Language learning | English » Varga Péter - The system of export licences and subsidies of agricultural products in Hungary and in the EU

http://www.doksihu Varga, Péter 1 Title Page Budapesti Gazdasági Főiskola Külkereskedelmi Főiskolai Kar Külgazdasági Szak Nappali Angol Tagozat Export-Import Menedzsment Szakirány „The system of export licences and subsidies of agricultural products in Hungary and in the EU, with special regard on the cereals sector” Készítette: Varga Péter Enying, 2002 http://www.doksihu Varga, Péter 2 Table of Contents Title Page.1 Table of Contents .2 List of Tables .4 Introduction.5 1 CHAPTER 1.7 1.1 2 The system of export licences and subsidies in Hungary .7 1.11 Export subsidies .7 1.12 The decision making process of export subsidies .8 1.13 The AIC .8 1.14 The tender procedure .9 1.15 Export licences.10 1.16 Export licensing procedure .10 1.17 The management of security accounts .11 1.171 Import security accounts.11 1.172 Export security accounts.12 1.2 WTO quota monitoring.12 1.3 Changes in Hungary’s WTO relations after accession to the EU

.14 CHAPTER 2.15 2.1 The system of export licences and refunds in the European Union .15 2.11 Licensing in the EU agricultural export .17 2.12 The system of export refunds in the EU.19 2.121 Single rate of refund .20 2.122 Differentiated rate of refund .22 2.123 Measures of protecting the Community’s financial interest .23 2.124 Cases where no refund is granted .24 2.125 Prefinancing of the refund .24 2.126 Procedure of payment of refunds.25 2.127 Penalties.26 2.2 The common market in cereals .26 2.3 The cereals sector.27 2.31 Pricing and intervention system .28 2.32 Licencing and refunds.29 http://www.doksihu Varga, Péter 3 2.321 Standard procedure.29 2.322 Differentiated refund .30 2.323 Correctives.30 2.324 Monthly increments.31 2.325 Zero refund .31 2.326 Tender procedure.32 2.327 Export tax .32 2.328 Tender for export of the intervention stocks.33 2.329 Problems concerning the system of export refunds .33 2.33 Comparison of

the Hungarian and the EU export refund system for wheat.34 2.34 The EU paying agencies .35 2.4 EU and WTO relations.37 Conclusion.38 Abbreviations.40 Appendices.41 Bibliography.54 http://www.doksihu Varga, Péter 4 List of Tables Table 1: Hungary – Area, Population and GDP in 2000 compared with CC-12 and EU (p. 5) Table 2: Development of Hungarian Agricultural Trade (billion EUR) (p. 5) Table 3: Export Subsidies: Budgetary Outlay and Quantity Reduction Commitments (Hungary WTO Comittments) (p. 14) Table 4: Comparisons of EU, US and Japanese Trade - Agricultural products (excl. fish) (p 16) Table 5: Trade in agricultural products: a comparison between the EU and the USA (p. 16) Table 6: Distribution of export refund payments by exporting Member State 1998 EAGGF year (p. 19) Table 7: Total export refund payments by principal destination 1998 EAGGF year (p. 19) Table 8: Selected agricultural statistics for Member States, 2000 and 2001 (p. 27) Table 9:

Monthly increases in the intervention price (2000-2001) (p. 28) Table 10: Distribution of export refund payments by measure 1998 EAGGF year (p. 29) Table 11: EAGF Guarantee and Guidance expenditure by Member State, and national expenditure on agriculture, 2000 (p. 35) Table 12: Share in CAP funding for various measures (p. 35) http://www.doksihu Varga, Péter Introduction Hungary has the highest share of cultivated land to its total land area in Europe. It is a share of 63% of the total area, which is mostly made up of arable land and in a smaller portion of permanent crops and grassland. It is also important to note, that while in the EU-15 agriculture accounts for only 2,0% of GDP, in Hungary this figure is almost 4.0% (see Table 1) Furthermore, Hungary is one of the few candidate countries for EU membership, which can show up a positive agricultural trade balance. Agricultural trade has a share of 9,1% of total exports and 3,7% of total imports (see Table 2). After the

change of the system, agricultural production has dropped rapidly to reach 70% of the 1989-1991 average in 1995. Since then, due to new support measures and strengthening positions in foreign and domestic markets, production has stabilised and reached a level of 76% in 1999.1 The above mentioned representative figures of Hungarian agriculture show how important it is for the economy to maintain a stable and well functioning agricultural sector. However, agriculture is not only for the economy so important, but plays a special role in preserving the rural way of life, heritage and culture. Being so close to nature, as farmers and rural people are, they represent a way of life and value system, which all countries should reserve. This is the reason, why none of the countries of the world, should ever let down this sector of the economy. Letting agriculture to be fully exposed to the effects of market economy, would probably lead to the empowerment of farmers and the degradation of the

rural way of life. Simultaneously with political and economic changes in Hungary, the transformation of agriculture has also begun. The agricultural policy reforms were part of a stabilisation programme. The agricultural policy reforms contained three main elements: price liberalisation and the cutting of agricultural subsidies; liberalisation of foreign trade; and land reforms. The period from 1990 to 1999 can be divided into two phases: the first was the time of transformation (1990-1993) and the second, one of consolidation and solid recovery (1994 1999). The experience of agricultural policy during the transformation phase centred on building up the legal and institutional framework for the market economy. 1 Directorate-General for Agriculture: Country Report on Hungary (2002) 5 http://www.doksihu Varga, Péter The second, consolidation phase of agricultural policy has focused on three main problems. First, the government has tried to accelerate or to complete land reforms,

and has attempted to consolidate land ownership relations, by amending land laws and cooperation laws. Second, the state has stabilised the domestic agricultural market, by establishing a market regulation office, improving the activity of such institutions, and increasing production supports. Finally, steps have begun to harmonise the legal environment of agriculture to that of the EU.2 The accession process to the EU is in the spotlight. Negotiations with Hungary were first opened in March 1998 and the discussion of the agricultural chapter was opened in June 2000. The European Council of December 2001 stated that the EU was determined to successfully conclude negotiations by the end of 2002 with candidate countries that are ready for accession, so that they can take part in the European Parliament elections in 2004 as Member States of the European Union. With the successful voting of Ireland for the Nice Treaty and a strong political will for a United Europe of the Brussels European

Council meeting (24-25. October 2002) most of the obstacles to the enlargement process have been removed. In Brussels at the European Council meeting an agreement on funding for agriculture was reached, representing the common position of the EU-15 for the upcoming European Council in Copenhagen in December 2002. If everything goes well, in Copenhagen the enlargement negotiations will be concluded and will open the door for signature in Athens of an Accession Treaty, April 2003. But until then, Hungary and the other 9 candidate countries have time to negotiate for a shorter transition period as for the direct payments. It will not be easy to change the common view of the EU-15, but by uniting their positions candidate countries have a good chance to conclude and advantageous agreement with the EU. After introducing Hungarian agriculture in general I want to turn to the motives, why I have chosen the topic of export licencing and refund system for my dissertation. First of all, the 5

months internship period I had spent at the Agricultural Intervention Centre 2 Fertő (2001) 6 http://www.doksihu Varga, Péter was helpful for me to gather information and to speak with competent persons on the system of issuing export licences and the evaluation of applications for export subsidies. During the internship period I had a chance to experience by first hand how licencing and the granting of export refunds for agricultural products work in Hungary. It was the first time, that I have worked for a state institution and it gave me a good comparison of what is expected from state bureaucrats. Second, I chose to write on the cereal sector, because both in the EU and in Hungary, it is a highly regulated sector, thus providing a good source for examination. It is a typical feature of EU legislation that every aspect of an issue is highly standardised and regulated by the Community, the cereal sector is not an exception either. There are plenty of sources dealing with the

cereal market and the export licencing and refund procedures. In my research I relied heavily on EU and Hungarian legislation, which helped me in learning how the wording of legislations should be translated. Third, I have specialized as an export-import manager at the Collage for Management and Business Studies and wanted to deal with a topic in my dissertation, which might help me in my career. 1 CHAPTER 1 1.1 The system of export licences and subsidies in Hungary 1.11 Export subsidies Hungary does not have the same system of export refunds as in the European Union. The Hungarian counterpart is called export subsidy and it has some major differences compared to the export refund system of the EU. This chapters aims to describe the process of granting export subsidies for agricultural products, especially for cereals. According to the Marrakesh (WTO) Agreement of 1995, Hungary has committed itself to sharply reduce customs and subsidies by 2002. In order to meet our WTO obligations a

monitoring system was introduced. However, for those products which do not receive subsidies, no WTO quota apply and are not controlled by the monitoring system either. 7 http://www.doksihu Varga, Péter 1.12 The decision making process of export subsidies a) Proposals of the Ministry of Agriculture and Rural Development, according to the situation of the economy b) Proposals of other Ministries, especially the Ministry of Finance, Economy and Transport c) Decisions of Interdepartmental Committees It is the duty of the above mentioned parties to closely follow the market trends and to advice the use of subsidies or not. This form of regulating process is similar to the way Management Committees work in Brussels. d) The Decrees are published in the Hungarian Official Journal, with the tables relating to the subsidized products and the amount of subsidies From 2002, the tender procedure is used in subsidizing the export of agricultural products. In the case of wheat it is Decree

