C-242/97

OPINION OF MR ALBER — CASE C-242/97

OPINION OF ADVOCATE GENERAL ALBER delivered on 21 October 1999 *

A — Introduction prefinancing of export refunds 3 in the beef and veal and cereals sectors was not recognised.

1. By this action Belgium seeks the annul- ment of Commission Decision 97/333/EC of 23 April 1997 on the clearance of the accounts presented by the Member States in 3. To summarise, Belgium raises four com- respect of the expenditure for 1993 on the plaints against the Commission, in the Guarantee Section of the European Agri- following order: cultural Guidance and Guarantee Fund (hereinafter EAGGF) 1 in so far as it disallowed, in respect of the applicant, Community financing to the amount of BEF 413 309 611 for expenditure on the advance payment of export refunds.

1. It infringed the principle of sincere cooperation, since it disregarded the observations made by Belgium. There was thus also a breach of the duty of care and the duty to state reasons.

2. During inspections carried out in 1993 and 1994 the Commission had found grave deficiencies in the control system 2in Bel- gium and consequently applied financial corrections. For Belgium, expenditure to the amount sued for in this case on the 2. It wrongly applied a flat-rate reduction (of 10%) to all expenditure reported by * Original language: German. Belgium in the sectors mentioned. 1 — OJ 1997 L 139, p. 30. 2 — On the requirements of the checks to be carried out from the Community law point of view, see paragraphs 34 to 43 below. 3 — On the prefinancing system, see paragraphs 25 to 33 below.

5. The Commission notified the competent 8. The Commission conveyed the conclu- Belgian authorities of the results of the sions of its investigations by letters dated checks carried out in Leuven and Aalst, 8 July 1996 (English version) and 19 July first in French on 24 November 1994 and 1996 (Dutch version). In this document the then in Dutch on 5 January 1995. The Commission set out in detail its objections Belgian (customs) authorities replied by and the associated financial consequences letter dated 29 December 1994. for the clearance of the accounts.

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9. The Commission indicated in a letter sector. For the prefinancing of export dated 19 July 1996 the level of financial refunds for beef and veal, reductions were correction to be applied for the 1993 fixed at 5% for France, Germany, Italy and financial year. the Netherlands, but at 10% for Belgium.

10. The Belgian Government thereupon requested on 1 October 1996 the concilia- tion procedure provided for under Arti- cle 2(1) of Decision 94/442/EC. 4 In the context of this conciliation procedure, a meeting took place on 5 December 1996 14. The Belgian Government takes the between the parties concerned. The con- view that the Commission, in adopting ciliation body's report was adopted on the contested decision, has 13 February 1997.

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2. imposed a flat-rate correction in breach 15. The Kingdom of Belgium has therefore of Regulations Nos 729/70 and (EEC) brought an action against the Commission No 1723/72 6 and of the duty to state and claims that the Court should: reasons under Article 190 of the EC Treaty. However, the Belgian system did not present deficiencies as a whole; a 1 0 % reduction is not justified and, moreover, is applied to areas in which no deficiencies had been found. 1. annul Commission Decision 97/333/ EC of 23 April 1997 on the clearance of the accounts presented by the Mem- ber States in respect of the expenditure for 1993 financed by the Guarantee Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) in so far as it disallowed, in respect of the applicant, Community 3. infringed the principle of legal cer- f i n a n c i n g t o t h e a m o u n t of tainty, the legal maxim patere legem BEF 413 309 611 for expenditure on quam ipse fecisti 7and the provisions of the prefinancing of export refunds; Article 190 of the EC Treaty. The Commission set a correction factor of 1 0 % , contrary to the provisions in force and the guidelines it had itself set in place, without giving any reasons or justification for doing so. 2. order the Commission to pay the costs.

16. The Commission contends that the Court should: 4. infringed the principle of equal treat- ment and is in breach of the duty to state reasons since it has imposed a reduction of only 5% for other Mem- ber States, but 10% for Belgium, with- out giving sufficient reasons for doing 1. dismiss the action of the Kingdom of so. Belgium;

21. According to Article 5(2)(c), amended by Regulation No 1287/95 (see footnote 5), the Commission decides on the expen- 18. The further submissions of the parties diture to be excluded from Community are dealt with in the analysis below. financing where it finds that expenditure has not been effected in compliance with Community rules. Before any decision to refuse financing is taken, the results of the Commission's checks and the replies of the Member State concerned must be notified in writing. Moreover, under Article 5, the C — Relevant legal provisions two parties are to endeavour to reach agreement on the conclusions to be drawn. If no agreement is reached, the Member State may request the initiation of a con- 19. The provisions of Community law ciliation procedure. Ultimately, the Com- relevant in this case are listed below. In so mission evaluates the amounts to be exclu- far as these have to be returned to within ded having regard in particular to the the context of the Analysis, reference will degree of non-compliance found. In so be made to the paragraph numbers of this doing, according to Article 5, it is to take list. into account the nature and gravity of the infringement and the financial loss suffered by the Community.

