C-103/77

and in Case 145/77 between

Tunnel Refineries Limited

and

Intervention Board for Agricultural Produce

on the validity of Council Regulation (EEC) No 1862/76 of 27 July 1976 (Official Journal 1976, L 206, p. 3) amending Regulation (EEC) No 2742/75 on production refunds in the cereals and rice sectors, of Council Regulation (EEC) No 1111/77 of 17 May 1977 laying down common provisions for isoglucose (Official Journal 1977, L 134, p. 4) and of Council Regulation (EEC) No 1110/77 of 17 May 1977 (Official Journal 1977, L 134, p. 1) amending Regulation (EEC) No 3330/74 on the common organization of the market in sugar,

THE COURT,

By Regulation (EEC) No 1862/76 of 27 2. Community legislation July 1976 (Official Journal 1976. L 206, p. 3) the Council amended Regulation A. The production refund No 2742/75, it being stated in the Council Regulation (EEC) No 2727/75 recital in the preamble to that regulation of 29 October 1975 on the common that: ". .. in view of the situation which organization of the market in cereals will exist as from the beginning of the (Official Journal 1975, L 281, p. 1) 1976/1977 marketing year, particularly stated, in the preamble, that "in view of as a result of the application for that the special market situation for cereal marketing year of common prices for starch, potato starch and glucose cereals and rice, it is necessary to produced by the 'direct hydrolysis' increase the production refunds; ... process it may prove necessary to however, given the objectives of the provide for a production refund of such production refund system, such an a nature that the basic products used by increase should not be retained in the this industry can be made available to it case of products used in the manu­ at a lower price than that resulting from facture of glucose having a high the application of the system of levies fructose content; ... the best method of

JUDGMENT OF 25. 10. 1978 — JOINED CASES 103 AND 145/77

third countries; . . . there should, lation a new article, Article 5 a, is added therefore, be provision for a suitable to Regulation (EEC) No 2742/75, production levy on isoglucose to reducing the production refund for only contribute to expon costs" (seventh one product processed from starch, recital). glucose having a high fructose content. In fact the amount of the refund for The system for production levies for starch processed into that product is isoglucose is laid down by Articles 8 maintained at the level of that of the and 9 of the regulation and applies to previous marketing year and is totally periods corresponding to the sugar abolished as from the 1977/1978 marketing years 1977/1978 and 1978/

134. p 4) These detailed rules formed the subject The recitals in the preamble to that regu of Commission Regulation (EEC) No lation contain amongst other things the 1468/77 of 30 June 1977 laying down following passages: rules for applying the production levy ". . . isoglucose is a direct substitute for on isoglucose in respect of the period liquid sugar obtained from sugar-beet 1 July 1977 to 30 June 1978 (Official or cane" (second recital); Journal 1977, L 162, p. 7).

Council Regulation (EEC) No 1110/77 the High Court of Justice, Queen's of 17 May 1977 (Official Journal 1977, Bench Division, Commercial Court, L 134) provides inter alia for the against the Intervention Board for Agri­ exclusion of isoglucose from the field of cultural Produce. In its statement of application of Regulation (EEC) No claim it claimed a declaration that 3330/74. Council Regulation (EEC) No 1111/77 is void and of no effect and that the 3. The main actions defendants are not entitled to A. Case 103/77 implement the same. Royal Scholten-Honig (Holdings) Ltd, a By order of 8 November 1977 the company incorporated under English national court stayed the proceedings law and a subsidiary of the Netherlands and asked the Court of Justice in company Koninklijke Scholten-Honig pursuance of Article 177 of the EEC N.V., commenced proceedings in the Treaty for a preliminary ruling on the High Court of Justice, Queen's Bench question whether Regulation (EEC) No Division, Commercial Court, against 1111/77 is "invalid on any and if so the Intervention Board for Agricultural which" of the grounds referred to in the Produce (the British intervention plaintiffs points of claim which are set agency), for a declaration that Regu­ out below in the summary of the lation (EEC) No 1862/76 (in so far as it plaintiff's observations. supplemented Regulation (EEC) No The order for reference was registered 2742/75 by inserting Article 5 a at the Court on 24 November 1977. therein), Regulation (EEC) No 1111/77 By order of 14 December 1977 the and Regulation (EEC) No 1110/77 are Court decided to join the present cases void and of no effect and that the for the purposes of procedure and United Kingdom Government is not judgment. entitled to implement the said regu­ On hearing the repon of the Judge- lations. Rapporteur and the views of the By order of «29 July 1977 the national Advocate General the Court decided to court stayed the proceedings and asked open the oral procedure, the Council the Court of Justice, in pursuance of and the Commission having first been Article 177 of the EEC Treaty, for a invited to answer certain questions (set preliminary ruling on the following out under III below). questions: "1. Is Council Regulation (EEC) No 1862/76 in so far as it purports to II — Summary of the obser­ vations submitted under insert Article 5 a in Council Regu­ lation (EEC) No 2742/75 a valid Article 20 of the Protocol on the Statute of the Court regulation? of Justice of the EEC 2. Is Council Regulation (EEC) No 1111/77 a valid regulation? 1. In Case 103/77 3. Is Regulation (EEC) No 1110/77 a valid regulation?" Observations of Royal Scholten-Honig Ltd. The order for reference was registered at the Court on 8 August 1977. By way of introduction Royal Scholten- Honig Ltd., the plaintiff in the main B. Case 145/77 action, explains that Council Regu­ On 7 October 1977 Tunnel Refineries lations Nos 1862/76, 1111/77 and Ltd., a company incorporated under 1110/77 have been made with the English law, commenced proceedings in obiect of penalizing production of

isoglucose so as to prevent it from The plaintiff points out, as regards its competing with liquid sugar. The likely interest in isoglucose, that it is a sub effect of the penalties, if validly sidiary of Koninklijke Scholten-Honig imposed, would be to put a stop to the N.V_, a company incorporated under production of isoglucose in the EEC Netherlands law, which, in late 1972, and thus (a) to deny the EEC the bought from an American company benefits of a major technological industrial property rights in respect of advance; (b) to render enormous an enzyme process for manufacturing investments made in recent years almost isoglucose. worthless, without any compensation to With those rights and the know-how the investors; and (c) to disregard resulting from its own researches and completely the interests of consumers under the then prevailing applicable within the EEC. Common Market regulations, the However, the plaintiff takes the view Netherlands company decided that that Council Regulations (EEC) Nos investment in plant to manufacture 1111/77 and 1110/77 and also Council isoglucose was justified.