74/2002 (VIII 15) of the Ministries of Agriculture, Foreign Affairs and Finance which sets out the conditions of export subsidies.3 1.13 The AIC Pursuant to the decree of the Minister of Agriculture No. 108/1997 (XII 19) the Agricultural Intervention Centre (AIC) began to operate on April 1., 1998 This institution was established to implement the agricultural market regulations laid down by Government and Ministerial decrees. Among the major activities of the AIC we can find: the evaluation of applications for export subsidies of agricultural products and the issue of certificate of quota, the checking of customs declarations and the issue of certificate of entitlement for export subsidies, the implementation of intervention subsidy and finally the handling of security accounts. On the basis of the Ministry of Agriculture and Regional Development’s decision reached in March 1999, the AIC was given the task to prepare the implementation of the regulation and subsidy system of Common

Agricultural Policy (CAP). In year 2002, when the SAPARD program, a pre-accession subsidy program for infrastructural development in agriculture, was launched, it was not the AIC, but the SAPARD Agency who was given the task to allocate EU funds. According to the Governmental Decree of 3 Kimás (2000) 8 http://www.doksihu Varga, Péter 2285/2002. (IX 26) the Hungarian paying agency, responsible for the carrying out of the CAP, will be based on both institutions.4 1.14 The tender procedure The conditions of export subsidies for the different agricultural products can be found in separate Decrees. Exporters have to hand in their tenders at the Agricultural Intervention Centre (AIC). The AIC reviews the incoming tenders in the order of arrival and until the quota set out in the Decrees lasts. For the winning companies the Centre issues a certificate of quota. This contains: name of the applicant, address, tax identification number, name of product, customs code, quota received and

time of validity. For export subsidy applications the lodging of adequate security is required (amount set out in the Decree). After satisfactory fulfilment of the export the security will be released. In order to receive the subsidy, the applicant has to hand in a certified photocopy of copy Nr 3 of the customs declaration to the AIC. The exporter has altogether 30 days after the day of export to hand in the specified copy of the customs declaration and the other prescribed documents. After deciding on the export refund and controlling the decision making process, the AIC issues a certificate of entitlement. With this certificate in hand, the exporter receives payment of the refund from the National Finance Office (APEH). The joint Decree of 74/2002. (VIII 15) of the Ministries of Agriculture and Rural Development, Foreign Affairs, and Finance setting up the rules for export subsidies for wheat is good example on the tender procedure. The Decree sets out a maximum amount of 400 000

tonnes of wheat to be exported with subsidy and a budget of 600 million HUF for this purpose. Applications over this quota are refused. The maximum amount of wheat to be exported at one time should not be over 10000 tonnes. Everybody, who is a member of the Cereal Council and does not have deficit toward the state, is eligible to apply. The amount of subsidy is 1500 HUF/t (for comparison: the market price of wheat after harvest in 2002 was between 2300024000 HUF/t). The tender procedure is to be used during the applications Applicants 4 AIC Information Pamphlet II 9 http://www.doksihu Varga, Péter must pay, in the form of bank transfer, an amount of 500 HUF/t as security payment. Subsidies are paid for products exported from 18. VIII – 15 X, 2002 When the application fulfils all the criteria set out in the Decree, the AIC has 15 days to issue a certificate of quota for the given quantity of wheat. The certificate of quota is valid until 15. X 2002, until this time can the

exporter export its product The applicant has altogether 30 days after export, to hand in a certified copy of copy Nr. 3 of the customs declaration to the AIC in order to receive a certificate of entitlement granting him the export subsidy. If the exporter has exported at least 80% of the amount set out in the certificate of quota, AIC pays back the full amount of the security. The AIC has also 30 days to produce the certificate of entitlement. With the certificate in hand, the exporter now is able to receive the export subsidy from the Finance Office. From the quota of 400 000 tonnes only 72 000 tonnes have been used up, a mere 18%. This utilisation is very low and it is due to the small amount of subsidy and the short application time, and the high number of false applications.5 1.15 Export licences After the change of the political system in Hungary foreign trade activities has become common right to all citizens and the only condition is to have this activity mentioned among the

business activities of the firm. The export and import of an ever increasing number of products became liberalised (no licence needed). From 1. April 1998 the issuing of export licences for the agricultural product groups of the Hungarian Customs Tariff became the responsibility of the AIC. However, import licensing still belongs to the Ministry of Economy and Transport (Licensing and Administrative Office). It would be more practical and easier to administer trade flow, if the issuing of licences would not be divided between the AIC and the Ministry of Economy and Transport. 1.16 Export licensing procedure According to Government Decree of 264/2001 (XII. 21), the only agricultural product for which exporters have to get a licence is the export of fat goose-liver (over 40 kg). 5 74/2002. (VIII15) FVM-KüM-PM e r 10 http://www.doksihu Varga, Péter The export of wheat and maize is also licence-bounded, but the Ministry of Agriculture and Rural Development has suspended the

licensing obligation until further notice. The licensing procedure of fat goose-liver starts with the decision on the quota to be exported in the given year. Then the Ministry of Agriculture and Rural Development, the Office for Agricultural Market Regime of the Ministry of Agriculture and Rural Development and the Agricultural Intervention Centre give out a common application, for which only a number of preselected firms (9 in 2002) might apply. The reason why the application is not open to all participants of the market, lies in the strong sanitary requirements, which the applying firms have to satisfy. Applicants may export as many times as they want up until their certified quota limit, but have to hand in for each export a request for a certificate of quota signed by the Poultry Product Board. After decision on the requests the AIC gives out certificates of quota, which are valid until 31. December. The requests for certificates have individual ID numbers and can be bought in book

shops. The certificate itself, consists of 3 pages: copy No 1 belongs to the applicant, copy No. 2 is for the bank, and with copy No 3 can the applicant account with the Poultry Product Board. 1.17 The management of security accounts Securities can be found both in export and import, but are serving different aims. In Hungary only bank transfers are acceptable as security payments, while in the EU the use of bank guarantee is the most common practice. While in the EU both methods of security payment are allowed, in Hungary the Regulation for export licencing and refund sets out bank transfer as the only security payment method. If the cost of bank services in Hungary, in this case the cost of opening a bank guarantee will drop in the future, then Hungarian Regulations might start encouraging this practice as well. 1.171 Import security accounts Even though, my dissertation concerns only export activities, the management of import security accounts belongs also to the activities of

the AIC, and for this reason I felt it necessary to mention the topic here. Foreign trade companies which import within the preferential quota system are obliged to pay a security. The aim of security payment is to attract only serious firms, with 11 http://www.doksihu Varga, Péter strong intention to fulfil their contracts of trading with products belonging to preferential customs tariffs. The import of 12 out of 96 product groups are bound to security payment. The conditions of preferential import are published in the Foreign Trade Bulletin, and the applications are judged by the Licensing and Administrative Office of the Ministry of Economy and Transport. In order for the preferential import quota no to run out too fast, the maximum amounts to be applied for are limited. The importer has to let KERMI (Trade Quality Control Company) to carry out an investigation on the given amount, and has to pay the security on the account of AIC in proportion to the quantity requested. Only

after 80% fulfilment of the quota, does the AIC pay back the security and let the firm opening a new transaction, for which the old security can be reused.6 1.172 Export security accounts Export applications are belonging the competency of AIC. Security accounts are used for much the same reason as in the case of imports. First, it filters out unserious trading, second it is a security for AIC, that the exporter will export the applied and obtained quantity. The procedure is similar to the one mentioned above. If the firm justifies that it has actually exported 80% of the obtained quantity, then it has the right for the paid in security. In such cases, the AIC asks the exporter to transfer the payment back to his account or to use it up for the next transaction. 1.2 WTO quota monitoring The monitoring of Hungary’s WTO quota commitments belongs to the activities of AIC. The AIC sends data on the usage of our quota every week to the Office for Agricultural Market Regime of the

