C-258/87

3. These applications are directed against the refusal to allow to be charged to the (ii) in Case 337/87: LIT 5 515 101 163 EAGGF expenditure relating to sales of and LIT 1 080 936 168 for 1984, skimmed-milk powder in public storage, the conversion of oranges and lemons and

* Original language: German. 1 — OJ 1983, L 195, p. 40. (iii) in Case 338/87: LIT 567 423 720 and 2 — OJ 1987, L 262, pp. 23 and 35. LIT 34 814 210 for 1985;

ITALY v COMMISSION

(c) special carry-over premium in the Republic for expenditure incurred in fisheries sector: 1983 or, on the basis of grounds set out, such lesser sums as may be held to be correct; (i) in Case 258/87: LIT 101 983 620 for 1983,

(ii) order the defendant to pay the costs; (ii) in Case 337/87: LIT 155 417 885 for 1984,

in Case 337/87: (iii) in Case 338/87: LIT 196 711020 for the 1985 financial year.

OPINION OF MR LENZ —JOINED CASES 258, 337 AND 338/87

(ii) order the defendant to pay the costs. "to be denatured (Regulation (EEC) No 368/77)", ... "to be denatured (Regulation (EEC) No 443/77", 7. The defendant contends in all three cases that the Court should:

(i) dismiss the applications as unfounded; 10. The defendant disallowed the amount of LIT 6 905 742 049 on the ground that (ii) order the applicant to pay the costs. there had not been proper compliance with the obligations arising from Article 15 of Regulation No 368/77 and Article 7 of 8. As far as the facts and arguments of the Regulation No 443/77. The defendant parties are concerned, reference is made to states that the suspicion that the marking the Report for the Hearing. I will mention had not been carried out arose first of all the facts only to the extent necessary for the from the fact that no request for the costs reasoning in support of my proposal for a relating to marking to be taken into account decision. had been made. The investigations which were carried out as a result confirmed this suspicion. During a mission in May 1986, B — Analysis the Italian authorities explained that the marking had not been carried out because it had already been effected by the German I — The sales of skimmed-milk powder held authorities. Where the skimmed-milk in public storage powder originated in German intervention agencies, the sacks bore, in accordance with Article 2(2) of Regulation No 2254/82, 7the (a) Marking of the sacks words 'latte scremato in polvere ad uso zootecnico in Italia'.

telex message was only a draft. It adds results of the bipartite negotiations of 26 that, in the event that it was transmitted, the June 1986, it was stated, as regards the view should be taken that that transmission marking of sacks of powdered milk, that the could in any event only have taken place written reply which had been promised was after 23 June 1986, since the telex message still awaited. of 23 June 1986 (No 260224/3-G4), 10 containing the items on the agenda of the bipartite meeting to be held on 26 June 15. In the summary report of 15 August 1986, still stated expressly that a separate 1986 on the results and checks in respect of telex message would follow as regards the the clearance of accounts for 1983, 15 it is labelling of skimmed-milk powder in public 6 stated 1 that the sacks of skimmed-milk storage. powder leaving the intervention agency were not marked. After providing detailed explanations on the problems relating to supervision of the denaturing and analyses, 12. On 17 June 1986, the defendant the report mentions, at point (c), 1 the 7

adopted, in pursuance of Article 1(3) of marking requirement and states the relevant Regulation No 1723 / 72 " as amended by legal basis. In conclusion it states that 2 Regulation No 422/86, 1 a decision the expenses relating to denatured addressed to the Member States fixing at 15 skimmed-milk powder which has been July 1986 the expiry of the period of time subject to permanent supervision without for the transmission of additional infor­ analyses and to skimmed-milk powder, mation needed for the clearance of accounts whether denatured or not, incorporated in for 1983. That decision was notified to the animal feedingstuffs elsewhere than at the Member States on the following day. place of storage may not be reimbursed. ' 8

