Proposal for a COUNCIL DECISION authorising Portugal to apply a reduced rate of excise duty in the autonomous region of Madeira on locally produced and consumed rum and liqueurs and in the autonomous region of the Azores on locally produced and consumed liqueurs and eaux-de-vie

(presented by the Commission)

EXPLANATORY MEMORANDUM

In its requests dated 15 June 2000 and 28 February 2001 concerning the measures to implement Article 299(2) of the EC Treaty relating to the outermost regions, Portugal asked for authorisation to apply in Madeira to locally produced and consumed rums and liqueurs, and in the Azores, to locally produced and consumed liqueurs and eaux-de-vie, a reduced excise duty rate, which may not be set more than 75% below the national rate of duty applicable. The reasons given by Portugal for the requests show that a reduction of excise duty is essential for the marketing of these products on the islands. Given the high production costs arising mainly from geographical factors - small firms producing limited quantities, remoteness, fragmented terrain, tight local market - it is clear that rums, liqueurs and eaux-de-vie produced in Madeira and the Azores are at a competitive disadvantage on local markets compared to similar spirits imported or supplied from other parts of the Community. As sales on the local market absorb the bulk of the islands' production of alcoholic beverages, a reduction of excise rates is essential for the survival of the local rum, liqueur and eau-de-vie industry.

Weighing the importance of the legal certainty local economic operators require to develop their commercial activities against the need to set a time limit on tax derogations, the Commission proposes authorising this decision for a period of 7 years on the understanding that after 4 years Portugal will submit a report to the Commission enabling it to assess whether the reasons that justified the granting of the reduced rate still exist.

Comments on the proposed measures

Article 1 authorises Portugal to apply a reduced rate of excise duty on locally produced and consumed rum and liqueurs in the autonomous region of Madeira, and on locally produced and consumed liqueurs and eaux-de-vie in the autonomous region of the Azores.

Article 2 defines what should be understood by rum and liqueurs produced in Madeira and by liqueurs and eaux-de-vie produced in the Azores.

Article 3 sets the amount of the reduction.

Article 4 states the period for which the decision applies. A mid-term evaluation report will be requested for the purposes of assessing whether the reasons which justified the granting of the present derogation still exist.

Article 5 is purely formal.

2001/0169 (CNS)

Proposal for a COUNCIL DECISION authorising Portugal to apply a reduced rate of excise duty in the autonomous region of Madeira on locally produced and consumed rum and liqueurs and in the autonomous region of the Azores on locally produced and consumed liqueurs and eaux-de-vie

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 299(2) 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. .

Whereas:

(1) In its requests dated 15 June 2000 and 28 February 2001 concerning the measures to implement Article 299(2) of the EC Treaty relating to the outermost regions, Portugal stated that the application of a reduced rate of excise duty in Madeira, on locally produced and consumed rums and liqueurs, and in the Azores, on locally produced and consumed liqueurs and eaux-de-vie, was considered essential for the survival of the local industry producing and marketing the beverages in question. Given the high cost of those activities arising mainly from geographical factors (small firms producing limited quantities, remoteness, fragmented terrain and tight local markets) only a reduction of the tax on rum, liqueurs and eaux-de-vie produced on the islands and sold almost exclusively on their local markets can enable the products to continue competing against similar spirits imported or supplied from other parts of the Community and thus ensure the survival of the industry. To redress the competitive balance, a reduction of the tax should therefore be introduced to help offset the competitive disadvantage which spirits produced in the autonomous regions of Madeira and the Azores face as a result of the higher production and marketing costs there. Analysis of the figures for the price of spirits sold in the regions concerned suggests that a reduction in the rate of excise duty of about 75% of the normal national rate applied in Portugal on ethyl alcohol would help align the price of spirits produced in Madeira and the Azores on that of similar spirits imported or supplied from other parts of the Community. Such a measure should help the current industry to survive or even expand. Current sales of locally-produced spirits in Madeira and the Azores total approximately 360 000 litres per annum and provide 130 direct jobs, including 70 on a seasonal basis.

(2) The application by Portugal, by way of derogation from Article 90 of the Treaty, of a reduction of the excise duty rate in the autonomous region of Madeira on locally produced and consumed rum and liqueurs, and in the autonomous region of the Azores on locally produced and consumed liqueurs and eaux-de-vie, is therefore warranted and necessary to ensure that the development of these regions is not jeopardised.

(3) Weighing the importance of giving local economic operators the security they need to develop their commercial activities against the need to set a time limit on tax derogations, the derogation is granted for a period of seven years.

(4) The granting of a seven-year derogation must be subject to the condition that a mid-term report is produced so that the Commission can assess whether the reasons which justify the granting of the tax derogation still exist.

(5) This proposal for a decision shall not prejudice the possible application of Articles 87 and 88 of the Treaty,

HAS ADOPTED THIS DECISION:

Article 1

By way of derogation from Article 90 of the Treaty, Portugal is authorised to apply a rate of excise duty lower than the full rate on alcohol provided for by Article 3 of Council Directive 92/84/EEC [3] in the autonomous region of Madeira, to locally produced and consumed rum and liqueurs, and in the autonomous region of the Azores, to locally produced and consumed liqueurs and eaux-de-vie.

[3] OJ L 316, 31.10.1992.

Article 2

The derogation provided for in Article 1 is restricted:

(a) in Madeira

- to rum as defined in Article 1(4)(a) of Regulation (EEC) 1576/89 [4] having the geographical characteristic "Rum da Madeira" provided for in Article 5(3) and Annex II, point 1 of that Regulation,

[4] 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).

- to liqueurs as defined in Article 1(4)(r) of Regulation (EEC) No 1576/89, produced from regional fruit or plants.

(b) in the Azores

- to liqueurs as defined in Article 1(4)(r) of Regulation (EEC) No 1576/89, produced from regional fruit or raw materials,

- to eau-de-vie made from wine or grape marc having the characteristics and qualities defined in Article 1(4)(d) and (f) of Regulation (EEC) No 1576/89.

Article 3

The reduced excise duty rates applicable to the products provided for in Article 1 may be lower than the minimum excise duty rate on alcohol fixed by Directive 92/84/EEC, but may not be set more than 75% below the standard national excise duty rate on alcohol.

Article 4

This decision shall be applicable from 1 January 2002 until 31 December 2008. By 31 December 2005 at the latest, Portugal shall send the Commission a report to enable it to assess whether the reasons which justified the granting of the reduced rate still exist.

Article 5

This Decision is addressed to Portugal.

Done at Brussels,

For the Council

The President

>TABLE POSITION>