Proposal for a Council Regulation on production aid for cotton
Date: 1999-12-13
Institutions: European Commission
Subjects: Greece, Spain, aid system, cotton, production aid

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 13.12.1999
COM(1999) 492 final

1999/0201 (CNS)
1999/0202 (CNS)

Proposal for a

COUNCIL REGULATION

adjusting, for the sixth time, the system of aid for cotton introduced
by Protocol 4 annexed to the Act of Accession of Greece

Proposal for a

COUNCIL REGULATION

on production aid for cotton

(presented by the Commission)

EXPLANATORY MEMORANDUM

1.

INTRODUCTION

This Explanatory Memorandum and its accompanying legislative proposals are drafted
in response to paragraph 11 of Protocol 4 annexed to the Act of Accession of Greece,
amended inter alia by Protocol 14 annexed to the Act of Accession of Spain and
Portugal, which required a report on the operation of the aid scheme. This requirement
was partly anticipated in 1997/98 by the Report from the Commission to the Council on
Greek requests in the cotton sector (COM(1998) 10 final). In June 1998, after the report
had been studied and some of the recommended measures adopted, the Council invited
the Commission to examine:

–

–

–

–

the possibility of introducing a system enabling the aid to be paid directly to
the producer,

the compatibility of such a system with current commercial practice in the
cotton sector,

the possibility of setting up a system of regionalised penalties,

the problems inherent in managing and monitoring such systems.

In evaluating the desired changes, attention has been paid to simplifying the rules and
ensuring that the effectiveness of controls is maintained or improved. This was because
the Court of Auditors, in its annual reports1, had found serious shortcomings in the
controls on the cotton aid scheme.

2.

THE COTTON AID SCHEME

The Community rules governing the arrangements for cotton are based on a Protocol
annexed to the Act of Accession of Greece. Following the accession of Spain and
Portugal, Council Regulation (EEC) No 1964/87 adjusting the system of aid for cotton
introduced by Protocol 4 annexed to the Act of Accession of Greece was adopted, in
particular to establish a maximum guaranteed quantity. Since then,
this Council
Regulation has been amended four times, to adapt some of its Articles but also to amend
certain sections of Protocol 4. In addition, Council Regulation (EC) No 1554/95 lays
down the general rules for the system of aid. This rather unusual legislative arrangement
has become exceptionally complex and, in order to simplify it, the provisions of the
Protocol should be reduced to essentials and all the other legislative measures should be
brought together in a single Council Regulation.

1

OJ C 309, 16.11.1993, p. 1.
JO C 340, 17.11.1996, p. 1.

2

The cotton arrangements are based on a minimum price per tonne of unginned cotton to
be paid to producers by cotton ginning undertakings. The ginning undertakings receive
Community aid per tonne, which varies according to market quotations so that ginned
cotton can be sold at the world price. In addition, since the 1998/99 marketing year, it
has been possible for producer groups to have ginning carried out on their behalf and to
receive aid through the ginning undertakings.

The scheme is subject to guaranteed national quantities (GNQs) of 782 000 tonnes for
Greece and 249 000 tonnes for Spain. If production exceeds the guaranteed national
quantity, the guide price, the aid and the minimum price are reduced, although this does
not necessarily ensure budget neutrality. However, there is a mechanism which, under
limits
certain conditions,
limited to
production. Under most
EUR 770 million, although it can be much higher, particularly when the world price is
low and interest
in the crop is growing as at present. Expenditure could exceed
EUR 900 million.

in particular when the world price is relatively high,
circumstances, budgetary expenditure

is

Advances on the aid are paid, on the basis of the world prices recorded and crop
estimates made before the beginning of the marketing year (1 September). Moreover,
since the 1998/99 marketing year, advances have been revised on the basis of a new
crop estimate made at the end of November when ginning is well under way.

Between 1982 and 1992, the Community encouraged the creation of producer groups in
the cotton sector. Start-up aid and investment aid were provided, chiefly for the
purchase of harvesting machinery. In both Greece and Spain, all growers now have
access to harvesting machinery. The producer groups manage this machinery pool.
Since 1992, the production aid scheme has encouraged the creation of producer groups
and has facilitated their operation.

In Greece, 20 ginning cooperatives, accounting for about a quarter of all the ginning
undertakings in the country (around 75 in all) own about one third of the ginning
capacity. The total ginning capacity does not pose any special difficulties given the level
of production in Greece.

In Spain, the 10 ginning cooperatives account for almost half of the 22 undertakings.
There is surplus ginning capacity in relation to the supply from producers, particularly
noticeable in recent marketing years (1993/94 to 1995/96) because of the persisting
drought.

Monitoring the scheme focuses mainly on the following points:

–

–

–

–

the producer makes a declaration of area sown, which is included in the area
aid application provided for under the integrated administration and control
system (IACS),

producers and ginning undertakings conclude contracts, which include an
undertaking to pay the minimum price,

the unginned cotton is placed in supervised storage at the ginning undertaking,

stock accounts are kept
undertaking.

for products entering and leaving the ginning

3

By checking these different points it is possible to determine the origin of each batch of
unginned cotton, verify whether the quantities tally with the declared areas sown and
identify which bales of cotton fibre are produced from which unginned cotton.

