C-242/96

2 — This problem also forms, at least in part, the subject-matter of Cases C-209/96 United Kingdom v Commission [1998] ECR I-5655, C-232/96 France v Commission [1998] ECR * Original language: German. I-5699, C-233/96 Denmark v Commission [1998] ECR I-5759 1 — European Agricultural Guidance and Guarantee Fund. and C-238/96Ireland v Commission [1998] ECR I-5801.

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6. In the context of the set-aside of arable 9. To justify that reduction, the Commission land, on the other hand, the Commission refers to its Summary Report 4according to alleges that Italy paid set-aside premiums in which, during its inspections carried out in respect of land on which no crops had previ- 1990 and 1991, it found serious deficiencies in ously been grown. the control procedures in Italy. It attributes those deficiencies to the fact that the compe- tent intervention agency, the AIMA, had del- egated its function to a trade association, the AIA. Responsibility for boning the purchased beef had likewise been handed over to private intervention centres. In both cases, there were no adequate checks to ascertain whether the 7. With regard to the reimbursement of sugar tasks were carried out in accordance with the storage expenditure, the Commission claims Commission's rules. that in some cases no checks whatsoever were carried out by the competent authorities and the AIMA.

10. Moreover, the Commission submits that in many cases the supervising and supervised B — Facts and legal provisions parties were one and the same, that is to say, the organisations which carried out the checks may also have supplied meat to the interven- tion agencies.

12. In order to highlight the deficiencies in the Italian system, moreover, the Commis- sion refers to sales of stored meat, on the one hand in the context of food aid for Bulgaria, 15. In its Summary Report 5the Commission and on the other hand in the context of sales justifies that reduction on the ground that to the former Soviet Union and Brazil. The Italy allowed multiple tenders. The approach abovementioned deficiencies were also found of the competent Italian authority was not to apply in those cases. For this reason, the compatible with the Community rules and Commission considered a 10% reduction in discriminated against participants who had the costs declared for 1990 and 1991 to be observed the rules. justified.

speculative purposes. If a tenderer speculates 19. Speculative tendering for pretended larger that a specific reduction coefficient will be quantities, according to the Commission, runs laid down, he offers a correspondingly higher counter to the purpose of intervention, which quantity for sale into intervention. If it then is, for example by intervention buying-in, to turns out that the coefficient laid down is not stabilise the market and prevent or mitigate a as high as the tenderer assumed, the tenderer substantial fall in prices, 8 where market prices must deliver into intervention more meat than fall below a certain level. Regulation N o he actually has available. If he is unable to 859/89 9 introduced a tendering procedure. 10 perform his contract with the intervention Under that tendering procedure purchase agency as to 85% or 95%, he loses in whole prices and quantities are established on the or in part the security deposited in respect of basis of tenders received. 11 the total amount. 7

8 — Fourth recital in the preamble to and Article 5 of Regulation (EEC) N o 805/68 of the Council of 27 June 1968 on the 18. A clear consequence of this, in the Com- common organisation of the market in beef and veal (OJ, English Special Edition 1968 (I), p. 187). mission's view, is that the lodging of multiple 9 — Cited in footnote 6. tenders favours speculation because the effect 10 — Third recital in the preamble to and Article 7 et seq. of of the security deposit is lessened. Regulation N o 859/89. 11 — Second recital in the preamble to Council Regulation (EEC) N o 571/89 of 2 March 1989 amending Regulation (EEC) N o 805/68 on the common organisation of the market in beef and veal, repealing Regulauon (EEC) N o 1302/73 and «tending Regulation (EEC) N o 4132/88 (OJ 1989 L 61, 7 — Article 13(4) of Regulation N o 859/89. p. 43).

