C-61/80

JUDGMENT OF 25. 3. 1981 — CASE 61/80

contained in Annex II to the EEC to production of and trade in agri- Treaty and that annex adopts word cultural products was restricted by for word certain headings of the Article 1 thereof to the production of Customs Cooperation Council No- and trade in the products listed in menclature, it is appropriate to refer Annex II to the Treaty. That regu- to the said Explanatory Notes in lation may not therefore be applied to order to interpret that annex. the manufacture of a product which does not come under Annex II even if it is a substance ancillary to the 3. The scope of Regulation No 26 production of another product which applying certain rules of competition itself comes under that annex.

In Case 61/80

COÖPERATIEVE STREMSEL- EN KLEURSELFABRIEK, Leeuwarden, The Netherlands, represented by P. J. P. Verloop, of the Amsterdam Bar, with an address for service in Luxembourg at the Chambers of L. H. Dupong, 14a, Rue des Bains, applicant, supported by

T H E GOVERNMENT OF THE FRENCH REPUBLIC, represented by G. Guillaume, Director of the Department of Legal Affairs at the Ministry of Foreign Affairs, acting as Agent, assisted by A. Carnelutti, Secretary for Foreign Affairs, acting as Deputy Agent,

v

Advocate General: J.-P. Warner Registrar: A. Van Houtte

gives the following

JUDGMENT

Facts and Issues

The facts of the case, the course of the Article 2 of the decision refuses to apply procedure, the conclusions and the Article 85 (3) of the Treaty and Article 3 submissions and arguments of the parties requires the addressees of the decision to may be summarized as follows : bring those infringements to an end.

I — Facts and written procedure 2. The applicant is a Netherlands cooperative producing rennet of animal origin and colouring agents for cheese. Rennet is a ferment extracted from the 1. By Decision 80/234 of 5 December fourth stomach of calves which has the 1979 (Official Journal L 51 of 25 property of curdling milk and is used in February 1980, p. 19) addressed to the the making of cheese. applicant, the Coöperatieve Stremsel- en Kleurselfabriek (hereinafter referred to as "the Cooperative") and its members, the Commission, which is the defendant, Dairy cooperatives which are based in found (Article 1) that the exclusive pur- the Netherlands or elsewhere may qual- chasing obligation imposed on the ify for membership of the Cooperative. members of the Cooperative and the All the Netherlands dairy cooperatives obligation requiring a resigning member making cheese have joined. The to pay a sum proportionate to the Cooperative also supplies rennet and quantity of rennet purchased each year colouring agents to undertakings which from the Cooperative, which are both are not members. The rules of the laid down in the rules of the Coop- Cooperative, which were notified to the erative, constitute infringements of Commission, require its members to Article 85 (1) of the Treaty. purchase from the Cooperative the

The Commission then goes on in its decision to calculate the sum to be paid In the decision there is a table which upon the voluntary resignation of an shows that between 1976 and 1978 the average-sized member. It concludes that Netherlands imponed 16 tonnes of in view of the rather limited financial rennet from other Member States whilst resources of Netherlands dairy coopera- the other Member States imported tives, payment of such a sum might prove quantities going from 113 to 745 tonnes. an appreciable burden, the size of which The Cooperative has never supplied is increased for members having large rennet to other Member States or the rennet requirements because the sum is Community; the quantities exported proportionate to the amount of rennet from the Netherlands to those States purchased annually from the consist only of synthetic rennet. Cooperative. That payment makes resig-

COÖPERATIEVESTREMSEL- EN KLEURSELFABRIEK v COMMISSION

nation very difficult, if not impossible, of products from the Cooperative, or an for any member wishing to obtain obligation to give notice of withdrawal; supplies from some other source in the those solutions would not prevent Community or to produce its own rennet planning relating to the manufacture and and thus compete with the Cooperative. stocking of the products concerned. That In view of the share of the market held is all the more true since non-member by the Cooperative and since there is no users of rennet have been purchasing the other manufacturer of that product in product from the Cooperative without the Netherlands the requirement being subject to any purchasing constitutes an appreciable restriction of obligation. competition within the common market.

