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2. The dispute concerns duties on imports into Italy from third countries of goods destined for the independent republic of San Marino. Before December 1992 Italy Legislative framework collected customs duties on such goods pursuant to a convention between the two States. It is common ground that, since San Marino is not a Member State of the European Union, those duties do not form part of the Community's own resources. From 1979 to 1984, however, it appears 3. Article 2(b) of Council Decision that Italy wrongly accounted for such 70/243 2 states that Common Customs duties to the Commission as own resources Tariff duties are to constitute own and subsequently sought to correct that resources to be entered in the budget of over-payment by reducing payments the Communities. Article 6(1) states that properly due as own resources by an Community resources are to be collected by amount allegedly representing the duties the Member States and made available to wrongly paid. From 1990 to 1992 Italy reduced the amount paid to the Commis- 2 — Council Decision 70/243/ECSC, EEC, Euratom of 21 April 1970 on the Replacement of Financial Contributions from Member States by the Communities' own Resources, OJ 1 — Original language: English. English Special Edition 1970(I), p. 224.

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the Commission. Decision 70/243, which Where it becomes necessary to rectify an entered into force on 1 January 1971, was establishment recorded in accordance with replaced by Council Decision 85/257 3 with the first paragraph, the competent depart- effect from 1 January 1986, which was in ment or agency of the Member State shall turn replaced with effect from 1 January make a new establishment.' 1988 by Council Decision 88/376. 4

3 — Council Decision 85/257/EEC, Euratom of 7 May 1985 on 8. Article 18(1) requires Member States to the Communities' system of own resources, OJ 1985 L 128, carry out the verifications and inquiries p. 15. Articles 2(b) and 7(1) are to the same effect as Articles 2(b) and 6(1) of Decision 70/243. concerning the establishment and the mak- 4 — Council Decision 88/376/EEC, Euratom of 24 June 1988 on ing available of own resources. Article 18(2) the system of the Communities' own resources, OJ 1988 L 185, p. 24. Articles 2(b) and 8(1) are to the same effect as requires Member States to carry out addi- Articles 2(b) and 7(1) of Decision 85/257. tional inspection measures at the Commis- 5 — Council Regulation (EEC, Euratom, ECSC) No 2891/77 of 19 December 1977 implementing the Decision of 21 April sion's reasoned request and associate the 1970 on the replacement of financial contributions from Commission, at its request, with the inspec- Member States by the Communities' own resources, OJ 1977 L 336, p. 1. tion measures which they carry out.

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9. Regulation No 2891/77 was repealed by shall be applied to the entire period of Regulation No 1552/89 6 with effect from delay.' 1 January 1989. Articles 1, 2, 3, 9(1) and 18(1) and (2) of Regulation No 2891/77 are essentially reproduced in Regulation No 1552/89. 7That Regulation added a new second paragraph to Article 3, which provides:

Background

6 — Council Regulation (EEC, Euratom) No 1552/89 of 8 — Until the Interim Agreement on trade and customs union 29 May 1989 implementing Decision 88/376/EEC, Eura- between the European Economic Community and the tom on the system of the Communities' own resources, Republic of San Marino of 27 November 1992 (OJ 1992 OJ 1989 L 155, p. 1. L 359, p. 14) entered into force. 7 — By Articles 1, 2, 3 (first paragraph), 9(1) and 18(1) and (2). 9 — According to Italy, ITL 84 billion for the period 1979-89.

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The Italian authorities may effect the pro- posed deductions as soon as the Commis- 13. Between 1985 and 1996 there was a sion has received their agreement to the protracted exchange of correspondence above.' punctuated by periodic meetings between the Commission and the Italian authorities concerning the lawfulness of such a deduc- tion and the steps to be taken in order to ensure that duties on imports of goods from third countries destined for San Marino were accounted for separately from those 15. According to the Commission, in on other such imports of goods into Italy. October 1988 the Italian authorities The essential developments over that deducted the amounts overpaid for 1982 period may be summarised as follows. to 1984 (ITL 5 269 620 911) although they

