes, the amount of the forecast quantity under each contract, which may be used of feed or food uses, shall be reduced.

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4. Member States shall be authorised to pay national aid up to 50 % of the costs associated with establishing permanent crops intended for bio-mass production on set-aside land.

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Article 57

Application of other provisions

Save as otherwise provided for in this section, the other provisions of this Title shall apply to the set-aside entitlements.







CHAPTER 5

REGIONAL AND OPTIONAL IMPLEMENTATION







Section 1

Regional implementation

Article 58

Regional allocation of the ceiling referred to in Article 41

1. A Member State may decide, by 1 August 2004 at the latest, to apply the single payment scheme provided for in Chapters 1 to 4 at regional level under the conditions laid down in this Section.

2. Member States shall define the regions according to objective criteria.

Member States with less than three million eligible hectares may be considered as one single region.

3. The Member State shall subdivide the ceiling referred to in Article 41 between the regions according to objective criteria.

Article 59

Regionalisation of the single payment scheme

1. In duly justified cases and according to objective criteria the Member State may divide the total amount of the regional ceiling established under Article 58 or part of it between all the farmers whose holdings are located in the region concerned, including those who do not meet the eligibility criterion referred to in Article 33.

2. In this case of division of the total amount of the regional ceiling, farmers shall receive entitlements, whose unit value is calculated by dividing the regional ceiling established under Article 58 by the number of eligible hectares, within the meaning of Article 44(2), established at regional level.

3. In case of partial division of the total amount of the regional ceiling, farmers shall receive entitlements whose unit value is calculated by dividing the corresponding part of the regional ceiling established under Article 58 by the number of eligible hectares, within the meaning of Article 44(2), established at regional level.

In case the farmer is also entitled to receive entitlements calculated on the remaining part of the regional ceiling, the regional unit value of each of his entitlements, except for set-aside entitlements, shall be increased by an amount corresponding to the reference amount divided by the number his entitlements established in accordance with paragraph 4.

Articles 48 and 49 shall apply mutatis mutandis.

4. The number of entitlements per farmer shall be equal to the number of hectares he declares in accordance with Article 44(2) the first year of application of the single payment scheme, except in case of force majeure or exceptional circumstances within the meaning of Article 40(4).

Article 60

Use of the land

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1. Where a Member State makes use of the option provided for in Article 59, farmers may, by way of derogation from Article 51(b) and (c) and in accordance with this Article, also use the parcels declared in accordance with Article 44(3) for the production of products referred to in Article 1(2) of Regulation (EC) No 2200/96 or in Article 1(2) of Regulation (EC) No 2201/96 and of potatoes other than those intended for the manufacture of potato starch for which aid is granted under Article 93 of this Regulation, except crops referred to in Article 51(a).

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2. The Member State shall establish the number of hectares that may be used according to paragraph 1 of this Article by subdividing, according to objective criteria, the average of the number of hectares that were used for the production of the products referred to in paragraph 1 at national level during the three-year period 2000-2002 amongst the regions defined pursuant to Article 58(2). The average number of hectares at national level and the number of hectares at regional level shall be fixed by the Commission in accordance with the procedure referred to in Article 144(2) on the basis of the data communicated by the Member State.

3. Within the limit established according to paragraph 2 for the region concerned, a farmer shall be allowed to make use of the option referred to in paragraph 1:

(a) within the limit of the number of hectares that he used for the production of the products referred to in paragraph 1 in 2003;

(b) in case of application, mutatis mutandis, of Articles 40 and 42(4), within the limit of a number of hectares to be established according to objective criteria and in such a way as to ensure equal treatment between farmers and to avoid market and competition distortions.

4. Within the limit of the number of hectares that remain available after application of paragraph 3, farmers shall be allowed to produce the products referred to in paragraph 1 on a number of hectares other than the number of hectares falling under paragraph 3 within the limit of a number of hectares used for the production of the products referred to in paragraph 1 in 2004 and/or 2005, whereby priority shall be given to the farmers who produced the products already in 2004 within the limit of the number of hectares used in 2004.

In case of application of Article 71, 2004 and 2005 shall be replaced by, respectively, the year previous to the year of application of the single payment scheme and the year of application itself.

5. In order to establish the individual limits referred to in paragraphs 3 and 4, the Members State shall use the farmer's individual data, where available, or any other evidence at its satisfaction provided by the farmer.

6. The number of hectares for which the authorisation has been established according to paragraphs 3 and 4 of this Article, shall in no case exceed the number of eligible hectares as defined in Article 44(2) declared in the first year of application of the single payment scheme.

7. The authorisation shall be used, within the region concerned, with the corresponding payment entitlement.

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8. Where a Member State decides to use the derogation in the second subparagraph of Article 51, it may also decide, by 1 November 2007, to apply paragraphs 1 to 7 of this Article for the same period. Paragraphs 1 to 7 of this Article shall not apply in any other case.

