REPORT TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the application of Council Regulation (EC) No 2702/1999 on measures to provide information on, and to promote, agricultural products in third Countries, and Council Regulation (EC) No 2826/2000 on information and promotion actions for agricultural products on the internal market

(presented by the Commission)

1. Purpose of the report

The European Union has carried out and co-financed promotion activities for agricultural products since the early 1980's. Until 1999 these activities were carried out sector by sector based on varying legal provisions included in the regulations for different product sectors. In 1999 these provisions, presented in 12 different Council Regulations, were harmonised and replaced by a coherent policy organised under two regulations, one for promotion in third countries and one for promotion on the internal market.

Council Regulations (EC) No 2702/1999 and (EC) No 2826/2000 define, respectively, the provisions for Community support for measures to provide information on and to promote agricultural products in third countries and on the internal market. Both these regulations include an obligation for the Commission to present to the European Parliament and to the Council a report on their application.

Article 13 of Regulation (EC) No 2702/1999 (third countries) stipulates that

"Before 31 December 2003, the Commission shall present to the European Parliament and the Council a report on the application of this Regulation, together with any appropriate proposals."

Article 14 of Regulation (EC) No 2826/2000 (internal market) requires that

"Every two years, for the first time before 31 December 2003, the Commission shall send the European Parliament and the Council a report on the application of this Regulation, dealing in particular with the programmes selected and the utilisation of appropriations, accompanied by any appropriate proposals."

The purpose of this report is to fulfil the above obligations. It covers the application of both regulations from the time of their entering into force until the end of 2003. It includes a proposal for modifications of the above regulations, aiming at simplification and improvement of the functioning of the current promotion regime.

2. Description of promotion policy

2.1. General objectives of the current regime

To maintain its position on the world markets the European agri-food sector has to prepare itself for a future in the global market. Actions targeting the demand for food products, informing consumers of and sensitising them to the qualities of European agricultural products are an important part of this preparation. The Community can assist in this effort by implementing and supporting generic and institutional information and promotion activities which are complementary to national and private campaigns.

In general, Community promotional policy has a horizontal approach, i.e. it covers several product sectors and stresses their general characteristics and common themes such as quality, safety, labelling and particular production methods as well as respect for animal welfare and the environment in their production. It should add value to national and private initiatives by reinforcing or stimulating the Member States and private companies in their own promotion measures. Furthermore, it should enable all producer Member States together with their trade and inter-trade organisations, including those which have limited financial resources, to undertake promotion and information actions in favour of their products.

The current promotion regime aims at generating actions that boost the common qualities and intrinsic characteristics of European products, while at the same time respecting their diversity in terms of their conditions of production, methods of processing, conservation and utilisation.

On the internal market, the aim of Community action is generic and institutional information provision and promotion, which avoids overlapping with the actions of private companies and national/regional authorities. It is complementary to the classic marketing approach, and it serves to create a favourable environment for commercially oriented campaigns.

Promotion co-financed by the EU should be a complement in that it takes up European level topics which may be of limited interest to the national authorities or branded advertising (such as EU systems and legislation for ensuring quality, safety, labelling, traceability, systems for geographical indications and organic production, integrated production etc.), with the aim of upgrading the general image of European products in the eyes of consumers. Recent problems (BSE, dioxin, listeria, etc.) have increased the need for supporting consumer confidence in European food, which emphasises the need for factual, generic information on the control systems for ensuring quality and traceability of food products.

In the new international environment, which emphasises the need to reduce or abolish export refunds and greater liberalisation of trade, Community actions can serve to improve or maintain the competitive position of EU products by raising awareness of their qualities and production and control methods, by promoting their image and by creating an environment favourable to Community products. This is a specific task for the Community, while national and private campaigns are geared to conquering a greater market share for their own products.

In particular, Community promotion measures in third countries should be involved in informing consumers and the trade (importers and distributors) about measures taken at Community level to guarantee the quality and the safety of foodstuffs, the supply of characteristic, clearly identified products linked to specific areas (PDO/PGI/TSG), and systems to ensure the quality of organic products.

In addition market studies and specific Community actions in current or potential export markets, such as high-level trade visits and participation to international fairs, can help to develop or open up new markets. EU-level presence in international food fairs or trade visits can boost a positive European image of agricultural products, preparing ground for more specific, product based or nationally oriented actions.

The need for an active promotion policy is recognised by our principal trade partners (ex. the U.S.A., Japan and Australia), which have equipped themselves with well resourced and effective promotion policies in order to maintain and raise their world market shares. For example, various US export promotion programmes amount in total to some $ 145 million per year of assistance by the federal government to promotion activities. It is therefore important that the EU also plays a visible and effective role in export promotion.

2.2. Main operational aspects of the system

2.2.1. Choice of products and markets

In the third countries Community support to promotion targets products intended for direct consumption or for processing, with priority given to high value added or highly differentiated products that, with suitable promotion, have a prospect of being exported without refunds. However, this should not mean that products, which currently receive export refunds, are by definition excluded from the scheme.

The target markets are those with significant real or potential demand and where the Community faces strong competition. In accordance with criteria set by Regulation (EC) No 2702/1999 (Articles 3 and 4) the Commission decides every second year, after consultation and using the Management Committee procedure, on the list of eligible products and markets. Adjustments can also be made during the two-year period.

The current list of eligible markets and products is presented in Annex 1.

For the internal market, the criteria defining the themes and products which are eligible for community support are laid out in Article 3 of Regulation (EC) No 2826/2000. On the basis of these criteria, the Commission decides, after consultation and using the management committee procedure, on the list of themes, sectors and products for promotion programmes. For each of the sectors selected, the Commission defines guidelines, which the programme proposals presented by the Member States will have to follow. For the preparation of the guidelines the Commission may consult the standing group for Promotion of the Advisory Committee for the Health and Safety of Agricultural Products.

