Opinion No 1/2001

on a proposal for a Council Regulation amending Council Regulation (EC) No 1258/1999 on the financing of the common agricultural policy as well as various other regulations relating to the common agricultural policy

(submitted pursuant to Article 279 of the EC Treaty)

(2001/C 55/01)

THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community and in particular Articles 248(4) and 279 thereof,

Having regard to the Financial Regulation applicable to the general budget of the European Communities(1), as last amended by Council Regulation (EC, ECSC, Euratom) No 2673/1999 of 13 December 1999(2), and in particular Articles 4, 19(6) and 102(3) thereof,

Having regard to the proposal for a Council Regulation amending Council Regulation (EC) No 1258/1999 on the financing of the common agricultural policy as well as various other regulations relating to the common agricultural policy(3),

Having regard to the Council's request, dated 13 September 2000 and received on 19 September 2000, for the Court of Auditors' opinion on this proposal,

HAS ADOPTED THE FOLLOWING OPINION:

The Commission's proposal

1. Negative expenditure in the agricultural sector is divided into five categories, i.e. amounts recovered as a result of fraud or irregularities, corrections to advances made on the basis of Article 7(4) of Regulation (EC) No 1258/1999, any "profits" which may arise from sales from public storage, the additional levy on surplus milk production and the financial consequences of clearance-of-accounts decisions(4).

2. According to the Commission, this negative expenditure amounted to a total of 1576 million euro for the financial year 1999, which represents 3,9 % of agricultural expenditure and 1,7 % of the total budget(5).

3. The Commission intends to treat this negative expenditure, in future, as earmarked revenue and to credit it to the EAGGF without any specific allocation in order to finance any expenditure, of whatever type, provided it is chargeable to the Guarantee Section.

Negative expenditure

4. In 1997, the Court pointed out that "the Budget includes a number of negative amounts (...) negative expenditure, which is actually revenue. (...) In some cases these negative amounts are authorised by the present Financial Regulation:this applies to (...) the clearance of the EAGGF-Guarantee Fund accounts (Article 102(3)). In other cases these negative amounts have been created within the framework of the budgetary procedure even though the Financial Regulation makes no provision for them: this applies to the co-responsibility levies which are imposed under certain common market organisations (...)".

5. "Every negative amount introduces a lack of transparency and makes reading and understanding the budget more difficult. Furthermore, when these negative amounts are of a special type and are used to reduce amounts under positive headings, certain items of revenue are set off against certain items of expenditure, i.e. there is a breach of the principle of budgetary universality. (...) The existence of any negative amount in the budget must therefore be forbidden."(6)

6. The Commission's proposal, which aims to remove negative expenditure from the EAGGF, therefore offers a - partial - response to the problem of negative amounts which had previously been raised by the Court.

Earmarked revenue

7. Article 268 of the EC Treaty enshrines the budgetary principles of universality and unity, i.e. there must be a single budget, no predetermined allocation of resources to expenditure, and revenue must not be set off against expenditure.

8. In accordance with the Treaty, Article 4(2) of the Financial Regulation lays down that "total revenue shall cover total appropriations for payments". However, the same Article 4 defines clearly, though not exhaustively, a number of exceptions to this provision, and in addition to these explicit derogations there are others which can be deduced from Article 7 (repayment of advances by recipients of Community aid) and Article 27 (reuse of appropriations) of the Financial Regulation. In addition, provision is made in specific regulations for other forms of earmarked revenue(7).

9. In order to abolish the practice of negative expenditure, which is detrimental to the transparency of the budget and the accounts, the Commission is therefore proposing the introduction of new exceptions to the budgetary principle of universality.

10. The Commission is also proposing that these exceptions should be entered not in the Financial Regulation itself but in sectoral regulations, on the grounds that the replacement of negative expenditure by earmarked revenue is only relevant to the agricultural sector and that, as such a step requires the amendment of the various agricultural regulations, these items of earmarked revenue should be mentioned not in the Financial Regulation but in the relevant agricultural regulations(8).

11. The inevitable conclusion to be drawn from this is that the proposal under discussion does not contribute to a simplification of the EAGGF-Guarantee Financial Regulations, which, however, are already difficult for EAGGF managers to master.

Consequences of the Commission's proposal

Budget neutrality

12. The Commission refers to Article 10 of the Interinstitutional Agreement of 6 May 1999 between the European Parliament, the Council and the Commission on budgetary discipline and the improvement of the budgetary procedure(9). This Article stipulates that the financial perspective should not take account of budget items financed by earmarked revenue within the meaning of Article 4 of the Financial Regulation. The Commission adds "therefore, negative expenditure can be replaced without affecting budget neutrality".

