C-269/96

ERSTEIN v FIRS

OPINION OF ADVOCATE GENERAL FENNELLY delivered on 19 February 1998 *

I — Introduction II — Legal and factual context

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derived from cane. All Community white raw sugar in order to counteract this disad- sugar is subject to a storage levy, imposed by vantage. 9 An additional aid has also been Article 8(2) of the basic Regulation in order established in respect of D O M raw sugar to to fund a compensation system for storage complement an adjustment aid granted by the costs established by paragraph (1) of that Community to refineries which process pref- article, as well as to a production levy, imposed erential raw sugar. 10 by Article 28(3) in order to finance export refunds for surpluses sold on the world market.

6. Article 9(4) of the basic Regulation (which I will hereinafter refer to, when the context permits, simply as 'Article 9(4)') was amended by Regulation N o 1482/85 so as to provide as follows:

4. By virtue of Protocol N o 8 of the Fourth ACP-EEC Convention, signed in Lomé on 15 December 1989, 7 and of the Agreement between the European Economic Commu- nity and the Republic of India on cane sugar, 8 'Appropriate measures shall be taken on the the Community imports specified quantities subject of the transport and storage costs of of 'preferential sugar', either raw or white, sugars produced in the French overseas depart- from the third countries concerned at guar- ments, in order to permit these sugars to be anteed prices. marketed in the European regions of the Community.

The amending Regulation N o 1482/85 notes in its second recital the objective of ensuring 'the regular supply of all Community refin- eries processing raw sugar into white sugar', 8. Article 36(3) of the basic Regulation defined while acknowledging that, 'in addition to pref- a refinery in the same terms as the third sub- erential sugar, these refineries require supplies paragraph of Article 9(4), for the purposes of of raw cane sugar produced in the French an exception to the differential charge on raw overseas departments and of raw beet sugar preferential sugar where such sugar 'is harvested in the Community'. intended for refining in a refinery'. Article 36(2)(b) also permitted the non- application of the charge in respect of raw preferential sugar imported into particular regions of the Community 'which is refined in a production unit other than a refinery'. 12 A refinery was also defined in the same terms 7. Article 9(4) was supplemented as follows as in the third subparagraph of Article 9(4) by by Annex I, List XIV(c)(2) to the Act of Article 9(7) of its legislative predecessor, Accession of the Kingdom of Spain and the Council Regulation (EEC) N o 3330/74 of Portuguese Republic to the European Com- 19 December 1974 on the common organisa- munities: 11 tion of the market in sugar, 13 as amended by Council Regulation (EEC) N o 2623/75 of 13 October 1975. 14 Article 9(3) of Regulation N o 3330/74, as amended, permitted the award of a grant for D O M raw sugar 'refined either in a refinery or in some other production unit situated in the Community'. 15 'However, with regard to the sugar-producing undertaking, situated in the Autonomous Region of the Azores, this undertaking shall be considered to be a refinery within the 12 — These provisions were replaced by Article 1(12) of Council Regulation (EC) N o 1101/95 of 24 April 1995 amending meaning of this paragraph for refining unre- Regulation (EEC) N o 1785/81 on the common organisation fined beet sugar up to a quantity limit of the market in the sugar sector and Regulation (EEC) N o 1010/86 laying down general rules for the production expressed in white sugar equal to the differ- refund on certain sugar products used in the chemical industry, OJ 1995 L 110, p. 1, which is discussed further in the paragraph immediately below. 13 — OJ 1974 L 359, p. 1. 14 — OJ 1975 L 268, p. 1. 11 — OJ1985 L 302, p. 1. This additional subparagraph of Arti- 15 — Article 46 of Regulation N o 3330/74, as amended, provided cle 9(4) was deleted by Article 1 of Council Regulation for a differential charge in terms equivalent to those of (EEC) N o 1548/93 of 14 June 1993, OJ 1993 L 154, p. 10. Article 36 of the basic Regulation, as originally enacted.

