Proposal for a Council Regulation amending Annex I to Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff
Date: 2007-01-09
Institutions: European Commission
Subjects: Combined Nomenclature, aluminium, common customs tariff, import, small and medium-sized enterprises, suspension of customs duties, tariff nomenclature

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 09.01.2007 
COM(2006)861 final 

Proposal for a 

COUNCIL REGULATION 

amending Annex I to Regulation (EEC) No 2658/87 on the tariff and statistical 
nomenclature and on the Common Customs Tariff 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1) CONTEXT OF THE PROPOSAL 

•  Grounds for and objectives of the proposal 

European  market  for  raw  aluminium  is  to  a  wide  extend  dominated  by  industrial 
holdings  located  outside  the  EU  which  are  highly  integrated.  They  offer  via  their 
subsidiaries the whole range of aluminium products from basic raw aluminium to all 
kinds  of  semi-finished  industrial  products  made  of  aluminium.  This  has  lead  to  the 
situation that SMEs in the EU using unwrought, not alloyed aluminium for industrial 
transformation have little access to Community produced or duty free imports of such 
products with the result that those companies risk to become uncompetitive due to the 
payment of import duties. The suspension of the import duties has therefore the aim to 
restore the competitiveness of these companies and thus maintain competition on the 
internal market of EU for semi finished aluminium products. 

At  the  same  time,  the  European  aluminium  producers  are  facing  competition  from 
third  country  producers  that  benefit  from  lower  energy  prices.  In  this  context,  it 
should be noted that the costs of energy are of particular relevance for this sector. 

However, taking account of the fact that the product concerned is manufactured in the 
Community,  mainly  for  captive  use  of  the  producers,  it  is  appropriate  to  foresee  a 
transitional  period  of  two  years  in  which  the  autonomous  rate  of  duty  is  reduced  to 
3 % before it is fully suspended. This proposal will allow the manufacturers to adapt 
to  the  more  competitive  situation  following  the  suspension  and  thus  balance  the 
interest of both economic operators in this market. 

•  General context 

The suspension of the customs duty for unwrought, not alloyed aluminium had been 
discussed  with  the  MS  authorities  for  quite  some  time.  The  changes  in  the  market 
situation  of  the  EU  in  recent  years  (i.e.  enlargement  of  the  EU,  takeover  of 
Community  industries  in  this  sector  by  foreign  companies,  further  concentration  of 
the  manufactures  of  this  product  on  world  market  level,  development  of  energy 
prices) has caused that several MS have lodged requests within the context of the 133 
Committee  to  suspend  this  duty  although  there  are  still  manufacturing  plants  within 
the EU producing product concerned. A majority of MS has, however, expressed their 
support for the present proposal. 

•  Existing provisions in the area of the proposal 

Council Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and 
on the Common Customs Tariff, as last amended by Commission Regulation (EC) No 
1549/2006 of 17 October 2006 (OJ L 301, 31.10.2006, p. 1). 

•  Consistency with the other policies and objectives of the Union 

In line with trade, enterprise, development, external relation, and competition policies. 
Given  the  shortage  of  supply  of  the  product  concerned  this  proposal  is  not  at  the 
expense  of  developing  countries  enjoying  a  preferential  trading  agreement  with  the 

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EU (e.g. GSP, ACP regime). 

2) CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties 

Consultation methods, main sectors targeted and general profile of respondents 

Discussion  within  the  Commission's  experts  working  group  on  economic  tariff 
questions  representing  each  Member  State  and  consultations  within  the  133 
Committee. 

Summary of responses and how they have been taken into account 

A clear majority of MS expressed their support for the present proposal. 

•  Collection and use of expertise 

Scientific/expertise domains concerned 

Experts representing the MS on the Economic Tariff Questions Group  

Methodology used 

Open consultation  

Main organisations/experts consulted 

Experts designated by each of the MS  

Summary of advice received and used 

The existence of potentially serious risks with irreversible consequences has not been 
mentioned. 

