C-49/82

JUDGMENT OF 20. 4. 1983 — CASE 49/82

In Case 49/82

COMMISSION OF THE EUROPEAN COMMUNITIES, represented by its Legal Adviser, Alberto Prozzillo, assisted by Thomas van Rijn, a member of its Legal Department, acting as Agents, with an address for service in Luxembourg at the office of Oreste Montalto, a member of the Legal Department, Jean Monnet Building, Kirchberg, applicant, v

KINGDOM OF THE NETHERLANDS, represented by Adriaan Bos, Deputy Legal Adviser at the Ministry of Foreign Affairs at The Hague, acting as Agent, with an address for service in Luxembourg at the Netherlands Embassy, defendant,

APPLICATION for a declaration that the Kingdom of the Netherlands has failed to fulfil its obligations under the EEC Treaty by authorizing the packing in small packages of butter from non-member countries in customs warehouses, contrary to the provisions of Article 1 of Council Directive 71 / 235 / EEC of 21 June 1971 on harmonization of the provisions laid down by law, regulation or administrative action relating to the usual forms of handling which may be carried out in customs warehouses and in free zones (Official Journal, English Special Edition 1971 (II), p. 398),

THE COURT

The facts of the case, the course of The Netherlands legislation adopted pur­ the procedure and the conclusions, suant to Directive 71/235 is in conform­ submissions and arguments of the parties ity with the provisions of Community may be summarized as follows: law inasmuch as Article 210 of the Decree implementing the Algemene Wet inzake Beschuit de Douane en Accijnzen I — Facts and written procedure [General Law on Customs and Excise, hereinafter referred to as the "the General Law"] as amended by the Royal In order to prevent differences between Decree of 9 February 1976 (Stbl. 1976 national customs warehousing pro­ No 58), refers to the list of authorized cedures from provoking deflection of usual forms of handling which is set out trade and diversion of customs revenue, in Article 1 of Directive 71/235. particularly in view of the fact that if However, the view of the Netherlands goods are placed in warehouses, no authorities regarding the contents of the customs duties, charges having equiv­ list is at variance with the manner in alent effect or agricultural levies may be which those contents have been defined collected, on 4 March 1969 the Council by the Council. adopted Directive 69 / 74 / EEC on the harmonization of provisions laid down By letter of 27 February 1979, which was by law, regulation or administrative sent to the Commission in response to action relating to customs warehousing the latter's request for information of procedure (Official Journal, English 6 February 1978, • the Netherlands Special Edition 1969 (I), p. 82). Permanent Representation.stated that the packing in small packages of butter The first subparagraph of Article 9 (1) of imported from non-member countries. ' Directive 69 / 74 / EEC provides that: "It and stored in customs warehouses prior must be possible for goods deposited in to re-exportation was carried out in the warehouses to undergo there, under the Netherlands as a "usual form of conditions laid down by the competent handling" under the customs ware­ authorities, such usual forms of handling housing procedure, in accordance with as are needed to ensure preservation or the provisions of Article 1 of Directive to improve packaging or marketable 71/235. quality." Article 9 (2) provides that: "Goods which undergo treatment other By letter of 14 March 1980, the than the usual forms of handling referred Commission initiated against the to in paragraph (1) shall be subject to the Netherlands the procedure provided for rules in force relating to inward in Article 169 of the EEC Treaty. In the processing." The common list of usual Commission's opinion, the packing of forms of handling which may be carried butter in small packages, as it is carried out in the different types of warehouses out in the Netherlands, cannot be was established, in accordance with the regarded as a "usual form of handling" second subparagraph of Article 9 (1) of within the meaning of Directive 71/235 Directive 69/74 by Council Directive inasmuch as the requirement that an 71/235 of 21 June 1971. operation must be simple in order to be