The current list of eligible product sectors for internal market programmes is presented in Annex 1.

2.2.2. Types of promotional measures and their financing

In general, promotion programmes are co-financed by the Community up to 50 %, with the balance met by professional and inter-professional organisations proposing programmes (30 %) and Member States (20 %). If the duration of a programme is two or three years, the Community share diminishes from 60 % to 40 %, with a 50 % average of the total budget. Parafiscal taxes can be used to cover the share of the proposing organisation and of the Member State.

The co-financing approach was adopted in order to ensure that the applicant organisations and the Member States will assume responsibility and ownership of the programmes they propose and operate.

There are some exceptions to the general rule of tripartite financing. For information actions on the internal market on the Community schemes for PDO/PGI/TSG, organic production and labelling, financing may be shared (50 %-50 %) between a Member State and the Community if professional or interprofessional organisations have not presented proposals for such actions. One programme applying this financing option has been adopted so far [1]. In the third countries such information campaigns are initiated by the Commission and financed by the Community in their entirety.

[1] DK campaign informing about the Danish logo for organic production.

In certain exceptional situations no co-financing is required from the Member State, but the financing can be shared (50 %-50 %) between the Community and the proposing organisations. This possibility is reserved, for example, for crisis situations on particular markets where it is urgent to reassure consumers of the safety of the products. This option has not been applied so far.

Both the third countries and internal market regulations require that actions included in the programmes are carried out by implementing bodies selected by the applicant through a competitive procedure. To ensure effectiveness and high quality of the actions, these bodies should have proven competence in advertising, promotion and/or PR work. According to the current regulations applicant organisations are excluded from the implementation of the programmes.

For olive oil, the possibility of entrusting promotion programmes to the IOOC (International Olive Oil Council) has been maintained in the regulation with a view to the positive results achieved in earlier campaigns and the lack of other sector-wide structures comparable with the IOOC. However, proposals from the professional organisations of the sector are also eligible under the current application rules. During 2002-2003 no voluntary contribution to the promotion budget of the IOOC has been paid because of its internal reorganisation, while a limited number of olive oil programmes for third countries proposed by the Member States have been adopted [2].

[2] Two Italian programmes and one multi-country (E, I, F, P) programme including olive oil among other products.

2.2.3. Management, controls and evaluation

Expenditure for co-financing promotion programmes is classified as intervention under Council Regulation (EC) No 1258/1999, which means that the Member States are reimbursed for their expenditure on these actions according to the general procedures of the EAGGF (indirect management).

The initiative for promotion activities lies mainly with the professional and inter-professional organisations representing the sectors concerned. They prepare programmes responding to calls for proposals by interested Member States. Procedures and dates for presenting proposals are laid down in the application rules decided by the Commission (Regulations (EC) No 2879/2000 and (EC) No 94/2002).

Observing criteria set in the application rules and the guidelines, as supplemented by their national specifications, Member States select programmes that they have checked for suitability and value for money. They present these proposals to the Commission, which checks their conformity with Community rules and the relevant guidelines. The Commission takes a decision on co-financing within a time limit defined in the application rules.

In view of the expertise required for drafting the guidelines and assessing programme proposals, the Commission needs to call on the services of technical assistants and of independent communication experts as it does not have specialised staff.

Since programme management is "indirect" (classified as intervention), the Member States are responsible for the management, control and payment of the adopted promotion programmes. They sign contracts with the professional organisations, and supervise the implementation of the agreed measures and budget.

Monitoring committees are set up by the Commission and the Member States to follow up the execution of Third Country promotion. As for all other contracts of this type, the competent departments of the Member States carry out technical, administrative and accounting controls to which the Commission may participate.

Programme results will be evaluated by independent bodies chosen by the Commission, which will select the evaluators through calls for tenders.

3. Implementation of promotion policy 2000-2003

3.1. Application rules by the Commission

The Commission prepared the application rules for the two Council Regulations after consultation of professional organisations, the standing group for promotion of the Advisory Committee and the management committee for promotion. It also employed external experts to define guidelines for the product sectors eligible for internal market programmes.

The application rules for third country programmes (Commission Regulation (EC) No 2879/2000) were adopted on 28.12.2000, and the application rules for internal market programmes (Commission Regulation (EC) No 94/2002) on 18.1.2002.

Both application regulations have subsequently been amended several times. The amendments were necessary mainly to add new eligible products and corresponding guidelines, to modify the list of eligible target markets because of enlargement and to revise procedures on the basis of experience. Five amendments have been made to Regulation (EC) No 2879/2000 (third countries promotion):

- Commission Regulations (EC) No 962/2001, (EC) No 1955/2001, (EC) No 1854/2002, (EC) No 409/2003, (EC) No 2171/2003.

Six amendments have also been made to Regulation (EC) No 94/2002 (internal market promotion):

- Commission Regulations (EC) No 305/2002, (EC) No 434/2002, (EC) No 1186/2002, (EC) No 2097/2002, (EC) No 497/2003, (EC) No 185/2004.

3.2. Budget appropriations and expenditure

During the application of the current regulations the total EU budget appropriations for promotion have varied between EUR 70 and 60 million (table 1). Until 2001 expenditure for the VIIth Olive Oil campaign, carried out in direct management by the Commission, forms a major part of the appropriations for internal market promotion measures; therefore only the 2002-2004 budgets represent provisions mainly for the application of Regulations (EC) No 2826/2000 and (EC) No 2702/1999.

