Common Agricultural Policy law

Since its inception, the Common Agricultural Policy (CAP) has been one of the major initiatives of the European Economic Community and now of the European Union. Over time, it has been deeply modified due to the influence of internal evolutions such as successive enlargements, the accumulation of structural surpluses in a number of sectors or the necessity to preserve the environment. International commitments, particularly within the WTO, have also influenced the CAP’s evolution. By application of the Treaty itself (article 38 et seq. TFUE), the CAP remains a common policy. Even if Member States have increasing leeway, all fundamental CAP decisions are taken at the European Union level. Member States play a large role in the implementation of these measures and in the controls that follows their application.

CAP applies to all agricultural products defined as such in Annex I of the Treaty. Generally speaking, the list includes products of the soil as well as products of primary processing (but it is always preferable to check the list itself as it is precise and exhaustive). One of the primary objectives of the CAP is to ensure farmer revenue by using two instruments: market management and structural measures. These mechanisms are financed by two specific funds which are part of the European Union budget: the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD).

A. - The first CAP mechanism is market management, financed by the EAGF and which, for a long time, was regulated by a number of “common market organizations” (CMO). Each product was subject to its own CMO with only a few exceptions such as potatoes. Since the end of 2007, the various CMOs were united in a single fundamental Regulation called the “single CMO” (Regulation 1234/2007, now replaced by Regulation 1308/2013) which has progressively incorporated each previous CMO. Each product sector is still, however, subject to its own specific measures and a number of implementing legislations remain applicable to individual sectors even if fundamental rules have now been assembled in the single CMO. Such diversity cannot be avoided as the production and the market for each product is very specific. Measures to support the cereal market (which can be stored, are sowed each year and are commodities in international trade) cannot be the same as measures to support the fruit market (which are perennial crops, seasonal and which cannot be stored). Similarly, livestock products (such as meat, dairy products, poultry, and eggs) are not produced and cannot be managed in the same way as plants. Wine is in itself a very specific product for which rules regarding quality and geographical indications have a particular importance.

It is not possible to detail each sector in this short presentation. COUTRELIS & ASSOCIES regularly deals with matters involving various product sectors. A precise analysis of the legal situation applicable to each product is always necessary, including its most recent evolutions but also its context. Generally speaking, two broad categories of measures of market management can be defined for each sector: internal management measures (1) and measures dealing with foreign trade (2).

1. Internal management measures

These measures can include direct income support by establishing reference prices, withdrawals from the market or storage measures. Support using prices is increasingly rare, however. For the past decade, these measures have been gradually phased out by direct income supports to producers which are not specific to their production. The final objective is to promote a greater connection between farmers and the realities of the market by encouraging them to choose their productions according to the market. In order to reach this goal, “decoupled” aids are used in the form of “basic payment entitlements” (basic payment scheme, "BPS") as well as incentives to respect the environment, a condition in order to receive basic payments (“conditionality”). In practice, implementation of the basic payment entitlements regime is very complex. It also varies depending on the production sector and can secure a certain degree of flexibility to Member States which sometimes gives rise to numerous questions and disputes with national authorities. Some of these questions and disputes result in national judges referring to the Court of Justice of the European Union for a preliminary ruling.

For a long time, another key part of the scheme to support farmer income was the limitation of the “rights to produce” (or, at least, the limitation to place products on the European Union market) in a number of sectors by using quotas (milk and sugar) or planting rights (wine). Because quotas have acquired great value for their holders, it is not possible financially to eliminate them suddenly. These mechanisms will therefore disappear after different transitional periods: for milk until 2015, for sugar until 2017. As to vineyard planting rights, no date has been fixed so far.

2. Measures dealing with foreign trade

These measures are another important element of market management. Export refunds (which involved complex and specific customs law issues and gave rise to abundant case-law) were for a long time closely interrelated with internal price support. They were gradually phased out and today they only involve a few sectors, most notably meat. Mostly pursuant to WTO negotiations, and in accordance with European Union commitments, foreign trade management has become much more precise, often using quotas (either for exportation or for importation) which are determined for each product depending on the state of the market and which give great importance to customs regimes.

In France, market management measures fall within the powers of FranceAgriMer, a single body created in 2009 as a replacement of the various product-specific bodies that existed before. Its essential function is to implement measures which have been decided at the European Union level, through Council and Commission Regulations, using French administrative law. When foreign trade is involved, customs authorities may also intervene.

B. - The second CAP mechanism is structural measures, which are financed by the EARFD, generally using matching contributions from national funding (such as, in France, the Agricultural Orientation Premium). These can be a number of categories of restructuring aids, aids for the modernization of farms and primary processing industries or aids for marketing structures. Member States enjoy a degree of freedom in this domain, within a clearly established framework of previously defined actions so as not to interfere with common policies. Member States are actually prohibited from financing aids to increase capacity in sectors which are in structural overcapacity, such as milk and sugar.

