No C 165/2 Official Journal of the European Communities 5.7.80 
II 
(Preparatory Acts) 
COURT OF AUDITORS 
Opinion of the Court of Auditors on the proposal for a Council Regulation on monetary 
compensatory amounts 
— Document COM (80) 43 final -
EXPLANATORY MEMORANDUM 
1. The common agricultural policy consists in the 
application of certain measures in order to attain the 
specific objectives set out in Article 39 of the Treaty. 
As for the measures involved, Article 40 of the Treaty 
provides for the common organization of markets, 
characterized in particular by Community preference 
and uniform prices. 
2. The choice of a price system implies the 
existence of stable monetary relations between the 
countries subject to this system, i.e. the existence of 
fixed parities between their currencies. 
Such was the position of the six Member States on 
the institution of the common agricultural policy in 
1962. International monetary relations were then 
governed by the Bretton Woods agreement whereby 
each country maintained the parity which it had 
declared to the International Monetary Fund. 
3. From 1971 onwards, when the convertibility of 
the dollar was revoked, international monetary 
relations deteriorated. The western world entered an 
era of floating exchange rates. The EEC countries did 
not escape from the crisis: their currencies went their 
own ways, despite attempts to maintain solidarity 
between certain currencies within an area of relative 
stability known as the 'snake'. 4. The crisis also threatened the basis of the 
European agricultural policy, namely the system of 
common pricing. Without suitable correctives, the 
uniform prices, expressed in units of account, would 
have fluctuated constantly when expressed in national 
currency as a result of variations in the rates on the 
foreign currency market. The agricultural sectors in 
each Member State would have been separated from 
the rest of the economy because of this direct link 
with prices fixed externally. 
In a country whose currency had depreciated in value 
therefore, domestic agricultural prices would have 
undergone successive automatic increases, inversely 
proportionate to the fall in the exchange rate of the 
national currency, thus allocating excessive revenue to 
the agricultural sector. In a country whose currency 
had appreciated in value, the reverse effect, equally 
unwelcome, would have been obtained. 
5. These effects were avoided by establishing an 
artificial network of fixed parities, applicable solely in 
the agricultural sector and characterized by the 
setting of 'green rates'. Consequently, it was 
necessary to institute an adjustment mechanism 
between this network of fixed parities and the 
floating parities of the foreign exchange market, in 
the form of monetary compensatory amounts. 
The first measure assured the stability necessary for 
monetary relations in the agricultural sector by 
creating a special status for agriculture, which 
henceforth had stable prices in national currency, at 
the desired level. 
5.7.80 Official Journal of the European Communities No C 165/3 
The second measure prevented the disparities 
introduced by the first in respect of the national agri­
cultural prices from resulting in international specu­
lative movements of goods at the expense of the 
EAGGF. 
Because the prices in national currency are fixed, 
such movements could have been effected simply in 
order to profit from the exchange transaction, for 
example, by buying goods in a country with a 
depreciated currency, where agricultural prices are 
kept artificially low, and then exporting them to a 
country with an appreciated currency, where prices 
are artificially high, being guaranteed by the paying 
agencies. 
6. Two important concepts result: 
— Green rate (or representative rate): 
rate fixed for the conversion of national 
currencies into units of account for the legal in­
struments relating to the common agricultural 
policy; 
— MCA (monetary compensatory amount): 
sum applicable to certain agricultural products on 
crossing a border to make good the exchange 
difference arising from the use of green rates for 
conversion of common prices into national 
currencies. 
7. The system has been operating since 1969. 
Recent practice has seen the existence of two 
concurrent zones: 
— a homogeneous zone within which the Member 
States are linked by a monetary agreement (the 
'snake'), whose currencies (Bfrs/Lfrs, Fl, DM, 
Dkr) (') — the so-called 'appreciated' currencies 
— have a 'green' value lower than their value on 
the foreign exchange market. Here, the MCAs are 
collected on import and granted on export; 
— a heterogeneous zone where the currencies float 
freely and have a general tendency to depreciate, 
their 'green' value being higher than their value 
on the foreign exchange market. Here, the MCAs 
are granted on import and collected on export. 
The MCAs have thus become a component part of 
the common agricultural policy, despite serious 
drawbacks which, particularly since 1979, have led to 
their gradual removal, as part of the progress towards 
a European monetary union. 
(') The green rate of the Dkr is equal to its central rate and 
Denmark has no MCA. 8. The European monetary system (EMS) may be 
considered as the instrument of this attempt to create 
an area of Community monetary stability leading to a 
strengthened economic union. 