regarded as a "usual form of handling" request that it should be complied with precludes mixing or separation of within a period of two months. foodstuffs as well as shaping and weighing since such operations involve, On 22 May 1981, the Netherlands in addition, the use of large amounts of Government re-stated its point of view equipment. and emphasized, in particular, that, despite the use of considerable amounts of equipment, the operation was Taking the view that authorization to essentially a simple one, regard being pack butter in small packages constituted had to the quantities and the speed and an infringement of the provisions of efficiency of the contested form of Directive 71/235, the Commission handling, and that it must therefore be requested the Netherlands Government regarded as a "usual form of handling". to submit its observations within a period of one month. The Commission lodged this application at the Court Registry on 11 February 1982. In its reply of 21 April 1980, the Netherlands Permanent Representation Upon hearing the report of the Judge- stated that the Netherlands Government Rapporteur and the views of the regarded the packing of butter as a usual Advocate General, the Court decided in form of handling within the meaning of accordance with Article 21 of the Statute subparagraph 8 of Article 1 (1) of of the Court of Justice and Article 45 of Directive 71/235 since packing was the Rules of Procedure, to hold a involved. The fact that the packing preparatory inquiry. machines used to carry out the packing work and shape the butter without By letter of 18 November 1982, the adding any other substance to it cannot Registrar of the Court wrote to the in any way affect the description of the Commission and the Kingdom of the form of handling. The Permanent Netherlands. Representation added that the word "simple" in subparagraph 8 of Article 1 (1) of the directive relates solely to 1. In that letter he asked them both to decanting and transfer into other reply to the following questions : containers and not, for example, to packing. That is clear, it is claimed, from (a) How does the "inward pro­ both the Dutch and the French versions cessing" procedure differ from the of the directive. "customs warehousing" proce­ dure? Does the latter, generally speaking, confer greater advan­ On 18 February 1981, the Commission tages on undertakings than the delivered a reasoned opinion in former? If so, what are they? accordance with the first paragraph of Article 169 of the EEC Treaty. In that (b) Has the grant by the Netherlands opinion, it concluded that "the Kingdom Government of authorization to of the Netherlands, by authorizing the pack butter in small packages packing in small packages of butter under the "customs warehousing" stored in warehouses and imported from procedure had the effect of non-member countries, has failed to endowing that operation with fulfil its obligations under the EEC certain advantages in spite of the Treaty". The opinion, which was fact that it was expressly excluded forwarded to the Netherlands Govern­ from the scope of the "inward ment on 20 February 1981, contained a processing" procedure from 15

January 1976 to 1 April 1980 by III — Submissions and argu­ Regulation (EEC) No 3066/75 of ments of the parties the Council of 24 November 1975 (Official Journal L 307, p. 3), by Council Regulation (EEC) No The Commission considers that the 875/77 of 26 April 1977 (Official packing of butter which is authorized in Journal L 106, p. 23) and by the Netherlands does not come within Regulation (EEC) No 3352/75 of any of the forms of handling referred to the Commission of 23 December in subparagraph 8 of Article 1 (1) of 1975 (Official Journal L 330, p. Directive 71/235 of the Council of 21 28)? If so, what were those June 1971, namely, "packing, unpacking, advantages? change of packings, repair of packings, decanting and simple transfer into other 2. He also requested the Kingdom of the containers". In particular, working, Netherlands to specify the purpose shaping and weighing cannot come of the contested form of handling, within the concept of packing. The including: argument to the effect that those operations, which precede and are necessary for packing, all form part of a (a) the state of the butter before and single continuous process is not relevant after packing; since packing is, in reality, only the final stage of the contested form of handling. (b) the precise nature of each of the operations involved. According to the Commission, the usual forms of handling within the meaning of Article 1 (1) of Directive 71 / 235 / EEC II — Conclusions of the parties can only be simple operations, as is clear from the use of the adjective "simple" in The Commission claims that the Court subparagraphs 5, 8, 10, 11, 12 and 19 of should: the same provision, and that that rules out the employment of large amounts of equipment. 1. Declare that, by authorizing the packing in small packages of butter imported from third countries and In the Commission's opinion, the stored in customs warehouses, the expression "usual form of handling" Kingdom of the Netherlands has must be strictly interpreted in view of the failed to fulfil its obligations under nature and the function of customs the EEC Treaty; warehouses. According to the sixth recital in the preamble to Directive 2. Order the Kingdom of the 69/74, the essential purpose of customs Netherlands to pay the costs. warehouses, in which goods may be placed pending their shipment to another destination, is to store the goods and not The Kingdom of the Netherlands to provide facilities for preparation or contends that the Court should: processing. It was only in order to take economic realities into account that some 1. Dismiss the application as unfounded; forms of handling were authorized with a view to ensuring preservation of 2. Order the Commission to pay the the goods or improvement of their costs. packaging or marketable quality. Such

