C-130/99

The Commission's guidelines I - 3013

Aid in the arable crops sector I-3014

Legislative provisions I-3014

Summary of the arguments I - 3016

Analysis I-3018

Aid for setting aside of land I - 3020

Analysis I-3027 Additional levy payable by producers or purchasers of cows' milk I-3028

Legislative provisions I-3028

The applicant's claim I - 3029

(a) The additional levy I - 3030

— Summary of the arguments I-3030

— Analysis I-3030

I - 3009

OPINION OF MR JACOBS — CASE C-130/99

Introduction — ESP 4 484 785 615 in relation to the additional levy payable by producers or purchasers of cows' milk

2. It appears from Article 1 of and the annex to Decision 1999/187 that the expenditure which the applicant wished to — ESP 4 317 179 696 by way of produc- charge to the Guarantee Section of the tion aid for olive oil European Agricultural Guidance and Guar- antee Fund (hereinafter: 'the Fund') as falling under the clearance of accounts for 1995 amounted to ESP 858 256 394 837. Of this, the Commission recognised ESP 833 321 278 217 as chargeable to — ESP 730 638 679 in relation to wine the Fund, leaving ESP 24 935 116 620 to be borne by the applicant. According to the applicant, that sum comprises a number of amounts which the Commission should have recognised as chargeable to the Fund: — ESP 42 616 276 by way of aid for fibre flax and hemp

— ESP 1 471 398 749 by way of com- — ESP 3 362 203 596 in relation to pensatory aid in the arable crops sector delayed payments in various sectors.

3. The applicant was informed of the cor- — ESP 215 011 390 by way of compen- rections which the Commission intended to satory aid for setting aside of land make to the applicant's accounts in the course of bilateral discussions which took place prior to the adoption of Decision 1999/187. The grounds for the corrections imposed are set out in Summary Report No VI/6462/98 of 12 January 1998 on the results of inspections concerning the clear- ance of the EAGGF Guarantee Section — ESP 1 393 983 000 by way of special accounts for 1995 ('the Summary Report'), premiums for beef and premiums for extracts from which are annexed to the suckler cows Commission's defence.

5. Before examining in turn the Spanish Government's claims and detailed argu- 7. Article 5 of Regulation No 729/70 pro- ments as they apply to the eight sectors in vides for the clearance of the accounts issue, it may be helpful to set out the salient submitted by the national bodies features of the legislative framework gov- empowered to effect expenditure on those erning the financing of the Common Agri- activities ('paying agencies'). Paragraph cultural Policy and the clearance of 2(c) of that provision, as amended by accounts under the Fund. Regulation No 1287/95, 7explicitly grants the Commission the power to exclude from Community financing expenditure which has not been effected in compliance with Community rules. Such expenditure may be excluded by the Commission either in the annual clearance of accounts decisions — which the Commission adopts before 30 April of the year following the financial year concerned 8 — or by separate 'com- The legal framework

8. Article 8(1) of Regulation No 729/70 requires Member States to take measures to ensure correct execution of transactions financed by the Fund, to prevent irregular- ities and to recover sums lost thereby. In 9. Article 8(2) of Regulation No 729/70 most agricultural sectors, specific Commu- provides that, in the absence of total nity measures set out in detail what meas- recovery, the financial consequences of ures the Member States must adopt in order irregularities or negligence shall be borne to fulfil their general obligations under by the Community, with the exception of Article 8(1). In that context, Regulation 'the consequences of irregularities or negli- No 3508/92, 10 which establishes an Inte- gence attributable to administrative auth- grated Administration and Control System orities or other bodies of the Member (hereinafter: 'IACS'), is of particular States'. According to the case-law of the importance. That system, which applies in Court, Regulation No 729/70 therefore several agricultural sectors, requires the 'permit[s] the Commission to charge to Member States to carry out administrative the EAGGF only sums paid in accordance checks, on-the-spot checks and, if appropri- with the rules laid down in the various ate, verification by aerial or satellite remote sectors of agricultural production while sensing. 11 However, even where Regu- leaving the Member States the burden of lation No 3508/92 or more specific Com- any other sum paid'. 14 Where a Member munity rules do not expressly provide for State fails, contrary to Article 8(1) of the the adoption of particular supervisory

Regulation or more specific provisions, to applies where a Member State fails to take the measures necessary to ensure that comply with the general provision in transactions financed by the Fund are Article 8(1) of Regulation No 729/70 or actually carried out and are executed cor- with more specific rules such as those laid rectly, the Commission may therefore down in Regulation No 3508/92. Those refuse to charge to the Fund the expendi- guidelines, set out in a document known as ture incurred in connection with those the Belle Group Report, 16 take as their transactions either wholly or in part. 15 central principle that any financial adjust- ment should be based on a failure by the Member State to respect Community rules so as to affect Community expenditure. The choice of the rate of adjustment to be applied flows from an estimation of risk. Where possible, the Commission will cal- culate the reductions by extrapolation from 10. The Commission is empowered, under reliable sample inspections. Where insuffi- Article 9 of Regulation No 729/70, to take cient information is available to support a a number of measures to verify and supple- process of extrapolation, the Commission ment the information and documents fur- will apply flat-rate reductions in proportion nished by the Member State authorities. It to the seriousness of the failings of the may, for example, carry out inspections on the spot and is entitled to access to all Member State and the degree of financial books and documents relating to expendi- risk posed to the Fund. There are three ture financed by the Fund and to conduct levels of flat-rate reductions: a reduction of or arrange with the Member States for the 10% is applied 'where the deficiency relates conduct of inquiries and inspections. to the whole of or fundamental elements of the control system or to the operation of controls essential to assuring the regularity of the expenditure, such that it can reason- ably be concluded that there was a high risk of widespread loss to the EAGGF'; a reduction of 5% 'where the deficiency relates to important elements of the control system or to the operation of controls which play an important part in the assur- The Commission's guidelines ance of the regularity of the expenditure, such that it can reasonably be concluded that the risk of loss to the EAGGF was significant'; and a reduction of 2% 'where the deficiency is limited to parts of the control system of lesser importance, or to 11. In 1993 the Commission established the operation of controls which are not guidelines for the calculation of the finan- essential to the assurance of the regularity cial adjustments, or corrections, which it of the expenditure, such that it can reason-