14. In the telex message of 8 July 1986 1 (No 280005/3-G4), 4 summarizing the 16. In another telex message of 17 October 9 — Annex 16 to the reply. 20 10 — Annex 15 to the reply. 1986, the defendant requested precisely 11 — Commission Regulation No 1723/72 of 26 July 1972 on specified information in order to apply making up accounts for the European Agricultural Regulations Nos 368/77 and 443/77. Guidance and Guarantee Fund, Guarantee Section (OJ 1972, L 186, p. 1). 12 — Commission Regulation No. 422/86 of 25 February 1986 15 _ Annex 3 to the application. amending Regulation (EEC) No 1723/72 on making up 16 — See p. 67 of the summary report accounts for the European Agricultural Guidance and Guarantee Fund, Guarantee Section (OJ 1986, L 48, 17 — See p 68 of the summary report p 31). 18 — Sec (d) at p 69 13 — Annex 17 to the reply. 19 — Annex 4 to the application 14 — Annex 18 to the reply. 20 — Annex 6 to the application

OPINION OF MR LENZ — JOINED CASES 258, 337 AND 338/87

ITALY v COMMISSION

That is clear from the telex message of 8 July 1986, which is cited 23. On this legal basis which was adopted by the applicant itself, in which it was in February 1986, the defendant, on 17 June requested by the defendant to put into 1986, adopted the decision whereby writing the explanations which it had additional information regarding the promised. The telex message of 8 July 1986 clearance of accounts for 1983 was to be 23 cannot moreover be interpreted as meaning transmitted not later than 15 July 1986. that the defendant wished indefinitely to The applicant in its arguments does not, pursue negotiations on this problem.

The period expired only three weeks later, that is on 15 26. It is not contested that no explanations July 1986. The manner in which the period were provided prior to 15 July 1986. The of time was fixed cannot therefore be open item relating to the marking of sacks could to criticism. therefore only form the subject of the continuing negotiations if the defendant 24. As regards the marking of sacks, the continued, either expressly or by impli choice of date was also not unreasonable. cation, to deal with them. More than three years after the end of the financial year to which the clearance of accounts related, the applicant knew, at the latest by the time of the mission in May 27. There is no evidence from any of the 1986, that there was uncertainty as to the documents produced before the Court actual extent of the markings which had which are dated after 15 July 1986 that the been carried out. defendant wished to continue to negotiate on the marking of the sacks.

OPINION OF MR LENZ —JOINED CASES 258, 337 AND 338/87

28. Any such reopening must, however, be an opinion on the item relating to the clearly and unequivocally deduced from the marking of sacks for the first time after 15 document. However, that is not the case. July 1986 and without having been ques­ With regard to the problems arising in the tioned on this point. For the rest, it supplied context of Regulations Nos 368/77 and the information which was still missing. 443/77, there is first of all the finding that the sacks were not marked when they left 24 the intervention agency. At point (c), the requirement to mark the sacks imposed by 32. On the basis of the documentation those regulations is mentioned. At point (d), which had been completed in the mean the document finally states that only the time, the defendant calculated the amounts calculation of items excluded from financing eligible for reimbursement and, in the is not possible. Since the information second amendment to the summary report relating thereto had not yet been supplied, of 12 November 1986, disallowed the the items conferring entitlement to reimbur­ disputed item on account of the fact that sement under Regulations Nos 368/77 and there had been a failure to mark the sacks. 443/77 were postponed, so as not to delay the clearance of accounts as a whole.

33. Since there had been no extension of 29. But it is clear from the overall context the deadline of 15 July 1986, either that the documents were only incomplete as expressly or by implication, the expenditure regards the items 'permanent supervision relating to denatured skimmed-milk powder without analyses' and 'skimmed-milk was correctly disallowed from the powder to be denatured or incorporated' reimbursement on account of the fact that elsewhere than in the premises of the inter­ the sacks had not been marked. vention agency. Even for those items, the substantive decision with regard to the items to be excluded from reimbursement had already been taken. The only matter still (b) Failure to carry out analyses of the outstanding was the additional information denatured skimmed-milk powder necessary for actually calculating the amounts to be reimbursed.

