C-119/76

JUDGMENT OF THE COURT 5 JULY 1977 <apnote>1</apnote>

Ölmühle Hamburg AG v Hauptzollamt Hamburg Waltershof and Firma Kurt A. Becher

v Hauptzollamt Bremen-Nord (preliminary ruling requested by the Finanzgericht Hamburg)

'Skimmed-milk powder'

Joined Cases 119 and 120/76

1. Agriculture — Common organization of the markets — Community arrangements — Burden of costs — Discriminatory distribution between the various agricultural sectors — Not permissible (EEC Treaty, Article 39 and second subparagraph of Article'40 (3))

and

HAUPTZOLLAMT HAMBURG-WALTERSHOF

1 — Language of the Case: German.

JUDGMENT OF 5. 7. 1977 —JOINED CASES 119 AND 120/76

and by the Finanzgericht Bremen in the action pending before that court between

FIRMA KURT A. BECHER, BREMEN

Advocate General: F. Capotorti Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and issues

The facts, the procedure and the written provides for a system of prices based observations submitted pursuant to inter alia on a target price for milk as Article 20 of the Protocol on the Statute well as on intervention prices fixed of the Court of Justice of the EEC may mainly for butter and skimmed-milk be summarized as follows: powder.

Despite this price system the Community is experiencing a surplus of I — Facts and procedure milk which takes the form, in particular, of the accumulation of considerable 1. The common organization of the intervention stocks of skimmed-milk market in milk and milk products powder.

2. Among the measures which the 3. The plaintiffs in the main action institutions of the Community have applied on 15 April (Case 120/76) and 11 adopted in order to reduce these stocks is May (Case 119/76) 1976 for customs Council Regulation (EEC) No 563/76 of clearance into free circulation of, 15 March 1976 on the compulsory respectively, a consignment of Brazilian purchase of skimmed-milk powder held broken soya residues resulting from the by intervention agencies for use in extraction of oil and coming under tariff feeding-stuffs (OJ L 67, p. 18). heading No 23.04 B and of a consignment of copra for oil extraction That regulation imposed an obligation to coming under heading No 12.01 B. purchase skimmed-milk powder held by intervention agencies for use in In their principal applications the feeding-stuffs for animals other than plaintiffs in the main actions asked the young calves (Article 1). defendants in the main actions for customs clearance into free circulation In order to ensure compliance with this without presenting a 'protein certificate' obligation the grant of aid for certain as required by the provisions of vegetable foods (colza and rape seeds, Regulation (EEC) No 563/76. The soya beans etc.) is made subject to the plaintiffs in the main action asked, provision of a security or the alternatively, that the said goods should presentation of a document, of standard be cleared through customs on Community form, made out by the presentation of the protein certificates' competent authority of the Member State which the import and storage office had which is responsible for denaturing, previously granted to them. hereinafter referred to as 'attestation of purchase and denaturation' (Articles 2 The customs offices concerned refused and 6). the principal applications on the basis of Article 15 of the German customs law. Free circulation in the Community of They accepted the alternative imported vegetable foods (such as oil applications on condition that the weight seeds, flour from these seeds, certain of the imported goods was deducted on animal food preparations etc.), is subject the 'protein certificates'. to the presentation of a 'protein certificate' (Article 3 (1)). The complaints lodged against the This certificate is issued by Member decisions by the plaintiffs in the main States to any applicant. The issue thereof actions were unsuccessful and they is conditional on the provision of a brought proceedings before the Finanz­ security or the submission of an gericht (Finance Court) Hamburg (Case 'attestation of purchase and denaturation' 119/76) and the Finanzgericht Bremen (Article 3 (2)). (Case 120/76) for the annulment of the decisions rejecting the requests for In the case of contracts concluded before customs clearance without presentation the date of entry into force of the of a 'protein certificate' (in the alternative regulation, the successive buyers of the for a declaration that those decisions products referred to in Articles 2 and 3 were unlawful) and for annulment of the or of protein products processed deductions on the said certificates. In therefrom are to bear the burden of the support thereof they argued that costs arising under the arrangements laid Regulation (EEC) No 563/76 was null down in the regulation (Article 5). and void.

