C-32/64

JUDGMENT OF THE COURT 17 JUNE 19651

Government of the Italian Republic v Commission of the European Economic Community 1 Case 32/64

Summary

Common Customs Tariff — Establishment — Products in list G— Silk — Italian market — Isolation — Support for the introduction of protective measures — Non- binding nature — No derogation from the EEC Treaty — Powers and obligations of the Commission (EEC Treaty, Articles 14, 15 and 226)

Protocol No VIII, Article 2 of the agreement of 2 March 1960 regarding the establishment of a part of the Common Customs Tariff concerning products in list G (Official Journal of the European Communities of 20.12.1960, page 1855)

Article 2 of Protocol No VIII lays down products. Moreover, Article 2 of Protocol a policy which the Commission must No VIII involves no departure from take into account without being bound Article 226 of the EEC Treaty. While by any specific legal obligation. As this expressing 'support for the application of provision has not laid down any positive Article 226 of the Treaty', the Member measure of law it neither involves a de­ States intended to remain within the parture from Article 14 or 15 of the actual framework of that Article and EEC Treaty, nor substitutes for them leave intact the discretionary power a special rule concerning Italian silk vested by it in the Commission.

composed of: Ch. L. Hammes, President, A. M. Donner and R. Lecourt (Rapporteur), Presidents of Chambers, L. Delvaux, A. Trabucchi, W. Strauß and R. Monaco, Judges.

Advocate-General: K. Roemer Registrar: A. Van Houtte

gives the following

JUDGMENT

Issues off fact and off law

I — Facts By Decisions of 28 February 1962 (Offi­ cial Journal EC No 33 of 4.5.1962, p. The Common Customs Tariff concern­ 1092/62), 20 March 1963 (Official ing products in list G of Annex I to the Journal EC No 53 of 5.4.1963 p. Treaty establishing the European Econ­ 1085/63) and 22 May 1964 (Official omic Community was introduced by an Journal EC No 88 of 4. 6. 1964, p. Agreement concluded between the Mem­ 1373/64), the Commission of the EEC ber States on 2 March 1960. authorized the Italian Republic at the Protocol No VIII annexed to this Agree­ request of its Government to introduce ment deals with silk and provides in protective measures for certain products point 2 that: appearing in Chapter 50. The Member States support the applica­ Article 3 of the Decision of 28 February tion of Article 226 of the Treaty entail­ 1962 provides that: ing the isolation, for a period of six 1. For a period of one year from the years from the signing of the present date of the present Decision the Protocol, of the Italian market in those Italian Republic shall be authorized to products appearing in Chapter 50 of the maintain the customs duties in force Common Customs Tariff for which on 2 March 1960 in relation to Mem­ such isolation appears necessary, both as ber States for woven fabrics of silk or regards other Member States and third silk waste other than noil (tariff head­ countries' (Official Journal No 80 C of ing 50.09 of the Italian customs 20.12.60, p. 1855/60). tariff), excluding printed fabrics

Article 2 of the Decision of 20 March '—order the suspension of the opera­ 1963 provides as follows: tion of the above provision: — annul it. 1. The Italian Republic shall be author­ ized to maintain until 28 February 1964 in relation to Member States the II — Conclusions of the customs duty in force on 2 March 1960 for woven fabrics of silk or of parties silk waste other than noil (tariff head­ Subject to the express right to produce ing 50.09 of the Italian customs tariff), further documents and present subse­ excluding the fabrics referred to in paragraph 2. quent conclusions and amendments and without prejudice to any other rights the 2. The Italian Republic shall be author­ applicant claims that Court should: ized to apply until 28 February 1964 'after making an order to suspend the in relation to Member States the operation of the decision in question, as following customs duties for the far as the portion in dispute is con­ fabrics enumerated below appearing cerned, annul Article 3 thereof and order under tariff heading 50.09 of the Italian customs tariff: costs to be paid as the Court shall see fit'. — piece-dyed fabric, 9.6% — yarn-dyed fabric, 8.5% Subject to the express right to present — printed and cross-linked fabric, 7% further conclusions and without pre­ — embroidered fabric, 8% judice to any other rights the defendant contends that the Court should: 3. The authorization referred to in the 'declare inadmissible for want of legal previous paragraphs shall not apply to fabrics in which at least the whole of interest the application of the applicant to suspend the operation of Article 3 of the weft or warp is not composed of the Decision of the Commission of 22 pure silk (excluding other fibres and May 1964 concerning the authorization silk waste).' granted to the Italian Republic to intro­ Finally, Article 3 of the Decision of 22 duce protective measures for certain pro­ May 1964 provides: ducts appearing in Chapter 50 of the 'The Italian Republic shall be author­ Italian customs tariff; ized to maintain the following customs dismiss tne application made by the duties until 28 February 1965 in rela­ Government of the Italian Republic for tion to Member States for fabrics appear­ the annulment of this provision; ing in tariff heading 50.09 of the Italian order the applicant to pay the costs.'

