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Chapter 10a of Title IV of Council Regulation 2003/1782 of 29 September 2003 establishing common rules for direct support schemes under the common agricultural policy and establishing certain support schemes for farmers ( 4 ) as inserted by Article 1(20) of Council Regulation 2004/864 ( 5 ) sets out rules for the specific crop payment for cotton.

By judgment of the Court of Justice of the European Communities of 7 September 2006 in case C-310/04 ( 6 ) Chapter 10a of Title IV of Regulation 2003/1782 was annulled for breach of the principle of proportionality, in particular with reference to the circumstance that ‘the Council, the author of Regulation 2004/864, [had] not shown before the Court that in adopting the new cotton support scheme established by that Regulation it actually exercised its discretion, involving the taking into consideration of all the relevant factors and circumstances of the case, including all the labour costs linked to cotton growing and the viability of the ginning undertakings, which it was necessary to take into account for assessing the profitability of that crop’ and that the Court had not been enabled ‘to ascertain whether the Community legislature [had been] able, without exceeding the bounds of the broad discretion it enjoys in the matter, to reach the conclusion that fixing the amount of the specific aid for cotton at 35 % of the total existing aid under the previous support scheme would suffice to guarantee the objective set out in recital 5 in the preamble to Regulation 2004/864, namely to ensure the profitability and hence the continuation of that crop, an objective reflecting that laid down in paragraph 2 of Protocol 4’. The Court also ordered that the effects of the annulment be suspended until the adoption, within a reasonable time, of a new Regulation.

A new scheme of specific payment for cotton needs to be adopted in conformity with the Court’s judgement in case C-310/04.

All the relevant factors and circumstances pertaining to the specific situation of the cotton sector, including all the elements necessary to assess the profitability of that crop, should be taken into consideration. To this end, an evaluation and consultation process was launched: two studies were carried out on the socioeconomic and on the environmental impact on the cotton sector in the Community of the future cotton support scheme and specific seminars and an Internet consultation were organised with stakeholders.

The new scheme should meet the objectives set out in paragraph 2 of Protocol 4: to support the production of cotton in regions of the Community where it is important for the agricultural economy, to permit the producers concerned to earn a fair income, and to stabilise the market by structural improvements at the level of supply and marketing.

The scheme should also be consonant with a policy of income support for farmers, which is the main guiding principle of the reformed common agricultural policy (CAP).

The de-coupling of direct producer support and the introduction of the single payment scheme are essential elements in the process of reforming the CAP. Regulation 2003/1782 introduced those elements for several agricultural products.

In order to meet the objectives underlying the reform of the CAP as well as the objectives set out in Protocol 4, the support for cotton should be largely de-coupled and integrated into the single payment scheme. Since those objectives cannot be sufficiently achieved by the Member States and can therefore, by reason of the need for common action, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity, as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

The complete and immediate integration into the single payment scheme of the support scheme in the cotton sector is likely to bring a significant risk of production disruption to the cotton producer regions of the Community. Part of the support should therefore continue to be linked to the cultivation of cotton through a crop-specific payment per eligible hectare. Its amount should be calculated in such a way as to achieve the objectives set out in paragraph 2 of Protocol 4 while also bringing the cotton scheme into the mainstream of the CAP reform simplification process. To that end, in the light of the evaluation carried out, it is justified that the total available aid per Member State is set at 35 % of the national share of the aid that went indirectly to the producers. Such a rate allows the cotton sector to move towards long-term viability, promotes the sustainable development of the cotton-producing regions and ensures a fair income for farmers.

The remaining 65 % of the national share of the aid that went indirectly to the producers should be available for the single payment scheme.

For environmental reasons, a base area per producer Member State should be established. In addition, the eligible areas should be restricted to those authorised by the Member States.

A fixed yield per hectare should be established per producer Member State. It will determine, together with the base area requirement, the overall capping of the funds and the mainly decoupled nature of the scheme, the programme production limiting character while at the same time fulfilling the objectives of Protocol 4.

In order to meet the needs of the ginning industry eligibility for the aid should be related to a minimum quality of cotton actually harvested.

Furthermore, the establishment of inter-branch organisations, to be approved by the Member States, should be encouraged to allow producers and ginners to enhance the quality of the cotton. The Community should contribute indirectly to the activities of those organisations by increasing the aid to those farmers who are members of the organisations.

Regulation 2003/1782 should therefore be amended accordingly.

Besides the new regime on the specific payment for cotton, it would seem appropriate to adopt another set of rules with the purpose of helping the cotton sector to stabilise in the new legal and market context.

To the extent that the presence of the ginning industry appears necessary in the producer regions, the needs of that industry would be sufficiently satisfied, inter alia , by means of setting a minimum quality of cotton actually harvested and by allowing inter-branch organisations to enhance the quality of cotton. Moreover, considering the significant over-capacity of the ginning industry, it is appropriate to provide for additional measures to support their restructuring process with a view to improved market orientation.

Furthermore, it seems appropriate that market orientation measures supporting specific quality schemes and related promotion activities be introduced. Therefore, national programmes for restructuring in the cotton sector should be established. While the relevant measures should be financed by the Community, it should be left to Member States to select the right mix for the needs of their respective constituencies, taking regional particularities into account, where necessary.

The restructuring programmes should be submitted to the Commission for verification of the compliance of the measures with the conditions laid down in this Regulation and its implementing rules. Member States should be responsible for the implementation of such restructuring programmes.

The measures should be complementary to already existing measures in Council EAFRD of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD) ( 7 ) .

The measures in such programmes may include the full and permanent dismantling of part of the ginning processing facilities to ensure a more viable ginning industry. Support may also be provided for investments in the ginning industry, geared towards improving the economic performance of the enterprises as such. Furthermore, aid may be made available to machinery contractors affected as a consequence of the restructuring of the cotton sector.

To enhance the quality of European cotton, farmers who participate in specific quality schemes should receive, in the framework of such programmes, specific support to cover some of the related costs. Equally, information and promotion actions for cotton covered by these quality schemes should be supported.

The allocation of the funds for the national restructuring programmes among Member States should be based on the specific needs for restructuring and adaptation in the main cotton production regions. In view of the temporary aim to restructure and adapt the cotton sector, the programmes may be terminated on request of the Member States, after which the annual budget for restructuring programmes may be added to the national ceiling of the Member State concerned for decoupled payments as established in Annex VIII to Regulation 2003/1782.

In view of the absence of ginning industry in Portugal and the application of the Single Area Payment Scheme in Bulgaria, there is no need to allocate budget to national programmes for restructuring in these two Member States.

In order to apply the new cotton aid scheme and the scheme restructuring the cotton sector from the start of the production season, this Regulation should apply as from calendar year 2009,