Opinion No 1/2001 on a proposal for a Council Regulation amending Council Regulation (EC) No 1258/1999 on the financing of the common agricultural policy as well as various other regulations relating to the common agricultural policy
Date: 2001-01-24
Institutions: European Court of Auditors
Subjects: EU financing, budget, common agricultural policy

21.2.2001

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Official Journal of the European Communities

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I

(Information)

COURT OF AUDITORS

OPINION No 1/2001

on a proposal for a Council Regulation amending Council Regulation (EC) No 1258/1999 on the
financing of the common agricultural policy as well as various other regulations relating to the
common agricultural policy

(submitted pursuant to Article 279 of the EC Treaty)

(2001/C 55/01)

THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Commu-
nity and in particular Articles 248(4) and 279 thereof,

Having regard to the Financial Regulation applicable to the gen-
eral budget of the European Communities (1), as last amended by
Council Regulation (EC, ECSC, Euratom) No 2673/1999 of 13
December 1999 (2), and in particular Articles 4, 19(6) and 102(3)
thereof,

Having regard to the proposal for a Council Regulation amend-
ing Council Regulation (EC) No 1258/1999 on the financing of
the common agricultural policy as well as various other regula-
tions relating to the common agricultural policy (3),

7(4) of Regulation (EC) No 1258/1999, any ‘profits’ which may
arise from sales from public storage, the additional levy on sur-
plus milk production and the financial consequences of clearance-
of-accounts decisions (4).

2. According to the Commission, this negative expenditure
amounted to a total of 1 576 million euro for the financial year
1999, which represents 3,9 % of agricultural expenditure and
1,7 % of the total budget (5).

3. The Commission intends to treat this negative expenditure, in
future, as earmarked revenue and to credit it to the EAGGF with-
out any specific allocation in order to finance any expenditure, of
whatever type, provided it is chargeable to the Guarantee Section.

Having regard to the Council’s request, dated 13 September 2000
and received on 19 September 2000, for the Court of Auditors’
opinion on this proposal,

Negative expenditure

HAS ADOPTED THE FOLLOWING OPINION:

The Commission’s proposal

1. Negative expenditure in the agricultural sector is divided into
five categories, i.e. amounts recovered as a result of fraud or
irregularities, corrections to advances made on the basis of Article

(1) OJ L 356, 31.12.1977, p. 1.
(2) OJ L 326, 18.12.1999, p. 1.
(3) Commission Document reference 2000/0204 (CNS) — COM(2000)

494 final.

4.
In 1997, the Court pointed out that ‘the Budget includes a
number of negative amounts (...) negative expenditure, which is
actually revenue. (...) In some cases these negative amounts are
authorised by the present Financial Regulation:this applies to (...)
the clearance of the EAGGF-Guarantee Fund accounts (Article
102(3)). In other cases these negative amounts have been created
within the framework of the budgetary procedure even though
the Financial Regulation makes no provision for them: this applies
to the co-responsibility levies which are imposed under certain
common market organisations (...)’.

(4) Explanatory memorandum, paragraph 1, Commission Document

reference 2000/0204 (CNS) — COM(2000) 494 final, p. 2.

(5) Explanatory memorandum concerning the proposal to amend Regu-
lation (EC) No 1258/1999, paragraph 1, and the revenue and expen-
diture account and balance sheet relating to the implementation of
the budget for the financial year 1999 — commitment appropriations
for the financial year 1999.

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‘Every negative amount introduces a lack of transparency and
5.
makes reading and understanding the budget more difficult. Fur-
thermore, when these negative amounts are of a special type and
are used to reduce amounts under positive headings, certain items
of revenue are set off against certain items of expenditure, i.e.
there is a breach of the principle of budgetary universality. (...) The
existence of any negative amount in the budget must therefore be
forbidden.’ (1)

6. The Commission’s proposal, which aims to remove negative
expenditure from the EAGGF, therefore offers a — partial —
response to the problem of negative amounts which had previ-
ously been raised by the Court.

tive expenditure by earmarked revenue is only relevant to the
agricultural sector and that, as such a step requires the amend-
ment of the various agricultural regulations, these items of ear-
marked revenue should be mentioned not in the Financial Regula-
tion but in the relevant agricultural regulations (3).

11. The inevitable conclusion to be drawn from this is that the
proposal under discussion does not contribute to a simplification
of the EAGGF-Guarantee Financial Regulations, which, however,
are already difficult for EAGGF managers to master.

Consequences of the Commission’s proposal

Earmarked revenue

Budget neutrality

7. Article 268 of the EC Treaty enshrines the budgetary prin-
ciples of universality and unity, i.e. there must be a single budget,
no predetermined allocation of resources to expenditure, and rev-
enue must not be set off against expenditure.

In accordance with the Treaty, Article 4(2) of the Financial
8.
Regulation lays down that ‘total revenue shall cover total appro-
priations for payments’. However, the same Article 4 defines
clearly, though not exhaustively, a number of exceptions to this
provision, and in addition to these explicit derogations there are
others which can be deduced from Article 7 (repayment of
advances by recipients of Community aid) and Article 27 (reuse
of appropriations) of the Financial Regulation. In addition, provi-
sion is made in specific regulations for other forms of earmarked
revenue (2).

