C-12/88

3. The preamble to the Protocol refers to 'the conditions at present existing by reason of the division of Germany'. Paragraph 1 of the Protocol provides that: 5. Paragraph 3 provides that:

* Original language: English.

SCHÄFER SHOP v MINISTER VAN ECONOMISCHE ZAKEN

6. The system of inter-German trade annex to the regulation, subject to the possi preserved by the Protocol goes back to the bility of the adoption of protective Berlin Agreement of 20 September 1951 measures, and in Council Regulation made between the German currency zones No 3420/83 (Official Journal 1983, L 346, (current version published in the Bundesan- p. 6, as amended) on import arrangements zeiger No 91, 18.5.1985, p. 5017) and to for products originating in State-trading various laws and regulations adopted in countries, not liberalized at the Community 1949 and 1950 by the military occupation level. Under the latter regulation, which authorities. The detailed operation of the treats the Benelux countries as though they system is regulated by implementing legis constituted a single Member State, the lation adopted autonomously by the Federal Council is required, before 1 December of

I the goods, representing the notional amount would add that where Member States wish of VAT which is deemed to have been paid to prevent economic difficulties arising as a in the GDR. result of the importation of goods orig inating in the GDR which have been directly imported into a Member State other than the Federal Republic, they are required to seek the prior authorization of the Commission under Article 115 for the adoption of surveillance or protective measures (see, for example, Commission Decision No 87/157/EEC authorizing the

OPINION OF MR JACOBS —CASE 12/88

8. While direct imports from the GDR into The facts of the case Member States other than the Federal Republic are thus regulated at Community level, those Member States have adopted differing arrangements for the importation from the Federal Republic of goods orig­ inating in the GDR. In 1975 the Benelux countries adopted a policy under which, in principle, authorizations for such imports 10. The plaintiff in the main proceedings, were to be refused unless refusal would be Schäfer Shop BV, is a private limited incompatible with the interests of good liability company and is the subsidiary of a administration. The policy was expressed in company incorporated under German law a 'supplementary instruction' dated 30 June and established in the Federal Republic. 1975 which was sent to the authorities Schäfer Shop applied to the competent responsible in each Benelux country for Netherlands authorities for an authorization issuing import licences. On 3 July 1975 the to import a quantity of ballpoint pens, instruction was approved by the Benelux leather folders and various office items orig­ subcommittee for commercial policy and inating in the GDR, with a total value of thus became part of the Benelux common DM 40 000. It appears from the order for trade rules. reference that the goods in respect of which the import authorization was sought form part of a range of businessmen's gifts advertised in the 'Brigitte' catalogue and which are obtainable in a number of EEC countries through local establishments. Schäfer Shop sought to obtain the goods from a West German company, Brigitte Geschenke GmbH, which had imported them from the GDR.

such goods were subsequently re-exponed Republic of Germany, all applications for to other Member States they were capable authorizations are, in practice, refused, with of distorting competition and circumventing the exception of those relating to goods of the import quotas applied to direct imports limited value and of a non-commercial from the GDR. The refusal to grant an kind?' authorization to Schäfer Shop was adopted in pursuance of the common Benelux policy of 1975, under which the Netherlands applied a de facto complete ban on imports from the Federal Republic of goods orig­ inating in the GDR except for goods of a limited value and of a non-commercial kind. The interpretation of the Protocol Since the common policy was the only effective means of dealing with the problems caused by re-exported goods, it must be seen as an 'appropriate measure' within the meaning of Paragraph 3 of the Protocol. 13. The essential question which arises is that of the scope of Member States" discretion to take safeguard measures under Paragraph 3 of the Protocol and in particular whether a de facto complete ban on all categories of imports (other than 12. Since it considered that the Ministry's those of limited value or of a argument raised the question whether the non-commercial nature) can be viewed as Benelux policy, as thus applied, was an 'appropriate measure' within the meaning compatible with the requirements of the of Paragraph 3. In interpreting that Protocol, the national court, by judgment of paragraph, it is appropriate to have regard 8 January 1988, stayed the proceedings and to its wording, to its place in the scheme of asked for a preliminary ruling on the the Protocol taken as a whole, and to the following question: requirements of the principle of propor­ tionality.