authorizations must however be regarded another Member State, namely the as exceptions to the rule. Federal Republic of Germany. In any event, the packing of butter in German The Commission states that although customs warehouses was forbidden as Article 9 (1) of the framework directive, from 24 June 1980. Council Directive 69/74 of 4 March 1969, provides for the establishment of a In the Commission's opinion, the fact "common list" of the usual forms of that the contested form of handling is handling, that certainly does not mean not a usual form of handling which is that the list constitutes an inventory of subject to the rules relating to customs all the usual practices authorized in the warehouses is beyond dispute since, in

; development of techniques and of means arrangements in respect of butter of control" (Working Paper No 54/71 (Official Journal L 330, p. 28). of 4 June 1971, p. 14). Accordingly, certain usual forms of handling auth According to the Netherlands Govern- orized in the Member States were ment, the restrictive interpretation included in the "common list" proposed by the Commission on the definitively adopted by the' Council basis of the function of customs whilst others were excluded from it. warehouses is incorrect, in so far as it takes no account whatsoever of the manner in which the list of the usual The Commission wishes to emphasize forms of handling was drawn up. that when the Netherlands Government forwarded the list of usual forms of The Netherlands Government recalls handling authorized within its territory, that according to Article 9 (1) of the it merely referred to Articles 15 (2) and framework directive, Council Directive 40 of the General Law and that it was 69/74. of 4 March 1969, it must be impossible for the Commission to possible for goods deposited in conclude on the basis of the wording of warehouses to undergo there "under the those provisions that the contested form conditions laid down by the competent of handling fell within one of the cate authorities" the usual forms of handling gories specified therein. set out in "the common list" which was to be drawn up by the Council on a The Commission also points out that the proposal from the Commission. infringement of Community law by the Netherlands authorities cannot be According to the Netherlands Govern justified by the fact that the contested ment, it is clear from that provision that form of handling is authorized in the common list set out in Article 1 (1)

of Directive 71/235 of 21 June 1971 butter cannot be carried out in customs reflects the usual, that is to say warehouses and must therefore come traditional, practices which at the time within the scope of the inward were authorized and applied by the processing procedure. The Netherlands Member States and were recorded by the Government considers that the regu­ Council. The fact that not all the usual lation merely provides that the packing forms of handling authorized by the of butter falls outside the scope of the Member States were included in the rules relating to inward processing. In its common list in no way detracts from the opinion, that cannot imply that the validity of that proposition. packing of butter in customs warehouses is prohibited. The Netherlands Government empha­ sizes that since the packing operation The Netherlands Government takes note referred to in Articles 15 (2) and 40 of of the fact that in the Federal Republic the Netherlands General Law concerns of Germany the contested form of different kinds of goods, it did not handling is now prohibited, whilst consider it necessary to specify that the pointing out that the sole purpose of its packing of butter was authorized on the observations in that connection was to basis of those provisions. show that the Member States quite clearly had differing views concerning The Netherlands Government considers the application of the directive. that the argument to the effect that the usual forms of handling must be simple operations reflects only the Council's initial intentions. A comparison of the IV — Summary of written obser­ vations submitted in reply text of the proposal submitted to the to questions put by the Council on 3 March 1971 (Doc. Court R / 319 / 71 — Eco 32), which is attached to the rejoinder, with the final text of Directive 71/235, reveals in particular In reply to the question of how the that the expression "if only simple "inward processing" procedure differs operations are involved" was maintained from the "customs warehousing" only in certain specific cases. Fur­ procedure, the Commission and the thermore, the nature of the operations Netherlands Government state that referred to in subparagraph 20 of Article although under both of those pro­ 1 (1) of the directive shows that the cedures, it is possible to suspend for a usual forms of handling specified in given period the collection of taxes and Directive 71/235 are not always simple duties, in particular, customs duties and operations. agricultural levies on goods imported into the Community, they may be The Netherlands Government contends distinguished by reference to the that, contrary to the Commission's following factors: argument, the various operations which precede the packing of butter, namely working, shaping and weighing, must be (1) Their purpose regarded not as separate operations but as forming part of a continuous process. Under the inward processing procedure, goods temporarily imported may Contrary to the view expressed by the undergo any kind of preparation or Commission, Regulation No 3352/75 of processing with a view to their expor­ 23 December 1975 does not, it is tation from the territory of the claimed, provide that the packing of Community, whereas under the customs