Basic provisions

22. Article 8(1) defines the obligations of 20. The basic provisions on the financing the Member States as follows: of the common agricultural policy are contained in Regulation No 729/70 (see footnote 5). Thus, under Article 2(1), the Guarantee Section of the European Agri- cultural Guidance and Guarantee Fund (EAGGF) finances refunds on exports to third countries granted in accordance with 'The Member States in accordance with the Community rules within the framework national provisions laid down by law, I - 3430

23. According to Article 8(2), the financial consequences of irregularities or negligence attributable to administrative authorities or '( 1 ) An amount equal to the export refund other bodies of the Member States are not shall, at the request of the party concerned, to be borne by the Community.

8 — Regulation (EEC) No 805/68 of the Council of 27 June 1968 on the common organisation of the market in beer and veal (OJ, English Special Edition 1968 (I), p. 187). 9 — Regulation (LLC) N o 2727/75 of the Council of 29 October 1975 on the common organisation of the market in cereals (OJ 1975 1. 281, p. 1). 24. The basic rules governing the common 10 — Council Regulation (LLC) No 565/80 of 4 March 1980 on the prefinancing of export refunds in respect of agricultural organisation of the market for beef and products (OJ 1980 L 62, p. 5).

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be paid as soon as the products or goods and goods obtained from basic products have been brought under the customs provided that inward processing arrange- warehousing or free zone procedure with ments are not prohibited for comparable a view to their being exported within a set products. time-limit.

...` (2) The arrangement provided for in this Article shall apply to products and goods intended for export without further proces- sing when the products or goods are of a kind that can be stored. This system is also called prefinancing processing.

(2) The arrangement provided for in this — obtained from the processing of Article shall apply to processed products basic products, and I - 3432

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— to which an export refund is tion. According to Article 25(2), this pay- applicable, ment declaration must '... include all such particulars as are necessary for determining the refund and, where applicable, the monetary compensatory amount in respect of the products or goods to be exported, in particular: ...`.

29. Title II, Chapter 3, of Regulation (EEC) No 3665/87 11 lays down the rules for advances on refunds where goods are (b) the net mass of the product or goods, processed or stored prior to export and or, where applicable, the quantity thus for the application of Regulation expressed in the unit of measurement No 565/80. to be taken into account in calculating the refund or the monetary compensa- tory amount;

On the payment declaration and the infor- mation necessary for it

Furthermore, in cases where basic products are to be processed, the payment declara- tion shall include: 30. Under Article 25(1), admission to the prefinancing processing or prefinancing storage systems is subject to the lodging with the customs authorities of a declara- tion of intention (payment declaration) by the exporter. This request for payment is in — a description of the basic products, practice referred to as the COM-7 declara-

'(1) In respect of products or goods to be exported after having been under a customs warehousing or free zone procedure, the result of the scrutiny of the payment declaration and of the products or goods themselves shall be used for determining (3) Basic products must form all or part of the refund and the monetary compensatory the processed products or goods which are amount. I - 3434

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On special refunds

(4) Products or goods under a customs warehousing or free zone procedure may be subjected there, as provided by the compe- tent authorities, to the following opera- tions: 34. Regulations (EEC) No 32/82 n and (EEC) No 1964/82 13 laid down conditions for the granting of special export refunds on certain cuts of beef and veal. Under the (a) stocktaking; former regulation, exports to certain non- member countries of fresh or chilled meat in the form of carcasses, half-carcasses, compensated quarters, forequarters and hindquarters are eligible for such refunds. Under the latter regulation, individually (b) the affixing to the goods or products packaged boneless cuts from fresh or themselves, or to their packings, of chilled hindquarters of adult male cattle marks, seals, labels or other similar are eligible. distinguishing signs, ...

38. To regulate the monitoring carried out at the time of export of agricultural pro- ducts receiving refunds or other amounts, The Member States shall take the necessary Regulations (EEC) No 386/90 14 and (EEC) measures to ensure that no substitution of No 2030/90 15 were adopted. Article 1(1) products takes place between the time they of the former sets down 'certain procedures are checked and the time they leave the for monitoring whether operations confer- Community's geographical territory ... ring entitlement to the payment of refunds These measures shall include identification on and all other amounts in respect of of each product by means of an indelible export transactions have been actually mark on each quarter or by individual seal carried out and executed correctly.' on each quarter. The slaughter and identi- fication shall take place in the abattoir indicated by the party concerned ...'

39. The monitoring procedures to be car- ried out by the Member States are laid 37. According to Article 8 of Regulation down in Articles 2 and 3 of Regulation No 1964/82, the Member States are to No 386/90.

(2) In accordance with the detailed rules to be determined under the procedure referred to in Article 6, the rate mentioned in paragraph 1(b) shall apply: (b) scrutiny of the documents in the pay- ment application file in accordance with Article 4.'

— per customs office,

41. This is followed by Article 3, which provides that: — per calendar year, and

'(1) Without prejudice to any specific provisions which require more extensive — per product sector.

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Group Report also sets out the following allow the following points to be taken into three categories of flat-rate corrections: account as mitigating factors:

'(a) 2 % of expenditure — where the defi- '— whether the national authorities took ciency is limited to parts of the control effective steps to remedy the deficien- system of lesser importance, or to the cies as soon as they were brought to operation of controls which are not light; essential to the assurance of the regu- larity of the expenditure, such that it can reasonably be concluded that the risk of loss to the EAGGF was minor.

