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21.4.1.  The principles of the CAP

    Three basic principles defined in 1962 characterise the common agricultural market and consequently the common market organisations: market unity, Community (European) preference and financial solidarity. Whereas, the introduction of the euro has consolidated market unity [see section 21.3.5], the third and fourth reforms of the CAP [see section 21.2.2] have had an important effect on European preference and financial solidarity.

    Market unity means that agricultural products move throughout the European Union under conditions similar to those in an internal market, thanks to the abolition of quantitative restrictions to trade (quotas, import monopolies...) and the removal of duties, taxes and measures having equivalent effect. Market unity supposes common agricultural prices throughout the EU. Indeed, Article 40 TFEU (ex article 34 TEC) says that any common price policy shall be based on common criteria and uniform methods of calculation and Article 43 TFEU (ex Article 37 TEC) specifies that the Council, on a proposal from the Commission, shall adopt measures on fixing prices, levies, aid and quantitative limitations in the agricultural sector. In fact, the Regulation establishing a common organisation of agricultural markets and on specific provisions for certain agricultural products (Single CMO Regulation) fixes reference prices and intervention prices for each agricultural sector throughout the EU [Regulation 1308/2013, last amended by Regulation 2016/232section 21.4].

    Community (European) preference, the second bulwark of the common agricultural market, signifies that products of European origin are bought in preference to imported products, in order to protect the common market against low-price imports and fluctuations in world prices. This principle, spread throughout the world, is enacted through import and export measures. The European Union tries to bring the prices of imports into the EU at the prices practised on the common market. The price gap between the world market and the minimum guaranteed price in the EU was formerly covered by variable import levies, which after the GATT Uruguay Round have been progressively replaced by fixed customs duties [see sections 21.4.4 and 23.5]. To the extent that external prices taxed with import duties are at the same level as internal prices, it is not to the advantage of European traders to buy supplies from outside the EU and they therefore give preference to European products. But whereas this was practically always the case with the import levies, it is much less certain with the customs duties.

    The third basic principle of the common agricultural market is that of financial solidarity. It is implemented through the intermediary of the European Agricultural Guarantee Fund (EAGF) and signifies that the Member States are jointly liable as regards the financial consequences of the common agricultural markets policy. Since the European Union organises agricultural markets and defines and applies the intervention measures on them, it is logical that it is responsible for the financial consequences of these measures. The EAGF therefore covers all the expenditure rendered necessary by the common market organisations [Regulation 1306/2013, last amended by Regulation 2017/1242]. The other side of the coin is that the customs duties, collected at the Union's frontiers on imports from third countries, do not go into the coffers of the Member States but are a source of revenue for the Union budget [see sections 21.3.3 and 3.4].

    The 2003 CAP reform altered the basis of direct aid to producers, paid to farmers or producers' associations, progressively phasing it out and decoupling it from production [see section 21.4.3]. This decoupling, which is sustained by the sixth CAP reform (of 2013), separates grants received from production. The vast majority of subsidies is henceforth paid independently from the volume of production. To avoid abandonment of production, Member States may choose to maintain a limited link between subsidy and production under well defined conditions and within clear limits. These new "single farm payments" are linked to the respect of environmental, food safety and animal welfare standards. Severing the link between subsidies and production is intended to make EU farmers more competitive and market orientated, while providing the necessary income stability. More money will be available to farmers for environmental, quality or animal welfare programmes by reducing direct payments for bigger farms.
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