C-151/77

JUDGMENT OF 5. 4. 1979 — CASE 151/77

In Case 151/77

REFERENCE to the Court under Article 177 of the EEC Treaty by the Finanzgericht [Finance Court] Hamburg for a preliminary ruling in the proceedings pending before that court between

PEISER & Co. KG, Norderstedt,

and

HAUPTZOIXAMT [Principal Customs Office] HAMBURG-ERICUS,

Facts and Issues

The facts of the case, the course of the Protocol on the Statute of the Court of procedure and the observations Justice of the EEC may be summarized submitted under Article 20 of the as follows:

PEISER / HAUPTZOLLAMT HAMBURG-ERICUS

Thus Article 4 of Regulation No 974/71 the second subparagraph of Article 2 (2) provides that: of the regulation provides that monetary "No compensatory amount shall be fixed compensatory amounts shall not apply where, in any Member State, the beyond 31 December 1977 in respect of percentage referred to in Article 2 (1) products falling within tariff subheadings does not exceed 2-5%" (this percentage 17.04 D (sugar confectionery not represents the difference between the containing cocoa, other than liquorice official conversion rate of the currency extract, chewing gum and white concerned and the so-called green rate). chocolate), 18.06 B (ice cream (not By Regulation No 800/77, a number of including ice cream powder) and other goods were brought within the system of ices containing cocoa), 18.06 C monetary compensatory amounts. They (chocolate and sugar confectionery were different kinds of sugar containing cocoa), 19.08 B (pastry, confectionery, ice cream and other ices, biscuits, cakes and other fine baker's wares other than gingerbread and the

JUDGMENT OF 5. 4. 1979 — CASE 151/77

By Commission Regulation No 2657/77 between the United Kingdom and of 30 November 1977 on the application Ireland were replaced by fresh amounts of monetary compensatory amounts to annexed to the Commission Decision of certain products not covered by Annex II 4 May 1977 amending that of 23 March to the Treaty (Official Journal 1977 1977 (Official Journal 1977, L 123, p. L 308, p. 48) the time-limit on the 18). Under Article 3 thereof, this second applicability of Regulation No 800/77 decision as well as the decision of was abolished and the monetary 23 March 1977 ceased to apply on the compensatory amounts on the products day on which Regulation No 800/77 under consideration were maintained for took effect (that is 23 May 1977). an indefinite period.

B — The facts

"Is Commission Regulation (EEC) No 800/77 of 20 April 1977 invalid in so far The monetary compensatory amounts as monetary compensatory amounts are thus introduced by this bilateral system charged or granted on imports or exports

PEISER / HAUPTZOLLAMT HAMBURG-ERICUS

of goods under tariff subheading adopted under Article 235" in Regu­ 18.06 C II a 1 (code number 1806 650 20), lation No 800/77, the Community tariff subheading 18.06 C IIb 2 (code legislature meant to refer to Regulation numbers 1806 650 50 and 1806 700 50), No 1059/69 of the Council of 28 May tariff subheading 18.06 C IIb 3 (code 1969 laying down the trade number 1806 650 60) and tariff sub­ arrangements applicable to certain goods heading 19.08 B II d 1 (code number resulting from the processing of agri­ 1908 912 32)?". cultural products (Official Journal, English Special Edition 1969 (I), p. 240). The order making the reference was However that regulation was based on lodged at the Court Registry on 15 the authorization of Article 235 of the December 1977. Treaty only in so far as concerns the special trade arrangements concerning Upon hearing the report of the Judge- intra-Community trade which the Rapporteur and the views of the Council was empowered to adopt under Advocate General, the Court decided to Article 14 (3) and (4) of the said regu­ open the oral procedure without any lation. Under the terms of these preparatory inquiry. provisions, the Council acting by a qualified majority may take appropriate measures to deal with possible effects on II — Summary of the obser­ trade between Member States, and acting vations submitted under unanimously may take appropriate Article 20 of the Protocol measures to deal with a special situation on the Statute of the Court which may arise in respect of certain of Justice of the EEC. goods.

