Proposal for a COUNCIL REGULATION on the common organisation of the market in ethyl alcohol of agricultural origin

(presented by the Commission)

EXPLANATORY MEMORANDUM

Introduction

As part of the compromise on agricultural prices for 2000/01 approved by the Council of Ministers (Agriculture) on 17 July 2000, the Commission was asked to look into the advisability of introducing a regulatory framework for agricultural alcohol. The Commission has considered this request and, following several meetings with alcohol experts from the Member States, it has concluded that there is a need to propose a framework of common rules in the form of a lightweight common market organisation for agricultural alcohol. This proposal is being forwarded to the Council, Parliament and the Economic and Social Committee.

The Community market in agricultural alcohol

The Community market in alcohol is in surplus. The EU produces around 20 million hectolitres of alcohol annually, of which 13 million hectolitres is of agricultural origin. Community demand for alcohol is estimated at around 17 million hectolitres and declining.

Production of agricultural alcohol provides an important outlet for Community primary commodities, such as cereals, sugar beet, molasses, potatoes, fruit and wine. It contributes to the viability of raw materials production in rural areas and of the processing industries using this alcohol (spirit drinks, pharmaceuticals and cosmetics). In some cases, production of alcohol can reduce the environmental impact of processing these commodities.

The spirit drinks, cosmetics and pharmaceutical sectors and, to a lesser extent, the industrial sectors are the traditional outlets for agricultural alcohol. Apart from the spirits sector, the market for ethyl alcohol in the European Union can be supplied by ethyl alcohol of both agricultural and non-agricultural origin without restriction.

During the last five years, the sector has been confronted with a series of problems, mainly related to increased competition on the internal market, as follows:

-imports from third countries have increased since the 30% reduction in tariffs as a result of the implementation of the Uruguay Round Agreements of 1995 (from around 400 000 hectolitres in 1995 to just over 1.1 million hectolitres in 1999). The impact of these imports on the Community market is significant given that a high proportion (80%) is duty free or often subsidised domestically,

-in addition, greater quantities are imported as blends of alcohol with denaturants at far lower tariffs. Once imported, the alcohol contained in the blend may be extracted and used for traditional purposes,

-since January 2000, a zero tariff rate has made it possible to import alcohol diluted with water under the tariff heading for vodka in bulk. This change makes it possible to extract the water from the imported product and thereby avoid the tariffs applicable to alcohol.

Future challenges are expected to increase pressure on the sector:

-some of the candidate countries produce large quantities of agricultural alcohol. Except for the general principle of the free movement of goods, there is currently no EU regulatory framework or acquis communautaire to facilitate the integration of those countries,

-the next WTO negotiations are likely to further reduce tariffs, which will increase competition further,

-lastly, the EU alcohol industry can expect challenges on its traditional market outlets from alcohol produced under large-scale bio-fuel programmes, with tax exemptions as an additional incentive.

Since 1 January 1998, the Commission has set up a monitoring system for alcohol imports under the Regulation on the General System of Preferences (GSP). The system has been extended, on a voluntary basis, to alcohol imports from ACP countries. Although effective in its monitoring role, the system is not a practical policy instrument to deal with the import problems identified.

Proposal

In order to create an appropriate instrument to address these problems, a common market organisation for agricultural alcohol is proposed. In the past, several attempts to establish a common market organisation for agricultural alcohol were made but the socio-economic circumstances were different.

The main objectives of this proposal are to increase market information, monitor trade flows and establish a forum for discussion and preparing of decisions.

The Council's request to consider a regulatory framework is limited to the following aspects: definitions, improved statistical information aimed at increased market transparency, a regime for import and export licences and the creation of an appropriate committee for the sector.

Following consideration of the needs of the sector, this proposal is for a framework of common rules, in the form of a "lightweight" common market organisation. This incorporates the elements referred to by the Council and a number of additional elements, such as rules on State aid and a safeguard clause. All the measures proposed are traditionally found in other common market organisations for agricultural products.

1. Definition of different types of alcohol of agricultural origin

Alcohol can be produced from a variety of raw materials, depending on the end-use. In the case of spirit drinks, certain raw materials are required to ensure the characteristics of the final product, creating distinct markets for certain raw products. Although the alcohol is not in itself intended for the final consumer, the indication of the raw material used might have an impact on the consumer's assessment of the final product. Therefore it is useful to provide for the possibility of establishing criteria for defining different types of agricultural alcohol according to the raw material used.