9.
In order to abolish the practice of negative expenditure, which
is detrimental to the transparency of the budget and the accounts,
the Commission is therefore proposing the introduction of new
exceptions to the budgetary principle of universality.

10. The Commission is also proposing that these exceptions
should be entered not in the Financial Regulation itself but in
sectoral regulations, on the grounds that the replacement of nega-

(1) Opinion No 4/97 on the proposal for a Council Regulation (Euratom,
ECSC, EC) amending the Financial Regulation applicable to the gen-
eral budget of the European Communities, paragraphs 1.11 to 1.14 of
the Annex (OJ C 57, 23.2.1998, p. 9).

(2) With regard to the exceptions to the principle of universality, the pro-
posal for the recasting of the Financial Regulation submitted by the
Commission advocates the partial discontinuation of the repayment
of payments on account and the reclassification of the majority of
current cases of reuse as earmarked revenue and retains a number of
other instances of earmarked revenue. There will therefore be provi-
sion ‘in future for two categories of earmarked revenue: that defined
in the Financial Regulation itself and that provided for in specific
regulations, such as the present negative revenue’; see, on this point,
the proposal for a Council Regulation (EC, ECSC, Euratom) on the
Financial Regulation applicable to the general budget of the European
Communities; Commission Document reference 2000/0203 (CNS)
— COM(2000) 461 final, p. 11.

12. The Commission refers to Article 10 of the Interinstitutional
Agreement of 6 May 1999 between the European Parliament, the
Council and the Commission on budgetary discipline and the
improvement of the budgetary procedure (4). This Article stipu-
lates that the financial perspective should not take account of
budget items financed by earmarked revenue within the meaning
of Article 4 of the Financial Regulation. The Commission adds
‘therefore, negative expenditure can be replaced without affecting
budget neutrality’.

13. Nevertheless, as far as agricultural expenditure is concerned,
the problem lies in the fact that the principle of the new ear-
marked revenue would not be set out in Article 4 of the Financial
Regulation but in sectoral regulations and that, in addition, the
earmarking of the revenue would not affect any definite headings
but a subsection of the budget.

14. This is why, in its proposal for the recasting of the Financial
Regulation, the Commission claims that ‘the proposal to abandon
negative expenditure would therefore not pose any problems for
the financing of agriculture’, but the Commission adds, in sub-
stance, that for the sake of clarification the European Parliament
and the Council are called upon to adopt a declaration giving an
interpretation of the proposal and confirming that the second
subparagraph of paragraph 10 of the Agreement applies to this
newly created earmarked revenue (5).

15. However, if the aim is to ensure that agricultural revenue is
monitored in order to determine the common agricultural poli-
cy’s net financing requirement, an adequate system of monitor-
ing and reporting could be put in place without necessarily
undermining the budgetary principle of universality by the cre-
ation of earmarked revenue.

(3) Fourth recital of the Proposal amending Regulation (EC) No 1258/
1999; Commission Document reference 2000/0204 (CNS) —
COM(2000) 494 final, p. 4.
(4) OJ C 172, 18.6.1999, p. 1.
(5) Op. cit: Com(2000) 461 final, p.14; the second subparagraph of para-
graph 10 corresponds, in actual fact, to indent 3 of paragraph 10.

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The nature of the expenditure to be financed by
earmarked revenue

Appropriate treatment, in the budget and accounts, of the
amounts in question

16. The explanation for the Commission’s decision to resort to
the technique of earmarked revenue lies in the fact that: ‘In order
to avoid compensation at Member State level between expendi-
ture of the EAGGF, Guarantee Section, and revenue earmarked to
finance such expenditure, it is necessary for revenues to be paid
and used in the framework of the common agricultural policy’ (1).

17.
In practice, the consequences of the proposal will be, in par-
ticular, that the newly created earmarked revenues could be used
to finance, in part, both market expenditure (compulsory expen-
diture, CE) and rural development measures (non-compulsory
expenditure, NCE), since rural development expenditure is financed
by the Guarantee Section of the EAGGF. Likewise, revenue attrib-
utable to one common market organisation could be earmarked
for agricultural expenditure under another.

18. The earmarking of revenue as conceived here would allow
the Commission to provide itself with a margin of manoeuvre in
respect of agricultural expenditure, particularly since the proposal
does not specify how the revenue will be distributed between the
financing of common agricultural policy expenditure, on the one
hand, and rural development measures and supporting measures
on the other.

Budgetary and accounting procedures

19. The expression ‘paid into the Fund’, which is used, in par-
ticular, in Article 1(3) of the proposal, is inappropriate inasmuch
as the EAGGF has neither legal personality nor budgetary
autonomy. It is only part of the ‘Commission’ section of the gen-
eral budget.