III — Submissions of the Commission have never been delayed parties and, secondly, that in the absence of pro­ tective measures Member States may A — On the application to suspend the not unilaterally depart from mandatory operation of the provision Community provisions concerning the abolition of inter-Community customs duties. The applicant has submitted that by reason of the irreparable damage caused in the Italian silk sector by the applica­ B — On the possible wrongful acts or tion of the customs rates fixed by Article omissions of the Commission 3 of the contested Decision, it was oblig­ The applicant has brought an applica­ ed to make an application to suspend the tion for the annulment of Article 3 of operation of this provision. the contested Decision to the extent that The defendant has objected that in the it determines, in percentages, certain absence of any departure therefrom customs duties on woven fabrics of authorized by the Commission, the silk. duties applicable in trade between It therefore makes the following sub­ Member States are to be those arising missions : from the application of the reductions provided for in Article 14 of the Treaty '— infringement of Article 2 of Protocol No VIII of 2 March 1960 concern­ and from the acceleration decisions', and that 'the suspension of operation of the ing silk annexed to the agreement of Decision of 22 May 1964 would thus 2 March 1960 regarding the estab­ lishment of the Common Customs lead to the application of these duties to the products in question, a solution Tariff for the products in list G as which is always open to the applicant provided for in the Treaty establish­ without the need to wait for the ing the European Economic Com­ authorization of the Commission or a munity and in accordance with decision of the Court'. Thus, the defen­ Article 226 of that Treaty; dant contends that the application fails — ultra vires acts on the grounds of error in the conditions laid down and for want of legal interest and is there­ fore inadmissible. of manifest inconsistency; The applicant has replied that it has an — failure to explain why the cost of the raw material was considered in interest in the suspension of operation of a Decision, which must lead to the isolation; continuance in force of the earlier — infringement of Articles 14 (2) and Decision of 20 March 1963, not merely (3) and 15 (1) and (2) of the said de facto (as has been the case for seven Treaty.' years with Decisions of the Commission Discussion of the technical aspects of 'which have lapsed' but have been the problem essentially concerns, first, applied until the entry into force of the raw material and, secondly, the later Decisions) but de jure by virtue methods of processing. of a judgment of the Court and pending 1. The raw material a decision on the substance of the case. According to the applicant, the Com­ The defendant has replied, first, that mission has made a double error in proceedings under Article 226 may be considering the cost of the raw material. complicated and that as regards the pro­ First, the Commission has taken into ducts in question the decisions of the account the hypothetical effect of the

figures for 1963 alone, which the Com­ If calculation of the rates took into mission treated as the reference period, account the effect of overheads, the per­ showed a difference in price of 1 450 centages would be as follows: lire per kilogram, while the same aver­ 'unbleached cloth, 11.11% age calculated on the figures for 1961- (instead of 9.5%) 1963 shows a difference in price of piece-dyed fabric, 10.30% 1 695 lire per kilogram. (instead of 7.60%) The basis of calculation employed by yarn-dyed fabric, 9.20% the Commission was thus inadequate. (instead of 6.80%) The defendant's reply to this argument printed fabric, 7.93% is that the applicant has itself acknowl­ (instead of 5.60%) edged that rationalization of the sector embroidered fabric, 9 .01% is in progress. (instead of 6.50%)' Moreover, the world price of silk is basically the price of Japanese silk and This reasoning is compatible with 'the method followed by the Commis­ Article 226 of the Treaty even accept­ sion enables it to avoid having to con­ ing the interpretation of it given by the sider short-term price fluctuations'. Commission. On this point during the oral procedure It only questions the method and criteria the defendant stated that the prices of of calculation used to determine the raw silk from Japan increased consider­ difference in price between Italian silk ably in 1963. and Japanese silk on which the pro­ tective measure had to be based in 2. Processing concreto.

