CELEX: 51983PC0041
Language: en
Date: 1983-02-01
Title: Proposal for a COUNCIL DIRECTIVE amending Commission Directive 75/349/EEC on detailed rules concerning equivalent compensation and prior exportation under inward processing arrangements (submitted to the Council by the Commission)

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DOCUMENTS "COM"
COM (83) 041
Vol. 1983/0015
 ---pagebreak--- Disclaimer
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 ---pagebreak--- COMMISSION OF THE E U R O P E A N COMMUNITIES
                                                COM(83)    41    final
                                                Brussels,     1 February        1983
                               Proposal        for  a
                             COUNCIL        DIRECTIVE
     amending  Commission D i r e c t i v e  75/349/EEC      on d e t a i l e d  rules
       concerning  equivalent   compensation          and p r i o r  exportation
                  under inward    processing         arrangements
             (submitted   to  the    Council      by t h e  Commission)
  COM(83) 41  final
 ---pagebreak---                                       EXPLANATORY           MEMORANDUM
1.   Council   Directive      69/73/EEC          of   4 March       1969 on t h e     harmonization         of
     provisions     laid   down     by    law,     regulation        or   administrative          action     in
                                                 1
     respect   of   inward     processing            is   designed to        make o p t i m u m   provisions        for
     the  exportation      of   goods      obtained         from    the   working     or   processing        of
     non-Community       raw  materials          or    semi-finished         products      without      harming
     the  essential      interests        of   Community         producers.       The  arrangements          are
     designed   to    allow   Community          exporters        the    same     competitive         conditions
     that  are  enjoyed      by   non-Community             exporters,       and t o   enable      them    to
     compete   with    Community        products.
     Thus,   where    the   unavailability             or   high    cost    of  certain       raw    materials
     or  semi-finished       goods      in   the     Community        could    constitute        a  severe
     handicap    to   export-oriented            Community         processing       industries,        the
     Directive     offers    a solution          by     allowing      firms    to   import       temporarily
     and  work   or   process      in   the     Community        free    of   customs     duties,      charges
     having   equivalent       effect       or   agricultural           levies    products,        provided       those
     products     are   re-exported         from     the    customs      territory     of    the    Community       after
     working   or   processing        in   the     form     of   "compensating        products".       The      justification
     for  the  exemption       is   that     there       is   no  cause to      levy   what      are   essentially
     economic    import    duties       since      the    non-Community         goods     actually      used     in
     processing     do   not  finally        enter       into    the   Community      economic        channels.
2. T h e  requirement      to   ensure        in   every      case    that   the    actual      goods
     temporarily      imported      are     re-exported          as   compensating        products       might
     have  posed problems         for     some      Community       processers,       in    that    firms    would
     have  had   for   example      to    keep     the     imported      goods     physically
                                                                                                                    ./.
1
  0J   L 58,  08.03.1969,       p.     1.
 ---pagebreak---                                                        -    2    -
     seoarate       from      Community        goods     used        in   the  same m a n u f a c t u r i n g     operations,
     with   separate        stocks        and  production            Lines    for   each.      The     requirement           to
     operate     such     a system         regardless         of     sound b u s i n e s s  or     stock       management
     considerations           would       have   pushed       up     costs,    which     in    turn      would      have    been
     passed    on    in   the     prices      of  the    compensating            export     products,            thus
     cancelling       out     the     intended     benefits           of   the    system.
     In  order     to    avoid      imposing      such     an      administrative          burden,         Article       24
     of  Directive        69/73/EEC         provides       that       where    the    circumstances             so    warrant,
     the  competent         authorities          may,    by    way o f      derogation         from      the    general
     rule            (that       the       goods    imported          should     be   re-exported),             treat      as
     compensating         products         ones   derived          from    processing of           goods      of    the    same
     kind   and q u a l i t y     and    having     the     same t e c h n i c a l    characteristics               as
     those    of   the    imported         goods.    Thus      only       where    the   goods        are     identical
     are  pro    essing       firms      exempt     from      the      requirement       to    keep       separate
     stocks    and    accounting           systems.      The       eventual       integration          of    non-
     Community       goods      into      Community      economic          channels      without         payment        of
     import    duties       has     no   economic      significance,              since    the      identical         goods
     have been       withdrawn          from   those     channels          to  be    exported         in   the     form
     of  compensating           products.
3.   Again    with    a view        to   taking     account         of    the   facts    of     life       in   business
     and  industry,         Article        25  of   Directive           69/73/EEC       provides         that      in
     cases    coming      within        Article     24   and       where     the   circumstances            so     warrant,
     products      treated        as    compensating          products        may,    under        conditions
     determined       by    the     compensating         authorities,             be e x p o r t e d   prior      to    the
     import    of    goods      covered       by  inward       processing           arrangements.