Means used to make the expert advice publicly available 

Publication of the Proposal 

•  Impact assessment 

Extensive consultations with experts representing the aluminium sector have provided 
a good overview of the possible impacts of the measure on the EC aluminium market. 
Overall,  such  impacts  will  be  positive  for  the  European  aluminium  market  and  the 
broader EU economy, for the following reasons : 

The  development  of  the  world  economy  put  the  market  for  raw  aluminium  under 
pressure.  This  situation  is  reflected  on  the  market  (unwrought  aluminium  is 
commodity  with  a  worldwide  price)  :  in  the  last  two  years,  aluminium  prices 
increased dramatically: the LME 3 months quotation increased by 58%. Between the 
second quarter of 2004 and the third quarter of 2006, EU import prices for not-alloyed 
unwrought  aluminium  increased  by  68,3%.  Given  the  existing  pressure  on  the 

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Community  market,  one  could  not  expect  a  significant  price  reduction  for  this 
commodity product in the foreseeable future. 

Over the same period the EU aluminium producers experienced a substantial increase 
in production costs which are primarily the result of increased electricity prices within 
the  EU.  Electricity  is  a  major  cost  factor  in  aluminium  production  and  producers 
expect an improvement of electricity prices in 2007. 

The Community production of not  alloyed unwrought aluminium is mostly used for 
captive  use,  i.e.  for  the  production  of  unwrought  aluminium  alloys.  No  significant 
quantities of not alloyed unwrought aluminium from these companies are available on 
the  open  market  for  sale  to  independent  transformers.  The  proposed  measure  will 
therefore  not  affect  large  corporations  whose  inputs  are  secured  by  both  domestic 
production and duty free imports. 

The  share  of  duty  free  imports  has  increased  over  time  as  a  consequence  of  the 
development of capacity in countries exempted from the duties. Currently, in terms of 
market  supply,  80.5  %  of  total  EU  consumption  of  primary  aluminium  (unwrought 
not  alloyed  and  alloyed),  is  not  subject  to  any  import  duty.  Indeed,  one  half  is 
supplied  by  EC  production  whereas  the  other  half  is  imported  (2.7  million  tonnes) 
duty  free  from  preferential  trading  partners.The  share  of  imported  not  alloyed 
unwrought aluminium subject to the 6% import duties therefore represents only 15 % 
of  total  consumption  (1.197.187,9  tonnes  were  imported  duty  free  in  2005, 
representing 52.9% of imports, and 1.067.810,9 tonnes were imported under the 6% 
duty, representing 47.1% of imports). Due to the EU's preferential trade agreements, 
maintaining  a  customs  duty  on  imports  of  aluminium  will  not  protect  EU  producers 
from  foreign  competitors  which  have  a  comparative  costs  advantage  in  terms  of 
electricity and supply of raw material. 

As  mentioned  above,  EU  import  prices  for  not-alloyed  unwrought  aluminium 
increased dramatically. This means that independent SMEs had to pay in 2004 about € 
85 /tonne of import duty, i.e. a cost which more than 80 % of the primary aluminium 
available in the Community had not to bare. This cost has now increased to more than 
€ 125 / tonne. The proposed two-stage approach therefore aims at reducing this cost 
differential  in  the  interest  of  the  SMEs,  while  not  putting  existing  EU  production  at 
risk.  

The proposed measure intends to avoid the elimination of SMEs from the Community 
market,  which  would  result  in  reduced  competition  for  semi-finished  aluminium 
products and therefore further price increases for downstream consumers. Moreover, 
disappearance of these SMEs would have negative effects on employment, especially 
in  disadvantaged  regions  in  the  Community,  where  no  job  alternatives  exist  as  of 
today.  

The  suspension  of  customs  duties  on  imports  of  non-alloyed  aluminium  would 
therefore restore to a certain  extent the competitiveness of the most viable SMEs. It 
would also help their present investment prospects in the sector to materialise, in an 
increasingly  profitable  market.  Since  SMEs  need  a  stable  and  accountable 

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environment  to  make  their  investment  decisions,  it  is  highly  preferable  to  fix  the 
situation of import duties for the medium term (i.e. beyond 2009) as soon as possible. 