Checks on the application of the rules under the EAGGF accounts clearance procedure
led to a financial correction amounting to 10% of the expenditure declared by Greece
for the 1991 and 1992 financial years. In its Statement of Assurance for 1994, the Court
of Auditors also reported shortcomings in compliance with certain provisions among
Greek ginning undertakings. A financial correction of EUR 3.2 million was applied.

Since 1994, inspection procedures in Greece have been reviewed and the current view
of the EAGGF accounts clearance department is that inspection arrangements have
improved.

All in all, the present system enables a fairly high quality of cotton to be produced and
permits the ginned cotton to be sold at the world price. However, the latest figures
available show a disturbing rise in areas sown and output. This suggests that situations
could arise which would make it difficult to respect overall budgetary discipline and to
take environmental considerations into account. In order to overcome this problem, the
budget neutrality of the cotton regime must be strengthened. It is therefore proposed to
increase the percentage reduction in the guide price, without, however, amending the
other components of the stabiliser mechanism.

3.

DIRECT AID TO PRODUCERS

Disputes often arise between producers and ginning undertakings because of the time it
takes for the advances on the aid paid to the processor to be passed on to the producer in
the minimum price, and because of the adjustments to the minimum price according to
the quality of the cotton. From the 1995/96 marketing year, the Community grading
scale for increasing and reducing the minimum price according to quality was abolished
in the interests of subsidiarity and at the unanimous request of all operators in the sector.
As things now stand, when the quality of the cotton delivered does not correspond to the
standard quality,
the price agreed is adjusted proportionally by common consent
between the contracting parties. In Greece, where there is no interbranch agreement, the
intervention agency has imposed a scale of increases and reductions. It also charges a
1% levy on payments made by ginning undertakings to producers, thereby throwing the
system out of balance.

While it is both difficult and inappropriate to regulate contractual relations between
producers and ginning undertakings at Community level, it is important that the aid be
paid in full to the beneficiaries in order for it to accomplish its role of bridging the gap
between the guide price and the world market price. It is also worthwhile clarifying
certain rules that must be complied with, such as the link there should be between the
quality of unginned and ginned cotton, and the obligation to pay an advance on the
minimum price.

In these circumstances, and to ensure that the aid more directly benefits producers,
Greece has asked whether it would be possible to grant the aid directly to those
producer organisations (POs) that pay the minimum price to their members, have
ginning carried out under contract, and market the ginned cotton. This arrangement
would be optional and, at least to start with, very few POs would qualify. None of the
POs without ginning facilities currently market their ginned cotton.

4

There are two main obstacles to the payment of direct aid to POs on the above terms:

–

–

in order to market ginned cotton, a PO must have sufficient capital to be able to
guarantee the bank loans necessary to pay the minimum price; they must also
have marketing equipment and premises (storage, handling, communications)
and qualified staff, particularly managers able to monitor the world market,
manage variable aid and conclude sales contracts. There is a considerable risk
that the payment of the minimum price or the repayment of bank loans would
place such POs in financial difficulties,

the quantities of unginned and ginned cotton on which the aid is paid would
still have to be checked mainly on the premises of the ginning undertaking
carrying out the contract work. If the checks at ginning undertakings revealed
irregularities, the POs could disclaim responsibility.

It therefore appears that producer groups that do not carry out their own ginning do not
have the resources required to manage the variable aid arrangements under the current
regime. The matter should be re-examined in a few years, in the light of the experience
gained by groups that have their cotton ginned under contract against reimbursement of
the aid received by the ginning undertakings under the rules introduced at the beginning
of the 1998/99 marketing year. To date, this option has not been used.

In the light of the above, the current scheme whereby the aid is granted to ginning
undertakings for the quantity they produce should be maintained.

4.

REGIONALISATION OF PENALTIES

Greece wishes to establish the principle of regionalised cotton cultivation in order to
prevent it from spreading to non-traditional zones in regions where water consumption
is a source of conflict and poses a problem of environmental management. In Spain,
cotton growing is concentrated almost exclusively in Andalusia.

The relationship between cotton and the environment is an ambivalent one. On the one
hand, cotton is the most important textile fibre of plant origin and it is mainly because it
is "natural" that it is perceived as superior to the competing synthetic fibres. On the
other hand, however,
the environmental consequences of cotton cultivation are
sometimes condemned because of the high water consumption, the use of pesticides and
fertilisers and the trend towards a one-crop economy in certain areas: the absence of
crop rotation is liable to exhaust the soil and increase the dangers of plant diseases in the
long term.

Many initiatives are already being undertaken throughout the sector to palliate these
drawbacks. Drip irrigation and sowing under plastic help rationalise water consumption.
Greece has initiated a programme to reduce the use of fertilisers and introduce drip
irrigation, particularly on areas sown to cotton. In Spain,
the "Asociaciones para
Tratamientos Integrados del Algodón" (ATRIAS) have launched initiatives to cut
production costs and introduce integrated pest control.

to regionalise the guaranteed national quantity (GNQ) with
The Greek request
guaranteed regional quantities (GRQs) could be a source of complication, risk for the
EAGGF and conflicts between regions in relation to the following:

5

–

–

–

regional production estimates and advances on aid,

the reallocation of GRQs not fully utilised in some regions,

verifying the origin of unginned cotton, which could qualify for different levels
of aid per tonne.