'1. Administrative and on-the-spot checks 13. The criteria for application of flat-rate shall be made in such a way as to ensure adjustments laid down in the Commission's effective verification of compliance with guidelines have been examined by the the terms under which aids and premiums Court of Justice on a number of occasions. are granted. It is clear from that case-law that the Court considers those criteria to be valid, and it also appears that the Commission cannot depart from the guidelines in a particular instance unless, perhaps, it is able to show that such a departure is justified by the specific circumstances of the case. 19 2. The administrative checks referred to in Article 8(1) of Regulation (EEC) No 3508/92 shall include cross-checks on 17 — As translated from the French version of the Belle Group parcels and animals declared in order to Report in Case C-242/97 Belgium v Commission [2000] ensure that aid is not granted twice in ECR 1-3421, paragraph 21 of the judgment. 18 — Document No VI/5330/97 of 23 December 1997. respect of the same calendar year without 19 — See Case C-61/95 Greece v Commission [1998] ECR justification. I-207, paragraph 21 of the judgment; Case C-242/96 Italy v Commission [1998] ECR I-5863, paragraphs 43 to 44 and 66; Case C-242/97, cited in note 17, paragraphs 19 to 21, 113, 120 and 121. See also the Opinion of Advocate General Fennelly in Case C-50/94 Greece v Commission 20 — Commission Regulation (EEC) No 3887/92 of 23 De- [1996] ECR 1-3331, paragraphs 39 to 42 and the Opinion cember 1992 laying down detailed rules for applying the of 6 March 2001 of Advocate General Geelhoed in Case integrated administration and control system for certain C-375/99 Spam v Commission, paragraphs 17 to 25. Community aid schemes, OJ 1992 L 391, p. 36.

At least 50% of the minimal checks on animals shall be made during the retention period. Checks may be effected outside that — the amount of aid involved, period only if the register provided for in

I - 3015

OPINION OF MR JACOBS — CASE C-130/99

A r t i c l e 4 of C o u n c i l D i r e c t i v e Summary of the arguments 92/102/EEC [21] is available.

...'

I-3016

SPAIN v COMMISSION

Article 12 of Regulation No 3887/92. signing those records is irrelevant since Finally, a visit by the Commission's inspec- signature by the farmer is optional under tors had revealed irregularities on 2 out of Article 12 of Regulation No 3887/92. 12 holdings which had previously been Instructions have moreover been given for checked by the authorities of Aragon, cast- individual reports to be drawn up with ing doubt on the general quality of on-site effect for checks carried out from the checks. beginning of the agricultural year of 1995. Third, although the visit by the Commis- sion's inspectors revealed irregularities in 2 out of 12 cases, those irregularities were of minor significance.

I-3017

OPINION OF MR JACOBS — CASE C-130/99

Analysis the purpose of the Regulation. Criteria which have the effect of reducing the likelihood that the controls carried out will reveal irregularities are therefore in any event unlawful.

19. In my view, the submissions of the Spanish Government should not be upheld.

I-3018

SPAIN v COMMISSION

23. Moreover, the Spanish Government 25. Given that the Commission was does not deny that the on-the-spot checks entitled to make an adjustment, the ques- carried out did not in all instances cover all tion arises whether the flat-rate adjustment the relevant parcels or that the Commis- of 5% which it applied was, as the Spanish sion's inspectors found irregularities on 2 Government suggests, excessive. According out of 12 holdings which had previously to the Commission's defence, the errors been controlled by the authorities of found in the application of IACS taken Aragon. together show that there was a significant risk of loss to the Community budget, and the reduction was therefore fully justified. That assessment of the facts might appear to be strict in the light of the Conciliation Body's recommendation and the fact that the irregularities found by the Fund's inspectors on 2 out of 12 holdings were, according to the Spanish Government's detailed explanations, of minor import- ance.

I-3019

OPINION OF MR JACOBS — CASE C-130/99

nelly explained in Greece v Commission, 27 Aid for setting aside of land 'the aggrieved Member State must, pur- suant to the principle actori incumbit pro- batio, 28 prove with at least a reasonable degree of certainty 29 that the Commission has erred'. Legislative provisions

29. Regulation No 1765/92 30 establishes a system of compensatory payments, or aid, for producers of arable crops. Producers may apply for such payments in respect of areas which are subject to set-aside in 27. In this case, the applicant has not accordance with Article 7 of the Regu- provided any evidence that the Commission lation. 31 Areas subject to set-aside relied on incorrect facts, nor has it shown normally lie fallow. Article 7(4) provides that the irregularities identified in the however that: region of Aragon did not affect the Com- munity budget or that they did so to an appreciably lesser extent than estimated by the Commission. The applicant has there- fore, in my view, failed to establish that by applying an adjustment of 5% to aids for 'The land set aside may be used for the arable crops the Commission erred in law. provision of materials for the manufacture within the Community of products not primarily intended for human or animal consumption, provided that effective con- trol systems are applied.'

33. Article 7(2) and (3) provide, so far as relevant:

31. In accordance with that statement in the preamble, Article 3(3) of Regulation No 334/93 provides: '2. If the claimant is unable to provide the raw material specified in his contract, the contract may be adjusted or annulled. In that event, the competent authorities of both parties shall receive prior notice, in order to allow all necessary controls to be 'The claimant must deliver all of the raw carried out.... material harvested, and the collector or first processor must take delivery of it and guarantee that an equivalent quantity of this raw material be used within the Community in the manufacture of one or more of the end products specified in 3. The claimant shall declare to his com- Annex II.' petent authority the total quantity of raw material which has been harvested, by species and variety, and shall confirm the party to whom he has delivered this raw material.'