9. Article 9(4b) of the basic Regulation, the preamble to Regulation N o 1101/95 states inserted by Article 1(1) of Regulation that 'refining produces high-quality products N o 2250/88, provided that 'adjustment aid from sugar cane' and that 'the port-related shall, as an intervention measure, be granted refining industry is ..., for the Community, a to the Community's preferential raw cane valuable complement to the beet processing sugar refining industry', at a specified rate, industry'. for specified quantities, in respect of sugar refined into white sugar at the refineries referred to in the third subparagraph of Arti- cle 9(4). Article 9(4b) also provided that an equivalent amount of 'additional aid ... shall be granted for the refining, in the refineries referred to in the third subparagraph of para- graph 4, of raw cane sugar produced in the French oversea« departments, in order to restore the price balance between that sugar and preferential sugar'. Such aid could also be provided for raw sugar obtained from beet where the provisions of the second subpara- graph of Article 9(4)' were applied. These aids are now provided for, subject to similar con- ditions, by the new Title IV of the basic Regulation inserted by Regulation N o 1101/95. Article 37 of the basic Regula- tion, as thereby amended, also provides for a 10. Article 3 of Regulation N o 2225/86 pro- reduced rate of duty on 'special preferential' vides for the grant of storage aid for sugars raw cane sugar, 16 'in order to ensure adequate produced in the French overseas departments. supplies to the Community refineries referred The aid is contingent on the sugars in ques- to in Article 9(4)', and sets out the estimated tion having been 'refined in a refinery in the maximum supply needs per marketing year European regions of the Community'. Arti- of the refining industries of Finland, metro- cle 3 of Regulation N o 2225/86 does not define politan France, continental Portugal and the a refinery, but the first recital in the preamble United Kingdom. It appears that the refining refers to the statement in Article 9(4) of the industries of Finland, continental Portugal basic Regulation that appropriate measures and the United Kingdom are almost exclu- are to be taken in respect of the transport and sively cane-based, while there are two exclu- storage costs of D O M raw sugar. Article 3(2) sively cane-based refining plants in France, at of Regulation N o 2225/86 states that the Nantes and Marseilles. The eleventh recital in storage aid shall be granted 'within the limits of the quantities to be determined according to the regions of the Community in which the refining is likely to take place and sepa- rately according to the originating French overseas department or departments in ques- tion'. These quantities are to be determined 16 — That is, sugar imported from the ACP countries and India 'on the basis of a Community supply balance other than preferential sugar, as defined in Protocol No 8 of the Fourth Lomé Convention and in the Agreement between sheet for raw sugar and for their refining the European Economic Community and the Republic of India on cane sugar. in the European regions of the Community

concerned'. 17 The fourth recital in the pre- include a plant which transforms sugar beet amble to Regulation N o 2225/86 describes into sugar syrups or raw sugar and a refining the aids established therein as 'enabling, on plant which transforms syrups and raw sugar the one hand, the marketing in the European into white sugar. The syrups and raw sugar regions of the Community of the raw sugar used in the refining plant are derived both produced by the French overseas departments from beet and from sugar cane, which are and, on the other hand, the refining of that mixed in order to obtain an end product of sugar in those regions'. The second recital consistent quality. Erstem states that its facility refers to the need to enable, 'in particular, is unique in that it can operate on the basis Portuguese refineries to be supplied with this of both beet and cane. Erstein purchased raw sugar under price conditions similar to those cane sugar in Guadeloupe in 1993 which it obtaining for preferential sugars'. The second proceeded to use in its refining plant in 1993 subparagraph of Article 3 of Regulation and 1994.

from 28 March 1994 to 7 February 1995, on the grounds that Erstein had not shown that D O M raw sugar and beet syrup were pro- cessed separately and at separate periods at its facility, and that its refining plant did not, 11. The applicant in the main proceedings, thus, constitute a 'refinery' for the purposes Société des Sucreries et Raffineries d'Erstein of the aid rules. 19 Erstein sought the annul- (hereinafter 'Erstein'), is a sugar manufacturer ment of these decisions before the Tribunal established in Alsace. Its industrial facilities Administratif de Paris (the Administrative Court of Paris, hereinafter 'the national court'), on the grounds that they were based on an erroneous interpretation of the Com- 17 — The Annex to Commission Regulation (EEC) N o 2750/86 of 3 September 1986 laying down detailed rules for the munity rules in question. application of measures for the marketing of sugar produced in the French overseas departments and amending for the fourth time Regulation (EEC) N o 3016/78, OJ 1986 L 253, p. 8, broke down the European regions, for the purposes of applying Article 3(2) of Regulation N o 2225/86 in the 1986/87 marketing year, into metropolitan France, Portugal, the United Kingdom, and 'the other regions of the Commu-

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the following questions to the Court for a III — Observations and analysis preliminary ruling pursuant to Article 177 of the Treaty establishing the European Com- munity:

13. Written observations were submitted by Erstein, the Federal Republic of Germany, 'In an industrial site which processes sugar the French Republic, the Portuguese Republic beet into white sugar, in which the first-stage and the Commission of the European Com- installations take delivery of the sugar beet, munities. Oral observations were presented process it and extract the sugar-bearing liq- by Erstein, France, the United Kingdom of uids and the second-stage installations con- Great Britain and Northern Ireland, and the vert into white sugar the liquids and syrups Commission. in question, which can be enriched by the addition of raw cane sugar from the French Overseas Departments, can the said second- stage installations, for the purposes of the grant of refining aids for the refining of that sugar from the Overseas Departments, be regarded at all times as a "production unit" 14. Erstein argues that all sugar-refining plants and as a "refinery" within the meaning of fall within the definition of a refinery in the Regulations (EEC) Nos 1785/81, Article 9, third subparagraph of Article 9(4) of the basic and 2225/86 mentioned above? Regulation. It submits that 'raw sugar' and 'syrups produced prior to the crystallising stage' are not necessarily exclusively deriva- tives of cane and beet, respectively. Further- more, raw sugar manufactured from beet is expressly referred to in the second subpara- graph of Article 9(4). In addition, the objec- If the answer is no, can such a complex of tive of aiding the marketing of sugar from installations, intermittently and for non- French overseas departments would not be continuous periods, be regarded as a "pro- advanced by confining aid to refining plants duction unit" and as a "refinery" within the exclusively devoted to processing raw cane meaning of those regulations? sugar, which would penalise more advanced, mixed manufacturers and would constitute an unlawful discrimination contrary to Arti- cle 40(3) of the Treaty.

Article 9(4) of the basic Regulation which sugar, thus assuring to the latter a permanent extended to all types of sugar-refining facility oudet. The needs of Portuguese refineries are would be pointless. It would also be incon- directly referred to in the second recital in the sistent with a number of clear indications, preamble to Regulation N o 2225/86. Although both within and without that article, that the the general reference to the role of the 'port- definition is intended to serve a purpose. The related refining industry' in the eleventh recital qualification added by the fourth subpara- in the preamble to Regulation N o 1101/95 graph of Article 9(4), with regard to a beet- and the express identification in Article 37 of refining undertaking in the Azores, implies the basic Regulation, as amended by Regula- that this undertaking would not otherwise tion N o 1101/95, of the needs of the refining have been covered by the definition. The industries of Finland, metropolitan France, former Article 36(2)(b) of the basic Regula- continental Portugal and the United Kingdom tion and Article 9(3) of Regulation N o 3330/74 postdate the decisions which are the subject both expressly envisaged the existence of pro- of the present litigation, storage aid for D O M duction units, other than refineries (defined raw sugar has from the outset been confined in the same terms as in the provision at issue to refiners in metropolitan France, Portugal in this case), where sugar was, none the less, and the United Kingdom, where there are refined. 20 significant, exclusively cane-based refining plants. 21 O n the other hand, the agent for France stated at the oral hearing that the D O M raw sugar processed by Erstein ben- efited from transport aid under Article 2 of Regulation N o 2225/86, which aid serves quite different objectives.

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objectives: the need to maintain a balance sugar constitutes an advantage for refiners between the positions of specialist cane-based who use these raw materials rather than a refiners and of beet-based refiners, in the light handicap, presumably because it frees their of the cost advantages enjoyed by the latter, hands to force down the prices charged by as well as the two objectives discussed in the cane producers. However, this line of analysis immediately preceding paragraph. The com- does serve to emphasise the interest of cane- petition between traditional cane-based and based refiners in security of supply if they are primarily beet-based refiners could also lead to continue to provide a guaranteed outlet for to difficulties for the former in obtaining sup- D O M raw sugar. As counsel for the United plies. The Commission states, in particular, Kingdom stated at the oral hearing, any short- that beet-based refiners benefit from an insti- fall caused by the diversion of amounts of tutionalised processing margin, as the prices raw cane sugar calculated on the basis of the of both their raw material and their end needs of such specialist refiners would force product are governed by Community pricing them to use more expensive raw sugar mechanisms, whereas cane-based refiners do imported subject to heavy tariffs. not, because there is no basic or minimum price for sugar cane, nor is there a target price for raw cane sugar.