The plaintiff explains that isoglucose is date of the adoption of Council Regu made from starch, which itself can be lations (EEC) Nos 1111/77 and produced from maize, wheat, potatoes 1110/77) a total of Fl. 53 000 000 had or other products. In the main so far, been spent on the plant. however, production has been from The effect of the above-mentioned regu starch made from maize.

mixed with liquid sugar. A. Cereals The plaintiff lists certain characteristics of isoglucose which has for the user a Referring to the history of production number of positive advantages over refunds in relation to the starch industry liquid sugar in the fields in which it as set out in the "Report on Starch does compete with sugar, that is, for Products in the Community and the soft drinks, fruit and vegetable Starch Production Refund" prepared by conserves, jams and preserves, bakery the Commission, the plaintiff explains products and confectionery. that it appears from that account (a)

that the decision to invest in the plant at objectives of the production refund Tilbury was taken against the back­ system". This phrase is not sufficient as ground of a system of production a reason for not granting the increase. refunds granted to Community starch No reasons at all are given for producers since 1962; and (b) that at no discontinuing the refund for isoglucose stage in the history of production altogether with effect from 1977/1978. refunds for starch had any distinction been drawn between production refunds 2. Article 11 (3) of Regulation No for starch when used for one purpose as 2727/75) opposed to any other, until Regulation The plaintiff emphasizes the subordinate (EEC) No 1862/76 was introduced. nature of Regulation No 1862/76, The effect of that regulation was to which was adopted pursuant to the place producers of starch in so far as authority conferred on the Council by they intend to produce starch for the Article 11 (3) of Council Regulation production of isoglucose, in an adverse (EEC) No 2727/75, the latter regu­ position as compared with persons lation having been adopted directly producing starch for other purposes. pursuant to Article 43 (2) of the Treaty after consultation with the assembly. 6. Sugar The plaintiff claims that, having regard to the terms of the authorization The plaintiff gives a summary of the received by the Council under Article quota system laid down by Council 11 (1) the Council has no authority to Regulation No 3330/74. differentiate between products for the It maintains that Council Regulations manufacture of which any of the items Nos 1111/77 and 1110/77 attempt to referred to in subparagraphs (a), (b) or impose on all isoglucose a penalty equal (c) of that paragraph might be used. In to the amount of the levy imposed any event and even on the supposition under Article 27 of Regulation No that in certain circumstances the 3330/74 on B Quota sugar, without Council might adopt rules making such providing isoglucose with the aid or a distinction, the Council has been benefits of the quota system. guilty of a misuse of powers if in adopting Regulation No 1862/76 it Regulation No 1862/76 took into account considerations extra­ The plaintiff puts forward the following neous to the purposes of the common submissions and arguments in support organization of the markets in cereals. of its view that Regulation No 1862/76 The competition between isoglucose is invalid: and liquid sugar would be and was, in the view of the plaintiff, an extraneous 1. Article 190 of the EEC Treaty consideration in the context of the

producers of starch for the manufacture much an unlawful discrimination against of isoglucose are placed in a different isoglucose as if the levy had been position from that of producers of written directly into the basic sugar regu starch for other purposes. lation, No 3330/74. Producers of isoglucose are plainly in competition Regulations Not 1111/77 and 1110/77 with producers of liquid sugar and the In the submission of the plaintiff, the only part of Regulation No 1111/77 above-mentioned regulations are invalid which has any reality, namely the on the grounds set out below. production levy on isoglucose, plainly By way of preliminary observation the discriminates against producers of plaintiff points out that Regulation No isoglucose in favour of producen of 1111/77 is based on the idea that the liquid sugar. The former would pay a

According to the plaintiff that is not the position in the present case. Indeed the Grounds of invalidity relied on by the imposition of the levy may be said to plaintiff achieve objectives contrary to those set out in Article 39 (1) (c), (d) and (e) 1. The common provisions for inasmuch as the production of isoglucose constitute an unlawful isoglucose, if it takes place, will add discrimination against isoglucose, stability and ensure availability of contrary to Article 40 (3) of the supplies at reasonable prices since it will Treaty provide some insurance against a The plaintiff takes the view that the dramatic shortage in Community or production levy on isoglucose laid down world sugar production.

ROYAL SCHOLTEN-HONIG v INTERVENTION BOARD FOR AGRICULTURAL PRODUCE

sugar. investment without compensation to the investors. (iii) If there is an excess production of sugar in the Community attri­ butable to the fact that isoglucose 4. The common provisions for has taken pan of the sugar market, isoglucose are not, except for Article it is wrong for isoglucose to be 9 which imposes the production levy, charged with the entire expon costs effective provisions and the Council of that excess. has misused its powers

JUDGMENT OF 25. 10. 1978 — JOINED CASES 103 AND 145/77

ROYAL SCHOLTEN-HONIG v INTERVENTION BOARD FOR AGRICULTURAL PRODUCE

In other words The Council, whilst bearing in mind the recent arrival of isoglucose on the since isoglucose production is about one Community market, considers that it hundredth of the size of sugar would be useful to supply some statistics production and since the former is a substitute for the latter the sale price of relating to the product. isoglucose on the Community market According to the Council, for the end should tend towards that of sugar on of 1976 an annual production capacity the same market irrespective of the cost of 150 000 tonnes (in white sugar of producing isoglucose. equivalent) was cited; for the end of 1977, 400 000 tonnes.

The Council persons — notably by the beet growers finally emphasizes that the system of — as incomplete or even inaccurate. production levies is of a temporary However, information on prices is par nature and that there are transitional ticularly hard to establish. arrangements for them. As regards the respective production The Council next considers the costs, that of isoglucose is spoken of as submissions put forward by the plaintiff being 10 to 15% below that of sugar in its points of claim before the High taking into consideration the restrictions Court and makes the following points in imposed on the latter. Some persons particular.

JUDGMENT OF 25. 10. 1978 — JOINED CASES 103 AND 145/77

the production of isoglucose. In any The Council deals inter alia with the case, in the view of the Council, that plaintiffs argument that the imposition would be not the isoglucose manufac­ of the B sugar levy on isoglucose is turers who were discriminated against discriminatory because it makes but their suppliers. isoglucose subject to some of the charges on sugar but not to the 2. Inadequacy ofstatement of reasons corresponding' advantages and that The Council considers that it has made moreover it is not proportional to what clear in the third clause of the sole is necessary and imposes charges which recital in the preamble to the regulation are too heavy. that the retention of the refund for The Council wonders whether what the isoglucose was uncalled for in view of isoglucose producers want is to benefit the objectives of the refund as set out in on their production in the same way as the preamble to Regulation No do sugar manufacturers from а 2742/75. That is a statement of reasons guaranteed remuneration. by reference which would not seem to be excluded by Article 190 of the Treaty In this respect the Council mentions and which would be in accordance with that sugar manufacturers have a the requirements laid down by the maximum quota made up of two Court in its judgment of 13 March 1968 tranches, namely the Quota A tranche (Case 5/67, Beus, [1968] ECR 83 at p. which is guaranteed the full intervention 95). price and the Quota B tranche which is approximately equal to one third of II — Validity of Regulations Nos Quota A (35%) and is guaranteed only 1110/77 and 1111/77 the intervention price reduced by the amount of the levy. In other words, 1. Infringement of Article 38 (1) of the sugar producers are guaranteed the Treaty — isoglucose is not an “agri­ intervention price reduced by a quarter cultural product" of the levy (exactly 135 — 100 The Council recalls that the two types = 26%). of isoglucose to which Regulation No 135

which will put the problem in a new In conclusion, as regards the alleged setting? imbalance between the markets for 3. Would equality of systems ensure the sugar and isoglucose which is said to same remuneration? have brought about discrimination to the disadvantage of isoglucose or even It might on the contrary be claimed that imposed upon it stricter constraints since the production of isoglucose is which were out of proportion to what complementary to existing sugar was necessary, the Council does not production it is perfectly logical that it consider that this has been proved. should be subject to the constraints of that pan of sugar production (B sugar) 3. Prejudice to legal certainty by which is additional to the pan judged sudden reversal of policy without necessary to cover the normal needs of notice (paragraph 19 of the points of the Community which, because of this, claim) and absence to transitional benefits from all Community guarantees