2. The competent authority of the Member State concerned shall be responsible for 37. Secondly, the applicant claims that the checking that denaturing or direct incor­ analyses in question were carried out, at the poration has been properly carried out. To request of the firm Zoovit, by the laboratory this end it shall both verify accounts and Itrapac SpA, Crotone, with a view to the provide for on-the-spot supervision. In the labelling of the product. The laboratory case of direct incorporation, this may be confirmed that the processing procedure done by making frequent unannounced adopted enabled optimal distribution results visits of inspection. to be obtained. It is however clear beyond all possibility of mistake from the document 25 produced in evidence by the applicant that the relevant analyses intended to verify the uniform distribution of the added substances had not been requested and that, conse­ quently, they were not carried out. In the case of denaturing by direct incor­ poration in accordance with the second indent of Article 6(1), the costs of the supervision of this operation shall be borne 38. The sole matter of decisive importance by the undertaking concerned. These costs is therefore the reply to be given to the shall be fixed at a flat rate of two units of question of law whether the analyses account per tonne of skimmed-milk powder intended to verify the distribution results are and, in the case of permanent on-the-spot mandatory. supervision, shall not be less than 30 units of account per day of supervision.

... 42. The question therefore arises as to whether a legal obligation as regards the nature and the extent of the supervision may Paragraph 3 of the annex is entitled: be derived from the annex itself. The whole economy of the annex points to the contrary. The annex sets out on a case- by-case basis, the formulas in accordance 26 'General prescriptions concerning dena­ with which denaturing may be conducted turing and incorporation.' or lays down the proportions of the different substances to be directly incor­ 27 porated. Finally, paragraph 3 of the annex lays down a series of quality requirements Subparagraph D thereof states: which the denatured skimmed-milk powder must satisfy. The differences result from the denaturing formula chosen. 'The products to be added to skimmed-milk powder, as given in the formulas in Section 1, must be distributed in a uniform manner so that in two individual samples of 50 g, drawn at random from a 25 kg package, 43. If supervision is carried out the product there is contained — by chemical determi­ must naturally be in conformity with the nation — the same results as above within provisions of the annex. Those are the limits tolerable error limits set by the method of to the mandatory nature of the annex as analysis used. contended for by the defendant. The scope and intensity of supervision cannot however be deduced from the annex.

The provisions adopted pursuant to Council 26 — Paragraph 1 of the annex. Directive 70 / 373 / EEC of 20 July 1970 on 27 — Paragraph 2 of the annex.

ITALY v COMMISSION

OPINION OF MR LENZ — JOINED CASES 258, 337 AND 338/87

the processing of oranges during the lation No 1223/83 33and Regulation No 1982/83 marketing year is therefore not 855/84 has been infringed. part of the dispute.

52. All the applications are essentially based 50. The applications in Cases 337 and on the fact that the applicable conversion 338/87 are directed against the decisions of rate must be the rate which was in force on the Commission, inasmuch as they the date on which the transaction was disallowed for reimbursement compensation carried out, in other words the date on relating to the processing of oranges which entitlement was conferred. For the amounting to LIT 5 515 101 163 for 1984 processing of oranges and for the processing and LIT 567 423 720 for 1985. Also of lemons the events conferring entitlement disallowed was compensation relating to were fixed by those regulations at different the processing of lemons amounting dates. to LIT 1 080 936 168 for 1984 and LIT 34 814 210 for 1985. The difference is due to the fact that the applicant worked on the basis of a conversion rate of ECU 1 = LIT 1 432 whereas the 53. The defendant does not dispute the defendant based itself, as regards the relevance of the event conferring entitle­ 1983/84 marketing year, on a conversion ment. However, it proceeds on the basis rate of ECU 1 = LIT 1 341. It was only that there is a marketing year applicable, as from the beginning of the 1984/85 both to oranges and to lemons, which is the marketing year that the defendant applied reason for which the date of entry into the conversion rate of ECU 1 = force of a newly fixed conversion rate is LIT 1 432. different from the date of entry into force of the amending regulation relating thereto.