The first steps in this direction consist in the 
establishment of exchange rates which are stable and 
adjustable and the pursuit of measures which will 
promote the convergence of the economies of the 
Member States. 
A new unit of account has been created, the ECU, 
whose composition (2) at present is the same as that 
of the EUA used in the general budget. Narrow 
margins of fluctuation between the currencies of the 
Member States have been set, to be maintained by 
' intervention of the central banks. The pound sterling 
does not form part of this mechanism. 
An equivalent ECU value, called the central rate, is 
established for the eight other currencies and may be 
altered with the agreement of the participant 
countries. 
9. In the future, it is the European monetary 
system that will provide the common agricultural 
policy with the monetary Support that it needs if it is 
to dispense with corrective measures, i.e. a network of 
fixed parities between the currencies of the Member 
States. 
That is why it has from the outset been thought 
desirable to apply it to the common agricultural 
policy and to use the ECU as the monetary unit for 
this purpose. This decision was taken by Regulation 
(EEC) No 652/79 ('): a coefficient was fixed for 
converting the unit of account (u.a.), which had 
hitherto been used, into ECU (1 u.a. = 1-208953 
ECU), so that Community monetary amounts could 
be expressed in ECU and the green rates defined in 
terms of this new unit. 
10. As Regulation (EEC) No 652/79 was due to 
expire on 31 March 1980 it was natural that the 
Commission take advantage of the need to make a 
final decision on the application of the ECU to the 
O Composition: 0-828 DM +115 FF + 0-0885 £ + 
109 Lit + 0-286 Fl + 3-66 Bfrs + 0- 14 Lfrs + 0-217 
Dkr + 0-00759 £Irl. 
O OJ No L 84, 4. 4. 1979. 
NoC 165/4 Official Journal of the European Communities 5. 7. 80 
common agricultural policy to revise and codify the 
statutory provisions relating to the monetary 
compensatory amounts. 
But the proposal for a Council Regulation to this 
end, which is the subject matter of the present 
opinion, does not in fact do much more than repeat 
the provisions of previous Regulations with minor 
amendments. 
The previous provisions, however, had a number of 
shortcomings which should have been remedied, 
especially as the monetary compensatory amounts 
represent a considerable burden on the budget: MCA 
expenditure amounted to 880-3 MEUA in 1978; it is 
an estimated 809-2 MEUA in 1979 and 323 MEUA 
in 1980. 
11. The system contained in the proposal thus has 
certain weaknesses as far as the budget is concerned, 
viz.: 
— adjustments between different kinds of receipts 
and expenditure, which prevent the exact amounts 
being ascertained, 
— an inadequate budgetary nomenclature, 
— the practice of monetary compensatory amounts 
granted upon importation into certain Member 
States being paid by the exporting Member States. 
The practice of financial adjustment 
12. Article 11 of the proposed Regulation, which 
recapitulates the provisions of Article 4a (1) of Regu­
lation (EEC) No 974/71, sets up a system of financial 
adjustment between monetary compensatory amounts 
granted and import duties (customs duties, levies, 
etc. ...) and between monetary compensatory 
amounts collected and export refunds. This rule only 
concerns Member States with depreciated currencies. 
13. Financial adjustment, however, is contrary to 
the provisions of Article 199 of the EEC Treaty and 
of Article 3 of the Financial Regulation of 21 
December 1977; it results in the total concealment of 
certain taxes or payments and prevents the institutions 
from knowing the full amount involved in the 
implementation of the common agricultural policy. 
14. The arguments put forward by the Commission 
to justify this method are the reduction in the number 
of administrative operations, the decrease in oppor­
tunities for fraud and improved liquidity for the final 
beneficiaries. 
The result is a practice which is contrary to the rules 
of regularity and legality and which, moreover, has the serious disadvantage of making analysis of the 
cost to the budget of monetary compensatory 
amounts, or the changes therein, impossible. 
15. The practical advantages sought by the 
Commission may nonetheless be obtained, if the 
departments and national bodies validate and enter in 
the accounts as an entirely separate operation the 
amounts collected and granted, and be authorized 
only to pay or collect the balance of these operations. 
16. Regulation (EEC) No 1380/75 (') laying down 
detailed rules for the application of monetary 
compensatory amounts provides that monetary 
compensatory amounts, of whatever kind, shall be 
calculated on the basis of the common price. In 
practice, the monetary compensatory amounts 
applicable to trade with non-member countries have 
to be calculated on the basis of world prices, which 
are generally lower. In order to offset the over­
valuation of these amounts, a coefficient derived from 
the percentage used to calculate the monetary 
compensatory amount and fixed by the Commission 
is applied to import charges and to export refunds or 
levies. The amounts of the corresponding budgetary 
items are thus affected by this coefficient, negatively 
in the Member States with an appreciated currency 
and positively in the Member States with a 
depreciated currency. 