observe the procedure laid down in conditions of competition of the Article 235 (which constitutes an processed products. institutional guarantee against the risk of the Community's powers being wrong­ fully extended beyond the limits laid Disturbances in trade ought to have led down by the Treaty). Therefore there is to a sudden alteration in the trends of no specific arrangement under Article imports and exports from the time of the 235 of the Treaty in respect of the imposition of the compensatory amounts products in question. The monetary on the basic products in question or even compensatory amounts system should from the time of the widening of the not therefore have been extended to margins of fluctuation of the currencies. these processed agricultural products. It appears in particular from the edition of the "Süßenwarentaschenbuch" [confectionery handbook] published by the "Bundesverband der deutschen Süßenwarenindustrie e. V." [Federal 2. Illegality of Regulation No 800/77 in Union of German Confectionery relation to the principle of proportion­ Industries] that, as regards trade between ality the Federal Republic of Germany and the other Member States, imports of chocolate and cocoa-based products increased 2.5 times between 1966 and 1976, whereas over the same period Pursuant to this principle — which is exports increased 6 times (during the expressly referred to in the basic Regu­ period immediately preceding the intro­ lation No 974/71 — in order for a duction of the compensatory amounts monetary compensation system to be system, that is during 1976, imports introduced in respect of a processed increased by 12.3% and exports by product in does not suffice for the 15.6%). Over the 10 year period from monetary compensatory amounts applied 1966 to 1976, imports and exports of to the basic products to have an sugar confectionery increased 3.5 times incidence of any size whatever upon that (in 1976 imports decreased by 3.4% and processed product. The said amounts exports increased by 21%). must also be "necessary" to compensate for the effect of the monetary measures on the prices of the basic products, and As regards trade between Member States those measures must have led to distur­ with a strong currency and Member bances in trade in the goods (cf. the States with a weak currency over the judgment of 17 March 1976 in Joined three years preceding the introduction of Cases 76 to 85/75, [1976] ECR 391, and compensatory amounts, it is noted that it the judgment of 14 May 1975 in Case followed a normal trend: 74/74, [1975] ECR 539). Article 190 of the Treaty is infringed in that the statement of the reasons on which Regu­ — With one exception, imports did not lation No 800/77 is based is insufficient. show any unexpected developments The Commission failed to show whether justifying an inference of distur­ there was any disturbance in trade in bances in trade between Member agricultural products, whether appli­ States. cation of the monetary compensatory amounts system was necessary and to what extent the said amounts applied to — Exports show either a tendency to the basic products affected the increase (particularly for the most

important product: bars of soft- at the level of the processed products is centred chocolate) or a very slight given as the justification for extending tendency to decrease. the monetary compensation system to confectionery products. The Commission did not state why it extended the compensatory amounts system to certain Therefore the only disturbance in trade is that which affected commercial processed agricultural products but not to other important groups of products — relations between the United Kingdom and Ireland. However a mere bilateral such as, in particular, pasta, marmalade, jam and preserved fruits containing disturbance cannot justify the intro­ sugar. duction of a multilateral system of compensatory amounts. This follows primarily from the principle of pro­ In addition to this basic discrimination, portionality. But it also follows from an Regulation No 800/77 also contains a interpretation of Regulation No 974/71 number of particular forms of discrimi­ according to which the authorization nation for which no rational foundation contained in Article 1 is addressed not to can be seen. Thus, for example, almost the Commission but to each Member all kinds of chocolate and cocoa-based State which allows its currency to depart products are made subject to from the official parity for commercial compensatory amounts whereas white transactions. chocolate under tariff heading 17.04 C, which contains the same amount of sugar as brown chocolate and has a It also seems that monetary similar taste owing to its cocoa butter compensation of DM 282.53 charged on content, is excluded from the monetary goods worth DM 30 030.28 cannot be compensatory amounts system. such as to affect the traditional trends of trade. Such a paltry percentage in itself makes quite improbable the idea that 4. Limits of the Commission's discret­ there is any disturbance in trade in the products in question. Furthermore, ionary power of assessment regard must be had to the particular nature of the products, in relation to According to its setded case-law the which provenance from a certain country Court confines itself to considering with its distinctive features of quality and whether the assessment of measures of taste is more important than a minimal an economic nature is vitiated by increase or decrease in price due to manifest error or misuse of powers, but differences in the parity of currencies. this principle does not entirely exclude the Court's ability also to assess economic factors, to the extent to which 3. Illegality of Regulation No 800/77 in this may be necessary for the purpose of relation to the principle of non­ reviewing the legality of the act in discrimination laid down in respect of question. This is the case inter alia where the agricultural common market by observance of the principle of pro­ Article 40 (3) of the Treaty portionality has to be verified: here the question is whether the introduction of a monetary compensatory system was In the preamble to the said regulation, necessary for the products at issue. The the fact that the compensatory amounts Commission's discretionary power of on the basic products led to differences assessment must not be too broad, as in prices and distortions of competition the compensatory . amounts system