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22. The provision which underlies this dis- 25. O n the other hand, the applicant is of the pute is contained in Article 9 of Regulation opinion that the concepts of 'tenderer' and N o 859/89, paragraph 1 of which provides: 'interested party' are interchangeable. The dif- 'Tenderers may take part in the invitation to ference in -wording is intended only to avoid tender only if they undertake in writing to a repetition of the concepts. N o distinction comply with all the provisions relating to the can be made between the two. In other Com- tender concerned.' 12 munity provisions as well, the concept of 'interested party' means nothing more than an undertaking which participates in an invi- tation to tender. Accordingly, the prohibition in the last phrase of Article 9(2) merely pre- cludes the person finally appearing as a ten- derer from submitting more than one tender. 23. Paragraph 2 provides: 'Interested parties may participate in the invitation to tender issued by intervention agencies of the Member States in which this is opened either by lodging a written tender against a receipt or by any other written means of communication accepted by the intervention agency, with advice of receipt; they may submit one tender 26. The requirement for the economic situa- only per category in response to each invita- tion to be taken into account in connection tion to tender.' 13 with tenders follows, it is submitted, only from Article 11(3) of Commission Regulation (EEC) N o 2456/93 of 1 September 1993 laying 12 — Emphasis added. down detailed rules for the application of 13 — Emphasis added. Council Regulation (EEC) N o 805/68 as

Where there are serious indications to the contrary or that tenders are not in line with economic facts, tenders shall be deemed admis- sible only where the tenderer presents suit- able evidence of compliance with the second subparagraph. 28. In addition, such a producers' association can lodge a tender in its own name on behalf of all those of its members who have not sub- mitted individual tenders. In that case also, in the Commission's view, confidentiality is not observed. The interests of competitors are pooled and the advantages of an invitation to Where it is established that a tenderer has tender cancelled out. In Italy's view, however, submitted more than one tender, all the ten- the practice in question is certainly not an ders from that tenderer shall be deemed inad- infringement of the prohibition of multiple missible.' tenders, as the Commission claims, but con- stitutes a single tender lodged by the pro- ducers' association. It contends that this does 14 — OJ 1993 L 225, p. 4. not jeopardise intervention, but leads to a

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ITALY v COMMISSION

reduction in the number of tenders, which is The applicant attributes the deficiencies in the entirely desirable. control system to lack of training and lack of familiarity with the law on the part of the staff assigned to the checks.

Premiums for sheepmeat and goatmeat

Public storage of cereals

33. Italy does not deny the alleged deficien- 15 — OJ 1989 L 289, p. 1. cies, but challenges the level of the reduction.

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O P I N I O N OF MR ALBER — CASE C-242/96

Set-aside of arable land to pay set-aside premiums in respect of land which has been ploughed but on which no crops have been grown. The applicant also, it is alleged, carried out no checks whatsoever in that regard.

34. In this sector, Italy challenges the Com- mission decision in so far as it disallows expenditure of a sum of ITL 2 169 762 753. According to the applicant, that amount cor- responds to 10% of the expenditure allowed for Sicily in respect of 1992. 37. Italy submits that the previous practice of 'technical fallowing' has been superseded. With technical fallowing, the land lies fallow for a certain time and is only ploughed in order to improve its capacity to take in and retain water. Farmers have now gone over to planting that fallow land with autumn/spring 35. Regulation N o 797/85 on improving the crops for early harvesting, such as legumi- efficiency of agricultural structures, 16 as nous forage crops, broad beans, chickpeas, amended by Regulation N o 1094/88, 17 intro- potatoes, etc., in order to prevent corrosion duced an aid scheme to encourage the set- damage. aside of arable land. 1 8That aid could be granted for all arable land, irrespective of the crops grown, provided that the land had in fact previously been cultivated for a reference period to be determined 19 — in this case the 1987/88 marketing year.

38. In the Commission's opinion, the tradi- tional fallowing practice (that is to say without cultivation) has (also) continued to be employed in Sicily. However, since no checks whatsoever were carried out in this regard, it 36. In the Commission's opinion, certain land disallowed expenditure of a sum corre- in Sicily benefited under that aid scheme sponding — according to it — to 5% of the despite the fact that the last-mentioned con- relevant costs. dition was not satisfied, and it makes no sense

42. Article 8 of Council Regulation (EEC) N o 1785/81 of 30 June 1981 on the common organisation of the market in the sugar sec- tor 20 instituted a system of compensation for sugar storage costs. That system comprises flat-rate reimbursement to be financed by means of a levy. Under Regulation N o 1785/81, that levy is to be imposed on each importer of preferential sugar and each refiner 45. Finally, the control of that system is regu- of preferential sugar. lated in Article 19 of Commission Regulation (EEC) N o 1998/78 of 18 August 1978 laying down detailed rules for the offsetting of storage costs for sugar. 22That provision states: 'Mem- ber States shall take all measures necessary for the application of this Regulation and shall in particular establish all the necessary con- 43. Under Article 2 of Council Regulation trol measures.' (EEC) N o 1358/77 of 20 June 1977 laying

21 — OJ 1977 L 156, p. 4. 20 — OJ 1981 L 177, p. 4. 22 — OJ 1978 L 231, p. 5.