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D — Preliminary remark on the procedure 50. Where the Commission refuses to for clearing the accounts — principles of charge certain expenditure to the EAGGF case-law on the ground that it was incurred as a result of breaches of Community rules for which a Member State can be held respon- sible, it is, under settled case-law, required not to demonstrate exhaustively that the information supplied by the Member States is inaccurate, but merely to adduce evi- 48. The first thing that has to be said is that dence of serious and reasonable doubt on the procedure for clearing the accounts is its part regarding the figures submitted by intended to guarantee that the means made the national authorities. 17 Accordingly, if, available to the Member States have been when refusing to charge certain expendi- used in compliance with the Community ture to the EAGGF, the Commission asserts rules prevailing in connection with the that there has been a breach of the rules of common organisation of markets. the common organisation of agricultural markets, it has to justify its decision and state how the absence of, or deficiencies in, the inspection procedures operated by the Member State concerned were detected. 18

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burden of proof on the Commission is that E — Analysis it is the Member State which is best placed to collect and verify the data required for the clearance of the EAGGF accounts.)

1. First plea: Infringement of the principle of sincere cooperation, the principle of due care and the duty to state reasons

52. If the Member State fails to prove that the Commission's findings are incorrect, then they may cast serious doubts as to whether an appropriate and efficient sys- tem of supervisory and control measures has been set up, doubts that are sufficient to warrant a reduction in payment. 20 55. In its first plea Belgium accuses the Commission of adopting the contested decision in breach of the principle embo- died in A r t i c l e 5(2) of R e g u l a t i o n No 729/70 in conjunction with Article 5 of the EC Treaty, of the principle that due care should be taken and of the duty to state reasons laid down in Article 190 of 53. When refusing to charge expenditure to the EC Treaty. EAGGF funds, the Commission is in prin- ciple not obliged to prove any actual loss. If it cannot adduce concrete evidence it is sufficient for it to prove the risk of loss for the EAGGF.

58. The Commission stated in its Summary Report that the Dendermonde customs warehouse, in which goods under the 61. It may be seen from the correspondence prefinancing system are stored, was opened between the Commission and the Belgian in the morning and not locked again until authorities which is annexed to the appli- evening. The movements of goods therefore cation that this problem had been the could not be effectively monitored. subject of detailed discussion between the parties. This correspondence does not, however, prove, as the Belgian Government claims, that the warehouse concerned was opened only for the purposes of inward or outward movements of goods and immedi- 59. The Belgian Government argues in this ately locked again. The Commission's connection that what was involved here remarks that the warehouse was opened was a private warehouse, opened and in the morning and not closed again until closed by customs. The warehouse was evening could not therefore be invalidated. opened and closed only for the inward or In particular, the Belgian Government outward transfer of goods. The official could not prove the Commission's findings responsible for supervision accompanied wrong. each lorry, opened the warehouse, was present during the loading or unloading and closed the warehouse again after leaving it. The Belgian authorities had pointed this out already in their letter of 22 May 1995. Although the Belgian provi- 62. It must therefore be concluded that the sions allowed exceptions to the rule that Belgian Government's submissions do not the official responsible for supervision was invalidate the Commission's complaint in to lock the warehouse immediately after this respect. I - 3442

The Belgian Government submits in this connection that although there had been no scales in the Dendermonde customs office capable of weighing the 20 kg cartons accurately this was irrelevant since 9 0 % 64. Finally, the Belgian Government points of the meat for export had been stored in out that three officials entrusted with the Sivafrost and Vandenavenne ware- carrying out checks work in Dendermonde. houses, 21 where there had been a sufficient Their task — according to the Belgian number of scales to enable the prescribed Government — is 'carrying out adminis- checks to be made upon the inward and trative formalities'. Furthermore, there is outward movement of goods. Besides, the an inspector employed there who is respon- Belgian rules ensured that the remaining sible exclusively for carrying out physical 10%, not intended for immediate export, checks of the goods. In its reply the Belgian were also weighed. The Belgian checks also Government staled, however, that physi- met the r e q u i r e m e n t s of R e g u l a t i o n cally checking goods also involves 'carrying N o 386/90 (see paragraphs 38 to 41 out administrative formalities'; the princi- above), according to which the customs pal task of the inspector is therefore to authorities had to carry out spot checks on carry out unannounced spot checks in the warehouses. 22

21 — Both these warehouses are located approximately 15 km from the Dendermonde customs office. 22 — My emphasis.

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68. It should first be observed that it is an 66. As far as the question of unannounced undisputed fact that the Dendermonde spot checks is concerned, the Commission customs office lacked suitable scales for points to the contractual relations existing checking the weight of 20 kg cartons. between the warehouse administrator and Under Regulations Nos 32/82 and the undertaking depositing the goods. Since 1964/82, however, the Member States are the inspector has no service vehicle at his obliged to carry out effective checks. In this disposal, unannounced checks are not pos- connection, it should be noted in particular sible. The Belgian Government also pointed that, under Article 3(1) and (2) of Regula- out in its letter of 17 January 1996 that — tion No 386/90, unannounced spot checks contrary to what is stated in its applica- are to be made on a representative selection tion — the inspector lets himself be driven of at least five per cent of export declara- to the warehouse by a warehouse official tions in every customs office. These checks and not by an employee of the undertaking have in particular to cover every product to be checked. Since, therefore, either the sector. The Belgian Government is, how- warehouse administrator or, at the very ever, unable to prove by its submission that least, the undertaking to be checked itself such a check could be carried out effec- had been informed in advance of the check tively despite the lack of suitable scales. to be carried out, the unannounced check However, the fact that certain weight I - 3444

