As of January 2021, many imports and exports of agricultural products covered by EU tariff quotas will be subject to the new licensing rules of Commission Delegated Regulation (EU) 2020/760 (“Delegated Regulation”) and Commission Implementing Regulation (EU) 2020/761 (“Implementing Regulation”) (together, “Licensing Regulations” or “Regulations”).  The new Regulations introduce significant changes to – and are likely to disrupt – the trade of a wide variety of food and feed products, including beef, pork, poultry, sugar, cereals, rice, olive oil, garlic, mushrooms, milk, eggs, cheese and cat and dog food.  Operators that do not comply with the rules in time (in some cases requiring action as early as of August 31, 2020), may not be able to import or export at least during the first quarters of 2021.

The new Licensing Regulations are intended to introduce common rules for the EU’s import licensing system for tariff rate quotas of agricultural products and to limit speculation and circumvention by operators with multiple shell companies applying for the same tariff rate quotas.  The Regulations replace and repeal 39 EU Commission Regulations and Commission Implementing Regulations that separately regulated import and export licenses by product category and/or origin.  They also establish new registration and declaration of independence requirements on license applicants that will force most operators to merge their shell companies.  However, the lack of clarity and possible contradictions of the new requirements, and the fact that their effective timing of application depends on the starting date of the quota period of each tariff quota may result in a disruption of trade of some agricultural products.

The Licensing Regulations will start to apply at different times to different tariff quotas as both Regulations “apply to the tariff quota periods starting from 1 January 2021 onwards.” Such differences in the time of application may even occur with tariff quotas affecting identical products but with different origin.  Below, we outline the main requirements that apply to applicants of import licenses and illustrate their timing with respect to quota periods that start in January 2021:

  • Establishment and VAT Registration: Only operators that are VAT-registered in an EU Member State may apply for import and export licenses.  The relevant national license issuing authority for each operator will be that of the Member State where the operator is registered.
  • LORI Registration: For many tariff quota order numbers, the Licensing Regulations require operators to register with the European Commission’s new License Operator Registration and Identification (“LORI”) electronic system prior to applying for import tariff quota licenses.  This requirement of prior LORI registration and the declaration of independence that is needed for such registration are intended to prevent the practice of operators having hundreds of shell companies to apply for import licenses simultaneously.
  • Declaration of Independence: Operators wishing to LORI register must declare that they are not linked to other legal or natural persons applying for the same tariff quota order number, or that, where such links exist, the different operators regularly perform substantial economic activities.  Such “substantial economic activities” are defined as actions or activities carried out by an operator with the objective of ensuring production, distribution, or consumption of goods and services.
  • Securities: Operators applying for any EU import license must submit a security to the license issuing authority before their application deadline.  The amount of this security will vary depending on the quota order number for which the operator is applying.  Securities will be proportionally forfeited where operators fail to effectively import and market the products within a prescribed period.
  • Reference Quantity: The new Licensing Regulations introduce new rules on the amounts of quota for which operators may apply for.  Where a tariff quota requires proof of “reference quantity,” applicants may not apply more than their reference quantity during the particular tariff quota period.  An operator’s reference quantity must be calculated on the basis of two cumulative elements:
    • First, the reference quantity must be based on the average annual quantity of products that the operator released for free circulation in the EU during two consecutive 12-month periods ending two months before the first application may be submitted for the tariff quota period. Moreover, the reference quantity can only be calculated based on products released for free circulation in the EU which fall within the same tariff quota order number and have the same origin.
    • Second, the reference quantity of any operator must never be higher than 15% of the quantity available for the tariff quota concerned during the tariff quota period.

These new reference quantity rules may substantially disrupt previously common import flows where large importers may not LORI register in time or are constrained by the new limits.

  • Proof of Trade: If the Commission decides to suspend the reference quantity requirement or where quota order numbers only require a “proof of trade,” operators must submit such proof of trade as part of their applications for import licenses.  The Annexes to the Implementing Regulation define the minimum quantity of product (e., the proof of trade) that operators must have released for free circulation in the EU in each of the two consecutive 12-month periods ending two months before the first application may be submitted for the tariff quota period.
  • Possible Suspension of Reference Quantity and/or LORI registration: To limit possible disruptions of trade, the Delegated Regulation provides for different exceptions from the reference quantity requirement.  Possible exceptions include the following:
    • The Commission must suspend the reference quantity requirement where by the end of the ninth month of a tariff quota period, the quantities applied for under a tariff quota are lower than the quantity available under the tariff quota for that tariff quota period.
    • The Commission may suspend the reference quantity requirement for any tariff quota where “unforeseeable and exceptional circumstances threaten to cause underutilization of that tariff quota.” While unclear, suspension of the reference quantity should also entail suspension of the LORI registration requirement.
    • During the first two tariff quota periods as of January 2021, license issuing authorities may allow operators to establish their reference quantities in accordance with the requirements of the old rules.
  • Deadlines for license applications: To apply for import licenses under the new Regulations, operators must comply with a series of strict deadlines. For example, license applications for tariff quota order numbers with a tariff quota period starting on January 1, 2021 must be submitted between November 23 and November 30, 2020.  Where LORI registration is required, operators wishing to apply during these dates must submit their LORI registrations by August 31, 2020.  This is because LORI registrations must be submitted at least two months before the month in which the operator will submit its license application.

Traders, producers, as well as governments seeking to protect the value of their concessions under their trade agreements with the EU, should assess the impact of the Licensing Regulations on their trade and their supply chains.  They should also consider engaging with the European Commission to try to agree on temporary exceptions.