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46. The Commission submits that the system 49. With regard to the necessary checks, the in question is a very complex one requiring applicant submits that the Community rules strict control arrangements, for which provi- contained no provisions specifying the fre- sion has also been made. However, it claims quency and method applicable to them. O n that since, by 31 December 1992, no checks the contrary, the Community legislature has whatsoever had been carried out at the pre-, allowed the authorities of the Member States mises of specialised traders in Italy, the 10% considerable freedom in applying the proce- reduction is justified. dures and measures which it considers neces- sary in order to ensure sufficient supervision. Since, it is argued, there is no evidence of economic harm having occurred in this case, there is no basis for claiming that the checks were not sufficient.

C — Opinion

53. Article 8 of the regulation, which reflects those recitals, provides in paragraph 1 thereof: Public storage of beef and veal

52. The Commission alleges serious deficien- 'The Member States in accordance with cies in Italy's control system, that is to say, national provisions laid down by law, regula- that Italy failed to fulfil its supervisory obli- tion or administrative action shall take the gation. As far as the supervision of boning measures necessary to: operations is concerned, that obligation results from Article 20 of Regulation N o 859/89 laying down detailed rules for the application of intervention measures in the beef and veal sector. 25 That article provides not only that intervention agencies are to be responsible for — satisfy themselves that transactions the supervision of the operations in question, financed by the Fund are actually carried but also specifies the forms which that super- out and are executed correctly; vision is to take. As far as other supervision

26 — OJ, English Special Edition 1970 (I), p. 218. 25 — Cited in footnote 6. 27 — Seventh recital in the preamble to Regulation No 729/70.

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'That provision, which expressly lays down in that specific area the obligations imposed on Member States by Article 5 of the Treaty defines, the Court has said, the principles according to which the Community and the 56. Since Regulation N o 859/89 contains Member States must ensure the implementa- extensive provisions on the characteristics tion of Community decisions on agricultural which meat bought in is to have, how it is to intervention financed by the Fund and combat be stored and how it is to be packed, the fraud and irregularities in relation to those Member States must carry out the relevant checks in order to ensure that those rules are observed. 28 — Judgments in Case C-48/91 Netherlands v Commission [1993] ECR I-5611, it paragraph 11, Case C-366/88 France v Cam- mission [1990] ECR I-3571, at paragraph 20, Case C-8/88 Germany v Commission [1990] ECR I-2321, at paragraph 17, and Joined Cases 146/81, 192/81 and 193/81 BayWa 29 — Judgment in Case C-2/93 Exportslachteräen van Oordegem [1982] ECR 1503, at paragraph 26. [1994] ECR I-2283, at paragraphs 17 and 18.

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57. If they fail to comply with that obliga- form they took. The applicant merely states tion, their expenditure in the context of the that it cannot be assumed that the AIMA del- E A G G F will not be reimbursed. As the Court egated its function to the AIA. O n the con- has observed, 'only refunds granted and inter- trary, it claims, there was a reciprocal contract vention undertaken in accordance with the between the two organisations. Community rules within the framework of the common organisation of agricultural mar- kets are to be financed by the E A G G F ...'. 30 In that regard, it is for the Commission to prove that the rules of the common organisa- tion of the agricultural markets have been infringed. 31 60. Since the AIMA has thus provided no information on whether and how it carried out its checks, it could be inferred therefrom that supervision was completely lacking at that level.