2. Statistical information

This provision specifically foresees the establishment of an annual balance, taking account of production and market outlets. It will establish a standard basis for information on the sector and facilitate decisions to deal with the market situation.

3. Import and export licences

There will be scope for introducing import licences, intended to increase the reliability of information on imports, in particular in light of Member States' concern about the increase in duty-free imports. Licences will also permit, where necessary, the application of the safeguard clause provided for in the proposal.

It will also be possible to introduce export licences should monitoring of exports become necessary.

4. Tariff quotas

In accordance with practice in other agricultural sectors, tariff quotas resulting from international agreements are now managed on a vertical basis. Therefore, the administration of tariff quotas, including determining the most appropriate method for their application, will be undertaken by the Commission under the Management Committee procedure.

5. Safeguard clause

In accordance with practice in other agricultural sectors, provisions are included for urgent measures in the event of serious market disturbance. Rising imports is a feature of the agricultural alcohol market and further increases can be expected as a result of future tariff reductions. The safeguard mechanism proposed will allow action to be taken in the event of disturbances of the market.

6. Inward processing

As for other agricultural sectors, provisions are included to prohibit the use of inward processing arrangements in the event of disturbances of the market.

7. State aids

In order to create equal conditions for the production of agricultural alcohol, the provisions of the Treaty ensuring that aids granted by Member States are compatible with the principle of a common market must be applied.

8. Management Committee

An essential part of the proposal involves appointing a Management Committee for the sector. The activities concerned should be assigned to the Management Committee for Wine since, in most Member States, one administrative unit is responsible for the management of the market in all alcohol products.

Within the Management Committee, the Member States will be able to consider the problems arising and, in certain cases, to deliver opinions on Commission proposals. Alcohol of agricultural origin is produced from a large number of agricultural raw materials (such as cereals, sugar beet, molasses, potatoes, fruit and wine). At times it is a by-product of processing of other products. The choice of raw material depends on both its availability (price and quality) and its foreseeable end use. There is accordingly a need for a special forum where the relevant national experts can contribute to improving knowledge of the situation in the sector.

9. Alcohol of agricultural origin can be produced from raw materials that have been the subject of Community intervention measures or special arrangements (i.e. set-aside in the arable sector). In such cases, the regulations concerned contain the necessary provisions to prevent the disposal of this alcohol through the traditional alcohol outlets described above.

10. Given the close interrelationship between alcohol of agricultural origin and alcohol of non-agricultural origin, the implementation of the proposed Regulation should take account of the global market situation in the alcohol sector and therefore not introduce measures that discriminate between the two types of alcohol on the internal market.

CONCLUSIONS AND IMPACT

This proposal establishes a framework of common rules for agricultural alcohol and seeks to achieve the general objective of uniform application of the common agricultural policy. The rules are intended to meet the requirements on the simplification of legislation.

The type of common market organisation proposed does not include intervention measures on the Community market. The proposal therefore has no financial implications.

Essentially, the proposal introduces the possibility of a trade monitoring system by means of licences for agricultural alcohol and brings such alcohol within the remit of the Management Committee for Wine. This will permit assessment of the market and the preparation of any necessary decisions.

The measures proposed will benefit the whole agricultural alcohol sector, including those regions where production is undertaken by small and medium-sized enterprises.

2001/0055 (CNS)

Proposal for a COUNCIL REGULATION

on the common organisation of the market in ethyl alcohol of agricultural origin

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Articles 36 and 37 thereof,

Having regard to the proposal from the Commission [1],

[1] OJ C, ..., p. .

Having regard to the opinion of the European Parliament [2],

[2] OJ C, ..., p. .

Having regard to the opinion of the Economic and Social Committee [3],

[3] OJ C,..., p. .

Whereas:

(1) The operation and development of the common market in agricultural products should be accompanied by the establishment of a common agricultural policy to include in particular a common organisation of agricultural markets, which may take various forms depending on the product.

