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COM (83) 0 41 
 
 
 
Vol. 1983/00 15 
  
 
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Conformém ent au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983 
concernant l'ouverture au public des archives historiques de la Communauté économique 
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983, 
p. 1), tel que modifié par le règlement (CE, Euratom) n° 1700/2003 du 22 septembre 2003 
(JO L 243 du 27.9.2003, p. 1), ce dossier est ouvert au public. Le cas échéant, les documents 
classifiés présents dans ce dossier ont été déclassifiés conformément à l'article 5 dudit 
règlem ent. 
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983 
concerning the opening to the public of the historical archives of the European Econom ic 
Communit y and the European Atom ic Energy Communit y (OJ L 43, 15.2.1983, p. 1), as 
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243, 
27.9.2003, p. 1), t his file is open to the public. Where necessary, classified documents in this 
file have been declassified in conformity with Article 5 of the aforementioned regulation.  
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom  1. 
Februa r 1983 über die Freigabe der historischen Archive der Europäischen  
Wirtschaftsgemeinschaft und der Europäischen Atomgem einschaft (ABI. L 43 vom  15.2.1983,  
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. Septem ber 2003  
(ABI. L 243 v om 27.9.2003, S. 1), ist diese Datei der Öffentlichkeit zugänglich. Soweit  
erforderlich, wurden die Verschlusssachen in dieser Datei in Übereinstimmung mit Artikel 5  
der genannten Verordnung freigegeben.  
COMMISSION  OF THE  EUROPEAN  COMMUNITIES 
COM(83)  41  final 
Brussels,  1 February  1983 
Proposal  for a 
COUNCIL  DIRECTIVE 
amending Commission Directive  75/349/EEC  on  detailed rules 
concerning equivalent compensation  and  prior exportation 
under inward processing arrangements 
(submitted  to the  Council  by the  Commission) 
COM(83)  41  final 

EXPLANATORY  MEMORANDUM 
1. Council Directive  69/73/EEC  of 4 March 1969 on the harmonization of 
provisions laid down by law, regulation or administrative action in 
respect of inward processing 1 is designed to make optimum provisions for 
the exportation of goods obtained from the working or processing of 
non-Community raw materials or semi-finished products  without  harming 
the essential interests of Community producers. The arrangements are 
designed  to allow Community exporters the same competitive conditions 
that  are enjoyed by non-Community exporters, and to enable them to 
compete  with  Community products. 
Thus,  where the unavailability or high cost of certain raw materials 
or semi-finished goods in the Community could constitute a severe 
handicap to export-oriented Community processing industries, the 
Directive offers a solution by allowing firms to import temporarily 
and work or process in the Community free of customs duties, charges 
having equivalent effect or agricultural levies products, provided those 
products are re-exported from the customs  territory  of the Community after 
working or processing in the form of "compensating products". The justification 
for the exemption is  that  there is no cause to levy what are essentially 
economic  import duties since the non-Community goods actually used in 
processing  do not finally enter  into  the Community economic channels. 
2. The requirement to ensure in every  case  that  the actual goods 
temporarily imported are re-exported as compensating products might 
have posed problems for some Community processers, in  that  firms would 
have had for example to keep the imported goods physically 
./. 
10J L 58, 08.03.1969, p. 1. 

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seoarate from Community goods used in the same manufacturing operations, 
with  separate stocks and production Lines for  each.  The requirement to 
operate such a system regardless of sound business or stock management 
considerations would have pushed up costs, which in  turn  would have been 
passed  on in the prices of the compensating export products, thus 
cancelling  out the intended benefits of the system. 
In order to avoid imposing such an administrative burden, Article 24 
of Directive  69/73/EEC  provides  that  where the circumstances so warrant, 
the competent authorities may, by way of derogation from the general 
rule  (that  the goods imported should be re-exported),  treat  as 
compensating products ones derived from processing of goods of the same 
kind and quality and having the same technical characteristics as 
those of the imported goods. Thus only where the goods are identical 
are pro essing firms exempt from the requirement to keep separate 
stocks  and accounting systems. The eventual integration of non-
Community goods  into  Community economic channels  without  payment of 
import duties has no economic significance, since the identical goods 
have been withdrawn from those channels to be exported in the form 
of compensating products. 
3. Again  with  a view to taking account of the facts of life in business 
and industry, Article 25 of Directive  69/73/EEC  provides  that  in 
cases  coming  within  Article 24 and where the circumstances so warrant, 
products treated as compensating products may, under conditions 
determined by the compensating authorities, be exported prior to the 
import of goods covered by inward processing arrangements. 
4. Commission Directive  75/349/EEC 1 laid down the implementing rules for 
Articles 24 and 25 of the  basic  Directive. For  ease  of reference the 
system described in Article 24 was baptised "equivalent compensation". 
1 
)J L 156, 18.06.1975, p. 25. 