For all these matters which include the allocation of European Union funds to companies, national authorities have very strict inspection obligations. In France, these inspections are carried out by the Operations Control for the Agricultural Sector service (mission contrôle des opérations dans le secteur agricole) within the General Economic and Finance Controller for the Ministry of Economy (CGEFI - Contrôle général économique et financier) or by the Customs Directorate, depending on the situation. In the event of fraud or irregularities, financial consequences can be extremely severe for the operators involved and may lead to the reimbursement of the collected funds as well as severe financial penalties with deterrent purposes. Criminal prosecution should also not be excluded. COUTRELIS & ASSOCIES has a longstanding expertise of these complex matters and, if required, the firm defends companies before the administration as well as before tribunals, including by challenging the validity of the applicable European legislation before the Court of Justice of the European Union.

Beyond direct income support for producers and structural measures, the CAP also carries out a number of other actions (some of which are an integral part of the Common Market Organization), such as actions regarding quality as well as product definition. Vineyard and wine regulations comprise a number of measures regarding planting, oenological practices, labeling terms and geographical indications (which in France is the Controlled Designation of Origin – AOC: Appellation d’Origine Contrôlée).

The milk sector should also be cited as it carries a number of product definitions and the exclusive use of milk-related denominations (such as milk, butter, cream etc.). For each product or each type of product, it is always necessary to check agricultural legislation (in CAP rules and/or in the Rural Code) for the existence of specific definitions and production rules which must be complied with.

As for crops, not all varieties are authorized and it is necessary to refer to the Common Catalogue of Agricultural Plant Species which is regularly updated with new varieties as well as excluded ones. This subject is closely linked to seeds, which are regulated by particular rules and subject to a specific intellectual property regime (“new varieties of plants”). The regime for genetically modified organisms is also part of this topic, although it is subject to strict specific rules for prior authorization in order to verify the safety of the varieties for human and animal consumption as well as for the environment. As we know, a number of Member States as well as part of public opinion are against the cultivation of GMO varieties. In spite of a number of favorable judgements by the Court of Justice of the European Union and the French Conseil d’Etat (highest administrative court), France has unilaterally decided to place a moratorium on the cultivation of GMO crops which are otherwise authorized at the European level. This debate has highlighted the extremely political aspects of these questions, in which scientific and technical issues are pushed to the backside when they should be at the forefront of all discussions.

The policy for encouraging the production of quality agricultural and food products comprises all “quality marks” which are regulated horizontally at the European Union level. Specific Regulation provides for Protected Designations of Origin (PDO), Protected Geographical Indications (PGI) and Traditional Specialities Guaranteed (TSG). This regime allows for the protection of the denominations of covered products throughout the European Union, after the Commission has taken individual decisions following requests from the Member States in which these products are made. This procedure is two-step : first at the national level, then at the European Union level, in order to guarantee that the products at stake fulfill the required conditions and, by way of an objection procedure, in order to preserve the rights of third parties who will be excluded from continuing to use the said protected designations. In France, the National Institute for Origin and Quality (INAO – Institut National de l’Origine et de la Qualité) is responsible for the implementation of this procedure as well as for the protection of recognized designations.

Organic agriculture is also subject to specific rules, created at the European Union level and implemented in France by the INAO.

For each one of these quality marks, specifications are developed by private groups under the control of the INAO. They also define production modes as well as the characteristics of the final products. The French system of “label” (including the “red label” – label rouge) similarly defines a quality of product which is above average. The conformity of these products to their specifications is certified by accredited certification bodies. One of the more delicate aspects of these mechanisms is to maintain proper competition on the market even though these rules are created by private groups. The authorities must control that the rules are objectively justified and non-discriminatory (emphasizing the importance of the public objection procedure prior to awarding any quality mark). They must also make sure that certifying bodies remain independent from producers.

Finally, a few clarifications should be made on the application of competition law to the agricultural sector. According to article 42 TFUE, competition rules apply to the agricultural sector only to the extent determined by the European Parliament and the Council while they are directly applicable to all other economic sectors (with the sole other exception of transports, which are subject to specific competition rules). Pursuant to this Treaty provision, the legal basis for the application of competition law, for anticompetitive practices (antitrust) (articles 101 and 102 TFUE) as well as State aids (articles 197 and 108 TFUE) are provided by the “single CMO” Regulation (article 206 and seq.). In theory, exceptions to competition law do exist. In practice however, they are so closely regulated that it is extremely difficult to apply them to individual situations: agreements between companies, State aids as well as other national measures such as taxes cannot be let to interfere with the Common Market Organization which gave the European Union exclusive powers in almost all sectors. The specific application of competition law to agricultural products, as provided by the Treaty, has created specific regimes which became integrated within the CAP: producer groups, interbranch agreements and extension of such agreements by public authorities.

When restrictions to competition have not been duly authorized at the European Union level, they are in breach of both CAP and competition regulations and can therefore be sanctionned by the European Commission and by national competition authorities as well (in France the ADLC - Autorité de la Concurrence).

Using its expertise in both CAP and competition law, COUTRELIS & ASSOCIES has the proper extensive experience to litigate these issues and has done so in important cases before the Court of Justice of the European Union and the French ADLC.

Members of the firm regularly publish on these issues.

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