59. Italy, for its part, gives details of the staff assigned to the checks and of the form which those checks took. O n the one hand it names official veterinarians in this connection, but also states that checks were carried out by an 62. The question is whether that is sufficient organisation which was directly linked to the to prove an infringement on the part of the agency responsible for storage. N o informa- AIMA. In this connection, reference should tion is given about whether checks were also be made to the Court's case-law under which carried out by the AIMA and, if so, what the Commission is obliged on each occasion to give reasons for its decision finding an absence of, or defects in, inspection proce- 30 — Judgment in Netherlands v Commission, cited in footnote dures. 32 In that case the Commission argued, 28, at paragraphs 13 and 14, with further references. inter alia, that the competent authorities were 31 — Judgment in Netherlands v Commission, cited in footnote 28, at paragraph 18, with further references; judgments in Case C-281/89 Italy v Commission [1991] ECR I-347, at paragraph 19, with further references; Case 347/85 United Kingdom v Commission [1988] ECR 1749, at paragraph 16, and Case C-55/91 Italy v Commission [1993] ECR I-4813, 32 — Judgment in Germany v Commission, cited in footnote 28, at paragraph 13, with further references. at paragraph 23.

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65. Furthermore, Italy makes observations 63. In this connection, the Commission sub- only in response to individual allegations. mits that the AIMA was unable to explain by Thus, for example, in response to the allega- what criteria it assessed whether the AIA car- tion that the intervention agencies had, in ried out properly the tasks transferred to it. contravention of the rules, bought in meat In other words, the AIMA was unable to which was already frozen, it states that such show by what means it ensured that the an infringement could not have been estab- system was functioning properly. Moreover, lished retrospectively by a Commission it is alleged, the AIMA was also unable to inspection. The Commission contradicts this give any indication of instructions which it and submits that, in the case of meat pur- may have issued. The Italian authorities had chased when it is already in a frozen state, the not even made clear whether any on-the-spot stamps are very easy to remove, in contrast to checks took place and, if so, how often and stamps applied to fresh meat. Italy does not according to what criteria. Much the same deny the allegation that the maximum quan- applied to measures concerning the storage of tity which is allowed to be packed into car- tons was not complied with in Italy. It merely states the reasons why that rule was not observed. The applicant does not respond in 33 — Judgment in Germany v Commission, cited in footnote 28, at paragraph 26 et seq. detail to the allegation that false stamps were

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67. In other respects, in response to many allegations it merely states that checks were carried out but that they revealed no infringe- 68. A further point which the applicant raises ments whatsoever. As has already been dem- is that the deficiencies established are minimal; onstrated, according to the Court's case-law that is to say that only a minor infringement that is not sufficient. As far as the problems has occurred. Apart from the fact that the with the classification of meat are concerned, scale of the infringement is uncertain, such a it contends that this is done on the basis of submission can relate only to an individual subjective criteria which vary from one problem and not to all the deficiencies alleged Member State to another. Against that it must by the Commission. be said that there are clear Community rules as to how meat is to be classified. 34 With regard to the allegation that veal or beef of the poor-quality conformation class P was purchased, the applicant contends that there was no reason to sell veal into intervention since the price of veal was much higher on the open market. With regard to that, it must 69. Next, as far as the sales to Bulgaria, the be stated that selling veal into intervention former Soviet Union and Brazil are con- may make sense if that meat cannot be sold cerned, the applicant contends that there were no complaints on the part of the consignees. However, that absence of complaints cannot constitute a criterion in the present case. In 34 — Council Regulation (EEC) No 1208/81 of 28 April 1981 the case of Bulgaria, the applicant claims that determining the Community scale for the classification of carcases of adult bovine animals (OJ 1981 L 123, p. 3). the meat was inspected prior to export. If

72. The Commission has thus been able to prove that Italy failed to fulfil its supervisory obligations. It rightly assumes that such a failure constituted a risk to the Fund. 71. Finally, the applicant submits that the deficiencies established by the Commission related to just a few isolated cases (the defi- ciencies on the meat itself and the defective packing, for example). However, those iso- lated cases constitute an additional factor in support of the allegation that no effective system of control existed. 35 Here, too, it may surely be assumed that the Commission has 73. The remaining burden of proof now rests succeeded in showing that, if the AIMA car- on Italy. As the Court has held, when the ried out any checks at all, those checks, like Commission refuses to charge certain expen- those carried out by the AIA, were insuffi- diture to the E A G G F on the ground that it was incurred as a result of breaches of Com- munity rules imputable to a Member State, it is for that State to show that the conditions 35 — See also judgment in Germany v Commission, cited in foot- note 28, at paragraph 42. for obtaining the financing refused by the

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ITALY v COMMISSION

Commission are fulfilled; 36 in other words, propose a reduction in flat-rate calculations the applicant must prove that the conduct to three possible percentages: imputed to it did not lead to an increase in costs in the context of the EAGGF. However, the applicant makes no observations on this point.