(2) The aim of the common agricultural policy is to achieve the objectives set out in Article 33 of the Treaty. This can be accomplished through the introduction of tools to improve monitoring of developments both on the internal market and in trade with third countries.

(3) The processing of certain agricultural raw materials into ethyl alcohol is closely linked with the economy of those raw materials. It can contribute in large measure to enhancing their value and may be of particular economic and social importance for the economy of certain regions of the Community or may be a significant source of income for the producers of the raw materials concerned. It also permits the disposal of products of unsatisfactory quality and short-term surpluses that may cause temporary problems in certain sectors.

(4) A common organisation of the market in ethyl alcohol of agricultural origin should be established for the first time.

(5) The marketing of alcohol from alcohol-producing products which have been the subject of intervention measures or other specific measures is covered by special procedures under the regulations relating to those products in order to ensure adequate competition and to prevent any disturbance of the traditional alcohol market.

(6) For the purpose of monitoring developments on the market in alcohol of agricultural origin, Member States should send the Commission the information necessary to draw up a market balance for agricultural alcohol.

(7) The creation of a single Community market in alcohol requires the establishment of trade arrangements at the Community's external borders. Trade arrangements involving a system of import duties should, in principle, stabilise the Community market. Those trade arrangements must be based on the agreements concluded during the Uruguay Round of multilateral trade negotiations.

(8) In order to be able to monitor trade movements on a permanent basis, provision should be made for an import and export licence scheme with the lodging of a security to ensure that the transactions for which such licences are requested are actually carried out.

(9) It is appropriate to confer on the Commission the power to open and administer tariff quotas resulting from international agreements concluded in accordance with the Treaty or from other legislative acts of the Council.

(10) In addition to the system described above, and to the extent necessary for its proper working, provision should be made for regulating or, when the situation on the market so requires, prohibiting the use of inward and outward processing arrangements.

(11) The system of customs duties makes it possible to dispense with all other protective measures at the Community's external borders. However, the internal market and duty mechanism could, in exceptional circumstances, prove defective. In such cases, so as not to leave the Community market without defence against disturbances that might ensue, the Community should be able to take all necessary measures without delay. All such measures must comply with the obligations arising from the World Trade Organisation Agreements.

(12) The achievement of a single market would be jeopardised by the grant of certain types of aid. The Treaty provisions governing the appraisal of aid granted by Member States and the prohibition of aid incompatible with the common market should be extended to alcohol of agricultural origin.

(13) Since the measures required for the implementation of this Regulation are management measures within the meaning of Article 2 of Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission [4], the measures concerned should be adopted in accordance with the procedure laid down in Article 4 of that Decision.

[4] OJ L 184, 17.7.1999, p. 23.

(14) The common organisation of the market in alcohol of agricultural origin must take proper and simultaneous account of the objectives set out in Articles 33 and 131 of the Treaty.

(15) The common organisation of the market in alcohol of agricultural origin must also comply with the agreements concluded in accordance with Article 300(2) of the Treaty, in particular those forming part of the Agreement establishing the World Trade Organisation and more specifically the Agreement on Technical Barriers to Trade.

(16) In order to guarantee the smooth operation of the arrangements, the Commission should be permitted to adopt transitional measures. The Commission should also be authorised to resolve specific practical problems on a temporary and exceptional basis.

(17) In applying this Regulation, account should be taken of the fact that, with the exception of the spirit drinks sector, the Community ethyl alcohol market is supplied with ethyl alcohol of both agricultural and non-agricultural origin without any restriction. Consequently, the measures for applying this Regulation must not lead to any discrimination between the two types of alcohol,

HAS ADOPTED THIS REGULATION:

Article 1 Products covered

1. A common organisation of the market in ethyl alcohol of agricultural origin covering the following products is established.

CN code // Description

ex 2207 10 00 // Undenatured ethyl alcohol of an alcoholic strength by volume of 80% vol. or higher, of agricultural origin

ex 2207 20 00 // Ethyl alcohol and other spirits, denatured, of any strength, of agricultural origin

ex 2208 90 91 and ex 2208 90 99 // Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol, of agricultural origin

2. For the purposes of this Regulation:

(a) "Ethyl alcohol of agricultural origin" means the liquid obtained by distillation or osmosis, after fermentation of certain sugars under the action of yeast or other ferments, of alcohol-producing agricultural products, excluding spirit drinks as defined in Council Regulation (EEC) No 1576/89 of 29 May 1989 laying down general rules on the definition, description and presentation of spirit drinks [5];

[5] OJ L 160, 12.6.1989, p. 1. Regulation last amended by Regulation (EC) No 3378/94 (OJ L 366, 31.12.1994, p. 1).