20. Furthermore, the Commission’s proposal contains an intrin-
sic paradox which lies in the introduction of an exception to the
principle of universality while extending the earmarking of rev-
enue assessed at 1,7 % of the Community budget to a set of
expenditure which represents, overall, approximately 43 % of that
same budget.

In addition, neither the explanatory memorandum nor the
21.
text of the Commission’s proposal specify the procedures accord-
ing to which this ‘earmarked revenue’ will be entered in the bud-
get, or the procedures according to which it will be established as
due.

22. Finally, while the existence of a balance of unused revenue
at the closure of the financial year cannot be excluded a priori, the
Commission does not mention the provisions which will be
adopted to avoid this situation, or even how any such balances
will be dealt with.

23. A comparison may be made with agricultural duties col-
lected for the benefit of the Communities on trade with third
countries, on the one hand, and with the levies assessed and col-
lected on the production and storage of sugar, isoglucose and inu-
lin, on the other. Although these are agricultural revenue, they are
in fact used for the general financing of all Community expendi-
ture.

24. However, the revenue under discussion here cannot be treated
as equivalent to the ‘traditional own resources’, which consist of
agricultural duties and sugar levies. There is, in fact, a close cor-
relation between the revenue on which the Commission wishes to
confer the status of earmarked revenue and the liabilities or
expenditure incurred by the EAGGF during the present or previ-
ous financial years, whether in connection with the clearance of
accounts, which mainly concerns corrections to expenditure
incurred during the preceding financial years, fines, penalties and
interest on arrears received, or forfeited guarantees and sureties.

25.
In the special case of levies on surplus milk, which are, by
their very nature, designed to guarantee the equilibrium of the
common organisation of the market in milk and its derivatives, it
has been noted that considerable recurrent delays in the record-
ing of negative expenditure relating to the additional levy make it
impossible to ensure strict correspondence between the expendi-
ture on the marketing season attributable to the budgetary year
and the corresponding revenue.

26. With regard to adjustments to advances made on the basis
of Article 13 of the budgetary discipline agreement, they consist
of suspensions or reductions of advances which are carried out
automatically and on a provisional basis, subject to appeal. These
adjustments are not revenue. In fact, if the Commission pays a
Member State an amount which is less than the amount applied
for (‘reduction of advances’) or does not pay an advance (‘suspen-
sion of advances’), the unused appropriations remain available
and, in principle, there should be neither amounts to be recovered
nor amounts to be reallocated. In practice, as these are cancella-
tions of entries in the budget accounts for the current financial
year, they could therefore legitimately be treated as adjustments
to expenditure.

27. With regard to the profit out-turn of the public storage
accounts recorded under every chapter concerned, this is the
result, in the main, of an overestimation of any initial deprecia-
tion on purchases and of additional depreciation calculated as at
30 September. As these depreciations have, for the most part,
been entered in the accounts as expenditure under the preceding
financial years, it would be perfectly logical for profits on sales of
stocks, which can be treated as cancellations of provisions, to be
entered as miscellaneous revenue since the initial outlay which led
to this income was made in previous financial years. This reason-
ing can also be applied to the clearance of accounts and to the
majority of recoveries connected with fraud and irregularities.

(1) Fifth recital of the proposal; COM(2000) 494 final.

28. This being so, the solution which complies with budgetary
orthodoxy is to enter the agricultural revenue concerned in the

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general statement of revenue. Article 613 and Item 7001 of the
general statement of revenue could be used as the budgetary
structure for the incorporation of these new revenues, subject to
the amendment and updating of the title and comments. If neces-
sary, and in order to facilitate the drawing-up and monitoring of
the financial perspective in the agricultural sector, the budgetary
authority, if it finds this advisable, could add an additional type
of revenue to the budgetary nomenclature.

Conclusion

In the Court’s opinion, agricultural revenue which, until now,
29.
has appeared in the budget as negative expenditure must be
entered from now on in the general statement of revenue. This
solution does not require any amendment to the Financial Regula-
tion; only the provisions of Regulations (EC) No 1258/1999, (EEC)
No 3950/92, (EEC) No 3492/90 and (EEC) No 352/78, which
mention negative expenditure, must, as a consequence, be abro-
gated or amended.

30. Moreover, no legislative provision is required to ensure that
the present negative expenditure is taken into account in the cal-
culations for the financial perspectives.

31. There may be circumstances in which certain specific receipts,
outside the field of EAGGF-Guarantee, could enable institutions
to spend corresponding amounts for related purposes without the
need for fresh budgetary authorisation. Any exception of this type
to the principles governing the public finances of the Community,
inasmuch as it proves to be justified, in principle, must be included
in the Financial Regulation only.

32. Finally, the Court notes the Commission’s proposals con-
cerning the amendments to the regulations following Council
Decision 1999/468/EC of 28 June 1999 laying down the proce-
dures for the exercise of implementing powers conferred on the
Commission (1).

This opinion was adopted by the Court of Auditors in Luxembourg at the Court meeting of 24 and 25 Janu-
ary 2001.

For the Court of Auditors

Jan O. KARLSSON

President

(1) OJ L 184, 17.7.1999, p. 23.