C-177/00

ITALY v COMMISSION

OPINION OF ADVOCATE GENERAL LÉGER delivered on 26 September 2002 1

1. By this action, brought under the first — a financial adjustment of ITL paragraph of Article 230 EC, the Italian 2 957 721 060 corresponding to the Republic is seeking the partial annulment amount of export refunds granted for of Commission Decision 2000/216/EC of quantities of ineligible olive oil; and 1 March 2000 excluding from Community financing certain expenditure incurred by the Member States under the Guarantee Section of the European Agricultural Guid- ance and Guarantee Fund (EAGGF). 2 — a financial adjustment of ITL 7 760 156 831 corresponding to the amount of securities which should have been recovered in connection with the sale of alcohol held by the intervention agencies. 2. The Italian Republic challenges the con- tested decision in as much as it imposes three financial adjustments for expenditure declared in respect of financial years 1995 to 1998. That expenditure relates to export refunds and the sale of alcohol from inter- 3. The grounds for those adjustments are vention stocks. The adjustments imposed summarised in the consolidated report on are as follows: the results of the inspections in the clear- ance of the accounts of the Guarantee Section of the EAGGF as regards export refunds, fruit and vegetables, animal pre- miums, agri-environmental measures, financial audit, arable crops, flax and hemp. 3 — a 5% flat-rate adjustment applied to all expenditure relating to export refunds for the period 1 October 1995 to 31 December 1998, due to inadequate physical checks on the products concerned, amounting to 4. Before considering the specific aspects of ITL 61 665 065 968; the three adjustments at issue (Sections II to

7. Article 8(1) of Regulation No 729/70 provides that Member States are to take the measures necessary to satisfy themselves I — General legal background that transactions financed by the Fund are actually carried out and are executed cor- rectly, to prevent and deal with irregular- ities, and to recover sums lost as a result of irregularities or negligence. 5. Articles 2 and 3 of Council Regulation (EEC) No 729/70 of 21 April 1970 on the financing of the common agricultural pol- icy 4provide that the European Community will finance from the Guarantee Section of the Fund refunds on exports to third coun- tries and intervention intended to stabilise 8. Article 8(2) of the regulation provides the agricultural markets, granted in accord- that in the absence of total recovery, the ance with the Community rules within the financial consequences of irregularities or framework of the common organisation of negligence are to be borne by the Commu- agricultural markets. nity, with the exception of the con- sequences of irregularities or negligence attributable to administrative authorities or other bodies of the Member States. The sums recovered are to be paid to the paying authorities or bodies and deducted by them from the expenditure financed by the Fund. 6. Article 4(2) of Regulation No 729/70 provides that the Commission is to make available to Member States the necessary credits so that the authorities and bodies designated by the Member States may, in accordance with Community rules and national legislation, make the payments 9. Article 9(1) of Regulation No 729/70 relating to such refunds and intervention. provides that Member States are to make Article 5(2)(b) of that regulation provides available to the Commission all infor- that, before the end of the following year, mation required for the proper working of the Commission will clear the accounts of the Fund and take all suitable measures to the authorities and bodies of the Member facilitate the supervision which the Com- States on the basis of the annual accounts mission may consider it necessary to under- take within the framework of the manage- ment of Community financing, including 4 — OJ, English Special Edition 1970 (I), p. 218. inspections on the spot.

11. Article 1(1) of Council Regulation A. 2% of the expenditure where the (EEC) No 4045/89 of 21 December 1989 absence is limited to certain aspects of on scrutiny by Member States of trans- the system of scrutiny of minor import- actions forming part of the system of ance or the performance of checks financing by the Guarantee Section of the which are not essential in order to European Agricultural Guidance and Guar- ensure that the expenditure has been antee Fund, 5 and repealing Directive incurred lawfully, so that it may rea- 77/435/EEC, 6 concerns scrutiny of the sonably be concluded that the risk of commercial documents of those entities loss for the Fund is minor. receiving or making payments relating directly or indirectly to the system of financing by the Guarantee Section of the EAGGF, referred to as 'undertakings', in order to ascertain whether transactions forming part of the system of financing by the Guarantee Section of the EAGGF have actually been carried out and have been executed correctly. Article 2(1) of Regu- B. 5% of the expenditure where the lation No 4045/89 provides that Member absence concerns significant aspects of States are to carry out systematic scrutiny the system of scrutiny or the perform- of the commercial documents of undertak- ance of checks which play a major role ings taking account of the nature of the in determining whether the expenditure transactions to be scrutinised. The detailed was lawful, so that it may reasonably procedure for such scrutiny is laid down in be concluded that the risk of loss for Article 2(2) et seq. the Fund is significant.