In fact the Community has never Furthermore, the Council wonders undertaken either to continue the starch whether the isoglucose arrangements production refund system with respect are really so unfavourable to isoglucose to isoglucose, or to refrain from organi and points out that it benefits indirectly zation of the market in isoglucose. In from the advantages of the organization this connexion the Court of Justice has of the sugar market in particular with nowhere stated in its case-law on regard to prices. acquired rights and transitional With regard to the plaintiffs submission measures that there is an acquired right that the Council has not brought about to have a set of regulations maintained the equilibrium which the European Parliament considered desirable (cf. in particular Case 1/73, Westzucker between sugar and isoglucose in its [1973] ECR 723). resolution of 23 March 1977 (Official 4. Failure to comply with the duty to Journal C 93 of 18 April 1977, p. 14), consult the European Parliament at the Council points out that the Par the time of the adoption of Regu liament desired (paragraph 26 of its lations Nos 1111/77 and 1110/77 resolution) the extension to isoglucose of the discipline imposed by the The Council simply states that the common organization of the market in opinions of the European Parliament sugar; it did not however say that that are not binding on the Council. equilibrium must be achieved by applying the system of the sugar quotas 5. Infringement of essential procedural to isoglucose. requirements

Observations submitted by the Manufacturers of isoglucose, who make Commission glucose as well, have introduced it on to the market as a liquid sugar with which it is in direct competition. The I — Application of Community Community production of liquid sugar legislation is at present roughly 700 000 tonnes (see the answer to Written Question 1. Isoglucose No 803/76 by Mr Martens — Official As regards details of the properties and Journal) C 84 of 4 April 1977, p. 12), applications of isoglucose the which represented in 1976/1977 8% of Commission refers to an article the total Community sugar published in the journal "Food consumption. However, it should be Technology" of November 1975, remembered that there is a tendency for entitled “Isomerized Corn Syrups in the consumption of liquid sugar to Food Products" (Annex I to its obser­ increase whilst that of sugar is coming vations). According to the Commission down. Ten years ago liquid sugar the only substantial differences between produced in the Community represented isoglucose and sugar are that, in the only 3% of the total Community sugar present state of technology, isoglucose market. Thus it is estimated that the cannot by crystallized and requires to potential market in the long term for be kept during storage and transport at isoglucose might amount to as much as a temperature of between 28 and 30 °C. 30% of the total Community sugar market. The Commission states that according to information available to it in 1976, at a time when the effects of the arrival of 2. Production refunds isoglucose on the Community sugar The Commission refers to its "Report market were first being examined, on Starch Products in the Community production capacity for isoglucose and the Starch Production Refund" within the Community would be of the (COM (77) 363 final of 27 July 1977 — order of 145 000 tonnes at the end of Annex II to the Commission's obser­ 1976 and might attain 375 000 tonnes in vations), which gives a general view of 1978 with further increases in capacity the system of production refunds in the protected during the years 1977 to 1982. starch industry and sets out the (See the reply to Written Question No Commission's proposals to the Council

regarding its future policy towards that It next deals in particular with the sector. The objectives of the system are situation on the Community market at set out in particular in the first recital in the present time, suiting in 1976 and the preamble to Regulation (EEC) No considered likely to continue for the 2742/75 of the Council: foreseeable future, which is one of “...on account of the special situation marked surplus despite the quota on the market in starches and, in system. The total consumption of sugar, which in 1973/1974 was of the order of particular, the need for the starch industry to ensure that its prices are 10·5 million tonnes, has subsequently competitive with those of substitute dropped during 1976/1977 to 9·09 million tonnes, lower than the basic products, Regulations (EEC) Nos 2727/75 and 359/67/EEC provided for quota fixed by Regulation No 3330/74 at 9 136 million tonnes. In addition, the the granting of a production refund, in order that the starch industry might Community assumed under the Lomé obtain the basic products it requires at a Convention in 1976 continuing lower price than that which would obligations to import 1·4 million tonnes result from the application of the rules of sugar at guaranteed prices. The effen of the common organization of the was that during 1976/1977 the markets in the products in question." Community had a surplus of 1· 7 million tonnes, even during a marketing season 3. Regulation No 1862/76 when the sugar yield per hectare was low on account of the drought. The The Commission gives a brief summary Commission estimates that during 1977/­ of the origin of the regulation and in 1978 the Community might have a total particular of Article 2. production of 10·7 million tonnes of The reasons on which that article is sugar which, assuming preferential based, as given in the recital to the regu­ impon obligations of 1·4 million tonnes lation, indicate that "given the and expected consumption of 9·4 objectives of the production refund million tonnes, would give rise to a total system" the increase decided generally exponable surplus of 2·6 million by the Council (14 units of account per tonnes. To enable these exports to take tonne for maize) should not be retained place at a time of mounting world sugar for products used in the manufacture of production and falling prices, Com­ isoglucose. The Commission's view, munity funds will be obliged to pay out, which was accepted by the Council, was in the Commission's view, refunds of that these objectives did not include the the order of 240 units of account per subsidization of a product, not tonne.

6. Regulation No 1111/77 150 and 180 units of account per The Commission proceeds to discuss the tonne, involving a tout of 12 million units of account at the origin and content of the above mentioned regulation. volume of isoglucose production at that time and 60 million units of In order to deal with the problems account by the end of 1977 on the presented by the appearance on the assumption that world sugar prices market of a new product in direct remained constant. (These prices competition with liquid sugar, the have since fallen considerably and Commission organized on 4 October refunds are at present being paid at 1976 a meeting at which all parties were the rate of 240 units of account per able to express their points of view (cf. tonne). Document VI/2482/76 — Annex III to the Commission's observations). That (3) The Commission therefore took the document shows that sugar interests view that no further encouragement requested the application to isoglucose should be given by way of investment aids for the construction of the sugar system whilst the manufac turers and industrial users of starch of isoglucose facilities and that preferred that there should be no isoglucose manufacturers should be change in the existing arrangements. required to contribute by way of a production levy, as were the sugar On 13 February 1977 the Commission manufacturers, to the costs of finally transmitted to the Council, as making the additional exports of part of the annual price proposals, its sugar which would inevitably be proposal regarding isoglucose.

Article 9 of Regulation No 1111/77. (1) Isoglucose benefited from the On the assumption that the production guaranteed price for sugar which as levy payable by sugar manufacturers on a result of the application of the B Quota sugar would be at its quota system was above the equi maximum during the year 1977/1978, librium price level which would that is, 9-85 units of account per 100 otherwise be established. The kg, that is to say, 30% of the Commission estimated that this intervention price of 32·83 units of advantage for isoglucose amounted account per 100 kg, that levy is about to 15% of the Community sugar half the amount payable by sugar manu price. facturers on their B Quota sugar.

ROYAL SCHOLTEN-HONIG v INTERVENTION BOARD FOR AGRICULTURAL PRODUCE

one third of the estimated cost of (c) Discrimination exporting the sugar displaced by According to the Commission, isoglucose on to the world market — 50 producers of isoglucose who are units of account per tonne as opposed allegedly discriminated against by to estimated refunds of between 150 comparison with the producers of other and 180 units of account per tonne. starch-based products are in fact the Finally the Commission states that, same undertakings. Even if a given following numerous complaints from undertaking produced isoglucose only the starch industry about the effect of and no other starch-derived product, the levy on future production of there is no real competition between isoglucose, an inquiry is being made isoglucose and other glucose syrups into the comparative costs of making since they have different characteristics isoglucose and of making liquid and and different applications. invert sugar. 2. Regulations Nos 1110/77 and 1111177 II — Answers to the questions submitted The Commission discusses Regulation 1. Regulation No 1862/76 No 1111/77 only and in particular the production levy since, in the (a) Failure to state reasons Commission's view, the validity of Regu­ lation No 1110/77 stands or falls with The Commission points out in particular that Regulation No 1862/76 that of Regulation No 1111/77. indicates in the recitals in the preamble that an increase in the refund should (a) The argument that isoglucose is not be retained for isoglucose "given not an “agricultural product” the objectives of the production refund On the basis of the same reasons as system". For an undertaking in the those put forward by the Council, the position of the plaintiff the circums­ Commission submits that the above­ tances in which Regulation No 1862/76 mentioned argument is devoid of was adopted' and the intentions on substance. which it was based should have been self-evident. The Court also, in the (b) Submission that the opinion of Commission's contention, should be the Parliament has been disre­

