Luxembourg, 07/09/2006 (Agence Europe) - On Spain's request, the European Court of Justice has annulled a new EU aid scheme for cotton established in 2004, but explains that 'the effects of the annulment are suspended until the adoption, within a reasonable time, of a new scheme'. The Court explains in a press release that 'the question arises of the bases on which the amount of the specific aid for cotton was determined, and of whether, on those bases, the Community legislator was able, without exceeding its broad discretion, to reach the conclusion that, if set at 35% of the total existing aid in the previous support scheme, that amount will suffice for attaining the objective pursued of ensuring the profitability and hence the continuation of that crop.' The judges note that that 'the labour costs of a fixed nature, such as the costs of the farmers' workforces and their families, were not included and were thus not taken into consideration in the comparative study drawn up by the Commission… the relevance of the labour costs in question … appears in itself to be scarcely deniable. Furthermore, the Council and the Commission have not been able to disprove the argument that the inclusion of those costs entails an increase in the production costs of cotton such that adequate profitability of that crop under the new support scheme is not ensured, that that that crop, or at least a substantial part of it, is liable to be given up or in some cases driven out by other crops.'
The Court of Justice criticises the EU institutions for failing to examine the potential impact of reforming the cotton aid scheme on the economic situation of ginning undertakings. 'Cotton production is not economically possible without the presence in the vicinity of the production regions of (ginning) undertakings operating under economically sustainable conditions, since cotton has little commercial value before being processed and it cannot be transported over long distances. The production of cotton and its processing by the ginning undertakings thus appear to be inextricably linked. The potential effects of the reform of the cotton support scheme on the economic viability of the ginning undertakings therefore constitute a basic factor to be taken into account in order to assess the profitability of cotton growing,' concludes the Court.
Spain took the case to court because it argued that the new cotton aid scheme ran the risk of encouraging farmers to stop growing cotton and switch to other crops, with severe negative consequences for cotton-growing regions. It argued that in legal terms, there had been lack of reasoning and an infringement of the principle of proportionality: 'a breach of fundamental principles - specifically, the principles of proportionality and legitimate expectations.'
The first cotton aid scheme was established when Greece joined the European Communities, and was extended when Spain and Portugal joined. As part of the reform of the Common Agricultural Policy, the Council adopted new common rules for direct support schemes and for certain aid schemes for farmers. To bring the support schemes for cotton, olive oil, raw tobacco and hops into line with those for the other sectors of the CAP, the Council adopted the new cotton aid scheme that the Court has now annulled.