                                                          1
 4.  Commission D i r e c t i v e         75/349/EEC           laid      down t h e    implementing            rules       for
    Articles      24    and    25    of   the    basic     Directive.          For   ease     of     reference         the
    system     described         in    Article     24    was b a p t i s e d     "equivalent           compensation".
1
  )J L 1 5 6 , 1 8 . 0 6 . 1 9 7 5 , p .    25.
 ---pagebreak---                                                               -   3  -
   However,          it    should        be    emphasized that              the    implementing           directive         did
   not    -   and      could      not      -   change      the      scope of       Article       24 o f     the   basic
   directive.            What     it     did     was    to    enlarge       on the       criteria        already      established
   by   stipulating             that       "compensation             goods"       (goods     substituted          for     those
   which       have      been or         are     to   be    imported)          must    fall     within      the   same      tariff
   heading,         be o f      the      same      commercial          quality        and p o s s e s s   the    same     technical
   characteristics                as     the     import       goods.       (Article       2(2)     of     Directive
   75/349/EEC).
   Additionally,               in    order       do   underline          the     highly     specific
   nature        of     the    "equivalent            compensation"              system,      and t o      make   it    clear
   that      it    was o n l y       to    be    used     to     allow     rational       stock     management,           not    to
   get    an e x t r a       tariff         advantage          Article       4 of     the   implementing           directive
   stipulates             that     use     of    the    system       will      not    be  authorized          where      it
   would        lead      to   an    unjustified            advantage          in   term    of   relief       from     customs
   duties,         charges         having        equivalent          effect,        agricultural           levies     and
   other        charges        laid      down      within        the   framework         of   the    common       agricultural
   policy        or     of   a   specific          system        applicable         under     Article        235  of    the
   Treaty        to     certain        goods       which        result     from     processing         of     agricultural
   products.              Article        6    further        indicates         that     use of     equivalent          compensation
   may b e       regarded          as     justified         when     the     kind     and/or      condition        of    compensating
   products          does      not     allow        a distinction            to   b e made a s        to   whether      they     have
   been      derived         from       import       goods       or   from     compensation           goods,     a matter        which
    is  to      be    assessed         as     soon     as    the    products         are   obtained,         and   in   any     case
    before       any      blending           with    other        products.
5.  Notwithstanding                these        rules,       a number         of   Member      States       have    authorized
    the     inward        processing            of   wheat,        using      the    equivalent         compensation          system,
    for     considerable              quantities           of     US o r    Canadian q u a l i t y        durum     wheat,
    which       has been          substituted            for      Community        wheat     of   a different           quality,
    and     for     common        wheat,        including          the    US " H a r d    Winter"       type,     which      has
    been      substituted             for     different           qualities        of    Community        wheat.      According
    to   the      statistics,             1,308,818          tonnes       of    durum     wheat     was     imported       into     the
    Community            in   1981/82,          and    922,842        tonnes       (70.5%)      of    that     came    in    under
    the     inward         processing            arrangements.
                                                                                                                                  ./.
 ---pagebreak---                                                             - 4 -
   The      f i g u r e s f o r common w h e a t s h o w a r i s e                 in the quantity              coming     i n under
    inward        processing          from      223,000 t o n n e s i n 1979/80 t o 726,000 t o n n e s i n
   1980/81.
6. U s e o f t h e e q u i v a l e n t         compensation system i s c l e a r l y u n j u s t i f i e d i n these
   cases, as t h e v a r i o u s              types      o f C o m m u n i t y d u r u m w h e a t o r common w h e a t u s e d              in
   obtaining the exported                       compensating products                      a r e n o t o f t h e same        commercial
   q u a l i t y a n d do n o t h a v e t h e same t e c h n i c a l c h a r a c t e r i s t i c s a s t h e                    imported
   third        country       wheat. Consequently,                    the d i f f e r e n t q u a l i t i e s are not             used
    interchangeably                i n the processing.                As f u r t h e r c o n f i r m a t i o n o f t h e
   d i f f e r e n c e s between them, Community                         and non-Community q u a l i t i e s t r a d e d
   in       t h e C o m m u n i t y a r e n o t s o l d o n t h e same t e r m s .
   The      f l o u t i n g o f Community             customs l e g i s l a t i o n          has c o n s i d e r a b l y i n t e r f e r e d
   with       the proper          operation           o f t h e common a g r i c u l t u r a l p o l i c y i n t h i s
   sector.