analysis by Mr Advocate General guarantee given by the authorities to Capotorti (opinion delivered on 22 that production, to pay the marginal September 1977 in Joined Cases 64 and charge which is paid for all sugar in 113/76 inter alia [1977] ECR 1773), excess of basic production. which distinguishes three essential aspects of discrimination: (d) Failure to exclude existing (i) Discrimination exists when capacity, to provide for a comparable situations are treated transitional system or for differently. provisions for compensation (ii) Interventions by the Community (1) Legal certainty authorities which bring about an imbalance in the competitive In view of the market on which they capacity of undertakings are were selling starch manufacturers had discriminatory. every reason, according to the Commission, to expect isoglucose to be (iii) Differences of treatment based on covered in certain repects by the system objective criteria are permissible. applicable to sugar. In fact, transitional measures have been applied to (1) Comparable situations isoglucose inasmuch as for the first year The Commission submits that the of application of the new common producers concerned in the present case provisions the production levy is subject are producers of starch (not isoglucose) to а ceiling roughly equal to one half of and producers of sugar, whose situation the levy applied to B Quota sugar. is in no way comparable. Moreover the Commission wonders on The starch industry, which is an what basis "existing and committed industry with a multiplicity of products production capacity” could be excluded and outlets and which uses a number of from the application of the new levy different basic materials, is in a better and points out that a decision to position to adapt itself to changing exclude "committed capacity" from the circumstances than are sugar manufac­ application of the new levy would itself turers. Furthermore, the manufacture of be discriminatory. Manufacturers in starch is a capital-intensive process, such а favoured position would have a whereas that of sugar is relatively considerable advantage over any new labour-intensive. arrival in the field.

burden imposed on isoglucose The Commission suggests that the For an assessment of the validity of Court should give the following answer Regulation No 1111/77 what has to be to the questions submitted by the High considered is not so much the actual Court of Justice: effects of the regulation as the question whether the levy was fixed at a level "Examination of the questions raised completely disproportionate to the has not revealed any factor capable of objective of restraining rather than affecting the validity of Regulation No stopping the production of isoglucose. 1862/76 of the Council of 27 July 1976 The actual amount of the production or of Regulations Nos 1110/77 and levy imposed on isoglucose during 1977/­ 1111/77 of the Council of 17 May 1977". 1978 (15% of the intervention price for sugar) is equal to the hypothetical Case 145/77 difference estimated by the Commission of approximately 15% between the equilibrium price level of sugar with and Observations submitted by Tunnel without the imposition of production Refineries Ltd. quotas. In other words, if there had Tunnel Refineries Ltd., the plaintiff in been no quota system, sugar prices the main action, recalls that it is also the would have to be about 15% lower for applicant in Case 124/77, in which it there to be the same quantity of sugar claims damages against the Council and produced in the Community. The the Commission under Article 178 and Commission therefore takes the view the second paragraph of Article 215 of that this is a reasonable level at which to the EEC Treaty. To avoid needless introduce levies on isoglucose for a trial repetition it limits its observations sub­ period — having regard to the general stantially to such of the submissions as difficulty at the start of the system of relate more particularly to the present fixing the levy at exactly the right level to achieve the desired result. proceedings and have not already been put forward in Case 124/77, but it In the Commission's view a decision to states that, so far as material in the take no action might have brought present case, its application and reply in about catastrophic results. Indeed, if the Case 124/77 are to be regarded as production of isoglucose increased to its included in their entirety in the present potential maximum of 30% of the observations. whole Community sugar market this would mean wholesale abandonment of According to the plaintiff Regulation the cultivation of sugar beet with No 1111/77 is invalid for each of the damaging agronomic consequences and seven grounds indicated in the order widespread unemployment amongst referring the matter to the Court of sugar factory workers and would Justice.

1. The regulation breaches the principle tax on isoglucose which would make its of proportionality inasmuch as it production uneconomic imposes a wholly unfair burden on It contests the Council's argument manufacturers of isoglucose in the (defence in Case 143/77) that the interests of manufacturers ofsugar above-mentioned decision was based The production levy is imposed on the primarily on a false assessment of the whole of the production of isoglucose evolution of the sugar market.

investment decisions were made that any export costs should have been borne either by the sugar producers or (between 1974 and 1976) was the by Community funds. imposition of the tax but for which the production of isoglucose would still be Even on the supposition that it was economic and that it is the Community legitimate to require manufacturers of institutions, not the evolution of the isoglucose to contribute to those export sugar market, which are responsible for costs the contribution was manifestly the reversal of the plaintiffs legitimate excessive and disproportionate since any

objectives: the plaintiff who made the investment decision in reliance upon a (a) In so far as isoglucose can be Community policy which had been regarded as an "agricultural product” consistently followed over a period of the regulation plainly reduces agri years cultural productivity, binders technical The relevant faas are set out in the progress and prevents the rational development of agricultural production application in Case 124/77 (paragraphs and the optimum utilization of the 1 to 7 and II). factors of production, in particular The plaintiff submits that at no time labour. from its first decision of principle to manufacture isoglucose, in October (b) The regulation fails to ensure a 1974, could it reasonably have been fair standard of living for workers expected to foresee the imposition of a concerned in the production of

5. The levy is excessive and dispro­ 4. The regulation infringes the Treaty portionate as demonstrated by the fact inasmuch as it embodies a gross form of that its effect is to render the discrimination contrary to Article 40 production of isoglucose uneconomic in (3) of the Treaty relation to sugar in a market in which It is established that Article 40 (3) they would otherwise be able to prohibits discrimination, not only compete and so to remove a competitor between producers of the same product, from the market but also between producers of different products: cf. for example case 2/77, The plaintiff submits that the regulation Hoffmann's Stärkefabriken AG v Haupt­ is invalid on the above ground for the Zollamt Bielefeld [1977] ECR 1375 the reasons set out in the application and “Quellmehl” and “Gritz” cases, (Joined reply in Case 124/77. Cases 64 and 113/76, Joined Cases 117/76 and 16/77 — Judgment of 19 6. The Commission and Council have October 1977 [1977] ECR 1753 — and misused their powers inasmuch as they Joined Cases 124/76 and 20/77 — have sought by means of the levy to

JUDGMENT OF 25. 10. 1978 — JOINED CASES 103 AND 145/77

law. It is, however, primarily incumbent which is to offset the real or supposed competitive advantage of isoglucose by on the national court to apply and even imposing a levy on its production. to interpret Community law and only if a question of Community law arises In the plaintiff's view the levy cannot be which it is unable to resolve should the justified by the objective, referred to in question be referred to the Court of the preamble to the regulation, of contri Justice. buting to the costs of exporting surplus

7. The regulation is based on a wholly to institute proceedings against inadequate and/or false estimate of the legislative acts. costs of production of isoglucose and/or The Council leaves it to the Court to on a wholly erroneous assessment of judge whether the request for a pre the role of isoglucose and of the liminary ruling can still be reconciled potential market for the product with the essentials of Article 177, The plaintiff submits that the regulation namely, the strictly limited role of the is invalid on the above ground for the parties to the proceedings and the active reasons set out in the application and role to be taken by the national court. reply in Case 124/77. The Council next proceeds to examine