71. The Belgian Government's submission must be rejected in this respect too. 69. Contrary to the arguments of the Belgian Government, even an unannounced physical check was impossible. Since the inspector had to contact the warehouse administrator or at least the undertaking to Third point be checked some time before the actual check, in order to be taken with them in their vehicle, there was a possibility that the goods could be substituted — perhaps less so with regard to those being delivered by that vehicle but definitely in the case of the 72. The Commission stated in its Summary other goods to be checked. At any rate the Report that the customs authorities took as checks were not — as prescribed — unan- the basis for their checks neither the nounced. p a y m e n t d e c l a r a t i o n nor the export- declaration of the undertaking applying for payment (see paragraph 30); instead the basis for a quantity control was solely a list of the number of cartons and their weight drawn up by the undertaking con- cerned itself. What is worse, the customs staff did not arrive on the premises until 70. With regard to the shortage of staff in after the weighing process. The net weight the Dendermonde customs office, it should of the products or goods therefore could be noted that the Belgian Government's not have been determined with certainty. objection that there were three officials entrusted with supervision employed in that customs office was first made in the context of the present action. It must therefore be dismissed as having been submitted too late since, because of the 73. The Belgian Government first of all preceding conciliation procedure, the rele- points out that these findings of fact related vant date is that of the adoption of the only to the Beauraing customs office and contested decision. Furthermore, the Bel- did not entail any risk of unjustified gian Government was unable to dispel the payments. This follows in particular from existing doubts in so far as the distribution the fact that an inspector from the Belgian of tasks amongst the persons entrusted with customs office was always present when supervision remains unclear. There cannot the goods were deposited at the warehouse. be said to be an effective physical check of Using the list prepared by the commercial goods if the person responsible for the operator depositing the goods, the inspec- check firstly does not have the necessary tor systematically checked the weight of the

BELGIUM V COMMISSION

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threat of punishment constitutes an effi- 81. The Commission claims in this respect cient control system. that its officers had found that the inspector in Beauraing had weighed only a few boxes upon their arrival at the warehouse and none at all upon departure. Likewise, quality control was not always carried out. What was more, the Commission staff carrying out the inspection could have 78. It therefore follows from the foregoing substituted goods. In some cases it had that this submission of the Belgian Govern- not been easy to reconcile payment declara- ment must also be rejected. tions and export declarations for the pro- ducts. The Commission regards all these findings as deficiencies of the control system, since they made it possible for goods to be substituted.

Fourth point

82. Here again, the Belgian Government is unable to adduce evidence that the Com- mission's findings did not correspond to the 79. In its Summary Report the Commission facts. In particular, it is to be assumed that states in connection with the physical the weight checks under the prefinancing checks under Article 6 of Regulation system had not been carried out with the No 2030/90 (see paragraph 42 above) that same intensity as was customary in the case the Belgian checks in the context of pre- of export refunds. In this respect the financing had not been carried out with the Belgian Government could only make same intensity — according to the wording assertions, which cannot amount to evi- of Article 6 — as was customary in the case dence. Its submission must therefore be of export refunds and had not related to the rejected. products and goods previously checked.

84. Although the Belgian Government acknowledges that it was possible to remove labels without damaging them, it disputes the fact that this was effortless and points out that at temperatures of -18 °C in Sixth point the cold store it was impossible to remove them undamaged. Moreover, this was not a representative spot check since approxi- mately 400 boxes were stored there in total. Moreover, the boxes had additionally been sealed. Substituting goods was practi- 87. As regards the Belgian Government's cally impossible also because there was a complaint that in its Summary Report the veterinary surgeon present at all times in Commission wrongly assumed that meat the skinnery, whilst in the customs offices from female instead of male cattle had been there were inspectors present upon the found during its checks, it must be observed arrival and departure of goods. that the Commission had first made these remarks in Annex II of 20 March 1997 to its Summary Report.

85. For the Commission, however, it is 88. In its defence and rejoinder the Com- clear that in this respect serious deficiencies mission has withdrawn this complaint, came to light. Thus it was possible to which had proven only in retrospect, on remove labels and reaffix them without the basis of DNA analyses, to be false. damaging them in the process. Further- Moreover, according to the Commission, more, the labels displayed only the number the contested decision was not based on of the abattoir and not the weight or type this point. of meat. In any event, the Commission official managed to open boxes and close them again without damaging the labels.

90. It is stated in the Summary Report that in the Sivafrost warehouse in Dendermonde the only means of identifying the various 93. Here, again, the Belgian Government cartons was a ticket bearing the COM-7 cannot adduce any evidence to show that number fixed to a pallet. It was therefore the Commission's statements of fact were not possible to positively identify the car- incorrect. In particular, it could not invali- tons stored there. date the complaint that the pallets had been inadequately labelled. The system of keep- ing detailed packing lists did not come into force until May 1995. In the present case, however, the inspections carried out in 1994 related to the 1993 financial year, with the result that it is not clear whether 91. The Belgian Government states in the system of warehouse lists could have response to this that labels were affixed to been effective during that period already the cartons stored there, indicating the since Belgium did not claim to have been type, weight and number of the products. using this system in 1993. What is more, the customs offices used warehouse lists containing the same details as on the labels. This ensured that it could be checked whether the cartons intended for export did also leave the warehouse. Although the obligation to draw up such 94. Belgium's submission in this respect lists has existed only since 1995, they have must therefore be rejected. been used since 1994, including in the Sivafrost warehouse. It was certainly not possible to substitute the goods.