Ministry of Agriculture and Rural Development. Hungary has joined the GATT in 9. September 1973, and has automatically become a member of its legal successor the WTO from 1. January 1995 The change of the political system has brought about significant changes in the economy and the liberalisation of trade. As a result Hungary had doubled its foreign trade volume 12 http://www.doksihu Varga, Péter between 1991 and 1997 (measured in USD). The country has signed numerous bilateral and multilateral free trade agreements. The drive behind liberalisation was and is still today the accession to the EU. Hungary switched to the use of an internationally harmonized customs nomenclature in 1992, which after its update in 1996 has almost doubled the number of customs lines. Since 1972 the country has been granting GSP preferences to developing countries, and as a result 95% of the import from developing countries are preferentially treated. The most underdeveloped countries enjoy full custom

tariff free trading possibilities. Parallel with the reduction of customs tariffs, from 1995 to 1997 Hungary had ceased to use fees connected to import duties like statistical fees or import licence fees. The Uruguay Round of WTO sets out the total abolition of non-tariff barriers in the case of agricultural products. Because of the effective use of non-tariff barriers, countries did not have to use high tariffs to protect their internal markets. After the WTO Agreement non-tariff barriers had to be transformed to tariff barriers, which resulted in the sharp increase of customs tariffs and the extension of tariffs to new product groups. At the same time Hungary has opened for more than 100 products preferential quotas, in order to ensure minimum market access. Hungary only uses ad valorem custom tariffs Fat goose-liver is the only agricultural product which is export licence-bound (in the case of maize and wheat it has been suspended) and in the case of import, only fish products are

licence-bound. Hungary had been using export subsidies for a wide range of products, with a base period of 1986-90. Due to the fact that data from this period on agricultural production and trade was confidential, Hungary’s accepted commitments were based on false data and consisted only a limited number of product groups. In order to resolve the unwanted and disadvantageous situation Hungary asked for a correction from the WTO. Some countries (e.g USA, Australia, Argentina and New Zealand) initiated an official dispute settlement procedure to restrain Hungary for expanding its export subsidy system. The 6 Kimás (2000) 13 http://www.doksihu Varga, Péter debate was concluded with a waiver, which allowed Hungary for the period from 1. January 1998 till 1. January 2002 to subsidize other products not mentioned in Hungary’s WTO commitments. According to the waiver Hungary shall not use export subsidies to countries belonging not to its traditional markets. The agreement on the

waiver was published in 22. October 1997 WTO decision Hungary’s commitments can be found in the Annex, listing our quantity commitments of subsidized agricultural export and the maximum amount to be spent on such products (see Table 3. for wheat) During the transitional period Hungary had pursued modifying its support mechanism to our original commitments. As a result of this, our agricultural support mechanism has started to use more elements from the so called “green box” support measures (agricultural research programmes, structural development). The aim of the Hungarian foreign trade policy is to integrate into the world economy and to prepare for accession to the EU.7 1.3 Changes in Hungary’s WTO relations after accession to the EU In the case of agricultural products an EU membership will have an effect on custom tariffs, the Uruguay Round quota system, internal market support and export subsidies. With the accession, Hungary will adopt the Common Agricultural Policy of

the EU (CAP). In the case of agricultural products there will not be any significant drop in custom tariffs, because the EU strongly defends its agricultural products against foreign competition. In this respect Hungary has nothing to fear, this strong defensive ring of high custom tariffs will be expanded to the country. But what is good for Hungary in this respect, will not necessarily suit the interests of WTO. In respect of the WTO it will be important to clarify, how the EU’s import quota system will modify after enlargement. For those products, where Hungary has already used a 7 http://europa.euint/comm/trade/goods/agri/ecapragrhtm 14 http://www.doksihu Varga, Péter quota system, we will just add this quota minus the trade between Hungary and the EU to the overall EU quota. On the other hand, for products, where Hungary only had custom tariffs, but no quota system, the base year turnover or consumption has to be considered and added to the overall quota. The EU will

increase its WTO quota by the so calculated amounts. It is important to note, that products within the quota may enter the EU market at any place. This might result that the given product reaches Hungary in a larger quantity than before. The WTO will investigate the modification in the subsidy system of the agricultural sector. In the Agricultural Agreement, Hungary has committed itself to reduce both export and internal market subsidies. After accession, the subsidy system will be changed by the CAP and it will not be an easy task to converge our WTO commitments with the new refund system of the CAP. 2 CHAPTER 2 2.1 The system of export licences and refunds in the European Union Agriculture was one of the first policy areas where EU Member States gave up part of their national sovereignty and expected greater benefits in this way. The Common Agricultural Policy was created in 1958, following the Stresa Conference and had its main aim was to boost productivity. Article 39 (now 33) of

the Rome Treaty lists the following objectives of the CAP: a) to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilisation of the factors of production, in particular labour; b) to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture; c) to stabilise the markets; d) to assure the availability of supplies; e) to ensure that supplies reach consumers at reasonable prices. 15 http://www.doksihu Varga, Péter At that time productivity was in the spotlight, because Europe lacked reliable supplies of almost all important agricultural products. Specific measures (market organisation, funds, price policy) were put into place to ensure that reasonable producer prices were guaranteed, but also to ensure that farmers had a stable and adequate income. The CAP has achieved its objectives and by

today the European Union is the world’s second largest farm exporter with 55,65 billion EUR, and its biggest importer with 59,4 billion EUR (2001 figures). In export, only the USA is ahead of the EU with 5937 billion EUR (2001 figure) value of agricultural export (see Table 4 and 5).8 By the ‘90s the CAP had resulted overproduction and rising expenditure. The scope of European agriculture also changed and led to a series of reforms. In 1992, Heads of Governments agreed on a shift from price support to direct income payments for farmers. Pascal Lamy, EU Commissioner for Trade, had the following to say on the new system of agricultural support in 3. October 2002, Paris: “paying farmers direct income support, "decoupled from" - in others words not linked to - production levels or reference prices. Here, the underlying pact between farmers and society is rather different, in that it does not reflect a contract to supply food in return for a financial quid pro quo (counter

value) from the consumer, but in an acknowledgement by the taxpayer, in the form of a redistribution of public money, of the value of farming to society. This has the additional merit of letting the market once again guide farmers decision-making. This is the thinking behind the successive reforms of the 1990s”,9 but the new system has its drawbacks as well. The EU Commissioner for Trade goes on with the negative effects of the newly reformed CAP: “it partially severs the link between work and earnings. This human factor is something the authorities must bear in mind. Producers with a guaranteed minimum income also tend to overlook what consumers really want. And, last but not least, 8 9 http://europa.euint/comm/dgs/agriculture/index enhtm Pascal Lamy (2002) 16 http://www.doksihu Varga, Péter because it is calculated on the basis of past performance, income support tends to lock in patterns of inequality between farms”10 2.11 Licensing in the EU agricultural export The

fact that all imports into the Community and all exports from it of agricultural products are subject to licencing, shows the importance of the subject. The objectives of the licensing system for agricultural products are threefold. First, with the issue of licences the competent authorities can manage WTO subsidized export limitations. Second, all those exporters who want to receive export refund on their products, have to present a licence at the time of acceptance of the customs declaration. Third, licences serve for gathering statistical knowledge on the trading flow. There are two types of licences, depending on the products for which they have been issued. For those products, which export is licence-bound and usually benefiting from export refund the Community gives out licences. For agricultural products, which export is not licence-bound, but the exporter wants to benefit from export refund the Community issues certificates. Commission Regulation No 1291/2000 of 9 June 2000 can

be regarded as the basic regulation laying down the common detailed rules for the application of the system of import and export licences and advance fixing certificates for agricultural products. The Regulation has been applying to licences and certificates applied for from 1 October 2000. The export licence enables its holder to benefit from the export refund but at the same time give rise to an obligation to export during the period of validity, the specified quantity of products. If for any reason, except force majure, the exporter is not able to export at least 95% of the specified quantity of products, the Commission will see this as not fulfilled export, and will not pay back the security. In this way, the exporter has the chance to export 5% more or less than contracted, and still make the Commission consider his export as fulfilled. Furthermore, obligations deriving from licences can not be transferred, while rights can. The titular holder of the licence (the owner) might

transfer his rights for the export and the refund only once during the time of validity. 10 Pascal Lamy (2002) 17 http://www.doksihu Varga, Péter The transferee shall not transfer on the received rights to any other person just the titular holder. Extracts made from licences shall have the same legal effects as the originals and shall be valid in all Member States, no matter where in the Community they were produced. Licences are to be printed on forms issued by the Member States. However, fax and electronic messages are also accepted as valid applications, given that they include all information which would have appeared on the form. In the case of electronic messages the handwritten signature of the applicant is to be replaced by a coded and certified electronic signature. The advantage of applications sent as a fax or as an electronic message is their speed of transmission and are frequently used to set the date of application. According to the Regulation, the application