Another solution put forward by Greece involves individual quotas. Under this
proposal, the aid would continue to be paid to ginning undertakings, as it is under the
present regime, with a GNQ for all the cotton produced. Producers would continue to be
paid the minimum price, minus an appropriate reduction, for individual quotas which
together would give a total figure equal to estimated production. Any cotton produced in
excess of the individual quotas would not be subject to the minimum price requirement.

The precedents for this type of system, particularly as applied to milk and durum wheat,
have shown it to be complicated. There are two main practical difficulties:

–

–

managing the individual quotas, which would have to be reallocated every
year, is a source of serious conflicts,

the presence on the market of cheap ginned cotton giving ginning undertakings
the same entitlement to aid as cotton at the minimum price seems likely to
encourage deflections of normal marketing flows as well as fraud.

Either of the two solutions proposed, whether regionalisation of GNQs or individual
quotas, would therefore result in additional complexity, more disputes and increased
danger of fraud. However, in order to attain the objective of checking the spread of
is proposed that Member States introduce the appropriate
cotton cultivation,
environmental measures and restrict the surface areas or zones where cotton cultivation
is eligible for aid on the basis of objective environmental criteria. In the light of the
above, the proposal is in line with the general environmental objectives in the Agenda
2000 decisions. It is proposed that Member States send the Commission a report before
31 December 2003 on the environmental situation in the sector.

it

5.

OTHER ADMINISTRATION AND CONTROL CONSIDERATIONS

One potential source of difficulties in the way the current regime operates lies in the
detailed rules for fixing the aid. Under the current regime, the aid to be granted is the
amount valid on the date when the ginning undertaking makes its application. Ginning
undertakings can make one or more applications, for one or more quantities, at any time
between the date on which the cotton enters the undertaking (not before 1 September)
the latest. This arrangement enables ginning
and the following 31 March at
undertakings to receive an amount that takes account of the world market price on the
date of conclusion of the sales contract for the fibre produced.

The rules prevent beneficiaries from making an aid application before they are actually
in possession of the product, and discourages contracts from being concluded on the
world market before the harvest period. One proposal would be to extend the period
during which the amount of the aid is fixed, but this would mean severing the link
between calculating the quantities eligible for the aid and the physical check on each
batch of cotton that enters an undertaking.

6

For example, aid applications for quantities specified by the applicant would involve the
amounts in force at the time of application, between 1 July and the following 31 March.
The total quantity covered by applications would have to correspond to the total
quantity of cotton entering the undertaking between 1 September and the following
31 March. By contrast, the advances on aid would continue to be based, as they are
today, on the quantities actually placed under supervision in the undertaking concerned.

6.

PROPOSED MEASURES

Having examined the operation of the cotton regime, the Commission's main proposals
are as follows:

–

–

–

–

–

–

–

maintain the current aid scheme,

provide for aid to be granted in full to beneficiaries and lay down certain rules
on payments and adjustment of the minimum price,

increase the percentage reduction of the guide price,

provide for Member States to draw up objective environmental criteria and,
where necessary, restrict eligibility for the aid to certain areas,

provide for a report from the Member States on the impact on the sector of
national environmental measures,

extend the period during which aid applications may be made under an updated
system for the calculation of eligible quantities,

simplify the Community rules by bringing the principles governing the cotton
regime together in Protocol 4 and the legislative provisions on the production
aid for cotton together in a single Council Regulation.

The proposed measures will simplify not only the rules but also the conditions for fixing
and granting the aid, which is mostly paid to small and medium-sized undertakings.
They also contribute to improving respect for the environment and for budgetary
discipline.

This set of measures will contribute to the general goal of uniform application of the
rules governing agricultural production. They fall within the exclusive competence of
the Community.

7

1999/0201 (CNS)

Proposal for a

COUNCIL REGULATION

adjusting, for the sixth time, the system of aid for cotton introduced
by Protocol 4 annexed to the Act of Accession of Greece

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to the Act of Accession of Greece2, and in particular paragraph 11 of
Protocol 4 on cotton, as last amended by Regulation (EC) No 1553/953,

Having regard to the proposal from the Commission4,

Having regard to the opinion of the European Parliament5,

Having regard to the opinion of the Economic and Social Committee6,

Whereas:

(1)

(2)

2

3

4

5

6

7

8

9

Examination of the operation of the system of aid for cotton and of the support
scheme for arable crops, as provided for in paragraph 11 of Protocol 4, reveals
a need for adjustment of the system for cotton.