warehousing procedure, the goods, imported goods for relatively long which are merely placed in storage, may periods where, for example, the ultimate undergo only the usual forms of consignee of the goods is unknown at handling referred to in Article 1 (1) of the time of importation or where the Council Directive 71/235 of 21 June goods are released for consumption over 1971, that is to say operations intended a given period. to ensure their preservation or to improve their packaging or their The purpose of the inward processing marketable quality. procedure is to enable Community undertakings to offer their products or services on foreign markets at (2) Conditions governing their application competitive prices and to contribute towards making better use of the Article 5 (1) of Council Directive 69/73 Community labour force. of 4 March 1969 (Official Journal, English Special Edition, 1969 (I), p. 75) It emerges from the Commission's obser­ provides that the inward processing vations that the grant by the Netherlands procedure may be applied only if Government of authorization to pack preparation or processing would butter in small packages under the "contribute towards providing most customs warehousing procedure made it favourable conditions for the export of possible to circumvent the prohibition of goods resulting from such processing the importation of butter from non- without conflicting with essential member States under the inward interests of producers within the processing procedure during the period Community". from 15 January 1966 to 1 April 1980 which was prescribed by Regulation No As regards the customs warehousing 3066/75 of the Council of 24 November procedure, "economic" conditions of 1975, by Council Regulation No 875/77 that kind are prescribed since the auth­ of 26 April 1977 and by Regulation No orized forms of handling cannot, in view 3352/75 of the Commission of 23 of their simplicity, adversely affect the December 1975. interests of Community producers. According to the Commission, the situation of the market between 1976 (3) Formalities and 1980 was such that it was necessary to accord priority to the marketing of An operation carried out under the EEC butter in non-member countries. inward processing procedure generally One of the means of attaining that involves a greater number of formalities objective was to supply the processing than is the case with regard to the forms industries of the Community with EEC of handling carried out in a customs butter instead of butter from non- warehouse. member countries.

butter under the customs warehousing butter is transported by mechanical procedure, the Netherlands authorities means to one of the packing machines had granted preferential treatment to which slices it into pieces of the desired them, in contrast to the treatment weight and wraps it or puts it into boxes. accorded to processing undertakings Finally, a conveyor belt takes the packets from other Member States. or boxes to a packing counter where The Netherlands Government states that they are packed into crates by hand. although the contested packing has made it possible to sell the butter outside the All the packets of butter are sold and Community on more favourable terms delivered for use on sea-going vessels. At than would have been the case if the present, the butter processed in customs packing had been carried out under the warehouses comes from Finland, inward processing procedure, that Norway and Sweden and from supplies possibility has existed since 1968. previously released for consumption in the Netherlands." In explaining the purpose of the contested form of handling carried out in Netherlands customs warehouses, the Netherlands Government gives the V — Oral procedure following details: "The butter is stored in the warehouse in At the sitting on 2 February 1983, oral boxes of 15 or 25 kg. There, the butter is argument was presented by A. Prozzillo, weighed before being unpacked. Once assisted by J. F. Verstrynge, acting as unpacked, the blocks of butter are placed Agents, for the Commission of the European Communities, and by A. Bos, by hand in a machine which works the acting as Agent, for the Kingdom of the butter into a homogeneous mass. Netherlands. Following selection of the type of packing desired (packets of 10, 15 or 250 The Advocate General delivered his grams or boxes of 1 000 grams), the opinion at the sitting on 10 March 1983.

