C-177/78

In Case 177/78

REFERENCE to the Court under Article 177 of the EEC Treaty by the High Court of Ireland for a preliminary ruling in the action pending before that court between

PIGS AND BACON COMMISSION

and

MCCARREN AND COMPANY LIMITED, an undertaking carrying on business as dealers in pigmeat and bacon curers having its registered office in Cavan,

JUDGMENT OF 26. 4. 1979 — CASE 177/78

Facts and Issues

The facts of the case, the procedure and production and marketing of bacon and the observations submitted under Article price regulations for pigs. The rules were 20 of the Protocol on the Statute of the amended on various occasions and in Court of Justice of the EEC may be particular by the Pigs and Bacon Act summarized as follows: 1937 of 12 June 1937, the Pigs and Bacon (Amendment) Act 1939 of 20 December 1939, the Pigs and Bacon (Amendment) Act 1956 of 14 November I — Facts and procedure 1956 and the Pigs and Bacon (Amendment) Act 1961 of 6 June 1961.

The Pigs and Bacon (Amendment) Act The Pigs and Bacon Act 1935 of 20 June 1939 abolished the two offices created by 1935 established in Ireland rules for the Act of 1935, the Bacon Marketing controlling and regulating the Board and the Pigs Marketing Board,

PIGS AND BACON COMMISSION v McCARREN

and transferred their duties to a single "specials"; these bonuses were also central office, the Pigs and Bacon financed by the product of the Commission. production levy.

In 1970 that Commission introduced a system of export bonuses for certain On 14 April 1975 McCarren and quality grades of bacon known as Company Limited, an undertaking

JUDGMENT OF 26. 6. 1979 — CASE 177/78

carrying on business as dealers in If the answers to (a) and (b) are in pigmeat and bacon curers informed the the affirmative, whether the levy is Pigs and Bacon Commission that it was payable for the period of invalidity? withdrawing from the scheme; on 15 April it informed the Pigs and Bacon Commission that it would pay the sums 2. If the answer to 1 (a) is in the due up to 30 April 1975. negative, whether Article 92 is to be interpreted as imposing an obligation on a national court where it The Pigs and Bacon Commission considers that a State aid may be commenced legal proceedings before the incompatible with Article 92 to refer High Court of Ireland against McCarren to the European Court of Justice for and Company Limited for payment for decision the question whether the the sum of £28 594 as production levy marketing system is incompatible for the period of 1 January to 31 with the provisions of Article 92 (1) September 1975 (sic). and (2) and if the question is answered affirmatively by that Court whether the national court should McCarren and Company Limited then stay proceedings before it counterclaimed to recover a sum of pending an adjudication on the £52 787.10 representing the levy paid for system by the Commission under the period from 1 February 1973 to 31 Article 93? December 1974. It is alleged that the levy is a part of an intervention scheme in the pigmeat industry and as such 3. If the answers to 1 and 2 above are incompatible with Community law. in the negative

8. Is Article 85 to be interpreted as 4. Is Article 16 to be interpreted as meaning that the agreement referred meaning that if the operation of the to above by virtue of which the marketing system referred to above marketing system has operated since results in a restriction or hindrance 1 February 1973 is a violation of this of exports by firms independently of article by reason of the fact that it the central marketing agency that a hinders or restricts exports by firms violation of this article has occurred independendy of the central and the levy payable to finance the marketing agency, or because certain system is irrecoverable? exports are subsidized under it? If yes, is the levy which is payable as part of the system irrecoverable? 5. Is Article 34 to be interpreted as meaning if the operation of the marketing system referred to above 9. (a) Is Article 86 to be interpreted as restricts or hinders exports by firms meaning that the central independently of the central marketing agency referred to marketing agency that a violation of this article has occurred and that the above is in a dominant position in a substantial part of the levy payable as part of the system is Common Market. irrecoverable?

6. Are Articles 37 of the Treaty and (b) If so, is it to be interpreted as Article 44 of the Act ofAccession to be meaning that there has been an interpreted as meaning that the abuse by that agency of that operation of the new marketing position which has affected trade system referred to above meets the between Member States by obligations imposed by those articles, reason of the fact that exports (a) up to 31 December 1977 and (b) from firms independently of the since that time. If not, is the levy agency are hindered or restricted which is paid as pan of the system and/or by reason of the fact that recoverable from 1 February 1973 to a bonus on exports is only paid 31 December 1977, or (c) since that to firms who export through the date? central marketing agency.