Measures concerning cotton are set out in Protocol 4, in Council Regulation
(EC) No 1554/95 of 29 June 1995 laying down the general rules for the system
of aid for cotton and repealing Regulation (EEC) No 2169/817, as last
amended by Regulation (EC) No 1419/988, and in Council Regulation (EEC)
No 1964/87 of 2 July 1987 adjusting the system of aid for cotton introduced
by Protocol No 4 annexed to the Act of Accession of Greece9, as last amended
by Regulation (EC) No 1553/95. The system provided for in Protocol 4
annexed to the Act of Accession of Greece should be maintained, in particular
the opportunity for the Council to adjust the system, and, in the interests of
simplification, the implementing measures concerning cotton production aid
should be brought together in one Council Regulation,

OJ L 291, 19.11.1979, p. 174.
OJ L 148, 30.6.1995, p. 45.

OJ L 148, 30.6.1995, p.48.
OJ L 190, 4.7.1998, p. 4.
OJ L 184, 3.7.1987, p. 14.

8

HAS ADOPTED THIS REGULATION:

Paragraph 3 of Protocol 4 is replaced by the following:

Article 1

"3.

The system referred to in paragraph 2 shall include the grant of an aid to
production."

Paragraph 6 of Protocol 4 is replaced by the following:

Article 2

"6.

The Council, acting by a qualified majority on a proposal from the
Commission and after consulting the European Parliament, shall decide on
the adjustments necessary to the system introduced pursuant to this Protocol
and shall adopt the general rules necessary for implementing the provisions
of this Protocol."

Paragraphs 7, 8, 8a, 9, 10, 11 and 12 of Protocol 4 are deleted.

Article 3

Paragraph 13 of Protocol 4 becomes paragraph 7.

Article 4

Article 5

This Regulation shall enter into force on the seventh day following its publication in
the Official Journal of the European Communities.

It shall apply from 1 September 2000.

This Regulation shall be binding in its entirety and directly applicable in all Member
States.

Done at Brussels,

For the Council
The President

9

1.

2.

3.

4.

5.

5.0

5.1

6.0

6.1

FINANCIAL STATEMENT

BUDGET HEADING:
B1-141

APPROPRIATIONS:
EUR 812 million

TITLE:
Proposal for a Council Regulation adjusting, for the sixth time, the system of aid for cotton introduced by
Protocol 4 annexed to the Act of Accession of Greece.

LEGAL BASIS: Protocol 4 annexed to the Act of Accession of Greece

AIMS OF THE MEASURE:
To update Protocol 4.

FINANCIAL IMPLICATIONS

EXPENDITURE
-

CHARGED TO THE EC BUDGET
(REFUNDS/INTERVENTIONS)
NATIONAL ADMINISTRATION
OTHER

REVENUE
-

OWN RESOURCES OF THE EC
(LEVIES/CUSTOMS DUTIES)
NATIONAL

-
-

-

5.0.1 ESTIMATED EXPENDITURE
5.1.1 ESTIMATED REVENUE

5.2 METHOD OF CALCULATION:

PERIOD OF
12 MONTHS

(EUR million)

CURRENT
FINANCIAL
YEAR (1999)
(EUR million)

FOLLOWING
FINANCIAL
YEAR (2000)
(EUR million)

-

-

-

-

-

-

2001

2002

2003

2004

-
-

-
-

-
-

-
-

CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN THE
RELEVANT CHAPTER OF THE CURRENT BUDGET?

YES / NO

CAN THE PROJECT BE FINANCED BY TRANSFER BETWEEN CHAPTERS OF THE
CURRENT BUDGET?

YES / NO

YES / NO

YES / NO

6.2

IS A SUPPLEMENTARY BUDGET NECESSARY?

6.3 WILL FUTURE BUDGET APPROPRIATIONS BE NECESSARY?

OBSERVATIONS:

The measure as such has no financial impact compared to the current situation.

10

1999/0202 (CNS)

Proposal for a

COUNCIL REGULATION

on production aid for cotton

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to the Act of Accession of Greece, and in particular the first subparagraph of
paragraph 6 of Protocol 4 on cotton10, as last amended by Regulation (EC) No ..../199911,

Having regard to the proposal from the Commission12,

Having regard to the opinion of the European Parliament13,

Having regard to the opinion of the Economic and Social Committee14,

Whereas:

(1)

(2)

(3)

10

11

12

13

14

15

16

17

18

Examination of the operation of the aid scheme provided for in paragraph 11 of
Protocol 4 reveals a need to maintain the existing arrangements for cotton, but
with certain adjustments.

The measures relating to cotton are laid down in Protocol 4, Council Regulation
(EC) No 1554/95 of 29 June 1995 laying down the general rules for the system
of aid for cotton and repealing Regulation (EEC) No 2169/8115, as last amended
by Regulation (EC) No 1419/9816 and Council Regulation (EEC) No 1964/87 of
2 July 1987 adjusting the system of aid for cotton introduced by Protocol 4
annexed to the Act of Accession of Greece17, as last amended by Regulation
(EC) No 1553/9518. The arrangements provided for in Protocol 4 annexed to the
Act of Accession of Greece should be maintained, particularly the possibility for
the Council to adjust the scheme, and, in the interests of simplification, all the
implementing measures needed for the grant of the aid should be brought
together in a single Council Regulation.

for
Paragraph 6 of
implementing the scheme must be adopted. The production aid provided for in

the Protocol stipulates that

the necessary measures

OJ L 291, 19.11.1979, p. 174.
See this OJ.