Community law and, in Case 119/76, by encourages uneconomic production of order of 2 December 1976, stayed the animal protein for which there is no proceedings and referred the matter to requirement in order subsequently to the Court of Justice under Article 177 of compel agriculture to use this protein the EEC Treaty for a preliminary ruling instead of the vegetable protein on the following question: traditionally used and available in sufficient quantities. 'Are the provisions introduced by Council Regulation No 563/76 of 15 Nor does the obligation to purchase March 1976 and the implementing ensure a fair standard of living for the regulations based thereon on the agricultural community (Article 39 (1) (b) compulsory purchase of skimmed-milk of the Treaty). There are two reasons for powder invalid in so far as they make this, the first being that the contested free circulation of the goods mentioned measure enables payment of the in Article 3 (1) of Regulation (EEC) No intervention price to be continued for 563/76 subject to the presentation of a the benefit of one section of agriculture protein certificate the issue of which is at the expense of another section thereof; but, above all, because it is clear from the conditional on the provision of a security or the submission of the document wording of Article 39 (1) (b) ('thus to referred to in Article 6 of the regulation?' ensure ...') that its objective must be attained by measures taken under (a), that In Case 120/76 the Finanzgericht is to say, be increasing productivity. Bremen referred to the Court a question in the following terms by order of 8 Nor, finally, does the obligation to November 1976: purchase skimmed-milk powder make it possible to stabilize markets (Article 39 'Is Council Regulation (EEC) No 563/76 (1) (c) of the Treaty). An excessively high of 15 March 1976 on the compulsory intervention price for skimmed-milk purchase of skimmed-milk powder held powder militates against stabilization. In by intervention agencies for use in fact it results in over-production. feeding-stuffs void (unlawful) because of In even more obvious conflict with the this obligation, and may a 'protein objective of stabilization is the fact that certificate be required in connexion with the obligation to purchase overrides the the customs clearance into free laws of the market (supply and demand circulation of goods coming under tariff as well as the regulating effect of price) subheading 23.04 B of the Common and replaces them by State control. Until Customs Tariff?' now intervention by the market organizations has made use of measures 5. (a) The plaintiffs in the main action based on market methods argued inter alia as follows before the ('marktkonforme Mittel') which, in courts making the reference: particular, affect price.

(b) Moreover the obligation to purchase (c) The selection of the means designed skimmed-milk powder breaches the to attain the objective pursued by the principle of proportionality which is Council and the Commission is, enshrined in Article 40 (3) of the Treaty furthermore, unlawful in that it is a and recognized by the Court of Justice. linked transaction. What, under Article 85 (1) (e) and Article 86 (d) of the Treaty, It is neither conducive to nor necessary is prohibited in the case of private for the attainment of the objectives undertakings which occupy a dominant pursued by Regulation (EEC) No 563/76. position on the market cannot be permitted in the case of a State. For this It is not conducive to the attainment of reason the considerations which led the the objective, laid down in the preamble contracting States to prohibit linked to Regulation (EEC) No 563/76, namely, transactions in the private sector make to increase the utilization of operations of the same kind equally skimmed-milk powder, which is an illegal in the relationship between the important source of protein, in State and its subjects. feeding-stuffs. In the case of most animals, with the exception of calves, (d) Finally, the obligation to purchase skimmed-milk powder has no greater infringes the prohibition of discrimi­ value from the dietary standpoint than nation contained in the second subpara­ substances of vegetable origin such as, for graph of Article 40 (3) of the Treaty. It example, soya meal. does so by charging all breeders in their capacity as users of feeding-stuffs and by The real reason for the obligation to giving preferential treatment to milk purchase is indicated in the first recital producers. For example, the price of soya in the preamble to Regulation (EEC) No meal, which is the most important 563/76, which is to reduce intervention vegetable protein substance in stocks of skimmed-milk powder. The feeding-stuffs, went up by about 14 % charge on the budget of the Community after the contested rules entered into was to be reduced as a result. force.