The judgment and order of the High (a) The Pigs and Bacon Commission Court were registered at the Court ceased to be a national or State Registry on 21 August 1978. monopoly in February 1973. It continued as a central marketing agency and a State aid to the bacon industry with statutory powers to impose a levy on In accordance with Article 20 of the every pig carcase used for the production Protocol on the Statute of the Court of of bacon in the Republic of Ireland to Justice of the EEC written observations finance the State aid. The only, or at any were submitted on 13 November 1978 by rate the primary, question in these the Commission of the European proceedings is whether such a levy is Communities, represented by Richard recoverable in law having regard to the Wainwright and Gotz zur Hansen, provisions of the Treaty of Rome. It members of its Legal Department, on 15 follows clearly however from the November by McCarren and Company judgment of the Court of 12 July 1973 Limited, represented by John D. Cooke, (Case 2/73, Riseria Luigi Geddo v Ente Barrister, on 24 November by the Pigs Nazionale Risi [1973] ECR 865) that the and Bacon Commission, represented by Treaty does not prohibit an internal tax Laurence B. McMahon, Barrister, and affecting domestic products alone and on 28 November by the Government of designed to build up a fund to promote Ireland, represented by Louis J. national production. Dockery, Chief State Solicitor.

The other issues raised in the order for Upon hearing the report of the Judge- reference are therefore irrelevant and do Rapporteur and the views of the not require an answer.

provisions of Article 92 (1) are intended of all producers and curers; the statutory to take effect in the legal systems of levy imposed on pig carcases used for the Member States, so that they may be production of bacon is imposed for the invoked before national courts, where benefit of the bacon industry generally they have been put in concrete form by and to support the State aid administered acts having general application provided by the Pigs and Bacon Commission. for by Article 94 or by decisions in McCarren and Company Limited is in particular cases envisaged by Article 93 the position of any citizen who has to (2)”. pay out a levy or taxation for a service supplied by the State, whether or not he accepts that service.

It cannot be maintained that a new aid was introduced since 1 February 1973; The defendant benefits from the the few changes made in the activities of the Pigs and Bacon administration of the system of aid and Commission which, in its capacity as a the changes in the rate of the levy do not central marketing agency, helps to

JUDGMENT OF 26. 6. 1979 — CASE 177/78

eliminate fluctuations on the home and Community has enacted legislation export markets and to provide a system dealing with a particular matter does which will give proper returns to not preclude national legislation not producers and to curers. inconsistent with it and not designed to undermine it.

(e) The central, if not the only, issue in Articles 85 and 86 of the Treaty have the main action is the validity of the nothing to do with a levy designed to statutory levy to support the State aid support a scheme of State aid. administered by the Pigs and Bacon Commission.

(f) The judgment of the Court of 22 The Pigs and Bacon Commission is not a March 1977 (Case 74/76, Iannelli & State monopoly within the meaning of Volpi S.p.A v Ditta Paolo Meroni [1977] Article 37: the Republic of Ireland ECR 557) answers clearly the only abolished the State monopoly which relevant question raised by the main formerly existed in the market in bacon action which is whether the amount of prior to joining the EEC and since the statutory levy claimed by the Pigs February 1973 no discrimination has and Bacon Commission is recoverable or existed regarding the conditions under not; it follows clearly from that which bacon is procured and marketed judgment that "the fact that an aspect of between nationals of Member States. In aid, which is not necessary for the any event, under the provisions of Article attainment of its object or for its proper 44 of the Act of Accession the Republic functioning, is incompatible with a of Ireland was not obliged to complete provision of the Treaty other than the adjustment of State monopolies until Articles 92 and 93 does not in fact 31 December 1977. invalidate the aid as a whole or for that reason vitiate by reason of illegality the system of financing the said aid". It is appropriate to recall, as regards Article 40 of the Treaty and Regulation No 2759/75, that that regulation provides no system of intervention for (g) It is necessary to give the following the bacon industry and that there is answers to the questions raised by the nothing in that regulation to prevent the High Court of Ireland: kind of State aid and statutory aid with which this case is concerned. Questions 1 (a) and (b): No; Question 1 (c): Yes; Question 2: No; Question 3 The examination of a system of State aid (a): Yes, except in the case of failure to is a matter for the Commission, not for a follow the procedure prescribed under private individual. The mere fact that the Article 93 (3) of the Treaty in the case of

