C-69/95

2. The pleas in law put forward by Italy in seeking the annulment of Decision 94/871 3 — Regulation (EEC) No 1723/72 of the Commission of 26 July 1972 on making up accounts for the European Agricultural are failure to state reasons, misuse of powers, Guidance and Guarantee Fund, Guarantee Section (OJ, English Special Edition 1972 (III), p. 109). infringement of Articles 1, 3 and 5 of 4 — Council Regulation (EEC) No 857/84 of 31 March 1984 2 Regulation (EEC) No 729/70 and Article 8 adopting general rules for the application of the levy referred to in Article 5c of Regulation (EEC) No 804/68 in the milk and milk products sector (OJ 1984 L 90, p. 13). 5 — Commission Regulation (EEC) No 1546/88 of 3 June 1988 laying down detailed rules for the application of the addi­ tional levy referred to in Article 5e of Regulation (EEC) * Original language: Spanish. No 804/68 (OJ 1988 L 139, p. 12). 1 — OJ 1994 L 352. p. 82. 6 — Council Regulation (EEC) No 856/84 of 31 March 1984 2 — Regulation (EEC) No 729/70 of the Council of 21 April amending Regulation (EEC) No 804/68 (EEC) on the com­ 1970 on the financing of the common agricultural policy mon organization of the market in milk and milk products (OJ, English Special Edition 1970 (I), p. 218). (OJ 1984 L 90, p. 10).

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That mechanism for controlling milk pro­ by the producer (formula A) or by the duction was formulated as follows: purchaser of the milk who was entitled to pass it on to the producer (formula B). Italy opted for formula A.

— Producers who exceeded the reference quantity were required to pay an addi­ tional levy intended to finance the expen­ diture incurred in marketing those sur­ 6. Article 4(1) of Regulation No 857/84 pluses. Depending on the choice made by provided that Member States could use the each Member State, the levy was payable payment of compensation for discontinuing

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ITALY v COMMISSION

production as a milk production restructur­ 9. In view of the tight control on production ing measure. That type of action has also established by the additional levy scheme been used by the Community authorities as within the common organization of the mar­ a means of reducing production. ket in milk and milk products, the reference quantities needed in order to sustain the pro­ duction restructuring programme could not be obtained either by means of the increase in the total quantity guaranteed by the Com­ 7. In 1990, the Council amended Regulation munity or by means of the increase in the No 857/84 by adopting Regulation (EEC) quantities assigned to each Member State. 7 No 1183/90 with the aim of establishing a Consequently, Regulation No 1183/90 also programme for restructuring small holdings. established a new Community programme of The detailed rules for implementing that financing the discontinuation of milk pro­ programme were laid down in Commission duction, designed to release the reference Regulation (EEC) No 2138/90 8 amending quantities needed in order to implement the Regulation No 1546/88. programme for restructuring small holdings' production.

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will finance refunds on exports to third Decision 94/871 on the clearance of the countries and intervention intended to stabi­ EAGGF accounts for 1991 definitively disal­ lize the agricultural markets, respectively lows Community financing for the restruc­ granted or undertaken according to Commu­ turing programme implemented by Italy. nity rules within the framework of the com­ mon organization of agricultural markets. By converse inference, expenditure incurred in financing intervention intended to stabilize the markets, undertaken without due regard for the provisions of Community law, will not be chargeable to the EAGGF Guarantee Section. 12. By the present application, the Italian Government seeks the partial annulment of Decision 94/871, contesting the two grounds put forward by the Commission for disal­ lowing the expenditure incurred in imple­ menting the milk production restructuring programme, namely, non-application of the additional levy scheme in Italy and non- The subject-matter of the dispute reallocation of the quotas released.

The first attempt to apply the mechanism was made in the marketing year 1989/90 by allocating an overall quota to the national Moreover, the consequences of the incorrect association of milk producers (UNALAT) application of the additional levy scheme in and individual quotas to independent pro­ Italy were resolved by means of the increase ducers. However, the checks carried out by in the overall quota assigned to that State the Commission reveal that, until the year and a substantial financial correction, which 1992/93, application of the additional levy were applied as a result of the political agree­ scheme continued to be chaotic, as the Italian ment reached on this matter within the Government itself admits. Individual pro­ 13 Council in 1994. The Italian Government ducers had in practice still not been allocated therefore considers that it would be unjust individual reference quantities, there was no and disproportionate to draw further nega­ supervision by the Italian authorities in tive consequences from that non-compliance. order to ensure the collection of the addi­ tional levy on overproduction, data on milk production were not yet reliable, and so on.