32. Under Article 6(1) of Regulation No 334/93, in support of an application for compensation, the claimant must 'sub- mit to his competent [national] authority a contract, signed before the first sowing of Summary of the arguments the raw material concerned, concluded between himself and either the collector or the first processor'. That contract must contain certain specified information 34. The applicant's claim for annulment of including, under point (e), 'the forecast Decision 1999/187 relates to the exclusion

I - 3021

OPINION OF MR JACOBS — CASE C-130/99

33 — Regions where yields from farm land subject to set-aside 36. Relying on those arguments, the appli- were found by the Commission to have been less than 70% of yields from similar land not subject to set-aside. cant considers that the adjustment applied I - 3022

SPAIN v COMMISSION

34 — Sec also the sixth recital in the preamble to Regulation No 334/93. 39. The applicant's argument based on the 35 — See in particular Case C-8/88, cited in note 13, paragraphs 16 and 17of the judgment; Case C-242/96, cited in note absence of a specific obligation in Regu- 19, paragraph 114.

I - 3023

OPINION OF MR JACOBS — CASE C-130/99

to a single processing undertaking in the more lucrative market in materials for region of Andalusia, it may be recalled that human consumption. That in turn what counts according to the case-law is weakened the ability of the Community not the number of random inspections rules to regulate the market as intended, carried out by the Commission but the created distortions of competition between frequency and effectiveness of the inspec- farmers and, perhaps more importantly, led tions for which the Member State is to payment of aid for set-aside in circum- responsible. 36 In any event, it appears from stances where such aid should not have the Summary Report and the Commission's been granted because the condition as to defence that the decision to apply an the use of raw materials laid down in adjustment of 5% was not based on an Article 7(4) of Regulation No 1765/92 had extrapolation of the results of the inspec- not been respected. tion in Andalusia, and that the Commission took account of data concerning deliveries of raw materials in several Spanish regions and referred to the inspection only by way of example. Nor is the Commission's decision affected by the fact that a drought occurred in parts of Spain in the agricul- 42. I conclude that the Spanish Govern- tural year of 1994. It is apparent from the ment has failed to show that the adjustment detailed reasoning in the Summary Report of 5% applied by the Commission to aid that the Commission took that circum- for set-aside of land was unfounded or stance into account and, as the Commission excessive, and that its claim should be points out, the existence of drought cannot rejected. in any event explain the occurrence of considerable differences between the aver- age yields from land subject to set-aside and yields from other land.

44. Regulation No 3508/92 38 provides in Article 2 that the IACS shall comprise, inter alia, a computerised database and an 46. The applicant challenges the Commis- alphanumeric system for the identification sion's refusal of reimbursement, in respect and registration of animals. Article 8(1) of of the financial years 1994 and 1995, of the regulation provides that the Member ESP 1 393 983 000 by way of special States shall carry out administrative checks premiums for beef and premiums for on aid applications, supplemented by on- suckler cows. That amount corresponds to the-spot checks covering a sample of agri- flat-rate reductions of 2%, 5% and 10% cultural holdings. applied in accordance with the frequency of controls carried out in each of the Spanish provinces. According to the Summary Report, the Commission applied those reductions because the control system operated by the competent Spanish auth- orities fell short in several respects of the 45. Directive 92/102 39 on the identifica- requirements imposed by Community law. tion and registration of animals provides in First, the computerised database provided Article 4(1) for the establishment of a for in Article 2 of Regulation No 3508/92 register stating the number of animals was not fully operational. Annual and present on each agricultural holding which regional cross-checks on animals had there- must include an up-to-date record of all fore not taken place as required by births, deaths and movement of animals. Article 8(1) of that regulation and Under Article 5 of the Directive, ear Article 6(2) of Regulation No 3887/92. tags — which must be approved by the Second, the selection of applications for authorities, tamper-proof and easily read- on-the-spot checks relied on information able — are to be applied before animals contained in applications made in previous leave their holding of birth, and no mark is years rather than on up-to-date infor- to be removed or replaced without the mation, and was thus not based on a risk permission of the competent authority. The analysis within the meaning of Article 6(4) deadline for implementation of the provi- of Regulation No 3887/92. Third, the reg- sions of Directive 92/102 applicable to istration of animals had, at least until bovine animals expired before the financial 1996, 41 been inadequate, with many ani- year of 1994. 40 mals appearing in the registry without any date of birth and/or precise indication of place of origin. Fourth, a large proportion 37 — See paragraphs 14 and 15 above. 38 — Cited in note 10. 39 — Cited i nnote 21. 41 — At which time Spain took steps to comply with the 40 — Article 11(1) of the Directive. provisions of Directive 92/102.

47. The Spanish Government contests most, but not all, of those findings. First, while accepting that the database created by the competent authorities did not in 1994 and 1995 enable them to carry out annual and regional cross-checks on appli- cations for aid, the applicant maintains that the authorities had developed and applied an equally effective 'animal identification system' (sistema de identificación animal: 48. In addition to those arguments, the controles administrativos cruzados y crea- applicant maintains, on the one hand, that the Commission based its findings on the results of visits by the Fund's inspectors to a 42 — It is common ground that that register was not available in few of the 17 Spanish autonomous regions, Spain in 1994 and 1995. 43 — Those age limits are laid down in Article 4b(2) of and that it effected an unjustified extra- Regulation (EEC) No 805/68 of the Council of 27 June polation of the results of those visits to the 1968 on the common organisation of the market in beef and veal, OJ English Special Edition 1968 (I), p. 187. whole of Spain and, on the other hand, that

I - 3026

SPAIN v COMMISSION

51. Finally, the allegation that the con- tested adjustment was based on an extra- polation of the results of certain control 50. I am moreover unconvinced by the visits is unfounded. It is clear from the applicant's challenge to the reasons set Summary Report and the Commission's out in the Summary Report. The applicant defence in this case that while the Com- has not provided any detailed information mission took the control visits into account, about the nature and effectiveness of the it did not extrapolate from particular facts 'animal identification system' and it or figures obtained during those visits in appears from the Commission's reply — order to calculate the loss suffered by the which was not contested in the applicant's Fund. The contested adjustment was based rejoinder — that that system was not oper- ational in 1994 and 1995. With regard to the application of a risk analysis for 14 — See C a s e 8 1 9 / 7 9 Germany v Commission [1981] ECR 2 1 , selection of applications, I accept the paragraph 21 of the judgment; Case C-28/89 Germain v Commission's view that a risk analysis Commission [1991] ECR I - 5 8 1 , paragraph 9; Case C-54/91 Germany v Commission [1993] ECR I-3399, based on information which dates from paragraph 38.

