CELEX: 51998PC0109
Language: en
Date: 1998-03-06
Title: Proposal for a Council Regulation (EC) amending Regulation (EC) No 724/97 determining measures and compensation relating to appreciable revaluations that affect farm incomes

COMMISSION OF THE EUROPEAN COMMUNITIES
                                               Brussels, 06.03.1998
                                               COM(1998) 109 final
                                Proposal for a
                      COUNCIL REGULATION (EC)
amending Regulation (EC) No 724/97 determining measures and compensation
       relating to appreciable revaluations that affect farm incomes
                       (presented by the Commission)
 ---pagebreak---  ---pagebreak---                     EXPLANATORY MEMORANDUM
 1.  Council Regulation (RC) No 724/97 of 22 April 1997 determines measures and
     compensation relating to appreciable revaluations of the agricultural conversion rate
     that affect farm incomes.
     It is based on Article 9 of Council Regulation (EEC) No 3813/92 of 28 December
      1992, which provides, among other things, that in the event of an appreciable
     revaluation, the Council, acting by a qualified majority on a proposal from the
     Commission, shall decide on all necessary measures, which may involve
     derogations from the provisions concerning aid.
2.   Regulation (EC) No 724/97 applies only to appreciable revaluations occurring
     between 1 January 1997 and the end of the twelfth month following its publication,
     i.e. 30 April 1998.
    Consequently, the Commission finds it necessary to send the Council a proposal for
    a Regulation to cover the period up to 31 December 1998, the last date before the
    introduction of the euro.
    This proposal does not merely reproduce the provisions of Regulation No 724/97 by
    extending its period of validity; it also introduces improvements required in the light
    of experience in the course of 1997.
     The main purpose of these changes, which do not change the basic features of the
    present system, is as far as possible to avoid overcompensation by taking closer
    account of the impact of agri-monetary movements on income loss.
3.  The following changes are proposed.
    3.1.     The observation period, after which the maximum amount of compensatory
             aid may be reduced or cancelled, should be adapted.
             For Member States participating in the single currency, there will be no
             further currency movements after 31 December 1998. It is therefore
             proposed that observation periods should end on that date.
 ---pagebreak---      For the Member States that do not take part in the single currency from 1
     January 1999, the observation period may extend beyond that date.
     Since this proposal also introduces arrangements for taking account of the
     market situation as well as the development of green rates (see the next
     point), the observation period ought to be longer than the present six months.
     The most appropriate period is one year, as this covers a complete
     production cycle. However, to avoid too long a delay in granting aid to
     producers who have incurred a loss of income, it is proposed to compromise
     by adopting a nine-month observation period.
     Where appreciable revaluation occurs in the course of the observation period
     for an earlier appreciable revaluation, the entire observation period should
     not expire until the end of the third month following that of the last
     revaluation.
3.2. The system governed by Regulation (EC) No 724/97 involves calculating the
     maximum compensation as a function of the percentage of the appreciable
     revaluation. In order to ensure continuity between present rules and the
     proposed new system, it is not suggested that this method of calculation
     should be changed. Improvements do, however, need to be made to the way
     reductions or cancellations of the maximum amount of aid are calculated,
     both lor the initial amount and for the two subsequent tranches.
     At present, a decision to reduce or cancel tranches may be taken only in the
     light of the effect on incomes of the development of agricultural conversion
     rates observed over a certain period.
     In practice, this means that an increase in the green rate following an
     appreciable revaluation may lead to a reduction in the amount of aid, or even
     cancellation of one or more tranches.
     Under the proposed new rules, reductions or cancellations of the maximum
     aid or the second or third tranches could be decided not only in the light of
     agricultural conversion rates, but also in the light of the market situation.
 ---pagebreak---   This is a considerable improvement: it is difficult to assess the real
  repercussions of changes in green rates on farm incomes, for the green rate is
  only one factor, and not the most important, in the formation of prices. Only
  rarely is there a direct and measurable link between the green rate and the
 market price in a given Member State. This may be the case, for example,
 when the market price closely follows the intervention price, or when a
 revaluation occurs at a key point in the production or marketing cycle of a
 product. But in some agricultural sectors, currency movements may have no
 visible or demonstrable effect on market prices. In such cases, the rules must
 provide for the possibility of reducing aid selectively, depending on the
 sector concerned.