— 2% where the deficiency is limited to parts of the control system of lesser importance, or to the operation of controls which are not essential to the assurance of the regu- 74. It merely submits that, if the Commis- larity of the expenditure, such that it can sion had reached the correct decision when reasonably be concluded that the risk of exercising its discretion, it should have made loss to the E A G G F was minor; a reduction of only 5%.

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expenditure affected by the infringement but the Commission, however, the applicant was endeavours to establish the financial impact informed of the existing deficiencies as early of the unlawful action by means of calcula- as 1991. tions. In such cases, the Court has held, it is for the Member State to show that the condi- tions for obtaining the financing refused by the Commission are fulfilled. 38 The applicant merely asserts in this regard that, in view of the Commission's unrepresentative checks, a 10% reduction is not justified. That objection 79. Italy thus did not introduce the improve- cannot be upheld since the number of spot ments immediately after the deficiencies checks carried out by the Commission is not became known. In conclusion, it should be what matters. Decisive importance attaches to pointed out that, in principle, Italy is favoured the checks for which the applicant bears by the flat-rate calculation since, if the Com- responsibility. Since the deficiencies apply to mission had projected the results of its checks, the whole of the system — the AIMA was it would have come to the conclusion that unable to show that it monitors the execution irregularities existed in 30% of cases. It could of the functions transferred by it — a 10% therefore even have disallowed the costs in reduction is also justified under the Belle their entirety. For that reason it may be Group guidelines. assumed in this connection that the 10% reduction was justified.

Tendering procedure for beef and veal

firm and the company or firm itself as well as upon them by the Commission. In that con- holding companies. Such a requirement would nection it would appear appropriate to have to result expressly from the provision. If examine first the manner in which the Com- tenders from independent legal persons are mission seeks to interpret the last phrase of rejected on economic grounds, that is a breach Article 9(2). The pleadings mainly speak of of the principle of economic freedom. 'multiple' tenders. Those cannot be tenders submitted by one and the same tenderer under one name, for such tenders are not lawful in Italy either. As is also clear from the plead- ings, the Commission is also not challenging every kind of connection between the indi- vidual tenders. Thus, for example, it states 81. Under the Court's case-law, it is for the that where a person operates two indepen- Commission to prove that the rules of the dent slaughterhouses, both may submit a common organisation of the agricultural mar- tender. As the Commission explained at the kets have been infringed, which results in a hearing, in its view only tenders relating to refusal to charge expenditure to the EAGGF. 39 the same quantity of meat are unlawful under the last phrase of Article 9(2). Where an inter- ested party offers his meat not only himself but also through the intermediary of nomi- nees, that is in breach of Community provi- sions and must be prohibited by the authori- 82. Moreover, in regard to the requirements ties of the Member States. which the formulation of provisions must satisfy, the Court has held: 'Since a rule whose breach inevitably entails financial conse- quences must be sufficiently clear and precise, the Commission was not entitled to rely on the terms of subheading ... as a basis for imposing, at the time of the clearance of E A G G F accounts, an interpretation which was not dictated by the normal meaning of the words used.' 40 84. The Commission points out that, according to the Court's case-law, a provision is not merely to be construed literally but also in accordance with its meaning and pur- pose. 41 Accordingly, the Commission con- tends that the provision at issue in these pro- 83. Accordingly, it must be examined whether ceedings would be deprived of its purpose if the terms in which the last phrase of Article it were possible to submit several tenders via 9(2) of Regulation N o 859/89 is couched sat- nominees and thus circumvent the prohibi- isfy those requirements and whether they tory provision. allow of a construction of the kind placed