I - 3027

OPINION OF MR JACOBS — CASE C-130/99

on an estimate of the loss suffered calcu- Additional levy payable by producers or lated in accordance with the system of purchasers of cows' milk flat-rate reductions laid down in the Belle Report. As for the Commission's alleged promise to carry out a recalculation, it is sufficient to note that the Spanish Govern- ment never submitted any figures to the Commission which would have enabled it to carry out such a recalculation. Legislative provisions

I - 3028

SPAIN v COMMISSION

on the quantities of milk (or milk equival- 57. According to Article 5(2) of Regulation ent) which have been delivered to him by a No 536/93, interest paid pursuant to producer and which — during the 12 Article 3(4) is to be deducted from claims months concerned •— exceed the reference presented by the Member States to the quantity. Under that formula, the pur- Fund for reimbursement of expenditure in chaser is however under a duty to recover the milk products sector. the levy through the price paid by him to the producers.

56. Regulation No 536/93 48 lays down detailed rules on the application of the The applicant's claim additional levy on milk and milk products. Article 3(4) of that regulation provides:

I - 3029

OPINION OF MR JACOBS — CASE C-130/99

59. It is useful to consider those two had not been effected within the relevant aspects of the contested decision separately. period. Second, the applicant contends that the Commission agreed, in the course of negotiations with the Spanish authorities and in a letter sent to those authorities, that the additional levy payable by Spain in the financial year of 1994 would be calculated on the basis of an excess of no more than 30 000 tonnes of milk. By applying a (a) The additional levy correction based on an excess of 55 707 tonnes contrary to that agreement, the Commission violated the principle of legit- imate expectations.

— Summary of the arguments

I - 3030

SPAIN v COMMISSION

concerning the amount of additional levy 64. It is difficult, in the absence of witness which was to be collected in Spain — it statements from the parties involved, to may be recalled that the Court of Justice establish precisely what was agreed in the held in Italy v Commission 50 that a clear- course of those negotiations. To my mind, ance of accounts decision may be declared the Commission's explanations appear invalid on the grounds of a breach of plausible; I have difficulty believing that legitimate expectations where it can be the applicant was given a clear and uncon- established that the decision departs from a ditional assurance that the excess quantity statement or position which the Commis- would be calculated on the basis of 30 000 sion has communicated to a Member State tonnes, as it was clearly not in the Com- and on which that State was reasonably mission's interest to grant such an assur- entitled to rely. ance at that stage in the procedure.

I-3031

OPINION OF MR JACOBS — CASE C-130/99

hand, by stating that the Spanish excess justified under Article 3(4) of Regulation quantity amounted to 'unas 30 000 tone- No 536/93. In its view — set out more ladas' (some 30 000 tonnes), the Commis- fully in its pleadings before this Court than sion indicated that the figure given was not in the Summary Report — that provision final. That interpretation accords with the not only obliges the purchasers to pay fact that the Commission did not know the interest to the competent authorities, it also final figure in January 1995. The formu- obliges the Member States to ensure that all lation 'No se prevé ninguna corrección a of the sums owed are collected each year by este respecto' adds, in my view, to the 1 September. By collecting — according to preliminary nature of the statement, as it the Commission's calculations — only implies that while the Commission did not 3.13% of all the levy due by 1 September at that time — in view of the continuing 1994, and by failing to collect any interest negotiations with the Spanish Govern- in respect of the levy which remained ment — envisage any correction, a final unpaid after that date, the Spanish auth- decision on that issue had not yet been orities clearly failed in that duty. The made. Commission was therefore entitled to reduce the Spanish Government's claim for funding by an amount equivalent to the interest which should have been col- lected. 51 In that context, the Commission emphasises that the effectiveness of the 66. I conclude, for those reasons, that the system of additional levies would be under- applicant's claim in relation to payment of mined if the Member States were not under additional levy in respect of an excess of an obligation to collect the levies and the 55 707 tonnes of milk products is interest due under Regulation No 804/64 unfounded. as amended and Regulation No 536/93. Moreover, by failing to collect sums due, the Member States expose the Fund to a financial risk since, under Article 5(2) of Regulation No 536/93, sums collected are deducted from the expenditure reimbursed by the Fund in the milk sector. (b) Interest on the additional levy