OPINION OF MR CAPOTORTI —JOINED CASES 119 AND 120/76

before the date of its adoption and of its Again, there is also an infringement of entry into force, it made no provision for the budgetary provisions laid down in transitional arrangements exempting Article 199 of the Treaty. The income them from the obligation to purchase produced by the obligation to purchase and to provide a security. Article 5 of the skimmed-milk powder at excessive prices regulation does not make good this is not entered in the Community budget, deficiency but, because it affects existing and rightly so. It involves an contracts, aggravates it. The Treaty does infringement not of a mere formal rule not empower the organs of the but of the principle of transparence of Community to amend contracts of sale. the budget and of equality with regard to Furthermore, the fact that Article 5 is charges imposed by the State. The null and void means that the whole function of re-distribution which the purchase-and-security system is also null European Community undertakes under and void. In cases where importers the agricultural policy must not be cannot pass on the burdens at discharged in an arbitrary and secret subsequent stages, this has the effect manner. The secret taxation, referred to of an encroachment resembling above as arising from the obligation to expropriation since the costs are several purchase at excessive prices, also times greater than the importer's profit infringes the principle of legal cer­ margin. In circumstances where (even if tainty and the principle of the rule only in the case of existing contracts) the of law, which also apply in Community importer has to bear these costs himself, law.

no general power to impose charges. implementing measures. For this reason Power to do so was transferred to it in the Council should have adopted them the Treaty by the Member States only by under the third subparagraph of Article stages and under clearly specified 43 (2) of the Treaty. The Commission conditions. Its financial powers were had no power to do so. The powers defined in express terms. It is conferred on the Council by the Treaty inconceivable that the Member States cannot be transferred unconditionally to should have wished, in addition, to vest the Commission; under Article 155 of the Community with special, concealed the EEC Treaty the Commission can powers to impose charges otherwise than exercise the powers conferred on it by in accordance with the procedure the Council only for the implementation provided for under Article 201 of the of rules laid down by the latter. If the Treaty. For this reason the Community's provisions at issue are invalid because the financial powers can be extended only by Commission did not have the power to an amendment of the Treaty and not by adopt them, skimmed-milk powder rules stealth in the guise of an obligation to as a whole can logically no longer be purchase skimmed-milk powder. applied.

ÖLMÜHLE AND BECHER v HAUPTZOLLAMT HAMBURG AND HAUPTZOLLAMT BREMEN-NORD

regulation is applicable, milk producers a charge within the meaning of the are less burdened than other producers Council Decision of 21 April 1970 on even though, as the defendant states, the Replacement of Financial concentrated feeding-stuffs are fed to Contributions from Member States by dairy cows. the Communities' Own Resources (OJ English Special Edition 1970 (I) p. 224) In any case there is nothing to prohibit and of Regulation (EEC) No 729/70 of the adoption, among the said restrictive 21 April 1970 on the financing of the conditions, of measures which burden common agricultural policy (OJ English certain groups of traders on the market Special Edition 1970 (I), p. 218) and, to the advantage of others. accordingly, does not infringe the sovereign rights of the Member States by The question whether compulsory encroaching on their power to levy purchase is desirable owing to the public charges.

JUDGMENT OF 5. 7. 1977 —JOINED CASES 119 AND 120/76

Registry on 16 December (Case 119/76) The plaintiffs in the main actions agree and 17 December (Case 120/76) 1976. that the institutions of the Community must be left considerable freedom in By order of 14 April 1977 the Court determining whether a given measure decided to join these two cases for the conforms with the objectives of Article purposes of procedure and judgment. 39 (1) of the Treaty. But when, in a given sector, agricultural policy has for years In accordance with Article 20 of the been in conflict with the objectives of Statute of the Court of Justice of the agricultural rationalization and the EEC, written observations were stabilization of the markets and when the ÖLMÜHLE AND BECHER v HAUPTZOLLAMT HAMBURG AND HAUPTZOLLAMT BREMEN-NORD

bound in practice to mix in have been notorious for years. skimmed-milk powder, and also upon breeders. Apart from the financial The plaintiffs in the main actions refer consequences and the technical inter alia to specific examples of problems involved in the mixing process, discrimination: fish meal was not covered the root cause of the burden weighing on by the rales governing the security; the animal feeding-stuffs sector is the oil-cakes producing a large or small fact that those in it are compelled to financial return were all charged at the apply to breeders who are their same rate.

