C-11/78

JUDGMENT OF THE COURT OF 5 APRIL 1979 <apnote>1</apnote>

Italian Republic v Commission of the European Communities

"Monetary compensatory amounts"

Case 11/78

1. Agriculture — Processed products — Monetary compensatory amounts — Application — Condition — Incidence of compensatory amounts applicable to basic products on price ofprocessed products (Regulation No 974/71 of the Council, Art. 2 (2))

2. Agriculture — Monetary compensatory amounts — Groups ofproducts — Application — Commission — Discretion

bourg at the office of its Legal Adviser, Mario Cervino, Jean Monnet Building, Kirchberg, defendant,

and

IRELAND , represented by J. Murray, Barrister-at-Law, with an address for service in Luxembourg at the Irish Embassy, intervener,

Application for the annulment of:

— Commission Regulation (EEC) No 2657/77 of 30 November 1977 on the application of monetary compensatory amounts to certain products not covered by Annex II to the Treaty (Official Journal 1977, L 308, p. 48);

— Commission Regulation (EEC) No 800/77 of 20 April 1977 amending, as regards products which are subject to monetary compensatory amounts, Regulation (EEC) No 572/76 fixing the monetary compensatory amounts (Official Journal 1977, L 97, p. 18) in so far as it makes provision, through Regulation (EEC) No 2657/77, for the continued application even after 31 December 1977, of the monetary compensatory amounts to the products referred to in Pan 8 of Annex I to Regulation (EEC) No 527/76 under tariff subheadings 17.04 D, 18.06 B, 18.06 C, 19.08 B and 21.07 C,

Facts and Issues

JUDGMENT OF 5. 4. 1979 — CASE 11/78

reviewed by the end of the year in the 1976, has given rise to serious difficulties light of their economic situation. for the sectors concerned in Ireland …'

Regulation No 800/77 was postponed The adoption of Regulation No 800/77 until 4 July 1977 by Regulation No had been preceded by the Commission 1051/77 of 18 May 1977 (Official Decision of 23 March 1977 authorizing Journal 1977, L 125, p. 34). Then, in Ireland to take protective measures in order to avoid speculation giving rise to respect of certain processed agricultural deflection of trade, Regulation No products under Article 135 of the Act of 1123/77 of 27 May 1977 (Official Accession (Official Journal 1977, L 97, Journal 1977, L 134 p. 51) provided that

"… the compensatory amounts charged 1977. That regulation also was adopted or granted … [on] basic products would without the competent Management amount to 34.7% in the case of the Committees having delivered opinions United Kingdom and to 10.4% in the within the time-limits set by their case of Ireland; … this situation, respective chairmen. entailing a relative disadvantage to the manufacturers … in Ireland on the cost The application of the Italian of the basic products of 24.3%, may lead Government, dated 25 January 1978, to distortion in the terms of competition was lodged at the Court Registry on 2 in trade in the processed agricultural February 1978. products referred to in the Irish application between the Member States Having heard the report of the Judge- concerned; … this situation, in its Rapporteur and the views of the present acute form since November Advocate General, the Court decided to

open the oral procedure without any without there having been a precise and preparatory inquiry. complete examination of the trends of By an application lodged at the Court trade in the products concerned at the Registry on 10 October 1978, Ireland level of the Community as a whole. sought leave to intervene in the proceedings in support of the For its part the Commission states that Commission's conclusions. between the time of the Irish application By an order of 11 October 1978, the and the adoption of Regulation No Court allowed the intervention. 800/77, it received communications accompanied by copious statistical data from the Irish and Danish Governments, as well as information from the British II — Conclusions of the parties and German Governments. It also received verious solicitations from The Italian Republic claims that the Court should: traders concerned which, taken together with the information provided by its own — Annul Commission Regulation (EEC) services, provided it with a complete No 2657/77 of 30 November 1977; picture of the situation in the sector. — Annul Commission Regulation (EEC) No 800/77 of 20 April 1977 in so far as it makes provision, through Regu­ Admissibility lation (EEC) No 2657/77, for the continued application, even after 31 December 1977, of the monetary In the defence, the Commission expresses compensatory amounts to the doubts as to the admissibility of the products referred to in Part 8 of application inasmuch as it seeks the Annex I to Regulation (EEC) No annulment of Regulation No 800/77 "in 572/76 under tariff subheadings so far as it makes provision, through 17.04 D, 18.06 B, 18.06 C, 19.08 B Regulation (EEC) No 2657/77, for the and 21.07 C; continued application, even after 31 December 1977, of the monetary — Order the defendant to pay the costs. compensatory amounts" to the products at issue. In fact the submissions relied on The Commission of the European by the Italian Government do not Communities contends that the Court concern the prolongation itself or the should: economic situation prevailing in — Dismiss the application; November 1977, but on the contrary relate to the reasons which determined — Order the applicant to pay the costs. the adoption of Regulation No 800/77. Ireland contends that the Court should:

