Opinion of the Economic and Social Committee on the "Proposal for a Council Regulation (EC) amending Regulation (EEC) No 1911/91 on the application of the provisions of Community law to the Canary Islands"

(1999/C 329/09)

On 8 September 1999, the Council decided to consult the Economic and Social Committee, under Article 262 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Economic and Monetary Union and Economic and Social Cohesion which was responsible for preparing the Committee's work on the subject, adopted its opinion on 1 September 1999. The rapporteur working without a study group was Mr John Simpson.

At its 366th plenary session (meeting of 22 September 1999) the Economic and Social Committee adopted the following opinion by 114 votes in favour with 1 abstention.

1. Introduction

1.1. The Commission has proposed a new Council Regulation amending Regulation (EEC) No 1911/91 on the application of Community law to the Canary Islands.

1.2. The amendment waives until 30 June 2000 a requirement for a further scheduled reduction in the scale of protection to local production of a limited range of products, offered through a local tax on production and imports (details below). The existing Regulation calls for annual reductions of 20 percent in this tax starting from 31 December 1996 and eliminating the tax completely from 31 December 2000 from which date the Canary Islands will also fully implement the Common Customs Tariff of the European Community.

1.3. Effectively, the amendment would postpone for six months the reduction which would otherwise have taken place on 31 December 1999. This postponement will be accompanied by an examination by the Commission of the impact of phasing out the tax on the several sectors concerned. The merits of, and the case for, further special measures in favour of these vulnerable sectors will be examined and, if necessary, a further proposal will be made to the Council.

1.4. This amendment requires the unanimous agreement of the European Council.

1.5. The new arrangements, if any, to be agreed in 2000 will be subject to qualified majority voting in the Council under Article 299(2) as amended by the Amsterdam Treaty.

2. Special provisions applicable to the Canary Islands

2.1. The Canary Islands became part of the EU with the accession of Spain in 1986.

2.2. The Act of Accession of Spain and Portugal acknowledged the special and difficult social and economic situation in the archipelago(1). In recognition of the particular difficulties, initially, the Canary Islands was excluded from the Community customs area and the common commercial policy, and from the common agricultural and fisheries policies.

2.3. In more recent years, measures have been introduced which, in a sympathetic manner, have reduced the scale and impact of these exemptions.

2.4. The APIM system of taxation, (see below), was introduced in 1973 and continued after accession to the Community. This tax has been used to offer some fiscal protection to the more vulnerable sectors of manufacturing industry in the islands.

2.5. The special problems of the Canary Islands, as one of the outermost regions of the Community, have been acknowledged in a number of different ways. These include:

1. Council Regulation (EEC) No 1911/91 sets out the way in which the provisions of Community law would apply to the Canary Islands(2);

2. Council decision setting up a programme of options specific to the remote and insular nature of the Canary Islands (Poseican) (91/314/EEC)(3);

3. Commission decision concerning the tax on production and imports (arbitrio sobre la producción y sobre las importaciones, APIM) based on the specific provisions of Regulation 1911/91(4);

4. Council Regulation (EEC) No 1601/92 established a specific supply system and related specific measures, concerning trade in a range of agricultural products to derogate, temporarily, from the Common Agricultural Policy.

5. Commission decision under the Regis II Community Initiative for a programme from 1994 to 1999 to accelerate closer economic integration into the Community involving a commitment from the Community of 216,9 m.ecu, of which 94 % was from the ERDF and 6 % from EAGGF, in a total programme cost of 385,5 m.ecu;

6. Support from the Structural Funds which, for the period 1994 to 1999, will have contributed 660 m.ecu in an expenditure programme including national expenditure and private financing which totalled 1052 m.ecu.(5) in 1994 prices. This does not take account of any impact of allocations from the Spanish multiregional programmes.

3. The APIM (arbitrio sobre la producción y sobre las importaciones)

3.1. The proposal is that the APIM should continue to apply to seven groups of products at the present rate until 30 June 2000.

3.2. These fall within defined groups of products according to the nomenclature of the Common Customs Tariff. The detailed classifications are listed as an Annex to the proposal. The groups are described as:

- miscellaneous foodstuffs

- tobacco

- chemicals

- paper

- textiles

- metalworking industries

- other manufactured goods (as specified).

3.3. The Commission has come to the conclusion that employment in the sectors identified in paragraph 3.2 could be threatened by the elimination of the APIM. Detailed estimates have been compiled of the adverse implications for employment in each sector.

3.4. A request from the Spanish authorities for the inclusion of soft drinks and construction materials in the list of products for which the reduction in APIM would be suspended has not been accepted by the Commission.

3.5. If the amendment is accepted then the APIM will continue to apply to only 10 percent of the value of all imports to the Canary Islands and the highest rates applied would be a maximum of 6,9 percent on tobacco and 2,3 percent on the specified "manufactured goods".

3.6. The Commission acknowledges that the proposed measure, which would derogate temporarily from the principles laid down in the Regulation (EEC) No 1911/91, must form part of the process of integrating the Canary Islands into the Community and can be aimed only at mitigating the effects of the economic adjustments that have to take place.(6)

4. The economic and social situation in the Canary Islands

4.1. The Canary Islands have a population of 1,6 million people. They are an autonomous region of Spain with a large degree of devolved responsibility for the development of economic policies in the Islands.