Regulation No 536/93. It argues, essen- that purchasers comply with their duty to tially, that that provision imposes an obli- pay additional levies on milk products and gation on purchasers to pay interest, but interest on those levies. In my view — and not an obligation on the Member States to here I agree with the Spanish Govern- guarantee that the sums due are collected. ment — it follows that the Commission Consequently, the fact that a Member State cannot refuse reimbursement solely on the fails to recover the sums due by purchasers ground that certain sums due have not been does not of itself entitle the Commission to paid or collected. The fact that certain sums deny reimbursement of those sums. Refusal due remain unpaid, or have been paid of reimbursement is justified only if the belatedly, does not of itself constitute a conditions laid down in the general provi- violation of the obligations laid upon the sion in Article 8(2) of Regulation Member States by Community law. I am No 729/70 are fulfilled; that is if the encouraged in that view by the detailed Commission can show that non-collection reasons given by Advocate General Alber in of particular sums was attributable to the his Opinion in France v Commission. 53 negligence of the administrative authorities While that Opinion was concerned with or other bodies of the Member State. Article 15(4) of Regulation No 1546/88, 54 Referring to the Court's judgment in Deut- the reasons given by the Advocate General sche Milchkontor, 52 the applicant argues are in my view applicable also in the that the Spanish authorities were not neg- context of Regulation No 536/93. The ligent, since the collection of sums due Commission is therefore empowered to under the additional levy scheme takes apply an adjustment only where it is able place according to the same administrative to show, pursuant to Article 8(2) of Regu- and judicial rules and procedures as other lation No 729/70, that the Fund suffered a tax-related claims falling under Spanish loss as a result of a negligent failure by the law. The fact that the process of collection national authorities to recover the sums in may be lengthy in practice does not, question. according to the applicant, reveal any negligence on the part of the Spanish authorities.

71. According to the Commission's calcu- lations, the Spanish authorities collected only 3.13% of the additional levy due in respect of the excess deliveries of 55 707 tonnes of milk products in the agricultural 73. For those reasons, I conclude that the year 1993/94. Moreover, the Commission applicant's claim seeking the annulment of has stated — without being contradicted the Commission's refusal of reimbursement by the Spanish Government — that the of ESP 1 355 544 657 in relation to interest competent Spanish authorities failed to due under the additional levy on milk collect any interest on the outstanding levy, products scheme should be upheld. thus leaving unpaid ESP 1 355 544 657 of interest. I agree with the Commission that those figures appear to suggest that the Spanish authorities negligently failed to collect the sums in question. However, mere suggestions are not enough. The question is whether the Commission has demonstrated to the required standard of Production aid for olive oil proof that there was negligence within the meaning of Article 8(2). I do not propose to examine or to express an opinion on that issue since, in my view, the Commission's decision is in any event invalid for the following reasons. Legislative provisions

74. By Regulation No 136/66, 55 the Com- 72. As is clear from the facts set out above, munity legislator established the common the Commission refused reimbursement of the full amount of outstanding interest (ESP 1 355 544 657). It thus appears that 55 — Regulation No 136/66/EEC of the Council of 22 Septem- ber 1966 on the establishment of a common organisation the Commission did not seek to determine of the market in oils and fats, OJ English Special Edition 1965-1966 (I), p. 221, subsequently amended on several what portion of the outstanding interest occasions, most recently by Council Regulation (EC) was attributable to the absence of effective No 2826/2000 of 19 December 2000 on information and promotion actions for agricultural products on the internal procedures for collection of sums due. The market, OJ 2000 L 328, p. 2.

'1. Each producer Member State shall apply a system of checks to ensure that the product in respect of which aid is 7 6 . A r t i c l e 2 ( 2 ) of R e g u l a t i o n granted is eligible for such aid. No 2261/84, 57 laying down general rules on the granting of aid for the production of olive oil and of aid to olive oil producer organisations, provides: 2. Producer Member States shall verify the activities of each producer organisation and association and, in particular, that the checking operations have been carried out by these bodies. 'The aid shall be granted to olive growers established in the Member States. For the purposes of this Regulation an olive grower shall be any grower of olives which are used to produce oil.' 3. In the course of each marketing year and during the oil-pressing period in particular, producer Member States shall carry out 56 — Regulation (EF-C) No 154/75 of the Council of 21 January 1975 on the establishment of a register of olive cultivation on-the-spot checks on the activities and the in the Member States producing olive oil, OJ 1975 L 19, p. 1. stock records of a percentage of approved 57 —Council Regulation (EEC) No 2261/84 of 17 July 1984 mills to be determined. The mills selected laying clown general rules on the granting of aid for the production of olive oil and of aul to olive oil producer must be representative of the pressing organisations, OJ 1984 L 208, p. 3. capacity of a production zone.

I - 3035

OPINION OF MR JACOBS — CASE C-130/99

4. In the case of the olive oil defined at These files shall be used to guide the point 1 of the Annex to Regulation checking operations to be carried out pur- No 136/66/EEC and produced by growers suant to paragraphs 1 to 4.' who are not members of a producer organisation, checking shall be by sampling on the spot and must verify:

82. According to Article 5(1): 83. It follows from Article 8 that where a producer group or association, having dis- charged all its responsibilities under Com- munity rules, has not used the entire sum raised by the financing arrangements referred to in Article 20d of Regulation 'The application for aid to be submitted by No 136/66 and Article 11(1) of Regulation each olive grower shall include at least the No 2261/84, it must distribute the balance following: among the producer organisations of which it is composed.

(a) the surname, forenames and address of the olive grower; 84. Article 9(2), as amended by Regulation No 828/90, 59 provides:

(b) the quantity of virgin oil produced; 'The standardised daily stock records referred to in Article 13(l)(d) of Regulation (EEC) No 2261/84 must show: (c) the location of the holdings on which the olives were harvested, together with a reference to the crop declar- ation; (a) the quantities of olives entering the mill, batch by batch, stating the pro- ducer and the owner of each batch;

(d) the approved mill(s) at which the oil was produced, together with particu- lars for each mill of the quantity of olives used and the quantity of oil (b) the quantities of olives pressed; produced.

(c) the quantities of oil obtained; The said application must be accompanied by a declaration from the mill, the form and content of which shall be decided by 59 — Commission Regulation (EEC) No 828/90 of 30 Mardi the Member States, to corroborate the 1990 amending Regulation (EEC) No 3061/84 laying down detailed rules for the application of the system of particulars referred to under (d).' production aid for olive oil, OJ 1990 L 86, p. 18.

