Thursday, September 14, 2006

Decoupling at risk after ECJ overturns cotton reform

A ruling from the European Court of Justice that the reformed EU cotton regime introduced in 2004 must be dismantled and replaced raises wider questions about decoupling, a centrepiece of the latest round of CAP reforms.

In the cotton regime reform the Commission decoupled 65 per cent of payments but left 35 per cent coupled which they claimed would be enough to maintain cotton production in all areas of the EU where it was important for the agricultural economy (principally Spain and Greece).

Spain, however, claimed that the reform did not provide enough subsidies to ensure that cotton production remained viable. They had a special legal argument because the maintenance of cotton production is enshrined in Spain's EU accession treaty.

The Court has required the Commission to make a fresh impact assessment. The current regime can continue until a new one is place, an outcome welcomed by the Commission which also emphasised that the basic principle of decoupling had not been challenged. Nevertheless, the ruling could re-open the issue in relation to other products where partial decoupling has been retained to protect production in [politically] sensitive areas.

It could also lead to trouble in the WTO where the 'cotton club' of Burkina Faso, Chand and Mali are upset about the collapse of the Doha Round and the prospect of better access to markets. They are considering a legal challenge over subsidies to cotton producers in rich countries. Although their principal target has been te US, any talk of recoupling payments could bring the EU into the frame.

Another tricky problem for the Commission to try and unravel.

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