OJ L 148, 30.6.1995, p. 45.
OJ L 190, 4.7.1998, p. 4.
OJ L 184, 3.7.1987, p. 14.
OJ L 148, 30.6.1995, p. 45.

11

(4)

(5)

(6)

(7)

(8)

(9)

paragraph 3 of Protocol 4 is currently based on a system, in the framework of
guaranteed national quantities, that guarantees a minimum price to producers
and, through the aid paid to ginning undertakings, makes up the difference
between the guide price and the world market price. In the light of experience,
the foundations of the system and its various components should be maintained.

The guide price, the minimum price payable to producers and the guaranteed
national quantities should be fixed at levels that maintain the balance achieved
between crops and enable operators to run medium-term production and
processing programmes.

The provisions for determining the world market price for unginned cotton
should be maintained. This price may be established on the basis of the
relationship between the price agreed for ginned cotton and the price calculated
for unginned cotton. When calculating the price of ginned cotton, account should
be taken of offers made on the world market and of quotations on those
exchanges that are important for international trade.

The current mechanism, whereby when a certain production quantity is exceeded
the aid is reduced proportionately in the Member States responsible for the
overrun, should be maintained in order to ensure that penalties are applied fairly.
However, the reduction in the guide price may be limited provided that, taking
account in particular of the average world market price, a certain level of
expenditure is not exceeded. The consequences of the guaranteed national
quantities mechanism must be applied to both the minimum price and the aid.

The percentage reduction in the guide price which now applies, equal to half the
overrun in the national guaranteed quantity, may under certain circumstances
threaten budgetary discipline. That percentage should therefore be increased.

To ensure that the system is balanced, the production aid should henceforth be
paid in full to beneficiaries, without prejudice to the various reductions provided
for by the Community rules. The current state of production structures is such
that the aid should be granted to ginning undertakings, which then pay producers
a price at least equal to the minimum price and an advance on that price, and
which accept certain conditions regarding checks on the quantities eligible for
aid.

The aid varies in amount according to the world market price and needs to be
applied to the quantities of cotton eligible for aid depending on the actual period
when the aid application is made. The current scheme allows ginning
undertakings to fix that amount,
in
particular, of the date of conclusion of sales contracts for the ginned cotton in
their possession. In order better to facilitate the disposal of ginned cotton on the
world market, it is advisable in future to allow contracts to be concluded before
the harvesting period and, consequently, to extend the period during which aid
applications may be submitted.

in their aid applications, on the basis,

(10) Contractual relations between producers and ginning undertakings should not be
regulated at Community level. The principle of common consent between the
contracting parties should be maintained but spelt out in greater detail.

12

(11)

(12)

(13)

(14)

(15)

(16)

The amount of aid to be granted cannot be known until actual production in each
Member State has been determined. To offset the adverse effects of late payment
of aid, provision should continue to be made for part of the aid to be paid in
advance.

The producer Member States must set up the control arrangements necessary to
ensure that
the aid system operates correctly, using where applicable the
integrated administration and control system provided for in Council Regulation
(EEC) No 3508/92 of 27 November 1992 establishing an integrated
administration and control system for certain Community aid schemes19, as last
amended by Regulation (EC) No 820/9720.

The cultivation of cotton in regions not suited to it is likely to have harmful
effects on the environment as well as on the agricultural economy of those
regions where this crop is important. In order to take account of environmental
objectives,
the appropriate
the Member States should determine and adopt
land for cotton
environmental measures to regulate the use of agricultural
production. In future, the Member States must introduce measures to restrict the
crop under objective environmental criteria and remind producers of the need to
comply with the legislation in force. The Member States should draw up a report
on the impact on the cotton sector of national environmental measures at a time
when an assessment is possible.

In order to facilitate the implementation and administration of the aid system,
provision should be made for a procedure establishing close cooperation
between the Member States and the Commission within a management
committee. The Management Committee for Flax and Hemp provided for in
Council Regulation (EEC) No 1308/70 of 29 June 1970 on the common
organisation of the market in flax and hemp21, as last amended by Regulation
(EC) No 3290/9422, should be used for that purpose.

Since the measures for the implementation of this Regulation are management
measures within the meaning of Article 2 of Council Decision 1999/468/EC of
28 June 1999 laying down the procedures for the exercise of implementing
powers conferred on the Commission23, they should be adopted by use of the
management procedure provided for in Article 4 of that Decision.

In order to ensure that Community expenditure linked to the application of the
measures provided for in this Regulation is subject to financial and monetary
rules and adequate procedures, and in view of the specifically agricultural nature
of unginned cotton, Council Regulation (EC) No 1258/1999 of 17 May 1999 on
the financing of the common agricultural policy24 and Council Regulation (EC)
No 2799/98 of 15 December 1998 establishing agrimonetary arrangements for
the euro25 should apply in this area.

19

20

21

22

23

24

25

OJ L 355, 5.12.1992, p. 1.
OJ L 117, 7.5.1997, p. 1.
OJ L 146, 4.7.1970, p. 1.
OJ L 349, 31.12.1994, p. 105.
OJ L 184, 17.7.1999, p. 23.
OJ L 160, 26.6.1999, p. 103.
OJ L 349, 24.12.1998, p. 1.