Eighth point

92. However, the Commission is still sure that there was a risk of substitution. The 95. In its Summary Report, the Commis- ticket in question with the COM-7 number sion objected that the weight checks to be was on the pallet. It was quite possible carried out under Regulation No 1964/82 simply to attach this piece of paper to had been carried out inadequately by another pallet. Likewise, individual boxes official veterinary surgeons. Although they from different pallets could have been had been present at the boning, they had exchanged. The labels mentioned by Bel- not determined the net weight of the goods. I - 3450

97. The Commission stands by the findings in its Summary Report. When checking three or four packs, it found one containing 100. Belgium submits first of all that this meat unfit for human consumption. The method of calculating weight was applied mere presence of a veterinary surgeon at only in Beauraing. The use of a coefficient the boning and weighing certainly does not is ultimately irrelevant for the payment of rule out the possibility that goods can be refunds since what matters for that purpose substituted. All told, it cannot be said that is the net weight of the boneless pieces of there were adequate checks of net weight. meat, which are weighed automatically. The certificate issued in accordance with Regulation No 32/82, however, concerns meat that has not been boned. What is more, the indication of weight on the certificate issued in accordance with Reg- ulation No 32/82 is optional. Moreover, the coefficient was not set too high since the exported meat had the weight indi- 98. In the result, the Commission's submis- cated. sion must be upheld. The Belgian Govern- ment could not adequately prove that net weight had been determined in such a way as to make substitution of the goods impossible. The mere presence of a veter- 101. The Commission states in response to inary surgeon at the boning itself is not this t h a t Article 2(3) of R e g u l a t i o n sufficient since it cannot be concluded from No 1964/82 first of all provides that the this alone that there is efficient monitoring. net weight of the hindquarters to be boned

105. The Commission wonders in this connection why neither the veterinary sur- geon questioned nor the Belgian authorities 102. In this respect it should be noted that had initially been able to give a satisfactory the Belgian authorities, by not weighing the answer. Despite an exchange of letters boned meat, but merely calculating its relating to this problem too, the Belgian weight by means of a coefficient, denied Government first mentioned it in its request themselves an effective means of control. for conciliation. It remains however an Since, moreover, the basis for the calcula- infringement of the provisions of Regula- tion (the value according to the certificate tions N o 32/82 and N o 1964/82 since the under Regulation N o 1964/82) was not — veterinary surgeon responsible did not as has been shown — adequately verified, carry out the weight check himself, but there were also deficiencies in the control was merely present at the weighing. system in this respect too which brought with them the risk of fraud.

106. Since, here too, Belgium could not invalidate the Commission's findings, its submission taken as a whole must be Tenth point rejected as unproven and accordingly unfounded.

Eleventh point 103. It is stated in the Summary Report that in Dendermonde the veterinary sur- geon from the Zele abattoir was able to tell the Commission's staff neither who had determined the net weight indicated on the certificate issued in accordance with Reg- 107. On this point, it is stated in the ulation N o 32/82, nor on what basis he Summary Report that the individual pieces could have checked the accuracy of the of meat for export were not stamped weight certified by him. individually, with the result that customs

109. The Commission, however, felt there was a risk that goods could be substituted. It had not been possible on the basis of the Twelfth point details on the label to verify whether each packaged piece had previously been sub- jected to a check corresponding to the provisions of Regulation N o 1964/82. Thus, checked goods could have been replaced later with unchecked goods. 112. Regarding the results of the investiga- tions in the cereals sector the Summary Report states first of all that the EAGGF staff had come to the conclusion that the customs checks carried out had been inade- quate for identifying the goods stored 110. On this issue it should be noted that under the prefinancing system in the period u n d e r A r t i c 1 e 8 ( 1 ) of R e g u l a t i o n 1992 to 1994. The Commission is referring No 1964/82 the very purpose of supervi- here to the number — in its opinion too sion by the Member States is to ensure that low — of physical checks carried out by the the products in question cannot be substi- customs offices of Aalst and Leuven prior tuted, with identification of each piece of to export.

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113. The Belgian Government doubts the system as a whole makes the movement of sense of such checks where goods are stored goods transparent and capable of being with a view to being processed. In view of checked. the particular nature of the goods (cereals), the Belgian control system puts the main emphasis on a strict licensing system, constant checks of the quantity and com- position of the goods and (subsequent) verification of export documents combinée! with systematic checks of goods upon export. 116. Moreover, the question of the number of physical checks was first mentioned in the Summary Report with the result that the Commission could not make use of it for the purpose of corrections.