The defendant has replied, first, that applicant Government, it can be seen by referring expressly to Article 226 that the rate of 9.5% exactly offsets the the authors of Protocol No VIII wished charge borne by woven fabrics of silk to ensure the isolation of the Italian of Italian origin as compared with silk market in accordance with the con fabrics woven in the Member States ditions laid down therein. from Japanese silk. Having regard to They have, moreover, provided for this the nature of the overheads, it has not isolation to take place when it 'appears been proved that they vary necessarily necessary'. according to the cost of the new mater The wording of Article 226 shows that ial. In fact the applicant has produced the discretionary power in Article 226 is no evidence to support the statement exercised within well-defined limits. that the processing of Italian silk is Once the exact origin of the difficulties more costly than the processing of is established, the Commission cannot Japanese silk. take other extraneous factors into con

Without thereby accepting to improving the output of the domes a reversal of the burden of proof, the tic silkworm industry. defendant submits to the Court the The increasing importance of Italian following information concerning Italian exports of woven fabrics of silk is imports of woven fabrics of silk from proportional to the import of raw silk other Member States (Schedule 4): into that country. these imports amounted to 76 metric This snowed that when the Italian pro tons in 1960 and fell to 40 metric tons cessing industry is supplied with raw in 1961 and 1962 and 44 metric tons material at the world price its prices in 1963. This is evidence that the level are competitive at least as regards those of the duties authorized by the Com of the processing industries of the mission plainly met its objective.'

ITALY v COMMISSION

one must take account of the need to obliged to apply Article 15 of the protect the processing industries for Treaty which would remove all pro­ silk-based products. tection from the sector in question be­ The applicant states that: fore the date fixed by the Treaty. 'This is tantamount to saying that the The defendant has replied by referring function of the customs duty is not to the arguments already developed only to protect domestic industries from concerning the effect of overheads and competition by foreign industries which has recalled its interpretation of Article 226 and the need to determine the benefit from special and more favour­ cause of the difficulties which constitute able conditions (natural and structural or of some other kind) but is also in the condition sine qua non of applica­ a general way to ensure, albeit within tion of the Article as well as the obliga­ tion on the Commission to relate the certain limits, a preference for the domestic product.' level of the protective measures to that cause.

to protect the processing industries. In fact, not to take into account the costs IV — Procedure of processing amounts to a removal, before the date laid down, of all the The procedure in the main action fol­ protection afforded to those industries. lowed the normal course. Each State has the right to protect its No separate proceedings took place on processing industries. the request for suspension of the opera­ This is evidenced by the tact that the tion of the measure which was included Community Executives took into con­ in the application. sideration the processing industries in Alter hearing the opinion of the Ad­ the field of agriculture as well as cer­ vocate-General, the Court decided to tain customs tariffs in other Member open the oral procedure without any States. preparatory inquiry but after requesting The protection afforded to the process information from the parties on the ing industry is not a 'premium' paid yearly trend from 1960 to 1964 of: to that industry, since if the rate of customs duty were intended to cover 1. Italian imports, country by country, only the difference between the costs (a) of raw materials, of the raw material, Italy would be (b) of manufactured products,

JUDGMENT OF 17. 6. 1965 — CASE 32/64

2. Italian exports, country by country, The parties presented then submissions 3. Prices of raw material in Japan and at the hearing on 1 April 1965. in the Member States. The Advocate-General delivered his The parties provided the required in­ reasoned oral opinion at the hearing on formation. 6 May 1965.

Grounds off judgment

By the terms of a single document the Court is requested 'after making an order to suspend the operation of the decision in question' to 'annul Article 3 thereof.

Since this request was not submitted in a separate document but in the application for annulment itself, into which it was incorporated and from which it cannot be separated, it must be dismissed as inadmissible for failure to observe the essential requirements of Article 83 (3) of the Rules of Procedure.

Moreover, the application to suspend the operation of the decision has become pointless by virtue of the present judgment on the main issue.