87. In the Commission's opinion, that also follows from the wording. In this connection it should be said that a difference in wording as between paragraphs 1 and 2 of Article 9 89. However, it is more instructive to have could certainly point to a difference in regard to the provisions which preceded meaning. It could be inferred from this that those at issue in the present proceedings. it is not sufficient to check whether the person Thus, in 1990 it was made possible to who actually submits the tender only submits submit several tenders at different prices. a single one, that is to say, whether in each Under Regulation N o 1282/90 44 the last case an independent (legal) person participates in the procedure. Thus the term 'interested party' could be understood as meaning a 42 — Commission Regulation (EEC) N o 2271/90 of 1 August person interested in selling his meat into inter- 1990 amending Regulation (EEC) N o 859/89 laying down detailed rules for the application of intervention measures in vention. As has been seen, that person must the beef and veal sector (OJ 1990 L 204, p. 45). not necessarily be the same person as the ten- 43 — This distinction is also reflected in the English version, which speaks of 'interested parties' and 'tenderer'. derer, that is to say the person who actually 44 — Commission Regulation (EEC) N o 1282/90 of 15 May 1990 submits the tender. If, for example, the meat amending Regulation (EEC) N o 859/89 laying down detailed rules for the application of intervention measures in the beef is offered via nominees, in that case there is and veal sector (OJ 1990 L 126, p. 31).

90. That provision was, however, repealed shortly afterwards in August 1990. Amending Regulation N o 2271/90 stated in the first recital in the preamble thereto: 'Experience 92. The applicant must also have been aware shows that tenderers should only be allowed of that fact when it received the tenders. O n to submit a single tender ... for each category the one hand, it is true of any rule that it in response to each invitation to tender'. becomes meaningless if it is circumvented, for example, as is maintained in this case, by virtue of the fact that the same meat is offered by several persons. O n the other hand, the applicant was aware of the meaning and pur- pose of intervention. To that extent it must also have been aware of the fact that it runs 91. In the applicant's view no conclusions counter to the purpose of intervention if mul- may be drawn from that as regards the present tiple tenders are submitted in respect of the case. Regulation N o 1282/90 concerned the meat available on the market. submission of more than one tender by the same tenderer. However, this case concerns the question whether tenders submitted by different legal persons may be rejected. That was never the intention at the outset. A dif- ferent interpretation may therefore not be adopted in times of economic difficulty; par- ticularly since the provision in Regulation N o 2456/93 leads to a reversal of the burden of proof for the tenderer. He is required to pro- 93. Moreover, the Court has held that even duce proof of his economic independence. in cases where, viewed objectively, Commu- N o corresponding provision is to be found in nity law is incorrectly applied as a result of the last phrase of Article 9(2). However, nor an interpretation adopted in good faith by the is it necessary to rely on a provision corre- national authorities, costs incurred in that sponding to Regulation N o 2456/93. At the connection must, under Articles 2 and 3 of

94. The applicant points out that the last phrase of Article 9(2) is silent as to who the individual tenderers are and the manner in which they are to structure their relationships one to another. It follows from the meaning 97. In the Commission's view, the disallow- and purpose of the last phrase of Article 9(2) ance made in the context of the clearance of that it is prohibited to offer meat by way of accounts is justified on the ground that the nominees. The applicant cannot rest content applicant did not ensure compliance with that with the assertion that it is under no obliga- provision. tion under the terms of Article 9 to examine possible connections between individual ten- derers. That merely goes to the question as to the manner in which observance of a prohibi- tory provision such as that contained in the last phrase of Article 9(2) can be monitored. 98. It is clear that in Italy tenders were exam- ined only to see whether they originate from different legal persons. N o further examina- 45 — Article 3(1) of Regulation 729/70 provides: tion was undertaken. In what follows it will 'Intervention intended to stabilise the agricultural markets, be a matter of examining whether on that undertaken according to Community rules within the frame- work of the common organisation of agricultural markets, basis the applicant may be said to have failed shall be financed under Article 1(2)(b).' to observe a provision of Community law, 46 — Judgment in Case 11/76 Netherlands v Commission [1979] ECR 245, at paragraphs 8 and 9. since the Commission has mentioned no actual

100. Thus, since in the context of the clear- 103. As the Commission has stated, the dis- ance of E A G G F accounts the Commission is advantage for the Fund arises out of the fact dependent upon information provided by the that the submission of several tenders by an Member States, it is not possible for it here to interested party by means of nominees encour- give a specific example of an infringement ages the submission of speculative tenders. Yet if one has regard to the Commission's action against speculative tenders as such, it might be queried whether the applicant was 47 — Judgment in Netherlands v Commission, cited in footnote 28, at paragraph 11. required to take any further steps.