Table 1 - EU budget appropriations for promotion measures (million EUR)

>TABLE POSITION>

Execution of the budget has been relatively low in 2002 and 2003 (24,0 % and 47,1 % respectively, see table 2 below). This is due to a relatively slow start of the new regime, 2003 being the first year of full application. In both 2001 and 2002 only one decision adopting programmes was taken, while in 2003 three series of programmes have been adopted for the internal market and two for third countries. With the cumulation of running programmes (most of them run for 3 years) the execution rate is likely to rise in 2004 and 2005.

Table 2 - EU budget expenditure for promotion measures (million EUR)

>TABLE POSITION>

Expenditure from programmes already decided can be estimated to be about EUR 35 million in 2004 and about EUR 28 million in 2005. Taking into account programmes that will be decided in 2004, this is likely to lead to an execution rate of about 80 % in 2004.

3.3. Programmes adopted for co-financing in 2001-2003

3.3.1. Accepted and rejected programmes

The first proposals were received on 15 June 2001 for third country promotion measures and on 15 May 2002 for internal market measures. By the end of 2003 the Commission has received three series with altogether 55 proposals for third country programmes and four series with 191 proposals for internal market programmes. Except for the first series of proposals for internal market programmes, most proposals have been accepted for co-financing (see table 3 below).

Table 3 Programmes adopted and rejected by December 2003

>TABLE POSITION>

The reasons for rejecting proposals are based on non-conformity with the relevant Council Regulation or the application rules. The most usual reasons for non-eligibility relate to the selection of the implementing organisation: either it had not been selected on the basis of a competitive procedure, or no implementing body at all had been selected (over half of the rejected proposals).

Several programmes have been rejected because they were oriented towards the promotion of a commercial label or a product of a particular origin (20 cases). Other frequent problems leading to non-eligibility have been that the proposing organisation is not sufficiently representative of the sector (13 cases) and that either the Member State or the proposing organisation have not committed themselves to their share of the co-financing (10 cases). Finally, in some cases proposals have been rejected because they have only consisted of a single action, which does not represent a coherent strategy for achieving specified promotional objectives.

The details of each series of proposals are presented in Annex 3.

3.3.2. Programmes running on third country markets

Altogether 30 programmes with a total budget of EUR45 million have been started on the third country markets by the end of 2003 [3].

[3] Of the 31 accepted programmes one Belgian programme was withdrawn before any contract was signed.

Seven Member States participate in these programmes. One third of the programmes are jointly operated by two or more Member States, involving France, Italy, Spain, Portugal and Denmark (in one case). Seven Member States (EL, IRL, L, A, FI, S, UK) have not proposed any third country programmes.

All target markets except China included in the list of the eligible countries in the application rules are covered by at least one programme, although an overwhelming majority of programmes concern North America and Japan. In China only one market study (by F) has been carried out so far. However, China will be the target of a high-level promotional visit in March 2004 (see chapter 3.4. below).

The accession countries were included in the list of possible target markets for third country programmes until 5.3.2003. They were eliminated from the list by Commission Regulation (EC) No 409/2003 in order to avoid situations where programmes would have to be interrupted at the date of accession. From the date of accession these countries will be covered by the internal market regulation.

Altogether 6 programmes have one or several of the accession or applicant countries among their target markets. Poland and the Czech Republic are included in five programmes and Hungary in three. Four programmes have Romania or Bulgaria among their target markets.

As for the sectors covered, fruit and vegetables is the one targeted most often. Nine out of the 30 programmes concern fresh fruit and vegetables, which are also included in many of the multi-sector programmes. The share of the total budget attributed so far is, however, larger for the meat sector (EUR5,7 Mio) than for the fruit and vegetables sector (EUR3,9 Mio).

An overview of product sectors and target markets is presented in Annex 4.

3.3.3. Programmes running on the internal market

By December 2003 altogether 94 programmes have been accepted for the EU internal market, with a total budget of EUR166,2 million and with EU co-financing of EUR83,1 million. Nearly half of this amount is targeted to the fruit and vegetables sector (EUR75,9 million, 24 programmes). The milk sector receives about 11 % of the total budget, organic production about 10 % and the wine sector about 6 % (statistics by country and by sector in Annex 4).

All Member States except Luxemburg participate in the internal market programmes. Italy has presented the largest number of proposals (17 accepted programmes), and France, Spain, Germany and Austria also have several programmes in process. On the internal market multi-country programmes are exceptional; only three of them have been accepted so far.

3.4. Programmes under direct management by DG AGRI

As indicated above, certain actions can be financed at 100 % from the EU budget. Such actions are initiated and managed directly by the Commission, and implemented with the help of contractors selected through calls for tenders.

Under Regulation (EC) No 2702/1999 the following actions in third countries have so far been started under direct management by the Commission:

1. Organisation of a high-level promotional visit to China and participation in the SIAL food fair in March-April 2004 in Shanghai. An EU stand with the theme "Tasty Europe" will be organised in the SIAL fair.

2. Organisation of an information campaign in the USA and Canada on the EU regimes concerning protected designations of origin (PDOs), protected geographical indications PGIs, guaranteed traditional specialities (TSGs) and organic farming.

3. Organisation of a similar campaign in Asia (China, Japan, Taiwan, Korea).

The information campaigns are programmed for three years and will start in the course of 2004. These actions intend to inform in particular importers and distributors of agricultural products of EU quality regimes and the guarantees which they give to European agricultural products and foodstuffs.

The maximum annual budget for the above directly managed actions is EUR 2,8 million.