McCarren and Company Limited, the defendant in the main action, considers that a number of facts established before the High Court indicate clear breaches The Pigs and Bacon Commission has of a number of articles of the EEC expressly claimed that, as from 1 Treaty. February 1973, it "adjusted" the old state monopoly so as to create the fundamentally new "voluntary organi­ zation". The obligation to notify the introduction of such a new system to the Commission under Article 93 (3) therefore also existed on that date. (a) It is doubtful whether the operations of the Pigs and Bacon Commission can truly be regarded as "State aid" in the sense of Article 92 of the Treaty. The dominant feature of its operations is its export marketing system Whether the system is regarded as being and the bonus incentive scheme. Their an entirely new one or the fundamental effects on competition and freedom of alteration of the old system the movement of goods have become ends in obligation to notify under Article 92 of themselves and not side-effects of and the Treaty, Article 21 of Regulation No incidental to the primary function of the 2759/75 and Article 60 (1) of the Act of aid. Accession was binding upon Ireland. The

JUDGMENT OF 26. 6. 1979 — CASE 177/78

(c) Question 1 (a) must be answered in the affirmative: any national marketing (e) The answer to the question posed system for an agricultural product which in Question 3 (a) is to be found in the was based upon facilities which case-law of the Court of Justice: any constitute a State aid and which came question as to the compatibility of a into operation on or after 1 February particular aid with the Common Market 1973 is governed by the provisions of is to be determined solely by the Article 93 (3) which lay down the Commission subject to an appeal to the requirement to inform the Commission Court of Justice. The second and third and the prohibition against giving effect parts of this question do not, therefore arise. to the system. In addition, any material alteration in a system of aid which increased the amount of the aid or extended its scope or purpose was similarly governed by the procedure and (f) The test to be borne in mind in the prohibition of Article 93 (3). relation to Question 4, relating to Article 16 of the EEC Treaty, is that formulated by the Court of Justice in its judgment of Question 1 (b) must also be answered in 26 February 1975 (Case 63/74 Cadsky v the affirmative: the prohibition contained I.N.C.E. [1975] ECR 281). The in Article 93 (3) is absolute where there combined effect of the levy charge with has been no notification of the intended the bonus system is to hinder and restrict aid or alteration to the Commission. exports of pigmeat from Ireland by enterprises who wish to operate independently of the Pigs and Bacon The third part of Question 1 must also Commission. Even if the levy is to be be answered in the affirmative and to the judged separately from the bonus effect that the absolute prohibition payment analogous application of the contained in Article 93 (3) extends to all judgment of the Court of Justice of 23 aspects of an aid including a compulsory January 1975 (Case 51/73 Van der Hulst financing system implemented as part of v Produktschap voor Siergewassen [1975] that aid under national law where the aid ECR 79) clearly shows that it is still a in question has been illegal ab initio by measure equivalent to a customs duty on reason of the absence of any notification. exports.

(g) As regards the fifth question it (i) As regards Question 7 and the should be held that the system in common organization of the market in question falls within the scope of the pigmeat, as laid down by Regulation No prohibition on measures having an effect 2759/75, it should be held that the equivalent to quantitative restrictions as system of the Pigs and Bacon defined by the judgments of the Court of Commission involves the regulation of Justice of 11 July 1974 (Case 8/74 the level of domestic . Irish prices by Procureur du Roi v Dassonville [1974] controlling the level of exports, the ECR 837), of 20 May 1976 (Case deliberate channelling of all exports 104/75 De Peijper [1976] ECR 613) and through a single body, the ability to of 12 July 1973 (Case 2/73 Geddo v Ente monitor the home and export markets Nazionale Risi [1973] ECR 865). and the stimulation of trade which constitute a complex of national measures and mechanisms through which the Irish market in pigmeat is regulated. (h) In answer to Question 6 it must be They are deliberately designed to held that the Pigs and Bacon partition the Irish market and to exploit Commission is a State monopoly of a it as a national entity; they constitute a commercial character within the meaning deliberate interference with the creation of Article 37 of the EEC Treaty: it is of a single market. established as such in law; it operates as a body entrusted with the supervision of all aspects of trade in pigmeat in Ireland; the compulsory element was an Such a national system is incompatible indispensable element in the system. The with the common organization of the fact that producers can export market at Community level: it infringes independently is irrelevant: the discrimi­ the prohibition on customs duties and natory refund of part of the levy through quantitative restrictions as well as the the bonus system is equivalent to the provisions of Articles 92 and 93 of the action of a monopoly. Treaty and it is, therefore, in direct breach of Articles 19 and 21 of Regu­ lation No 2759/75, In those circumstances the introduction of the marketing system operated by the Pigs and Bacon Commission did not By subsidising exports to third countries constitute a sufficient adjustment of a the Pigs and Bacon Commission is arti­ state monopoly of a commercial fically stimulating the. trade of one character to satisfy the requirements of Member State and runs contrary to the Article 37 (1). By the introduction of a objects and effects of the common organi­ new system which failed to satisfy the zation of the market.