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104. According to the Commission, in order bers. Even if it could not with certainty be to prevent speculative tenders whereby, in concluded from those indications that there anticipation of a specific reduction coefficient, was an infringement of the last phrase of tenders are made in respect of a greater quan- Article 9(2), the indications were however of tity of meat than is available, a security pay- such a nature as to necessitate more specific ment was introduced. 48 That means that in checks, and that is the decisive factor. that connection the Member States are merely obliged to ensure that the appropriate amount of security is deposited. They do not have to check whether the individual tenderer has offered more meat than is in his possession.

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109. The question now remains as to whether governing the common organisation of the that is also the case with regard to the prac- agricultural markets, it is now for the appli- tice of submission of tenders by producers' cant to show that the Commission made an associations, which exists only in Italy. Since error with regard to the financial conse- Italy has submitted that the tenders are quences to be drawn from that. received in sealed envelopes by the associa- tions and merely forwarded, a fact not dis- puted by the Commission, formally speaking they are not multiple tenders; their confiden- tiality would also be safeguarded, so that it is not apparent how there could be an infringe- ment of the last phrase of Article 9(2) or Article 9(6). However, that is not the case 111. In this connection the Commission has with the practice of submission of tenders by not merely submitted that the EAGGF suf- producers' associations on their own behalf. fered a loss. Rather it has shown that the Since the tenders are first collected and then applicant infringed Community law and the forwarded as a single tender, that is a breach manner in which it did so. The Commission of the confidentiality of tenders. Moreover, has, furthermore, set out how that may have there is the risk of infringing Article 9(4)(a) favoured speculative bids by tenderers. It has under which a tender must relate to a quan- explained, finally, how that may have led to tity of at least 10 tonnes. That provision an erroneous appraisal of the market and thus becomes completely ineffective if the tenders to excessive buying-in of beef, possibly at collected include small ones which are then higher prices. Thus, in any event, it has submitted as part of a large collective tender. adduced credible evidence that it was possible In that connection at least there has been an for loss to have been incurred by the EAGGF. infringement of the Community rules.

115. The present case did not involve minor deficiencies in the control system. Rather, there was a complete absence of checks as to 118. The Commission, on the other hand, whether multiple tenders were being sub- points out that those measures were intro- mitted in respect of one and the same quan- duced only from 1993 onwards, whereas the tity of meat, and that via nominees. Under decision at issue concerns expenditure for those circumstances, the 2% rate of correc- 1992. The Commission further submits that a tion chosen by the Commission appears pro- reduction of 10% is also justified on the basis portionate and appropriate. of the Belle Group guidelines. It emphasises that virtually no effective monitoring took place. For that reason the Commission could even have envisaged making a higher reduc- tion, as in the previous years. It refrained from doing so in view of the improvments 116. Accordingly, the objections raised by made by Italy. the applicant in this connection against the Commission decision cannot succeed.

Control procedures with regard to premiums for sheepmeat and goatmeat 119. Under the Belle Group Report, the ques- tion of improvements undertaken by national authorities should be raised only when it is not entirely clear in which of the three cat- egories (2, 5 or 10% reduction) a par- ticular case should be placed. Italy does not 117. Italy does not deny that there were deny that before the improvements were intro- serious deficiencies with regard to the control duced there was practically no effective moni- procedures. However, since measures have toring. The infringements were therefore so serious that a significant financial risk existed for the Fund and a reduction of 10% is justi- 50 — See footnote 37. fied.

