Select Committee on Scottish Affairs First Report


7. Export refunds

92. The SWA and the GVA were also concerned about recent changes in export refunds. These are intended to compensate EU producers for having to buy cereals at higher prices caused by the operation of the Common Agricultural Policy (CAP). Export refunds allow spirits producers to compete in non-EU markets on equal terms with producers from outside the EU.[120] At the end of 1999, European Union expenditure on export refunds came under pressure from internal budgetary pressures, specifically a well understood need for reform of the CAP and from World Trade Organization (WTO) limitations on refund expenditure. As a result of these pressures, the industry organisations feel that they have been unfairly targeted for reductions in export refunds.

93. Due to convergence between World and EU cereal prices, there is currently no major additional cost problem facing spirits producers using EU wheat or barley. The European Commission has said it will monitor the new arrangements and has asked to be provided with evidence of disproportionate effect.[121] However, distillers using EU maize have been seriously affected by the reduction in export refunds, since the EU price for maize remains above world market prices.[122]

94. Both the SWA[123] and the GVA[124] noted that, following pressure from the UK, the European Commission said that compensatory payments to spirits producers would be made under the more WTO-compatible system of Inward Processing Relief (IPR). This allows limited access to world raw materials for producers who are producing for re-export.[125] The SWA though said that the calculations for the IPR level for 2002 "largely ignored the refund requirements of those whose refunds have been abolished or reduced ... far from giving priority to those sectors hit by refund cuts, the Commission continued to discriminate against them".[126]

95. We welcome the reinforcement of any mechanism designed to assist fairness and competitiveness in international markets. But any increased use of IPR may have undesirable consequences for Scottish agricultural producers. In the event of World and EU prices diverging to the detriment of EU crops, and IPR kicking in, it would be a sorry development if spirits producers in Scotland were forced by circumstances to buy essential raw materials from world markets rather than from local sources. Both agricultural producers and spirit producers in Scotland will no doubt maintain a vigilant eye on the situation. We recommend that the Government commits itself to close monitoring of conditions and to ensuring that IPR levels are set appropriately.

120  HC 973-ii, Session 1999-2000, p.45, para 10.1. Back

121  HC 114-v, Session 2000-01, p.289. Back

122  HC 324-i, Session 2001-2002, p.329, para 17. Back

123  HC 973-ii, Session 1999-2000, p.45, paras 10.3-10.6. Back

124  HC 114-ii, Session 2000-01, p.118, para 27. Back

125  Ibid, para. 29. Back

126  HC 324-i, Session 2001-2002, p.329, para 22. Back

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Prepared 28 November 2001