14. On 1 July 1994 the Commission adopted Decision 94/442/EC. 8 Article 1(1)(b) and (c) of that Decision provides that the Conciliation Body is to try to reconcile the divergent positions of 16. The Community system provides for the Commission and the Member State the advance payment of export refunds. 12 concerned, and at the end of its investi- In such cases the refund is paid to the gations, it is to draw up a report on the recipient undertaking, against the lodging outcome of its efforts at reconciliation. of security, when the goods are placed Article 1(2)(a) states that for the purposes under customs control. That operation is of the subsequent stages of the accounts clearance procedure, the position of the Conciliation Body is to be without preju- 9 — Annual Report of the Court of Auditors concerning the dice to the Commission's final decision on financial year 1987 together with the answers from the institutions (OJ 1988 C 316, p. 1, paragraph 4.20), ('the the clearance of the accounts and will not 1987 Annual Report of the Court o f Auditors'). affect the right of the Member State con- 10 — See Commission Regulation (EEC) N o 3 8 4 6 / 8 7 of 17 December 1987 establishing an agricultural product cerned to institute proceedings under nomenclature for export refunds (OJ 1987 L 366, p. 1). Article 230 EC. 1 1 — T h e 1987 Annual Report of the Court of Auditors (paragraph 4.22). 12 — See Council Regulation (EEC) N o 565/80 of 4 March 1980 on the advance payment of export refunds in respect of agricultural products (OJ 1980 L 62, p. 5), and Commis- 8 — Decision setting up a conciliation procedure in the context sion Regulation (EEC) N o 3665/87 of 2 7 November 1987 of the clearance of the accounts of the European Agricul- laying down common detailed rules for the application of tural Guidance and Guarantee Fund (EAGGF) Guarantee the system of export refunds on agricultural products Section (OJ 1994 L 182, p. 45). (OJ 1987 L 3 5 1 , p. 1).

19. In order to remedy those failings, on 12 February 1990 the Council adopted Regulation (EEC) No 386/90 on the moni- toring carried out at the time of export of 21. Article 3 of that regulation provides that the physical checks must take the form of spot checks conducted frequently and 13 — 1987 Annual Report of the Court of Auditors (paragraph without prior warning. In any event they 4.23). 14 — Ibid, (paragraph 4.24). 15 — Sec Special Report of the Court of Auditors on the system 16 — OJ 1990 1.42, p. 6. of payment of agricultural export refunds (checks on exports of agricultural products) (OJ 1985 C 215, p. 1) 17 — Fourth recital. and 1987 Annual Report of the Court of Auditors 18 — Regulation laving down detailed rules for the application (paragraph 4.20 et scq). of Regulation No 386/90 (OJ 1990 I. 186, p. 6).

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must 'relate to not less than 5% of the the checks provided for in Regulations Nos export declarations in respect of which 386/90 and 2030/90 were being imple- applications are submitted [for payments in mented. 19 In view of the failings estab- respect of export transactions]'. The 5% lished, on 14 January 1994 the Commis- rate is to apply per customs office, per sion sent a letter to the national authorities calendar year, and per product sector. asking them to take the necessary correct- ive measures before 1 July 1994. 2 0The letter mentions the following by way of the measures required:

22. In addition, Article 3(3) provides that in cases where ordinary visual inspection fails to establish that the goods correspond to the description given in the refunds nomenclature, and where classification or the quality of the goods require very precise information about the ingredients thereof, the customs authorities must verify that description according to the nature of the product by using all the senses or by applying physical measures that may go as far as submitting the goods for analysis by laboratories specially equipped for the purpose. (e) Presentation of goods

27. Article 7 requires each customs office to take the measures necessary to ensure that the check rate of 5% provided for in (h) Summary reports on checks Regulation No 386/90 is achieved. It also provides that a detailed examination report on each check must be drawn up the customs officer who carried out the check. The summary reports on the checks shall indicate the measures taken to check the total quantity, the nature and the char- acteristics of the product declared.'

28. Lastly, the annex to Regulation No 2221/95 sets out the specific methods

25. In 1995 the Commission included the 21 — Regulation laying, down detailed rules for the application measures provided for in letter No VI/2705 of Regulation N o .186/90 (OJ 1995 I. 224. p. 13).