The main characteristic of the Pigs and The Pigs and Bacon Commission is Bacon Commission is now that of a joint guilty of introducing a threefold discrimi­ selling agency or trade association of nation affecting Irish exporters who producers; its primary activities and the operate through it and who therefore principal effects are those of a pay the levy but receive both the bonus commercial and competitive kind and the and the Community export refund, Irish public authorin aspects of the situation exporters who operate independently of are in a sense incidental and accidental. the Pigs and Bacon Commission but pay The mere fact that a commercial organi­ the levy while receiving back only the zation happens to be organized in law as Community export refund and exporters a public authority does not remove the from other Member States who adhere commercial activities of that organization to the Community system and rely only from the requirements of Articles 85 and upon the Community export refund. 86.

The system operated by the Pigs and Bacon Commission, consisting of an The fundamental incompatibility exclusive dealing agreement with between the very existence of national measures such as those at issue in the producers backed by a compulsory levy under national law adversely affects main action and the Community organ­ exports and hinders competition. ization of the market is confirmed by the judgments of the Court of Justice of 23 January 1975 (Case 31/74 Galli [1975] ECR 47 and Case 51/74 Van der Hulst v Produktschap voor Siergewassen [1975] (k) As regards Question 9, the Pigs and ECR 79), of 30 October 1974 (Case Bacon Commission is in a dominant 190/73 Officier van Justitie v Van position because it can behave Haaster [1974] ECR 1123) and of 16 independently. The dominant position March 1977 (Case 68/76 Commission v can result not merely from economic France [1977] ECR 515). factors.

The dominant position applies in a sub­ (1) The answer to Question 10 flows stantial part of the Common Market, from the fundamental principle that which as regards bacon consists of two Community law should be applied Member States only, namely the United equally to all Member States and should Kingdom and Ireland, the only States in have equal effect and consequences in which bacon is purchased in substantial them. The question of the recoverability quantities. of the money paid on the basis of powers rendered illegal by Community law cannot depend solely on the diverse laws of the Member States, for this would give rise to discrimination. The Pigs and Bacon Commission abuses its dominant position by using its powers and its economic independence to compel all producers to export only through its agency. The bonus payments The principles of Community law are made only to producers who submit to applicable to a claim for repayment of that compulsion is in fact a form of money levied by a national authority in loyalty rebate. breach of the provision of Community law; the principle of equal application and effect of that law requires that such money should be repaid to the individuals or undertakings concerned subject only to any deductions allowable The levy should be declared to be irre­ under national law in respect of benefits coverable, because it forms part of the which the individuals or undertaking very mechanism used by the Pigs and may have received from the authority in Bacon Commission to achieve objectives question. which themselves infringe the Treaty. Community law requires the national court to give full effect to the directly applicable provisions of Community law, to protect the rights, conferred on The Government of Ireland takes the individuals and to refuse to enforce any view that the EEC Treaty does not conflicting provisions of current national law. preclude the imposition of a statutory levy, the proceeds of which are to be used to finance the work of a central marketing organization, and the payment of aids in the form of an export bonus. Where a national authority or anybody conferred with delegated powers seeks to enforce a provision of national law for the purpose of maintaining or implementing a system or practice which is contrary to a directly applicable (a) The levy at issue is an internal provision of Community law, the charge of a para-fiscal nature, and no national court should refuse to give grounds exist under the Treaty for effect to the national measure so long as challenging its validity. It follows from the infringement is continued and to the the case-law of the Court that the fact extent to which the infringement is that an aspect of aid is incompatible with thereby rendered possible. a provision of the Treaty other than

