Explanatory Memorandum to COM(2022)359 - Amendment of Annex I to Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs Tariff - Main contents
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| dossier | COM(2022)359 - Amendment of Annex I to Regulation (EEC) No 2658/87 on the tariff and statistical nomenclature and on the Common Customs ... |
|---|---|
| source | COM(2022)359  |
| date | 19-07-2022 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
The purpose of the attached proposal for a Regulation is the temporary suspension of the common customs tariff duties referred to in Article 56(2), point (c), of Regulation (EU) No 952/2013 on goods used to produce nitrogen fertilisers currently classified under the Combined Nomenclature (CN) sub-headings 2814 10 and 3102 10.
The European Union (EU) market for certain nitrogen fertiliser inputs depends considerably on imports from third countries. In 2021, the EU imported 2,9 million tonnes of ammonia and 4,7 million tonnes of urea to produce nitrogen fertilisers. The prices for those products have increased substantially in 2021 and have further risen following the Russian invasion of Ukraine.
In order to alleviate costs for the EU fertilisers producers, and thereby reduce costs for EU farmers and contribute to the appropriate supply of food produced in the EU, it is appropriate to take the temporary trade-liberalising measures of this proposal. In order to increase stability of supply, it is also appropriate to enlarge the geographical scope of non-preferential origins, currently concentrated on Russia, to encompass other countries. In effect, and in particular at a time of scarcity on the international markets of nitrogen fertilisers, the existence of tariffs on the importation into the EU of intermediate inputs such as ammonia and urea constitutes a disincentive to the supply of the EU market compared to other world markets which have no such import tariffs. Considering that traded goods in this category are primarily commodities, this tariff differential hinders efforts for the diversification of EU imports.
Furthermore, in its Communication of 23 March 2022 to the European Parliament and the Council on “Safeguarding food security and reinforcing the resilience of food systems”, the Commission notes that already before the Russian invasion of Ukraine, commodity markets were witnessing a significant price surge, which agricultural markets felt through the increases in energy and fertiliser costs, and a consequent increase in farm product prices. The invasion of Ukraine and a global commodity price hike have further driven up prices in agricultural product markets and are exposing the vulnerabilities of the Union’s food system which is partially reliant on imports of fertilisers. The Communication stresses that, in the short term, the cost and availability of mineral fertilisers must be a priority, pending the transition to the use of sustainable types of fertilisers or methods of fertilising. During that period, the fertiliser industry in the EU must be able to access the necessary imports, including inputs to produce fertilisers within the EU itself.
Of the three main fertiliser types used by farmers, nitrogen-based fertiliser is the one subject to common customs tariff duties applicable to intermediate inputs that are key to its production, as opposite to potash and phosphorus, where key inputs are subject already to a zero-duty common customs tariff rate. Nitrogen based fertilisers are also the widest consumed fertilisers type in the EU, and also the one where prices have increased the most since 2021. Therefore, the proposed measures focus on inputs for nitrogen-based fertilisers.
• Consistency with existing policy provisions in the policy area
Currently, third countries that benefit from duty-free preferential access to the Union market pursuant to Free Trade Agreements are the main suppliers of these goods to the EU market. Nevertheless, the EU imports a large volume of inputs for nitrogen fertilisers originating in countries subject to the Common Customs Tariff, with tariff rates currently ranging between 5,5 and 6,5%. To increase stability of supply, it is appropriate to temporarily enlarge the geographical scope of supplying countries beyond those who benefit from a free-trade agreement, as supply is currently concentrated in a relatively small number of preferential suppliers. However, unlike for access via preferential trade agreements, the proposed measures for tariff suspensions under this proposal are temporary.
• Consistency with other Union policies
The trade-liberalising measures that are contained in this proposal aim at ensuring that the temporary suspension of the Union’s common customs tariff is conducted in the context of the principles and objectives of the Union’s external action set out in Article 21 TEU and that different areas of external action of the Union, as well as its external action and other Union policies, be consistent with another. It is therefore appropriate to exclude products originating in Russia and Belarus from the tariff reduction, in line with the restrictive measures taken by the Union against these countries following Russia’s aggression against Ukraine.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The legal basis of this regulation proposal is Article 31 of the Treaty on the Functioning of the European Union (TFEU).
• Subsidiarity (for non-exclusive competence)
The subsidiarity principle does not apply, as the proposal falls under the exclusive competence of the Union.
• Proportionality
The proposal complies with the proportionality principle given that it balances the commercial interest of economic operators (producers of nitrogen fertilisers and consumers). The proposal foresees suspending the Common Customs Tariff duties only for the tariff lines of fertiliser inputs for which the EU reliance on imports is the highest, and where price increases have been most extreme. In addition, the suspension will apply for a temporary period only. The suspension does not limit anybody’s fundamental rights; on the contrary, it temporarily removes a duty payment obligation.
• Choice of the instrument
This proposal is in accordance with Article 207(2) TFEU, which envisages common commercial policy measures. By virtue of Article 31 of the TFEU, the Council fixes the Common Customs Tariff duties, acting by qualified majority on the basis of a Commission proposal.
3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
• Ex-post evaluations/fitness checks of existing legislation
Not applicable.
• Stakeholder consultations
Not applicable.
• Collection and use of expertise
Not applicable.
• Impact assessment
In view of the significant and sudden price increase of the inputs from production of nitrogen fertilisers, aggravated by the emergency situation that Russia’s – the second largest supplier of nitrogen fertilisers to the EU – invasion of Ukraine provoked in the market of fertilisers, it is important for the Regulation to enter into force as soon as possible in order to foster the diversification of supplies for the inputs necessary for fertiliser production, and a reduction of production costs, ahead of the forthcoming planting/seeding season in the autumn 2022. Therefore, no impact assessment was carried out for the measure at hand. However, it is expected that the proposed measure alters the profile of suppliers of nitrogen fertilisers inputs to the EU and helps diversify away from Russia.
• Regulatory fitness and simplification
The measure does not increase the regulatory burden of companies.
• Fundamental rights
Not applicable.
4. BUDGETARY IMPLICATIONS
This proposal has no financial impact on expenditure, but has a financial impact on revenue. Uncollected customs duties corresponding to the suspension will amount approximately to 15 Mio € per year when the measure is of application for a full year. The duration of the measure is a period of just over two years, until end of 2024.
The negative effect on the budget’s traditional own resources is 11,25 Mio € (i.e. 75 % of the total). The legislative financial statement sets out the budgetary implications of the proposal in greater detail.
The loss of revenue in traditional own resources will be compensated by Member States’ Gross National Income (GNI) based on resource contributions.
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
On-line reporting on the evolution of EU imports of inputs for nitrogen-based fertilisers is available via dedicated websites of the European Commission (Eurostat).
• Explanatory documents (for directives)
Not applicable.
• Detailed explanation of the specific provisions of the proposal
In view of the extraordinary situation in the Union market for fertilisers, the measure aims at increasing the trade flows, and fostering diversification, concerning imports of inputs for the production of nitrogen-based fertilisers by temporarily suspending import duties applied to these products.