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for conducting physical checks on agricul- by customs authorities. According to the tural products. Paragraph 2(a) states: Commission, the inspections conducted in Italy have uncovered the existence of systematic errors in the procedures fol- lowed by the customs authorities.

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the goods or by creating a passage inside The 'simplified' procedure is a procedure the containers being examined. In addition, whereby the exporter sends a notice of the 5% rate provided for in Regulation loading to the customs office and officers No 386/90 was not achieved at some check the products and the relevant docu- customs offices (at Treviso). Lastly, the ments on the undertaking's premises. 24 In general and imprecise nature of the reports that case the Commission found (at Terni) on the physical checks is also called in that the checking procedure did not allow question. for the element of surprise since where a check was to be made the exporter would be informed by the customs authorities in advance.

32. Second, the Commission criticises the lack of checks carried without prior warn- ing. This complaint concerns the so-called 33. Under both those procedures the risk of 'off-site' and 'simplified' procedures. cheating and substitution of goods is aggravated by the fact that the exporter himself sends the export declaration to the paying body once that declaration has been approved by the customs authorities.

C — The action 37. The Italian Republic contends that the adjustment imposed is illegal on the grounds that the Commission's inspections were carried out in breach of the audi 35. The Italian Republic challenges the 5% alteram partem rule and the rights of the adjustment that was imposed on it in defence. It submits that the Commission respect of export refunds. It relies on four did not inform the Italian Government of sets of arguments in support of its chal- the results of its inspections until a very lenge: long time after they took place, the criti- cisms made of the customs officers were not specific and the officers concerned were not given the opportunity to put their points of view. Also, the Commission — infringement of the audi alteram par- officials failed to draw up balanced reports tem rule and the rights of the defence; describing the operations carried out and the results of the inspections.

— the unrepresentative nature of the cus- toms offices inspected;

38. In that regard I should like to point out that the final and definitive decisions con- cerning the clearance of the EAGGF's — challenging the irregularities and neg- account are adopted by the Commission ligence alleged against the Italian auth- at the end of a specific procedure. That orities; and procedure is laid down in Article 8 of Commission Regulation (EC) No 1663/95 of 7 July 1995. 25

— challenging the amount of the adjust- ment.

39. Article 8(1) provides that when, as a 36. I shall consider each of those arguments result of any enquiry, the Commission in turn. considers that expenditure was not effected according to Community rules, it must communicate to the Member State con-

cerned its findings, the corrective measures 42. In this particular case the contested to be taken to ensure future compliance, decision was adopted under such a pro- and an evaluation of any expenditure cedure. which it may propose to exclude from Community financing. The Member State has two months within which to reply to the Commission. After that period has expired the Commission must initiate a bilateral meeting at which the parties must endeavour to come to an agreement as to the measures to be taken. At the end of that meeting the Commission is required for- 43. The Commission communicated the mally to communicate its conclusions to results of the inspections it conducted from the Member State concerned. 15 to 19 April 1996 and from 2 to 6 December 1996 to the Italian authorities by letters dated 23 January 1997 (with regard to the first inspection) 27 and 18 September 1997 (with regard to the second inspection). 28The Italian auth- orities replied to the Commission by letters dated 13 March 1997 29 and 10 November 40. Furthermore, Article 8(2) prohibits the 1997. 30 Following up that exchange of Commission from adopting a decision c o r r e s p o n d e n c e the C o m m i s s i o n on excluding some expenditure before con- 23 November 1998, 3 1invited the Italian sidering the report drawn up by the Con- authorities to attend a bilateral discussion ciliation Body in pursuance of Decision within the meaning of Article 8 of Regu- No 94/442. lation No 1663/95. It then formally com- municated its conclusions to the Italian authorities by letter No VI/36257 of 9 July 1999. 32 On 6 August 1999 33 the Italian Republic referred the matter to the Con- ciliation Body, which issued its report on 11 January 2000. 3 4The contested decision states expressly that the Commission 4 1 . As the Court has consistently held, 26 imposed the contested adjustment after the Court considers that that balanced c o n s i d e r i n g the C o n c i l i a t i o n Body's procedure offers Member States all the report. 35 necessary guarantees for them to present their points of view effectively. The pro- cedure is therefore such that it ensures 27 — Letter No VI/03882 (Annex A1 to the application). observance of the audi alteram partem rule 28 — Letter No VI/35984 (Annex A3 to the application). 29 — Annex A2 to the application. and the rights of the defence. 30 — Annex A4 to the application. 31 — Letter No VI/44391 (Annex A5 In the application). 32 — Annex At) to the application. 26 — Sec. in particular. Case C-342/89 Germany v Commission 33 — Letter from the Director (¡encrai of the Italian Ministry of [1991] LCR I-5031, paragraph 18, and Case C-346/89 Finance (Annex A7 to the application), supplemented bya Italy v Commission [1991] LCR I-5057, paragraph 18; letter dated 3 November 1999 (Annex Å8 to the appli- Case C-69/94 France v Commission [1997] ECR I-2599, cation). paragraph 30 and Casc C-61/95 Greece v Commission 34 — Annex A9 to the application. [19981 LCR I-207, paragraph 39. 35 — See third recital in the preamble.