36 37 2601/69 and that of the special measures to oranges and lemons make direct reference to Article 43 of the EEC Treaty. encourage the marketing of products processed from lemons within the meaning of Regulation No 1035/77 are comparable. Before the beginning of each marketing year a minimum price is fixed which 55. In order to decide this question, it is processors must pay to producers. The mere first of all necessary to determine whether fact that the minimum price must be fixed at for oranges and lemons intended for the beginning of the marketing year itself processing there is in existence a marketing shows that the marketing year is also year within the meaning of the common decisive as regards fruits intended for organization of the markets in the fruit and processing. vegetables sector. Annex II to Regulation No 1035/72 sets out the varieties of fruit and vegetables which are subject to a price and intervention regime. Oranges and 58. Moreover, the provisions relating to the lemons are included in that list. It follows fixing of the relevant minimum price also that fresh oranges and lemons, in addition demonstrate the substantive link existing to being subject to the common organ­ with the price and intervention regimes ization of the markets in the fruit and under the common organization of the vegetables sector, are governed by specific markets in the sector of fruits and intervention measures. vegetables. The basic prices and purchase prices fixed in pursuance of those provisions form the basis for fixing minimum purchase prices. That is clear, as regards the 3 56. In Regulation No 1343/73, 8which is processing of oranges, from Article 2 of based on Regulation No 1035/72 and lays Regulation No 2601/69 and from the down basic prices and purchase prices in the recitals to subsequent regulations fixing 39 fruit and vegetable sector for the 1973/74 minimum purchase prices. As regards the marketing year the marketing year for processing of lemons, recourse to the oranges is established as the period from purchase price and the basic price for fixing October to June of the following year and the minimum price is based on Article 1 of the marketing year for lemons as the period Regulation No 1035/77. from July to May of the following year.

organization of the markets in the fruit and and for the processing of lemons is, vegetables sector. moreover, apparent from the subsequent Regulation No 1562/85 laying down detailed rules for the application both of Regulation No 2601/69, the basic regu­ lation for the processing of oranges, and Regulation No 1035/77, the basic regu­ 60. In addition to this formal link and the lation on the processing of lemons. substantive link between the common organization of the markets for fruit and vegetables and the systems intended to encourage the processing of oranges and 62. Aid for processing oranges and lemons lemons, the fact that the provisions adopted is intended to support the marketing of in the context of aid for processing those fruits. By reason of their purpose frequently have recourse to a marketing those measures in the last resort inure to the year shows that a marketing year also benefit of producers of fresh fruit. The applies to fruit intended for processing. financial support afforded to processing Such recourse may for example by found in undertakings is merely a link in the chain Article 2(2) and Article 3(1) of Regulation intended to encourage the sale of fresh fruit. No 2601/69, Article 3(2) of Regulation No Financial support in the context of the 208/70, in Regulations Nos 1733/81 and manufacture of processed products is conse­ 2507/83, in Article 1(2) of Regulation No quently intended only to be indirect. 1035/77, in Article 1 of Regulation No 1045/77, 40etc.