Public storage of cereals Set-aside of arable Und

122. In this connection also, Italy does not 125. The Commission alleges that Italy failed deny the deficiencies established by the Com- to check whether the land said to have been mission. However, pointing to the improve- withdrawn from production was land which ments introduced from 1994 onwards, it main- had actually been previously cultivated or

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OPINION OF MR ALBER — CASE C-242/96

land which had been cultivated in the context 129. In this connection, reference should be of bastard fallow. made to Commission Regulation (EEC) N o 1272/88 of 29 April 1988 laying down detailed rules for applying the set-aside incentive scheme for arable land. 52 Under Article 2(1) of that regulation, arable land means the types of land listed in section D of Annex I to Regulation (EEC) N o 5 7 1 / 8 8 , " with the 126. Italy does not dispute that, but claims exception of land mentioned under point that the modified form of fallow (with culti- D/21. An exception also applies to land vation) has been practised in Italy since the devoted to products without a market organi- 1987/88 marketing year. It submits that the sation. Annex 1(D) mentions as crops, inter relevant provisions are not clear, however, and alia: cereals, dried vegetables, potatoes, sugar a correction is therefore not justified. beet, industrial plants such as tobacco, hops, cotton, oilseeds or fibre plants, or forage plants. The exception under point 21 is worded: 'Fallow land'. Accordingly, land planted with potatoes and dried vegetables in the context of fallow could also be eligible for aid. 127. The Commission submits that, in the light of the observations of the Conciliation Body, it is disallowing, not 10% of the expen- diture, but only 5%. It is thus taking into account the otherwise very rigorous control procedures operated by the Italian authorities with regard to set-aside.

131. O n the other hand, however, Italy has 133. The checks which had to be carried out been unable to refute the Commission's alle- are mentioned, inter alia, in Article 4 of gation that the traditional method of fal- Regulation N o 1358/77. Paragraph 1 thereof lowing is still being applied in Sicily. The mere provides that calculation of the reimburse- assertion that this method has been com- ment is to be based on monthly returns of pletely superseded is not sufficient in this quantities in store. It follows that checks on regard, particularly since the Commission's quantities stored had to be carried out allegation is partly based on information pro- monthly. However, that is not in itself suffi- vided in the context of the farm accountancy cient to establish whether those checks had to data network. 54 The checks required by the take place on the spot. Commission would therefore have been nec- essary. The applicant has been unable to show that those checks were actually carried out. According to the Commission, the applicant was also unable to provide any information about its instructions regarding checks to be carried out. The proposed reduction is there- fore justified. 134. Article 16 of Regulation N o 1998/78 regulates the case where discrepancies are found between the actual stocks and the stocks recorded. Such discrepancies can, however, only be found if checks are carried out on the spot. It is therefore clear from the provisions Sugar storage expenditure on the offsetting of sugar storage costs that it was not sufficient to carry out administrative checks only.

138. As far as the applicant's reference to the links between compensation for storage costs and levies paid by producers is concerned, the Commission submits that the compensa- 140. That argument must be upheld. It cannot tion system in question is based on the prin- be inferred from the link between compensa- ciple of financial neutrality. This means that tory payments and levies that compensatory the total of levies collected and compensatory payments must be made even when the nec- amounts paid out should equal zero in respect essary conditions for such payments are not of any financial year. The Commission refers fulfilled. Thus, for example, payment is to be in this regard to Article 6(2) of Regulation made only in respect of certain types of N o 1358/77. That paragraph provides that sugar. 55 Moreover, certain forms of processing any difference is to be carried forward to a may have the consequence that the resulting subsequent sugar marketing year. Following product ceases to be eligible for reimburse- that principle, the Commission states that ment. 56 If those conditions are not observed, compensatory amounts are paid only in respect storage costs cannot be reimbursed. Levies of products in respect of which a levy has already paid are irrelevant in that regard. It is been paid. Conversely, levies are charged only on products in respect of which compensa- tion for storage costs has been paid. In the 55 — Article 3 of Regulation No 1358/77. Commission's opinion, however, that balance 56 — Article 9 of Regulation No 1998/78.

144. T h e C o u r t s h o u l d therefore:

(1) dismiss t h e action;

(2) o r d e r t h e Italian R e p u b l i c t o p a y t h e costs.

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