must be received by the paying agency at 1 p.m the latest, in order to register it for that day The day when the application is received by the agency determines the amount of export refund to be paid and this is why fax and e-mail messages can come in handy. Licence and certificate forms contain the following: 1. copy No 1 – holder’s copy 2. copy No 2 – issuing body’s copy 3. the application 4. any extra copies of the licence In order for an application for licence to be valid, the applicant must also pay an adequate security to the paying agency until 1 p.m Securities are asked for to make sure that the export will be carried within the time of validity. When the security to be paid is 60 EUR or less, or when the applicant is an intervention agency no security is required. Furthermore, there is no need for security in cases of export to third countries used for humanitarian aid. The exporter shall present copy No 1 of the export licence for that customs office, which will

accept his customs declaration. The customs office after endorsing the licence hands it back to the holder. Licences which were filled out wrongly, should be given back to the issuing agency, which either decide on correcting the mistake or withdraw the licence and issue a new one. If the licence was lost, the issuing agency can issue a replacement licence. This replacement licence can not be further replaced if lost! 18 http://www.doksihu Varga, Péter A licence shall not be required for the following operations: • supplies within the Community to seagoing vessels or to aircraft on international flights, including intra-Community flights • supplies to international organisations established in the Community • supplies to armed forces stationed in the territory of a Member State, but not serving under its command • deliveries of products to warehouses situated within the Community and belonging to international organisation specialising in humanitarian aid •

deliveries of products to warehouses under customs control with a view to supply seagoing vessels, aircraft or extraction rigs • non-commercial export (exports by private individuals) • for quantities not exceeding a certain limit (in the case of wheat this is 5000 kg)11 2.12 The system of export refunds in the EU The system of export refunds is used in the EU to compensate traders for the difference between the usually high Community market price and the lower world market price. Only with the use of this supportive system can the Community ensure that the surplus of agricultural products will not remain in the Community and will be exported (see Table 6 and 7 for the distribution of export refund payments). First I will write on the application of the system of export refunds on agricultural products in general, then I will go on to describe how the system works in the cereal sector. Before I would go into detail on how export refunds are granted in the Community, there are

some expression which have to be defined. The wording of Community regulations speaks about ‘products’, ‘basic products’, ‘processed products’ and ‘goods’. In the following I will only deal with the terms ‘basic products’ and processed products’, and will show the system of export refunds through the use of these two product groups. ‘Processed products’ means products obtained from the processing of ‘basic products’. It is important to note that refunds are paid only after basic products 11 Commission Regulation (EC) No 1291/2000 of 9 June 2000 19 http://www.doksihu Varga, Péter An example would be the case of wheat and flour. Wheat is the basic product, while flour is already a processed product. Export refund is paid only on the wheat content of the flour and not on the flour itself. It is Commission Regulation No 800/1999, which lays down the general rules of the system of export refunds on agricultural products. This Regulation sets the basic

rules on the products concerned, the calculation of refund rates, the documents to be presented, prefinancing of the refund, special cases and penalties. According to the Regulation refunds can be acquired as soon as the products have left the customs territory of the Community, when a single refund rate applies to all third countries or only after the importation to a specific third country has been proved, when a differentiated refund rate applies to that third country. Both ways of entitlement to the refund are carried out in the standard procedure, in which refund rates are determined by the Commission and the Member States in weekly sessions.12 2.121 Single rate of refund When a single rate of refund applies to all third countries, the exporter may choose to have the refund fixed in advance (fixed at the time of application to the licence) or not to have it fixed in advance (refund rate will be determined only at the day of customs declaration). It depends on the exporter’s

perception of the market conditions, which of the two he will decide on. In the case of advance fixing the exporter bets on falling refund rates. By waiting until the date the customs authorities accept the export declaration, the exporter definitely anticipates rising refund rates. After the modifications by Commission Regulation No 2299/2001 of 26 November 2001 entitlement to the refund has become subject to the presentation of an export licence with an advance fixing of the refund. In special cases, for reason of simplification and avoiding excessive administrative work, there is no need for the presentation of export licences. Such cases are the deliveries in the Community for international organisations, for the armed forces, the supply of seagoing vessels and aeroplanes and the export of small quantities. The case of ensuring supplies of ships and aeroplanes is treated as a special case for another 20 http://www.doksihu Varga, Péter reason as well. Products imported from

non Member states are usually exempt from duties on these ships, so as to treat Community products equally to non-Community products, the above mentioned special provisions are allowed. In determining the rate of refund, the time of application for the licence, the quantity, the nature and quality of products play a great role. Refund is paid only after the net mass of products, but in some cases it might prove to be difficult to measure net mass exactly. In the case of bulk products which net mass can only be known after loaded on the means of transport (e.g live animals, legs, shoulders, bellies), a provisional net mass should be indicated on the export declaration. The additional declaration indicating the exact net mass must accompany export declaration after loading is completed. When the actual net mass is over 110% of the estimated figure contained in the export declaration no refund is granted. Where the net mass actually loaded is less than 90% of the estimated net mass, the

refund for the net mass actually loaded will further be reduced by a penalty. The exporter applying for refund is obliged to present the export declaration to the customs office in the place where the products will be loaded on the transport vehicle. Furthermore, he should inform that customs office 24 hours before loading on the place and the duration of loading. The time and place of loading is important to the competent customs office in order to make checks on the quantity and quality of goods loaded and so help to identify the goods for the office of exit. When the exporter ships his products in frequent intervals and in small quantities there is a need to simply set the day to be used for the determination of the rate of refund. So in cases of quantities smaller than 5000 kilograms exported in frequent intervals the last day of the month is used to determine the refund applicable. For Member States not participating in the economic and monetary union, this same day is applicable

to the euro exchange rate into the national currency. Another issue is quality The exporter has 60 days after customs declaration to actually export his products. During these 60 days, if he wanted to export perishable goods, he must freeze down the products so they will not go bad. Such prevention of goods is allowed by the Community and does not in any 12 Commission Regulation (EC) No 800/1999 of 15 April 1999 21 http://www.doksihu Varga, Péter way affect the refund to be applied. The same applies to repackaging, as long as the combined and the refund nomenclature code of the product does not change and the customs authorities have previously been informed. The authorities should ensure that products leaving the Community are in fact the same products which have undergone the customs formalities. In order to ensure such a control a so called T5 control copy is used. It is used in cases, when after accepted customs declaration the products before exiting the customs territory

of the Community cross the territory of other Member States. The T5 control copy must ensure that during transportation, the goods do not remain for more than 28 days for the purposes of transhipment in ports located in the Member State of export or in any other Member State. If for any reason the above mentioned 60 days or the 28 days of transhipment are exceeded the exporter has to pay penalties. Where the product crosses the territory of other Member States than the Member State of export before exiting the customs territory of the Community, but it is transported using the simplified Community transit procedure for carriage by rail or large containers, there is no need for the T5 control copy to be entitled to the refund. Export refund is to be granted only for products which are of Community origin or are in free circulation in the Community. In the case of imported goods after which the importer has paid all import charges (goods in free circulation) the export refund shall not

exceed these charges. For goods of Community origin the exporter shall present a declaration of origin. For the grant of refunds, we speak about Community origin if the product was wholly obtained in the Community or the last substantial processing took place in the Community.13 2.122 Differentiated rate of refund Where the rate of refund differentiates upon the country of arrival special conditions are required by the Regulation. First, products shall be exported in their unaltered state to the export destination mentioned in the licence within 12 months of the date of acceptance of the export declaration. Second, the exporter is entitled to the refund only if he can prove the importation of the products concerned to the specified third country. The paying agency accepts the import customs document as proof of arrival and pays 22 http://www.doksihu Varga, Péter the differentiated refund rate upon presentation of the document. Import custom formalities are completed when the

party concerned pays the applicable import duties. Another way to prove arrival of products is the certificate of unloading and importation issued by an international control and supervisory agency. The date and number of the customs document of import must appear on the certificate. Third, the exporter shall produce a copy of the transport documents. Because of the longer time period needed for the presentation of all the documentation in the case of differentiated refund rate procedure, exporters are not treated equally with exporters applying for the single rate of refund. In order to solve this problem, the exporter is entitled to part of the refund once proof is presented that the product has left the customs territory of the Community. This amount is calculated by the following formula: PPR = Partly Paid Refund, this is what the exporter receives, after proving the fact of exportation LR= Lowest Rate applicable on the day the licence application is submitted, adjusted if

applicable on the date of acceptance of the export declaration RFA= Rate Fixed in Advance, the differentiated rate of refund fixed on the licence PPR = LR – 0,2*(RFA-LR) The destination mentioned in the export licence is compulsory. If the exporter fails to export the products to the given destination, just the part of refund shall be payable as calculated above. 2.123 Measures of protecting the Community’s financial interest Where there are serious doubts on the real destination of the product, or when the product is liable to be reimported into the Community, the paying agency pays the single-rate refund or the part of the differentiated-rate of refund calculated above, only if the product has left the customs territory of the Community and has been imported into a third country or into a specific third country (depending on the type of refund) during the 12 months following the date of acceptance of the export declaration. 13 Commission Regulation (EC) No 800/1999 of 15 April