entirely satisfied inasmuch as the parties, including the Member States, of application of monetary compensatory the real reasons for the adoption of Regu­ amounts to the products at issue would lation No 2657/77. have ceased to be lawful as from 1 January 1978. There is also a breach of the principle of legitimate expectations inasmuch as the fixing of the period was so categorical The substance of the case and limitative that it was to be expected that application of the compensatory amounts would cease on 31 December A — Regulation No 2657/77: (i) misuse 1977. The fact that Regulation No of powers, absence of a statement 2657/77 entered into force one month of reasons and infringement of an before the expiry of this period should be essential procedural requirement; sufficient to protect legitimate (ii) breach of the principle of legiti­ expectations under normal conditions but not when it has been declared that a mate expectations period cannot subsequently be prolonged ("… not … beyond …") and when According to the Italian Government, even such a period is not usually stipulated in assuming the existence of a discretionary measures imposing compensatory power to apply compensatory amounts amounts.

The Italian Government replies that if the According to the Italian Government, it Commission wishes to reserve the power results from this provision that the to adopt such monetary measures in agri­ Commission's discretionary power in cultural matters as are called for by the assessing the risk of disturbances in trade prevailing situation, it must not stipulate can be exercised only at the level of agri­ an expiry date for their application. If cultural products. Therefore monetary however, in the light of a certain compensatory amounts can be applied to situation, it sets itself a limit in time it products which "are the subject of a cannot withdraw from the obligation to specific arrangement under Article 235 respect that limit unless it proves and of the Treaty" only if there is a risk of shows that the situation has changed. disturbances in trade in the agricultural products upon which the price of the products which are the subject of an The Commission rejoins that at the end arrangement under Article 235 depends. of November 1977, it had to consider As emerges from the third recital in the only whether the conditions laid down in preamble to Regulation No 800/77, the Regulation No 974/71 were fulfilled, assessment of the risk of disturbances in that is to say whether the conditions trade was carried out at the level of which had made application of processed (non-agricultural) products. compensatory amounts necessary still existed. If such was the case, the validity of Regulation No 2657/77 could not be called in question. The Italian The Italian Government is aware that all Government ought rather to have directed its doubts to the validity of the the basic agricultural products were appointment of a time-limit in Regu­ already subject to monetary lation No 800/77. compensatory amounts. Because of this it assumes that the risk of disturbances in trade in those products had already been In fact the Commission is not faced with eliminated. Doubtless an aggravation of the alternative described by the Italian the risk can make it necessary to apply Government: the appointment of a time- the compensatory amounts even to limit merely means that the amounts derived products; but the condition, could not continue to be applied without which the Commission has failed to being the subject of a new regulation. observe in this case (cf. the third recital This solution is dictated by the very aforesaid), is still the risk of disturbances mobility and changeableness of the in trade in basic agricultural products. monetary situation in the Community.