Article 92 and 93 does not in fact vitiate Treaty by failure to give notice of the aid by reason of illegality the system of can undoubtedly in theory give rise financing the aid. under certain circumstances to rights in favour of private persons enforceable in the national courts concurrently with the right of the Commission itself to proceed under Article 169. Annulment of the aid (b) A number of other functions performed by the Pigs and Bacon could have the effect of bringing to an Commission can be regarded as aid to end the payment of the aid in whole or the pigmeat industry in Ireland; the in part, but would not invalidate the levy payment of the export bonus constitutes in so far as past payments were an aid paid out of State resources to the concerned, or bring about its termination extent to which it is financed by a levy for the future. Any question as to a charged under a statute. possible infringement of Article 93 (3) is of necessity intimately associated with other aspects of the aid whose legality or acceptability are for the Commission to Article 92 of the Treaty prohibits aid decide. Any question concerning the which distorts or threatens to distort effect in a particular case of the competition. Such aid is regarded as prohibition contained in the last sentence incompatible with the Common Market of Article 93 (3) should await the to the extent to which it adversely affects Commission's examination of the aid as trade between Member States. However, a whole. Article 92 (3) recognizes many forms of aid which may be regarded as consistent with the Treaty obligations. Moreover, it has been recognized in a number of (d) The establishment of a common judgments of the Court that the appro­ organization of the market in pigmeat priate mechanism for monitoring the does not exclude all national measures grant of aid and for challenging its but only those which directly impinge on validity where it appeared to be the mechanisms provided by the common necessary to do so, was the systematic organization of the market. examination by the Commission referred to in Article 93, with the ultimate sanction of proceedings before the Court by the Commission or by any interested The price fixing exercise to be carried State, but not at the behest of an out for the purposes of Regulation No individual aggrieved by the existence of 2759/75 is carried out by reference to the aid. pig carcases of a standard quality, while the export bonus referred to in the present proceedings is payable only for pig carcases of a higher quality than that (c) The bonus payment to exporters referred to in the regulation. Even in existed as a form of aid for the pig principle, therefore, the payment of the industry in Ireland prior to accession to aid could not affect the price determined the Community, and has continued ever for the purposes of the common organ­ since in essentially the same form. ization of the market.

exports or a charge having equivalent effect within the meaning of Article 16 or as a quantitative restriction on exports In relation to the claim for repayment of or measure having equivalent effect levies received by the Pigs and Bacon within the meaning of Article 34 ot the Commission, it is submitted that there is EEC Treaty. no principle of Community law which would require a Member State statutory Assuming that the Pigs and Bacon body or private undertaking to make a Commission was a State monopoly refund in a situation such as that within the meaning of Article 37 of the envisaged by the counterclaim. Therefore Treaty and Article 44 of the Act of the national court should in any event Accession in the pre-accession period, it apply the national law. should be found that it divested itself of this character by discarding all its former statutory powers of compulsory purchase and price-fixing; it has retained only the (f) The questions referred to the Court power to impose a levy to defray the cost should be answered as follows: of its operations as a marketing organ­ ization enjoying the voluntary co- operation and support of the pigmeat industry in Ireland. It cannot be denied — Where the validity of aids granted by that, by the expiry of the period referred Member States or through State to in the Act of Accession, the Pigs and resources is in issue, the matter falls Bacon Commission had suffered an to be determined by reference to the adjustment of the most far-reaching provisions of Articles 92 and 94 of nature in its character and functions, in the Treaty, rather than by reference accordance with the obligations to other Articles of the Treaty in undertaken by Ireland. The continuing respect of which it is alleged that some incidental breach has also system of compulsory levies and payment occurred. of export bonuses does not in any way involve a discrimination between nationals of Member States regarding the conditions under which goods are — The provisions of Article 92 (1) do procured and marketed. not have direct effect in the legal systems of the Member States and Any question of distortion of cannot therefore be relied on before competition as a result of the present the national courts.

— Where, however, the real issue in a particular case concerns not the The outstanding feature of the Irish validity of an aid but the validity of national system financed by the charges of a fiscal nature which are production levy is the bonus scheme imposed for the purpose of financing which amounts to an export aid. Such a the payment of aids, the principle to scheme of aids for exports is be applied is that already enunciated incompatible with the common organ­ by the Court in previous cases, to the ization of the market in pigmeat. effect that a fiscal charge is not per se invalidated by reason of the fact that it provides the resources out of which is paid (inter alia) some form of aid The bonus scheme hinders and restricts which may be deemed to be the exports of curers who choose to sell incompatible with the Common independently of the Pigs and Bacon Market. Commission by depriving them of the export bonus. The bonus gives the Pigs and Bacon Commission a competitive — If a situation arises where payments advantage over the defendant in the of charges or levies which have main action; the bonus penalizes it for