13. Nevertheless, as far as agricultural expenditure is concerned, the problem lies in the fact that the principle of the new earmarked revenue would not be set out in Article 4 of the Financial Regulation but in sectoral regulations and that, in addition, the earmarking of the revenue would not affect any definite headings but a subsection of the budget.

14. This is why, in its proposal for the recasting of the Financial Regulation, the Commission claims that "the proposal to abandon negative expenditure would therefore not pose any problems for the financing of agriculture", but the Commission adds, in substance, that for the sake of clarification the European Parliament and the Council are called upon to adopt a declaration giving an interpretation of the proposal and confirming that the second subparagraph of paragraph 10 of the Agreement applies to this newly created earmarked revenue(10).

15. However, if the aim is to ensure that agricultural revenue is monitored in order to determine the common agricultural policy's net financing requirement, an adequate system of monitoring and reporting could be put in place without necessarily undermining the budgetary principle of universality by the creation of earmarked revenue.

The nature of the expenditure to be financed by earmarked revenue

16. The explanation for the Commission's decision to resort to the technique of earmarked revenue lies in the fact that: "In order to avoid compensation at Member State level between expenditure of the EAGGF, Guarantee Section, and revenue earmarked to finance such expenditure, it is necessary for revenues to be paid and used in the framework of the common agricultural policy"(11).

17. In practice, the consequences of the proposal will be, in particular, that the newly created earmarked revenues could be used to finance, in part, both market expenditure (compulsory expenditure, CE) and rural development measures (non-compulsory expenditure, NCE), since rural development expenditure is financed by the Guarantee Section of the EAGGF. Likewise, revenue attributable to one common market organisation could be earmarked for agricultural expenditure under another.

18. The earmarking of revenue as conceived here would allow the Commission to provide itself with a margin of manoeuvre in respect of agricultural expenditure, particularly since the proposal does not specify how the revenue will be distributed between the financing of common agricultural policy expenditure, on the one hand, and rural development measures and supporting measures on the other.

Budgetary and accounting procedures

19. The expression "paid into the Fund", which is used, in particular, in Article 1(3) of the proposal, is inappropriate inasmuch as the EAGGF has neither legal personality nor budgetary autonomy. It is only part of the "Commission" section of the general budget.

20. Furthermore, the Commission's proposal contains an intrinsic paradox which lies in the introduction of an exception to the principle of universality while extending the earmarking of revenue assessed at 1,7 % of the Community budget to a set of expenditure which represents, overall, approximately 43 % of that same budget.

21. In addition, neither the explanatory memorandum nor the text of the Commission's proposal specify the procedures according to which this "earmarked revenue" will be entered in the budget, or the procedures according to which it will be established as due.

22. Finally, while the existence of a balance of unused revenue at the closure of the financial year cannot be excluded a priori, the Commission does not mention the provisions which will be adopted to avoid this situation, or even how any such balances will be dealt with.

Appropriate treatment, in the budget and accounts, of the amounts in question

23. A comparison may be made with agricultural duties collected for the benefit of the Communities on trade with third countries, on the one hand, and with the levies assessed and collected on the production and storage of sugar, isoglucose and inulin, on the other. Although these are agricultural revenue, they are in fact used for the general financing of all Community expenditure.

24. However, the revenue under discussion here cannot be treated as equivalent to the "traditional own resources", which consist of agricultural duties and sugar levies. There is, in fact, a close correlation between the revenue on which the Commission wishes to confer the status of earmarked revenue and the liabilities or expenditure incurred by the EAGGF during the present or previous financial years, whether in connection with the clearance of accounts, which mainly concerns corrections to expenditure incurred during the preceding financial years, fines, penalties and interest on arrears received, or forfeited guarantees and sureties.

25. In the special case of levies on surplus milk, which are, by their very nature, designed to guarantee the equilibrium of the common organisation of the market in milk and its derivatives, it has been noted that considerable recurrent delays in the recording of negative expenditure relating to the additional levy make it impossible to ensure strict correspondence between the expenditure on the marketing season attributable to the budgetary year and the corresponding revenue.

26. With regard to adjustments to advances made on the basis of Article 13 of the budgetary discipline agreement, they consist of suspensions or reductions of advances which are carried out automatically and on a provisional basis, subject to appeal. These adjustments are not revenue. In fact, if the Commission pays a Member State an amount which is less than the amount applied for ("reduction of advances") or does not pay an advance ("suspension of advances"), the unused appropriations remain available and, in principle, there should be neither amounts to be recovered nor amounts to be reallocated. In practice, as these are cancellations of entries in the budget accounts for the current financial year, they could therefore legitimately be treated as adjustments to expenditure.