7. T h e C o m m i s s i o n c o u l d n o t t u r n a b l i n d e y e t o s u c h                   a breach      of    Community
   c u s t o m s l a w . As s o o n a s i t b e c a m e a w a r e o f t h e s c a l e o n w h i c h                      these
   p r a c t i c e s were b e i n g         c a r r i e d o n , i t r e m i n d e d t h e Member S t a t e s , i n
   two t e l e x e s , d a t e d        25 N o v e m b e r    a n d 12 D e c e m b e r 1 9 8 2 , o f t h e c o r r e c t
   interpretation of Article                          24 o f t h e b a s i c d i r e c t i v e a n d A r t i c l e         2(2)
   of     D i r e c t i v e 75/349/EEC, and pointed out that                                 i t was a g a i n s t      Community
    law     to authorize t h e use o f equivalent                              c o m p e n s a t i o n f o r Community
   and      non-Community             d u r u m a n d common w h e a t .
8. On 2 0 D e c e m b e r , n o s a t i s f a c t o r y a s s u r a n c e            having        been received          that
   the      r u l e s would f i n a l l y        be p r o p e r l y a p p l i e d , and g i v e n            a   request
   from       two Member S t a t e s            that the illegal                 p r a c t i c e s be s t o p p e d    and
   (b) t h e p r o s p e c t        of continuing             u n c e r t a i n t y f o r Community a u t h o r i t i e s
   and      users o f t h e system due t o t h e ambivalence                                   o f c e r t a i n Member
   States' p o s i t i o n s , t h e Commission representative submitted                                           to the
   Committee on Customs P r o c e s s i n g                     A r r a n g e m e n t s , u n d e r A r t i c l e 28 o f
   D i r e c t i v e 69/73/EEC, a d r a f t d i r e c t i v e amending                            Commission
 ---pagebreak---                                                 - 5-
   Directive 75/349/EEC of 26 May 1975 on detailed rules concerning
   equivalent compensation and prior exportation under inward processing
   arrangements. The Committee voted on the draft (submitted as SUD/1444/82 -
   Rev. 1 dated 13 December 1982 - RPA No 1208) at the same meeting, on
   20 December.
   The Committee f a i l e d to return an opinion, as i t could not muster a
   qualified majority ( I t a l y , the Netherlands and the United Kingdom were
   against the draft and the other Member States in favour), so the
   Commission w i l l have to i n i t i a t e stage two of the Committee procedure.
                      basi r.
   There were three I reasons for the three Member States voting against the
   proposal : f i r s t l y , they f e l t that further investigation might reveal
   types of Community wheat identical to certain non-Community types;
   secondly, they f e l t that a special implementing d i r e c t i v e was needed,
   rather than an amendment to Directive 75/349/EEC; and t h i r d l y , they did
   not regard o r i g i n as an adequate c r i t e r i o n . The Commission's p o s i t i o n ,
   based on the evidence of commercial transactions to date, is that no common
   or durum wheat imported free of duty under the inward processing
   arrangements so far has been of the same commercial quality or had the same
   technical c h a r a c t e r i s t i c s as the Community common or durum wheat v a r i e t i e s
   normally used in processing operations in'the Community. This finding i s
   sufficient j u s t i f i c a t i o n to adopt the d i r e c t i v e ;
                      i f i t can be shown later on that identical q u a l i t i e s do
   exist, and t h i s affectsthe p r a c t i c a l operation of exporting firms, the
   matter can be dealt with promptly by the Committee procedure. As regards
    the use of the o r i g i n c r i t e r i o n , the Commission would point out that i t s
   purpose is not to determine q u a l i t y , but i t provides the customs authorities
   with an easy means of i d e n t i f y i n g non-Community wheat.
In the light of the foregoing, the Commission accordingly submits to the
Council under Article 28(3)(b) of Council Directive 69/73/EEC of 4 March
1969, the annexed proposal for a directive.
 ---pagebreak---  Proposal f o r a
 COUNCIL DIRECTIVE
 amending Commission D i r e c t i v e 7 5/349/EEC
 on d e t a i l e d r u l e s c o n c e r n i n g e q u i v a l e n t compensation and
 p r i o r e x p o r t a t i o n under inward p r o c e s s i n g arrangements
 THE COUNCIL OF THE EUROPEAN COMCINITTES,
H a v i n g r e g a r d t o t h e T r e a t y e s t a b l i s h i n g t h e European Economic
Community,
Having r e g a r d t o              C o u n c i l D i r e c t i v e 69/73/EEC o f 4 March 1969
the h a r m o n i z a t i o n o f p r o v i s i o n s l a i d down b y law, r e g u l a t i o n o r
administrative action m                     r e s p e c t o f inward p r o c e s s i n g , as l a s t amended
by t h e A c t o f A c c e s s i o n o f G r e e c e ,          andin particular           Articles
24 and 23 t h e r e o f ;
 Having regard t o t h e p r o p o s a l from t h e Commission;
Whereas i n accordance w i t h t h e p r o v i s i o n s o f A r t i c l e               24 o f D i r e c t i v e
69/73/EEC t h e competent a u t h o r i t i e s may, where t h e c i r c u m s t a n c e s so
warrant, notwithstanding A r t i c l e                      2(3) o f t h e same D i r e c t i v e , t r e a t as
compensating p r o d u c t s , p r o d u c t s d e r i v e d from p r o c e s s i n g o f goods o f t h e
same k i n d and q u a l i t y and h a v i n g t h e same t e c h n i c a l c h a r a c t e r i s t i c s as
those o f t h e imported              goods;
(1) OJ No L 58, 8.3.1969, P. 1
 ---pagebreak---                                                                                                                  2.