On the other hand the third condition is By statement lodged on 26 June 1980 the not fulfilled, since in order to obtain the French Government asked to be allowed advantages obtained by the Cooperative to intervene in the case. Leave to less restrictive solutions exist such as an intervene was granted by order of 2 July obligation to purchase a limited quantity 1980.

JUDGMENT OF 25. 3. 1981 — CASE 61/80

Upon hearing the report of the Judge- system. For example, French Law N o Rapporteur and the views of the 72-516 of 27 June 1972 on cooperative Advocate General the Court decided to farming (Journal Officiel of the French open the oral procedure without any Republic of 28 June 1972, p. 6619) preparatory inquiry. provides that only associations whose rules require their members to use their services for a specified period may claim to be cooperatives. II — C o n c l u s i o n s of t h e p a r t i e s

Members of a cooperative are willing to assume the financial liability of the rules 1. The applicant claims that the Court adopted between them only on the basis should declare the contested decision of the exclusive purchasing obligation void and order the Commission to pay and it is only on that basis that the costs. associations may limit the individual provision of authorized capital.

The Commission claims that the Court should declare the action unfounded and order the applicant to pay the costs. The exclusive purchasing obligation is designed not to restrict competition but to promote optimum production of rennet and to guarantee supplies to members of the Cooperative. The III — Submissions and argu- Cooperative has no other commercial ments of the parties object. The price of the rennet which it sells is calculated retrospectively in order to cover all the costs of production.

Nor can the fact that the exclusive pur- chasing obligation is provided for by law in France, or that it has its roots in 1. The tenor of this submission is that tradition in the Netherlands, prevent the the exclusive purchasing obligation is not application of Article 85 (1) of the liable to affect trade between Member Treaty. States: in order to guarantee the highest quality of their products Netherlands cheese-producers have never resorted to imports; even if there were no obligation The Commission states that there is to purchase, members of the Cooperative nothing in the Treaty or in the regu- would not obtain supplies from other lations based on the Treaty to exclude producers unless there were temporarily cooperatives in the agricultural sector a clear price advantage; non-member from the application of Article 85 (1) producers have likewise always bought even if the competition between their all of their rennet and colouring agents members is not affected. It refers in that from the Cooperative; the statistics on regard to its decisions in the sugar cases Community trade in rennet contained in (2 January 1973, Official Journal L 140 the contested decision include not only of 26 May 1973, p. 17) and in the cauli- animal rennet but also synthetic rennet flower case (2 December 1977, Official the use of which is prohibited in the Journal L 21 of 26 January 1978, p. 23) Netherlands. and to the Court's judgment of 16 December 1975 (Joined Cases 40 to 48, 50, 54 to 56, 111, 113 and 114/73 Suiker Unie and Others [1975] ECR 1663). The applicant concludes that the exclusive purchasing obligation does not disturb the normal patterns of trade in The Commission believes that the the sense of paragraph 22 et seq. of the distinction between competition between Court's judgment of 31 May 1979 in the members of the Cooperative on the Case 22/78 Hugin v Commission [1979] one hand and competition between the ECR 1869 and that it is apparent from, Cooperative and other rennet suppliers for example, paragraph 27 et seq. of the on the other is artificial and a misunder- Court's judgment of 26 November 1975 standing of the considerations stated in in Case 73/74 Papiers Peints and Others v paragraphs 22 and 24 of its decision. Commission [1975] ECR 1491 that the

The Commission further observes that neither technical production difficulties The applicant's fourth submission nor technical obstacles to trade or transport nor even any economic reasons enable it to be shown that in the absence of the exclusive purchasing obligation 1. This submission is to the effect that members of the Cooperative would not the Commission was wrong to consider have recourse to importation. that the absence of any obligation to pay a certain sum in the event of resignation would help to set up competing The Commission cannot accept the production centres which could also sell comparison between the present case and rennet in other Member States : collective Case 22/78 Hugin since there is a production is the only way of normal pattern of trade in rennet guaranteeing a regular supply of rennet between Member States. of good, consistent quality; although there is a market at cheese-producer level for all the services constituted by such supply, there is no market at the The applicant's third submission Community level in animal rennet as a commercial product and that is because the relative value of rennet in relation to 1. In this submission the applicant that of cheese is too low; regular supplies contends that the sum to be paid upon of rennet of good, consistent quality are