(b) "Ethyl alcohol and other spirits, denatured, of agricultural origin" means liquids to which certain substances have deliberately been added, making them unfit for human consumption but not affecting their suitability for industrial use;

(c) "Alcohol-producing agricultural products" means products falling within Chapters 7, 8, 10, 11, 12 and 23 and headings Nos 1701, 1702, 1703, 2008, 2009, 2204, 2205 and 2206 of the combined nomenclature.

TITLE I

Internal market

Article 2 Definitions

The method of production and the characteristics of alcohol obtained from a specific alcohol-producing product of agricultural origin may be laid down in accordance with the procedure referred to in Article 12(2).

Article 3 Information

1. The Member States shall send the Commission the following information:

-before the end of the month following a quarter and for the quarter in question: the production of alcohol of agricultural origin expressed as hectolitres of pure alcohol, broken down by alcohol-producing product used,

-before the end of March and for the previous year: the volume of alcohol of agricultural origin disposed of expressed as hectolitres of pure alcohol, broken down by sector of destination (spirit drinks, perfumes-cosmetics, pharmaceuticals, vinegar industry, other industrial uses),

-before the end of March: the stocks of alcohol of agricultural origin available in the Member State at the end of the previous year,

-before the end of March: forecast production for the current year.

2 On the basis of the information referred to in paragraph 1 and any other information available, the Commission shall draw up a Community balance for the market in alcohol of agricultural origin for the previous year and an estimated balance for the current year.

3 Before the end of April, the Commission shall notify the Member States of the balances referred to in paragraph 2.

TITLE II

Trade with third countries

Article 4 Import and export licences

1. All imports into the Community of the products referred to in Article 1(1) may be subject to the presentation of an import licence. All exports of those products may be subject to the presentation of an export licence.

2. Member States shall issue licences to all applicants, irrespective of their place of establishment within the Community, without prejudice to the provisions adopted for the application of Article 6.

Licences shall be valid throughout the Community.

3. Licences shall be issued subject to the lodging of a security guaranteeing that the products are imported or exported during the term of validity of the licence and, save in cases of force majeure, the security shall be forfeited in whole or in part if import or export is not carried out, or is only carried out partially, within that period.

4. The term of validity of the licences and other detailed rules for the application of this Article shall be laid down in accordance with the procedure referred to in Article 12(2).

5. In accordance with that same procedure, the Commission may decide that the arrangements provided for in this Article shall also cover products falling within CN code 2208 put up in containers of more than 2 litres and presenting all the characteristics of neutral alcohol as defined in Annex I to Regulation (EEC) No 1576/89.

Article 5 Application of Common Customs Tariff duties

Save as otherwise provided in this Regulation, the rates of duty in the Common Customs Tariff shall apply to the products listed in Article 1(1).

Article 6 Tariff quotas

1. Tariff quotas for the products covered by this Regulation resulting from agreements concluded in accordance with Article 300 of the Treaty or from any other act of the Council shall be opened and administered by the Commission in accordance with detailed rules adopted in accordance with the procedure referred to in Article 12(2).

2. Quotas may be administered using one of the following methods or a combination thereof:

(a) a method based on the chronological order in which applications are lodged (on a "first come, first served" basis);

(b) a method of distribution in proportion to the quantities requested when the applications are lodged (the "simultaneous examination" method);

(c) a method taking traditional trade patterns into account ("traditional importers/new arrivals" method).

Other suitable methods may be used. Such methods must avoid any discrimination among the traders concerned.

3. Where necessary, the method of administration shall take account of the supply needs of the Community market and of the need to preserve its equilibrium and may be based on methods used in the past for quotas similar to those referred to in paragraph 1, without prejudice to rights arising under the agreements concluded during the Uruguay Round of multilateral trade negotiations.

