Select Committee on European Scrutiny Seventh Report


EXPORT REFUNDS


(22797)
12400/01

Special Report No. 7/2001 of the Court of Auditors concerning export refunds — Destination and placing on the market.
Legal base:
Document originated: 12 July 2001
Forwarded to the Council: 24 September 2001
Deposited in Parliament: 31 October 2001
Department: Environment, Food and Rural Affairs
Basis of consideration: EM of 9 November 2001
Previous Committee Report: None
To be discussed in Council: No date set
Committee's assessment: Politically important
Committee's decision: Cleared

Background

17.1  Export refunds (subsidies) are paid to exporters of agricultural products to non-member countries, with the aim of compensating them for the difference between the Community internal market price and the price on world markets. This helps to keep open export markets for Community products, and, at the same time, to maintain the equilibrium of the internal market. There are two types of export refund:

    differentiated refunds for products such as beef and cheese, where the rate varies according to the destination, and an exporter's entitlement is therefore dependent on the submission of proof of arrival (ranging from customs import declarations to bank documents) in the declared destination; and

    non-differentiated refunds for other products groups, with a single rate for all destinations: in these cases, except in cases of doubt, exporters are not required to provide proofs of arrival.

17.2  Control of export refunds claims rests in the first instance with Member States, whose accredited agencies are responsible for making payments to exporters. However, proof of arrival documents can be issued by approved supervisory companies, and, at present, there are 28 such companies, 15 of which belong to just four groups.

17.3This report by the Court of Auditors examines the Commission's management during 1998 of the placing of goods on the market in non-member countries, including the justification for differentiated refunds, the problems created by such a system, and the checks carried out by Member States on the validity of proofs of arrival.

The current document

17.4  The Court notes that Community expenditure on exports during the year in question totalled some 4.8 billion euros, about 12.4% of the budget of the European Agricultural Guidance and Guarantee Fund (EAGGF). Overall, the dairy, sugar and beef sectors benefited most, whilst France received the highest total of refunds (1.35 billion euros, as compared with the 318 million euros for the UK). The main destinations involved were Russia and the Middle East. Of the total figure of 4.8 billion euros, some 900 million euros related to differentiated refunds.

17.5  The Court makes the following observations:

    —the Commission's clearance of accounts audits have principally been directed at the physical controls of exported products, and have identified major weaknesses, resulting in significant financial corrections, amounting in total to 188 million euros;

    —checking proofs of arrival creates a disproportionate administrative burden in relation to the amounts involved;

    —although the Commission produced in 1992 a catalogue of model proofs of arrival, the management and control systems differ from Member State to Member State, and from paying agency to paying agency;

    —the procedures for approving supervisory companies have not always been adequate, and suspected irregularities have not always been followed up; also, since the companies often perform other services, there is a risk of confusion of interest;

    —when approval of a supervisory company is withdrawn in one Member State, this does not necessarily result in its approval being withdrawn in other Member States;

    —doubts also exist about the reliability of proofs of arrival issued by the embassies of Member States; and

    —a number of irregularities and suspected frauds have been detected in some of the most important export refund destinations.

17.6  Notwithstanding these criticisms, the Court says that it is important to distinguish between the validity of proofs and the genuineness of transactions, and that there is no evidence that the majority of the latter giving rise to export refunds were not genuine. It therefore suggests that this calls into question the requirement for the systematic presentation of proofs of arrival, which it describes as "complex and onerous" whilst giving little assurance, and it suggests that such proofs should only be required in cases of doubt, for high risk destinations. It also considers that, where export refunds are required, it would be preferable to apply one rate for each product to all destinations, though it recognises that various reasons, including existing trade agreements, prevent this at present.

17.7  If the current systematic presentation of proofs of arrival is retained, the Court suggests that:

    —checks carried out for their issue by Member States' embassies should be the same as those by supervisory companies;

    —the Commission should take over responsibility for the approval of supervisory companies;

    —where approval is withdrawn from a supervisory company, this should apply to all companies within the same group;

    —that consideration should be given to the introduction of penalties for irregular proofs of arrival issued by supervisory companies;

    —that, when frauds and irregularities are detected, they should be followed up assiduously in all the Member States concerned; and

    —that, where this is not done, recovery action should be initiated promptly.

17.8  In its response, the Commission says that it considers the present system is fully justified, in that differentiated refunds meet the Community's international obligations in certain sectors, and also reduce its budgetary cost. It also considers that relaxation of the presentation of proofs of arrival would not be workable, and could lead to loss of control over exports to countries for which a refund is not fixed, thus creating a potential risk to the Community budget.

The Government's view

17.9  In his Explanatory Memorandum of 9 November 2001, the Parliamentary Under-Secretary of State at the Department for Environment, Food and Rural Affairs (Lord Whitty) says that the Government has consistently pressed for the Court to have a wider role in Community financial management, and therefore welcomes this Report. He adds that the UK has adopted revised procedures which take on board the Court's comments on the approval of supervisory companies.

Conclusion

17.10  Although the Court's criticisms in this report are less trenchant than those it has made from time to time on other aspects of Community activity, this is nevertheless a significant area of expenditure. Consequently, although we are clearing the document, we are drawing it to the attention of the House.


 
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