BELGIUM V COMMISSION

119. The Commission submits that the ings. Even if the licensing system described licensing system has considerable weak- by Belgium exists in the form stated this nesses, inter alia as far as the storage of does not alter the fact that physical checks goods not intended for processing is con- during storage were carried out — if at- cerned. In such a case the licence is to be all — only to a very limited extent. What applied for by the warehouse operator and makes matters worse is that no information not the exporter. Furthermore, it was was exchanged between the individual found — and Belgium has not seriously customs offices on the goods and quantities disputed this too — that, all in all, too few stored overall. Thus, according to what the physical checks had taken place. The Commission said, the individual customs deficiencies considered to exist by the offices could not have a full overview of the Commission had been dealt with in detail goods registered for export. Since, however, in correspondence prior to the conciliation according to the Community provisions on procedure. Thus, amongst other things, the the prefinancing system, it is of fundamen- objection was made that the customs tal importance to be informed at all times offices would not exchange information about the actual stock and the composition with each other and did not know what of the products, it is essential to carry out a overall quantities were registered and sufficient number of checks here too. Since, stored in which warehouse. Thus goods according to what has been said hitherto, were even found on railway wagons which, this was not the case, Belgium's submission although registered for export, were not cannot be taken as proof that the Commis- included in the quantity stored. Nor did the sion's findings in the Summary Report arc check reports allow any conclusions to be incorrect. drawn about the way the checks had been carried out. In a few customs offices there had sometimes been no physical checks made at all. Nor did subsequent verifica- tion of business documentation provide any certainty as the goods concerned had already been exported by then. Thirteenth point-

basic products or processed products. Cer- requirements for the granting of an export tainly the Belgian authorities had assumed refund. However, only products processed that replacement was also possible by to the same degree can be of the same processed products. Since there is also an commercial quality and have the same adequate and efficient control system technical characteristics. This means, how- (licences), there is no obvious risk of abuse. ever, that basic products can in principle Although physical checks were expressly only be replaced by other basic products. provided for, they could be carried out at The spirit and purpose of Article 27(3) are any time. just as clear as the wording. In principle, according to the first sentence of the third paragraph, at least parts of the basic products must be found in the processed products to be exported. For economic reasons it should, however, be possible for exporters to substitute basic products for processing. In order to ensure, however, that the processed goods for export corre- 122. The Commission sees no problems in spond in composition and quantity to the interpreting Article 27(3) of Regulation goods originally registered, substitution can N o 3665/87, since the wording of the only be allowed if the products to be provision clearly refers to basic products. exchanged are essentially the same. Thus The Commission also found that under a basic product can only be replaced by Belgian law the principle of equivalence another basic product of the same quality was not applicable solely to basic products. and with the same characteristics. N o other Under the Belgian rales it was, in particular, meaningful interpretation of this provision possible for goods not to be registered until seems possible here. after processing for prefinancing purposes, with the result that the provisions of Article 27(3) of Regulation N o 3665/87 were worthless. In any event an adequate check of the basic products was no longer possible at that point.

128. In this connection it is to be noted that it follows from Article 26(1) of Regulation No 3665/87 that the products or goods are 126. Belgium gives as the reason for this to be placed under customs control at the that it was not possible to have a complete time of acceptance of the payment declara- overview of all goods stored (under the tion until they leave the customs territory prefinancing processing system). This of the Community or have reached their would require constant physical checks destination. This means that in this respect which were, however, not necessary under the Belgian Government's argument that the relevant provisions. Besides this, how- there do not necessarily have to be constant ever, checks were made in the case of large physical checks has to be accepted. On the firms as to whether the registered stocks other hand — and here the Commission's existed. For smaller firms this was not argument must prevail — effective and necessary as any irregularities would be efficient customs control docs have to be noticed. Under the current Community guaranteed. This may, however, mean provisions it is not necessary for the nothing more than that the customs autho- customs offices to keep an inventory. By rities always have to be kept informed contrast, however, a list of the payment about what quantities of goods arc stored declarations is kept. under the prefinancing system. In particu- lar, it must not be possible for non-existent quantities of goods to be declared. In order to prevent this happening, the customs offices are obliged to satisfy themselves of the actual existence of the quantity of 127. The Commission sees the Belgian goods stated in the payment declaration. Government's method of proceeding as Even if this means greater — not negligi- constituting an infringement of Arti- ble — expenditure, such control alone is cle 26(1) of Regulation N o 3665/87. If suitable and essential for detecting any goods are to be placed under customs abuse at the payment declaration stage control the customs offices also have to and for taking appropriate action. Since it ensure that the goods are actually present. thus follows that customs control — even if In any event, all goods registered for not constant — is essential from the date of

129. The Belgian Government's submission is therefore to be dismissed in this respect as well. 133. Overall, however, it can be said on all the aforementioned points that the submis- sions of Belgium are not capable of show- ing the Commission's factual findings to be wrong. Furthermore, it follows from the extensive correspondence between the Fifteenth point Commission and the Belgian authorities, which has been produced, that those authorities were informed early on of the alleged deficiencies found in the control system. It was obvious from this corre- spondence that there had been a lively exchange of information which, although it 130. On the last point disputed in detail by had not led to the Commission's revising its Belgium, it is stated in the Summary Report opinion on the existing shortcomings, does that it is possible for exporters who still show that the Commission had examined have no destination for their goods to each individual point. There can therefore deposit an export declaration marked be no question of an infringement of the 'Third country warehouse' and an IM-7 principles of sincere cooperation and due certificate (temporary entry to customs care. warehouse) on the last day of the prefinan- cing period. This is allowed by the customs offices for extending the prefinancing per- iod. 134. It can be inferred from the concilia- tion body's final report, also mentioned at the hearing and referring generally to the conciliation proceedings with Italy, Ger- many, the Netherlands, Belgium and 131. The Commission pointed out in both France, that — apart from the alleged its defence and its rejoinder that this was discovery of meat from female animals — not taken into account for the purposes of Belgium did not dispute the Commission's the financial correction in the contested main findings during the conciliation pro- decision. The Commission's view was that cedure. The criticisms made by the Member although the way Belgium operates here is States affected by the corrections are con-