customers a complicated system of security which disturbs their business (d) The plaintiffs in the main actions relations with those customers. consider that the Court should, in both cases, go into the issue raised by Article 5 By means of the eight cases now pending of the regulation even although the before the Court, the group of in­ Finanzgericht Hamburg did not deal dustrialists representing the different with the question. On the basis of the stages of trade and production affected question which was referred to it for a

JUDGMENT OF 5. 7. 1977 —JOINED CASES 119 AND 120/76

be invalid. International Fruit Company NV, ([ 1972] ECR 1219), this is out of the The relevance of Article 5 also arises question. Its relevance in the present case from the suggestion that, if the article is consists in the fact that these substitute unlawful in that it interferes with private measures (Alternativmaßnahmen) which, law contracts which have already been in the Commission's view, are perfectly concluded, the two plaintiffs cannot pass legal, infringe rules of international law. on to their customers the substantial cost In this connexion it ought to be possible arising from the protein security. But in to ascertain whether the Commission can that case the burden imposed on the two in any case have recourse to other rules. applicants goes manifestly beyond the limits of what can be required of them.

Community. misuse of the law. If the Community institutions were allowed to misuse their Furthermore the obligation to purchase powers in this way without regard to the infringes Article III of GATT, which lays financial and budgetary provisions of the down that imported and domestic Treaty, the Community could, for its own products must be treated alike as regards benefit, create any conceivable source of internal taxation and rules; the revenue. production of oil-producing fruit con taining protein and of protein feed (f) In addition to the legal objections ing-stuffs in the Community is in fact which the plaintiffs in the main actions minimal. It is not the use of domestic raised in each of the two cases, they products but almost exclusively the adduce a new complaint, namely, importation of animal feeding-stuffs infringement of the rules of the General containing protein which is in practice Agreement on Tariffs and Trade (GATT). affected by the obligation to purchase. In a reference to the observations of the 2. (a) As regards the alleged infringe Council and of the Commission in Case ment of Article 39 (1) of the Treaty the 83/76 to the effect that there is nothing Council points out that the case-law of ÖLMÜHLE AND BECHER v HAUPTZOLLAMT HAMBURG AND HAUPTZOLLAMT BREMEN-NORD

The Council shares the Finanzgericht's Furthermore, under Article 42 of the opinion that, although subparagraph (b) Treaty, the chapter on the rules relating is linked to (a) by the word 'thus', which to competition applies only in part to refers to the increase of productivity agricultural products. mentioned in (a), the objective of increasing earnings referred to under (b) (e) With regard to the question whether must be given an importance of its own. Article 5 of the regulation interferes with existing rights, the Council notes that the (b) The obligation to purchase does not Finanzgericht Hamburg did not make contravene the prohibition of dis­ this question, which was raised by the crimination. In principle, it covers all plaintiff in the main action, the subject those who use protein feeding-stuffs. of reference. For this reason the Council expresses a view on this issue only in It is true that poultry farmers are respect of Case 120/76. But even in that compelled to use a proportion of the case it is doubtful whether this question skimmed-milk powder produced by has any significance in the main surpluses for which they bear no proceedings before the Finanzgericht responsibility. But there is no Bremen, since the statement of the facts discrimination in this case; this is clear refers to 15 April 1976 and not to a date from the first sentence of Article 38 (1) between the day on which the regulation and Article 43 (2) of the Treaty. came into force and the day on which it In support of this contention too, this was applied. Council refers to Article 39 (2) (c) of the The measure embodied in Article 5 of Treaty. the regulation is dictated by the public (c) In the Council's view, it has not interest.