constitutes "partitioning of the markets" bances in trade must actually have contrary to the principles of the commenced before action is taken under Common Market. Thus the Court has Regulation No 974/71. always held that account had to be taken of the market conditions as well as of the monetary situation. In Joined Cases 67 Ireland had initially requested the to 85/75 cited above it even held that the Commission to adopt a measure under Commission was obliged "to abolish the Regulation No 974/71. The protective system of compensatory amounts for the measure concerning Ireland did not products in question, as soon as its remove the competitive disadvantage to application proved to be no longer which Irish manufacturers were subject necessary in order to prevent distur­ in trade with any other Member State or bances in trade." non-member country. Furthermore, it did not take account of the possibility of deflections of trade through other In the present case, unlike Case 5/73 Member States. Balkan [1973] 1091, the mistakes of assessment which the Commission made do not concern disturbances in trade in a If the Court concludes that the certain product in relation to a single conditions which Regulation No 974/71 country: here it is a matter of extending lays down for the application of "partitioning of the markets" to a large monetary compensatory amounts to the group of products when there were no products in question were not fulfilled disturbances in trade between the with regard to trade between certain Member States except between the Member States, Regulation No 800/77 United Kingdom and Ireland. should not be held to be invalid in its entirety but only to the extent to which its provisions were not justified under The Commission itself has emphasized Regulation No 974/71. The conditions several times, most recently on 10 which gave rise to the disturbances in February 1978 in a communication to trade between Ireland and the United the Council on the economic effects of Kingdom would recur if the provisions the agri-monetary system (COM (78) of Regulation No 800/77 were to cease 20 final), that the sole function of the to be applied in their entirety. compensatory amounts should be to compensate for the sudden incidence of monetary instability in exchange rates. In the exercise of the power under Regu­ The existence of such a questionable lation No 974/71 to apply monetary system necessitates particularly strict observance of the limits of lawfulness compensatory amounts to products such as those in question in the present case, resulting from the principles of pro­ the requirements of Article 235 are portionality and non-discrimination. satisfied if the condition concerning the threat of disturbances in trade is satisfied. B — Observations submitted by the Irish Government There were objective reasons for the Commission's decision not to include The Irish Government shows that certain processed products within the Peiser's criticisms are based, at least in ambit of Regulation No 800/77. In part, on the erroneous view that distur- particular, the products to which the

However, since certain of the grounds put forward in Case 11/78 in support of 2. Misuse of powers the illegality of Regulation No 800/77 are relevant for the purpose of answering the question asked by the Finanzgericht, Assuming that the Commission had the the Italian Government repeats them as power to apply monetary compensatory observations. amounts to the products concerned, that power was used for a purpose other than that which Regulation No 974/71 attributed to it. In Regulation No 800/77, it was not the Commission's 1. Infringement of Article 1 (3) of Regu­ intention to resolve a common agri­ lation No 974/71 cultural policy problem (which is the basic purpose of the system of As emerges from this provision, the compensatory amounts) but to deal with Commission's discretionary power in difficulties complained of by Irish assessing the risk of disturbances in trade processing industries in their trade with can be exercised only at the level of agri­ the United Kingdom. This conclusion is cultural products. Therefore monetary justified by the facts that: v compensatory amounts can be applied to products which "are the subject of a specific arrangement under Article 235 — on the one hand, the decision of the Treaty" only if there is a risk of concerning Ireland ceased to apply

JUDGMENT OF 5. 4. 1979 — CASE 151/77

on the day on which Regulation No Regulation No 800/77 was adopted in 800/77 took effect (23 May 1977); breach of Article 2 (2) of Regulation No 974/71 for want of the strict relationship of dependence required by that — on the other hand, the compensatory provision, which provides the only amounts were not applied for grounds for the applicability of the example to white chocolate and compensatory amounts to non-agri­ gingerbread, which, as regards the cultural derived products (cf. judgment effect which the basic agricultural of 12 November 1974 in Case 34/74 product has on them, are no different Roquette [1974] ECR 1217). from the other products to which the monetary compensatory amounts were applied.

PEISER / HAUPTZOLLAMT HAMBURG-ERICUS

latter measure to be able to be adopted, prompted to intervene rapidly in order to the existence of particular difficulties in reduce the difference of 24.3% which Ireland had to be proved; it is not had arisen owing to the fixing of possible to justify a requirement that the different green rates for the pound existence of such difficulties in dealings sterling and the Irish pound despite the between the Federal Republic of fact that from the monetary point of Germany and its neighbours must also be view these two currencies are a single established. unit.