The Italian Government's reasoning amendment made by the aforesaid amounts to forgetting, for example, that Regulation No 2746/72 of the although sugar was subject to monetary Council emphasizes even more compensatory amounts the sugar clearly the application of the system contained in biscuits was not. Although of compensatory amounts to the at the outset it had been considered that products referred to in Regulation compensatory amounts should not be No 1059/69 of the Council of 28 applied to derived products as at that May 1969 laying down the trade time there were no disturbances in trade arrangements applicable to certain in those products, it was none the less goods resulting from the processing still the Commission's duty to intervene of agricultural products (Official once it was established that there were Journal, English Special Edition 1969 such disturbances (cf. the judgment of 20 (I), p. 240); October 1977 in Case 29/77 Roquette [1977] ECR 1835, preceded by the — Disturbances which affect the basic opinion of Mr Advocate General Warner. product and the derived agricultural products have a direct effect upon the products referred to in Regu­ lation No 1059/69. However Regu­ The Italian Government replies that there lation No 974/71 does not always is no doubt as to the legality of the require the application of application of monetary compensatory compensatory amounts to all derived amounts to biscuits if there is a risk of products: it empowers the disturbance in trade in the agricultural Commission to assess whether there product sugar owing to the fact that the are disturbances such as to justify the sugar contained in the biscuits is not application of them. subject to those amounts. In the present case, however, the Commission assessed and proved no disturbance in trade in C — Regulation No 800/77: misuse of sugar, but only the existence of the risk powers of disturbance in trade in the (non-agri­ cultural) products containing sugar. According to the Italian Government, assuming that the Commission had the In Case 29/77, although the Commission power to apply monetary compensatory was acknowledged to have the power of amounts to the products concerned, that assessing the risk of disturbances at the power was used for a purpose other than level of the derived product, the issue that which Regulation No 974/71 none the less concerned an agricultural attributed to it. In Regulation No product (starch products derived from 800/77, it was not the Commission's maize subject to a common organization intention to resolve a common agri­ of the market). cultural policy problem (which is the basic purpose of the system of compensatory amounts) but to deal with The Commission rejoins that the Italian difficulties complained of by Irish Government's argument is indefensible in processing industries in their trade with that: the United Kingdom. This conclusion is justified by the facts that:

without giving rise to distortions and discriminations.

At the time when that regulation was In the beginning, the Commission adopted, the rates of difference of the adopted the principle of limiting various currencies taken into account for application of compensatory amounts to the fixing of the compensatory amounts products in respect of which their incidence amounted to at least. 1.5 % of were as follows: pound sterling, — 34.7%; Irish pound, —10.4%; the average value of the goods. In French franc, —16.2 %; Italian lira, addition, no compensatory amount was — 21.1%; German mark, + 9.3%; to be fixed if it would amount to less Belgian and Luxembourg francs, than 0.25 units of account per 100 kg. + 1.4 %; Netherlands guilder, + 1.4 %; Danish kroner, 0. It emerged that the The number of products covered by difference between the pound sterling monetary compensation was thus and the Irish pound was much smaller enlarged and then diminished according than the difference between the pound to the monetary situation. In 1975, a sterling and all the strong currencies; guiding principle was laid down likewise that difference was less than the according to which monetary difference between for example the mark compensation was to be fixed only for and the Italian lira. Thus the actual processed products in respect of which incidence of the monetary compensation the average maximum incidence as regards the products concerned exceeded 5 %. exceeded the 5 % limit regarded in 1975

JUDGMENT OF 5. 4. 1979 — CASE 11/78

case, British producers would have adopted under the conditions laid down turned increasingly towards countries in Regulation No 974/71. In the with a strong currency, in relation to statement of the reasons on which Regu­ which the advantage which they enjoyed lation No 2657/77 is based, according to would have had a particularly pron­ which the situation had not greatly ounced effect. changed since the entry into force of The limitation of monetary compen­ Regulation No 800/77, reference is sation to the pound sterling would made to those conditions, which were have resulted, for example, in exports to already mentioned in the preamble to the United Kingdom from countries with Regulation No 800/77 and were deemed a weak currency being given an to be fulfilled on 30 November 1977. advantage over exports from countries with a strong currency, because the corrective effect of charges on exports D — Regulation No 800/77: breach of levied by some and aid granted by others the principle of proportionality would have been lacking. Moreover regionalization of the com­ According to the Italian Government, the pensatory amounts would have infringed products at issue involve a high degree of the principle of equality of treatment. processing, and trade in them, which is As. formulated by the Italian limited, is independent of the markets in Government. The submission makes no the basic agricultural products, over reference to the monetary situation which they do not exert any influence prevailing in November 1977, and is not even of an indirect kind. In order to apt to prove that that situation did not resolve the difficulties encountered in justify the measure in question. Ireland, a provision adopted under