4. Perspectives for improvement

4.1. Needs for adjustments noted by the Commission

4.1.1. The European dimension of promotion programmes

In order to boost promotion activities with a European dimension both regulations (internal market and third countries) make provisions for programmes presented jointly by two or more Member States and professional organisations. The Commission's criteria for assessing programme proposals give priority to those proposed by two or more Member States.

In practice the multi-country approach has met with some difficulties. According to the participating Member States authorities the management of such programmes is complicated, in particular due to different administrative rules and procedures applied in different Member States. Establishing or amending contracts, verifying payment requests or carrying out controls requires more time and coordination than in single country programmes.

Nevertheless, some of the currently running multi-country programmes can be judged to be successful and good examples of promoting European products. The promotion regime should continue to give priority to programmes joining the efforts of several countries, and possibilities for facilitating their management should be sought. The European dimension of promotion programmes should be further encouraged also by other means, as indicated in point 5.2 below.

4.1.2. The quality of proposals and their assessment by the Member States

In particular at the early stages of the application of the current regime, a large part of the proposals presented by the Member States were rejected because they were not in conformity with the regulations. The quality of the proposals submitted in the latest series has been better, but there is still room for improvement.

The quality of proposed programmes is mainly dependent on the applicant professional and inter-professional organisations, which may not always be fully aware of the requirements of the regulations. The Member States can influence this by sufficiently clear instructions in their calls for proposals. Suggestions for measures to improve quality are included in point 5.2.

4.1.3. Supervision of programmes and promotion materials

The responsibility to verify the conformity of published promotional materials with Community and national legislation lies with the Member States. During the initial period of application of the new regulations for promotion, the Commission included in its decisions adopting programmes a requirement to send draft materials to the Commission for verification. This was considered necessary because of reactions from the public on certain published materials, which had erroneous messages. However, as the requirements of the new regime are now well established, this procedure has been changed as described in point 5.2 below.

4.1.4. Notification under Article 89 of the Treaty

Where Member States' authorities subsidise the promotion and advertising of agricultural products covered by a Common Market Organisation, either through direct financial contributions from their budgets or using other government resources, including parafiscal charges or compulsory contributions, the Treaty provisions concerning State Aid are applicable [4]. Such measures need to be notified to the Commission in accordance with article 89 of the Treaty.

[4] Details in: - Community guidelines for State aid in the agriculture sector (OJ C 28, 1.2.2000, p. 2); - Community guidelines for State aid for advertising of products listed in Annex I to the EC Treaty and of certain non-Annex I products (OJ C 252, 12.9.2001, p. 5).

Notification is also required for the financial contributions by the Member States granted in the framework of Regulations (EC) No 2702/1999 and No 2826/2000. This is an unnecessary complication as in this case the financing provided by the Member States represents contributions to programmes adopted by the Community. Therefore a specific exemption from the notification procedure should be granted on the basis of Article 89. It should be established in line with the approach taken in Council Regulation (EC) No 1257/1999 concerning support for rural development measures [5]. The relevant amendments to Regulations (EC) No 2702/1999 and No 2826/2000 are proposed in Annex 5.

[5] See 2nd subparagraph of Article 51(1) of Council Regulation (EC) No 1257/1999 of 17 May 1999 on support for rural development from the European Agricultural Guidance and Guarantee Fund (EAGGF) and amending and repealing certain Regulations (OJ L 160, 26.6.1999, p. 80), as amended by Council Regulation (EC) No 1783/2003 of 29 September 2003 (OJ L 270, 21.10.2003, p. 70).

4.1.5. Effectiveness of the promotion strategy

The current regime can be characterized as a "bottom-up" system, where the contents of the portfolio of programmes in process depends mainly on the interests of and initiatives taken by the professional and interprofessional organisations operating in different Member States and on the European level.

A consequence of this "bottom-up" system is that the strategy expressed in the guidelines (internal market) is not fully effectively implemented, in particular as regards the distribution of the budget across different product sectors. The guidelines for internal market promotion measures foresee a fairly even distribution of activities between different product sectors; however, the applicant organisations have been mainly interested in fruit and vegetables (46 % of accepted co-financing), while some other eligible sectors (wine, fibre flax; graphic symbols for remote regions) have received no or very little attention.

Another aspect in which the intended strategy of Community promotion policy has not fully materialised is that the number of proposals received for third country programmes has remained rather limited. Budgetary appropriations have been underused both for internal market and third countries, but for internal market the number of programmes is increasing and full execution rate will be approached in 2004. For third countries the Member States and professional organisations have so far had less interest even if this is the area where the added value of EU-level activities may be highest.

Within the current regime the Commission has relatively limited possibilities for taking initiatives for information or promotion measure in response to market developments or crisis situations, or if a need arises to inform consumers and other market actors on new developments in Community legislation (such as labelling systems). On third country markets the commission can organise on its own initiative (in direct management), and with 100 % Community financing, certain measures such as participation in fairs or exhibitions, information campaigns on EU quality regimes, studies on new markets, high level trade visits and evaluation studies. On the internal market the Commission's possibility to act on its own initiative is limited to participation in fairs and exhibitions in certain cases and to evaluation studies.

Considering the relatively limited interest shown by professional organisations and Member States to set up promotion programmes in certain sectors and in particular in third countries, more flexibility should be provided for the Commission to take initiatives for information activities and for promotion campaigns of European level interest. A proposal for amendments of the two regulations is presented in point 5.2.

4.1.6. Size and effectiveness of programmes

A further aspect in which the effectiveness of the current strategy needs to be improved is the fragmentation of the available appropriation into a relatively large number of programmes with a budget which is likely to be too limited to achieve a significant impact on the targeted markets or consumer groups.