48. At any event, I would point out that in 45. At all events, the specific complaints other cases in the past the Court has made by the Italian Government do not regarded a period of one and a half years appear to me to be justified. between the Commission's inspections and communication of the results of those inspections as being insufficient to lead to the annulment of the contested decision. 38 In the light of all this evidence, the com- 46. As regards the delay in communicating plaint that the results of the inspections the Commission findings, it is clear from were communicated late should be rejected. the file 36 that a period of seven months elapsed between the inspections and com- munication of the results to the Italian authorities. Contrary to what the Italian Republic maintains, a period of that length cannot be considered to be excessive. 49. The second complaint, concerning the absence of any criticism, cannot be accepted either. A study of the file shows that, in its various communications, 39 the

47. The length of the period cannot be 37 — See summary report (pp. 13 to 17) and report of the assessed in abstracto without taking into Conciliation Body (paragraph 17). 38 — See, for example, Case C-28/94 Netherlands v Commission [1999] ECR I-1973, paragraph 67 et seq.). 39 — See in particular documents cited in point 43 of this Opinion, i.e. letters Nos VI/03882, VI/35984 and 36 — Point 43 of this Opinion. VI/36257, cited above.

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Commission made some precise criticisms inspected by the Commission were not of the Italian customs authorities. Those sufficiently representative. It points out criticisms are indeed the ones which are that each year some 80 000 applications discussed by the parties in the context of for export refunds are submitted to it. the third plea supporting the claim for annulment. 40

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Republic of Slovenia and to other Eastern 3. Whether the irregularities alleged European countries. 45 Lastly, Trieste, against the Italian authorities did actually Terni, Pisa and Viareggio are the main take place customs offices for the Florence region.

59. In its third plea the Italian Republic challenges whether the irregularities and 55. In addition, the Commission stresses negligence alleged against the customs that it took care to divide its inspections authorities did actually take place. It dis- between the different customs clearance putes the Commission's findings that the procedures operating in Italy, namely direct checks carried out by the customs posts at exports, off-site procedures and simplified Terni, Pisa, Viareggio and Livorno were procedures. 46 neither complete nor made without prior warning.

56. In those circumstances, I consider the 60. As regards whether the checks were Commission has supplied sound evidence only partial, the Italian Government states to show that the Italian customs offices it that, following the Commission's inspec- inspected in 1996 were representative. tion, its own staff were asked to look into the facts at issue. The customs officers present during the inspections conducted by the Commission denied that the oper- ations took place in the manner which the Commission stated. In fact, the customs officers stated that they carried out full 57. At no time during the present proceed- checks by making a passage right through ings has the Italian Government disputed the vehicle being checked. that evidence. Nor has it communicated any figure to the Court in that connection.

63. Before considering those arguments it is appropriate to recall the principles laid 66. In the present case the Commission has down by the case-law of the Court as provided several items of evidence which regards the burden of proof in disputes cast doubt on the reliability of the system concerning the clearance of EAGGF introduced by the Italian authorities for the accounts. physical inspection of agricultural prod-

47 — See in particular, Cases 347/85 United Kingdom v Com- mission [1988] ECR 1749, paragraph 16; C-281/89 Italy v Commission [1991] I-347, paragraph 19; C-55/91 Italy v Commission [1993] ECR I-4813, paragraph 13 and C-48/91 Netherlands v Commission [1993] I-5611, para- graph 14. 48 — Cases C-8/88 Germany v Commission |1990] ECR I-2321, 64. As we have seen, only intervention paragraph 23 and C-253/97 Italy v Commission [1999] ECR I-7529, paragraph 6. operations undertaken in accordance with 49 — Cases C-242/96 Italy v Commission (1998] ECR I-5863, the Community rules within the framework paragraph 59 and C-253/97 Italy v Commission, cited above, paragraph 7. of the common organisation of agricultural 50—Cases C-8/88 Germany v Commission, cited above, markets are financed by the EAGGF. In the paragraph 28; C-242/96 Italy v Commission, cited above, paragraph 59 and C-253/97 Italy v Commission, cited event of any dispute it is for the Commis- above, paragraph 7.

