C-235/97

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OPINION OF MR ALBER — CASE C-235/97

4. Consequently, the Commission applied a B — The facts flat-rate reduction of 2 % to the expenditure incurred in respect of technical costs, finan- cial charges and other costs for the 1993 financial year.

I. Intervention measures in the context of the public storage of cereals

5. The Commission justifies the reduction of the export refund on processed cheese on the following grounds: 6. The French Republic asks the Court to annul the Commission's decision 4 in so far as it disallowed expenditure of FF 103 286 730 on intervention measures concerning the public storage of cereals. The Commission justifies that reduction on the ground that there were deficiencies in the public storage — the exported products were not of sound of cereals. and fair marketable quality,

— the quality defect arose during manufac- ture, and consequently before export 7. Following inspections in June and July 1993, the Commission found that manage- ment of the intervention system was inad- equate. It informed the French national authorities, stating, according to the appli- cant, that there would be financial conse- quences in the clearance of accounts for 1993. and In their reply of December 1993, the French authorities submitted a list of measures which they intended to adopt in order to improve the system of public storage of cereals.

9. In the course of further inspections in June and July 1994, the Commission found that, despite the improvements they had announced at the end of 1993, the French authorities had 11. Export refunds for processed cheese not entirely remedied the deficiencies found in the first inspections in June and July 1993. The Commission informed the national authorities that financial corrections would be decided with effect from 1992. After a fur- ther exchange of correspondence with the Commission, the applicant finally referred the matter to the Conciliation Body. In its final report, the Conciliation Body concluded that 12. The French Government seeks the annul- the financial correction was justified. It also ment of Commission Decision 97/333/EC in pointed out that the French authorities did so far as it disallowed expenditure of FF not deny having had to modify their previous 720 720 on an export refund for 73.5 tonnes procedure in order to satisfy the Commis- of processed cheese exported to Saudi Arabia. sion's requirements.

10. Several improvements were indeed intro- 13. In the last quarter of 1988, the Bel dairy duced; however, the French Government does company exported a total of 14 256 cartons not deny that certain procedures had not been of La Vache Qui Rit cheese (total weight 89 observed in the field. The applicant also relies tonnes, market value FF 883 700) to Saudi on an audit report by Ernst & Young alleg- Arabia. The company ultimately received an edly confirming the reliability of the storage export refund of FF 720 720 in that respect.

16. The Commission informed the French authorities repeatedly in 1995 that there was no entitlement to an export refund because the quality defect was the result of produc- tion fault and the product had not reached — FF 720 720 for an export refund on 73.5 the market of destination. tonnes of processed cheese exported to Saudi Arabia;

5 — That inquiry found chat the unusual consistency was caused by a production fault. 6 — The remaining 8 476 cartons were sold in Saudi Arabia. 7 — See footnote 4.

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— FF 103 286 730 for intervention measures C — Analysis relating to the public storage of cereals;

I. Intervention measures in the context of the public storage of cereals and subsidiarily,

O P I N I O N OF MR ALBER — CASE C-235/97

the French Government simply argued that 25. 25.Since the Court has consistently held 11 some of the measures the Commission had that, when the Commission refuses to charge called for were not required under the rel- certain expenditure to the E A G G F on the evant Community regulations. It claimed that ground that it was incurred as a result of the measures it proposed to take were ade- breaches of Community rules for which a quate and that due supervision had been exer- Member State can be held responsible, it is cised. The French Government did not deny, for that State to show that the conditions for however, that it had been necessary to modify obtaining the financing refused by the Com- original procedures in order to satisfy the mission are fulfilled, it is not sufficient for the Commission's requirements. applicant to rely on mere assertions. Under that rule on the burden of proof, the Member State must prove that the measures which it has implemented were adequate.

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28. In the result, the Commission's reasoning relying essentially on the fact that the French is correct. In substance, the French Govern- authorities had announced that they would ment does little more in its pleadings than make improvements. However, according to make mere assertions. Thus, it concedes that the Commission not all those improvements not all the proposed improvements in the were put into effect, a fact which the French public storage management and control system Government does not deny, moreover. were implemented; nor does the audit report establish that the measures taken were ade- quate. The pleadings of the French Govern- ment indicate in fact that the report was based only on the theoretical application of the rules in force and not on their implementation in practice. The report is not capable of proving 31. It must be also be observed that the that the deficiencies criticised by the Com- Commission had made it clear in its corre- mission did not exist. In that respect the spondence that significant financial correc- applicant's plea in law must therefore be dis- tions would be imposed if further infringe- missed. ments were found. The fact that, as a result of such infringements, those corrections were then imposed cannot be deemed to breach the principle of legal certainty.