introducing a security designed to ensure observations in Joined Cases 83 and that the obligation to purchase is 94/76, Bayerische HNL Vermehrungs­ complied with. The Court has, in betriebe GmbH & Co. KG and Bernd previous cases, already had to consider Adleff v Council and Commission. similar arrangements for security and has declared them to be lawful. As regards the alleged infringement of Article 39 (1) of the Treaty, it states that, Nor is there any foundation for the in view of the very wide wording of the submission relied upon by the plaintiffs objectives listed in this article and their in the main actions that these rules relationship with each other, it is only in involve a violation of the principle of the extreme cases that it is possible to transference of the budget because the establish that rules promulgated by a benefits and the revenue produced are Community institution are clearly not entered in the Community budget. outside the scope of those objectives. The Securities, including securities which are Court has already declared that those forfeit, never appear as such in the objectives cannot always in practice be budget and the provisions of Article 10 pursued simultaneously and that the (2) of the regulation under which any Community institutions may accordingly security forfeited is to be used to offset allow any one of them temporary the intervention expenditure on the priority. market in milk are in accordance with the rules accepted at the present time. The question whether the rules accord with the objective laid down in Article (g) Again, the Council does not 39 (1) (a) involves a complicated consider that the regulation in question economic value-judgment implying wide suffers from a defect of form. powers of discretion: for the purposes of judicial review, there must have been at The Council could have quite least a serious error in the assessment of legitimately confined itself to adopting the economic considerations. Further­ the regulation and empowering the more, the rules which were introduced Commission to promulgate the 'detailed are merely a supplementary measure rules for the application (the words used arising from the implementation of a in Article 9 (1) of the regulation) market policy, which has for many years in accordance with the so-called been based upon rationalization and Management Committee procedure. The improvement of organizational structures.

the plaintiffs in the main actions argued, that, because of the use of the word 'thus' The fact that the stocks continued to

in Article 39 (1) (b), the earnings of increase during the period when the persons engaged in agriculture can be regulation was applied in no way detracts increased only by increasing productivity. from the efficacy of the regulation since the increase in stocks during that period was in any case less than the quantities Above all, the contested measure accords which it was possible to dispose of as a with the objective of stabilization of result of the regulation. the market (Article 39 (1) (c)). Any consideration of it must have regard to The compulsory purchase system was, the market in milk as a whole. It is very moreover, also necessary because there difficult to restore a satisfactory balance was no other way of quickly achieving between supply and demand. In conse­ the desired result. quence, the . Community institutions must be able, on a provisional basis, to (c) The reasons which justify any apply unorthodox measures in so far as prohibition of linked transactions they are essential for the improvement of outlets. between undertakings in the private sector are in no way applicable to comparable measures adopted by public As regards the submissions based on authorities under measures relating to Article 39, the Commission makes the economic policy. Moreover such linked general comment that the measure transactions are very familiar both in adopted under Regulation (EEC) No Community practice and in practice in 563/76 falls within the general scope the Member States. of the objective provided for in subparagraphs (a) to (c) of Article 39 (1) (d) As regards the alleged violation of in so far as it is viewed in a more general the principle of non-discrimination, the context and attention is not confined to Commission states that it endorses the its isolated effect on the processing observations of the Finanzgericht Ham­ industry. burg that the said restrictive conditions

do not in principle exclude measures in the marketing of them as well as which burden certain trade interests in purchasers of home-produced substances) favour of others. was to a large extent covered by contracts sometimes extending over considerable It is true that the issue can be correctly periods. For this reason it was considered decided only on the basis of precise necessary to make it possible for the knowledge of the situation on the market branches of the industry directly affected and of the instruments of the organ by compulsory purchase lawfully to pass izations of the market. on to their purchasers the costs with which they were debited. The arrangements at issue affect virtually the whole of the animal feed industry. The Commission is not, however, in Milk producers also participate in the agreement with the view that the absence arrangement inasmuch as they use of such rules would have amounted to feeding-stuffs based on vegetable protein. something akin to expropriation.

What is involved is in any As there is no other less costly means of case a rule of public law which on one purchasing feeding-stuffs it may more point, namely the purchase price, over be concluded that in principle the changes the basis of contractual cost must be passed on to the purchaser obligations. In this connexion there can and the ultimate consumer. be no question of an interference with freedom in business transactions. On the There is no legal principle which, in contrary, the provision in question makes such circumstances, requires all taxpayers it possible for existing contracts to be to pay the additional cost arising from discharged satisfactorily. the market policy.

