EU Court Annuls Cotton Regime

by Ulrika Lomas, Tax-News.com, Brussels

11 September 2006

Last week the European Court of Justice struck down the EU's cotton support regime, agreed with great difficulty in 2004, but suspended the annullment pending the adoption of a revised regime.

On the accession of Greece to the European Communities, a support scheme for cotton was established by a Protocol annexed to the Act of Accession. It was extended when Spain and Portugal acceded to the European Communities. The scheme is intended in particular to support cotton production in the regions of the Community where it is important for the agricultural economy, to enable the producers concerned to earn a fair income, and to stabilise the market by improving structures at the level of supply and marketing.

As part of the reform of the common agricultural policy in 2004, the Council adopted new common rules for direct support schemes and for certain support schemes for farmers. To bring the support schemes for cotton, olive oil, raw tobacco and hops into line with those for the other sectors of the common agricultural policy, the Council adopted a new support scheme for cotton.

Spain brought an action before the Court of Justice of the European Communities seeking the annulment of this new support scheme for cotton. It argues in particular that the amount of the specific aid for cotton and the fact that eligibility for the aid is subject to the sole condition of maintaining the crop until the boll opening are manifestly inappropriate for ensuring economic conditions which, in regions that lend themselves to that crop, can ensure that activity in the cotton sector is continued and prevent that crop from being driven out by others.

The principle of proportionality was therefore infringed, says Spain, and the Court has agreed, saying that the Commission did not take sufficient account of various cost headings in arriving at its proposal.

The Commission will now have to go back to the drawing board and construct a new scheme which will offer more to Spanish cotton producers - but this is highly negative from a world trade perspective. Cotton is one of the most difficult products covered by Doha Round negotiations, with the EU and the US clinging desperately to their support regimes in the face of umpteen less-developed countries which would like to increase exports to the developed world, many of them in Africa. Spending yet more money on uneconomic production is the last thing needed.

It's not however that the ECJ is against free trade: it is against fudge, and has done what it has to do by pointing out the illegality of the revised cotton support regime under EU rules.

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