29. In its plea that there was a breach of the principle of legal certainty, the French Gov- ernment refers to the communication of the Commission stating that no financial correc- 32. The applicant also contends that the Com- tions would be imposed in view, in particular, mission should not have relied upon mere of the improvements the French authorities rumours concerning the switching of cereals had announced. By imposing a correction for stored under different regimes. The Commis- 1993, the Commission breached the principle sion's arguments in that respect are, however, of legal certainty. 12 This point essentially con- sufficient, in so far as its inspectors had indeed cerns an infringement consisting in the found that cereals which should have been switching of cereals stored under different stored under different regimes had been mixed regimes. or switched.

37. In the relevant case-law, the Court has 34. In conclusion, the applicant claims in the also established that the mere probability of alternative that the Commission breached the losses to the detriment of the Community principle of proportionality. In its view, the budget is a criterion to be taken into account 2% correction should not have been applied in determining the proportionality of the cor- in respect of budgetary items 10-13, which rections imposed. 16 concern losses in stocks sold. Those losses were fully offset under Commission Regula- tion (EEC) N o 3597/90 of 12 December 1990 on the accounting rules for intervention mea- sures involving the buying-in, storage and sale of agricultural products by intervention agen- cies. 14 In that respect, the E A G G F did not 38. Whether or not quantities were indeed suffer any loss under that budgetary item. missing is a matter of dispute between the parties. As I have already shown, however, it can be assumed that there were deficiencies in the control system. In that case, the argument put forward by the applicant that such losses on sales were immediately offset cannot be accepted. That would presuppose that con- trols were flawless, which was not, in fact, the 35. For its part, the Commission argues that case. In that respect there was also a risk of that budgetary item concerns the financial losses in respect of budget item 10-13. The effects of losses on sales. The fact that it had applicant has not, therefore, demonstrated been established that quantities were missing that the E A G G F did not suffer any prejudice. could, in addition to the deficiencies in the

II. Export refunds for processed cheese 40. In the case of flat-rate reductions, the Commission has adopted certain guidelines proposed by an inter-directorate group (the Belle Group Report). Depending on the seri- ousness of the deficiency, the Commission proposes the application on a flat-rate basis of one of three possible percentages: 2 % , 5% or 10%. The lowest possible reduction, namely 43. The Commission justifies its decision to 2 % , is applied where the deficiencies only disallow expenditure concerning export affect secondary elements of the control system refunds for processed cheese on the ground or where they affect the implementation of that the product did not reach the market in controls which are not indispensable to the the country of destination because it was not proper accounting of expenditures so that it of sound and fair marketable quality, the can be assumed that there is only a minor risk quality defect having been caused by a pro- of loss for the EAGGF. duction error before the product was exported.

49. Article 13 of Regulation N o 3665/87 pro- vides, however, that no refund is to be granted 47. Article 3(4) provides that that date '... 'on products which are not of sound and fair shall be used to establish the quantity, nature marketable quality.' and characteristics of the product exported.'

50. Article 17(1) of Regulation N o 3665/87 provides that the products must '... have been imported in the unaltered state into the non- 48. According to Article 5(1) of Regulation member country ... within 12 months fol- N o 3665/87, payment of the refund '.... shall lowing the date of acceptance of the export be conditional not only on the product having declaration.' left the customs territory of the Community

18 — Council Regulation (EEC) N o 876/68 of 28 June 1968 laying down general rules for granting export refunds on milk and milk products and criteria for fixing the amount of such refunds, OJ, English Special Edition 1968 (I), p. 234. 19 — Commission Regulation (EEC) N o 3665/87 of 27 November 1987 laying down common detailed rules for the applica- 51. Article 17(3) provides that a product is to tion of the system of export refunds on agricultural products (OJ 1987 L 351, p. 1). be considered to have been imported '... when