27. With regard to the profit out-turn of the public storage accounts recorded under every chapter concerned, this is the result, in the main, of an overestimation of any initial depreciation on purchases and of additional depreciation calculated as at 30 September. As these depreciations have, for the most part, been entered in the accounts as expenditure under the preceding financial years, it would be perfectly logical for profits on sales of stocks, which can be treated as cancellations of provisions, to be entered as miscellaneous revenue since the initial outlay which led to this income was made in previous financial years. This reasoning can also be applied to the clearance of accounts and to the majority of recoveries connected with fraud and irregularities.

28. This being so, the solution which complies with budgetary orthodoxy is to enter the agricultural revenue concerned in the general statement of revenue. Article 613 and Item 7001 of the general statement of revenue could be used as the budgetary structure for the incorporation of these new revenues, subject to the amendment and updating of the title and comments. If necessary, and in order to facilitate the drawing-up and monitoring of the financial perspective in the agricultural sector, the budgetary authority, if it finds this advisable, could add an additional type of revenue to the budgetary nomenclature.

Conclusion

29. In the Court's opinion, agricultural revenue which, until now, has appeared in the budget as negative expenditure must be entered from now on in the general statement of revenue. This solution does not require any amendment to the Financial Regulation; only the provisions of Regulations (EC) No 1258/1999, (EEC) No 3950/92, (EEC) No 3492/90 and (EEC) No 352/78, which mention negative expenditure, must, as a consequence, be abrogated or amended.

30. Moreover, no legislative provision is required to ensure that the present negative expenditure is taken into account in the calculations for the financial perspectives.

31. There may be circumstances in which certain specific receipts, outside the field of EAGGF-Guarantee, could enable institutions to spend corresponding amounts for related purposes without the need for fresh budgetary authorisation. Any exception of this type to the principles governing the public finances of the Community, inasmuch as it proves to be justified, in principle, must be included in the Financial Regulation only.

32. Finally, the Court notes the Commission's proposals concerning the amendments to the regulations following Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission(12).

This opinion was adopted by the Court of Auditors in Luxembourg at the Court meeting of 24 and 25 January 2001.

For the Court of Auditors

Jan O. Karlsson

President

(1) OJ L 356, 31.12.1977, p. 1.

(2) OJ L 326, 18.12.1999, p. 1.

(3) Commission Document reference 2000/0204 (CNS) - COM(2000) 494 final.

(4) Explanatory memorandum, paragraph 1, Commission Document reference 2000/0204 (CNS) - COM(2000) 494 final, p. 2.

(5) Explanatory memorandum concerning the proposal to amend Regulation (EC) No 1258/1999, paragraph 1, and the revenue and expenditure account and balance sheet relating to the implementation of the budget for the financial year 1999 - commitment appropriations for the financial year 1999.

(6) Opinion No 4/97 on the proposal for a Council Regulation (Euratom, ECSC, EC) amending the Financial Regulation applicable to the general budget of the European Communities, paragraphs 1.11 to 1.14 of the Annex (OJ C 57, 23.2.1998, p. 9).

(7) With regard to the exceptions to the principle of universality, the proposal for the recasting of the Financial Regulation submitted by the Commission advocates the partial discontinuation of the repayment of payments on account and the reclassification of the majority of current cases of reuse as earmarked revenue and retains a number of other instances of earmarked revenue. There will therefore be provision "in future for two categories of earmarked revenue: that defined in the Financial Regulation itself and that provided for in specific regulations, such as the present negative revenue"; see, on this point, the proposal for a Council Regulation (EC, ECSC, Euratom) on the Financial Regulation applicable to the general budget of the European Communities; Commission Document reference 2000/0203 (CNS) - COM(2000) 461 final, p. 11.

(8) Fourth recital of the Proposal amending Regulation (EC) No 1258/1999; Commission Document reference 2000/0204 (CNS) - COM(2000) 494 final, p. 4.

(9) OJ C 172, 18.6.1999, p. 1.

(10) Op. cit: Com(2000) 461 final, p.14; the second subparagraph of paragraph 10 corresponds, in actual fact, to indent 3 of paragraph 10.

(11) Fifth recital of the proposal; COM(2000) 494 final.

(12) OJ L 184, 17.7.1999, p. 23.