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ERSTEIN v FIRS

would result in a rigid distinction between subparagraph of Article 9(4), so that the cane-based refining, employing raw cane sugar, refining plant of a larger site which also con- on the one hand, and, on the other, both tains a sugar mill for first-stage sugar extrac- beet-based refining using syrups (in plants tion would not satisfy the condition that a which would qualify as refineries but which production unit have as its sole activity the would not benefit from an aid for D O M raw refining of raw sugar and syrups. Counsel for sugar) and refining using raw (cane) sugar the United Kingdom spoke of 'specialist' or and (beet-derived) syrups. Another possible 'pure refineries'. 24 This argument, in the case interpretation is the more overtly purposive of refining in the European regions of the one favoured by the Commission, which Community, effectively confines the status of expressly favours exclusively cane-based refinery to plants dealing with cane sugar, as refining facilities. However, industrial sites the upstream sugar-extraction process takes where the refining of raw cane sugar is tem- place in sugar mills in the non-European porally distinct from beet-based sugar pro- regions where cane is cultivated. It appears duction would also satisfy its purposive cri- from the Commission's pleadings that there teria, in particular regarding cost structures, is no market in raw beet sugar or beet syrups and should also qualify, to that extent, for which would permit these products to be aid. 23 During such periods, their 'sole activity' refined in a refinery, so defined, indepen- would consist in the refining of raw cane dently of the initial sugar-extraction process; sugar. the second subparagraph of Article 9(4) may none the less be construed as envisaging this as an exceptional possibility, when raw cane sugar supplies are unavailable.

that sugar can be extracted from both cane and beet are refined in the same plant but in and beet in the form of both raw sugar and a temporally distinct fashion. First of all, there syrups. In fact, as counsel for Erstein remarked is nothing in the text of Article 9(4) to sug- at the oral hearing, the second subparagraph gest that the term 'sole activity' relates to a of Article 9(4) refers to 'raw sugar manufac- plant's sole activity only at any given time. tured from beet'. That subparagraph also Furthermore, any competitive advantage clearly envisages that refineries, as defined in gained by refining beet and raw cane sugar the third subparagraph, may sometimes wish together, by using the lower cost structure of to refine on the basis of beet. If the distinc- beet-based refining to cross-subsidise the use tion between raw sugar and syrups and that of raw cane sugar, to the detriment of exclu- between cane and beet are not exactly coex- sively cane-based refiners, will also be avail- tensive, the strict isolation of the refining of able where the same quantities are refined raw sugar from that of syrups does not serve separately in the same plant, as the capital and in any way the objective of securing the current costs will remain essentially the same. refining and marketing of D O M sugar. I As counsel for the United Kingdom observed should add that France's argument is not, in at the oral hearing, the additional refining of any event, convincing on a textual level, having raw cane sugar by a beet-based plant could be regard to all the language versions of Arti- done at marginal cost. If beet supplies are cle 9(4) applicable at the material time. 25 insufficient to keep a refining plant in opera- tion at full capacity, for example, outside the beet harvesting campaign, additional produc- tion via cane-based refining could be attrac- tive in order to spread the capital and other fixed costs of the plant. A cost base thus reduced, fortified by the indiscriminate grant of storage aid, could enable such plants to obtain D O M raw sugar supplies by outbid- ding exclusively cane-based refiners, and thereby endanger, in the short term, the ade- quacy of supplies to the latter and, in the longer term, the existence of dedicated refining outlets for D O M raw sugar. 22. N o r do I accept the Commission's argu- ment for the inclusion in the category of refineries of industrial facilities where cane

of Article 9(4), is an industrial site or facility be prejudiced by the aid-assisted entry of pri- whose sole activity consists in refining either marily beet-based plants onto the market for raw sugar or syrups into white sugar, to the D O M raw sugar. This interpretation is in no exclusion of the upstream extraction of sugar way contradicted by the reference to beet in from sugar-bearing plants such as beet or the second subparagraph of Article 9(4). That cane. The crucial aspect of this interpretation provision states that raw beet sugar will be is that Article 9(4) thereby establishes a aid-assisted only to the extent necessary for dichotomy between the refining stage and the the supply of refineries, indicating that not all preceding sugar-extraction stage, when raw beet or beet-based refining would benefit from sugar and syrups are produced. This such aid. In my view, that provision is designed dichotomy permits the aid schemes estab- to ensure that refining plants which are nor- lished by Article 3 of Regulation N o 2225/86 mally exclusively cane-based can have recourse and by Article 9(4b) of the basic Regulation to aid-assisted raw beet sugar when supplies to be restricted to refining facilities which of raw cane sugar are unavailable. Otherwise, normally process exclusively cane sugar, in they might be forced to cease operation, to accordance with the objective of securing the the ultimate detriment of the producers of relationship of mutual dependence and secu- D O M raw sugar. rity of supply between these refineries and the producers of D O M raw sugar.

In an industrial site which processes sugar beet into white sugar, in which the first- stage installations take delivery of the sugar beet, process it and extract the sugar- bearing liquids and the second-stage installations convert into white sugar the liq- uids and syrups in question, which can be enriched by the addition of D O M raw sugar, the said second-stage installations cannot be regarded as constituting, either permanently or intermittently, a 'production unit' or a 'refinery' within the meaning of Article 9(4) of Council Regulation (EEC) N o 1785/81 and of Article 3 of Council Regulation (EEC) N o 2225/86.

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