PIGS AND BACON COMMISSION v McCARREN

Bacon is one of the products subject to the system of monetary compensatory amounts. The export bonus could be (d) With regard to Articles 92 and 93 analysed as amounting to a reduction in of the Treaty it should be noted that the the amount charged on exports from reply given by the Court in the present Ireland; it thus derogates from the proceedings under Article 177 cannot in system of monetary compensatory any event prejudice the outcome of any amounts applicable to products subject to investigation by the Commission as to the common organization of the market. whether Irish state aids are incompatible with Article 92. Furthermore, although national courts have jurisdiction under Article 93 (3) where aid is introduced or The export bonus conflicts with Title II altered without the proper formal notice of Regulation (EEC) No 2759/75 to the Commission, they have no dealing with trade with third countries. jurisdiction in the case of existing aids Article 15 provides for an export refund; where the procedure under Article 93 (1) however, the export bonus amounts to can only be implemented by the an additional export refund, applicable Commission. In addition, incompatibility to any Irish exports to third countries. of an aid with the Treaty does not necessarily vitiate its system of financing.

(b) The prohibition by Article 16 of customs duties on exports and charges (e) In the case of a product covered by having equivalent effect covers any a common organization of the market, a

JUDGMENT OF 26. 6. 1979 — CASE 177/78

national marketing system including aids Ireland affects the prices which they and other measures must be assessed, by could pay for their carcases and thereby virtue of Article 44 (1) and Article 60 (1) put the "basic price" at risk. of the Act of Accession, not in the context of Article 37 of the Treaty but within a purely-agricultural framework.

PIGS AND BACON COMMISSION v McCARREN

3. Regulation (EEC) No 2759/75 is not Counsel, McCarren and Company Ltd., to be interpreted as prohibiting a represented by John D. Cooke, Barrister, national levy on processing of the Government of Ireland, represented products covered by the regulation by Roderick O'Hanlon, Senior Counsel, except in so far as the levy has the and the Commission of the European effect of modifying the formation of Communities, represented by its Agent, prices as provided for in the regu­ Richard Wainwright, and Nial Fennelly, lation. Senior Counsel, submitted oral argument and their answers to questions put by the Court at the hearing on 4 April 1979. III — Oral procedure The Pigs and Bacon Commission, The Advocate General delivered his represented by D. Barrington, Senior opinion at the hearing on 15 May 1979.

Decision

body, the PBC, composed of representatives of the government and of the trades interested, and endowed by law with extensive powers for controlling, as a central marketing agency, the whole of the sector in question. In order to finance its activities the PBC had the statutory right to charge a levy on pig carcasses intended for the manufacture of bacon. This levy was used on the one hand for financing the PBC's general activities intended to improve the production and marketing of bacon and, on the other hand, for the payment of a bonus — granted in fact in the form of a refund of a part of the levy charged — for the export, principally to the United Kingdom, of high quality bacon.

3 At the time of Ireland's accession to the Community the compatibility of this system with Community law was considered by the Irish authorities and the trade circles concerned. It was conceded on that occasion that the powers and duties of the PBC might no longer be in all respects compatible with the requirements of Community law. It was understood in consequence that the PBC would thenceforth relinquish its statutory powers and would carry out its duties in future only on a voluntary basis, which was accepted by all the representatives of the trades concerned.

4 However, there was one exception to the voluntary nature of the activities of the PBC from then on: the PBC still has the statutory right to charge the levy intended to finance its various activities and it also continues to pay a bonus for the export of high quality bacon, it being understood that the bonus is payable only to those of the producers who effect their exports through the intermediary of the PBC acting as a central marketing agency. It is common ground that the result of this is that all producers of carcasses intended for manufacture into bacon are compelled to pay the levy but only those who use the PBC as their intermediary receive the export bonus. This action essentially concerns the functioning of this levy/bonus scheme which, according to the information supplied by the national court, forms a distinct element in the whole of the PBC's activities.

1. (a) Whether Articles 92 and 93 are to be interpreted as imposing an obligation to inform the Commission under paragraph (3) of Article 93 of the agreement entered into as to the marketing system which would operate after 1 February 1973, and/or of the changes in the system which occurred since February 1973?

JUDGMENT OF 26. 6. 1979 — CASE 177/78

(b) If so, whether the failure to inform the Commission means that the system was invalid for some or all of the period since 1973? If the answers to (a) and (b) are in the affirmative, whether the levy is payable for the period of invalidity?