An external evaluation carried out on the Commission's earlier promotion policy confirms (see point 4.2 below) that promotion activities usually need to be continued for more than one year and that they need to have a sufficient scope to be effective. Therefore preference should be given to programmes with a duration and a budget which is sufficient to ensure that an impact on the awareness or attitudes towards the product in question can be achieved.

A large part of the current programmes are rather limited in their scope: one third have a budget inferior to EUR600 000; 15 % of internal market programmes and 13 % of third country programmes have a budget which is inferior to EUR300 000. Large programmes with a budget of over EUR 2 million represent about one fifth of the current programmes (Details in Annex 4).

A minimum and a maximum budget should be set for eligible programmes to avoid, on the one hand, fragmentation of appropriations to ineffective programmes which consume an unproportionate amount of administrative resources, and on the other hand to avoid concentration of an unproportionately large share of the budget to a small number of programmes benefiting only some Member States. The risk for this is illustrated by tables 5 and 11 in Annex 4, which show that 35 % of the total co-financing for internal market programmes is taken up by six large programmes. To avoid this, a proposal is made in point 5.2 below to provide in the Council regulations a possibility to set a floor and a ceiling to the acceptable budgets for co-financed promotion programmes.

4.1.7. Promotion in the framework of rural development

In the context of the CAP reform a food quality chapter was introduced into the Rural Development regime [6]. One of the new rural development measures establishes a possibility to receive Community support for promotion activities in the framework of rural development programmes of the Member States. Support can be granted to information, promotion and advertising activities for agricultural products and foodstuffs designated under certain Community or national food quality schemes, up to 70 % of eligible costs. The support concerns in particular products with a protected geographical indication, designation of origin or certificate of specific character, products from organic farming and quality wines, and products participating in food quality schemes recognised by Member States.

[6] Regulation (EC) No 1783/2003 amending Regulation (EC) No 1257/1999 on support for rural development from the European Agricultural Guidance and Guarantee Fund.

The two regimes of support for promotion are complementary and different from each other because

- support for promotion under rural development is only provided for actions on the internal market;

- support for promotion under rural development is only granted for producer groups, while the beneficiary organisations of generic promotion are professional or inter-professional organisations representative for the sector concerned;

- support to promotion under rural development targets promotion and information campaigns for particular agricultural products or foodstuffs produced under an accepted quality regime; support for promotion under the internal market Regulation (EC) No 2826/2000 concentrates on generic campaigns for a sector, theme, product or a production method.

Although the two regimes are different in principle, in practice some of the accepted internal market programmes concerning products with a geographical indication are close to the type of actions that could be supported under the rural development regime. The risk of overlapping should be minimised as described in point 5.2 below.

4.2. Findings of an external evaluation of EU-Promotion

In the beginning of 2003 the Commission completed an external evaluation of Community promotion policy during 1994-2000. Even if this study refers to the policy applied before the present system was established, some of the findings are of interest also for the current regime:

- EU-level generic promotion has achieved positive results by improving the image of European products and consumer knowledge of their qualities in third countries (this concerns in particular olive oil). On the internal market it has contributed to creating a commercial environment which has helped products to expand into new markets;

- in certain cases the level of investment in promotional campaigns has not been sufficiently high to achieve an impact. In general there is a need for a selective approach and relatively high budgets;

- in general, Community financed generic promotion campaigns have not exerted a systematic multiplier effect on private investment in promotion. Nevertheless, they have been useful in preparing the ground for private action, in particular where markets for the products in question were in the first, introductory phase;

- where the market is dominated by private brands private firms remain relatively untouched by Community campaigns. In these cases the added value of EU promotion has been limited, as private brands compete to increase their relative market shares with advertising budgets well above those of the Community;

- as regards synergies between national and EU-level campaigns, some did present considerable similarities, hence reinforcing each other, while others had clearly different aims and contents;

- ex-post evaluation of the impact of EU promotion is difficult as no systematic measurement of exposure, participation, etc has been carried out during or immediately after the campaigns. Measurement of results should be a built-in part of promotion actions.

4.3. Proposals by professional organisations

In the course of the preparation of the report the Commission has heard professional organisations representing various agricultural sectors. In particular the following issues have been emphasised in their contributions:

* The administrative burden related to the presentation of proposals and management of programmes is too heavy.

Criticism is presented as regards the length of time from the presentation of proposals to the final decision and the level of detail required at this early stage, and as regards the transparency of the Commission's decisions in accepting or rejecting proposals. As for the management of running programmes, the obligation to have draft materials verified by the Member States' competent authorities and the Commission is criticised, as well as the reporting requirements, which are considered excessive.

The Commission agrees with the need to simplify the process of adopting proposals for co-financing and the management of running programmes. The relevant proposals are included in point 5.2 below.

As for transparency concerning the reasons for rejecting proposals, the Commission presents its justifications in fact sheets which are prepared for every proposal and distributed to the Member States representatives in the management committee. It is up to them to inform their applicants on the decision and its justifications. The Commission has provided copies of these facts sheets on request to the Standing Group for Promotion of the Advisory Committee on Quality and Health of Agricultural Production.

* The requirements for the selection of implementing organisations are too complex.

According to the current regulations, the bodies implementing the programmes must be selected by the proposing organisations before the presentation of the proposal to the Member State. The implementing body must be separate and independent from the proposing organisation, and it must be selected through a competitive procedure. The purpose of this requirement is to gain control over costs through competition and to avoid the situation where a limited number of organisations would have a de facto monopoly for the implementation of promotion measures.

The professional organisations criticise this regime because it represents a risk and additional costs for the proposing organisation, and because in some countries and for certain types of activities (in particular fairs and exhibitions), the organisations making proposals are at the same time experienced and competent in the implementation of promotion activities.