138. Since in the present case, however, it is clear from the extensive written correspon- dence between the Commission and the Belgian authorities that the Belgian Gov- ernment was involved in the preparation of the contested decision and thus knew the reasons why the Commission was of the 135. This also shows that even during the opinion that the disputed sum should not conciliation procedure Belgium had been be charged to the EAGGF, there is no unable to cast any doubt on the Commis- infringement of the duty to state reasons. sion's factual findings although it had known about them. The criticism that the Commission had not cooperated sincerely 24 — Judgment in Case C-28/94 (cited in footnote 17, paragraph 81), and judgment in Case C-54/91 Germany v Commis- with the Belgian authorities and had not sion |1993] ECR I-3399, paragraph 10. examined the latter's submissions with due 25 — Judgment in Case C-28/94 (cited in footnote 17, paragraph 82), and judgment in Case C-27/94 Netherlands v care, is therefore unfounded. Commission [1998] ECR I-5581, paragraph 36.

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139. It follows from the foregoing that the and yet still used as a basis by the Belgian Government's first plea must be Commission. 26 rejected in its entirety as unfounded.

144. Also, in the individual customs offices, only the goods of individual firms were inspected; the other products were not also subjected to a check. In the cereals 141. According to Belgium, the checks sector checks were made only in respect of carried out by the Commission concerned a few budget items — malt (item No 1001) only four customs offices. Even though no and other cereals (item No 1003) — and irregular payments were discernible, the not at all in respect of others. Commission still extrapolated the alleged deficiencies to the entire Belgian territory. 26 — What is involved here is essentially the Commission's Moreover, these deficiencies were disputed factual findings as already examined.

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145. The Commission also, when assessing 148. Inadequate physical checks were like- risk, started out from incorrect factual wise a cause for objection; in the individual findings and was thus unable to demon- customs offices there was a substantial risk strate a causal link between the deficiencies of loss also because of the opportunities for and the losses to be feared. There is there- substitution. Moreover, Belgium had been fore a grave procedural error here as obliged to demand the return of money insufficient reasons were given for the risk since, during the checks, meat had been of losses alleged by the Commission. found that was not fit for human consump- tion.

149. In the present case a flat-rate reduc- tion is possible also under case-law of the 146. The Commission's method of pro- Court of Justice since the Belgian control ceeding is therefore to be regarded overall system did not meet the requirements of as an infringement of Article 5(2)(c) of Community law. Moreover, Belgium has Regulation No 729/70, of its own princi- not been able to adduce evidence that the ples on cooperation and loss assessment as conditions existed for charging the expen- laid down in the Belle Group Report and of diture to the EAGGF. the duty to state reasons.

152. In particular, the Commission carried 154. A flat-rate reduction of the expendi- out its checks to a sufficient extent and ture declared is therefore lawful. inspected a representative proportion of the customs offices and undertakings con- cerned. On the basis of its spot checks the Commission was able to draw conclusions about the control system in Belgium as a whole. The subject of the investigation was 155. The Belgian Government has argued the entire control system, and the extent of in the alternative that the Commission turnover involved in the Commission's should not have applied the disputed cor- inspections is as such sufficiently represen- rection to all sectors for which refunds had tative to allow extrapolation to the whole. been paid under the prefinancing scheme, Whether the spot checks are representative but only to those which had also been does not depend only on the number of inspected. customs offices inspected; it is sufficient if the percentage of the amount or extent of prefinancing checked is sufficiently high to enable representative conclusions to be drawn for the overall situation. Since in 156. Firstly, a flat-rate correction was also the present case no concrete (individual) extended to export refunds for common payment or export declarations were criti- wheat even though no applications for cised, but the control system in Belgium refunds had been made for the years 1993 displayed deficiencies as a whole, the and 1994 by the firms inspected and there- Commission could quite legitimately refuse fore no deficiencies in control could have to recognise expenditure of an amount been found here. If the Commission wanted calculated by extrapolating its own results. to apply reductions here too it would have had to check other undertakings in this field.

163. The Belgian Government's arguments 159. Finally, the Commission's spot checks are not convincing in this respect either. also have to be representative, which was First, the passage of the Belle Group Report not the case here since the common wheat mentioned refers to geographical and sector did after all account for 2 7 % of administrative areas and not to different overall expenditure on prefinancing for budget items, with the result that it cannot cereals. be concluded on this basis that the Com- mission acted unlawfully. Next, the Com- mission's checks related to both the beef and veal and the cereals sectors. Since considerable deficiencies were found there, the Commission was in principle entitled to apply flat-rate reductions, in particular 160. The Commission first of all points out even where no specific losses to the detri- that the correction applied concerns only ment of the EAGGF through unjustified advance payments made by Belgium within payments under the export refund scheme the framework of the prefinancing scheme. could be demonstrated. This method of proceeding is justified, even according to the Belle Group Report, since the export refunds had concerned the beef and veal and cereals sectors. The Commis- sion's inspections did not target individual undertakings but were intended to shed light on the entire control system in the 164. At the time when the Summary sectors mentioned. Report and the contested decision were