Article 14 of Regulation No 1059/69 The Commission replies that the said would have been proportionate and provisions refer to a particular product's adequate, whereas this is not the case of situation on the market (surplus or the application of monetary shortage), but that the existing examples compensatory amounts. of their application show the they have never been relied on to resolve According to the Commission, the Irish difficulties due to the monetary situation. Government's application was not and could not have been the cause of the adoption of Regulation No 800/77. E — Ireland's intervention Furthermore, the Commission could not lay down a more limited measure such as The Irish Government supports the the application of Regulation No 974/71 position defended by the Commission and mentions that it submitted written on a regional scale. observations in Cases 151/77, cited The appropriate measures which the above, 95/78 Dulciora and 157/78 Council may adopt under Article 14 (3) Trawigo (sub judice). of Regulation No 1059/69 require that "special measures" should have been With particular reference to the validity adopted as regards the prices of certain of Regulation No 2657/77, it maintains basic products. That provision has its that, far from constituting a bar to the specific ambit, just as Regulation No extension of the period of validity of 974/71 has a specific ambit. Since the Regulation No 800/77, the uninter­ fear of disturbances arising is based on rupted existence of the conditions which the monetary situation of the Member led to its adoption not only justified that States and not on "special measures extension but also made it necessary. which may be adopted under the common organization of agricultural The Italian Government, represented by markets as regards the prices of certain I. M. Braguglia, Avvocato dello Stato, basic products", it is quite clear that it the Irish Government, represented by J. was necessary to apply the specific regu­ Murray, Barrister-at-Law, and the lation adopted in order to deal with any Commission of the European Com­ such disturbances. munities, represented by its Legal Adviser, C. Maestripieri, acting as Agent, The Italian Government points out that presented oral argument at the hearing the provisions of Article 14 (3) and (4) of on 12 December 1978. Regulation No 1059/69 also refer to measures pertaining to the fixing of the The Advocate General delivered his value of the green currencies of the opinion at the hearing on 1 February Member States. 1979.

4 It emerges from the second and third recitals in the preamble to Regulation No 800/77 that, since all the basic agricultural products from which those goods are' derived were subject to monetary compensatory amounts of a high level, "the! difference in prices of the basic products had become so marked as to have a considerable effect on the conditions of competition of processed, products, having regard to the characteristics of the market in certain sensitive products".

5 The second subparagraph of Article 2 (2) of Regulation No 800/77 provided that in respect of the said processed products "monetary compensatory amounts shall not apply beyond 31 December 1977".

6 The adoption of that regulation, which applied with effect from 23 May 1977, had been preceded by the Commission Decision of 23 March 1977

ITALY v COMMISSION

authorizing Ireland to take protective measures in respect of certain processed agricultural products under Article 135 of the Act of Accession and allowing that Member State until 31 December 1977 to levy a charge on imports from the United Kingdom and grant a payment on exports to the United Kingdom of the processed agricultural products coming under the above-mentioned tariff headings (Official Journal 1977, L 97, p. 29).

7 The recitals in the preamble to this decision stated that:

— Annul Commission Regulation No 2657/77 of 30 November 1977;

— Annul Commission Regulation No 800/77 of 20 April 1977 in so far as it makes provision, through Regulation No 2657/77, for the continued

JUDGMENT OF 5. 1979 — CASE 11/78

application, even after 31 December 1977, of the monetary compensatory amounts to the products referred to in Part 8 of Annex I to Regulation No 572/76 under tariff subheading 17.04 D, 18.06 B, 18.06 C, 19.08 B and 21.07 C.

12 In the light of the provisions of Article 173 of the Treaty and Article 81 (1) of the Rules of Procedure on the limitation period for the commencement of proceedings, the Commission challenges the admissibility of the application in so far as it seeks the annulment of Regulation No 800/77.

13 The Commission alleges that the submissions made by the Italian Government do not concern the prolongation in itself or the economic situation prevailing in November 1977 but on the contrary relate to the reasons which decided the adoption of Regulation No 800/77.

18 The Italian Government submits that there is also a breach of the principle of legitimate expectations inasmuch as the fixing of the period laid down in Regulation No 800/77 was so imperative that it was to be expected that the compensatory amounts would "not apply beyond 31 December 1977".

19 It submits that the fact that Regulation No 2657/77 entered into force a month before that period expired is not sufficient to protect legitimate expectations since it had been declared that the period could not be prolonged, the terms of Regulation No 800/77 providing that "monetary compensatory amounts shall not apply beyond 31 December 1977".