15. In my opinion, these arguments put for­ ward by the Italian Government cannot be entertained.

14. The Italian Government considers that the non-application of the additional levy scheme during the period of operation of the milk production restructuring programme 16. The additional levy scheme is a mecha­ (1990 and 1991) is not relevant as regards nism established by the Community institu­ charging the expenditure incurred in imple­ tions for the purpose of controlling produc­ menting that programme to the EAGGF. In tion surpluses which exist in the common support of this argument, the Italian Gov­ organization of the market in milk and milk ernment cites the fact that the Commission products. The basic components of the did not raise the possible illegality of Italy's scheme, as mentioned above, arc the follow­ action during the implementation of the ing: guaranteed total quantity at Community restructuring programme, since it fixed the

level, maximum quantities assigned to each 18. Initially the Commission did not object Member State, individual reference quantities to the application of the production restruc­ allocated to each producer, and payment of turing programme by the Italian authorities an additional levy if the quota is exceeded. because it had not yet carried out the inspec­ tions necessary in order to determine whether Italy was correctly applying the basic components of the additional levy scheme. In any case, the attitude adopted by the Commission does not prevent it, once it has carried out the appropriate checks, from disallowing the charging of an amount of That basic structure of the additional levy expenditure to the EAGGF if those checks scheme is complemented by a further set of show that the Community provisions have additional measures designed either to render been infringed. it more flexible or to tighten control of pro­ duction. It stands to reason that those addi­ tional measures make sense and can produce the desired effects only if the basic compo­ nents of the mechanism have been put into practice. 19. Finally, as the Commission states in its rejoinder, the compromise reached by the Council in 1994 in its political agreement on the additional levy (negative expenditure) not collected by Italy does not affect possible recognition of an amount of positive expen­ diture such as that incurred in the purchase of quotas under the production restructuring 17. The milk production restructuring pro­ programme. gramme established by Regulation No 1183/ 90 is a measure designed to temper the effects of the additional levy scheme on small producers. However, the application of that measure necessarily requires the application of the basic components of the scheme. Con­ sequently, a Member State (in this case Italy) Italy did not reallocate the released quotas to which was not applying the additional levy other producers scheme properly, since it had not even car­ ried out the allocation of individual reference quantities to producers, cannot make use of a complementary measure within the scheme, such as the production restructuring pro­ gramme. Moreover, as the Commission 20. The Italian Government expressly points out in its defence, it would be an acknowledges that it did not reallocate the unjustified waste of Community funds to quotas released by the payment of compen­ pay producers compensation in order to sation for the definitive discontinuation of release their quotas if those quotas have not production. Under Regulation No 2138/90, previously been allocated and if they do not that reassignment of released quotas had to fulfil the function of limiting milk produc­ be carried out by the Member States before tion. 1 June 1991.

26. The production restructuring pro­ gramme introduced by Regulation No 1183/90 was intended not to reduce milk production but to foster an improvement in the production structures of small holdings. Consequently, the programme included a 23. Secondly, the situation in the Italian milk mechanism for releasing quotas, payment of sector, which was giving rise to concern, did compensation for definitive discontinuation not allow the reallocation of the quotas. In 1991, milk production more than exceeded the quantity assigned to Italy, and realloca­ tion of the quotas released under the restruc­ 14 — Council Regulation (EEC) No 1637/91 of 13 June 1991 fix ing compensation with regard to the reduction of the refer­ turing programme would have aggravated ence quantities referred to in Article 5c of Regulation (EEC) No 804/68 and compensation for the definitive dis­ the problem. Consequently, the Italian continuation of milk production (OJ 1991 L 150, p. 30). authorities suspended the measure in ques­ 15 — Council Regulation (EEC) No 3950/92 of 28 December 1992 establishing an additional levy in the milk and milk tion pending the effective implementation of products sector (OJ 1992 L 405, p. 1).

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28. In the light of those considerations, it seems clear to me that Italy, by not reallocat­ ing the previously released quotas within the prescribed time-limit, infringed Article 3c of Regulation No 857/84 and Article 3b of Regulation No 1546/88. 31. Furthermore, the correct application of the production restructuring programme was not aggravating the critical situation of the Italian milk sector: its effects were com­ pletely neutral as regards the total volume of milk production, since only quotas which 29. The chaotic application of the additional had previously been released could be reallo­ levy scheme in Italy, which in 1991 caused cated.

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ITALY v COMMISSION'

Clearance of the EAGGF accounts Community law and the expenditure incurred therein may not therefore be charged to the EAGGF'. 7

33. There arc many decisions of the Court of Justice on the principles governing the procedure for clearing the EAGGF 6 accounts, 1 which establish that Articles 2 and 3 of Regulation No 729/70 'enable the 35. Since Italy did not comply with the con­ Commission to charge to the EAGGF only ditions laid down for the application of the sums paid in accordance with the rules laid milk production restructuring programme down in the different agricultural sectors. In by Regulations Nos 1183/90 and 2138/90, cases where Community rules authorize the Commission rightly refused, in the light payment of aid only on condition that cer­ of the rules on clearance of the EAGGF tain formalities relating to proof or supervi­ accounts, to allow charging to the EAGGF sion arc observed, aid paid in disregard of of the LIT 103 161 493 560 paid by Italy to that condition is not in accordance with producers who undertook to discontinue their milk production definitively.

16 — Sec inter aha tile judgments in Case 11/76 Netherlands v Commission [1979] ECR 245. Joined Cases 15/76 and 16/76 France v Commission [1979] ECR 321, Case 327/85 Neth- 17 — Judgment in Case C 197/90 Italy v Commission, cited in erlands v Commission [1988] ECR 1065. Case C 197/90 note 16, paragraph 38. Italy v Commission [1992] ECR I 1 and Case C 49/94 Ire- 18 — Judgment in Case 11/76 Netherlands v Commission, cited in land v Commission [1995] ECR 1 2683. note 16, paragraph 9.

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36. I accordingly propose that the Court Decision 94/871 and should therefore, under should reject the pleas in law on the basis of Article 69(2) of the Rules of Procedure, which Italy seeks the partial annulment of order that Member State to pay the costs.