The Commission agrees that the requirements concerning implementing bodies and their selection can be simplified and clarified. The relevant proposal is included in point 5.2 below.

* Sufficient budgetary resources should be ensured and Member States co-financing should not be obligatory.

The professional organisations consider Community co-financing to promotion activities desirable and insist that it should be maintained, arguing in particular in favour of the internal market scheme. Proposals were made to increase budgetary resources to take into account enlargement.

Several proposals were made for changing the co-financing rates between the Member States and the professional organisations as regards the non-Community part (50 %) of programme costs. The obligation for the Member States to finance 20 % limits the possibilities of professional organisations to participate if the Member State has not allocated budget funds for this purpose.

The Commission agrees that more flexibility could be allowed in the financing of the part which is not financed by the Community. The relevant proposals are included in point 5.2 below.

* The list of eligible products should be expanded.

The products eligible for co-financing under Regulations (EC) No 2702/1999 and No 2826/2000 are defined in the annexes to the corresponding Commission regulations [7], which have to be examined every two years. Since the application rules were first adopted, the lists of eligible products have already been amended several times, adding flowers and live plants to eligible products in third countries, and olive oil and linen in internal market. The professional and interprofessional organisations and some Member States have made proposals concerning products that should be added to these lists. They also propose that revisions should be made whenever justified by market development.

[7] See Commission Regulations referred to under section 3.1.

The Commission agrees that the lists of eligible products should be revised taking into account the evolution of the market situation and needs in different sectors. An examination of the relevant annexes to the application rules will be started during the first half of 2004.

5. Conclusions and action to be taken

5.1. General conclusions

The new promotion policy adopted in 1999/2000 introduced important changes to the promotion activities carried out earlier. The main innovations consist of

- switch over to a system of indirect management by the Commission, where the initiative and management responsibility is in the hands of professional organisations and the Member States,

- harmonised tripartite co-financing for all eligible sectors, where financing is shared between the EU, the Member States and the professional organisations,

- emphasis on the generic character of EU promotion, with focus on sectors and themes in stead of individual products.

Implementation of the two Council Regulations establishing the new policy has started only gradually in 2001 for the third countries and in 2002 for the internal market, with the year 2003 being the first year when the system has been fully operative. It is therefore too early to judge the results of the promotion activities initiated under the new regime. A second report on the application of the two Regulations (EC) No 2702/1999 and (EC) No 2826/2000 should be presented by the end of 2006, covering an analysis of the functioning of the regime and the results achieved.

The administrative framework for operating the system has now been set up and the professional organisations, which have a central role in initiating programmes are gradually getting familiarised with its requirements. On the whole, implementation of the regime now proceeds as planned. There are two main problems that need to be addressed:

- the professional organisations and Member States have shown considerable interest to initiate programmes on the internal market. However, part of these proposals are mainly of national interest with limited European added value. More emphasis should be put on setting up programmes with EU-level interest and on ensuring synergies between national and EU-level activities;

- as for the third countries, there is less interest on the side of professional organisations. The number of proposals received has remained limited, and even if some of the current programmes can be judged to be of good quality, the portfolio of third country programmes is not sufficiently strong to achieve significant visibility for EU products. More efficient mechanisms are needed for setting up high quality and high visibility export promotion programmes; the Commission should have more possibilities to take initiatives in co-operation with the interested Member States and their national promotion organisations.

5.2. Action to be taken

In the Commission's view the current regime for supporting promotion measures defined in Regulations (EC) No 2702/1999 and No 2826/2000 should be continued and its main features maintained. To improve its functioning and to simplify management the following adjustments are necessary. The corresponding proposals for amendments of the Council Regulations are presented in the attached proposal.

European dimension of promotion programmes

* The priority given to multi-country programmes should be continued, while efforts should be made to facilitate their management. The Commission will take measures to this effect, for example by allowing for longer time delays for signing contracts, by preparing a differentiated model contract for multi-country programmes and by making provisions in the application rules for organisational arrangements and costs for their coordination.

* A mechanism needs to be set up for facilitating the search for complementarity and synergies between regional and/or national and EU co-financed programmes; For this purpose the Commission will set up a working group, which will gather authorities in charge of national promotion policy from the interested member States, public or semi-public bodies that operate national level campaigns, other experts and the Commission.

Such a group would

- make suggestions for developing an EU-level promotion strategy,

- enhance alliances and joint initiatives between the Member States and national or European level bodies operative in promotion activities,

- take initiatives to set up joint promotion programmes in third countries or covering several Member States.

Quality of proposals

* The Member States should step up the evaluation of proposals with a view to rejecting the non-eligible cases already at their level. They should also ensure that their calls for proposals give sufficiently clear instructions on the eligibility of proposals.

* The Commission will give guidance on the preparation of proposals and on the eligibility of programmes. A structure and minimum content for the presentation of proposals will be defined in a guideline to be annexed to the application rules.

Improving management and simplifying procedures

* The Commission will no longer carry out ex-ante verification of draft materials to avoid double verification by the Member State and the Commission, criticised by some professional organisations. The Member States competent authorities will therefore need to ensure that sufficient resources are available for the management and control of the promotion programmes under their responsibility. They must ensure that the conformity and appropriateness of promotional materials published under their authority is verified. To facilitate this the Commission will make available documentation giving guidance on the main elements to be checked before giving permission for publication. Where necessary, it will give advice on questions concerning the conformity of materials with European legislation.

* The reporting requirements stipulated in the application rules will be simplified by reducing the number of reports to be submitted annually. The Commission will proceed with a corresponding modification of the application rules.