I - 3038

SPAIN v COMMISSION

oil sector was inadequate. In particular, the Analysis register of olive cultivation provided for in Regulation No 154/75 and the permanent computerised files of olive and olive-oil production data envisaged by Regulation No 2261/84 had remained incomplete and inoperational at least until the end of 1998. The controls carried out by the Spanish (a) The first set of arguments authorities to compensate for the absence of the register and the computerised files were inadequate. Thus the Commission's investigations had revealed a number of problems, including unexplained double 88. By its first set of arguments, the appli- payments of aid, inadequate on-the-spot cant seeks to demonstrate that the Com- checks of oil mills, a failure to respond mission violated certain general principles adequately to instances of fraud, insignifi- and provisions of Community law. cant numbers of on-the-spot checks of olive oil producers, and grant of production aid for olives which had been sold as table olives. On that basis the Commission con- sidered that the deficiencies found related to fundamental elements of the control 89. In its application, the applicant refers system and controls essential to ensuring to a letter addressed to the Spanish auth- the regularity of the expenditure, and that orities, in which the Commission allegedly the Fund had been exposed to a significant stated that the situation in Spain had risk of widespread loss. Accepting however improved, and that its control system was that the Spanish authorities had improved superior to that existing in certain other the system over the years, the Commission Member States. Despite those differences, applied a lower flat-rate reduction to the the Commission applied the same flat-rate agricultural years after 1992/93. adjustment to Spain as it did to those Member States. The applicant thus appears to suggest that the Commission violated the principle of equal treatment. However, since the Spanish Government has not submitted any information concerning the situation which prevailed in the other Member States or any evidence of the content of the Commission's letter, that argument must be rejected.

the Summary Report for 1994, to reply to, for the financial year of 1996, the applicant and refute in a convincing manner, all of argues that the Commission violated the arguments and facts submitted by the Article 5(2)(c) of Regulation No 729/70 Spanish authorities during the procedure as amended by Regulation No 1287/95. 62 which preceded that Report and the adop- That provision lays down that, '[b]efore a tion of Decision 1999/187. When con- decision to refuse financing is taken, the sidering that contention, it must be kept results of the Commission's checks... shall in mind that the Spanish Government was be notified in writing' and that '[a] refusal closely involved in the process of drawing to finance may not involve expenditure up the contested decisions, and that it was effected prior to twenty-four months well aware of the reasons which led the preceding the Commission's written com- Commission to take the view that the munication of the results of those amounts at issue should not be charged to checks'. 63 The applicant refers to the the Fund. 60 In those circumstances, by Commission's letter, dated 10 March 1998 omitting to reply to certain arguments, and received at the Spanish representation and to refute certain factual allegations, to the European Union on 12 March 1998, the Commission did not violate the Treaty by which it notified the Spanish authorities provisions invoked by the applicant. of the final conclusions of its investigations into the control system operated in Spain in 1994 and the following years. That letter should, in the applicant's view, be con- sidered to be a 'written communication' within the meaning of Article 5(2) with the result that the Commission could not refuse 91. Referring to Greece v Commission, 61 to charge to the Fund expenditure incurred the applicant maintains moreover that the before 12 March 1996. contested decisions are unlawful because it was impossible to comply with the time- limits laid down for the establishment of the register of olive cultivation and the computerised files of production data. Since the applicant has not submitted any information concerning the alleged dif- ficulties encountered by the Spanish auth- orities, that argument must in any event be rejected. 93. The Commission rejects that argument. It stresses that the problems affecting the Spanish control system in the olive oil sector, which had existed since 1990, were well known to the Spanish authorities, and 92. Finally, with regard to Decision 1999/186, excluding certain expenditure 62 — Council Regulation (EC) No 1287/95 of 22 May 1995 amending Regulation (EEC) No 729/70 on the financing of the common agricultural policy, OJ 1995 L 125, p. 1. 63 — However, that rule does not apply to the financial 60 — See Case C-22/89 Netherlands v Commission [1990] ECR consequences of: 'irregularities as referred to in I-4799, paragraph 18 of the judgment. Article 8(2)' and 'concerning national aids, or infringe- 61 — Case C-50/94, cited in note 19, paragraph 39 of the ments, for which the procedures referred to in Articles 93 judgment. and 169 of the Treaty have been initiated'.

95. The Commission's interpretation of Article 5(2)(c) — according to which the 94. Article 5(2)(c) was inserted into Regu- temporal limitation does not apply where l a t i o n No 7 2 9 / 7 0 by Regulation the Member State concerned is aware that No 1287/95 which established the clear- the Commission considers its control sys- ance of accounts procedure currently in tem to be deficient — is in my view incon- force. Under that procedure, the Commis- sistent with that purpose. Article 5(2)(c) sion adopts annual clearance of accounts can provide effective legal certainty for the decisions and, where necessary, multi- Member States only if they are able to annual compliance decisions excluding ascertain precisely the date from which the from Community funding expenditure temporal limitation is to be calculated. It is which according to its checks has not been moreover clear from the wording of effected in compliance with Community Article 5(2)(c) that the relevant date is that rules. 64 By introducing that procedure, the on which the Commission notifies by a Community legislator aimed to reduce the formal 'written communication' the results delays which had occurred in the clearance of its checks as regards the financial years of accounts procedure previously in in i s s u e . T h u s to comply with force.65 However, given that compliance Article 5(2)(c), the Commission is required clearance decisions are not linked to the only to carry out checks and notify the implementation of the budget in a particu- results thereof within a period of 24 lar financial year, the Community legislator months after the expenditure has been considered that 'the maximum period to incurred by the affected Member State; it which the consequences to be drawn from is not required to complete the clearance of the [Commission's] checks on conformity accounts procedure within that period. In may be applied must be determined'. 66 It my view, that system does not impose an appears from that statement, and from the unreasonable burden on the Commission, Commission's explanations in this case, but strikes a reasonable balance between, that the purpose of the temporal limitation on the one hand, the need of the Member in Article 5(2)(c) is to protect the Member States for legal certainty and, on the other States against the legal uncertainty which hand, the financial interests of the Com- might arise if the Commission were in a munity. The interpretation favoured by the Commission is also, I consider, problem- atic, in so far as it presupposes an assess- 64 — See above, paragraph 7. ment — in every case where the time-limit 65 — Sec the fourth and fifth recital in the preamble to in Article 5(2)(c) is relevant — of whether Regulation No 1287/95. the affected Member State knew that its 66 — See the sixth recital in the preamble to Regulation No 1287/95. control system was deficient. That assess-