 The idea is not to achieve an accurate and precise quantification of income
 loss, which would be impossible, but rather to ensure that the rules include
 sufficiently simple criteria to provide a legal basis for refraining from
payment of compensation where it seems most probable that the agri-
monetary movement has had no impact on incomes. These are cases where
the income loss is not apparent in market statistics, or where there is no
possible explanation of the way the revaluation, on the date when it
occurred, could have affected farm incomes.
In accordance with this approach, there are two ways of taking account of
the market situation.
 ---pagebreak--- 3.2.1. I'irst, when a green rate declines in a Member State following an
       appreciable revaluation, market prices in that Member State
       should decline in relation to market prices observed in the
       Member States whose currency was not revalued. If, in a
       particular sector, a comparison of market prices in the Member
       State concerned and the other Member States shows no relative
       decline, it is very difficult to argue that income has been lost
       owing to agri-monetary movements. In that case, compensation
       based solely on the development of green rates would most
       probably lead to overcompensation, which would not only result
       in budget expenditure, but might also distort competition.
       To avoid this, the amount of aid could be reduced, in a given
       sector, when, over the observation period or over the period
       between the beginning of the preceding tranche and the beginning
       of the month preceding the first month of the tranche concerned,
       the market price for the Member State concerned was on average
       equal to or higher than the average market prices in the Member
       States whose currencies had not been appreciably revalued during
       the same period.
 ---pagebreak---        3.2.2.     The approach described in the preceding paragraph is based on
                  statistical observation of market prices. It would be helpful to
                 take account not only of a statistical approach to prices, but also
                 of mechanisms through which the impact of a revaluation
                 occurring at a specific time is passed on to agricultural markets,
                 or not as the case may be. This means taking account of the point
                  in the production or marketing cycle at which the appreciable
                  revaluation occurs. More specifically, if all the operative events
                  in an aid scheme had already occurred by the time the agri-
                 monetary movement took place, this would imply that the
                 revaluation had not had a negative impact on market prices or on
                 incomes. In that case, aid should be cancelled for that particular
                 sector, although possibly only for production in certain months of
                 the period concerned.
                 Obviously, if the first tranche of aid is cancelled or reduced, the
                 automatic reduction of one third for the second tranche and two
                 thirds for the third tranche will be calculated without taking
                account of the cancellation or reduction of the first tranche, since
                an appreciable revaluation whose impact on the current farming
                year was nil because of the date on which it occurred may still
                affect subsequent years. Therefore, reducing or cancelling the
                first tranche in accordance with the "operative event" criterion
                should not automatically affect subsequent tranches.
3.3. Under present rules, no aid is paid for appreciable revaluations where the
     appreciable part of the revaluation is less than 0.5%.
     It is proposed to increase that percentage, to prevent excessively small
     currency movements from setting off the compensation mechanism.
 ---pagebreak---            Following an appreciable revaluation, the monetary gap will be reduced by
           at least 2.5%, because of the permitted margin of 5%, which leads to the
           monetary gap being divided by two after the confirmation period. The
           appreciable part of the revaluation will be at most 2.56%, corresponding to
           halving of the monetary gap (reduction by 2.5 points). The slight disparity is
           due to the fact that the appreciable part of the revaluation is expressed as a
           percentage of the green rate, rather than as a percentage point reduction in
           the gap.
           Since the rules allow guaranteed prices to be overvalued by up to 5%
           without any consequences, it is reasonable to argue that, correspondingly, a
           readjustment of the green rate where the permitted margin is exceeded
          should not give rise to compensation for the analogous part of the
          appreciable revaluation.
          The Commission therefore proposes to the Council that appreciable
          revaluations should be ignored if the appreciable part of the revaluation is
          not more than 2.6% (round figure).
          Under present rules, the 0.5% is not treated as a neutral margin, but carried
          over to the next revaluation. The wording of the provision must be changed,
          so that the part of the revaluation that does not exceed 2.6% is ignored rather
          than carried over. The idea of carrying over appreciable revaluations is much
          less significant in the context of a system that is not to remain in force
          beyond 31 December 1998. However, if several successive revaluations
          occurred between the entry into force of this Regulation and 31 December
           1998, the 2.6% margin would apply to the aggregate revaluation rather than
          to each revaluation separately.
4. As Regulation (EC) No 724/97 applies only to revaluations occurring up to 30 April
   1998, this proposal should come into force by 1 May 1998 at the latest.
 ---pagebreak---                                              Proposal for
                           COUNCIL REGULATION (EC) No ....