COÖPERATIEVESTREMSEL- EN KLEURSELFABRIEK v COMMISSION

so important that cheese-makers try to Member States. The AKZO group, maintain a stable relationship with a which produces synthetic rennet, exports trustworthy supplier; if the applicant considerable quantities to other Member failed in its duties the members would try States without any difficulty. What is to discover the reasons for this within the more, the Cooperative itself exports Cooperative and attempt to remedy other products. them. What is more, there is nothing to prevent the Cooperative from selling its produce in other Member States or from admitting cheese-producers in other The applicant's fifth submission Member States as members.

05.04: Guts, bladders and stomachs of animals (other than fish), whole The Commission further observes that an and pieces thereof. exclusive purchasing obligation does not increase the guarantee that the rennet user will receive regular supplies. On the contrary, a user's freedom to purchase 05.15: Animal products not elsewhere rennet elsewhere is a better guarantee. specified or included; dead animals of Chapter 1 or Chapter 3, unfit for human consumption. The existence of a market in rennet cannot be questioned. After all, rennet is 35.07 Enzymes; prepared enzymes not sold by the Cooperative both to its elsewhere specified or included. members and to third parties. What is more, statistics show that rennet is even sold and purchased beyond the frontiers of the Member States in quantities which In the applicant's view the reference are not insignificant. The fact that rennet twice to products not specified elsewhere represents only a small percentage of the enables it to be said that heading 35.07 price of cheese does not prevent that governs only synthetic rennet. product from being dealt in indepen- dently. Such an interpretation of Annex II to the Treaty is made more inescapable by the Furthermore, there is nothing to prevent fact that Article 38 (1) of the Treaty rennet from being exported to other provides that "agricultural products”

JUDGMENT OF 25. 3. 1981 — CASE 61/80

COÖPERATIEVE STREMSEL- EN KLEURSELFABRIEK v COMMISSION

attributable to the outgoing member costs cannot be of decisive importance in during the year following that in which determining which rennet will be used in the member resigned. That sum is the making of cheese because of the therefore reasonable and thus forms an overriding need to have regular supplies essential part of an indispensable system. of rennet of good, consistent quality.

As regards the sum to be paid in the The French Government observes that event of resignation, the Commission owing to the general nature of the terms refers to its arguments put forward in in which it is cast the Commission's relation to the third submission. decision seems likely to have a serious adverse effect on agricultural coop- eration. The applicant's seventh submission In its opinion, owing to its very object, 1. In this submission the applicant which is to enable small farms to have points out that the exclusive purchasing common use of all the means required to arrangement does not eliminate compe- further their economic activities, agri- tition on almost the entire Netherlands cultural cooperation requires the creation market in rennet and colouring agents of preferential ties between the farmers for cheese: the payment of an amount of on the one hand and the farmers and the 0.08% of the average annual production cooperative on the other. Such ties are

JUDGMENT OF 25. 3. 1981 — CASE 61/80

not only a condition for the coopera- kind of organization constituted by agri- tive's prosperity but above all guarantee cultural cooperation. its credibility in the eyes of third parties.

One of the obligations designed to The French Government states that the ensure the fidelity of members (which is Commission does not condemn any mandatory in French law and in other purchasing obligation per se, only the Member States and optional elsewhere, exclusive nature of that obligation. It in particular in the Netherlands) is the cannot however accept that such an obligation that every member should use obligation is per se contrary to Article 85 all or part of the services provided by the (1) regardless of an appraisal of the cooperative. Such an obligation is the economic and social environment in only one which can enable a cooperative which the cooperative operates and the to acquire the outlets for its production effects of that provision on that of for the services which it is intended to environment. provide.