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21. The Commission wrote again in Feb- orities concluded that the Commission ruary 1994, noting that the amounts must accept the figures which they certified attributed by Italy to imports destined for as correct. San Marino on the one hand had almost tripled for the years 1986 to 1992 and were disproportinately high in view of the inter- nal consumption of San Marino and on the other hand had not been calculated in accordance with verifiable economic indi- 23. The Commission responded in June cators for the years 1979 to 1992. With a 1994, repeating that its 1990/1991 report view to resolving the issue, the Commission had concluded that the Italian customs in that letter proposed to the Italian auth- procedures could not be relied upon to orities a method of calculation of the protect the Community's financial inter- amounts to be deducted for the period in ests. Since it would be very difficult, even question, essentially by reference to the impossible, to reconstitute the correct number of inhabitants of the two States amounts on the basis of customs declar- concerned and a corrective co-efficient to ations, the Commission had proposed an reflect their respective levels of wealth. That alternative and equitable approach. The method resulted in a deduction for the period Commission conceded however that it concerned of ITL 10 183 694 361. The might be prepared to accept a revised Commission accordingly requested the Ita- coefficient to take into account the tourist lian authorities to transfer to it by 1 May trade and invited the Italian authorities to 1994 the sum of ITL 19 039 627 865, put forward before 15 August 1994 a representing the amount already deducted proposal to that effect based on verifiable by Italy less the amount regarded by the data. Commission as the correct deduction.

29. The Commission accordingly started the pre-litigation procedure envisaged by 26. On 2 December 1994 the Italian auth- Article 226 EC, with both parties essen- orities replied, stating that it was not tially repeating the positions taken in the possible to provide the relevant paperwork earlier correspondence. Dissatisfied with within the short period laid down by the Italy's position, the Commission has Commission. If the Commission insisted on brought the present action before this receiving the papers, it would have to grant Court. an indefinite period; in any event, the Commission should accept the figures pro- vided by Italy, subject at most to a few spot checks on offices to be agreed with the Commission.

The issues before the Court

30. As indicated, it is common ground that 27. By letter of 28 July 1995 corrected by customs duties collected by Italy pursuant letter of 8 November 1995, the Commis- to the 1939 Agreement on goods from third sion indicated that it could not accept countries which are destined for San Italy's arguments. For the reasons given in Marino are not own resources of the the earlier correspondence it was accord- Community. I will refer to such duties as ingly not able to accept that the deductions San Marino duties. It follows that San proposed or already effected were lawful Marino duties are not payable to the and repeated its request for payment of Commission and that any San Marino

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duties which have been paid to the Com- Marino actually arrived there or that mission were wrongly paid. It is clear from Community customs duties were correctly the pleadings that the Commission accepts levied on goods re-exported to the Com- that analysis. munity from San Marino. In particular, the report identified the following factors which caused the Commission to question the legality of the deductions.

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vehicles transporting goods destined for (approximately 22 500), the Commission San Marino left the Italian customs area suggests that that transaction is particularly and the date when such goods were taken anomalous from the perspective of genuine in charge by the competent fiscal auth- integration of the goods. orities in San Marino, and requested that a much shorter time-limit be fixed by refer- ence to the length of a given vehicle's journey.

38. Finally, the report recorded a signifi- cant increase between the periods 1979 to 1985 on the one hand and 1986 to 1989 on the other in imports apparently destined for 35. With regard to the customs status of San Marino, corresponding to a significant goods leaving San Marino, the report increase in the amounts which Italy sought highlighted defects in the procedure for to deduct from the amounts due by way of identifying such goods and for applying the own resources. common customs tariff to them.

39. Italy essentially submits that Commu- 36. The report also noted that there nity law gives the Member States the right appeared to be no system for accounting to determine own resources which, once for import duties initially levied on goods determined, must be made available to the destined for San Marino which sub- Commission. Given that it is not in dispute sequently either did not arrive there or, that San Marino duties are not Community having arrived, were re-exported to the own resources, it is for the Commission as Community. applicant to prove that the amounts at issue did not in fact concern imports of goods destined for San Marino. Until it has been established that the receipts in question are own resources, there is no sense in talking of deductions.