15. Paragraph 3 must be read in the context 16. Paragraph 2 is concerned with the of the Protocol taken as a whole. In its implementation of bilateral trade judgment in Case 14/74 Norddeutsches agreements with the GDR and, as pointed Vieh- und Fleischkontor v Hauptzollamt out above, under present circumstances Hamburg-Jonas [1974] ECR 899, the Court relates only to the special system of German ruled in regard to Paragraph 1 that: internal trade preserved by Paragraph 1. The paragraph imposes certain obligations on the Federal Republic in connection with that implementation. Thus it is required to inform the other Member States and the 'These rules aim only at exonerating the Commission of the agreements regulating Federal Republic of Germany from applying trade with the GDR and of implementing the rules of Community law to German measures. In addition, the Federal Republic internal trade. must ensure that the implementation of those agreements does not result in distortions of competition and in particular must take appropriate measures to avoid harm to the economies of the other Member The dispensation thus granted does not have States. the result of making the German Demo­ cratic Republic part of the Community, but only that a special system applies to it as a territory which is not part of the ' 17. Finally, Paragraph 3 confers a power on Community (paragraph 6). the other Member States to take appropriate measures to prevent any difficulties arising for them from trade between another Member State and the GDR. Again, under present circumstances that power relates That statement was confirmed in Case only to difficulties arising from the 23/79 Geflügelschlachterei Freystadt v Haupt-operation of the special system of inter- zollamt Hamburg-Jonas [1979] ECR 2789, as German trade. follows:

19. Thus the objective of Paragraph 1 of the Protocol is the preservation of a special 20. At the same time, consideration of the trading relationship between the Federal general scheme of the Protocol points to an Republic and the GDR which pre-dates the important constraint on Member States" institution of the EEC. It is however no part powers under Paragraph 3, namely that of such an objective that the GDR should those powers are of a subsidiary or also enjoy, by virtue of the Protocol, a contingent nature. As already mentioned, privileged trading relationship with the the implementation of the special system of other Member States. Moreover, in the inter-German trade is a matter for the scheme of the Protocol it is Paragraph 1, Federal Republic, and in that context the rather than Paragraph 3, which constitutes a Federal Republic must ensure that the derogation from Community rules. system does not result in distortions of Paragraph 3 on the other hand, and in part competition and must take steps to avoid Paragraph 2 also, are concerned with the harm to the economies of the other Member consequences of the derogation contained in States. It follows from this, in my view, that Paragraph 1. In fact, the precise status of the primary responsibility for taking any goods imported into the Federal Republic measures to avoid difficulties arising from from the GDR under the special system of the operation of the system for the other trade appears indeterminate. While it is the Member States rests with the Federal clear intention of Paragraph 1 of the Republic, and that in exercising their Protocol that such goods are to be powers under Paragraph 3 those other assimilated, for the purposes of circulation Member States must therefore take account in the Federal Republic, to goods orig­ of the actual implementation of the system inating in the Federal Republic, they cannot by the Federal Republic and in particular of be regarded as being in free circulation in any measures taken by the Federal Republic the Community, since the requirements of to ensure that difficulties do not arise. The Article 10(1) of the Treaty, namely same conclusion follows from the terms of compliance with import formalities and Paragraph 3, which empowers Member payment of customs duties, have not been States to take 'appropriate' measures, and fulfilled. At the same time, the very from the operation of the principle of existence of powers to take protective proportionality, which is of general measures under Paragraphs 2 and 3 suggests application in Community law. That that the Protocol does envisage that the principle, as is well known, requires that the goods are capable of re-export to other means chosen to achieve an aim must Member States. It therefore appears to me correspond to the importance of the aim that where such goods are re-exported, they and must be no more burdensome than is have a special status which lies somewhere necessary to achieve that aim.

21. In this context, the Government of the importation into other Member States of Federal Republic, supported by the goods first imported into the Federal Commission, argues in its written and oral Republic from the GDR is unlikely in observations that imports from the GDR practice to be a more attractive prospect under the system of German internal trade than the alternative of direct imports from are so tightly regulated as to both prices and the GDR. The Federal Republic adds that, quantities that the re-export of such goods taken together, the existence of the special to other Member States is unlikely, other settlement system, the exemption from than in isolated cases, to pose problems for customs duties and the VAT rebate provide those other Member States. an incentive for exporters in the GDR to require higher prices for goods exported to the Federal Republic. At the same time, the GDR's need for hard currency (which, because of the special settlement system, it cannot obtain through German internal trade) encourages exporters in the GDR to offer lower prices for direct exports to other 22. The Federal Republic points out that all Member States. imports from the GDR are subject to a system of prior authorization and surveillance. Payments for goods obtained from the GDR are made not in convertible currency but by means of a special settlement system operated by the central banks of the Federal Republic and the GDR respectively. The special settlement system ensures that the authorities are informed of all import transactions. In addition, the Federal Republic operates a strict system of price control so as to ensure that the price 24. As regards the quantity and nature of of goods imported from the GDR under the the goods imported under the special system of German internal trade will in system, the Federal Republic points out that principle correspond to the market price for in principle the system is designed to meet the same type of goods in the Federal certain traditional needs and in particular Republic. The special VAT rebate which the those of West Berlin. Imports of goods in Federal Republic grants when goods are certain sensitive sectors are subject to first imported from the GDR is not granted quotas. Moreover, as regards specifically the if the goods are re-exported. This leaves the Benelux countries, the Federal Republic has, exemption from customs duties, which is no at their request, since 1976 maintained a longer a substantial advantage now that six-month prohibition on the re-export to those duties are much reduced. those countries of certain goods regarded by them as sensitive, notably goods subject to import quotas in direct trade relations between Benelux and the GDR under Regu­ lation No 3420/83. Having regard to Decision 85/648/EEC mentioned above (see paragraph 7) it does not appear that any of the goods at issue in the present case 23. The Federal Republic argues that the were at the relevant time subject to such effect of these measures is that the quotas.