4.2. The Community has recognised the unusual and particular problems of the Islands and their implications in securing the integration of the Islands into the Community.

4.3. A feature of the Islands is the large degree of dependence on revenue from tourism. Over 10 million visitors arrive each year. This is a critical source of income but also brings, as a consequence, the need for careful planning of the environmental sustainability of this activity in terms of the use of natural resources, especially fresh water supplies.

4.4. The climate of the region gives a comparative advantage for the growing and export of bananas and tomatoes as well as the production of wine.

4.5. The most conspicuous factors affecting the economy of the Islands are the combination of distance from the main markets of Europe and the relatively small scale of the economy based in the several islands. As a partial offset to the cost of shipping goods to and from the islands, a contribution to exporters based on the extra transport costs of imports and exports between the Islands and the rest of the EU is paid.

4.6. Unemployment is high. More recently, unemployment in the region (using the NUTS II definitions) was the fourth highest in the EU.(7)

4.7. In the ten years from 1987 to 1997, unemployment fell from over 25 percent to 21 percent. However, it remains over twice the average for the whole of the EU.

4.8. GDP per head, as measured in purchasing power standards by Eurostat, rose from 69 percent of the EU average in 1986 to 74,3 percent in 1996.(8) This represents a significant improvement but is still low enough to qualify for Objective 1 status which has now been assured for the period to 2006.

5. Future developments

5.1. Article 299(2) of the Amsterdam Treaty [formerly Article 227(2)] makes specific provision for the application of the Treaty to the French Overseas Departments, the Azores, Madeira and the Canary Islands and provides that the Council, after consulting the Parliament(9), shall adopt specific measures aimed at laying down the conditions for the application of the Treaty to those regions taking account of the structural social and economic situation as described in terms of remoteness, insularity, small size, topography and climate and dependence on a limit range of products. Presumably this reference to products also includes services.

5.2. The specific measures are to take into account areas such as customs and trade policies, fiscal policy, free zones, agriculture and fisheries policies, conditions for the supply of raw materials and essential consumer goods, State Aids and conditions of access to structural funds and to horizontal Community programmes.

5.3. These special measures are to be adopted "without undermining the integrity and coherence of the Community legal order, including the internal market and the common policies".

5.4. For the period 2000-2006, the Commission has already decided that the Canary Islands qualify as an Objective 1 region of the Community. This is a continuation of the position in the years up to 1999. The Canary Island also continue to qualify under the Cohesion Fund which enhances the maximum proportion of eligible costs which may be financed through the Structural Funds.

6. Conclusions and recommendations

6.1. The Economic and Social Committee welcomes this opportunity to comment on the proposed amendment to Regulation (EEC) No 1911/91 which applies the provisions of Community Law to the Canary Islands.

6.2. The Committee recognises that the outermost regions of the European Union merit special consideration in the application of Community policies whilst adhering as closely as is practicable with the spirit and detail of those policies. The Committee particularly endorses the requirement of the Treaty [Article 299(2)] that the integrity and coherence of the Community legal order should not be undermined.

6.3. The evidence of recent years is that the economic position of the Canary Islands has improved in both absolute and relative terms. Nevertheless, efforts to further enhance this progress are desirable.

6.4. The ESC, therefore, welcomes the commitment by the Commission with the Spanish authorities to examine the consequences of suspending the phasing-out of the APIM and, if judged necessary, to present a proposal on possible action. The objective is to eliminate the tax without jeopardising some local production activities in vulnerable sectors.

6.5. Whilst the ESC endorses the general thrust of the proposal by the Commission, there would be merit in using this opportunity to review not just the impact of the APIM system of taxation but also the nature and impact of all Community policies on the development of the Canary Islands and seeking proposals which will more closely integrate the Islands into the Community and generate innovative actions to enhance their development.

6.6. The ESC, therefore, accepts the arguments made for the amendment of Regulation (EEC) No 1911/91 to suspend the phasing-out of the APIM as an appropriate mechanism to allow a more fundamental review of the methods of enhancing development in the Canary Islands.

6.7. When the review has been undertaken, the Economic and Social Committee will have a keen interest in the proposals which emerge and hopes that the Commission will arrange for the Committee to have an opportunity to offer its opinion on their implementation.

Brussels, 22 September 1999.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI

(1) Act of Accession, Protocol No. 2. In particular, the Canary Islands were then excluded from the Common Customs Area and the Common Agricultural Policy.

(2) OJ L 171, 29.6.1991, p. 1.

(3) OJ L 171, 29.6.1991, p. 5.

(4) OJ L 10, 13.1.1996, p. 38.

(5) The impact of structural policies on economic and social cohesion in the Union, 1989-1999 (A first assessment presented by country, October 1996), European Commission, p. 166.

(6) COM(1999) 226 final; paragraph 7.

(7) Sixth Periodic Report on the Social and Economic Situation and Development of the Regions of the European Union, European Commission, Table 43.

(8) Op.cit, Table 43.

(9) There is no specific reference in the amended Article 299(2) to any consultation with the Economic and Social Committee or the Committee of the Regions.