October 1977, Moulins et Huileries de Pont-à-Mousson v Office National Inter Observations submitted by the Council professionnel des Céréales ([1977] ECR 1795), the Council points out that for By way of preliminary observations the an allegation of discrimination to be Council wonders whether the questions justified, a measure of Community law raised do not exceed what is acceptable must treat comparable situations in

different ways without this being with sugar whilst automatically profiting justified by objective circumstances. from the "alignment" of the guaranteed In the present case, the Council price for sugar by means of intervention and thus to re-establish the conditions considers that it has achieved a balance of competition between the two between sugar and isoglucose, that the products. burden which it has imposed on the latter is in no way discriminatory as compared with those imposed on sugar; 3. Breach of the principle of proportion­ ality it adds that, even if exceptionally it were considered that the isoglucose The Council claims that the comparison arrangements, by introducing a levy on made by the isoglucose manufacturers isoglucose, impose a heavier burden on to demonstrate the disproportionate that product than on sugar, the nature of the levy imposed on Community would have been entitled to production of that product as compared do so not only because any other with the levy borne by the sugar arrangements would have vitiated the refineries, namely the fact that the latter sugar arrangements which are the basis paid on only pan of the production of rights acquired legitimately by (Quota B) is based on false premises individuals until 1980, but also because, since it fails to take account of all the since beet sugar is a totally Community arrangements for sugar. The Council product whereas isoglucose is a product refers to the arguments on this point set manufactured from raw materials for forth in its defence in Case 124/77. which the Community is largely According to the Council a comparison dependent on foreign suppliers, the must be made of like with like, that is to Community was entitled to differentiate say, the levy on surplus sugar (B sugar) between sugar and isoglucose in favour and that on isoglucose, since from an of the product obtained in the economic point of view isoglucose is Community on the basis of the principle also surplus sugar. For the first year the of Community preference, which in this levy on isoglucose is approximately case constitutes an objective factor. 50 % of the levy on В sugar and it is equal to that levy for the second year. 2. Violation of the objectives of Article Consequently the levy on isoglucose 39 cannot be termed disproportionate or The Council claims that in its measures wholly unfair. relating to agricultural policy the Community must respect the various 4. Frustration of legitimate expectation objectives set out in Article 39 of the The Council points out that the "full" Treaty whilst being able to make levy will fall due only during the distinctions between them, that is to say 1978/79 marketing year and that for to favour one rather than another. As the 1977/78 marketing year only 50 °/o regards Regulation No 1111/77, for of full levy is due. Legitimate obiective reasons it favoured the expectations which — subject to the principle set out in Article 39 (1) (c), dictates of the public interest — require namely, stabilization of the markets. that current deliveries be made under

basis of the cost price or of the potential Turning next to the grounds alleged by market for isoglucose. This is clear from the plaintiff in favour of a declaration the seventh recital in the preamble to that the regulation is not valid, the Regulation No 1111/77 which gives, as Commission repeats the line of justification for the levy, the twofold argument put forward in its obser ground of the economic advantage vations in Case 103/77 with regard to which isoglucose enjoys in the absence the breach of the principle of proportion of any constraints on that product as ality and of the principle of non compared with sugar and the increase in discrimination. As regards the other sugar surpluses brought about by grounds put forward by the plaintiff the isoglucose. Commission makes the following points As regards the second part of the in particular: allegation of misuse of powers, namely that the Community's aim in Regulation 1. Protection oflegitimate expectation No 1111/77 was to favour the sugar For the definition of this principle the industry unduly, the Council recalls that Commission refers to the opinion of Mr the prime object of that regulation was Advocate General Trabucchi in Joined to stabilize a Community market which Cases 95 to 98/74, 15 and 100/75 would otherwise have been endangered (Coopérative Agricole des Céréales v by virtue of increased surpluses. Commission and Council [1975] ECR

market. continue working in the reasonable In conclusion, the Council suggests that belief that the system on the basis of the Court should reply to the High which it has transacted its business will Court of Justice, Queen's Bench not be subject to alteration before Division, Commercial Court, to the fulfilment of the factual conditions effect that examination of the question necessary for acquisition and actual raised has revealed no argument against determination of its right . . .” the validity of Council Regulation No The Commission points out that 1111/77.

ROYAL SCHOLTEN-HONIG v INTERVENTION BOARD FOR AGRICULTURAL PRODUCE

Turning to the plaintiffs argument that In the first place their accuracy would Regulation No 1111/77 is based on be open to doubt in view of the erroneous premises regarding the marginal position of isoglucose in production costs of isoglucose and the relation to other starch products and the restricted sources from which such extent to which it may be substituted for sugar, the Commission points out that, figures would have to come. even if that argument were true, it In the second place the Commission would not in itself be sufficient to based its attitude on a different render the regulation invalid (or to principle. Isoglucose was a new product justify an application for damages). The on the Community market, resulting Commission states that it would no from a new technology. It was clear to doubt be deplorable if the Council, on the Commission that this new product the proposal of the Commission, had could not and should not be prevented been misinformed as to the facts on from finding a place in the sugar which its legislation was based. market, whatever difficulties its arrival However, unless such erroneous infor- might bring to the management of that

JUDGMENT OF 25. 10. 1978 — JOINED CASES 103 AND 145/77

market. However, what was not affecting the validity of Regulation tolerable for the Commission was that (EEC) No 1111/77 of the Council of that new product should be allowed to 17 May 1977." expand with the full protection of the price guarantee for sugar, but without the corresponding restraints of IV — Answers to the questions production quotas and levies. put by the Court

“Isomerized Corn Syrups in Food material times as regards the Products" (Annex I to its observations) capacity for isoglucose to be used as and on the meeting held with all a substitute for sugar and the future interested parties on 4 October 1976 production possibilities of iso­ (Annex III). It results from this infor­ glucose. mation that isoglucose can replace The Council's answer liquid or invert sugar in the majority of applications of those products In reply to this question the Council (consumption at present around 700 000 provides extracts from the three tonnes). More importantly, at the documents concerning isoglucose in the present time, the sugar-consuming Commission's proposals of February industry buys sugar in crystal form and 1977 (Commission proposals of 11 liquifies it at the suge of processing. February 1977 on the fixing of prices The potential market for isoglucose is for certai n agricultural products and on therefore not limited by the present other related measures, Vol. I; consumption of liquid and inven sugar "Situation of the Agricultural Markets, which is about 8 % of the market. 1976 Repon, Part I", submitted to the Council by the Commission; proposal That is why it has been estimated that, for a Council regulation (EEC) laying given the right circumstances, the down common provisions for iso­ potential market for isoglucose might be glucose. as high as 30 % of total Community In addition the Council submits to the sugar consumption. Court a document dated 11 January Conclusion 1977 produced by the Association General des Producteurs de Maïs The Commission contends that the (General Association of Maize Court should reply in the following Producers): "Observations sur les Sirops manner to the question submitted by the de Glucose Riches en Fructose" (Obser­ High Court of Justice: vations on High Fructose Glucose "Examination of the question raised has Syrups). The Council contends that this not revealed any factor capable of document confirms that:

— At the end of 1977 the isoglucose context that the Council finally production capacity amounted to accepted a maximum amount of 5 units 400 000 tonnes; of account for the levy on isoglucose, — Plans were being studied with a view this amount representing the economic to attaining a capacity of approxi­ advantage gained by this product from а mately 1 000 000 tonnes by 1980; market price for sugar higher than it would be without the limitation on and production deriving from the quota — The possible substitutability system. (potential use) of isoglucose for The Commission intended that the one sugar amounted to 2 000 000 tonnes. year transitional period should be extended in acordance with the The Commisison's answer Commission's proposals to the Council (a) The Commission states that its for 1978/79, providing during this examination of the rate of the period the same figure of 5 units of production levy for isoglucose provided account for the isoglucose levy. in Regulation No 1111/77 was not based on specific calculations. The (b) In appendices to its answer the Commission approached the question in Commission submits the relevant infor­ the following manner: isoglucose being mation in its possession at the time of a product which could be substituted for the preparation of Regulation No liquid sugar, it was appropriate to 1111/77 as regards the capacity for include it in the management of the isoglucose to be used as a substitute for sugar market. Given the existing sugar and the future production forecasts of the situation of the sugar possibilities of isoglucose. market in the Community and of the costs in the form of refunds following from exports, the Commission proposed Second question (to the Council and the that the production of isoglucose should Commission) be submitted to the same levy system as Did the Council and the Commission at that existing for the production of any time, whilst the provisions now in sugar, which had the object of causing dispute were being drafted, examine producers to share to a certain extent in and take into consideration the bio­ the financial losses of the Community chemical and hygienic properties of resulting from the putting of sugar on isoglucose as compared with traditional to the market. sugars manufactured from beet and The parallelism referred to in the cane? Commission's proposal between the rate of the levy for isoglucose and that for sugar can be explained, then, by this The Council's answer decision to treat in an identical fashion The Council states that a comparative two competing products which were examination, such as this question refers substitutable in certain of their to, was not made by the Council at the applications. time of the discussions leading to the During the discussions in the Council adoption of Regulation No 1111/77. the question arose whether this The Council's Agent also wonders complete parallelism which might result, whether what was at stake here might in particular, in a maximum rate of levy have been not so much a problem of of 30 % of the intervention price of market organization, as a question of sugar should not be tempered during a harmonization of legislation and certain transitional period. It was in this possibly a matter of public health.

The Commission's answer In this connexion the third question put The Commission states that it did not by the Court concerns an extremely take into consideration the bio-chemical complex problem relating to the and hygienic properties of isoglucose as arrangements to be applied to "similar and competitive products", to “sub compared with traditional sugars manu factured from beet and cane whilst the stitute products" or, to use the words of the Court in Joined Cases 117/76 and provisions now in dispute were being

By way of illus therefore be afforded equal treatment tration, the Commission submits in an under the general principle of equality. annex dau provided by the producers of isoglucose themselves which confirm The Council's Agent states that it is this assumption. possible to provide the Court with examples where the interdependence of Third question (to the Council) a certain product with products covered Can the Council supply the Court with by а sector of the agricultural policy has other examples taken from the agri made it necessary for the Community culture sector of an obligation authorities to adopt measures to (pecuniary or otherwise) imposed on the maintain or re-establish a balance producers or manufacturers of а between products falling within this agri product coming under one sector of the cultural sector and similar products. Common Agricultural Policy to assist Thus, the Community authorities producers or manufacturers of а imposed constraints on non-agricultural product coming under another sector? products, that is to say products not The Council's answer listed in Annex II but which in common parlance are considered to be of agri The Council's Agent rejects the idea cultural origin, constraints which were that Regulation No 1111/77 was necessary for the smooth functioning of designed to "assist" sugar producers by the common organization in question: imposing a constraint on isoglucose

preamble thereto). In fact, the stitution possibilities and of Regulation smooth functioning of this market No 1110/77 (Article 4), part of one vast would have been jeopardized if sector, that of sweetening agents. "broadly speaking interchangeable" The Council's Agent makes the point products with hops, namely the that the agricultural systems of the essence and vegetable extract of Member States may be integrated by hops had not been subject to the levying taxes on traders in certain common organization in question. products in one or all Member States In order to establish a balance for the benefit of traders in other between hops and these two products. products, the Community auth-

Conversely it is also possible to mention Request for additional information addressed to the Commission another method tending towards the same goal, by which an advantage is 1. In the observations submitted by the granted to the agricultural product so Commission in Case 103/77 there is a that a balance may be re-established reference on page 27 (French version) with a similar product. In order to to a report which is being prepared on guarantee a balance between agri­ the competitive capacity of isoglucose as cultural products (starches, potato compared with sugar. If this starch etc.) and substitute products from investigation has already been the industrial sector, the Council (Regu­ concluded the Court would be obliged lation No 1132/74) introduced a if the report could be made available to production refund for the former. The it. Court considered this to be a legitimate mechanism (end of paragraph 7 and 2. In the reply in Case 116/77 there is paragraphs 9 and 12 of the Decision in a reference on page 7 (French version) Case 2/77 Hoffmann's Stärkefabriken v to an investigation by the Commission's Hauptzollamt Bielefeld). Directorate General III into the costs of As a third point mention might be made production of isoglucose. The Court of the example of the case where supply would be glad to be informed of the difficulties in an agricultural sector led results of this investigation. the Community authorities to tax not only the expon of the agricultural 3. In Case 124/77 there is a reference product, but also certain goods resulting in the Commission's defence on page 27 from the processing of the product, (French version) to a report to be drawn provided that the agricultural product in up by experts on the production costs short supply made up a certain on isoglucose and sugar. If this report is percentage of those goods. Example: yet in existence the Court would be Council Regulation (EEC) No 3185/74 glad to receive a copy. of 17 December 1974 introducing an export charge on certain goods covered 4. The Commission is asked to by Regulation No 1059/69 (Official provide detailed information with Journal L 340, p. 74) (sugar content — regard to the quantities of B and C that is to say the product in short supply sugar produced by the individual sugar — a minimum of 35 %). producers during recent sugar

marketing years (for example from this investigation. It will communicate 1974). the rest of the information to the Court as soon as it is available. The The Commission's answers Commission thinks it important to mention to the Court that it has Points 1 and 3 undertaken with regard to the sugar industry to treat in a confidential The comparative investigation into the production costs of isoglucose on the manner the information acquired during one hand and of sugar, liquid and invert the course of the investigation (see Annex IT). sugar on the other, referred to on page 27 (French version) of the Commission's Point 2 observations in Case 103/77 is the same as that referred to at page 27 (French The investigation into the production version) op the Commission's defence in costs of isoglucose referred to in the Case 124/77. reply in Case 116/77 is an analysis of This investigation has been entrusted by accounts carried out by the Directorate General for Industrial Affairs at the Commission to a specialist private firm, Klynveld, Turquands, DTG & Co. Amylum (see Annex III). The (KTD). The two industries in question Commission has not taken a position on have accepted this firm. the results of this investigation. As it emerges from the answers to the first Originally the Commission intended, so and third requests, the Commission that it should be representative of the thought it appropriate to have a Community as a whole, that this comparative investigation carried out. investigation should be carried out in three Member States (Germany, Point 4 Belgium and the United Kingdom) where there was production of The Commission provides as Annex IV isoglucose, sugar and liquid sugar. the information requested by the Court. The Commission mentions that this However, the “isoglucose side” in Germany and the "sugar side" in the information has been acquired under United Kingdom were not able to the provisions of Regulation (EEC) No agree. The investigation, then, was 1087/69 (Official Journal L 140 of 12 limited to Belgium — at the Amylum June 1969, p. 15). Article 7 of that regu­ company for isoglucose and at the lation provides: Tirlemont refinery Tor sugar. "Information communicated pursuant By agreement with the Commission and to the regulation is solely for the the two industries KTD planned to internal use of the Commission. Only carry out the first pan of its those persons who, within the investigation at Amylum, the repon on Commission, are responsible for the which was completed on 23 March 1978 sugar market may have access to infor­ and is in the form attached at Annex I, mation relating to an individual factory and to pursue the second pan of its or undertaking. Such information may investigation at Tirlemont, which not be disclosed to third panics." commenced on 10 April and should be completed during the month of May. It Supplementary question put to the Commission is further planned that the third pan in which KTD gives its conclusions should On page 26 of its defence in Case be ready in mid-June. Thus at the 11 7/77 the Commisison gave an present stage the Commisison is only in example to show that the charge possession of partial information from imposed on an undertaking manufac-

turing isoglucose is equivalent to the was 15 to 20 % lower than that for a one imposed, by way of the production normal harvest. levy, on a modern sugar undertaking Finally the Commission indicates to the manufacturing Λ, B and C sugar. Court that it does not know the price The Commission is requested to repeat paid by sugar-manufaaurers to this calculation for the last two sugar- producers for beet intended for C sugar marketing years taking as a basis the since this does not derive from average production of all the modern Community rules but is a matter for sugar undertakings which have agreement between the parties.

