C-103/96

3. Eridania subsequently discharged the inward processing arrangements using the system of equivalent compensation, which The Directeur Général des Douanes et allows the export of Community goods Droits Indirects took the view that the equivalent to those imported from non- inward processing arrangements, under the member countries. Specifically, Eridania suspension system, were not applicable to exported from the port of Dunkerque by this case by virtue of Article 9 of Regulation N o 3677/86, because raw cane sugar and raw beet sugar were not classified under the same * Original language: Spanish. tariff subheading. Accordingly, on 4 October 1 — OJ 1986 L 351, p. 1. 1994, it commenced proceedings against

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Eridania before the Tribunal d'Instance, standing that such a condition gives rise Lille, for recovery of FF 38 476 561 in to disproportionate effects for economic respect of the unpaid duties, charges and lev- operators? ies. 2

2 — The French customs administration accused Générale Sucrière of the same infringements and brought legal pro- ceedings to recover the charges, duties and taxes evaded. That decision of the customs administration was reversed by 7. At the material time, inward processing reason of a defect of form by judgment of the Cour d'Appel, Paris, of 13 September 1996. arrangements were governed by Regulation

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N o 1999/85 — the basic regulation — those goods when they are re-exported which was implemented by Regulation N o outside the customs territory of the 3677/86. Community as compensating goods.

5 — For a detailed analysis of inward processing arrangements, see inter alia U. Baumann, 'Le régime douanier du perfec- tionnement actif', Revue du Marché Commun, 1984, N o 3 — Council Regulation (EEC) N o 1999/85 on inward process­ 280, p. 406; C.-J. Berr and H. Trémeau, Le Droit Douanier, ing relief arrangements (OJ 1986 L 188, p. 1). Economica, Paris, 1992; and J.-F. Durand, 'Régimes 4 — Case C-437/93 Temic Telefunken [1995] ECR 1-1687, para­ douaniers économiques. Régimes de transformation à graph 19. l'importation', Juris-Classeur Europe, volume 542, 1995.

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on them. As a result, use of this customs recourse to equivalent compensation in the procedure, designed to enhance the export following terms: capacity of Community undertakings, is sub- ject to the grant of authorization by the cus- toms authorities of the Member State where the processing operations take place. Such authorization will be granted, pursuant to Articles 5 and 6 of Regulation N o 1999/85, if 'When the conditions laid down in para- the necessary economic conditions are met, graph 2 are fulfilled and subject to paragraph that is to say if the inward processing helps 4, the customs authority shall authorize: to create favourable conditions for the export of compensating products without prejudice to the essential interests of Com- munity producers.

(a) compensating products to be obtained from equivalent goods;

»

12. As a condition for Community goods to be regarded as equivalent to goods imported under the inward processing arrangements, Article 2(2) of Regulation N o 1999/85 pro­ vides that they 'shall be of the same quality and have the same characteristics as the 14. Regulation N o 1999/85 and Regulation import goods'. N o 3677/86 entered into force on 1 January 1987 and, since cane sugar and beet sugar shared the same tariff classification, 6 equiva­ lent compensation was available as between those two products under the inward pro­ cessing arrangements. However, that situa­ tion changed as from 1 January 1988 as a 13. To clarify the conditions of availability result of the entry into force of a new tariff of equivalent compensation, Article 9 of and statistical nomenclature, known as the Regulation N o 3677/86, the validity of 'Combined Nomenclature', introduced by which is challenged in these proceedings, Regulation (EEC) N o 2658/87 7 pursuant to provided as follows: the International Convention on the Harmo­ nized and Commodity Description and Coding System of 14 June 1983, concluded by the Community by Decision 87/369/EEC. 8 In the combined nomencla­ ture, cane sugar and beet sugar were placed 'Without prejudice to Article 10, where use in two separate subheadings ( N C codes is to be made of equivalent compensation or 1701 11 10 and 1701 12 10 respectively). As a prior exportation, the equivalent goods must result of that change in their tariff classifica­ fall within the same subheading of the Com­ tion, equivalent compensation as between mon Customs Tariff, be of the same com­ cane sugar and beet sugar ceased to be pos­ mercial quality and have the same technical sible under inward processing arrangements. characteristics as the import goods.'