C O Ö P E R A T I E V E S T R E M S E L - E N KLEURSELFABRIEK v COMMISSION

The French Government emphasizes in IV — Oral procedure this context that joining a cooperative is a voluntary act which does not make the The Coöperatieve Stremsel- en Kleursel- member a prisoner of his cooperative fabriek, represented by P. J. P. Verloop, since he has the right contained in the of the Amsterdam Bar, the French rules to resign at the end of a specified Government, represented by G. period of commitment. That period is Guillaume, Director of the Legal always restricted in time and varies Department at the Ministry of Foreign according to each cooperative. In France Affairs, acting as Agent, and the it is generally five years. Commission, represented by its Legal Adviser, B. Van der Esch, acting as Agent, assisted by P.J. Kuyper, a It concludes in this regard that a member of its Legal Department, compensatory sum restraining a member from leaving may be condemned only if presented oral argument at the sitting on the amount thereof is such as to prevent 14 January 1981. the member's resignation. In reply to a question from a member of the Court the Commission stated that it Finally, it is also unable to accept the was certain that Denmark exported argument adopted by the Commission to animal rennet and that it was plausible rule out the applicability of Article 85 (3) that some rennet imports into Denmark of the Treaty. Only where a sum to be consisted of rennet of animal origin. paid on resignation is excessive should it The Advocate General delivered his be possible for the application of that opinion at the sitting on 18 February provision to be excluded. 1981.

4 According to the contested decision the Cooperative manufactures 100% of Netherlands rennet output and approximately 9 0 % of the output of colouring agents for cheese, and supplies 94% of its rennet output and 80% of its colouring agent output to its members which, according to the Commission, represent more than 90% of the Netherlands dairy-products industry. The remainder of the output is sold to non-member Netherlands cheese-makers. As regards intra-Community trade in rennet, including synthetic rennet, the decision states that between 1976 and 1978 the Netherlands imported 16 tonnes of rennet from other Member State whilst the other Member States, Belgium and Luxembourg being treated as one market, imported quantities from 113 to 745 tonnes. Finally, it may be seen from the decision that the value of the Cooperative's output of colouring agents is minimal compared to that of its rennet output which in 1978 was 830 000 litres.

5 In the decision the Commission's finding as to the application of Article 85 (1) is that both the exclusive purchasing obligation, which is enforced by the threat of a fine and reinforced by possible expulsion and the payment of a

C O Ö P E R A T I E V E STREMSEL- EN KLEURSELFABRIEK v COMMISSION

sum for infringement of that obligation, and the obligation to pay an equivalent sum in the event of resignation, appreciably restrict competition within the common market and are liable to affect appreciably trade between Member States as their effect is to prevent the Cooperative's members, which represent over 90% of the Netherlands dairy products industry, from pur- chasing the products in question from other suppliers located, in particular, in other Member States.

9 In its first submission the Cooperative denies that the exclusive purchasing obligation appreciably restricts competition in the common market. That obligation is intended not to restrict competition but to promote optimum rennet output and to guarantee members' supplies. The decision at issue prejudices the traditional system of cooperatives for which the exclusive purchasing obligation is a fundamental condition. From the point of view of Article 85 (1) of the Treaty cooperatives in the agricultural sector should not be regarded as independent undertakings but as a form of cooperation necessarily based on the exclusive purchasing obligation which cannot therefore restrict competition between the cooperative on the one hand and its members or third parties on the other. Nor can it restrict competition between members. That competition operates without limitation on the market in cheese.

10 The Cooperative's second submission is to the effect that the exclusive pur- chasing obligation is not liable to affect trade between Member States because both the members of the Cooperative and non-member Netherlands manufacturers have always bought all their rennet and colouring agents from the Cooperative and would continue to do so even if that obligation did not exist.