ment might give rise to evidential dif- In the context of Article 5(2)(c) that term ficulties, and it raises a number of difficult must be interpreted as referring not only to questions about, for example, the level of control visits but also to financial and required knowledge. statistical checks carried out by the Com- mission. In any event, it is clear from the documents submitted by the Commission that a team of inspectors from the Fund carried out control visits in Spain in 1996 and 1997, and that Decision 1999/186 was based to a large extent on the findings set 96. In this case, I agree with the applicant out in the reports of those visits. that notification took place on 12 March 1998. It was in the document received on that day that the Commission set out the final conclusions which it had drawn, as regards the financial years covered by Decision 1999/186, from the checks carried out in 1996 and 1997. Whether or not the (b) The second set of arguments Spanish authorities were, as the Commis- sion alleges, in a position to deduce from previous decisions on clearance of accounts and the informal exchanges of information which took place before March 1998 what 98. The applicant's second set of argu- those conclusions would be is in my view ments seeks, in substance, to refute the irrelevant. allegation made in the Summary Report that the control system operated in Spain was deficient. While the applicant concedes that there was delay in establishing the register of olive cultivation and in making progress with the work of creating and updating the computerised files of produc- tion data, it contends that the controls 97. I consider therefore that Decision carried out in Spain were none the less 1999/186 is contrary to Article 5(2)(c) of effective and that the Fund therefore did Regulation No 729/70 as amended in so far not suffer any loss. The adjustments as that decision excluded expenditure applied by the Commission should there- incurred by Spain before 12 March 1996. fore be annulled. That conclusion is not affected by the Commission's argument that the defi- ciencies in the Spanish control system were established by checks which were carried out —· and the results of which were communicated to the Spanish auth- 99. It is not, in my view, necessary to orities — in financial years prior to 1994, examine the merits of those detailed argu- and that no new checks, apart from certain ments. A really effective control system visits of minor importance and bilateral simply cannot, I consider, be taken to exist meetings, had taken place since then. In my until the olive oil register and the com- view, that argument rests on an unduly puterised files provided for by Community narrow interpretation of the word 'checks'. law are completed and used for the purpose

Summary of the arguments 100. In the light of those observations, I conclude that Decision 1999/186 should be annulled in so far as it excluded from Community financing expenditure in relation to production aid for olive oil 102. The applicant seeks the annulment of incurred by the applicant before 12 March the Commission's refusal of reimbursement 1996. of in total ESP 730 638 679 in respect of aid for the permanent abandonment of areas under vines (ESP 424 652 236) and aid for preventive distillation of wine (ESP 305 986 443). 69 According to the Sum- mary Report, the Commission applied that adjustment because the competent national authorities had failed to carry out sufficient controls and to apply the sanctions Wine required to ensure compliance with Articles 6, 7 and 8 of Regulation No 822/87. Owing to those failures, which had been confirmed when the Fund's inspectors visited Spain in 1996, the auth- orities had been unable to halt unlawful Legislative provisions planting and replanting of vines and to prevent the sale of products of grapes obtained from such vines for purposes other than distillation. The fact that a number of Spanish regions had taken legis- 101. Articles 6, 7 and 8 of Regulation No 822/87 on the common organisation 68 — Council Regulation (EEC) No 822/87 of 16 March 1987 on the common organisation of the market in wine, OJ 1987 L 84, p. 1. 67 —Case C-61/95 [I998] LCR I-207, paragraph 13 of the 69 — The basic provision concerning that aid is Article 38 of judgment. Regulation No 822/87.

I - 3043

OPINION OF MR JACOBS — CASE C-130/99

106. The decision to apply an adjustment was, as the Commission points out, based 104. First, the applicant maintains that the on the failure of the Spanish authorities to Commission's decision is inequitable, since control compliance with the prohibition the Spanish regional authorities could not and procedures laid down in Articles 6, 7 be blamed for carrying out a process of and 8 of Regulation No 822/87. Thus the régularisation of unlawful plantations. fact that the Spanish authorities had felt That process was a legal and social necess- compelled to regularise unlawful plan- ity given the large number of unlawful tations revealed the extent and seriousness plantations in Spain, and it had the effect of of those failures; it did not constitute the reducing to some extent the wine produc- basis of the decision. The applicant's argu- tion capacity of Spanish farmers. According ments, which are concerned only with the to the applicant, it adds weight to those régularisation of unlawful plantations, are arguments that recent proposals for reform therefore unable to call into question the of Community regulations in the wine lawfulness of the contested adjustment. sector envisage a system of régularisation resembling closely the scheme already adopted in certain Spanish regions. Second, whilst the Commission had been aware of the process of régularisation since 1992, it did not take any action until — after the 107. In any event, I am not convinced by inspection carried out in 1996 — it for- those arguments. The legal and social mally called upon Spain to stop that pro- problems flowing from the existence of cess and to annul the specific decisions vast numbers of unlawful plantations are, adopted pursuant to it. Third, even assum- as the Commission states, to a large extent ing that the régularisation of unlawful the result of the Spanish authorities' own plantations was contrary to Community failure to adopt the control and enforce-

Fibre flax and hemp 110. Regulation No 1164/89 contains detailed rules concerning aid for fibre flax and hemp. 71 Under Article 4(a) of that regulation, aid is to be granted only in respect of areas which have been com- pletely sown and harvested and on which Legislative provisions

70 — Regulation (HEC) No 619/71 of the Council of 22 March 1971 laying down general rules for granting aid for flax and hemp, OJ English Special Edition 1971 (I), p. 169. 108. Regulation No 619/71 lays down gen- 71 — Commission Regulation (EEC) No 1164/89 of 28 April 1989 laying down detailed rules concerning the aid for eral rules for granting aid for fibre flax and fibre flax and hemp. OJ 1989 L 121, p. 4.