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it has been cleared through customs for release 54. Such national provisions cannot, how- for consumption in the non-member country ever, be inconsistent with the aims and con- concerned.' tent of the Community regulations in force. In order to prevent abuses, the fourth recital in the preamble to Regulation N o 3665/87 provides that payment of the refund shall be subject 'to the condition that the product ... has also been imported into a non-member country and, where applicable, actually mar- 52. Therefore, two questions must be keted there'. The ninth recital goes on to pro- answered in the present case: vide that products on which an export refund is to be granted should be 'of a quality such that they can be marketed on normal terms.'

57. If that was indeed the reason the product refund, it is sufficient for the product deliv- was withheld from the market, then it cannot ered to have been imported in compliance be held that the product was of sound and with the import regulations of the non- fair marketable quality. member country and without any objection on the part of the import authorities.

58. To conclude, I would point out that the applicant also concedes that, even if the 'defect' only came to light when the Saudi Arabian buyer inspected the product, the deviation from the usual quality was the result of a 61. The Commission maintains that that alone production error. The internal inquiries con- is not sufficient and that on the contrary proof ducted by the producer established that the is required that the product actually reached manufacturing process was defective at the the market in the country of destination. time when the cheese was produced. Conse- quently, when it was exported it was already defective, so that it could no longer be con- sidered to be of sound and fair marketable quality. It makes no difference that not all the cheese in the consignment was destroyed and that cheese of like quality was exported to other countries. Only the specific case at issue, where an export refund was applied for, 62. The Court has consistently held that the is decisive. system of export refunds 'is intended to gain and maintain access for Community exports to the markets of the non-member countries concerned'. 21 The Court has concluded that if it sufficed, in order to qualify for payment of the refund, for the products simply to be 59. Therefore, it must first and foremost be unloaded, without reaching the market of the borne in mind that the cheese delivered was territory of destination, the raison d'être of not of sound and fair marketable quality the refund system would be disregarded. The within the meaning of Article 13 of Regula- completion of customs formalities is normally tion N o 3665/87. sufficient to ensure that the products have actual access to the market of the territory of destination. But it is only a precondition for access to the market and does not mean that the products actually entered into free circu- O n the question whether the product reached lation. the market

66. In such a case, the product does not 64. The fact that the last sentence of Article qualify for an export refund. It is true that, in 5(1) of Regulation N o 3665/87 allows the the present case, the destruction of the product competent authorities to require that addi- was not the result of decisions taken by the tional evidence (other than import docu- competent authorities of the State of destina- ments) be provided to satisfy them '... that tion and that it was the producer who pre- the product has actually been placed on the vented the product from actually entering market in the non-member country of into free circulation on the market of destina- import' 23 shows that the proof of import tion. amounts only to rebuttable evidence that the objective of the export refunds has in fact been attained. That objective seeks precisely to ensure that the products reach the market of destination (in order to be marketed there). 24 67. In the present case, the product was still being delivered (in part) in December 1988, whilst the decision to destroy the products was taken as early as January 1989. So although the product had indeed been duly imported into the country of destination and delivered to the client there, it was nevertheless 65. According to the afore-cited case-law, destroyed, on the producer's decision, shortly actual access of the products to the market of after completion of the customs formalities destination is not possible 'where the destruc- and could not, therefore, be placed on the tion or re-exportation takes place after the market of destination. completion, in the country of destination, of the formalities prescribed by that State as a precondition for the entry into free circula- tion or marketing of the product within its territory, in so far as the destruction or re-exportation of the product was the result 68. Consequently, the reductions imposed by of decisions taken by the competent authori- the Commission on expenditure financed by ties of the State of destination on completion the E A G G F were justified. In the final anal- ysis, there is no ground to find fault with the Commission's decision and the action of the 22 — Judgment in Dimex, cited above. French Republic is therefore unfounded. 23 — The italics are mine. 24 — In its judgment in Eier-Kontor v Council and Commission (cited above), the Court also stated that proof of marketine is required. It considered that requirement as being justified by the need to avoid fraud (paragraph 16 of the judgment). 25 — Judgment in Dimex, cited above (footnote 21), paragraph 18.

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

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