(b) The Commission's policy in the sector (c) Regulation No 800/77 ofprocessed products

More thorough analysis of the economic In the beginning, the Commission and legal situation revealed to the adopted the principle of limiting Commission that the problems posed application of compensatory amounts to could not be resolved adequately by the products in respect of which their decision adopted in respect of Ireland, incidence amounted to at least 1.5% of which was replaced by Regulation the average value of the goods. In No 800/77.

JUDGMENT OF 5. 4. 1979 — CASE 151/77

2. Compatibility of the legislation in Examination of the available statistics question with Article 235 of the EEC (established by the Statistical Office of Treaty the European Communities) reveals a trend towards deflections of trade. As regards the Federal Republic of The wording of Article 235 is more Germany in particular, the data flexible than Peiser believes, and only

PEISER / HAUPTZOLLAMT HAMBURG-ERICUS

3. The question of discrimination

(b) Complaint concerning specific forms of discrimination (a) General complaint of discrimination

Competition between white chocolate and other cocoa-based products can only The Commission refers to the statement be very restricted, having regard to the of its policy in the sector of processed very pronounced differences between the products. It also submits that the method taste of these products. Moreover no of selection on the basis of objective complaint has yet been registered. White assessment (according to which it should chocolate is manufactured mainly in the have considered whether and established United Kingdom, but exports from that that difficulties and disturbances had country to countries with a strong arisen in trade in certain processed currency practically stagnated, whereas products between certain countries) is exports from the latter countries impracticable because of the constraints increased. As to cocoa powder, it is not inherent in the system (cf. Case 29/77). in direct competition with chocolate- This means not that the Commission is based products.

JUDGMENT OF 5. 4. 1979 — CASE 151/77

Decision

1 By an order of 23 November 1977 which was received at the Court on 15 December 1977, the Finanzgericht Hamburg referred a question to the Court of Justice for a preliminary ruling under Article 177 of the EEC Treaty on the validity of Commission Regulation No 800/77 of 20 April 1977 amending, as regards products which are subject to monetary compensatory amounts, Regulation No 572/76 fixing the monetary compensatory amounts (Official Journal 1977, L 97, p. 18).

PEISER / HAUPTZOLLAMT HAMBURG-ERICUS

2 This question was raised in the context of a dispute over the charging of monetary compensatory amounts of DM 282.53 in respect of the importation into the Federal Republic of Germany of several consignments of biscuits and chocolates under Common Customs Tariff headings 18.06 C and 19.08 B, which had been bought in the Netherlands for a total price of DM 30 030.28 by the Peiser undertaking, the plaintiff in the main action.

The plaintiff asked the Finanzgericht Hamburg to annul the assessment to the said monetary compensatory amounts issued by the competent Haupt­ zollamt, the defendant in the main action.

3 The dispute concerns the application of the monetary compensatory amounts system to certain products which are not covered by Annex II to the Treaty and are the subject of a specific arrangement under Article 235 of the Treaty according to the terms of Article 1 (2) (b) of Regulation No 974/71 of the Council of 12 May 1971 on certain measures of conjunctural policy to be taken in agriculture following the temporary widening of the margins of fluc­ tuation for the currencies of certain Member States (Official Journal, English Special Edition 1971 (I), p. 257).

The recitals in the preamble to this decision stated that:

JUDGMENT OF 5. 4. 1979 — CASE 151/77

«… the compensatory amounts charged or granted … [on the] basic products, would amount to 34.7% in the case of the United Kingdom and to 10.4% in the case of Ireland; … this situation, entailing a relative disad­ vantage to the manufacturers … in Ireland on the cost of the basic products of 24.3%, may lead to distortion in the terms of competition in trade in the processed agricultural products referred to in the Irish application between the Member States concerned; … this situation, in its present acute form since November 1976, has given rise to serious difficulties for the sectors concerned in Ireland …»

The monetary compensatory amounts introduced by these bilateral arrangements between the United Kingdom and Ireland were altered by the Commission Decision of 4 May 1977 (Official Journal 1977, L 123, p. 18), according to which this second decision as well as the preceding one ceased to apply on the day on which Regulation No 800/77 took effect.

5 The question asked by the Finanzgericht Hamburg is the following:

"Is Commission Regulation (EEC) No 800/77 of 20 April 1977 invalid in so far as monetary compensatory amounts are charged or granted on imports or exports of goods under tariff subheading 18.06 C II a 1 (code number 1806 650 20), tariff subheading 18.06 C II b 2 (code numbers 1806 650 50 and 1806 700 50), tariff subheading 18.06 C II b 3 (code number 1806 650 60) and tariff subheading 19.08 B II d 1 (code number 1908 912 32)?".

(b) to products whose price depends on the price of the products referred to under (a) and which are governed by the common organization of market or are the subject of a specific arrangement under Article 235 of the Treaty."

