Select Committee on European Scrutiny Thirteenth Report


COM(01) 101

Draft Council Regulation on the common organisation of the market in ethyl alcohol of agricultural origin.
Legal base: Articles 36 and 37 EC; consultation; qualified majority voting
Document originated: 21 February 2001
Forwarded to the Council: 23 February 2001
Deposited in Parliament: 13 March 2001
Department: Agriculture, Fisheries and Food
Basis of consideration: EM of 28 March 2001
Previous Committee Report: None
To be discussed in Council: Following receipt of European Parliament opinion
Committee's assessment: Politically important
Committee's decision: Not cleared; further information requested


  6.1  Ethyl alcohol can be produced either industrially, or from a range of agricultural products (such as cereals, sugar beet, molasses, potatoes, fruit and wine), for which it provides an important outlet. According to the Commission, overall Community production is around 20 million hectolitres, of which 13 million hectolitres is of agricultural origin, whilst demand (principally from the spirit drinks, cosmetics and pharmaceutical sectors) is around 17 million hectolitres and declining.

  6.2  The Commission says that the sector has been confronted with a series of problems during the last five years, mainly related to increased competition in the internal market. In particular:

  • imports from third countries have increased from around 400,000 hectolitres in 1995 to just over 1.1 million hectolitres since the 30% reduction in tariffs following the GATT Uruguay Round Agreements, with over 80% of this amount being duty free or subsidised domestically;

  • greater quantities are imported as blends of alcohol with denaturants at far lower tariffs, but, once imported, the alcohol in the blend may be extracted and used for traditional purposes; and

  • since January 2000, a zero tariff rate has made it possible to import alcohol diluted with water under the tariff heading for vodka in bulk, but, once imported, the water may be extracted and thereby avoid the tariffs applicable to alcohol.

  6.3  The Commission adds that further pressures on the sector are likely to arise as a result of the large quantities of agricultural alcohol produced by some of the applicant countries, the likelihood of further reductions in tariffs being agreed in the next WTO negotiations, and competition from alcohol produced with the benefit of tax incentives under large scale bio-fuel programmes.

The current proposal

  6.4  Against this background, the Commission has proposed that a "lightweight" common market organisation for agricultural alcohol should be established, whose main objectives would be to increase market information, monitor trade flows, and establish a forum for discussion and preparing of decisions. More specifically, the regime would:

  • define the different types of alcohol of agricultural origin;

  • require Member States to supply the statistical information needed for the Commission to establish an annual balance sheet of production, trade, stocks and end-use;

  • provide scope for introducing import and export licences, intended to increase the reliability of information, and to permit, where necessary, the application of a safeguard clause (see below);

  • allow preferential tariff quotas to be administered by the Commission under Management Committee procedure (for which it is envisaged the Wine Management Committee would be the appropriate body);

  • contain a safeguard clause, permitting urgent measures to be taken in the event of serious market disturbance;

  • enable the prohibition of inward processing arrangements in the event of market disturbance; and

  • ensure that aids granted by Member States are compatible with the principles of the common market.

The Government's view

  6.5  In her Explanatory Memorandum of 28 March 2001, the Minister of State (Commons) at the Ministry of Agriculture, Fisheries and Food (the Rt. Hon. Joyce Quin) says the UK is the second largest producer of ethyl alcohol within the Community, and that producers have been calling for a "light" regime for a number of years. She adds that, although this proposal is preferable to one with interventionist aspects (which the Government certainly could not support), it will need to be convinced that the current proposal is non-discriminatory, automatically permits the continuance of trade without any hindrance, does not affect the competitiveness of importers compared with domestic producers, and involves a minimum degree of administration and documentation. In particular, the Government will need to ensure that its World Trade Organisation and other international commitments are not compromised.

  6.6  The Minister also says that the Government is discussing this issue with industry, and will submit an analysis of their comments in due course, though she points out that previous contacts have shown that ethyl alcohol producers are in favour of such measures, whilst traders have expressed some scepticism. The Government will also be supplying a Regulatory Impact Assessment setting out the "limited" cost implications for those operators required to submit a security in order to obtain an import licence.


  6.7  Whilst we will await the further information promised by the Minister before taking a view on this proposal, we are somewhat concerned that, even if only a "light" regime were to be agreed, it would be that much easier for the Commission subsequently to introduce the sort of more interventionist mechanisms seen in many other commodity regimes under the Common Agricultural Policy. We would, therefore, welcome the Minister's comments on this point.

  6.8  In any case, it is not clear how far the sort of information which would be sought under this proposal would in practice enable the kind of corrective action described by the Commission to be taken, given the constraints which the World Trade Organisation (WTO) commitments referred to by the Minister might impose. Again, we would be glad to know the Government's views on this.

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