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Article 61

Grassland

In case of application of Article 59, Member States may also, according to objective criteria, fix, within the regional ceiling or part of it, different per unit values of entitlements to be allocated to farmers referred to in Article 59(1), for hectares under grassland at the date provided for the area aid applications for 2003 and for any other eligible hectare or alternatively for hectares under permanent pasture at the date provided for the area aid applications for 2003 and for any other eligible hectare.

Article 62

Dairy premium and additional payments

By way of derogation from Article 47(2), Member State may decide that the amounts resulting from dairy premiums and additional payments, provided for in Articles 95 and 96 ►C1 , shall be included at national or regional level, in part or in full, in the single payment scheme ◄ starting from 2005. Entitlements established under this paragraph shall be modified accordingly.

The reference amount for those payments shall be equal to the amounts to be granted according to Articles 95 and 96 calculated on the basis of the individual reference quantity for milk available on the holding on 31 March of the year of inclusion, in part or in full, of those payments in the single payment scheme.

Articles 48 to 50 shall apply mutatis mutandis.

Article 63

Conditions for the entitlements established under this section

1. In case of application of Article 59, entitlements established under this section may only be transferred or used within the same region or between regions where the entitlements per hectare are the same.

2. In case of application of Article 59, by way of derogation from Article 53, any farmer in the region concerned shall receive set-aside entitlements.

The number of set-aside entitlements is established by multiplying a farmer's eligible land within the meaning of Article 54(2) declared in the first year of application of the single payment scheme with a set-aside rate.

The set aside rate is calculated by multiplying the basic rate of compulsory set-aside of 10 % by the proportion, in the region concerned, between the land for which arable crops area payments referred to in Annex VI have been granted in the reference period and the eligible land within the meaning of Article 54(2) in the reference period.

The value of the set-aside entitlements shall be the regional value for payment entitlements as established according to Article 59(2) or, as the case may be, Article 59(3) first subparagraph.

Those farmers shall not receive set-aside entitlements who declare less than a number of hectares within the meaning of Article 54(2) which would be needed to produce a number of tonnes equal to 92 tonnes of cereals as defined in Annex IX on the basis of the yields determined according to the regionalisation plan applicable in the region concerned in the year before the year of application of the single payment scheme divided by the proportion referred to in the third subparagraph of paragraph 2 of this Article.

3. By way of derogation from Articles 43(4) and 49(3), Member States may also decide, by 1 August 2004 at the latest, and ►C1 acting in compliance with the general principles of Community law, ◄ that entitlements established under this section shall be subject to progressive modifications according to pre-established steps and objective criteria.

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However, with regard to the inclusion of the sugar beet, cane and chicory payments component in the single payment scheme, Members States may decide by 30 April 2006, to apply the derogation provided for in the first subparagraph.

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With regard to the inclusion of the fruit and vegetables, ware potatoes and nurseries payments component in the single payment scheme, Members States may decide, by 1 April 2008, to apply the derogation provided for in the first subparagraph.

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4. Save as otherwise provided for in this Section, the other provisions of this Title shall apply.







Section 2

Partial implementation

Article 64

General provisions

1. A Member State may decide, by 1 August 2004 at the latest, to apply, at national or regional level, the single payment scheme provided for in Chapters 1 to 4 under the conditions laid down in this Section.

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2. According to the choice made by each Member State, the Commission shall fix, in accordance with the procedure referred to in Article 144(2), a ceiling for each of the direct payments provided for in Articles 66 to 69.

This ceiling shall be equal to the component of each type of direct payment in the national ceilings referred to in Article 41, multiplied by the percentages of reduction applied by Member States in accordance with Articles 66 to 69. The total amount of the fixed ceilings shall be deducted from the national ceilings referred to in Article 41 in accordance with the procedure referred to in Article 144(2).

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3. By at the latest two years after the implementation of the single payment scheme by all Member States or at the latest by 31 December 2009, the Commission shall submit a report to the Council, accompanied, if necessary, by appropriate proposals, on the possible consequences, in terms of market and structural developments, of the implementation by Member States of the options provided for in Sections 2 and 3.

Article 65

Establishment of the entitlements under this section

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1. For the entitlements to be allocated to farmers, after any possible reduction under Article 41, the component of the reference amount which results from each of the direct payments provided for in Articles 66 to 69 shall be reduced by the percentage to be fixed by Member States within the limit fixed in those Articles, and, for direct payments provided for in Article 68b, within the period fixed by Member States in accordance with that Article.

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2. Save as otherwise provided for in this Section, the other provisions of this Title shall apply to the entitlements established on the remaining part of the reference amount.

Article 66

Arable crops payments

In case of arable crops payments, Member States may:

(a) retain up to 25 % of the component of national ceilings referred to in Article 41 corresponding to the arable crops area payments referred to in Annex VI, except compulsory set-aside payment. In this case and within the limit of the ceiling fixed in accordance with Article 64(2), the Member State concerned shall make, on a yearly basis, an additional payment to farmers. The additional payment shall be granted to farmers producing arable crops listed in Annex IX and, in Member States