Whereas D i r e c t i v e 75/349/EEC                            h a s L a i d down      certain
provisions             necessary          f o r t h e a p p l i c a t i o n o f A r t i c l e s 24 and 25
of                 . D i r e c t i v e 69/73/EEC and under these                        provisions the
c o m p e n s a t i o n g o o d s must          fall     w i t h i n t h e same t a r i f f       subheading,
be o f t h e same c o m m e r c i a l              q u a l i t y a n d p o s s e s s t h e same t e c h n i c a l
c h a r a c t e r i s t i c s a s import           goods}
Whereas, experience                      has shown t h a t           Community       common       wheats a r e
not     o f t h e same c o m m e r c i a l             q u a l i t y a n d d o n o t p o s s e s s t h e same
technical            c h a r a c t e r i s t i c s a s t h i r d country           common    wheats; .
                                                                                      n
w h e r e a s t h e same s i t u a t i o n a p p l i e s                            "> r e s p e c t o f durum
wheats;                  whereas, f o r t h i s reason,                   products       derived     from
processing             o f Community wheats cannot b e c o n s i d e r e d                        as compensating
products           within        t h e meaning o f A r t i c l e 24 o f D i r e c t i v e 69/73/EEC;
 Whereas t h e s a i d p r o v i s i o n s              have not been a p p l i e d uniformly               throughout
the      Community           i n respect          o f common         a n d durum w h e a t s ;        - whereas
 steps       should          therefore          be taken            t o d e f i n e them i n o r d e r   t o ensure
 that they           a r e c o r r e c t l y and uniformly                 applied;
Whereas i n t h e absence o f an o p i n i o n from t h e Committee on Customs
P r o c e s s i n g Arrangements t h e Commission h a s been u n a b l e t o adopt t h e
p r o v i s i o n s e n v i s a g e d on t h i s s u b j e c t pursuant t o t h e procedure                       laid
down i n A r t i c l e 28(3)(a) o f                                   Directive         69/73/EEC,
HAS ADOPTED THIS DIRECTIVE:
  ( 2 ) O J No L 1 5 6 , 1 8 . 6 . 1 9 7 5 , p . 2 5
 ---pagebreak---                                                     - 3 -
                                                   Article 1
The     f o l l o w i n g paragraph i s h e r e b y a d d e d to A r t i c l e 2 o f D i r e c t i v e
75/349/EEC:
"3.     F o r t h e p u r p o s e s o f a p p L i c a t i o n o f p a r a g r a p h 2:
        a) common wheats o f Community o r i g i n f a l l i n g under
               s u b h e a d i n g 10.01 B I o f t h e Common C u s t o m s                  Tariff
               are     n o t o f t h e same c o m m e r c i a l q u a l i t y       and do not
              p o s s e s s t h e same t e c h n i c a l c h a r a c t e r i s t i c s     as common wheats o f t h i r d
              c o u n t r y o r i g i n f a l l i n g under t h e same subheading o f t h e
               Common C u s t o m s T a r i f f ;
        b) durum wheals of Community o r i g i n f a l l i n g under
               s u b h e a d i n g 10.01 B I I o f t h e Common C u s t o m s                 Tariff
               are     n o t o f t h e same c o m m e r c i a l q u a l i t y       ana do not p o s s e s s
              the     same t e c h n i c a l c h a r a c t e r i s t i c s  as durum wheats o f t h i r d c o u n t r y
              o r i g i n f a l l i n g under t h e same subheading o f t h e
               Common C u s t o m s T a r i f f . "
                                                     Article 2
Member S t a t e s s h a l l l a y down t h e m e a s u r e s                n e c e s s a r y to comply w i t h
 t h i s D i r e c t i v e n o t l a t e r t h a n 1 June                1983.
 T h e Member S t a t e s s h a l l          immediately notify                the Commission         o f the
  provisions            i t makes f o r i m p l e m e n t i n g t h i s        Directive.
  The    Commission s h a l l communicate t h e i n f o r m a t i o n t o t h e o t h e r Member S t a t e s .
                                                     Article 3
 T h i s D i r e c t i v e i s addressed t o t h e Member S t a t e s .
 Done a t B r u s s e l s ,                                                                    For  the Council
                                                                                               The  President