                                                   of
      amending Regulation (EC) No 724/97 determining measures and compensation
                relating to appreciable revaluations that affect farm incomes
 TI IE COUNCIL Or Tl IE EUROPEAN UNION,
 Having regard to the Treaty establishing the European Community,
 Having regard to Council Regulation (EEC) No 3813/92 of 28 December 1992 on the
 unit of account and the conversion rates to be applied for the purposes of the common
 agricultural policy1, and in particular Article 9 thereof,
 I laving regard to the proposal from the Commission,
 Whereas Council Regulation (EC) No 724/97 of 22 April 19972 determines measures and
compensation relating to appreciable revaluations of the agricultural conversion rate that
affect farm incomes; whereas that Regulation does not apply to appreciable revaluations
that may occur after 30 April 1998; whereas it should therefore be amended to cover any
revaluations that may occur in the period up to the introduction of the single currency;
Whereas Article 4(3) of Regulation (EC) No 724/97 provides that the maximum amount
of aid may be reduced or cancelled as a function of the effect on income of the
development of agricultural conversion rates recorded during a certain observation
period; whereas in order to avoid compensation that is excessive in relation to the loss of
income actually incurred, it is also necessary to take account of the market situation;
1
     OJ L 387, 31.12.1992, p. 1. Regulation last amended by Regulation (EC) No 150/95.
2
     OJL 108,25.4.1997, p.9.
                                                   8
 ---pagebreak--- Whereas the introduction of the single currency on 1 January 1999 will put an end to
fluctuations in agricultural conversion rates for the Member States participating; whereas
it is therefore appropriate to end the observation period for those Member States on 31
December 1998;
Whereas the observation period for the other Member States may extend beyond 31
December 1998; whereas, since the market situation is to be taken into account, it is
helpful to extend the observation period to nine months instead of six, and to provide for
a further extension if a subsequent appreciable revaluation occurs during the observation
period for the preceding appreciable revaluation;
Whereas application of Article 4 of Regulation (EEC) No 3813/92 means that the
agricultural conversion rate may not decline by less than 2.56%; whereas, to limit the risk
of excessive compensation in cases of small appreciable revaluations, aid should not be
granted for the amount corresponding to an appreciable part of less than 2.6%;
Whereas decisions to reduce or cancel the second and third tranches should also be taken
in the light of the market situation;
Whereas the method of taking the market situation into account should be defined;
whereas this method may involve comparing the development of market prices in the
Member State whose currency has been appreciably revalued with those in the Member
States whose currencies have not been appreciably revalued during the observation
period, and by considering how far operative events in the various sectors have already
occurred on the date of the appreciable revaluation,
HAS ADOPTED THIS REGULATION:
                                            Article 1
Regulation (EC) No 724/97 is amended as follows:
 1.   Article 1( 1 ) is replaced by the following:
      "1. This Regulation shall apply in the event of appreciable revaluations occurring
       from 1 January 1997 and before 1 January 1999."
 ---pagebreak--- 2. Article 4 is amended as follows:
   (a)         The following is added to the first subparagraph of paragraph 3: "and
              taking account, in the amount calculated in accordance with the lirst
              indent of paragraph 2, of the market situation during that period." The
              second and third subparagraphs arc replaced by the following:
              "For the currencies of the Member States that adopt the single currency
              pursuant to the Treaty, the observation period shall expire on 31
              December 1998. For the other currencies, the observation period shall
              expire at the end of the ninth month following that of the appreciable
              revaluation. However, where an appreciable revaluation occurs in the
              course of the observation period for an earlier appreciable revaluation, the
              entire observation period shall not expire until the end of the third month
              following that of the last revaluation.
              I lowcver, no aid shall be granted for that portion of the amount calculated
             in accordance with the first subparagraph of paragraph 2 and the first
             subparagraph of this paragraph equal to not more 2.6% of the appreciable
             revaluation occurring between the entry into force of this Regulation and
             31 December 1998."
   (b)       The following sentence is added to the first subparagraph of paragraph 4:
             "However, in cases where the amount of the first tranche of aid is
             calculated by applying the second subparagraph of paragraph 4a(b), the
              reduction of at least one third shall be calculated on the basis of the
             amount of the lirst tranche that would have been granted if the second
              subparagraph of paragraph 4a(b) had not been applied."