20 The Commission replies that at the end of November 1977 it had to consider only whether the conditions laid down in Regulation No 974/71 were fulfilled, that is whether the conditions which had required the compensatory amounts to be applied still prevailed.

21 If such was the case, the validity of Regulation No 2657/77 cannot be called in question.

22 The Commission submits that it was not in fact faced with the alternative described by the Italian Government, as the appointment of a time-limit merely meant that the amounts could not continue to be applied without being the subject of a new regulation.

23 The Commission submits that the purpose of the Community provisions in force in the agri-monetary sector and the recitals in the preamble to the regu­ lation at issue should lead those concerned to the conclusion that the measures to be taken at the end of the year — continuation, abolition or alteration of the system provided for in Regulation No 800/77 — would necessarily be dependent upon the situation of the money markets at the relevant time.

The submission relating to Regulation No 800/77

28 The Italian Government submits that by adopting Regulation No 800/77, the Commission infringed the provisions of Article 1 (3) of Regulation 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 distur­ bances in trade in agricultural products".

29 The Italian Government submits that by virtue of that provision compensatory amounts on products not covered by Annex II to the Treaty and forming the subject of a specific arrangement under Article 235 of the Treaty could not have been introduced except in order to avoid the risk of disturbances in trade in the basic agricultural products (sugar, cereals and so on) on which the processed products, namely ice cream, chocolate, biscuits and so on, depend.

30 The Italian Government submits that, according to the recitals in the preamble to Regulation No 800/77, the Commission assessed not the risk of disturbances in trade in agricultural products but the risk of distortions in competition in the products at issue.

31 The Italian Government also submits that the statement of the reasons on which Regulation No 800/77 was based is defective inasmuch as it fails to take account of the risk of disturbances in trade in agricultural products and in that it confines itself to establishing the risk of disturbances in the conditions of competition in trade in the processed products.

32 It is true that in order to justify Regulation No 800/77 the Commission stated that "in the case of the processed products not subject to monetary compensatory amounts, the difference in prices of the basic products has become so marked as to have a considerable effect on the conditions of competition of the processed products .. .".

38 The Italian Government submits that the Commission applied monetary compensatory amounts to the products at issue not in order to deal with the difficulties to which monetary instability might give rise for the proper functioning of the common organizations of the market, but in order to deal with the difficulties complained of by Irish processing industries in trade with the United Kingdom.

39 It submits that application of monetary compensatory amounts to the products at issue in respect of trade between Member States and with non- member countries is not justified by the small incidence which the monetary differences might have on the prices of the processed products.

JUDGMENT OF 5. 4. 1979 — CASE 11/78

40 It submits that this conclusion is supported by the fact that compensatory amounts were not applied for example to white chocolate (tariff subheading 17.04 C) and gingerbread (tariff subheading 19.08 A) which, as regards the incidence which the basic agricultural product has on them, do not differ from the other products concerned, to which on the contrary compensatory amounts were applied.

41 It submits that under Article 14 of Regulation No 1059/69, the Council could have taken appropriate measures either to deal with the possible effect on trade between Member States and with non-member countries of special measures adopted under the common organizations as regards the prices of certain basic products, or to deal with a special situation which may arise in respect of certain goods.

42 It submits that, in the pan concerning the products to which this application refers, Regulation No 800/77 breaches the principle of proportionality because a measure taken under the said Article 14 would have been adequate and sufficient to deal with the difficulties encountered by the Irish processing industries in the limited sector of trade with the United Kingdom, whereas the application of compensatory amounts was neither necessary nor in pro­ portion to the aim pursued.

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.

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

48 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.

49 Article 14 of Regulation No 1059/69 refers to the Council's adopting "appro­ priate measures" only "to deal with the possible effect on trade between Member States and with third countries of special measures which may be adopted under the common organization of agricultural markets as regards the prices of certain basic products".

so The Commission submits that consequently this provision is not appropriate to deal with the risk of disturbances in trade in processed products caused by the monetary situation of the Member States.

51 On the point that the compensatory amounts were not applied to certain other products, the Commission states that it reached the conclusion that it was not necessary to bring those products under the monetary compensatory amounts system after having weighed up the appropriate factors, such as the limited competition and the fact that no request for the introduction of compensatory amounts had been submitted.

Costs

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

58 The applicant has failed in its submissions.

On those grounds,

THE COURT

hereby:

For the Registrar Acting as President