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issued, the Commission had been com- areas of the beef and veal sector too. Any pelled, for lack of other information, to financial correction would therefore have assume that the deficiencies found in the required separate examination and justifi- control system concerned the entire cereals cation. Thus, in particular, the checks in sector. The fact that other provisions might respect of export refunds with regard to apply to common wheat was put forward beef and veal from female cattle are by the Belgian Government for the first fundamentally different from those to be time at the reply stage of the proceedings carried out in respect of special refunds. and must therefore be rejected as submitted out of time under Article 42 of the Rules of Procedure of the Court of Justice. 27

BELGIUM V COMMISSION

was rightly applied to the entire sector. 170. The Commission explains in this Moreover, deficiencies were found in the respect that the correction was applied control system which would inevitably with regard to the prefinancing system. have an unfavourable effect on any control The Commission was guided by the data procedure. The lack of staff and equipment and documents made available by the give rise to considerable doubts as to Belgian authorities. The inspections had whether effective checks could be carried concerned both the prefinancing processing out. These doubts could not be dispelled by and the prefinancing storage systems. Both the Belgian Government's submission, with the firm Boormalt, which made use of the the result that a financial correction for the latter, and the Sobegra customs warehouse, beef and veal sector investigated seems which belonged to the Antwerp customs justified. office, were checked. Belgium's argument that the prefinancing storage system should not have been taken into consideration was put forward for the first time in this form in the reply and must thus be rejected as being submitted out of time.

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172. Moreover, the Member States are 175. The Belgian Government feels that it obliged to make the necessary information already follows from its arguments in available to the Commission, so that in the support of the first two pleas that a 10% present case the Commission did not need correction could not be justified. Thus, to have any knowledge of the BBIR docu- neither deficiencies in the entire control ments. system, or essential elements thereof, nor the risk of very high losses for the EAGGF had been proven. Neither did the Commis- sion take into account in its considerations the fact that Belgium tried taking effective action to remedy the shortcomings criti- cised. For example, an improved check report system was introduced, and attempts 173. It follows from the foregoing that the were made to improve the inspectors' three heads of the Belgian Government's working methods. Additional provisions alternative plea must also be rejected. A were brought into force in respect of flat-rate correction could therefore lawfully physical checks and the application of the be applied by the Commission. principle of equivalence, and the instruc- tions relevant to the beef and veal sector have been updated. Moreover, as the sub- missions in the first and second plea (principle of equivalence, physical checks) show, problems arose in the interpretation of Community provisions since the word- ing was sometimes unclear and there were 3. Third plea: Infringement of the principle several possible interpretations. of legal certainty, of the legal maxim patere legem quam ipse fecisti and of the duty to state reasons

182. In 1993, expenditure on prefinancing totalled ECU 1 600 million, corresponding 178. In the case of Belgium it was found to 15.8% of total expenditure on export- that the deficiencies affected either the refunds. Belgium was one of six Member control system as a whole or essential States in receipt of the majority of this. If elements thereof. Because of the lack of considerable deficiencies were found, this checks or because of shortcomings in the entailed the risk of very high losses. Since checks it was not possible to guarantee that there had been no doubts about a 10% the expenditure was actually justified. correction, no mitigating circumstances had been taken into consideration either. Furthermore, there had not been any. The same deficiencies as had come to light in the 1994 inspections had been the subject of repeated reminders in the Summary Reports of previous years (1987, 1988, 1989, 1990 and 1992). 179. For the beef and veal sector there was a considerable risk of substitution, with the result that goods could have been exported in smaller quantities and of a lower weight than registered.

183. There was no trace of the improve- ments mentioned by Belgium either — at least not by November 1994. Nor were 180. A similar risk arose in the cereals there any problems of interpretation as the sector, compounded by the fact that the Commission had already advised on the c u s t o m s offices c o n c e r n e d were not current interpretation and application of informed about the actual warehouse the provisions in previous years in its stock. Summary Reports and circulars.

187. The deficiencies found by the Com- 190. In the beef and veal sector the Com- mission related at the least to essential mission applied a reduction of 10% for elements of the control system or to the Belgium, but only 5% for Germany, implementation of checks of vital impor- France, Italy and the Netherlands.

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191. The Belgian Government sees this as found in particular. These problems were unjustified discrimination. Although the list not observed in the other Member States. of the essential objections was longer for Belgium than for the other Member States it was legally flawed since it was based on incorrect factual findings.

195. In particular, the checks under Reg- ulations No 32/82 and No 1964/82 were much more efficient in the other Member 192. Similar deficiencies were found for the States investigated. In the latter, inspectors Netherlands but the level of correction was were present at the boning, who had lower. The situation of both Member States stamped the pieces of meat, monitored is comparable but resulted in different exports, determined weight and applied assessments. The other Member States also seals. Such tight control was not observed displayed comparable deficiencies, but the in Belgium. sanctions against Belgium are higher.

F — Conclusion

200. For the reasons given above, it is proposed that the Court decide as follows:

(1) The action is dismissed.

(2) The Kingdom of Belgium shall pay the costs of the proceedings.

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