   (c)        The following is added to the second subparagraph of Article 4(4) "and
              taking account, in the amount calculated in accordance with the first
              subparagraph of paragraph 2, of the market situation during that period."
                                            10
 ---pagebreak--- (d) The following paragraph 4a is inserted:
    "The market situation shall be taken into account pursuant to the first
    subparagraph of paragraph 3 and the second subparagraph of paragraph 4
    in accordance with the following method:
    The amount of one or more tranches in one or more sectors may be
    reduced when it has been observed that:
(a) over the observation period referred to in paragraph 3 or over the period
    between the beginning of the preceding tranche and the beginning of the
    month preceding the first month of the tranche concerned, the market
    price for the Member State concerned was on average equal to or higher
    than the average market prices in the Member States whose currencies had
    not been appreciably revalued during the same period
or
(b) the relation between the dates of operative events in the sector concerned
    and the date of the appreciable revaluation is such that there is no
    justification for concluding that the revaluation had an impact throughout
    the period considered.
    for the purposes of point (a), market prices shall be compared using an
    index of base 100 for market prices in national currency on the date of the
    appreciable revaluation."
                                  11
 ---pagebreak---                                            Article 2
This Regulation shall enter into force on the seventh day following its publication in the
Official Journal of the European Communities.
This Regulation shall apply to appreciable revaluations occurring from 1 May 1998.
This Regulation shall be binding in its entirety and directly applicable in all Member
States.
Done at Brussels,                                           For the Council
                                                            The President
                                            12
 ---pagebreak---            FINANCIAL STATEMENT
      BUDGET HEADING: 390                                                                APPROPRIATIONS:
                                                                                         ECU 505 million
2.    TITLE:
      Proposal for a Council Regulation amending Regulation (EC) No 724/97 determining measures and compensation relating
      to appreciable revaluations that affect farm incomes
3.    LEGAL BASIS:
      Article 9 of Council Regulation (EEC) No 3813/92
4.    AIMS:
       1. To extend Regulation (EC) No 724/97 lo cover the period I May 1998 to 31 December 1998.
      2. To introduce a number of amendments, while maintaining the essentials of the arrangements, in order to better evaluate
      the impact of agri-monetary movements on incomes and thus limit, as far as possible, overcompensation.
5.    FINANCIAL IMPLICATIONS                                          PERIOD OF 12              CURRENT             FOLLOWING
                                                                         MONTHS                FINANCIAL             FINANCIAL
                                                                                                  YEAR                  YEAR
                                                                                                   (98)                   (99)
                                                                       (ECU million)          (ECU million)         (ECU million)
5.0   EXPENDITURE
      - CHARGED TO THE EC BUDGET                                                                    (I)                    (1)
           (REFUNDS/INTERVENTION)
      - NATIONAL AUTHORITIES
      - OTHER
5.1.  UUV44N44U
      - (WNRUSOtW(4*^)I^THlvUC
           (I^VWX/CWKTOMS DUT4KK)
      - NATIONAL
                                                                         2000             2001            2002              2003
5.0.1 ESTIMA TED EXPENDITURE                                              (I)               (0
5.1.1 ESTIMATED REVENUE
5.2   METHOD OF CALCULATION:
6.0   CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN THE                                                         YES/NO
      RELEVANT CHAPTER OF THE CURRENT BUDGET?
6.1   CAN THE PROJECT BE FINANCED BY TRANSFER BETWEEN CHAPTERS OF THE                                                        YES/NO
      CURRENT BUDGET?
6.2   WILL A SUPPLEMENTARY BUDGET BE NECESSARY?                                                                              YES/NO
6.3   WILL FUTURE BUDGET APPROPRIATIONS BE NECESSARY?                                                                        YES/NO
OBSERVATIONS:
(I)     The possible budgetary impact of this proposal depends on future monetary movements and is therefore impossible to
      estimate at this stage. However, since it tightens the conditions for the granting of compensatory aid in the event of
      appreciable evaluations of one or more agricultural conversion rates, the proposal should reduce spending compared with a .
      simple extension of Regulation (EC) No 724/97.
                                                                !3>
 ---pagebreak---  ---pagebreak---                                                                    ISSN 0254-1475
                                                            COM(98) 109 final
                                              DOCUMENTS
EN                                                                03 04     17
                                     Catalogue number : CB-CO-98-lll-EN-C
                                                             ISBN 92-78-31372-6
Office for Official Publications of the European Communities
L-2985 Luxembourg
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