The object of the lature was aware that, in particular, the arrangements is not in any event to import trade in the products in question increase the Communities' own resources (but in part also certain subsequent stages but to absorb the skimmed-milk powder ÖLMÜHLE AND BECHER v HAUPTZOLLAMT HAMBURG AND HAUPTZOLLAMT BREMEN-NORD

This case is accordingly in various Community rules. It is clear concerned with supplementary measures from the foregoing that there can be no which are purely ancillary to the original question of a violation of the budgetary measures. principles in Article 199 of the Treaty. The costs, profits, revenue and savings Even if the provision on the security arising from intervention on the market were regarded as having something in common with a tax this would not affect do not appear as such in the budget of the Communities but are accounted for its validity.

fall to be treated as revenue in the often vested with wide powers and a budgets of the Member States. This is not considerable margin of discretion, in therefore one of the circumstances which particular when it is legislating under the can be the subject of question as to its Management Committee procedure. This validity under the procedure laid down in practice has, in various cases, already Article 177. However, even if it were been approved by the Court. possible to establish the alleged invalidity, this could not affect the validity of the scheme as such.

JUDGMENT OF 5. 7. 1977 —JOINED CASES 119 AND 120/76

The Court had invited the Commission in question are between 1 and 3 u.a. per and the Council to supply, at the 100 kg according to the denaturing hearing, information and suitable method. The value of skimmed-milk explanations concerning the costs of powder as animal feed varies according dehydrating skimmed milk and the costs to whether the product is used for of denaturing necessitated by the feeding calves or for swine and poultry. compulsory use of skimmed-milk In the first case the supply price fixed by powder in feeding-stuffs compared with the Community for this type of use the value of this milk as animal feed. determines the price on the market. For the period in question the supply price was 52 u.a. per 100 kg of skimmed-milk In Joined Cases 83 and 94/76 and 4 and powder. In the second case the market 15/77, the applicants replied that the price of the product is fixed on the basis three factors, dehydration, storage and of its value as animal feed compared with denaturing, represented a total of about substitute products and, in particular, of 27 u.a. or DM 95 per 100 kg, and that the price of soya oil cake. During the the value of 100 kg of skimmed-milk time when the contested regulation powder as animal feed was roughly between DM 50 and 65. applied, the price of soya oil cake was about 18 units of account per 100 kg. The price of soya at the present time is The Commission replied that the cost of 25 u.a. per 100 kg. manufacturing skimmed-milk powder was on average 15 u.a. per 100 kg. The The Advocate General delivered his denaturing costs involved in the scheme opinion at the hearing on 7 June 1977.

2 Regulation (EEC) No 563/76 was promulgated at a time when the stocks of skimmed-milk powder bought in by the intervention agencies pursuant to Regulation (EEC) No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products (OJ English Special Edition 1968, p. 176) had reached considerable proportions and were continuing to increase despite the measures adopted by the Community institutions to curb the tendency towards over-production of milk and to increase the sale of skimmed-milk powder. The system established by Regulation (EEC) No 563/76 the application of which was not extended beyond the end of the original period of application, which expired on 31 October 1976, was designed to reduce stocks through the increased use in feeding-stuffs of the protein contained in skimmed-milk powder. To this end the regulation made the grant of the aids provided for certain vegetable protein products as well as the free circulation in the Community of certain imported animal feed products subject to the obligation to purchase specified quantities of skimmed-milk powder. In order to ensure that this obligation was fulfilled the grant of aid and free circulation were subject to the provision of the purchase and of the denaturing of the prescribed quantities of skimmed-milk powder.

5 The validity of these arrangements has been contested on grounds of conflict in particular with the objectives of the common agricultural policy as defined in Article 39 of the Treaty, the prohibition of discrimination laid down in the second subparagraph of Article 40 (3) and the principle of proportionality between the means employed and the end in view. Because of the close connexion between these grounds of complaint, it will be appropriate to consider them together.

discriminatory distribution of the burden of costs between the various agricultural sectors. Nor, moreover, was such an obligation necessary in order to attain the objective in view, namely, the disposal of stocks of skimmed-milk powder. It could not therefore be justified for the purposes of attaining the objectives of the common agricultural policy.

8 In consequence, the answer must be that Council Regulation (EEC) No 563/76 of 15 March 1976 is null and void.

Costs

9 The costs incurred by the Council and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable and as these proceedings are, in so far as the parties to the main action are concerned, a step in the action pending before the national court, the costs are a matter for that court.

On those grounds,

THE COURT,

Registrar President