For these reasons The Commission's answer the Commission is only able to give the At page 26 of the Commission's defence Court the information requested for in Case 116/77 the Commission put each individual firm (15 in all) in the forward a calculation, carried out on form of the calculation applied at page the basis of the prices and levy for the 26 of its defence in Case 116/77. These 1977/78 marketing season but on the firms are distributed amongst four hypothesis of a production for the firm Member States. in question of the same order as that obtained during the 1976/77 sugar- marketing season since its actual V — Oral procedure production for 1977/78 was not yet known at the moment of the calculation At the hearing on 24 May 1978 Royal

JUDGMENT OF 25. 10. 1978 — JOINED CASES 103 AND 145/77

VI — Requests submitted after Joined Cases 116, 124 and 143/77 as the closing of the oral well as in the present cases. procedure By a letter of 25 September 1978 the By letter of 8 August 1978 Tunnel Commission requested permission in Refineries Limited, the plaintiff in the pursuance of Articles 60 and/or 61 of main action in Case 145/77 and the the Rules of Procedure of the Court to applicant in Case 124/77, (Tunnel make available to the Court the second Refineries Ltd v Council and and third parts of the comparative Commission) requested, in the matter of investigation into the costs of Joined Cases 116, 124 and 143/77, that production of isoglucose on the one the Court should take into account hand and of sugar, liquid sugar and certain information to which its invert sugar on the other hand carried attention had been drawn by letter of 7 out by the private firm Klynveld- August 1978 from the applicant in Case Turquands DTG & Co. and asked that 116/77 (Amylum v Council and the Court should, if it thought fit, order Commission) relating to the price for the the reopening of the oral procedure. marketing year 1977/1978 of sugar-beet corresponding to C sugar. Having regard to the basis of the If the Court were to agree to the above­ Court's judgment in this case it did not mentioned request it would be necessary feel it necessary to accede to the above for it to do the same in the context of requests.

Decision

1 By orders dated 29 July and 8 November 1977 which reached the Court on 8 August and 24 November 1977 respectively the High Court of Justice, Queen's Bench Division, Commercial Court, requested the Court in pursuance of Article 177 of the EEC Treaty to give a preliminary ruling on the validity of certain provisions of Council Regulation (EEC) No 1862/76 of 27 July 1976 amending Regulation (EEC) No 2742/75 on production refunds in the cereals and rice sectors (Official Journal L 206, p. 3) and on the validity of Council Regulations (EEC) Nos 1111/77 of 17 May 1977 laying down common provisions for isoglucose (Official Journal L 134, p. 4) and 1110/77 of the same date amending Regulation (EEC) No 3330/74 on the common organization of the market in sugar (Official Journal L 134, p· 1)

6 In order to assess the validity of Regulation No 1862/76 it is appropriate to examine in the first place the legal situation as it existed prior to the entry into force of that regulation in the matter of the system of production refunds in the cereals sector.

7 According to the ninth recital in the preamble to Regulation (EEC) No 2727/75 of the Council of 29 October 1975 on the common organization of the market in cereals (Official Journal 1975 L 281 p. 1): “in view of the special market situation for cereal starch, potato starch and glucose produced by the 'direct hydrolysis' process it may prove necessary to provide for a production refund of such a nature that the basic products used by this industry can be made available to it at a lower price than that resulting from the application of the system of levies and common prices.”

8 Article 11 (1) of the regulation provides that a production refund "may be granted:

(a) for maize and common wheat used in the Community for the manu­ facture of starch;

JUDGMENT OF 25. 10. 1978 — JOINED CASES 103 AND 145/77

(b) for potato starch;

12 Although, in pursuance of Article 1 of that regulation production refunds were increased, Article 2, which added a new Article 5a to Regulation No 2742/75, laid down special rules as regards the production refund for only one product processed from starch, glucose having a high fructose content.

13 According to that article the amount of the refund for starch processed into that product is maintained at the level of that of the previous marketing year and is abolished as from the 1977/78 marketing year.

ROYAL SCHOLTEN-HONIG v INTERVENTION BOARD FOR AGRICULTURAL PRODUCE

14 Under the new Article 5a (3) the difference between the amount of the production refund for starch processed into glucose having a high fructose content and the amount for starch used for any other purpose is to be recovered by Member States from manufacturers.

15 Therefore, in the case of products used subsequently for the manufacture of glucose having a high fructose content, Article 2 of Regulation No 1862/76 by using the expedient of "recovery" in fact refused the increase in the production refund for the 1976/77 marketing year and abolished it as from the following marketing year.

16 Although in Case 103/77 the national court only asks in general terms whether Regulation No 1862/76 is valid in so far as it purports to insert Article 5a in Regulation No 2742/75, the plaintiff in its written observations puu forward three submissions regarding the validity of Regulation No 1862/76.

refunds, as regards the market in starches, is to abolish the disadvantage to which the starch industry is subjected by reason of the application of common prices for the raw materials used by the industry and to enable it to maintain competitive prices in comparison with the prices of substitute chemical products.

22 When considered in the context of the system in which they took effect, the refusal to increase the refund and its subsequent elimination for starch intended for the manufacture of isoglucose, a product which is not or is hardly in competition with substitute chemical products, may be explained by the nature of the objectives of the system of production refunds to which reference is made in the preamble to Regulation No 1862/76.

23 That reference to the purposes of the refund system, which moreover are well known to the circles concerned, satisfies the requirement under Article 190 of the Treaty for a statement of reasons and thus the validity of Regu­ lation No 1862/76 cannot be challenged on those grounds.

24 The plaintiff further claims that Regulation No 1862/76, by creating an exceptional situation for producers of starch intended for the production of isoglucose, is discriminating between them and manufacturers of starch intended for other purposes and that this is contrary to the principle of non- discrimination set out in the second subparagraph of Article 40 (3) of the Treaty.

25 The second subparagraph of Article 40 (3) of the Treaty provides that the common organization of agricultural markets "shall exclude any discrimi­ nation between producers or consumers within the Community”.

31 Furthermore as isoglucose is a product which is at least partially inter­ changeable with sugar, the maintenance of the production refund in favour of manufacturers of isoglucose might at a subsequent stage have constituted discrimination against manufacturers of sugar who, for their pan, do not enjoy an equivalent advantage.

32 Hence Article 2 of Regulation No 1862/76 does not infringe the rule of non-discrimination between Community producers set out in the second subparagraph of Article 40 (3) of the Treaty.

33 Finally the plaintiff in Case 103/77 contests the validity of Regulation No 1862/76 by claiming that, to the extent to which the regulation lays down special rules abolishing the production refund for starch intended for the production of isoglucose, it exceeded the powers conferred on the Council in pursuance of Article 11 of Regulation No 2727/75.