ITALY v COMMISSION

The application for annulment

(a) Infringement of an essential procedural requirement.

The Italian Republic having, by virtue of Protocol No VIII annexed to the Agreement of 2 March 1960, requested authorization to take protective measures within the meaning of Article 226, the Commission, by the terms of the contested Decision, fixed various customs duties on woven silk fabrics to be imposed by the applicant, but considered by that party to be, first, an in­ fringement of Article 2 of the said Protocol and, secondly, contrary to Articles 14 (2) and (3) and 15 (1) and (2) of the Treaty and, finally, vitiated by misuse of powers.

In particular, in support of these various arguments, it complains that the Commission wrongly restricted the protection requested to the difference between the Italian and Japanese prices for raw materials alone by calculating the average of these prices over only one year and by failing to take into account the effect of the overheads on the Italian finished product and of the protection due to the processing industry itself.

The infringement of Article 2 of Protocol No VIII

According to the terms of Article 2 of Protocol No VIII annexed to the

JUDGMENT OF 17. 6. 1965 — CASE 32/64

Agreement of 2 March 1960 The Member States support the application of Article 226 of the Treaty entailing the isolation, for a period of six years from the signing of the present Protocol, of the Italian market in those pro­ ducts appearing in Chapter 50 of the Common Customs Tariff for which such isolation appears necessary, both as regards other Member States and third countries'.

As Article 2 of Protocol No VIII did not enact any positive measure of law it could neither have resulted in a departure from the abovementioned Articles of the Treaty, nor substituted for them a special rule concerning Italian silk products.

Moreover, the derogations sought by the applicant prevent it from claiming an infringement of the very Articles which it is specifically trying to avoid.

This submission is therefore unfounded.

The claim that the Commission acted ultra vires

It appears that the Commission is being accused by a submission relating to ultra vires acts of having misused its powers.

According to the applicant the Commission should have taken into account the policies outlined in Protocol No VIII when exercising its powers under Article 226.

Consequently, the Commission, being required to observe the legal obliga­ tions of Article 226 and to attempt to take into account the support expressed in Protocol No VIII can only be criticized in its assessment of the economic situation of the Italian products in question in the case of a serious failure to carry out these duties.

The fact that it calculated the average reference prices of the raw product upon the basis of 1963 alone does not constitute such a failure, since this method of calculation involves a consideration of the considerable increase in the Japanese price in 1963.

Nor does the decision to disregard in its calculation of the customs duties authorized as protective measures the overheads incurred by the undertakings and the special protection required by the processing industry constitute such a failure.

Protocol No VIII in fact records the anxiety of Member States to protect production of the raw material.

In Article 4 the Member States agreed to reconsider the situation at the end end of the period of six years laid down in Article 2 and decided that the duty should then be reimposed within the framework of Article 28 if at that date the Council finds 'that production of raw silk in Italy has at least main­ tained its present level (840 metric tons) and that for comparable qualities the price of this product is no higher than the world c.i.f. price at Com­ munity port plus 10%'.

JUDGMENT OF 17. 6. 1965 — CASE 32/64

Costs

Under the terms of Article 69 (2) of the Rules of Procedure the unsuccessful party shall be ordered to pay the costs.

The applicant has failed in its submissions.

It must therefore be ordered to pay the costs.

On those grounds,

Upon reading the pleadings; Upon hearing the report of the Judge-Rapporteur; Upon hearing the parties; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Community, especially Article 14, 15, 173 and 226 and to Protocol No VIII of 2 March 1960: Having regard to the Rules of Procedure of the Court of Justice of the European Communities, especially Articles 69 and 83;

Delvaux Trabucchi Strauß Monaco

Delivered in open court in Luxembourg on 17 June 1965.

A. Van Houtte Ch. L. Hammes Registrar President

OPINION OF MR ADVOCATE-GENERAL ROEMER

DELIVERED ON 6 MAY 19651

Summary

Mr President, Treaty (Agreement of 2 March 1960, Members of the Court, Official Journal 1960, p. 1825), the Mem­ ber States of the Community agreed At the time of the establishment of the in Protocol No VIII concerning silk Common Customs Tariff for the pro­ (raw, tariff heading 50.02) annexed to ducts in list G in Annex I of the EEC the Agreement to express their support 1 — Translated from the German.