25. The Federal Republic acknowledges because of the large number of CCT classi­ that since no system of regulation, however fications, the constantly evolving economic thorough, is perfect, it is possible that goods situation and the need to have regard to the might be re-exported from the Federal industries of the Benelux as a whole, the Republic which might in principle be policy proved administratively unworkable. capable of causing difficulties for specific The only effective alternative measure was sectors of the Dutch or Benelux industries. the complete ban currently operated by the However, it points out that the volume and Netherlands. value of goods originating in the GDR and re-exported to other Member States are so small that such goods cannot, except in isolated cases, present difficulties for the other Member States. It appears from figures presented by the Commission agent at the hearing that in 1986, for example, the value of such goods totalled DM 45 million, representing only 0.03% of total 27. It is difficult to accept the suggestion exports from the Federal Republic to other that the Netherlands cannot effectively EEC Member States. Of this total value of determine in advance and maintain under DM 45 million, goods worth DM 5 million review the categories of goods and only were imported into the Netherlands. industrial sectors in relation to which problems are likely to arise. It presumably has to carry out such an exercise with a view to the imposition or maintenance of quotas on certain goods imported directly from the GDR into the Benelux under Regulation No 3420/83. Moreover, despite the existence of the Benelux policy of 1975, which would appear to render such measures unnecessary, it must also be 26. The Netherlands Government has not assumed that the Netherlands Government seriously contested the effectiveness of the does find it possible to monitor sensitive regulation of German internal trade by the sectors with a view to requesting the Federal Federal Republic, or the argument that the Republic to impose six-month export bans consequence of that regulation is that in on goods which might circumvent practice difficulties are only likely to arise in Community quotas or cause difficulties in isolated cases in relation to certain other areas. categories of goods or specific sectors of industry. However, it points out that prior to the adoption of the common Benelux policy it attempted to operate a system under which the Minister for Finance was empowered to impose customs duties under the Common Customs Tariff on goods orig­ inating in the GDR and which were imported into the Netherlands from the 28. I conclude that, having regard to the Federal Republic where those goods would measures already taken by the Federal pose substantial difficulties for certain Republic and to the availability to the industrial sectors. That policy meant deter­ Netherlands Government of alternative, less mining in advance the categories of goods restrictive measures, the complete ban on all likely to cause difficulties. In practice, imports from the Federal Republic orig-

29. Finally, I would mention an issue which does not strictly fall to be decided in this 31. However, even in the absence of a legal case. This is the suggestion by the obligation, it seems to me desirable that Commission in its written observations and Member States should at least consult the repeated at the hearing that in exercising Commission with a view to ensuring that their powers under Paragraph 3 of the their powers under Paragraph 3 are Protocol Member States should consult and exercised both effectively and lawfully. The collaborate with the Commission in order to Commission and the Federal Republic have decide upon the measures which are least indicated in their observations that in disruptive to the functioning of the common practice a close collaboration exists between market. That suggestion is connected with them as regards the operation of the system the view also expressed by the Commission of German internal trade and the adoption that Paragraph 3 constitutes a derogation of preventive measures under Paragraph 2 from the rules of the common market and of the Protocol, a collaboration which far must therefore be restrictively interpreted exceeds the formal requirement of infor­ and applied, presumably by analogy with mation contained in Paragraph 2. Given Article 115. The Commission has however that existing collaboration, consultation of not suggested that a failure to consult or the Commission by the other Member States collaborate renders a Member State's before adopting protective measures under measure unlawful. Paragraph 3 could assist them in targeting those measures effectively, in particular by avoiding duplication of measures already taken by the Federal Republic; and would 30. I cannot accept that Paragraph 3 gives also assist in ensuring that Member States" rise to any legal obligation on the part of powers are exercised lawfully, i. e. that any Member States to consult or collaborate measures taken do not exceed what is with the Commission. In contrast to appropriate within the meaning of Paragraph 2, the wording of Paragraph 3 Paragraph 3 of the Protocol.