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However, it should be emphasized  that  the implementing directive did 
not - and could not - change the scope of Article 24 of the  basic 
directive. What it did was to enlarge on the criteria already established 
by stipulating  that  "compensation goods" (goods substituted for those 
which have been or are to be imported) must fall  within  the same  tariff 
heading,  be of the same commercial quality and  possess  the same technical 
characteristics as the import goods. (Article 2(2) of Directive 
75/349/EEC). 
Additionally, in order do underline the highly specific 
nature of the "equivalent compensation" system, and to make it clear 
that  it was only to be used to allow rational stock management, not to 
get an extra  tariff  advantage Article 4 of the implementing directive 
stipulates  that  use of the system will not be authorized where it 
would lead to an unjustified advantage in term of relief from customs 
duties, charges having equivalent effect, agricultural levies and 
other charges laid down  within  the framework of the common agricultural 
policy or of a specific system applicable under Article 235 of the 
Treaty to certain goods which result from processing of agricultural 
products. Article 6  further  indicates  that  use of equivalent compensation 
may be regarded as justified when the kind and/or condition of compensating 
products does not allow a distinction to be made as to whether they have 
been  derived from import goods or from compensation goods, a matter which 
is to be  assessed  as soon as the products are obtained, and in any  case 
before any blending  with  other products. 
5. Notwithstanding these rules, a number of Member States have authorized 
the inward processing of wheat, using the equivalent compensation system, 
for considerable quantities of US or Canadian quality durum wheat, 
which has been substituted for Community wheat of a different quality, 
and for common wheat, including the US "Hard Winter" type, which has 
been  substituted for different qualities of Community wheat. According 
to the statistics, 1,308,818 tonnes of durum wheat was imported  into  the 
Community in 1981/82, and 922,842 tonnes (70.5%) of  that  came in under 
the inward processing arrangements. 
./. 

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The figures  for common  wheat show a rise in the  quantity  coming  in under 
inward processing from  223,000  tonnes  in 1979/80 to 726,000  tonnes  in 
1980/81. 
6. Use of the  equivalent  compensation  system  is clearly  unjustified  in these 
cases, as the  various types  of Community durum wheat or  common  wheat  used in 
obtaining  the exported  compensating  products  are not of the  same commercial 
quality and do not have the  same technical characteristics  as the  imported 
third country  wheat.  Consequently,  the different qualities  are not  used 
interchangeably  in the  processing.  As further confirmation  of the 
differences  between them, Community and non-Community  qualities traded 
in the Community are not  sold on the  same terms. 
The flouting  of Community customs  legislation  has considerably interfered 
with the proper operation  of the  common  agricultural policy  in this 
sector. 
7. The Commission  could not turn a blind eye to  such a breach  of Community 
customs  law. As  soon as it became aware of the  scale on which  these 
practices  were being carried  on, it  reminded  the Member  States,  in 
two telexes, dated  25 November and 12 December 1982, of the  correct 
interpretation  of Article  24 of the  basic directive  and Article  2(2) 
of Directive  75/349/EEC, and  pointed  out that it was  against  Community 
law to authorize  the use of  equivalent  compensation  for Community 
and non-Community durum and  common  wheat. 
8. On 20 December, no  satisfactory assurance having  been received that 
the rules  would  finally  be properly applied,  and given a request 
from two Member  States that  the illegal  practices  be stopped  and 
(b) the prospect  of continuing uncertainty  for Community  authorities 
and users  of the  system  due to the  ambivalence  of certain  Member 
States' positions,  the Commission  representative submitted  to the 
Committee  on Customs  Processing  Arrangements,  under  Article  28 of 
Directive  69/73/EEC, a  draft directive  amending  Commission 