1999 23 http://www.doksihu Varga, Péter However, the exporter shall pay the refund back, if the authorities find out that the product has been destroyed before being placed on the market or that the product exported is reimported into the Community without having undergone any substantial processing.14 2.124 Cases where no refund is granted No refund is granted on products which are not of fair marketable quality on the date when the export declaration is accepted. Where products are of fair marketable quality on the day of export declaration, thay shall be granted to the refund calculated above. On the other hand, if it turns out that the product after being imported into the third country is no longer of fair quality because of a latent defect or the final expiration date was too close to the date of exportation, the refund shall be paid back. No refund shall be granted on exports charged by an export levy. In the case of compound products export refund shall not be paid on

those ingredients (basic products), which are charged by an export levy.15 2.125 Prefinancing of the refund Prefinancing of the refund is applicable in such cases when, • basic products are processed under customs control into processed products with the view to be exported in a set time, • or when products brought under customs warehousing with the intention to be exported. In both cases, even though the products are not yet exported, the customs authorities are able to control the movement of products and there are definitive steps taken to export the products. The exporter after presentation of the payment declaration is eligible for the full amount of the refund. The payment declaration shall consist the following information: • description of the products in accordance with the export refund nomenclature (and the code) 14 15 • the composition of the products • the net mass Commission Regulation (EC) No 800/1999 of 15 April 1999 Commission Regulation (EC) No

800/1999 of 15 April 1999 24 http://www.doksihu Varga, Péter • when basic products are to be processed, the description of the basic products and their quantity • the use and the country of destination • the exact location where the products are stored or where they are to be processed Products placed under customs warehousing may only undergo operation which do not involve the risk of changing the country of origin of the product. Such operations are stocktaking, labelling, packaging, airing, chilling and freezing. Products may remain under customs warehousing no more than 6 months after the date of acceptance of the payment declaration. The exporter has the possibility to transport the stocked products into another warehouse, but he must ensure that the means of transport are sealed and a T5 control copy is presented. A security equal to the export refund plus 15% is to be lodged prior to acceptance of the payment declaration.16 2.126 Procedure of payment of

refunds In order to be entitled to the refund, paid by the Member State of export (where export declaration is accepted), exporters are to fill out a specific application. Refund applications shall be made in writing or by computer transmission. The applications are to be submitted within 12 months after the date on which the export declaration is accepted. Copy of the transport document, a import customs document, common transit document and T5 control copy might be asked to accompany the refund application. When the exporter has presented all relevant documents and has fulfilled all his requirements according to the Regulation, but has not met the time limits set out, the following reduction in refunds is used: • first, the refund is reduced by 15% percent (reduced refund) • the remainder of the refund is further reduced according to which time limit (starting at the date on which the export declaration was accepted) has not been met by the exporter 16 Commission Regulation

(EC) No 800/1999 of 15 April 1999 25 http://www.doksihu Varga, Péter 26 o 2% of the reduced refund shall be lost for each day by which the exporter exceeds the 12 months importation time limit set in the case of differentiated refunds o 5% of the reduced refund shall be lost for each day by which the exporter exceeds the 60 days time limit for exportation of the products.17 2.127 Penalties When the authorities find out that the exporter has not exported the same amount of products, as stated in the refund application, he shall only be rewarded an export refund on the products actually exported, reduced by half the difference between the refund on quantities applied for and actually transported, or twice the difference when he intentionally provided false information to the authorities.18 2.2 The common market in cereals After describing the general process of issuing export licences and the granting of export refunds for agricultural products, now I turn to one of the most

highly regulated markets, the cereals market. Through this example, I want to point out the importance of export refunds within the system of other market controlling mechanisms. The first Regulation dealing with the common organization of the market in cereals dates back to 1975. At that time, the Regulation was aiming to encourage the growth in cereals production. By the 90’s the Regulation has lost its relevance and it turned out that the market is unable to absorb the increased agricultural production. The surpluses has started to drive prices down, it was difficult to export the expensive Community products to the world market and intervention warehouses were also in trouble to store the increased quantities. As a result the common agricultural policy has been reoriented, and by lowering target prices, it has created a better competitive position to the Community agriculture. Producers should decide freely and depending on the demand of the market, what crops they will produce.

In order to make farmers think more market oriented, target prices are equalled out for all major cereals and a new direct aid per hectare system was introduced in 1992. Along the direct aid mechanism introduced, which aims to eliminate the loss of income of farmers due to lower market prices, 17 18 Commission Regulation (EC) No 800/1999 of 15 April 1999 Commission Regulation (EC) No 800/1999 of 15 April 1999 http://www.doksihu Varga, Péter intervention measures and threshold prices for imports have been in use. The structure of guaranteed prices include intervention price, target price and threshold price, increasing in value in the order of listing. The function of guaranteed price mechanism is to dispose the surpluses of cereals produced in the Community. Intervention and threshold prices are adjusted every month by an increment representing the rising storage costs and interest charges to be paid for storing cereals. Besides the system of guaranteed prices, a well established

trading system should also be in force at the frontiers. This is carried out through the use of levies, export refunds combined with intervention measures, all aiming to prevent the Community market from world price fluctuations. Imports reaching the Community borders at prices below the threshold price should be charged by a levy, and exports to such countries, where domestic prices are below that of the Community should be encouraged by export refunds. In order for the competent authorities to monitor trade movements so as to asses market trends, there is a need for the issue of import and export licences accompanied by a security, guaranteeing that transaction are carried out.19 The most recent Regulation dealing with the common organization of the market in cereals is Council Regulation No 1766/92. The Regulation covers a number of products, e.g corn, wheat, rye, barley, oats, and durum wheat belonging to cereals The market regulation, intervention prices and export refunds are

very similar in the case of these products. 2.3 The cereals sector One quarter of all arable land is devoted to cereals, of which just under half is planted to wheat. The area under cereals cultivation was 357 million hectares in 1997, about the same as in 1987, but land set-aside following the 1992 CAP reform has reduced surfaces cultivated. Altogether, 57 million hectares were set aside in the marketing year 2000/01. Despite the reduction in surfaces cultivated, production and yields rose steadily. Cereal production (excluding rice) in EU-15 reached a new record level of 211 million tonnes in 2000, due to the combined effects of enlargement in 1995 and increased yields (see Table 8. for agricultural statistics)20 19 20 Council Regulation (EEC) No 1766/92 of 30 June 1992 WTO Secretariat (2002) 27 http://www.doksihu Varga, Péter The Commission implemented the 15% reduction agreed in May 1999, to the intervention price at which agencies must buy in cereals: from EUR

119.19/tonne in marketing year 1999/00 to EUR 110.25/tonne in marketing year 2000/01 to EUR 101.31/tonne for marketing year 2001/02 In Agenda 2000, it was agreed by the Member States that if market developments make it possible, the intervention price to be applied from 2002/03 onwards would be further reduced. According to the Commission, the world outlook for wheat, maize and barley are generally positive, past trade figures show that there can be strong fluctuations from one year to another. The Commission therefore is committed to the use of intervention as a safety net and applying a final reduction in the intervention price of EUR 101.31 to EUR 9535 from 2004/05.The impact of reduced intervention prices on farm incomes is being partly compensated (50%) by an increased area payment: from EUR 54.34/tonne in marketing year 1999/00, to EUR 58.67/tonne in marketing year 2000/01, to EUR 63/tonne for marketing year 2001/02 for an indefinite period. The area eligible for payment is

subject to ceilings set in regionalization plans, and to a minimum 10% set-aside obligation. Finally, the Commission proposed in its mid term review of 2002, to abolish the monthly increments. This would imply a major simplification of market management21 2.31 Pricing and intervention system The intervention price for cereals is fixed at EUR 101.31/t for the 2001/2002 marketing year. The marketing year for cereals begins on 1 July and ends on 30 June of the following year. The intervention price increases in each month according to Table 9 These monthly increments represent the growing storage costs of the products as the year goes on. The intervention price is meant as the wholesale price of the goods delivered to the warehouse, before unloading. The price shall be valid for all intervention centres in the Community. The intervention agencies are obliged to buy the cereals offered to them, provided that the products satisfy the requirements for quality and quantity. In most of the

