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1. For a transitional period which shall not extend beyond 31 December 2001 ◄ , the Spanish authorities are hereby authorized to impose a tax on production and imports (APIM) on all products entering or produced in the Canary Islands. However, in respect of products coming under the common agricultural policy this possibility may not be implemented until the entry into force of the specific supply arrangements referred to in Article 2(2).

2. By 31 December 1995, the rates for the tax shall be set in conformity with paragraph 3. As from 1 January 1996, these rates shall be reduced by 20 % each year so that the tax will disappear by the end of the period laid down in paragraph 1. By way of derogation from the provisions of the first subparagraph, the reduction in the rates of the tax shall be suspended from 30 December 1999 until 30 June 2000 in the case of the products listed in the Annex.

3. The rates applicable may vary depending on the category of product between 0,1 and 5 %; these rates may, however, rise to 15 % in the case of manufactured tobacco (CN codes 2402 10 00 and 2402 20 00). They may under no circumstances be increased by more than 15 % of the initial rate. This variation in rates must in no case be such as to give rise to discrimination against products of Community origin.

4. During the transitional period referred to in paragraph 1, in view of the specific situation of the Canary Islands and the prospect of their full integration into the customs union, exemptions from the tax, partial or total, depending on economic requirements, may be authorized for local products up to 31 December 1995. Such exemptions must form part of the strategy for the economic and social development of the Canary Islands, taking account of the Community support framework, and help to promote local activities, though they must not be such as to change trading conditions to an extent contrary to the common interest.

5. The arrangements for exemptions adopted by the competent authorities pursuant to paragraph 4 shall be notified to the Commission, which shall inform the Member States thereof and have two months to assess their conformity with the aims defined in that paragraph. If the Commission has made no comment within that period, the arrangement shall be deemed to have been approved.

6. During 1995, the Commission, after consulting the Spanish authorities, shall examine the impact of the measures taken on the economy of the Canary Islands and the prospects for their integration into the Community's customs territory. On the basis of this examination, the Spanish authorities may be authorized, in accordance with the criteria in paragraph 4 and the procedure in paragraph 5, to maintain the exemptions in force, in whole or in part, until 31 December 2001 ◄ at the latest.