I - 3045

OPINION OF MR JACOBS — CASE C-130/99

applications. Where significant irregular- that decision was based on the fact that the ities arise relating to 6% or more of the Spanish authorities had failed to carry out checks carried out, the Member States the controls provided for by Community must — under Article 6(2) — notify the law: 73 contrary to Article 4(1) of Regu- Commission stating what measures have lation No 619/71, the authorities had failed been adopted. Finally, Article 7(b) of Regu- to carry out administrative controls of lation No 1164/89 provides for adminis- declarations of areas and applications; on- trative sanctions in instances where on-the- the-spot checks which had been carried out spot checks reveal that a producer has did not comply with Article 5 of Regu- declared an area which is greater than that lation No 619/71 because the reports

The Commission also expressed regret that the Spanish authorities had not used data collected for Summary and analysis of the arguments the purpose of the IACS to carry out administrative cross-checks of declarations of areas sown. While it accepted that the specific rules concerning fibre flax and 111. The Spanish Government challenges hemp did not provide for such checks, it the Commission's decision to apply a 10% considered that by failing to use available and effective means of control, the Spanish authorities had violated their general obli- 72 — Article 4(a) has been amended on several occasions. While gations under Article 8(2) of Regulation none of those amendments are of direct relevance to the present case, it may be mentioned that Article 4(a) was No 729/70. Finally, the Commission stated amended in particular — and with effect for products harvested from 1994 onwards — by Commission Regu- in a letter to the Spanish authorities and in lation (EC) No 1469/94 of 27 June 1994 amending its defence before the Court, albeit not in Regulation (EEC) No 1164/89 laying down detailed rules concerning the aid for fibre flax and hemp, OJ 1994

I - 3046

SPAIN v COMMISSION

the Summary Report, that by failing to tioned only in Regulation No 154/97 75 detect and react to the use of unusually low which had not taken effect at the material amounts of seed and very low yields, there time. Third, the applicant points out that it was reason to think that the authorities had complied fully with the obligation, laid granted aid, contrary to Article 4(a) of down in Article 6(1) of Regulation Regulation No 1164/89, in respect of areas No 1164/89, to check more than 5% of which had not been completely sown and all applications. harvested and on which normal cultivation work had not been carried out.

113. It is clear from those arguments that the applicant does not contest the essential findings of fact on which the Commission's decision was based.

I - 3047

OPINION OF MR JACOBS — CASE C-130/99

validity of the contested adjustment, since November to August of the relevant finan- the Commission's decision is in any event cial year. 77 The remaining amount (ESP amply justified by the numerous other 1 410 359 361) had not been deducted grounds set out in the Summary Report. from the advances for September and Finally, the fact that the authorities carried October of that year, but in the clearance out a sufficient number of spot checks is of accounts decision for 1995 as provided irrelevant given that the Commission's for by Article 4(3) of Regulation complaint relates to the quality and not No 296/96. 78 Owing to the fact that the the quantity of those checks. Spanish Government had challenged some of the reductions applied by the Commis- sion before the Conciliation Body, which had not completed its work when Decision 1999/187 was adopted, the Commission inserted a 'negative reserve' in that decision, thereby reserving to itself the right to review the reductions in the light 115. I would therefore reject the appli- of the outcome of the conciliation pro- cant's claim in respect of aid for fibre flax cedure. and hemp.

I - 3048

SPAIN v COMMISSION

(ESP 1 410 359 361). The decision on subject to a negative reserve is not final; reimbursement of that amount should, it the Commission is not only entitled but contends, have been postponed awaiting also, I consider, obliged to review such a the outcome of the conciliation procedure decision where the relevant event specified and dealt with in a later clearance of in that reserve materialises. 80 accounts decision. The Commission's decision, which excluded the amount sub- ject to a possible reassessment, was thus unlawful. 120. That view is not affected by the applicant's assertion that it is normal prac- tice for the Commission to await the outcome of the conciliation procedure before claims are decided upon in clearance 118. In its reply, the Commission explains of account decisions. While it appears that that if it had not excluded the amount in the Commission does generally follow such issue in the clearance decision for 1995, it a practice, it has not been shown that it has would have been required to reimburse that ever been applied to adjustments based on amount to the Spanish authorities immedi- delayed payments. In any event, I agree ately. If the Conciliation Body had upheld with the Commission that there are cogent the Commission's view that the amount reasons not to await the outcome of the was not refundable, the Spanish Govern- conciliation procedure in that specific con- ment would then have been required to text. return the amount to the Commission. It was to avoid that complication, and to ensure that all the reductions based on lateness of payments were dealt with in the same clearance decision, that the Commis- sion excluded the amount subject to a 121. I would therefore reject the appli- negative reserve. cant's claim in respect of delayed payments.

124. In the light of all the foregoing observations, I am of the opinion that the Court of Justice should:

(1) declare void Commission Decision 1999/186/EC of 3 February 1999 exclud- ing from Community financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guidance and Guarantee Fund in so far as the Commission has not charged to the Fund expenditure incurred by Spain before 12 March 1996 in the context of production aid for olive oil;

I - 3050

SPAIN v COMMISSION

(2) declare void Commission Decision 1999/187/EC of 3 February 1999 on the clearance of the accounts presented by the Member States in respect of the expenditure for 1995 of the Guarantee Section of the European Agricultural Guidance and Guarantee Fund in so far as the Commission has not charged to the Fund the amount of ESP 1 355 544 657 representing interest due under the additional levy on milk products scheme;

(3) for the rest, dismiss the application;