15. Regulation N o 3677/86 was amended on equivalent compensation between cane sugar a number of occasions, until it was codified and beet sugar under the inward processing by Regulation (EEC) N o 2228/91, 9 which arrangements. entered into force on 1 October 1991. Article 9 of the latter regulation continued to make equivalent compensation subject to the same requirements, namely classification under the same N C code, the same commercial quality 17. The same situation has obtained since 1 and the same technical characteristics. How- January 1994, the date of entry into force of ever, Article 11 indicates that equivalent the Community Customs Code 1 1and the compensation as between certain goods such provisions for its implementation. Article as rice, indicated in Annex IV, is to be sub- 115 of that code repeats literally the provi- ject to the special conditions laid down in it. sions of Article 2 of Regulation N o 1999/85 concerning equivalent compensation and, for its part, Article 569 of Regulation (EEC) N o 2454/93 12 maintains the same three criteria — tariff classification, technical characteris- 16. Regulation N o 3677/86 was subse- tics and commercial quality — as Article 9 of quently amended by Regulation (EEC) N o Regulation N o 3677/86, and at the same time 3709/92, 10 Article 1(6) of which amends the Annex 78 thereto allows, by way of excep- said Annex IV as follows: tion, equivalent compensation between cane sugar and beet sugar, even though those two products do not belong to the same N C code — an exception introduced by Regu- lation N o 3709/92. '3. Sugar

The first question Those dicta do not mean that the Commu­ nity institutions have no latitude in adopting implementing provisions. In fact, implement­ ing provisions may add detail to, clarify and expound the rules in the basic instrument, provided that they respect the essential ele­ 19. By this question, the national court seeks ments and objectives laid down in it. 15 to ascertain whether Article 9 of Regulation N o 3677/86 is valid despite the fact that it lays down an additional requirement for equivalent compensation — classification under the same tariff subheading — which does not appear in Article 2(2) of Regulation N o 1999/85. The Tribunal d'Instance, Lille, considers that the additional requirement may entail a breach of the principle of the hierarchy of norms and result in the invalid­ 21. In the present case, there is no doubt ity of Article 9 of that regulation. that the relationship between Regulation N o 1999/85 and Regulation N o 3677/86 is that between a basic measure and an implement­ ing measure. 16 That conclusion is clearly apparent from the following factors:

— Article 1(1) of Regulation N o 3677/86 expressly describes Regulation No 3677/86 as the 'basic regulation' and in its very title it states that it contains 'certain 23. In its observations, Eridania expresses provisions for the implementation' of the view that the need for the goods to be that regulation. classifiable under the same tariff subheading amounts to a new condition, added ex nihilo by Article 9, which cannot be interpreted as a clarification of the criteria of quality and characteristics of the goods laid down in Regulation N o 1999/85 for the availability of equivalent compensation. Moreover, the cri- terion of tariff classification is, in Eridania's 22. Consequently, Article 9 of Regulation opinion, more restrictive than the criteria of N o 3677/86, in laying down the conditions quality and technical characteristics of the for equivalent compensation under the goods because the tariff classification of inward processing arrangements, must goods is carried out for the purpose of levy- respect the essential elements laid down by ing import duties and controlling the move- Article 2(2) of Regulation N o 1999/85 con- ment of goods within the Community for cerning the criteria to be observed in deter- statistical purposes. O n the other hand, the mining whether goods are similar. With criteria of the quality and characteristics of regard to that rule in Regulation N o the goods are of an economic nature in har- 1999/85, Article 9 clarifies two points: first, mony with the objective of the inward pro- it makes it clear that 'quality' means com- cessing arrangements. mercial quality and that 'characteristics' means technical characteristics and, secondly, it indicates that the equivalent goods must be included under the same subheading of the Common Customs Tariff. The first clarifica- tion is a perfectly valid application of the rule in Regulation N o 1999/85 and is not an issue in this case. However, in the case of the second clarification introduced by Article 9 — classification of the goods under the same The French Government also considers that tariff subheading — the question is raised in Article 9 of Regulation N o 3677/86 is invalid this case whether it is a permissible clarifica- because it introduces the criterion of classifi- tion of Regulation N o 1999/85 or whether, cation of the goods under the same tariff on the contrary, it represents an additional subheading in addition to those provided for criterion, imposed by that provision as a pre- in Regulation N o 1999/85 for equivalent condition for equivalent compensation and compensation.