34 Hence, as it could not be considered as a mere rule of application within the meaning of Article 11, Regulation No 1862/76 could only have been adopted after the completion of the procedure referred to in the third subparagraph of Article 43 (2) of the Treaty, including consultation with the Assembly.

35 It has already been established that the exclusion by Article 2 of Regulation No 1862/76 of starch intended for isoglucose production from the

JUDGMENT OF 25. 10. 1978 — JOINED CASES 103 AND 145/77

(a) In accordance with Article 24 each undertaking is allotted a basic quota, called "Quota A" and may sell the sugar produced within that quota directly on the Community market at the intervention price;

(b) Pursuant to Article 25 each undertaking may in addition be allotted a quota, called "Quota B", equal to its Quota A multiplied by a coefficient and may also sell on the Community market the sugar produced within these limits on payment of a production levy (Article 27);

(c) The sugar produced over and above the Quotas A and £, called "Sugar C" may not be disposed of on the internal market and must be exponed in the natural sute on the world market before 1 January following the end of the sugar marketing year during which it has been produced (Article 26).

ROYAL SCHOLTEN-HONIG v INTERVENTION BOARD FOR AGRICULTURAL PRODUCE

«o Under Article 27 (2) of the above-mentioned regulation the production levy is to be calculated per unit of weight by dividing total losses incurred in marketing the quantity produced in the Community outside the guaranteed quantity by the sum of the quantities produced outside the basic quota by Community undertakings.

41 Under Article 27 (3) the production levy is not to exceed a maximum amount which is not to be higher than 30 % of the intervention price.

"... being a substitute product in direct competition with liquid sugar which, like all beet or cane sugar, is subject to stringent production constraints, isoglucose therefore enjoys an economic advantage and since the Community has a sugar surplus it is necessary to export corresponding

JUDGMENT OF 25. 10. ИЛ — JOINED CASES 103 AND 145/77

quantities of sugar to third countries; ... there should therefore be provision for a suitable production levy on isoglucose to contribute to export costs."

48 According to the ninth recital the above-mentioned levy system is complementary to that established by Regulation No 3330/74, as last amended by Regulation No 1110/77 and the envisaged levy on the production of isoglucose is analogous to that provided for in Article 27 of Regulation No 3330/74 and consequently constitutes own resources of the Communities within the meaning of Article 2 of the Council Decision of 21 April 1970 on the replacement of financial contributions from Member States by the Communities' own resources (Official Journal, English Special Edition 1970 (I), p. 224).

49 The system of production levies is established by Articles 8 and 9 of the regulation and is applicable to the periods corresponding to the 1977/78 and 1978/79 sugar marketing years.

so Article 9 (1) of the regulation provides that the Member States shall charge a production levy on manufacturers of isoglucose and paragraph (2) provides in the first subparagraph that the amount of the levy, per 100 kg of dry matter, shall be equal to the amount of the production levy provided for in Article 27 of Regulation (EEC) No 3330/74 for the same period to which the latter amount applies.

56 Under Article 4 of the regulation the total losses mentioned in Article 27 (2) of Regulation No 3330/74 are to be reduced inter alia by the amount of the production levy referred to in Article 9 of Regulation No 1111/77.

57 The national court has asked whether Regulations Nos 1111/77 and 1110/77 are invalid on one or more of the grounds pleaded before it by the plaintiffs.

58 It appears from the file that the most important grounds pleaded against the validity of the rules in question may be summarized as follows:

(a) They offend against the principle of proportionality by imposing on isoglucose manufactures an altogether unfair charge to the advantage of sugar manufacturers;

(b) They contain no provision, and were followed by no rules of application, for the protection of the legitimate expectations of the plaintiffs;

(c) They infringe the Treaty because their provisions do not seek to attain or are in contradiction with the objectives of the common agricultural policy set out in Article 39 of the Treaty both jointly and severally;

60 In this respect inquiry must be made whether isoglucose and sugar are in comparable situations.

61 The second recital in the preamble to Regulation No 1111/77 states that "isoglucose is a direct substitute for liquid sugar obtained from sugar-beet or cane" and the seventh recital states that isoglucose is "a substitute product in direct competition with liquid sugar".

62 As the Council has subsequently recognized in the third recital in the preamble to Regulation No 1298/78 of 6 June 1978 amending Regulation No 1111/77 (Official Journal L 160, p. 9), as the markets in sugar and isoglucose are closely linked and there are structural surpluses in the Community sugar sector, any Community decision on one of those products necessarily affects the other.

63 Nevertheless it must be pointed out that isoglucose manufacturers and sugar manufacturers are treated differently as regards the imposition of the production levy.

ROYAL SCHOLTEN-HONIG v INTERVENTION BOARD FOR AGRICULTURAL PRODUCE

64 In fact, in contrast to the production levy provided for in Article 27 of Regu­ lation No 3330/74, which only affects Quota B sugar, the levy applied by Article 9 of Regulation No 1111/77 is applied to the whole of isoglucose production.

70 This argument cannot be accepted.

JUDGMENT OF 25. 10. 1978 — JOINED CASES 103 AND 145/77

71 In fact, even if it were admitted for the sake of argument that the advantage enjoyed by isoglucose manufacturers as a result of the intervention system for sugar could be estimated at 15 % of the intervention price for sugar, such an advantage applies equally to certain sugar manufacturers, in particular those in possession of modern factories favourably situated.

72 The Commission and Council further claim that the production levy of 5 units of account imposed on isoglucose is essentially comparable to the charges borne by sugar.

73 By way of demonstration the Commission at the request of the Court produced a table showing a series of examples based on the production figures for modern sugar factories producing considerable quantities of C sugar.

74 According to the Commission these calculations show that sugar manufac­ turers bear charges varying from 3.81 units of account to 13.52 units of account per 100 kg.

10 It is also important to note that it emerges from the Commission's calcu­ lations that each increase in the total production of sugar outside the basic quota has the effect of increasing the average charge to be borne by the manufacturer so that the latter is in a position to reduce the amount of the said charge by limiting his production whereas for the isoglucose manu­ facturer a limitation on production remains without any effect as regards the amount per unit of weight of the production levy brought into force by Regulation No 1111/77.

81 Moreover the Council and the Commission emphasize the practical difficulties which certain alternative solutions would have presented, in particular the establishment of a quota system for isoglucose, regard being had to the fact that the latter is a product newly arrived on the Community market and that its production is in the process of increasing rapidly.

82 However, inconveniences of the type alleged cannot justify the imposition of a charge which is manifestly unequal.

83 Accordingly the provisions of Regulation No 1111/77 establishing the production levy system for isoglucose offend against the general principle of equality of which the prohibition on discrimination set out in Article 40 (3) of the Treaty is a specific expression.

u The answer must therefore be that Regulation No 1111/77 is invalid to the extent to which Articles 8 and 9 thereof impose a production levy on isoglucose of 5 units of account per 100 kg of dry matter for the period corresponding to the sugar marketing year 1977/78.

On those grounds,

THE COURT

in answer to the questions referred to it by the High Court of Justice, Queen's Bench Division, Commercial Court, by orders of 29 July and 8 November 1977, hereby rules:

1. Consideration of the questions raised has disclosed no factor of such a kind as to affect the validity of Council Regulation No 1862/76 of 27 July 1976.

2. Council Regulation No 1111/77 of 17 May 1977 is invalid to the extent to which Articles 8 and 9 thereof impose a production levy on isoglucose of 5 units of account per 100 kg of dry matter for the period corresponding to the sugar marketing year 1977/78.

Kutscher Mertens de Wilmars Mackenzie Stuart Donner Pescatore