12 Before evaluating those arguments it should be recalled that for the agreement at issue to be caught by the prohibition contained in Article 85 (1) it must have "as its object or effect the prevention, restriction or distortion of competition within the common market". The Cooperative's rules, which require its members to purchase from the Cooperative all the rennet and colouring agents for cheese which they need, and which reinforce that obligation by stipulating the payment of a not inconsiderable sum in the event of resignation or expulsion, have clearly as their object to prevent members from obtaining supplies from other suppliers of rennet or colouring agents or from making them themselves should those alternatives offer advantages from the point of view of quality or price. Since, according to information which has not been challenged, the members now account for more than 9 0 % of Netherlands cheese output, those provisions in addition contribute to maintaining the present situation, in which the Cooperative is virtually the only supplier of rennet on the Netherlands market.

1 3 Those provisions are thus of such a nature as to prevent competition, at the level of the supply of rennet and colouring agents for cheese, between producers holding a large part of the Community market in cheese, and also tend to rule out the possibility of creating a competitive situation on the whole of the Netherlands market in these ancillary substances which are indispensable in the making of cheese. In the circumstances, there is no need to examine the question whether other factors help to maintain the Cooperative's dominant position on the relevant market and whether such factors are sufficient to consolidate that position, even in the absence of the aforesaid provisions.

17 The Cooperative's sixth and seventh submissions are to the effect that not only are the first two conditions of Article 85 (3) of the Treaty fulfilled, as the Commission agreed in its decision, but that the third and fourth conditions of that provision are fulfilled as well. The exclusive purchasing obligation and the obligation to pay a sum in the event of resignation are indispensable measures for the attainment of the advantages acknowledged by the Commission in its decision and they do not afford the Cooperative the possibility of eliminating competition on a substantial part of the common market.

19 The Cooperative's fifth submission is to the effect that by virtue of Regu- lation No 26/62 Article 85 (1) of the Treaty does not apply in this case because animal rennet comes under heading 05.04 or heading 05.15 of the Customs Cooperation Council Nomenclature, which are cited in Annex II to the Treaty, and not under heading 35.07 under which, according to the Explanatory Notes on the Customs Cooperation Council Nomenclature, that product is wrongly classified. Furthermore the Cooperative stresses the point that Article 38 (1) of the Treaty provides that "agricultural products" means not only the products of stockfarming but also products of first-stage processing directly related to those products. Even if animal rennet does not fall under Annex II to the Treaty it still comes under Regulation N o 26/62 because the production in question is necessary to attain the objectives stated in Article 39 of the Treaty and because the Cooperative must be regarded as a collective organization for the processing of agricultural products within the meaning of Article 2 of that regulation.

20 Since there are no Community provisions explaining the concepts contained in Annex II to the Treaty and that annex adopts word for word certain headings of the Customs Cooperation Council Nomenclature, it is appro- priate to refer to the Explanatory Notes on that Nomenclature in order to interpret the annex. According to the Explanatory Note on heading 35.07 animal rennet comes under that heading and does not therefore come under the headings listed in Annex II to the Treaty.

22 The Government of the French Republic submits inter alia that, even outside the scope of Regulation No 26/62, it is necessary when assessing the possible effects of competition to take the greatest possible account of the specific circumstances of agricultural production and the particular requirements of the special kind of organization constituted by agricultural cooperation. In its view, by virtue of its very object, which is to enable small farms to have common use of all the means required to further their economic activities, agricultural cooperation requires the creation of preferential ties between the farmers on the one hand and the farmers and the cooperative on the other. Thus, in the view of the French Government, neither an exclusive supply obligation nor an obligation to pay a severance fee, unless the latter is prohibitive, cannot be regarded as being, in principle, incompatible with Article 85 (1). As such obligations are more often than not indispensable in order to enable a cooperative to be set up with reasonable chances of success, it is not possible either to rule out comprehensively the application of Article 85 (3).

23 The French Government accordingly takes the view that any effect which the Cooperative may have on competition could form the legal basis for the contested decision only by virtue of the quasi-monopoly which it has acquired on the Netherlands market in rennet and colouring agents.

24 During the oral proceedings the Commission stated that it was largely in agreement with the points of view of the French Government as far as typical farming cooperatives were concerned.

THE COURT

hereby:

1. Dismisses the application;

2. Orders the applicant to pay the costs.

Mertens de Wilmars Pescatore Koopmans

O'Keeffe Bosco Due Chloros