13

(17)

The adjustments to the scheme provided for in this Regulation should be
implemented as smoothly as possible and transitional measures may therefore be
required,

HAS ADOPTED THIS REGULATION:

CHAPTER I: GENERAL PRINCIPLES

Article 1

1.

2.

This Regulation lays down the measures needed for the grant of the production
aid provided for in paragraph 3 of Protocol 4 annexed to the Act of Accession
of Greece.

For the purposes of this Regulation:

(a)

(b)

"unginned cotton" means the fruit of the cotton plant (Gossypium) which
has reached maturity and been harvested and which contains pod and leaf
fragments and soil matter;

"ginned cotton" means cotton fibres (other than linters and waste),
neither carded nor combed, from which the seeds and most of the pod
and leaf fragments and soil matter have been removed.

3.

The marketing year shall run from 1 September to 31 August.

Article 2

1.

2.

The amount of the production aid for unginned cotton shall be fixed by the
Commission on the basis of the difference between:

–

–

a guide price fixed for unginned cotton in accordance with Article 3(1)
and Article 7, and

the world market price determined in accordance with Article 4.

The aid shall be granted for unginned cotton purchased at a price at least equal
to the minimum price, fixed in accordance with Article 3(2) and Article 9.

CHAPTER II: PRICE MECHANISM

Article 3

1.

The guide price shall be set at EUR 106.30 per 100 kg of unginned cotton.

This price shall relate to cotton:

–

–

of sound and fair merchantable quality,

containing 10% moisture and 3% impurities,

14

–

with the characteristics needed to produce, after ginning, 32% grade 5
fibres (white middling) 28 mm in length (1-3/32").

The minimum price shall be set at EUR 100.99 per 100 kg of unginned cotton
for the quality selected for the ex holding guide price.

Article 4

The world market price for unginned cotton shall be determined by taking
account of the historical relationship between the world market price for
ginned cotton and the price calculated for unginned cotton. It shall be fixed
periodically by the Commission on the basis of the world market price for
ginned cotton referred to in Article 5.

If the world market price for unginned cotton cannot be determined in
accordance with paragraph 1, it shall be established on the basis of the most
recent price determined.

Article 5

The world market price for ginned cotton shall be determined on the basis of a
grade 5 (white middling) product with a fibre length of 28 mm (1-3/32"),
account being taken of the offers made on the world market and of the
quotations on one or more European exchanges that are important
for
international trade. This price shall be determined using the most favourable
offers and quotations among those that are considered representative of the real
market price cif for the product delivered to a Community port.

Where the offers and quotations recorded do not satisfy the requirements
referred to in paragraph 1, the necessary adjustments shall be made.

2.

1.

2.

1.

2.

CHAPTER III: STABILISER MECHANISM

Article 6

A guaranteed national quantity for unginned cotton shall be introduced, equal for each
marketing year to:

–

–

–

782 000 tonnes for Greece,

249 000 tonnes for Spain,

1 500 tonnes in each of the other Member States.

15

Article 7

Without prejudice to Article 8, if during a marketing year the sum of actual production in
Spain and Greece exceeds 1 031 000 tonnes, the guide price referred to in Article 3(1) shall
be reduced for that marketing year in any Member State where actual production exceeds
the guaranteed national quantity. The guide price shall be reduced for the Member State
concerned by a percentage equal to 60% of the percentage by which its guaranteed national
quantity has been exceeded.

However, if actual production in either Spain or Greece is lower than its guaranteed national
quantity, the difference between the total actual production of the two Member States and
1 031 000 tonnes shall be expressed as a percentage of the guaranteed national quantity that
has been exceeded, and the guide price shall be reduced by 60% of that percentage.

If during a marketing year:

Article 8

–

–

–

Article 7 has been applied,

the weighted average of the world market price adopted in order to fix the amount
of aid is greater than EUR 30.20 per 100 kg,

and

the total budget expenditure on the aid system is less than EUR 770 million,

the budget remainder referred to in the third indent shall be used in order to increase aid in
each Member State where actual production exceeds its guaranteed national quantity.

However, the amount of aid as increased under the first subparagraph may not exceed:

–

–

either the amount of aid calculated without application of Article 7,

or the amount of aid calculated after application of Article 7 on the basis of
1 120 000 tonnes of unginned cotton subdivided into a guaranteed national
quantity of 270 000 tonnes for Spain and 850 000 tonnes for Greece.

The minimum price referred to in Article 3(2) shall be reduced by the same amount as the
guide price under Article 7.

Article 9

CHAPTER IV: AID BENEFICIARIES

Article 10

The aid shall be paid in full to the beneficiaries referred to in Articles 11 and 12 who make
an application.

16

Article 11

In order to receive aid, cotton ginning undertakings other than those referred to in Article 12
must:

(a)

have submitted a signed contract stipulating, in particular, payment to the producer
of a price at least equal to the minimum price and containing a clause specifying
that:

(b)

(c)

(d)

1.