Member States intervention is carried out from 1 November to 31 May. The Commission assisted by the Management Committee on Cereals decides upon the minimum conditions as regards the quantity and quality of products eligible for intervention.22 21 Commission of the European Communities: Mid-Term Review of the Common Agricultural Policy (2002) 22 Council Regulation (EEC) No 1766/92 of 30 June 1992 28 http://www.doksihu Varga, Péter 2.32 Licencing and refunds Imports into and exports from the Community of cereal products are bound to the presentation of import or export licences. Licences are issued by the Member States to any applicant , irrespective of his place of establishment in the Community and are valid throughout the Community. Licences shall be lodged with a security, guaranteeing that the import or export operations will be carried out. The security is lost in whole or in part if export or import is not carried out, or is only carried out partially (see Table 10. for

distribution of export refund payments by measure). When cereals are exported as basic products or in the form of goods, like bread, pasta or spirits, and world prices are below that of the Community market price, the price difference is covered by export refunds. In the cereals sector there are two kind of export refund procedures to be used: the standard procedure and the tender procedure. However, it might happen that world market prices for cereals rise above that of the Community, and threatening the domestic market supply. In such cases, the Commission is empowered to apply export tax. 2.321 Standard procedure The refund rate for cereals is voted in the Management Committee for Cereals. The members of the Committee are grain experts from the Commission and from the Member States. Each Member State has a certain number of seats, from 2 to 3 in the Committee. In most of the cases, one person comes from the Ministry of Agriculture, one expert from the paying agency, one person from

the customs authorities, and in some cases one person represents the Ministry of Economy (depending on the administrative structure of the Member State). Before the Committee’s session there is a meeting between the administration and the companies, in order to determine a common position concerning the refund rates. After discussion with the companies involved in cereals export, the administration sends its proposal to the Cereals Department of the Commission in Brussels. The Committee’s session begins at 15:00 p.m on Thursday in Brussels Member States are informed on the agenda of the meeting per fax or e-mail. After the discussion the members of the Committee vote for the proposed refund rate. 29 http://www.doksihu Varga, Péter 30 Member States have the following votes in the Committee: • Germany, France, Italy UK – 10 (each) • Spain – 8 • Belgium, Greece, Netherlands, Portugal – 5 (each) • Austria, Sweden – 4 (each) • Denmark, Ireland, Finland

– 3 (each) • Luxemburg – 2 The total number of votes is 87. In order to accept the proposal a two-third majority is needed. If the rate is accepted in the session, it is published in the Official Journal on Friday. The representative of the paying agency informs immediately his office on the result, and the refund is valid from Friday on.23 2.322 Differentiated refund For some products, like wheat, the rates of refund vary according to destination and the exporters entitlement to the refund is dependent on the presentation of proof that the goods have been placed on the given market (proof of arrival). A variety of documents are accepted as proofs of arrival. The preferred documents are customs import declarations or certificates of importation issued by approved supervisory companies. If these are unobtainable, other documents ranging from certificates of unloading to bank documents evidencing payment on the goods in question, may be accepted. 2.323 Correctives The

correctives are voted in the Management Committee for Cereals. The aim of the correctives is to encourage export in certain periods. The correctives are set for each month during the time of validity (month of issue plus 4 months) of the export licence. The following example shows, how the Commission influences export refunds in January and February. Suppose the licence was issued on 20 November and is valid until the 31 March. EUR/t 20 November December January February March 0 0 +2 +2 0 23 Deák, Andrea and Nagy, Eszter (2001) http://www.doksihu Varga, Péter 31 The exporter gets to know these correctives from the Official Journal of the European Communities. The exporter will most probably try to export his products when the correctives apply for the refund.24 2.324 Monthly increments In the cereals sector the system of monthly increments is used for the export refund system and for intervention. The longer exporters have to store their products before export takes

place, the higher the cost of storage are. The aim of the increments is to compensate exporters for the cost of storage. The rate of the monthly increments is fixed for 10 months from August to May. In the year 2000/2001 the rate of the monthly increments was 1 EUR/t in the cereals sector. Going back to our example above, when the application for the refund has reached the paying agency in November, the agency will have to pay the monthly increments and correctives, plus the refund applicable on the products.25 2.325 Zero refund Zero refund means, that exporters do not get any refund on the products exported. In times, when the Commission uses export taxes to prevent supplies of cereals flooding to third countries, the exporter can fix the zero refund in advance and in this way saving himself from the payment of export tax during the period of validity of the licence. There are two types of zero refunds: • true zero – in this case the exporter does not receive refund, or monthly

increments. Negative correctives are used in each month to compensate for the increase of monthly increments. Because there are no supportive measures on this export, it does not count to the WTO quota either. EUR/t November December January February March 0 -1 -2 -3 -4 24 25 Deák, Andrea and Nagy, Eszter (2001) Deák, Andrea and Nagy, Eszter (2001) http://www.doksihu Varga, Péter • false zero – in this case the exporter does not receive any refund, but is entitled to the monthly increments further on (adds to the WTO quota).26 2.326 Tender procedure In the tender procedure the exporter suggests the Commission a quantity and a rate of refund (bid), and lodges a security. The bid and the security shall be lodged by 10 am on Thursday morning, at the paying agency. The minimum quantity is set at 1000 tonnes. The agency collects the bids and sends the quantity and the demanded refunds to the Commission by 12:00. In order to avoid discrimination, the bids are sent to

the Commission without the name of the applicants (identification numbers are used instead of the names). In the afternoon session of the Management Committee for Cereals the rate of refund is voted for. After the session, the paying agencies are informed immediately on the results. By Friday the results are published in the Official Journal If the exporter’s bid was successful (below the upper limit of refund rate, or above the lower limit of the export tax voted for) the security of the tender is released. Now the exporter can apply for the export licence. For the application he has to lodge an adequate security by 13:00 p.m on Friday the latest The licence with the refund rate fixed in advance is issued on Friday. The tender procedure enables the Community to support only those applicants, which manage to operate in a cost effective way, and are able to apply for the lowest refund rates or offer the highest export taxes. 2.327 Export tax The Commission decides to apply export

tax, if there is high demand for Community cereal products on the world market, driving world market prices above the Community price level. The export tax has to balance out such an imbalance in international trade and has to safeguard domestic supply of essential cereal products. There are no monthly increments used for export tax, but correctives might still be used. • Standard export taxes are voted in the Management Committee sessions, like in the case of export refunds. The exporter can choose to fix the rate of tax in 26 Deák, Andrea and Nagy, Eszter (2001) 32 http://www.doksihu Varga, Péter advance or to let the rate of tax applicable on the day of customs clearance be applied for his export. • Tendered export taxes are established in the same way as the tendered rates of refund. The difference is that not the lowest but the highest bids offered are accepted (tenders with the highest export taxes offered). 2.328 Tender for export of the intervention stocks Due

to efficient production methods the European Union farmers produce lot more cereals than the Community consumes and exports. The surplus shall not be left on the market unsold, or else it will drive prices down to a level, where farmers get less for their produce, than what they invested. In such cases the EU buys the cereals for an intervention price. After some time of storage, the public intervention stocks of cereals shall also be sold. The Commission might decide to sell the stocks on the world or domestic market, or to offer it for humanitarian aid purposes within or outside the EU. The stocks are sold using the tender procedure, where bids of EU exporters reach the Management Committee for Cereals referring to certain stocks (the name of intervention store is to be mentioned). Tenders are decided on every Thursday The paying agency collects those bids where adequate security has been lodged and sends them to Brussels. In the afternoon the Management Committee decides on the

minimum bid to accept. All companies with a bid higher than that are eligible for buying the intervention stocks and export the products. If the exporter has succeeded with his application, he gets the security back, but has to pay two other securities, one for the export licence and one to make sure the products to be exported will not be reimported to the EU. The validity of intervention stock export licences is the month of application plus 4 months. 2.329 Problems concerning the system of export refunds According to the Special Report No 7/2001 of the Court of Auditors, there are several weaknesses in the application of export licencing and the granting of refunds in the EU. In the case of some of the most important export refund destinations of the EU a number of irregularities and suspected frauds have been detected. Some major weaknesses have been found in the approval and control of supervisory companies and in the system of issue of proofs by Member State’s embassies.