At  the  same  time,  the  phasing-in  of  the  duty  elimination  will  allow  the  Community 
industry to adapt to the new competitive situation in a period of two years.  

3) LEGAL ELEMENTS OF THE PROPOSAL 

•  Summary of the proposed action 

Proposal  for  a  Council  Regulation  (EEC)  No  2658/87  on  the  tariff  and  statistical 
nomenclature and on the Common Customs Tariff 

•  Legal basis 

Art 26 

•  Subsidiarity principle 

The  proposal  falls  under  the  exclusive  competence  of  the  Community.  The 
subsidiarity principle therefore does not apply. 

•  Proportionality principle 

The proposal complies with the proportionality principle for the following reason(s). 

This set of measures is in line with the principles set out to simplify the procedures for 
the operators engaged in foreign trade. 

•  Choice of instruments 

Proposed instruments: regulation. 

Other means would not be adequate for the following reason(s). 

By virtue of Article 26 of the EC Treaty autonomous tariff suspensions are approved 
by the Council acting on a qualified majority on the basis of a Commission proposal. 

4) BUDGETARY IMPLICATION 

Uncollected customs duties 

5) ADDITIONAL INFORMATION 

•  Simplification 

Not applicable 

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Proposal for a 

COUNCIL REGULATION 

amending Annex I to Regulation (EEC) No 2658/87 on the tariff and statistical 
nomenclature and on the Common Customs Tariff 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular Article 
26 thereof, 

Having regard to the proposal from the Commission1, 

Whereas: 

(1)  With the enlargement of the European Union the number of small and medium sized 
enterprises  (SME)  using  unwrought,  not  alloyed  aluminium  for  the  production  of 
semi-finished  and  finished  industrial  goods  has  significantly  increased.  Furthermore, 
the  market  situation  within  the  European  Union  has  significantly  changed  due  to 
takeovers  of  Community  industries  by  global  industrial  holdings  and  further 
concentration of manufacturers of aluminium on the world market. At the same time 
costs  for  electricity,  an  important  cost  factor  in  the  production  of  not  alloyed 
aluminium, has dramatically increased and the development of the world economy has 
led to a shortage of supply of raw aluminium. 

(2) 

(3) 

These  factors  have  lead  to  a  significant  increase  in  prices  for  raw  aluminium  and 
excluded  to  a  very  large  extent  independent  small  and  medium  sized  users  of  not 
alloyed aluminium from duty free purchases of this product. The payment of customs 
duties  of  6  %  for  the  basic  raw  material  has  therefore  the  effect  that  the 
competitiveness  of  such  companies  is  at  risk  and  creates  the  danger  that  a  larger 
number of these companies will not be able to survive. 

The  elimination  of  these  companies  from  the  Community  market  would  certainly 
reduce competition for semi-finished aluminium products on this market. In addition 
such  elimination  would  have  negative  effects  on  the  employment  in  the  Community 
especially in some rural areas of the new Member States of the Community. The full 
suspension of the customs duty for non alloyed aluminium would therefore restore to a 
certain extend the competitiveness of the SME and thus improve the competition for 
semi-finished and finished aluminium products on the Community market. 

(4) 

This situation has to be weighed against the impact of a customs duty suspension on 
the  manufacturing  plants  of  not  alloyed  aluminium  which  still  exist  within  the 
Community and in countries with a preferential tariff arrangement with the European 

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OJ C , , p. . 

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Union. Almost all these plants belong either directly or indirectly to major industrial 
holdings  located  outside  the  European  Union.  The  aluminium  supplied  duty  free  is 
mainly  used  for  further  transformation  within  companies  linked  to  these  holdings. 
Only  a  relative  small  share  of  duty  free  non alloyed  aluminium  is  made  available  to 
independent  SME.  Nevertheless  taking  into  account  the  relative  high  level  of  the 
conventional rate of customs duty of 6 % the autonomous suspension of this duty will 
certainly  have  a  negative  impact  on  the  profitability  of  the  production  and  the 
subsequent  transformation  operations  of  these  companies  due  to  an  increased  price 
pressure  on  the  products  resulting  from  transformation  as  well  as  on  the  raw 
aluminium sold on the open market to independent companies. 