To ensure that proper classification of expenditure 
and revenue is maintained, the necessary corrections 
should be made in accounting at Community level, at 
least. 
17. If the practice of entering revenue and 
expenditure in full were adopted, the direct effect 
would be an increase in the general budget of the 
Communities by the amounts at present set off. 
In particular, the expenditure entered in Chapter 40 
(in Title IV of Section III): 'Flat-rate repayment to 
the Member States of the costs incurred in collecting 
own resources', would rise by the equivalent of one-
tenth of the increase in the import levies and 
monetary compensatory amounts collected in trade 
with non-member countries. 
The budgetary nomenclature 
18. Representation of the expenditure and revenue 
of monetary compensatory amounts in the present 
(') OJNoL 139,30.5. 1975. 
5. 7. 80 Official Journal of the European Communities No C 165/5 
nomenclature is confused, even if prima facie the 
Regulations are correctly applied. 
19. The monetary compensatory amounts levied in 
trade with non-member countries are, in accordance 
with the Decision of 21 April 1970, considered as 
own resources and entered as such under Revenue in 
Title 1, Chapter 10 of the general budget. But they 
are lumped together in an overall figure which does 
not distinguish between levies, monetary com­
pensatory amounts, supplementary amounts, etc. . . . 
20. The other categories of monetary 
compensatory amounts are entered in Title 7 of the 
Expenditure part of the general budget (in Chapter 
78 for the financial year 1979). These consist of 
monetary compensatory amounts granted in respect 
of trade with non-member countries and considered 
as refund expenditure, and monetary compensatory 
amounts collected or granted in respect of intra-
Community trade and considered as interventions. 
In the latter case, the nomenclature adopted in the 
budget presupposes adjustments between revenue and 
expenditure in the central accounts of the 
Commission. When adjustment leaves a net receipt, it 
is entered as negative expenditure. 
A list of the various types of revenue and expenditure 
is given in the annex hereto. 
21. The establishment of a meaningful, practical 
nomenclature is a prime condition of clear and 
efficient budgetary management. 
The present budgetary structure accounts quite well 
for the expenditure of the common agricultural 
policy, but by no means as well for its receipts. The 
latter — levies, MCAs, etc. ... — are either grouped 
without distinction in a common chapter under own 
resources (with the exception of sugar levies, which 
alone have a separate chapter), or entered as negative 
expenditure under the expenditure of the EAGGF 
Guarantee Section. This situation is not satisfactory. 
22. An adequate budgetary structure would present 
all the EAGGF Guarantee revenue, whether it was in 
the nature of own resources or not, as the counter­
part of agricultural expenditure, i.e. divided as far as 
possible between the common market organizations 
under a special title of the 'Revenue' part of the 
general budget. Payment of monetary compensatory amounts by the 
exporting Member State 
23. In Article 10 of the proposed Regulation, the 
Commission retains the principle laid down in Article 
2a of the former Regulation (EEC) No 974/71 ('), 
namely that the exporting Member States themselves 
pay their exporters the MCAs normally granted at the 
time of import into a Member State whose currency 
has depreciated. 
24. On its initial application in April 1976 and 
during the financial year 1977, this measure made it 
possible to reduce the overall expenditure in 
monetary compensatory amounts of the Community. 
The budget was at that time expressed in IMF u.a., 
and conversion into u.a. of the expenditure incurred 
in pounds sterling and in lire — the United Kingdom 
and Italy being the two States mainly concerned by 
the measure — gave a higher figure than that 
obtained by first converting these pounds or lire into 
another Community currency and then this currency 
into u.a. 
The introduction of the EUA into the budget by the 
Financial Regulation of 21 December 1977 had the 
effect of cancelling this overall gain since the EUA, 
which is made up of a basket of European currencies, 
better reflected the values of these currencies in 
relation to each other. 
25. Consequently, although the system may still 
have some benefit for the importing Member States 
who are relieved of a number of administrative 
operations, or for the exporters who receive two 
monetary compensatory amounts instead of one, its 
effects are now on the whole negative: 
— from a budgetary point of view, the system 
introduced by Article 2a of Regulation (EEC) No 
974/71 no longer changes the level of aid; it only 
complicates presentation and creates uncertainty 
as to the allocation of these amounts between the 
Member States (for an assessment of the effect of 
this phenomenon see Table IV of Annex I of the 
Annual Report of the Court of Auditors for the 
financial year 1978) (2). 