Serious weaknesses have been identified in Member States’ physical checks on the description and quantity of 33 http://www.doksihu Varga, Péter exported goods. On the other hand the genuineness of transactions was not questioned by the Court of Auditors. The estimated financial damage on the EU taxpayers is some 100 million euros. The Commission has answered to the findings of the Court of Auditors and accepted that there are significant weaknesses in the way control companies carry out their duties or the lack of certainty on the genuineness of some proofs. The Commission has obliged itself to work out a system that places greater responsibility on the supervisory companies. It will also be considering the creating and maintaining an up-to-date catalogue of customs forms and stamps used in non-member countries.27 2.33 Comparison of the Hungarian and the EU export refund system for wheat In the export of wheat benefiting from export refund, both the standard and the tender

procedure are in use in the European Union. All exports of wheat are licence-bound regardless of whether the export is benefiting from refund or not. The Hungarian legislation regulating the system of export refunds on wheat (74/2002 FVM-KüM-PM Common Regulation) has several differences compared to the EU legislation (1162/95 and 1501/95 Commission Regulation). 1. The Hungarian legislation sets the maximum quantity of wheat for which refund is granted and the final date of turning in applications. The EU Regulation does not set the maximum quantities of wheat to be subsidized. It is the Management Committee for Cereals which decides in its weekly sessions, what refund rates apply and if the market situation or WTO commitments require, should refund rates be reduced or abolished. In the tender procedure the EU defines a time limit for the applications as in the Hungarian legislation, but this lasts the whole year from 31.052002 to 22052003 2. The Hungarian legislation defines the

amount of export subsidy (1500 HUF/t), and the amount of security (500 HUF/t). In the European Union, the rate of refund is not defined in the Regulation, but decided in the weekly sessions of the Management Committee. It is either the day of lodging the application or the acceptance of the customs declaration which sets the refund rate applicable. However, the application fee is also set in advance in the EU (12 EUR/t). 27 Court of Auditors (2001) 34 http://www.doksihu Varga, Péter 3. According to the Hungarian legislation the maximum amount to be spent on export refunds for wheat is fixed at 600 million HUF. 4. The maximum quantity to be applied for is defined in the Hungarian legislation at 10000 tonnes, while the EU defines a minimum quantity at 1000 tonnes. 5. The Hungarian exporter has 30 days to present a certified copy of the customs declaration, in order to receive the certificate of entitlement from the Agricultural Intervention Centre. In the EU, the exporter has to

present the documents verifying the export of goods (customs declaration, T5 control copy) in 2 months after the expiry date of the licence. 6. If the Hungarian exporter has done everything according to the Regulation, the Agricultural Intervention Centre issues the certificate of entitlement in 30 days (after the customs declaration has been sent to the AIC). In most of the cases the AIC issues the certificate immediately in a couple of days and does not wait until the 30 day time limit is over. European Union legislation lets 60 days for the paying agency to transfer the amount of refund to the bank account of the exporter. 7. The certificate for quota according to Hungarian legislation was valid until 15 September 2002, which date was later prolonged until 15 October 2002. The licence issued for the export refund of wheat is valid until the month of issue plus four months. 8. In Hungary, the security payment is to be released after a minimum of 80% contract fulfilment. In the

European Union, where unlike in the Hungarian practice, the payment of the security is done by bank guarantee, the release of the security may happen only after a contract fulfilment rate of 95%.28 2.34 The EU paying agencies Council Regulation 1258/1999 and Commission Regulation 1663/1995 set out the detailed rules on the functioning of paying agencies in the EU. Paying agencies are authorities of the Member States and are responsible for the distribution of the European Agricultural Guidance and Guarantee Fund (referred to as the Fund). The Guarantee section of the Fund finances: refunds on exports to third countries, intervention intended to stabilise the agricultural market, contribution towards specific veterinary measures and measures intended to provide information on the common agricultural policy. On 35 http://www.doksihu Varga, Péter the other hand, the Guidance section of the Fund makes available resources for rural development measures in regions which development is

lagging behind compared to the Community average (see Table 11 and 12). Usually there is only one paying agency in each Member State, but if more than one paying agencies are accredited, there should be a coordinating body appointed, which is responsible for bringing together the information to be supplied to the Commission on the expenditure from the Fund. The paying agencies have to make sure that before payment, applications are checked for compliance with Community rules, that payments are recorded correctly in the accounts, and that the necessary documents are submitted within the time limits. The distribution of Community Funds is a sensitive issue and for this reason Member States must lay down detailed rules on the accreditation of paying agencies. According to the guidelines of accreditation set out in Commission Regulation 1663/1995, the paying agency shall execute three principal functions in respect of EAGGF expenditure: 1. Authorization of payments: establishing the amount

to be paid to the applicant 2. Execution of payments: issuing an instruction to the agency’s bankers to pay 3. Accounting of payments: recording the payments in the agency’s books of account. Besides the above mentioned obligations, paying agencies must carry out two other services. First, to make sure that the agency’s system of internal control operates effectively an internal audit service is required. Second, the objective of the technical service is to verify the facts on which payments to the applicants are based. This involves carrying out of checks on matters such as the quality and characteristics of products livestock and land, the date of delivery, or the transformation into another product. Member States through their paying agencies should inform the Commission on their management of the Fund. The Commission needs this information to monitor Community agricultural financing and to report each year to the European Parliament and to the Council on the administration of

the Fund.29 28 29 AIC Information Pamphlet I (2002) Council Regulation (EC) No 1258/1999 of 17 May 1999 36 http://www.doksihu Varga, Péter 2.4 EU and WTO relations The EU is the world’s biggest importer and second biggest exporter of agricultural products. Being so involved in trade the EU must have every intention of ensuring that trade is based on clear and acceptable international trade rules. On the other hand, Europe is very much aware of the impact of globalisation on the environment, health and social issues. The European model of agriculture expresses this view, by facilitating multifunctional farming. Multifunctionality is the description for sustainable agriculture, with territorial balance and the maintenance of the landscape and the environment. Since 2000, the EU has implemented the Agenda 2000 reforms to the CAP agreed in Berlin in March 1999. Pressures to adapt the CAP to new requirements are arising from enlargement, where the Commission has proposed a

progressive introduction of direct payments. Other pressures to adapt the CAP are arising in the context of the ongoing WTO negotiations on agriculture, where the EU has submitted a proposal. Also of potential significance is the decline in consumer confidence in the CAP due to a number of food safety crises, which the Community is addressing, by a new framework for food safety law. Global negotiations on agriculture began in 2000. The EU presented its negotiating proposal in December 2000. It stresses that further liberalisation and expansion of trade for agricultural products are an important contribution to further economic growth. It aims for further reductions in support and protection, balance between trade and nontrade concerns, and special treatment for developing countries. The EU has launched recently the Everything But Arms initiative, to allow duty-free and quota-free access for all products from nearly 50 least developed countries. In the case of export refund for

agricultural products used for exporting surplus Community production and subject to limits on the value under the WTO Agreement on Agriculture, the EU has committed itself to reduce volume of subsidized export by 21% and the value by 36% in a period of 6 years (1995-2000). The Commission has allocated EUR 5.6 billion to export subsidies in the marketing year 1999-2000, Commission Regulation (EC) No 1663/95 of 7 July 1995 37 http://www.doksihu Varga, Péter principally to milk and milk products (30%), sugar (25%), arable crops (15%), and beef meat (12%). As regards the processed products, the EU has guaranteed to reduce the export refund from a level of 702 million EUR (1991-92) to 366,4 million EUR by 2000. The EU has started to use the system of direct payments and in some product categories has reduced the domestic market prices (e.g cereals)30 Conclusion The dissertation paper was designated to research on the regulation and subsidy system of agricultural export in Hungary

and in the EU. The aim was to analyse the procedures in force and to point out the differences. Differences in the functioning of institutions and WTO commitments further distinguishes Hungary from Europe. I had the chance to experience myself the way export refunds are granted in Hungary, unfortunately I could only gather secondary data on the EU counterpart procedures. In understanding the European system the results of the Twinning Project carried out in the AIC and the well organized legislation database of the Europa website helped me a lot. As the major difference between the Hungarian and the EU practice in helping exporters by export refunds in selling their products abroad, I would point out the ad hoc support measures of Hungary and the continuous support system of the EU. Seeing the number of applications reaching the AIC for export refunds, it has turned out that many applicants are not able to fill out the forms correctly, that the time period for applications is often too

short and that there are still many problems in producing precise legislation texts. As a result quotas are not used out completely and the legislation does not reach its purpose of driving surplus out of the country. By sending out explanatory brochures on the legislations to the exporters and by opening up the sources for export refunds for longer time periods might help in the effective usage of state funds. From the Report of the Court of Auditors, it turned out that the European Union has also its difficulties with the export refund system. The biggest issue in the EU is not around the money and time available, but the validity of transports and documentation. The coordination and the control of the paying agencies and the international control 30 WTO Secretariat (2002) 38 http://www.doksihu Varga, Péter companies in the different Member States have not been evolved yet. The Commission has difficulties in finding the balance between strict control and smooth international

trade. Trade has always been a driving force of the EU economy and this is why the Commission is hesitating to exert too much bureaucratic control on the flow of goods and services. In December 2002 the accession to the European Union seems unavoidable. It is hard to estimate the overall consequences of the accession, but as for licencing and export refunds, Hungary will have to build out more accountable and complex institutions. As for the exporters, they will have better chances (longer application periods, community funding, new markets), but will have the cost of initial problems in understanding new community regulations and practices. 39 http://www.doksihu Varga, Péter 40 Abbreviations 1. CAP: Common Agricultural Policy 2. EU-15: The 15 Member States of the European Union, namely: Belgium, Denmark, Germany, Greece, Spain, France, Ireland, Italy, Luxemburg, the Netherlands, Austria, Portugal, Finland, Sweden, United Kingdom 3. GATT: General Agreement on Trade and Tariffs