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Directive 75/349/EEC  of 26 May  1975 on detailed rules concerning 
equivalent  compensation  and prior exportation  under inward processing 
arrangements.  The Committee  voted on the draft (submitted  as SUD/1444/82  -
Rev. 1 dated 13 December  1982 - RPA No  1208) at the same meeting, on 
20 December. 
The Committee  failed to return  an opinion, as it could not  muster a 
qualified  majority  (Italy,  the Netherlands and the United  Kingdom were 
against the draft and the other  Member States in favour),  so the 
Commission  will have to initiate stage two of the  Committee  procedure. 
There were three basi r. 
I reasons for the three  Member States voting against the 
proposal : firstly,  they felt that further investigation  might reveal 
types of Community  wheat identical to certain non-Community  types; 
secondly, they  felt that a special implementing directive  was needed, 
rather than  an amendment to Directive  75/349/EEC;  and thirdly,  they did 
not regard origin  as an adequate  criterion.  The Commission's  position, 
based on the evidence of  commercial  transactions  to date, is that  no common 
or durum wheat imported free  of duty under the inward processing 
arrangements  so far has been of the same commercial  quality or had the same 
technical  characteristics  as the Community  common or durum wheat varieties 
normally used in processing operations in'the  Community.  This finding  is 
sufficient  justification  to adopt the directive; 
if it can be shown later on that identical  qualities  do 
exist, and this affectsthe practical operation of exporting firms, the 
matter can be dealt with promptly  by the Committee  procedure.  As regards 
the use of the origin  criterion,  the Commission  would point out that its 
purpose is not to determine quality, but it provides the  customs  authorities 
with an easy means of identifying  non-Community  wheat. 
In the light of the foregoing,  the Commission  accordingly  submits to the 
Council under Article 28(3)(b) of Council Directive 69/73/EEC  of 4 March 
1969, the annexed  proposal for a directive. 

Proposal for  a 
COUNCIL DIRECTIVE 
amending  Commission  Directive  7 5/349/EEC 
on detailed  rules concerning equivalent  compensation  and 
prior exportation  under inward processing  arrangements 
THE COUNCIL  OF THE EUROPEAN COMCINITTES, 
Having regard to the Treaty establishing  the European  Economic 
Community, 
Having regard to Council  Directive  69/73/EEC of 4  March  1969 
the harmonization  of provisions  laid down by law, regulation  or 
administrative  action m respect  of inward processing,  as last amended 
by the Act  of Accession  of Greece,  and in particular Articles 
24 and 23  thereof; 
Having regard to the proposal  from the Commission; 
Whereas in accordance  with the provisions  of Article 24 of  Directive 
69/73/EEC  the competent  authorities  may, where the circumstances  so 
warrant, notwithstanding  Article  2(3) of  the same  Directive,  treat as 
compensating  products, products derived  from processing  of goods of the 
same kind and quality and having the same  technical  characteristics  as 
those of the imported  goods; 
(1) OJ No L 58, 8.3.1969, P. 1 

2. 
Whereas  Directive  75/349/EEC  has  Laid down certain 
provisions necessary  for the  application  of Articles  24 and 25 
of .  Directive  69/73/EEC  and under  these provisions  the 
compensation  goods must  fall within  the same  tariff  subheading, 
be of the same  commercial  quality  and possess  the same  technical 
characteristics  as import goods} 
Whereas,  experience  has shown that Community  common  wheats  are 
not of the same  commercial  quality  and do not possess  the same 
technical  characteristics  as third country  common  wheats;  . 
whereas  the same  situation applies  ">n  respect of durum 
wheats;  whereas,  for this reason, products derived  from 
processing  of Community wheats  cannot be considered  as compensating 
products within  the meaning of Article 24 of  Directive  69/73/EEC; 
Whereas the said provisions  have not been applied uniformly  throughout 
the Community  in respect of common and  durum wheats;  - whereas 
steps should therefore  be taken to define them in order to ensure 
that they  are correctly  and uniformly applied; 
Whereas in the  absence of an opinion  from the Committee  on Customs 
Processing  Arrangements  the Commission  has been unable to adopt the 
provisions  envisaged  on this subject  pursuant  to the  procedure  laid 
down in Article  28(3)(a) of  Directive  69/73/EEC, 
HAS ADOPTED  THIS DIRECTIVE: 
(2) OJ No L  156, 18.6.1975,  p. 25 

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Article  1 
The following  paragraph  i s hereby added to Article  2 of Directive 
75/349/EEC: 
"3. For the  purposes  of appLication  of paragraph  2: 
a) common  wheats of Community  origin falling  under 
subheading  10.01 B I of  the Common  Customs  Tariff 
are not of the same commercial  quality  and do not 
possess the same  technical  characteristics  as common wheats of third 
country  origin falling  under the same  subheading  of the 
Common Customs  Tariff; 
b) durum wheals  of Community  origin falling  under 
subheading  10.01 B  II of  the Common  Customs  Tariff 
are not of the same commercial  quality  ana do not possess 
the same technical  characteristics  as durum wheats of third country 
origin falling  under the same  subheading  of the 
Common Customs  Tariff." 
Article  2 
Member States  shall lay  down the  measures necessary  to comply with 
this Directive  not later than  1 June  1983. 
The Member  States  shall immediately  notify the Commission  of the 
provisions  it makes for implementing  this Directive. 
The Commission  shall communicate  the information  to the  other Member  States. 
Article 3 
This Directive  is addressed  to the Member  States. 
Done at Brussels, For the Council 
The President