25. When analysing the possibility that Article 9 of Regulation N o 3677/86 is invalid, it should be borne in mind that the legality of a Community legislative measure must be appraised in relation to the circum­ stances existing at the time of its adoption and cannot depend on facts and circum­ stances arising at a later stage. 18 Further­ 27. In the first place, I consider that the rule more, the validity of a Community legisla­ that the goods must fall within the same tar­ tive measure must be appraised generally and iff subheading clarifies and gives effect to the not by reference to the effects to which it requirements concerning technical character­ gives rise in a given economic sector or its istics and commercial quality. Use of the tar­ impact on a limited circle of economic iff classification provides the customs agents. authorities with a clear, unequivocal and eas­ ily applicable criterion for determining equivalence as between import goods and the 17 — The Community case-law prefers an interpretation of Community goods used in the production of implementing provisions which renders them compatible with the basic measures. I refer to the judgments cited in the compensating product, which is footnote 13. re-exported under the inward processing 18 — See, inter alia, Case 40/72 Schroeder ν Bundesamt für arrangements. It seems logical that the Com­ Ernährung und Forstwirtschaft [1973] ECR 125, paragraph 14, and Joined Cases 9/71 and 11/71 Compagnie munity legislature should have adopted that d'Approvisionnement ν Commission [1972] ECR 391, para­ graph 39. criterion because every tariff nomenclature

Consequently, recourse to tariff classification clarifies, and seeks to facilitate the practical application of, the criteria concerning the characteristics and quality of the goods and is perfectly consistent with the aims of Article 2(2) of Regulation N o 1999/85, which seeks to obviate abuse of equivalent compensation by requiring identity as 29. Thirdly, Article 2(4) of Regulation N o between import goods and equivalent Com- 1999/85 allows measures to be adopted to munity goods exported as a component of prohibit or limit equivalent compensation, in the compensating product. accordance with the procedure laid down in Article 31. In the same way, it is possible for such a limitation of equivalent compensation to be brought about by another Community provision. In the present case, equivalent compensation as between cane sugar and beet sugar ceased to be possible as a result of 28. Secondly, the inward processing arrange- the amendment to the tariff nomenclature ments constitute an exception to the general made by Regulation N o 2658/87. rule of release into free circulation and pay- ment of import duties which applies to goods from non-member countries brought into the Community customs territory, and equivalent compensation constitutes in turn an exception to the general rule of compen- sation on an identical basis, which applies to inward processing. Without doubt, that fact justifies making equivalent compensation Moreover, given that Article 2(4) of Regu- subject to rules which are capable of ensur- lation N o 1999/85 allows a considerable ing strict compliance. In that regard, I con- degree of latitude to the Community institu- sider that classification under the same tariff tions in adopting implementing rules subheading represents in practice the only intended to limit or prohibit equivalent com- pensation, a fortiori the implementing pow- ers of those institutions must include the 19 — Berr and Trémeau, op. cit., p. 119. possibility of adding detail to the criteria

30. Finally, it may be inferred from a sys­ tematic and historical interpretation that the criterion of tariff classification has been and is used generally in Community customs leg­ islation to determine similarity or equiva­ The rules on inward processing adopted after lence as between goods. Regulation N o 1999/85 continue to refer to the criterion of tariff classification. This course is followed in Article 10 of Regu­ lation N o 2228/91 and Article 569 of Regu­ lation N o 2454/93, which implements Article 115 of the Community Customs Code, 31. Thus, in relation to the application of the whose wording coincides with that of economic conditions for inward processing, Article 2 of Regulation N o 1999/85. Article 5(2) of Regulation N o 3677/86 uses, to determine whether goods produced in the Community are comparable with import goods, the same criteria as Article 9, namely tariff classification, commercial quality and technical characteristics. Article 552 of Regu­ lation N o 2454/93 does the same. 33. The criterion of tariff classification has been and is also used in the context of the outward processing arrangements, which cover the opposite situation to inward pro­ cessing. The outward processing arrange­ 32. Also, under the rules on inward process­ ments allow the temporary export of Com­ ing in force prior to the adoption of Regu­ munity goods so that they can be processed lation N o 1999/85, Article 24 of Directive and the products resulting from those opera­ 69/73 8/EEC 20 allowed equivalent compen­ tions can be cleared for free circulation, with sation in the case of compensating products total or partial exemption from import 2 obtained from the treatment of 'goods of the duties. 2 Under the outward processing same kind and quality and having the same technical characteristics'. 21 — Commission Directive 75/348/EEC of 26 May 1975 on detailed rules concerning equivalent compensation and prior exportation under inward processing arrangements 20 — Council Directive 69/73/EEC on the harmonization of the (OJ 1975 L 156, p. 25). provisions laid down by law, regulation or administrative 22 — See J.-F. Durand, 'Régimes douaniers économiques. action in respect of inward processing arrangements (OJ, Régimes de transformation à l'exportation', Juris-Classeur English Special Edition 1969 (I), p. 75). Europe, volume 543, 1995.