(5) 

In  view  of  this  situation  it  appears  therefore  appropriate  to  suspend  the  autonomous 
rate  of  customs  duty  in  two  steps.  This  will  allow  the  independent  SMEs  to  reduce 
their costs at an early stage and at a final stage to benefit from a significant increase in 
competitiveness whereas the existing manufacturing plants will be given a transitional 
period  to  adapt  to  the  more  competitive  situation.  Therefore  a  reduction  of  the 
autonomous customs duty for unwrought, not alloyed aluminium to 3 % for a period 
of two years and subsequently a full suspension of this duty is considered appropriate 
to balance the economic interest of both operators concerned. 

(6) 

Since the suspension should cover all products falling within CN code 7601 10 00 and 
given the permanent character of the measure, Annex I to Council Regulation (EEC) 
No 2658/872 should be amended accordingly. 

HAS ADOPTED THIS REGULATION: 

Article 1 

The  entry  in  column  3  for  CN  code  7601  10  00  in  Section  XV,  Chapter  76  of  Part  Two 
(Schedule of Duties) of Annex I to Council Regulation (EEC) No 2658/87 is replaced by the 
following: 

___________________ 
* 

Autonomous rate of duty until 31 December 2008: 3." 

“6* 

Article 2 

The  entry  in  column  3  for  CN  code  7601  10  00  in  Section  XV,  Chapter  76  of  Part  Two 
(Schedule of Duties) of Annex I to Council Regulation (EEC) No 2658/87 is replaced by the 
following: 

___________________ 
* 

Customs duty autonomously suspended for an indefinite period." 

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2 

OJ  L  256,  7.9.1987.  Regulation  as  last  amended  by  Commission  Regulation  (EC)  No 1549/2006 
(OJ L 301, 31.10.2006, p. 1). 

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

Article 3 

It shall apply from 1 January 2007, with the exception of Article 2. 

Article 2 shall apply from 1 January 2009. 

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

Done at Brussels,  

For the Council 
The President 

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LEGISLATIVE FINANCIAL STATEMENT FOR PROPOSALS HAVING A 
BUDGETARY IMPACT EXCLUSIVELY LIMITED TO THE REVENUE SIDE 

1. 

NAME OF THE PROPOSAL: 

Proposal  for  a  Council  Regulation  amending  Annex  I  to  Regulation  (EEC)  No 
2658/87  on  the  tariff  and  statistical  nomenclature  and  on  the  Common  Customs 
Tariff 

2. 

BUDGET LINES: 

Chapter and Article: Chap. 12 art. 120 

Amount budgeted for the year 2007: € 15 287 900 000 

3. 

FINANCIAL IMPACT  

(cid:133) 

Proposal has no financial implications 

Proposal has no financial impact on expenditure but has a financial impact on 

X 
revenue – the effect is as follows: 

(€ million to one decimal place) 

Budget line 

Revenue3 

[Year 2007]4

[Year 2008]  [Year 2009] [Year 2010]

Article 120 

Impact on own resources 

- 49.2 

- 49.2 

- 98.3 

- 98.3 

4. 

ANTI-FRAUD MEASURES 

The proposal covers a whole CN code (7601 10 00). Given the required purity of the 
product  it  seems  very  unlikely  that  false  declarations  of  products  would  pass 
unnoticed by the customs authorities of the MS. 

5. 

OTHER REMARKS  

Third  country  imports  subject  to  6  %  import  duty  amounts  to  about  47  %  of  total 
imports and to about 20 % of EU consumption. In view of the structure of the market 
mainly SME have to pay these import duties. 

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Regarding  traditional  own  resources  (agricultural  duties,  sugar  levies,  customs  duties)  the  amounts 
indicated must be net amounts, i.e. gross amounts after deduction of 25% of collection costs. 
Estimated on the basis of annual imports in the year 2005. 

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