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rules ... in which the amount involved in marketing of products processed from the transaction becomes due and payable.' lemons were superseded by Regulation No 1562/85 laying down detailed rules of application for the sectors covered by the two regulations. The new regulation also altered the dates on which the event 64. The event conferring entitlement to conferring entitlement is fictitiously deemed financial compensation for the processing of to occur. That amendment was made on the oranges is constituted by the fact of basis of the following considerations: ' ... In processing, as is indicated in the recitals to view of the link between financial compen­ Regulation No 2972/75. Since it is, sation and the minimum price to be paid to however, difficult to establish the precise growers, the conversion rate applied to that date of processing for a given batch and price should be the same as that applied to since it was necessary to ensure the uniform 46 the financial compensation'. In application of the rules on financial accordance with Article 11 of Regulation compensation, it is appropriate to apply a No 1562/85, the event creating entitlement uniform conversion rate. For this purpose a to financial compensation is deemed to given date is fictitiously deemed to be the occur: date of processing. Accordingly, in the case of the processing of oranges, the event conferring entitlement to financial compen­ sation is deemed to have occurred on 1 May '(a) in the case of oranges: on 1 October of 44 in each year. the marketing year in which the fruit is sent for processing;

with Regulation No 878/77 and its 1983, introduced the rate of ECU 1 = amending regulations, and by reference to LIT 1 341. This rate was applicable until Regulation No 1223/83, repealing Regu­ the beginning of the 1984/85 marketing lation No 878/77 and to Regulation No year, that is to say until 1 October 1984. 855/84, amending Regulation No 1223/83. On 1 May 1984, therefore, the applicable rate was ECU 1 = LIT 1 341. The amendment on 1 October 1984 in respect 68. As regards the periods on which the of oranges was brought about by Regulation Court is called upon to give a decision, the No 855/84 and brought the rate to following situation emerges. Since 6 April ECU 1 = LIT 1 432. This rate was still 1981, the date on which Regulation No applicable on 1 May 1985. 850/81 entered into force, the rate applicable according to Annex VII thereto is ECU 1 = LIT 1 227. This rate was still applicable on 1 May 1982 so that the accounts for the marketing year 1981/82 in 70. In pursuance of those same principles, respect of oranges should be drawn up on the following rates are applicable to the the basis of that rate. The rate was amended processing of lemons: the conversion rate of by Annex VII to Regulation No 3398/81. ECU 1 = LIT 1 289 came into force on Under that provision the applicable rate was 1 June 1982, the date of the beginning of ECU 1 = LIT 1 258. That rate was the marketing year, and was therefore still 49 however to be applicable, in accordance valid on 30 November 1982. The change with the fifth indent of paragraph 1 of of the conversion rate to ECU 1 = Annex VII, as from the beginning of the LIT 1 341 was adopted on 23 May 1983 in 1982/83 marketing year for oranges, which pursuance of Regulation No 1223/83 and alone are relevant in this connection. Prior was therefore in force on 31 May in respect to 1 October 1982, the beginning of the of the period from 1 November 1982 to 31 marketing year, the regulation was subject May 1983. That conversion rate was still in to a further amendment. Regulation No force on 30 November 1983 and on 31 May 1051/82 determined that, as from the 1984. It was only as from the beginning of beginning of the 1982/83 marketing year, the 1984/85 marketing year, that is 1 June the applicable rate was to be 1984, that the rate of exchange of 48 ECU 1 = LIT 1289. Regulations Nos ECU 1 = LIT 1 432 was introduced by 1207/83 and 1668/82 maintained that rate. Regulation No 855/84. On 30 November The next amendment occurred only on 1984 and on 31 May 1985, therefore, the 23 May 1983, so that on the reference applicable rate was ECU 1 = LIT 1 432. date of 1 May 1983 the rate of ECU 1 = LIT 1 289 continued to be applicable.