arrangements, the general rule is compensa- under the two customs regimes justifies the tion on an identical basis, since, following application of identical criteria to determine the processing operations carried out on the equivalence as between Community goods Community goods temporarily exported and import goods. In the context of inward outside the Community, the resultant com- processing, the Community legislature chose pensating product is reimported. However, to include in the basic provision the bare the Community rules allow, as an exception, bones of the criteria to be met for equivalent equivalent compensation within the standard compensation to be available, subsequently exchange system. In such circumstances the adding detail and laying down arrangements compensating product is replaced by goods for their application in Article 9 of Regu- imported from a non-member country, lation N o 1999/85, whereas under the out- referred to as 'substitute products'. For such ward processing regime those criteria were standard interchange to be feasible, Article provided for entirely in the basic provisions. 19 of Regulation (EEC) N o 2473/86, 23 and subsequently Article 155 of the Community Customs Code, indicate that the Community goods exported temporarily and the substi- tute product 'shall have the same tariff sub- heading, be of the same commercial quality and possess the same technical characteris- tics'. 35. In view of the foregoing considerations, it is my view that Article 9 of Regulation N o 3677/86 is valid and is compatible with Article 2(2) of Regulation N o 1999/85 since use of the criterion of tariff classification for 34. As is apparent, the criterion of tariff clas- the application of equivalent compensation sification is expressly mentioned in the basic constitutes a clarification and practical provisions governing the standard exchange implementation of the criteria laid down in system under the outward processing the last-mentioned provision. arrangements. Without doubt, that legislative approach is more appropriate than that used in inward processing and it ensures that no questions arise of the kind referred by the national court in these proceedings. And that inclusion of the criterion of tariff classifica- tion in the basic provisions governing out- The second question ward processing confirms that the detailed definition of the criteria for allowing equiva- lent compensation under the inward process- ing arrangements effected by Article 9 of Regulation N o 3677/86 is compatible with Article 2(2) of Regulation N o 1999/85, since the similarity of the economic arrangements

38. Eridania submits in its observations that 40. In my opinion, the arguments put for­ the criterion of tariff classification of the ward by Eridania and the French Govern­ goods is not conducive to the aim of obviat­ ment cannot be upheld. ing abuse of the inward processing regime, which exists to promote exports by Commu­ nity undertakings. In its opinion, tariff clas­ sification is a criterion of a purely adminis­ trative and statistical, but not economic, nature, the application of which imposed dis­ proportionate sacrifices on the Community sugar-refining industries, undermining their competitiveness on the world market. In any event, Eridania considers that by virtue of 41. According to the case-law of the Court the principle of proportionality the criterion of Justice, '[t]he principle of proportionality, of tariff classification must be regarded as which is one of the general principles of only indicative, so as to constitute a suffi­ Community law, requires that measures cient condition, but not a necessary con­ adopted by Community institutions do not dition, for equivalent compensation. exceed the limits of what is appropriate and necessary in order to attain the objectives legitimately pursued by the legislation in question; when there is a choice between several appropriate measures recourse must 39. The French Government also considers be had to the least onerous, and the disad­ that the criterion of tariff classification is not vantages caused must not be disproportion-

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— on the one hand, the desire of Commu­ nity exporters to achieve maximum flex­ ibility in their production processes, without having to be subject to the obli­ In any event, it cannot be considered that the gation of compensation on an identical criterion of tariff classification is manifestly basis. inimical to attainment of the objectives pur­ sued by the equivalent compensation system under the inward processing arrangements, and therefore its use may be prescribed by the Community legislature within the discre­ — on the other, the interests of Community tion available to it by virtue of its political producers, who must not be drastically responsibilities, without offending against harmed by the import of non- the principle of proportionality.