Community and San Marino 1 3 and 1/93 significantly altered the way in which Decision 1/93 of the Community — San San Marino duties are collected and the Marino Cooperation Committee. 14 Italy related procedures for checking and invokes the Interim Agreement and accounting for such duties. Decision 1/93 mainly in the context of seeking to refute criticisms made by the Commission of the customs procedure applicable during the period at issue in the present case, namely 1979 to 1992, before the Interim Agreement entered into force. Italy's argument is essentially that, to the extent that the procedures under the Interim Agreement are similar to those 42. Nor do I consider that it is helpful to which predated that agreement, it is not analyse the present case in terms of the open to the Commission to criticise those burden of proof: the same issue could have procedures. come before the Court had Italy, rather than make the deductions which led to the present proceedings, unsuccessfully sought repayment from the Commission and sub- sequently brought an action against it. In any event, the system under which customs duties are made available to the Commis- sion as Community own resources is based on customs administration at Member State level: common sense suggests that Analysis the Commission is not in a position to adduce by way of evidence customs docu- mentation completed in national customs offices. 15 That is all the more so given that Italy stated in its letter of 2 December 1994 that producing all the relevant documen- 41. I do not accept that the current method tation would be an immense task for those of dealing with San Marino duties pursuant offices, involving considerable expense. to the Interim Agreement and Decision 1/93 is relevant to the issue before the Court in the present case, namely whether the Commission can succeed in its action for payment by Italy of amounts allegedly representing San Marino duties which have been deducted or withheld from amounts payable to the Commission by way of own 43. The Community legislation on own resources. As the Commission has pointed resources requires Member States to estab- out, the Interim Agreement and Decision lish the Communities' own resources by duly determining or calculating the cor- 13 — Cited in note 8. 14 — Decision of 27 July 1993 adopting the procedures for making available to the San Marino Exchequer the import 15 — See by analogy Case C-278/98 Netherlands v Commission duties collected by the Community on behalf of the [2001] ECR I-1501, paragraphs 39 to 41 of the judgment Republic of San Marino, OJ 1993 L 208, p. 38. and the cases there cited.

45. Italy is accordingly in breach of its obligations under the legislation governing Community own resources and the Com- mission would have succeeded in an action for a declaration to that effect. However, the Commission in the present case seeks a declaration that Italy has failed to fulfil its obligations under the Community legis- 44. That legislation also requires Member lation on own resources by failing to make States to take appropriate measures to available to it specified sums, which the ensure that the supporting documents con- Court is clearly not in a position to verify. cerning the establishment and making The Commission has moreover accepted available of own resources are kept for at that those sums represent at least in part least three calendar years from the end of amounts which do not constitute own the year to which they refer. 18 Furthermore resources of the Community. 21 It would with effect from 1 January 1989 such in those circumstances be disproportionate documents must be kept beyond that time- for the Court to grant the form of order limit if verification by the national adminis- sought. tration in conjunction with the Commis- sion shows that a finding to which they relate may have to be corrected. 19 Since the report sent to Italy in May 1991 clearly showed such findings, 20 Italy was under

16 — Articles 1 and 2 of Regulation No 2891/77, cited in note 5, and of Regulation No 1552/89, cited in note 6. The provisions are summarised or set out in paragraphs 4 and 5 46. The Commission's claim as formulated above. 17 — Second paragraph of Article 2 of Regulation No 2891/77, must therefore fail. However it is clear that set out in paragraph 5 above; Article 2(2) of Regulation that cannot be the end of the matter. No 1552/89. 18 — Article 3 of Regulation No 2891/77 and the first para- Article 10 EC imposes on the Community graph of Article 3 of Regulation No 1552/89, summarised institutions and on Member States mutual in paragraph 6 above. 19 — Second paragraph of Article 3 of Regulation No 1552/89, set out in paragraph 9 above. 20 — See paragraphs 33 to 38 above. 21 — See paragraph 21 above.

(2) order the parties to bear their own costs.

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