5 The Commission considers that the packing of butter in small packages, which is authorized in the Netherlands as a usual form of handling within the meaning of Article 1 (1) of Directive 71/235, does not come within the customs warehousing procedure since working, shaping and weighing, which precede the packing of the butter, are not forms of handling referred to in the aforesaid provisions. According to the Commission, the forms of handling carried out in customs warehouses are necessarily simple operations. That requirement of simplicity, which is referred to in several subparagraphs of Article 1 (1) of Directive 71/235, stems from the function of customs warehouses which is to store goods and not to provide facilities for preparation or processing.

6 The Kingdom of the Netherlands contends that the various operations which precede the packing of the butter are simple forms of handling which form part of a single continuous process. According to the Kingdom of the Netherlands, the forms of handling authorized in customs warehouses are not all characterized by their simplicity. It is clear from the preparatory work carried out prior to the adoption of Directive 71/235 that the requirement of

COMMISSION v NETHERLANDS

simplicity was maintained only in certain specific cases. The Kingdom of the Netherlands contends, moreover, that the interpretation of Directive 71/235 proposed by the Commission on the basis of the function of customs warehouses fails to take account of the manner in which the list of usual forms of handling was drawn up. According to the Kingdom of the Netherlands, it is clear from the wording of Article 9 (1) of Directive 69/74, quoted above, that the common list set out in Article 1 (1) of Directive 71/235 reflects the usual practices traditionally applied by the Member States and recorded by the Council.

JUDGMENT OF 20. 4. 1983 — CASE 49/82

10 In that regard, it is clear from the first subparagraph of Article 9 (1) of Directive 69/74, the meaning of which is further clarified by the sixth recital in the preamble to that directive, that the essential purpose of customs warehouses is to provide for the storage of goods. That is why the handling authorized during storage is confined to "such usual forms of handling as are needed to ensure preservation or to improve packaging or marketable quality". It follows, therefore, that such operations are not intended, in principle, to permit the goods to pass from one stage of marketing to another and that an express provision is required for any exceptions to that rule in the case of certain operations concerning specific products.

13 Moreover, that interpretation is confirmed by Regulation (EEC) No 3066/75 of the Council of 24 November 1975 (Official Journal L 307, p. 3) and by

COMMISSION v NETHERLANDS

Regulation (EEC) No 3352/75 of the Commission of 23 December 1975 (Official Journal L 330, p. 28) adopted in pursuance of the first-named regu­ lation. The purpose of those regulations was to contribute towards the re- absorption of excess stocks of Community butter by obliging Community industries which use the product for export purpose to use exclusively butter produced in the Community. With that end in view, the aforementioned regulations merely laid down rules in respect of inward processing alone and expressly excluded from the scope thereof, for a period which was extended until 1 April 1980, "the processing of bulk butter into small packages for the retail trade". It is clear that the effect which that prohibition was expected to produce could be secured only on condition that the operation concerned could not be carried out under the equally advantageous customs ware­ housing procedure.

1 4 It is therefore necessary to conclude, in the light of the foregoing considerations, that by authorizing, under the customs warehousing procedure, the packing in small packages of butter imported in bulk from non-member countries, the Kingdom of the Netherlands has failed to fulfil its obligations under the EEC Treaty.

Costs

15 Under Article 69 (2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been asked for in the successful party's pleading. As the Kingdom of the Netherlands has been unsuccessful, it must be ordered to pay the costs.

Pescatore O'Keeffe Everling

Bosco Koopmans Bahlmann Galmot

Delivered in open court in Luxembourg on 20 April 1983.

P. Heim P . Pescatore

Registrar President of the Second Chamber, acting as President

OPINION OF ADVOCATE GENERAL SIR GORDON SLYNN DELIVERED ON 10 MARCH 1983