24 — Joined Cases C-296/93, and C-307/93 France and Ireland ν Commission [1996] ECR I-795, paragraph 30, and Joined Cases C-133/93, C-300/93 and C-362/93 Crispoltoni and Others [1994] ECR I-4863, paragraph 41. 25 — Case C-280/93 Germany ν Council [1994] ECR I-4973, 44. That conclusion is not undermined, as paragraph 90, and Case C-331/88 Fedesa and Others [1990] ECR I-4023, paragraph 14. the Commission states in its observations, by

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The third question

48. In my opinion, the impossibility of resorting to equivalent compensation as 46. By its third question, the national court between cane sugar and beet sugar, resulting seeks to ascertain whether Article 9 of from the criterion of tariff classification laid Regulation N o 3677/86, by laying down the

27 — See, inter alia, Case C-353/92 Greece ν Council [1994] ECR 26 — Case 5/73 Balkan [1973] ECR 1091, paragraph 22, and I-3411, and Case C-350/88 Delacre and Others ν Commis­ Joined Cases 154/78, 205/78, 206/78, 226/78 to 228/78, sion [1990] ECR I-395. 263/78, 264/78, 31/79, 39/79, 83/79 and 85/79 Valsabbia ν 28 — Crispoltoni, cited above, paragraph 58, and Delacre, cited Commission [1980] ECR 907, paragraph 118. above, paragraph 34.

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down by Article 9 of Regulation N o 3677/86 compensation as between cane sugar and and the amendment of the tariff nomencla­ beet sugar if the two products were then ture made by Regulation N o 2658/87, does classified under different subheadings. They not constitute a breach of the principle of the cannot therefore claim that their legitimate protection of legitimate expectations. Econ­ expectations have been frustrated when that omic agents were not induced either by the situation arises. 29

Furthermore, legitimate expectations like­ wise cannot be invoked to claim that an exceptional situation should be maintained simply because that situation was subse­ quently restored by a Community legislative 51. Article 9 of Regulation N o 3677/86, measure, as occurred in this case when Regu­ which lays down the criterion of tariff clas­ lation N o 3709/92 reintroduced, with effect sification, in my opinion meets the require­ from 1 January 1992, equivalent compensa­ ments of the principle of legal certainty since tion as between cane sugar and beet sugar. it enables economic agents to ascertain That fact does not enable economic agents to whether or not equivalent compensation is invoke the principle of the protection of available as between two products under the legitimate expectations to claim a vested inward processing arrangements. A change right in maintenance of that advantage. to the tariff nomenclature may alter the result obtained from application of the crite­ rion of tariff classification, but that does not

29 — Case 265/85 Van den Bergh en Jurgens ν Commission 49. Moreover, application of the criterion of [1987] ECR 1155, paragraph 44, and Delacre, cited above, tariff classification made it possible for any paragraph 37. 30 — Case 169/80 Gondrand and Garancini ν France [1981] ECR prudent and diligent economic agent to fore­ 1931; Case 257/86 Commission ν Italy [1988] ECR 3249, see that an amendment to the customs paragraph 12, and Joined Cases 92/87 and 93/87 Commis­ sion ν France and United Kingdom [1989] ECR 405, para­ nomenclature would prevent equivalent graph 22.

53. Consequently, Article 9 of Regulation N o 3677/86 does not, by laying down the criterion of tariff classification for equivalent compensation, contravene the principle of 56. The legislative amendment was made in proportionality or the principle of legal cer­ 1992, with the adoption of Regulation N o tainty. 3709/92, which entered into force on 1 Janu­ ary 1993 but whose provisions concerning authorization of equivalent compensation as between cane sugar and beet sugar were applied retroactively from 1 January 1992. Final comment Despite what is stated in the sixth recital in the preamble to Regulation N o 3709/92, it does not seem, as the French Government pointed out, that the introduction of new arrangements for the supply of raw sugar to Community refineries was the reason for 54. It is clear from the reasoning set out establishing an exception allowing equivalent above that no factor has come to light in this compensation as between cane sugar and

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beet sugar. I am inclined to think that that processing arrangements, cannot constitute amendment was made when the Community excessive and intolerable intervention affect- institutions were alerted to the problem ing the essence of the sugar companies' free- which confronted the Community sugar dom to pursue a business activity. companies as a result of the new tariff nomenclature.

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Conclusion

60. Having regard to the foregoing considerations, I propose that the Court of Jus­ tice reply as follows to the questions submitted by the Tribunal d'Instance, Lille, as follows:

(1) Article 9 of Regulation N o 3677/86 of 24 November 1986 laying down provi­ sions for the implementation of Regulation (EEC) N o 1999/85 on inward pro­ cessing relief arrangements is valid and is compatible with Article 2(2) of Regulation N o 1999/85, since use of the criterion of tariff classification to determine the availability of equivalent compensation under the inward pro­ cessing arrangements constitutes a clarification and a practical implementation of the criteria laid down in the latter provision.

(2) The criterion of tariff classification laid down by Article 9 of Regulation N o 3677/86 in relation to equivalent compensation is compatible with the prin­ ciple of proportionality and does not have a disproportionate impact on econ­ omic agents.