–

–

where Article 7 is applied, the agreed price will be adjusted in consequence
of the effect of the application of that Article on the aid,

if the quality of the cotton delivered differs from the quality referred to in
Article 3(2), the price agreed will be adjusted by common consent between
the contracting parties in proportion to the effect of that difference in quality
on the price of the ginned product in relation to the price referred to in
Article 5;

have paid an advance on the minimum price of an amount to be determined by
common consent between the contracting parties, subject to conditions to be laid
down;

keep stock accounts on ginned and unginned cotton that satisfy requirements to be
laid down and provide the other supporting documents necessary so that
entitlement to the aid can be checked;

furnish proof that the cotton delivered under the contract is the subject of the
declaration of area sown referred to in Article 15(2).

Article 12

In order to receive the aid, cotton ginning undertakings that gin cotton on
behalf of individual producers or producer groups meeting the criteria laid
down in paragraph 4 of Protocol 4 must:

(a)

have submitted a statement, approved by the producer or producer group
concerned, giving details of the conditions under which the ginning is
carried out and how the aid is administered;

(b)

undertake to pass on the full amount of the aid to the individual
producers or, where applicable, the producer groups concerned;

(c)

satisfy the conditions referred to in Article 11(c);

(d)

(e)

furnish proof that the cotton referred to in the statement referred to in (a)
has been the subject of the declaration of area sown referred to in
Article 15(2);

furnish proof that producer groups are obliged to comply with an
undertaking equivalent
to the clause in the contract referred to in
Article 11(a) and an undertaking by such groups to keep and produce
supporting documents concerning payment of the minimum price to their
members.

17

2.

1.

2.

3.

1.

2.

Failure to comply with the clause or undertaking referred to in paragraph 1(e)
by a producer group having ginning carried out on its behalf shall be
considered a failure to meet the criteria referred to in paragraph 4 of Protocol 4.

CHAPTER V: GRANT OF THE AID

Article 13

The amount of the aid to be paid shall be the amount applicable on the day the
application for aid is made.

Aid applications shall be lodged, together with a security where required,
during a period to be determined, for a quantity of unginned cotton which must
enter the cotton ginning undertaking after the beginning of the marketing year
concerned and before a date to be specified.

Entitlement to the aid shall be acquired when the cotton is ginned. However,
aid may be paid in advance, at the request of the interested party, from 16
October following the start of the marketing year, when the unginned cotton
enters the cotton ginning undertaking, provided an adequate security has been
lodged. The amount of the advance shall be calculated in accordance with
paragraph 3.

The balance of the aid shall be paid before the end of the marketing year at the
latest, once any adjustments to the aid resulting from application of Article 7
have been determined.

The amount of the advance shall be equal to the guide price referred to in
Article 3(1), minus the world price and reduced further by an amount
calculated in accordance with Article 7, but replacing actual production by the
estimated production fixed in accordance with the first indent of Article 17(2),
plus 15%.

From 16 December following the start of the marketing year, the amount of the
advance referred to in the first subparagraph shall be replaced by a revised
amount calculated using the same method but based on the revised production
estimate fixed in accordance with the second indent of Article 17(2), plus at
least 7,5%. Advances paid between 16 October and 15 December shall be
increased accordingly, except where the difference between the two amounts is
less than EUR 1/100 kg.

Article 14

The aid shall be paid only for products of sound and fair merchantable quality.

If the quantity of ginned cotton is less than or equal to 33% of the quantity of
unginned cotton that has entered the cotton ginning undertaking, aid shall be
granted for the quantity of ginned cotton, multiplied by 100 and divided by 32.

18

If the quantity of ginned cotton is greater than 33% of the quantity of unginned
cotton that has entered the cotton ginning undertaking, aid shall be granted for
the quantity of unginned cotton, multiplied by 33 and divided by 32.

3.

The quantity of ginned cotton shall be equal to its weight, adjusted where
necessary for any difference between:

–

and

–

the percentage of impurities recorded compared to the representative
percentage for grade 5

the percentage moisture content
representative of commercial fibre.

recorded compared to the level

Article 15

1.

2.

The producer Member States shall set up a system of penalties and controls
enabling them, in particular, to ensure that the minimum price is complied with
and to ascertain:

–

–

–

the quantity of unginned Community cotton which has entered each
cotton ginning undertaking,

the quantity of unginned Community cotton which has been ginned,

the quantity of ginned cotton obtained in each cotton ginning undertaking
from the cotton referred to in the first indent.

The Member States shall establish a system of declarations of the areas sown,
in particular to ensure that cotton covered by aid applications is of the origin
stated.

1.

Member States shall determine, for the cotton sector:

Article 16

–

–

–

measures to improve the environment, in particular cultivation techniques
to reduce the negative impact on the environment,

research programmes to develop more environmentally friendly growing
methods,

the means of informing producers of the results of such research and the
advantages of using the techniques concerned.

2.

The Member States shall
take the environmental measures they consider
suitable in view of the specific situation of the agricultural areas used for
cotton production. In addition, the Member States shall take the necessary steps
to remind producers that they are required to comply with environmental
legislation.

19

3.

The Member States shall, where appropriate, restrict the areas eligible for the
production aid for unginned cotton on the basis of objective criteria relating to:

4.

1.