4. GDP: Gross Domestic Product 5. GSP: General System of Preferences 6. SAPARD: Special Accession Programme for Agriculture and Rural Development 7. WTO: World Trade Organisation http://www.doksihu Varga, Péter 41 Appendices Table 1. Hungary – Area, Population and GDP in 2000 compared with CC-12 and EU Source: European Commission Directorate-General for Agriculture: Agricultural Situation in the Candidate Countries Country Report on Hungary, 2 July 2002 http://www.doksihu Varga, Péter 42 Table 2. Development of Hungarian Agricultural Trade (billion EUR) Source: European Commission Directorate-General for Agriculture: Agricultural Situation in the Candidate Countries Country Report on Hungary, 2 July 2002 http://www.doksihu Varga, Péter 43 Table 3. Export Subsidies: Budgetary Outlay and Quantity Reduction Commitments (Hungary WTO Comittments) Source: Deák, Andrea: A GATT Uruguay fordulója (WTO) és hatása a mezőgazdasági termékek kereskedelmére,

Budapest, (2000) http://www.doksihu Varga, Péter 44 Table 4. Comparisons of EU, US and Japanese Trade - Agricultural products (excl. fish) The following tables are calculated using data from the international available database and are based on custom sources. EU figures (which exclude trade between Members States) were extracted from the Eurostat-Comext database on September 23rd 1999, while the US and Japanese data came from UN-Comtrade source. EUROPEAN UNION USA JAPAN 1998 1999 2000 2001 1998 1999 2000 2001 1998 1999 2000 2001 IMPORT (bn EUR) WORLD (*) 52,46 51,84 55,86 59,34 37,67 41,38 49,84 52,25 - - - - 8,33 9,47 USA 7,75 6,95 7,86 7,66 - - Canada 1,22 1,13 1,31 1,27 7,76 8,46 Japan 0,10 0,11 0,14 0,16 0,27 0,35 0,42 Candidate Count.(13) 4,97 5,35 5,59 6,49 0,59 0,59 CIS 0,58 0,41 0,64 0,90 0,09 Mediterr. Countries 3,93 4,26 4,17 4,51 0,62 EUROPEAN UNION Latin America 15,07 14,84 16,62 17,99 11,44 11,74 - - 10,53

12,12 31,72 34,16 40,80 40,36 3,85 4,16 5,03 4,82 11,47 12,36 14,85 14,35 1,68 1,85 2,25 2,53 0,41 - - - - 0,61 0,77 0,21 0,18 0,21 0,24 0,11 0,13 0,16 0,06 0,05 0,07 0,10 0,61 0,60 0,73 0,11 0,14 0,15 0,14 2,58 2,34 2,62 2,60 12,40 13,38 15,64 15,58 China 1,26 1,28 1,56 1,63 0,73 0,83 1,05 1,16 3,78 4,44 5,72 5,93 Hong Kong 0,06 0,06 0,07 0,06 0,08 0,09 0,11 0,10 0,03 0,03 0,02 0,02 South Korea 0,10 0,09 0,11 0,09 0,12 0,15 0,20 0,23 0,96 1,21 1,09 0,93 ASEAN 4,21 4,06 4,26 4,18 3,07 3,20 3,66 3,59 2,84 2,99 3,40 3,48 South Asia 1,38 1,33 1,55 1,52 0,72 0,88 0,98 0,86 0,26 0,27 0,34 0,27 Austral.+New Zeal 2,23 2,45 2,63 3,06 1,73 2,05 2,91 3,28 2,91 3,16 3,85 3,81 NAFTA 9,35 8,43 9,60 9,38 ACP 8,60 8,37 8,13 8,60 1,62 1,44 1,50 1,64 0,54 0,55 0,42 0,39 Gulf Countries 0,10 0,10 0,14 0,15 0,07 0,07 0,08 0,11 0,01 0,01 0,01 0,01 OPEC 2,55

2,66 2,76 2,70 1,58 1,73 1,71 1,75 0,51 0,54 0,57 0,54 1,53 1,75 1,95 2,97 12,37 13,55 16,75 18,72 13,44 14,56 17,53 17,32 EXPORT (bn EUR) WORLD (*) EUROPEAN UNION USA 48,71 48,06 54,44 55,65 48,22 47,90 57,97 59,37 - - - - 7,89 6,52 7,09 7,25 0,09 0,11 0,12 0,13 7,56 8,52 9,96 10,29 - - - - 0,25 0,33 0,39 0,39 http://www.doksihu Varga, Péter 45 Canada 1,15 1,22 1,48 1,53 6,94 0,02 0,02 0,03 0,03 Japan 3,35 3,39 3,90 3,92 9,42 - - - - Candidate Count.(13) 6,04 5,45 6,34 6,70 1,02 1,04 1,06 0,95 0,00 0,00 0,00 0,00 CIS 4,89 3,25 3,18 3,85 1,21 0,64 1,08 1,27 0,01 0,01 0,00 0,01 Mediterr. Countries 4,89 4,60 5,48 4,91 2,72 2,88 3,52 3,32 0,01 0,01 0,01 0,01 Latin America 2,74 2,41 3,03 2,87 8,54 8,35 0,02 0,02 0,02 0,02 China 0,51 0,61 0,51 0,45 0,98 0,70 1,59 1,69 0,06 0,08 0,11 0,11 Hong Kong 1,00 0,79 0,88 0,89 1,27 1,13 1,32 1,18 0,31 0,33

0,38 0,36 South Korea 0,39 0,67 0,81 0,83 1,49 1,96 2,27 2,21 0,07 0,14 0,18 0,18 ASEAN 1,40 1,62 2,18 2,01 1,70 2,04 2,61 2,87 0,24 0,21 0,20 0,21 South Asia 0,41 0,51 0,42 0,38 0,47 0,35 0,33 0,41 0,01 0,01 0,01 0,01 Austral.+New Zeal 0,70 0,82 0,99 0,96 0,44 0,45 0,53 0,53 0,03 0,04 0,05 0,06 NAFTA 9,10 0,27 0,35 0,42 0,42 ACP 3,34 3,25 3,76 4,17 1,86 1,95 2,08 2,07 0,01 0,01 0,01 0,01 Gulf Countries 2,71 3,11 3,52 3,17 1,15 1,12 1,40 1,35 0,02 0,02 0,02 0,03 OPEC 4,87 5,17 6,15 5,96 2,22 2,29 2,82 3,05 0,14 0,09 0,04 0,04 10,15 12,05 12,39 7,36 8,99 9,81 10,04 12,40 11,36 10,09 11,51 11,75 12,29 15,58 17,56 (*) For EU excl. Intra-EU trade Sources: EU-EUROSTAT/COMEXT US and Japan – COMTRADE Source: http://www.europaeuint/comm/trade/index enhtm http://www.doksihu Varga, Péter 46 Table 5. Trade in agricultural products: a comparison between the EU and the USA Source:

European Commission DirectorateGeneral for Agriculture: EU agriculture and the WTO, Brussels, (2002) http://europa.euint/comm/agriculture/external/wto/newround/fullpdf http://www.doksihu Varga, Péter 47 Table 6. Distribution of export refund payments by exporting Member State 1998 EAGGF year Source: Court of Auditors, Special Report No7/2001: Concerning export refunds – destination and placing on the market, together with the Commission replies (OJ 2001/C 314/01) http://www.doksihu Varga, Péter 48 Table 7. Total export refund payments by principal destination 1998 EAGGF year Source: Court of Auditors, Special Report No7/2001: Concerning export refunds – destination and placing on the market, together with the Commission replies (OJ 2001/C 314/01) http://www.doksihu Varga, Péter 49 Table 8. Selected agricultural statistics for Member States, 2000 and 2001 Source: WTO Secretariat: Trade Policy Review, European Union, Document number: WT/TPR/S/102, 26.62002

http://europa.euint/comm/trade/pdf/wtorepeu 4pdf http://www.doksihu Varga, Péter 50 Table 9. Monthly increases in the intervention price Source: Council Regulation (EEC) No 1766/92 of 30 June 1992: On the common organization of the market in cereals (OJ L 181, 1.71992, p 21) http://www.doksihu Varga, Péter 51 Table 10. Distribution of export refund payments by measure 1998 EAGGF year Source: Court of Auditors, Special Report No7/2001: Concerning export refunds – destination and placing on the market, together with the Commission replies (OJ 2001/C 314/01) http://www.doksihu Varga, Péter 52 Table 11. EAGF Guarantee and Guidance expenditure by Member State, and national expenditure on agriculture, 2000 Source: WTO Secretariat: Trade Policy Review, European Union, Document number: WT/TPR/S/102, 26.62002 http://europa.euint/comm/trade/pdf/wtorepeu 4pdf http://www.doksihu Varga, Péter 53 Table 12. Share in CAP funding for various measures Source: European

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