* The Commission will carry out on-the-spot checks where necessary and participate in the controls of programmes carried out by the Member States as foreseen by the application rules for Regulations (EC) No 2702/1999 and (EC) No 2826/2000.

* Monitoring groups, comprising representatives of the Commission, the Member States concerned and the proposing organisations, are obligatory for third country programmes. As they are a useful instrument for the supervision of the proper implementation of programmes, they should be included also in the regulation for internal market programmes. A proposal for the modification of Regulation (EC) No 2826/2000 is included in the attached proposal.

* The Commission proposes amendments to Regulations (EC) No 2702/1999 and (EC) No 2826/2000 in order to establish an exemption from the notification procedure based on Articles 87 to 89 of the Treaty to the financial contributions by the Member States for promotion measures in the context of these Regulations.

* While it is necessary to maintain the general rule that implementing bodies must be selected through a competitive procedure, the requirements concerning these bodies and their selection can be clarified and simplified. With certain conditions it could be possible for the proposing organisation to carry out specific limited actions of a programme, and with certain conditions the implementing body could be selected after the proposal has been adopted by the Commission. The Commission will make the necessary modifications to the application rules.

A more effective promotion strategy

* The provision for organising information campaigns with 100 % Community funding should be extended to the internal market, and in addition to information on the designations of origin and products from organic farming, it should cover other Community regimes concerning labelling and quality standards.

* The Commission should be able to launch promotion and information programmes in third countries for sectors, products or themes for which there is a European wide interest or for which the professional organisations and/or Member States have not shown interest.

* The working group described above will advise on measures to be initiated by the Commission. The standing group for promotion of the Advisory Committee for Quality and Health of Agricultural Products may also be consulted.

* To avoid fragmentation of financing into small and ineffective programmes on the one hand, and to ensure a balanced distribution of the budget on the other hand, Regulations (EC) No 2702/1999 and (EC) No 2826/2000 should provide for a possibility to set in the application rules to be defined by the Commission a floor and a ceiling to the acceptable budgets for co-financed promotion programmes.

The proposals for the relevant modifications to Regulations (EC) No 2702/1999 and (EC) No 2826/2000 are presented in the attached proposal.

Co-existence with promotion funding under the Rural Development regime

* The parallel application of these two regimes should be followed up carefully, and an assessment of their complementarity should be presented in a report to be submitted by the end of 2006.

* The Commission will amend the application rules for Council Regulation (EC) No 2826/2000 so as to avoid overlapping of the two support systems.

Co-financing rates

* The tripartite co-financing of promotion programmes and the mechanism of indirect management adopted in the current regime should be maintained as the main mechanism for Community support for promotion and information activities for agricultural products. However, while the share of Community financing should not exceed 50 % of real programme costs, more flexibility could be allowed as regards the shares of financing for the non-Community part.

* The acceptance of parafiscal taxes as a source of financing already implies that de facto certain proposing organisations cover the whole of the non-Community part of financing. This possibility should be maintained, while the obligatory shares (currently MS 20 % - proposing organisation 30 %) could be relaxed so that the Member States could decide case by case of the share of financing they allocate to a programme. However, a minimum contribution from the proposing organisation (for example 20 %) should be obligatory. Proposals for modifications of Regulations (EC) No 2702/1999 and (EC) No 2826/2000 corresponding to the above are included in the attached proposal.

* Even if the Member State's share of financing would be low or nonexistent, its responsibility for supervision and control of the programmes should be maintained. The current regime of indirect management through the EAGGF payment and control system, in which the Member States have a central management role, should not be switched into a system of direct subsidies by the Commission to the proposing organisations, even if more flexibility is allowed in the co-financing shares.

* In order to simplify the preparation and assessment of proposals, the current provision for degressive EU-cofinancing percentages for multi-annual programmes (60 %-40 %) should be eliminated, and the Community co-financing should be 50 % for each year of the programme. The relevant amendments to Regulations (EC) No 2702/1999 and (EC) No 2826/2000 are included in the attached proposal.

Budget appropriations

* Taking into account enlargement, the overall amount of budget appropriations for supporting promotion under Regulations (EC) No 2702/1999 and (EC) No 2826/2000 should be maintained at least on the current level. However, within this global allocation resources should be gradually shifted from the internal market to actions in third countries, taking into account realistic possibilities for setting up effective programmes on these markets.

Eligible products and themes

* The current mechanism for defining the products and sectors eligible for support is sound and should not be altered. Decisions on including or excluding products should be based on a global view of their market situation and prospects, on the balance of and evolution of imports and exports in the sectors concerned and on the need to inform consumers on systems for geographical indications, labelling or quality assurance systems. The Commission should continue to define the accepted products after consultation of the management committee and the Standing Group for Promotion of the Advisory Committee on Agricultural Products, Health and Safety, and with the help of external experts.

* The Commission will examine the regulations defining the eligible products, sectors and markets during 2004, taking into account proposals presented by the professional organisations and Member States. The resulting list should be balanced so that it allows the participation of all Member States to promotion activities in particular for products which face tightening competition either in third countries or on the internal market by imported products.

Simplification of legislation

* Experience has shown that the practical implementation of the two regimes defined by Regulations (EC) No 2702/1999 and (EC) No 2826/2000 can be carried out by similar procedures as regards presentation of proposals, decision making and monitoring. Proposals for harmonizing the relative provisions in the two Council Regulations are included in the attached proposal.