76. Irregularities had come to light in the 72. The defendant therefore applied the producers' organization Domar which gave correct conversion rates. Consequently, the rise to criminal proceedings at national application should be dismissed on this level. On account of the offences estab­ point. lished, the special carry-over premiums granted to the producers' organization Domar in respect of the 1980 financial year were properly excluded from financing. The Ill — The special carry-over premium in the Court confirmed that this measure was fisheries sector justified in the judgments which it gave in Cases 342 and 343/85. " The decisions of the Court are, inter alia, based on the finding that the supervision prescribed was 73. The last point which remains to be not properly carried out. discussed relates to the refusal to finance the special carry-over premiums for sardines and anchovies, which were granted to the processing industry. 77. The applicant considers that the irregu­ larities on the part of the producers' organ­ ization should not have any effect on the grant of special carry-over premiums to the 74. To increase competition in the sector of processing industry. In its view, both the sardines and anchovies in the Community, requirement to pay a minimum price and the defendant adopted a system of the actual processing of the quantities premiums which was intended to inure ulti­ declared are matters which can be verified mately to the benefit of producers in the and were properly carried out. The Community. The structure of the aid is such defendant replies that the conduct of the that, in the first place, producers' organiz­ ations may directly acquire a right to special 51 — See Council Regulation No 2204/82 of 28 July 1982 (OJ carry-over premiums. Secondly, a suffi­ 1982, L 235. p 7), and Commission Regulation No ciently remunerative minimum price is to be 3138/82 of 19 November 1982 (OJ 1982, L 235. p 9)

78. In order to decide the question whether, As is already apparent from a reading of the as a matter of law, the special carry-over recitals in the preamble to Regulation No premiums granted to the processing industry 2204/82, the special carry-over premiums must be reimbursed where those under­ for anchovies and sardines are in the last takings conduct themselves in a regular analysis to inure to the benefit of producers. manner or whether the business attitude Thus Article 2 of the regulation states : 'The adopted by producers' organizations must special carry-over premium shall be granted also have an impact on that decision, it only in respect of sardines and anchovies should first of all be stated that in this case which ... have been caught by a member of it is a question of deciding whether the a producers' organization'. It is the Member processing undertakings were or were not State which is responsible for ensuring able to claim special carry-over premiums. observance of the Community requirements. The reply to that question is to be derived That is why in the recitals it is stated that: from the legal relationship between the ' ... the special carry-over premium cannot Member State and the processing under­ be paid until the Member States have estab­ takings. lished that all the relevant conditions have been fulfilled'.

79. The reply to the question whether a Member State may claim reimbursement by 81. Moreover, Article 4(1) of Regulation the Community of a premium paid to a No 2204/82 requires Member States to processing undertaking depends on the introduce a system of supervision. If they do relationship between the Member State and not comply with that obligation they cannot the Community. Considerations relating to ask the Community to reimburse their the object and purpose of the system of expenditure. Their liability is in the nature premiums may therefore also have an of a surety obligation since it is only when impact on that decision. all Community requirements have been fulfilled that aid may be reimbursed by the European Agricultural Guidance and Guarantee Fund, Guarantee Section.

made by that organization. Even if producers' organization. That Member State non-compliance with its obligations cannot cannot be accused of having failed to fulfil be alleged against the processing under­ its supervisory obligations towards a taking it is nevertheless the case that the producers' organization which is not Member State has not complied with the situated on its territory. supervisory obligations falling within its sphere of responsibility. Consequently, the Costs application cannot succeed in so far as it 84. In accordance with Article 69(2) of the seeks the annulment of the defendant's Rules of Procedure, the unsuccessful party decision in relation to the special carry-over is to be ordered to pay the costs. In premiums excluded from reimbursement. accordance with the first subparagraph of 83. This conclusion cannot be countered by Article 69(3), the Court may order the arguing that the defendant reimbursed parties to bear their own costs in whole or expenditure to another Member State which in part where each party succeeds on some acquired the products from the same and fails on other heads.

C — Conclusion

85. I propose that the Court should only grant the application to the extent that it is directed against the disallowance of expenditure relating to the denaturing of skimmed-milk powder on account of the absence of analyses. My proposal for the Court's decision is as follows:

'(1) Commission Decisions 87/368 of 19 June 1987, 87/468 of 18 August 1987 and 87/469 of 18 August 1987 on the clearance of the accounts presented by the Italian Republic in respect of the European Agricultural Guidance and Guarantee Fund, Guarantee Section, expenditure for 1983, 1984 and 1985 are declared void in so far as they disallowed from EAGGF financing the amounts of: