Common Agricultural Policy (CAP) Advisory

The Common Agricultural Policy (CAP) was introduced in the European Union (EU) due to fears that discrepancies between low world market prices and higher prices in the EU could lead to massive imports or loss of export markets. The focus of the CAP, therefore, is to protect EU farmers against cheap imports and promote their production for export. The five main objectives of the EU’s Common Agricultural Policy is increased agricultural productivity; a fair standard of living for the farming community; stable markets; guaranteed security of supplies; and an assurance of reasonable prices to consumers.

Annex II goods – The products covered by the CAP are described in Article 38 of the Treaty of Rome as “products of the soil, of stock farming and of fisheries and products of first stage processing directly related to these products”. These are called the Basic Products and they are specified in Annex II of the Treaty as extended by EEC Regulation 827/68.

Non-Annex II goods – A system of trade has been established for specified goods derived from certain of these basic products. They are generally called non-Annex II goods. Examples are: sugar confectionery; chocolate; malt extract, preparations of flour; macaroni, spaghetti and similar products; tapioca and sago; prepared foods, obtained by the swelling or roasting of cereals or cereal products; bread; communion wafers; pastry, biscuits, cakes; sauces; mixed condiments and seasonings; soups and broths; yeast; lemonade and other non-alcoholic beverages, not including fruit and vegetable juices; pharmaceutical products; artificial resins and plastic materials; and certain paper and paperboard.

CAP Law – The working of the CAP is governed by EU Regulations made by the Council of Ministers or by the Commission, acting under powers derived from that Council. The regulations are legally binding on the EU Member States and are directly applicable in the same way as national laws. They have legal validity in the UK by virtue of the European Communities Act 1972. In each market sector, e.g. cereals, there is a basic regulation which establishes a common market organisation. Subsidiary regulations lay down the rules for each element of the market organisation, such as the fixing of the rates of levies or refunds.

Adjustments to take account of world prices – The CAP provides for a system of common prices within the EU with market support to secure supplies. Its purpose is to ensure that the EU is protected from world price fluctuations and that the level of prices for agricultural products within the EU provides a reasonable return for EU producers. When world market prices are lower than those of the EU, a charge called a “levy” brings the price of imported produce from non-EU prices up to the level of EU prices. This is to prevent low-priced imports undercutting EU produce. Other charges, such as countervailing charges, variable charges may also be imposed. Export refunds may be paid to EU-based exporters of agricultural products to enable them to reduce prices and maintain their competitive position on the world market. However, when world prices are significantly higher than those of the EU, or when EU supplies of a particular product are inadequate, export levies may be imposed to deter the flow of such products out of the EU.

The agricultural customs duties of the CAP are made up of a number of elements and have a variable component, a seasonal element and also take into account the price paid at the time of import. Agricultural and food products are also subject to import and export controls, such as import and export licences, certificates of origin and pre-shipments inspections.

The highest duty rates are consistently applied to products imported under the CAP. The CAP legislation is complex and subject to sudden change. Documentary and other procedures within the CAP reflect this complexity and frequently cause problems for business. We can help clients plan for legislative changes in the CAP before they happen. We can explain and implement CAP schemes that facilitate trade, such as pre-financing. We can assist clients to put in place systems that maximise refunds and minimise exposure to CAP charges. We can assist in ensuring clients are compliant with the myriad of CAP requirements.