2. If the answer to 1 (a) is in the negative, whether Article 92 is to be interpreted as imposing an obligation on a national court where it considers that a State aid may be incompatible with Article 92 to refer to . the European Court of Justice for decision the question whether the marketing system is incompatible with the provisions of Article 92 (1) and (2) and if the question is answered affirmatively by that Court whether the national court should then stay proceedings before it pending an adjudication on the system by the Commission under Article 93?

3. If the answers to 1 and 2 above are in the negative

(a) Then are Articles 92 and 93 to be interpreted as meaning that when a State grants aid to which these articles apply the compatibility of the aid with the Common Market is a matter for determination by the Commission and not for the national courts of Member States?

6. Are Articles 37 of the Treaty and Article 44 of the Act of Accession to be interpreted as meaning that the operation of the new marketing system referred to above meets the obligations imposed by those articles, (a) up to 31 December 1977 and (b) since that time? If not, is the levy which is paid as part of the system recoverable from 1 February 1973 to 31 De­ cember 1977, or (b) since that date?

7. Are Article 40 and Regulation No 2759/75 to be interpreted as meaning that the marketing system referred to above is incompatible with the Community common organization of the market in pigmeat and accordingly invalid? If so, is the levy payable as part of the system irre­ coverable?

8. Is Article 85 to be interpreted as meaning that the agreement referred to above by virtue of which the marketing system has operated since 1 February 1973 is a violation of this article by reason of the fact that it hinders or restricts exports by firms independently of the central marketing agency, or because certain exports are subsidized under it? If yes, is the levy which is payable as part of the system irrecoverable?

9. (a) Is Article 86 to be interpreted as meaning that the central marketing agency referred to above is in a dominant position in a substantial part of the Common Market?

(b) If so, is it to be interpreted as meaning that there has been an abuse by that agency of that position which has affected trade between Member States by reason of the fact that exports from firms independently of the agency are hindered or restricted and/or by reason of the fact that a bonus on exports is only paid to firms who export through the central marketing agency.

9 Consideration of the questions raised shows that they cannot all be simul­ taneously decisive for the solution of the problem. In this connexion the situation before the High Court is not without analogy with the one forming the basis of the Court's judgment of 29 November 1978 in Case 83/78 (Pigs Marketing Board (Northern Ireland) v Redmond, [1978] ECR 2347), where the national court submitted to the Court of Justice a preliminary question inquiring, as a result of contradictory views adopted with regard to a similar situation by the parties concerned, what the decisive Community provisions in the matter were. In that judgment the Court pointed out that in the event of proceedings relating to an agricultural sector governed by a common organization of the market the problem raised must first be examined from that point of view having regard to the precedence necessitated by Article 38 (2) of the EEC Treaty for the specific provisions adopted in the context of the common agricultural policy over the general provisions of the Treaty relating to the establishment of the Common Market.

10 The application of that principle to this case means that first of all consideration should be given to Question 7 relating to the interpretation of Article 40 of the Treaty and of Regulation No 2759/75, which must be associated with Questions 4 and 5 relating to the interpretation of Articles 16 and 34 respectively of the Treaty. In fact, for the reasons explained in the judgment referred to above (paragraphs 52 to 55), the provisions of the Treaty relating to the abolition of tariff and commercial barriers to intra- Community trade are to be regarded as an integral part of the common organization of the market.

An assessment of the activities of the PBC in the light of the common organ­ ization of the market in pigmeat and of the rules of the Treaty relating to freedom of exports (Questions 4, 5 and 7)

12 The High Court's seventh question is whether Article 40 of the Treaty in conjunction with Regulation No 2759/75 contains factors which make a marketing system characterized by the charging of a levy on all bacon producers and the payment of a bonus solely to exporters who avail themselves of the intermediary of the PBC as a central marketing agency appear incompatible with Community law. Questions 4 and 5 inquire whether such a system, involving a financial disadvantage for exporters who operate independently of the central agency, may constitute a charge having an effect equivalent to a customs duty on exports which is prohibited by

JUDGMENT OF 26. 6. 1979 — CASE 177/78

Article 16 of the Treaty, or a measure having an effect equivalent to a quantitative restriction on exports which is prohibited by Article 34.