— from the economic point of view, narrowing the 
application of the aid to a single beneficiary (the 
(') Laid down by Regulation (EEC) No 1112/73. 
(2) OJNoC326, 31. 12. 1979. 
No C 165/6 Official Journal of the European Communities 5.7.80 
exporter), instead of two (the exporter and the 
importer) is likely to change the effect of the 
subsidy allocated and, in practice, to change the 
conditions of competition. 
26. In these circumstances, it is difficult to see why 
in its proposal the Commission retains an Article 
which was only an ad hoc measure for conditions 
which today no longer apply. It should be noted, 
moreover, that its 1980 preliminary draft budget does 
not provide for this measure to be continued. 
27. Nevertheless, the technical possibility thus 
created could again prove useful in special circum­
stances, and therefore rather than propose its 
abolition, it would seem advisable for the system to 
be retained, but under the following conditions: 
(i) that the system be extended to all intra-
Community transactions. That is to say, that a 
Member State be given the possibility of vali­
dating and paying both of the MCAs applicable 
to a consignment crossing its frontier, whatever 
other Member State is the country of 
consignment or destination; 
(ii) that this measure not be left to the discretion of a 
Member State, but its use made dependent upon 
a Commission decision. 
THE COURT OF AUDITORS OF THE EUROPEAN 
COMMUNITIES, 
Having regard to the Treaty establishing the 
European Economic Community, and in particular 
Articles 39, 43 and 199 thereof, 
Having regard to the Financial Regulation of 21 
December 1977, and in particular Articles 3 and 22 
and Title VIII thereof, 
Having regard to Council Regulation (EEC) No 
729/70 of 21 April 1970 on the financing of the 
common agricultural policy, and in particular Articles 
1 to 3 and 13 thereof, 
Having regard to Commission Regulation (EEC) No 
1380/75 of 29 May 1975 laying down detailed rules 
for the application of monetary compensatory 
amounts, Having regard to the proposal in document COM 
(80) 43 final for a Council Regulation on monetary 
compensatory amounts referred to the Court for its 
opinion by a letter from the Council of 26 February 
1980, 
Whereas it has proved useful for the Member States 
and profitable for the Community to provide, in 
respect of intra-Community trade, for payment by the 
exporting Member State of the monetary 
compensatory amount granted in an importing 
Member State, by agreement with the latter, but since 
the introduction of the European unit of account in 
the general budget of the Communities, this practice 
now only serves to complicate presentation of 
monetary compensatory amounts in the budget and 
accounts and to render analysis more difficult; 
Whereas the possibility of special arrangements for 
the payment of monetary compensatory amounts may 
nonetheless be preserved, since it might in special 
circumstances benefit the Community financially; 
Whereas these special arrangements can only be 
based upon a Commission Regulation and not a 
simple bilateral agreement between Member States of 
which the Commission is then informed; 
Whereas Article 199 of the Treaty establishing the 
European Economic Community provides for the 
entry in the general budget of all Community revenue 
and expenditure, and likewise Article 3 of the 
Financial Regulation of 21 December 1977 provides 
that all revenue and expenditure shall be entered in 
full in the budget and in the accounts without any 
adjustment against each other; whereas the dero­
gations from this rule referred to in Article 22 of the 
said Financial Regulation do not include monetary 
compensatory amounts; 
Whereas no special reason can be given for applying 
to monetary compensatory amounts a system not in 
conformity with the general law, unless it be to 
reduce the number of administrative operations 
performed in the Member States and to grant cash 
facilities to persons whose balance is in credit; 
Whereas in any case the same administrative 
convenience may be achieved by authorizing the 
set-off of the actual amounts to be paid out and 
collected at the moment of final payment, without 
5.7.80 Official Journal of the European Communities NoC 165/7 
this adjustment being made to the entries in the 
budget and the accounts; 
Whereas the common agricultural policy is not only a 
channel of Community expenditure, but also the 
source of revenue such as levies, monetary 
compensatory amounts, and so forth; 
Whereas the Decision of 21 April 1970 classified 
some of this revenue as own resources, in particular 
levies, sugar levies and monetary compensatory 
amounts charged on trade with non-member 
countries; 
Whereas there is consequently no reason why the 
other levies collected under the common agricultural 
policy should not be classified simply as revenue, 2. With regard to Article 11 of the proposed Regu­
lation: 
(a) that the anticipated adjustment, in the budget 
and accounts between the expenditure or 
revenue of monetary compensatory amounts 
and other revenue or expenditure is in 
contravention not only of the Financial Regu­
lation of 21 December 1977 but also of 
principles fundamental to the sound financial 
management of the Community; 
(b) that the prohibition of any adjustment between 
revenue and expenditure in the budget and 
accounts does not, however, prevent the 
recovery or payment of the balance of a 
transaction in which amounts are both granted 
and charged on behalf of the Communities; 
IS OF THE OPINION: (c) that this Article should be worded as follows: 
I. With regard to Article 10 of the proposed Regu­
lation: 
(a) that instead of referring to a particular 
arrangement for payment of the monetary 
compensatory amounts of one Member State 
by another Member State, this Article should 
lay down the general principle of amendment 
to the rules of Article 2 by way of a 
Commission decision; 
(b) that this Article should be worded as follows: 
'Article 10 
(1) By way of derogation from the 
provisions of Article 2, intra-Community 
monetary compensatory amounts applicable to 
the imports or exports of a Member State may 
-be paid in another Member State, in 
accordance with the rules adopted for this 
purpose pursuant to paragraph 3 of this 
Article. 