Article 235 of the Treaty provides:

"If action by the Community should prove necessary to attain, in the course of the operation of the common market, one of the objectives of the Community and this Treaty has not provided the necessary powers, the Council shall, acting unanimously on a proposal from the Commission and after consulting the Assembly, take the appropriate measures." By virtue of this provision on 28 May 1969 the Council, acting on a proposal from the Commission and after consulting the Assembly, adopted Regulation No 1059/69 laying down the trade arrangements applicable to certain goods resulting from the processing of agricultural products.

Among the goods subject to the provisions of this regulation are those coming under the following tariff subheadings: 18.06 (chocolate and other food preparations containing cocoa) and 19.08 (pastry, biscuits, cakes and other fine bakers' wares, whether or not containing cocoa in any pro­ portion).

Consequently, the products to which the question refers are the subject of a specific arrangement under Article 235 of the Treaty, and compensatory amounts can validly be fixed for those products.

8 The plaintiff and the Italian Government submit that by adopting Regulation No 800/77, the Commission infringed the provisions of Article 1 (3) of Regu­ lation No 974/71, according to which "paragraph 1 shall apply only where application of the monetary measures referred to in that paragraph would lead to disturbances in trade in agricultural products".

10 The wording of Article 1 (3) of Regulation No 974/71 as amended by Regu­ lation No 2746/72 of the Council of 19 December 1972 (Official Journal, English Special Edition 1972 (28-30 December), p. 64) requires that for the application of compensatory amounts to basic agricultural products, the monetary measures referred to in paragraph 1 (namely the fluctuation of the exchange rate of a Member State's currency) should lead to disturbances in trade in agricultural products. As regards the processed product, it emerges from the provisions of Article 2 (2) of Regulation No 974/71 that the compensatory amounts applicable shall be equal to the incidence, on the price of the product concerned, of the application of the compensatory amount to the price of the basic product on which it depends. It follows that in order to justify the application of compensatory amounts to processed products, it is sufficient for the compensatory amounts applicable to the basic products to have a considerable incidence on the price of the processed products. As regards the basic agricultural products from which the processed products referred to in Regulation No 800/77 are derived, the risk of disturbances had been established at the time when the monetary compensatory amounts were applied to those basic products. Hence the Commission was right in confining itself to establishing that the incidence on the prices of the processed products of the monetary compensatory amounts applicable to the basic products had become so marked as for the difference in prices of the basic products to have a considerable effect on the conditions of competition of the processed products.

12 The Commission states that in 1975 it adopted a practice whereby monetary compensation was to be fixed only in respect of processed products on which the maximum average incidence of the compensation exceeded 5%.

On 1 January 1977 the difference between the so-called green rates for the pound sterling and the Irish pound was 24.3%, which gave rise to repeated representations by the Irish Government and, following those repre­ sentations, to the decision of 23 March 1977 authorizing Ireland to take protective measures. The Commission states that more thorough analysis of the legal and economic situation revealed that the problems posed could not be adequately dealt with by the decision adopted in respect of Ireland. It states that at the time when Regulation No 800/77 was adopted, the rates of difference of the various currencies taken into account for the fixing of the compensatory amounts were as follows: pound sterling, — 34.7%; Irish pound, — 10.4%; French franc, — 16.2%; Italian lira, — 21.1%; German mark, + 9.3%; Belgian and Luxembourg francs, + 1.4%; Netherlands guilder, + 1.4%; Danish kroner, 0.

It emerged from this that the difference between the pound sterling and the Irish pound was much smaller than the difference between the pound sterling and all the strong currencies and between the German mark and the Italian lira.

JUDGMENT OF 5. 4. 1979 — CASE 151/77

Furthermore the actual incidence of the monetary compensation on the products at issue exceeded the 5% limit which was regarded in 1975 as a decisive factor for the abolition of the said compensation.

Moreover, the plaintiff has not shown that it is a question of similar products which are in competition with the products covered by the regulation.

Therefore it must be found that it was open to the Commission to adopt Regulation No 800/77 and to fix monetary compensatory amounts for the products in question.

PEISER / HAUPTZOLLAMT HAMBURG-ERICUS

Costs

16 The costs incurred by the Irish Government, the Italian Government and the Commission of the European Communities, which submitted observations to the Court, are not recoverable.

As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the Finanz­ gericht Hamburg, the decision on costs is a matter for that court.

Delivered in open court in Luxembourg on 5 April 1979.

A. Van Houtte J. Mertens de Wilmars Registrar President of the First Chamber

Acting as President