14 As the Court has repeatedly stated, on the last occasion in the above- mentioned judgment of 29 November 1978, once the Community has, pursuant to Article 40 of the Treaty, legislated for the establishment of the common organization of the market in a given sector, Member States are under an obligation to refrain from taking any measure which might undermine or create exceptions to it. The marketing system established by Regulation No 2759/75 in the context of the system for the free movement of goods guaranteed by the provisions of the Treaty is intended to ensure freedom of trade within the Community by the abolition both of barriers to trade and of all distortions in intra-Community trade and hence precludes any intervention by Member States in the market otherwise than as expressly laid down by the regulation itself. A Member State cannot therefore, either directly, or through the intermediary of an agency on which it confers powers to that intent, pay bonuses in whatever form for products intended to be marketed within the Common Market.

21S8

PIGS AND BACON COMMISSION v McCARREN

15 According to the idea on which the regulation dealing with the common organization of the market in pigmeat is based, the products referred to therein are in fact required to move freely within the Community at the price level resulting from the operation of the machinery for the common organi­ zation of the market, and neither Member States nor agencies on which they have conferred powers are entitled to create advantages for the marketing of national products as against those of other Member States by means of financial machinery such as the grant of bonuses.

JUDGMENT OF 26. 6. 1979 — CASE 177/78

every producer has free access and the functioning of which is regulated solely by the instruments provided for by that organization. A fiscal device by virtue of which a central marketing agency is allowed to charge a levy on all bacon producers and to reserve the benefit of a bonus for the marketing of certain qualities of that product solely to producers who agree to effect their sales through the intermediary of the same agency constitutes an inter­ ference with the liberty which is guaranteed to all traders in the Common Market to avail themselves directly and without thereby suffering any economic disadvantage of the facilities of production, import and export which are guaranteed by the common organization of the market.

19 It follows from the foregoing that a system such as that practised by the PBC in Ireland in reality conflicts in two separate ways with the rules relating to the free movement of goods and the common organization of the market in pigmeat: on the one hand because it is calculated, by the grant of a bonus on sales of bacon intended to be marketed outside the national territory, to distort patterns of trade between Member States and the competition of Community producers on external markets; and on the other hand by the fact that it confers on a central marketing agency, vested with power to charge levies on the whole of the production of one of the products coming under the common organization of the market, the right to impose charges in such conditions that traders who choose to market their products directly without recourse to an intermediary which is privileged uner the law are penalized.

22 Similarly the provisions relating to the common organization of the market cannot be thwarted by describing as a "State monopoly" an agency vested with certain statutory powers, such as the PBC. That consequence results from Article 38 (2) of the Treaty which gives priority to the rules for the organization of the agricultural markets as against the rules laid down for the establishment of the Common Market as a whole, of which Article 37 is one. That consideration makes it superfluous to carry out any investigation as to wheter in fact an agency such as the PBC may legitimately be described as a "monopoly" within the meaning of Article 37. Question 6 can therefore equally remain unanswered.

23 Finally, having regard to the answer given to Questions 4, 5 and 7 it does not appear necessary to go into the question whether the activities of the PBC might have adversely affected the provisions of Articles 85 and 86 of the Treaty.

The counter-claim (Question 10)

24 The questions to which an answer has been given above relate to the action brought before the national court in so far as it relates to the claim for the recovery of levies which the defendant in the main action refused to pay as

JUDGMENT OF 26. 6. 1979 — CASE 177/78

26 The answer to be given to Question 10 must therefore be that it is for the national court to determine, on the one hand, whether and to what extent the levy charged on a product coming under the common organization of the market and devoted to purposes incompatible with that organization must be reimbursed and, on the other hand, whether and to what extent there may be set off against that right to reimbursement the amount of the bonuses paid to the trader concerned.

PIGS AND BACON COMMISSION v McCARREN

Costs

27 The costs incurred by the Government of Ireland and by the Commission of the European Communities, which have 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 national court, costs are a matter for that court.

On those grounds,

2. The levy demanded within the framework of a marketing system having the above-mentioned characteristics is not due from producers to the extent to which it is devoted to purposes incompatible with the requirements of the Treaty on the free movement of goods and with the common organization of the market.

3. It is for the national court to determine, on the one hand, whether and to what extent the levy charged on a product coming under the common organization of the market and devoted to purposes incompatible with that organization must be reimbursed and, on the other hand, whether and to what extent there may be set off against that right to reimbursement the amount of the bonuses paid to the trader concerned.

Mertens de Wilmars Mackenzie Stuart Pescatore

Sørensen O'Keeffe Bosco Touffait

Delivered in open court in Luxembourg on 26 June 1979.

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