ANNEX 1 - Products and markets eligible for community co-financing

1. Eligible markets and products (third countries)

(Commission Regulation (EC) No 2879/2000 as last amended by Regulation (EC) No 2171/2003)

Markets

- Switzerland

- Norway

- Romania

- Bulgaria

- Russia

- Japan

- China

- South Korea

- South-east Asia

- India

- Middle East

- North Africa

- Republic of South Africa

- North America

- Latin America

- Australia and New Zealand

Products

- Fresh, chilled and frozen beef, veal and pig meat; food preparations based on these products

- Quality poultry meat

- Cheese and yoghurt

- Olive oil and table olives

- Table wines with a geographical indication Quality wines psr

- Spirit drinks with a geographical indication or a reserved traditional description

- Fresh and processed fruit and vegetables

- Products processed from cereals and rice

- Fibre flax

2. Eligible products (internal market)

(Commission Regulation (EC) No 94/2002, as last amended on 2.2.2004 by Regulation (EC) No 185/2004)

- Fresh fruit and vegetables,

- processed fruit and vegetables,

- milk products,

- quality wines psr, table wines with a geographical indication,

- olive oil and table olives,

- flowers and live plants,

- fibre flax,

- beef and veal, fresh, chilled or frozen,

- eggs.

ANNEX 2 - Promotion measures: financing options

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Articles 2, 7 and 9 of Council Regulation (EC) No 2702/1999 and Articles 2, 6, 7 and 9 of Council Regulation (EC) No 2826/2000.

ANNEX 3 - Proposals received for third countries and internal markets

1. Proposals for third country markets

First series: Decision C(2001) 4005 of 18.12.2001 (third countries)

- 33 proposals with a total value of EUR 50,3 million.

- 18 programmes were accepted for co-financing, representing promotion measures for EUR19,6 million and EU co-financing for EUR 9,8 million.

- Main areas and countries targeted: the Far East, USA and the enlargement countries. Products covered; wine, fruit and vegetables, cheeses and pigmeat.

- Of the 18 programmes, 6 run for one year (2002), 3 run for two years and 9 run for three years.

Second series: Decision C(2003) 15 of 16.1.2003 (third countries)

- 19 proposals with a total value of EUR 24,3 million.

- 6 programmes accepted for co-financing, with a total value of EUR 14,1 million and EU co-financing for EUR 7,0 million.

- Main countries targeted: Japan, USA, Canada, Russia, Poland and Czech Republic. Products covered are: wine, fruit and vegetables, cheese and pigmeat.

- One Belgian programme was withdrawn by the applicant before a contract was signed. From the remaining 5 programmes, 3 run for two years and 2 run for three years (2003-2005).

Third series C(2003) 3404 of 29.9.2003 (third countries)

- Ten programmes received, with a total value of EUR13,15 million.

- Seven eligible totalling EUR11,6 million and with community co-financing of EUR5,8 million.

- Most of the approved programmes were for multi-product applications.

- Four of the seven were Italian programmes and the remainder were all joint efforts by several Member States.

2. Proposals for Internal Markets

First series: Decision C(2002) 3116 final of 22.8.2002 (internal market)

- 120 proposals with a total value of EUR154 million. Except for Luxembourg, all Member States participated.

- 40 programmes were accepted for co-financing, with a total value of EUR64,2 million and EU co-financing of EUR32,1 million.

- The main markets targeted are those of the large Member States. Products covered: wine, fruit and vegetables, milk and cheeses, organic products, flowers and labelling systems.

- Of the 40 programmes, 7 run for one year, 8 run for two years and 25 run for three years.

- The most common reasons why the Commission had to reject such a large number of these programmes were irregularities in procedures for selecting the implementing body (if one was selected at all), promotion of specific brands or origins and general failure to follow the guidelines.

Second series: Decision C(2003) 1926 final of 20.6.2003 (internal market)

- 30 proposals a total value of EUR50 million. Ten Member States presented proposals.

- 20 programmes were accepted, with a total value of EUR38,4 million and EU co-financing of EUR19,2 million.

- The markets targeted are mainly the home markets of the proposing organisations. Products covered: wine, fruit and vegetables, milk and cheeses, organic products and flowers.

- Of the 40 programmes, 9 run for one year, 3 run for two years and 8 run for three years.

Third series: Decision C(2003)3546 of 02.10.2003 (internal market, olive oil)

- Olive oil was included in the list of eligible products by a modification of Commission Regulation (CE) No 94/2002 in March 2003. To ensure that proposals could be presented during the same year, a specific date was defined for the submission of olive oil programmes. The duration of these programmes was fixed to 1 year by the guideline.

- Five programmes were presented by Spain, Greece and Italy. All five were approved, the total value of the package being EUR4,9 million with a community contribution of EUR2,4 million. One of the programmes has subsequently been withdrawn, the total value of EU co-financing being reduced to EUR1,1 million.

Fourth series: Decision (2003) 5257 of 30.12.2003 (internal market)

- 36 proposals with total value of EUR 68,1 million.

- 29 programmes were approved with a total value of EUR58,5 million and with community co-financing of EUR29,2 million.

- 12 different Member States presented proposals.

ANNEX 4 - Programmes accepted in 2001-2003 Tables by country, product sector, duration and size of budget

I. Third countries

Table 1 Accepted programmes 20012003 by proposing Member State

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Table 2 Accepted programmes by target countries

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Table 3 - Accepted programmes 2001-2003 by Member States and product sector

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Table 4 - Duration of programmes

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Table 5 - Accepted programmes by the size of their budget

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II. Internal market

Table 6 - Accepted programmes 2001-2003 by product sector

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Table 7 - Accepted programmes 2001-2003 by proposing Member State

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Table 8 - Number of accepted programmes by Member State and product sector

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Table 9 - Duration of programmes

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Table 10 - Indicative budgets in guidelines and accepted co-financing by product sector

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Table 11 - Accepted programmes by the size of their budget

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