4. The detailed rules referred to in paragraph 1 shall provide for annual quotas, if necessary suitably phased over the year, and shall determine the administrative method to be used and where appropriate include provisions on:

(a) the guarantees covering the nature, provenance and origin of the product;

(b) the recognition of the document used for verifying the guarantees referred to in (a);

(c) the terms and conditions on which import licences are to be issued and their term of validity.

Article 7 Inward processing arrangements

To the extent necessary for the proper working of the common organisation of the market in alcohol, the Commission, in accordance with the procedure referred to in Article 12(2), may prohibit in whole or in part the use of inward processing arrangements for the manufacture of the products listed in Annex I to the Treaty.

Article 8 Interpretation of the combined nomenclature

1. The general rules for the interpretation of the combined nomenclature and the detailed rules for its application shall apply to the tariff classification of products covered by this Regulation; the tariff nomenclature resulting from the application of this Regulation is incorporated in the Common Customs Tariff.

2. Save as otherwise provided for in this Regulation or in provisions adopted pursuant hereto, the following shall be prohibited:

(a) the levying of any charge having equivalent effect to a customs duty;

(b) the application of any quantitative restriction or measure having equivalent effect.

Article 9 Emergency measures in the event of serious disturbance

1. If, by reason of imports or exports, the Community market in one or more of the products listed in Article 1 is affected by, or is threatened with, serious disturbance likely to jeopardise the achievement of the objectives set out in Article 33 of the Treaty, appropriate measures may be applied in trade with third countries until such disturbance or threat of disturbance has ceased.

In deciding whether the situation warrants the application of such measures, account shall be taken, in particular, of the quantities for which import licences have been issued or applied for and the figures given in the balance for the marketing year concerned.

The Council, acting in accordance with the procedure laid down in Article 37(2) of the Treaty, shall adopt general rules for the application of this paragraph and shall define the circumstances and limits within which Member States may adopt protective measures.

2. If the situation referred to in paragraph 1 arises, the Commission shall, at the request of a Member State or on its own initiative, decide upon the necessary measures, which shall be communicated to the Member States and be immediately applicable. The Commission shall take decisions on requests from Member States within three working days of their receipt.

3. Measures decided upon by the Commission may be referred to the Council by any Member State within three working days of their notification. The Council shall meet immediately. It may, acting by a qualified majority, confirm, amend or repeal the measure in question within one month of the date of referral.

4. This Article shall be applied having regard to the obligations arising from agreements concluded in accordance with Article 300(2) of the Treaty.

TITLE III

General provisions

Article 10 National aid

Articles 87, 88 and 89 of the Treaty shall apply to production of and trade in the products covered by this Regulation.

Article 11 Communication between the Member States and the Commission

The Member States and the Commission shall exchange all information necessary for the application of this Regulation. Detailed rules for the communication of such information, including the nature and presentation of that information, the deadlines for transmission and the distribution of the information received, shall be adopted in accordance with the procedure referred to in Article 12(2).

Article 12 Management Committee

1. The Commission shall be assisted by the Management Committee for Wine (hereafter referred to as 'the Committee'), established by Article 74 of Regulation (EC) No 1493/1999.

2. Where reference is made to this paragraph, the management procedure laid down in Article 4 of Decision 1999/468/EC shall apply, in compliance with Article 7(3) thereof.

3. The period provided for in Article 4(3) of Decision 1999/468/EC shall be one month.

Article 13

The Committee may consider any other question referred to it by its Chairman either on his or her own initiative or at the request of the representative of a Member State.

Article 14 Compliance with the Treaty and international agreements

This Regulation shall be applied taking proper and simultaneous account of the objectives set out in Articles 33 and 131 of the Treaty.

TITLE IV

Transitional and final provisions

Article 15 Transitional measures

The Commission shall adopt, in accordance with the procedure referred to in Article 12:

(a) the measures required to facilitate the transition to the arrangements established by this Regulation;

(b) the measures required to resolve specific problems. Such measures, if duly justified, may derogate from certain provisions of this Regulation.

Article 16 Entry into force

This Regulation shall enter into force on the seventh day following its publication in the Official Journal of the European Communities.

It shall apply from 1

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

For the Council

The President

>TABLE POSITION>