–

–

–

–

the agricultural economy of those regions where cotton is a major crop,

the soil and climate in the areas in question,

the management of irrigation water,

rotation systems and cultivation methods
environment.

likely to improve the

Before 31 December 2003,
the producer Member States shall send the
Commission a report on the environmental situation in the cotton sector and the
impact of national measures adopted in accordance with paragraphs 1, 2 and 3.

CHAPTER VI: GENERAL

Article 17

For the detailed rules for the implementation of this Regulation and the
information to be forwarded by the Member States to the Commission, the
Commission shall be assisted by the Management Committee for Flax and
Hemp established by Article 12 of Regulation (EEC) No 1308/70.

Such rules shall concern, inter alia, all the necessary inspection measures to
protect the European Community's financial interests against fraud and other
irregularities. These measures may be based on the integrated administration
and control system established by Regulation (EEC) No 3508/92.

Where reference is made to this subparagraph, the management procedure laid
down in Article 4 of Decision 1999/468/EC shall apply in compliance with
Article 7(3) thereof.

The period provided for in Article 4(3) of Decision 1999/468/EC shall be one
month.

2.

In accordance with the procedure referred to in paragraph 1, the Commission
shall fix for each Member State concerned, before dates to be specified:

–

–

–

taking account of crop forecasts, the estimated production referred to in
the first subparagraph of Article 13(3) and the resultant provisional
reduction in the guide price,

taking account of the progress of the harvest, the revised production
estimate referred to in the second subparagraph of Article 13(3) and the
new resultant provisional reduction in the guide price,

taking account in particular of the quantities on which aid has been
applied for, actual production in the current marketing year, together with
the reduction in the guide price referred to in Article 7 and the increase in
the aid referred to in Article 8.

20

Article 18

Regulations (EC) No 2799/98 and No 1258/1999 on the financing of the common
agricultural policy shall apply, mutatis mutandis, to the arrangements provided for in
this Regulation.

Article 19

If it proves necessary to introduce transitional measures to facilitate implementation of
the adjustments to the system laid down by this Regulation, such measures shall be
adopted in accordance with the procedure referred to in Article 17(1). They shall apply
until the end of the 2000/2001 marketing year at the latest.

Regulations (EEC) No 1964/87 and (EC) No 1554/95 are hereby repealed.

Article 20

Article 21

This Regulation shall enter into force on the seventh day following that of its
publication in the Official Journal of the European Communities.

It shall apply from 1 September 2000. However, Article 19 shall apply from the date of
entry into force of this Regulation.

This Regulation shall be binding in its entirety and directly applicable in all Member
States.

Done at Brussels,

For the Council
The President

21

FINANCIAL STATEMENT

BUDGET HEADING:

B1-141

APPROPRIATIONS: EUR 862 mill. (LA)

TITLE:
Proposal for a Council Regulation on production aid for cotton.

LEGAL BASIS: Protocol 4 annexed to the Act of Accession of Greece

AIMS OF THE MEASURE:
with the Council’s instructions of June 1998.

Amendment of the common organisation of the market in cotton in accordance

PERIOD OF
12 MONTHS

(EUR million)
770

CURRENT
FINANCIAL
YEAR (1999)
(EUR million)
Not applicable

FOLLOWING
FINANCIAL
YEAR (2000)
(EUR million)
Not applicable

FINANCIAL IMPLICATIONS

EXPENDITURE
-

CHARGED TO THE EC BUDGET
(REFUNDS/INTERVENTION)
NATIONAL ADMINISTRATION
OTHER

OWN RESOURCES OF THE EC
(LEVIES/CUSTOMS DUTIES)
NATIONAL

-
-
REVENUE
-

-

1.

2.

3.

4.

5.

5.0

5.1

5.0.1 ESTIMATED EXPENDITURE
5.1.1 ESTIMATED REVENUE

5.2 METHOD OF CALCULATION: -

2001

770

2002

770

2003

770

2004

770

6.0

6.1

CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN THE RELEVANT
CHAPTER OF THE CURRENT BUDGET?

CAN THE PROJECT BE FINANCED BY TRANSFER BETWEEN CHAPTERS OF THE CURRENT
BUDGET?

6.2

IS A SUPPLEMENTARY BUDGET NECESSARY?

6.3 WILL FUTURE BUDGET APPROPRIATIONS BE NECESSARY?

OBSERVATIONS:

YES / NO

YES / NO

YES / NO

YES / NO

The proposal amends the method in force for calculating the aid to increase from 50% to 60% the amount of the overrun in
the MGQs to be taken into account to reduce the guide price.

As all the other components remain unchanged, with an overrun at the current level (between 50% and 60%) and a world
market price of between EUR 302 and EUR 347 a tonne (in line with the average in recent years), total expenditure stands at
EUR 770 million since the system of increases applies. For higher prices, the second ceiling applies, reducing expenditure
progressively, as in the past.

However, for prices lower than EUR 302 a tonne, the proposal enables expenditure to be reduced considerably. By way of an
example, at the (very low) price of EUR 221 a tonne recorded as the weighted average in 1998/99, total expenditure for
production used for the 1999/2000 harvest would be EUR 772 million instead of around EUR 872 million.

22