In this case, no payment of monetary 
compensatory amounts is to be made upon 
completion of customs formalities in the first 
Member State. 
(2) Where the provisions of paragraph 1 are 
applied, the monetary compensatory amount 
shall be converted on the basis of the average 
spot market rate of the currencies of the 
Member States concerned as recorded over a 
period to be determined or, as appropriate, 
using the central rates. 
(3) Detailed rules for the application of this 
Article shall be adopted in accordance with the 
procedure laid down in Article 13 of Regu­
lation (EEC) No 729/70 of 21 April 1970.' 'Article 11 
(1) Adjustment in the budget and in the 
accounts between the amounts to be charged 
and granted on a single trading operation wjth 
a non-member country shall be prohibited. 
The monetary compensatory amounts on the 
one hand, arid import duties, export levies or 
refunds on the other hand, must each be 
separately validated and entered in the 
accounts for the purposes of the budget of the 
European Communities. 
The amounts obtained by applying monetary 
coefficients to import charges, or to export 
refunds or levies are, for the purposes of the 
budget of the European Communities, to be 
considered as forming part of the monetary 
compensatory amounts. 
(2) Where for a given export or import 
monetary compensatory amounts are to be: 
— either charged at the same time as other 
amounts are to be granted on behalf of the 
Communities, 
— or granted at the same time as other 
amounts are to be charged on behalf of the 
Communities, 
the Member States may effect recovery from, 
or make payment to, the individual trader of 
the overall balance only. 
(3) Detailed rules for the application of this 
Article shall be adopted in accordance with the 
procedure laid down in Article 13 of Regu­
lation (EEC) No 729/70 of 21 April 1970.' 
No C 165/8 Official Journal of the European Communities 5.7.80 
3. With regard to Article 13 of the proposed Regu­
lation: 
(a) that the classification of the monetary 
compensatory amounts charged or granted in 
trade between Member States as interventions 
intended to stabilize agricultural markets 
should not result in revenue from the 
monetary compensatory amounts being 
classified as 'Expenditure' of the general 
budget, in the form of negative expenditure; (b) that a new paragraph should therefore be 
added to Article 13 (2), to read as follows: 
'These amounts shall be entered in the budget 
and in the accounts either in the form of 
revenue or expenditure, under a nomenclature 
based, in so far as is necessary, upon the 
classification appropriate to agricultural 
market organizations.' 
ANNEX 
Types of collection and payment 
(a) Countries with depreciated currencies 
(i) Trade with non-member countries 
Import: Levy — MCA (') granted = Own resource (levy) 
Export: Refund — MCA (2) collected = EAGGF expenditure (refund) 
(ii) Intra-Community trade 
Import: MCA granted (J) = EAGGF expenditure (intervention) 
Export: MCA collected (') = negative EAGGF expenditure (intervention) 
(b) Countries with appreciated currencies 
(i) Trade with non-member countries 
Import: Levy 4- MCA collected = Own resource 
Export: Refund -I- MCA granted = EAGGF expenditure (refund) 
(ii) Intra-Community trade 
Import: MCA collected = negative EAGGF expenditure (intervention) 
Export: MCA granted (') = EAGGF expenditure (intervention) 
(') If the total Levy — MCA granted is negative, the result is an item of expenditure for the EAGGF (refund). 
(') If the total Refund — MCA collected is negative, the result is an own resource. 
O In the case of exports to Italy or the United Kingdom, the MCA to be granted on import to these two 
countries is in fact paid by the other exporting Member States.