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ucts. It appears from the file that during the criteria laid down in Article 7(2) of checks in April and December 1996 Com- Regulation No 2221/95. Evidence of mission officials found the following this was found at the Como and Terni irregularities: 51 customs posts;

51 — See Summary Report (pp. 49 to 53). 52 — Ibid. (p. 54).

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such as 'controllo totale' or 'visita totale' to the physical check on the products of certify that the checks were full checks. Bertolli in Pisa stated that they had entered Back in 1996 it had found similar words in the truck and gone right through it in order reports on products which had been the to count all the boxes making up the subject of partial checks. load. 55

The customs officer who had carried out the physical check on 5 December 1996 on 70. Like the Commission, I think that the the products of Federici SpA at Terni stated probative value of the report of 19 March that he had unloaded some of the goods in 1999 cannot cast doubt on the findings order to create a passage right through the made by the officials of the EAGGF. container and to count the total number of boxes on the truck. He also certified he had checked the nature and characteristics of the goods according to the methods laid down in Regulation No 2221/95. 54 Simi- larly, the customs officers who carried out 71. First, the various documents submitted by the Italian Republic contain numerous contradictions. For example, as regards the 53 — Annex A10 to the application ('the report of 19 March physical checks carried out by the post at 1999 ). 54 — Sec report of 19 March 1999 (paragraph 1.3) and report of the Terni Customs of 12 February 1999 on the physical check carried out on 5 Deceinhcr 1996 at Federici SpA on the consignment of goods declared as EX-T1 No 82 of 55 — See report of 19 March 1999 (paragraph 2.3). 5 December 1996 (Annex 6 to the defence). 56 — Defence (paragraphs 38 to 41).

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74. The applicant states that initially it was sure that the physical checks carried out in its territory were in accordance with the criteria laid down in Regulations Nos 386/90 and 2221/95. According to its 72. Contrary to what the Italian Republic explanations, 'it was only at the beginning claims, 61 those various contradictions can- of 1999 that the Italian Government not be explained by the fact that the became aware the Commission intended Commission was late in forwarding the to impose a financial adjustment at a high level and that the Italian Government con- sidered it was necessary to make an inspec- 57 — See report of 19 March 1999 (paragraph 2.3). tion in order to obtain more information 58 — Letter from the Italian authorities, cited above (paragraph and a better understanding of the facts'. 64 3.4, third subparagraph). 59 — See report by the Viareggio Customs of 10 February 1999, paragraph A (Annex 5 to the Defence). 60 — Letter from the Italian authorities, cited above (paragraph 7, antepenultimate and penultimate subparagraphs) (free 62 — See points 46 to 49 of this Opinion. translation). 63 — See point 4. 61 — Application (paragraph 7) and reply (p. 3). 64 — Idem.

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79. In those circumstances, I consider that refunds granted during the contested finan- the Italian Republic has not provided cial years. evidence of the existence of a reliable and operational system of checks. I therefore suggest that the Court should reject the third plea supporting the claim for annul- ment. 82. With regard to the first argument, I have already stated that the inspections carried out by the Commission revealed serious failures in the Italian inspection system for the financial years 1995 and 1996. 67 Moreover, the Commission has provided evidence that those failures per- sisted during the financial years 1997 and 4. The amount of the adjustment 1998. 68 As the Italian Government has not shown that the Commission findings were incorrect, there was justification for the adjustment at issue to cover the period from 1995 to 1998. The first argument must therefore be rejected.

80. In its fourth plea the Italian Republic disputes the amount of the adjustment imposed by the Commission. It considers that that amount is excessive for two sets of 83. The second argument cannot be reasons. accepted either.

linked to difficulties in interpreting the orities cannot carry out physical checks on Community rules. all agricultural products. That is why Regulation No 386/90 provides that checks must take the form of spot checks and relate to a sample of not less than 5% of transactions. The inspection system is therefore based on the rule of 'a represen- tative sample', in that the result of the 85. The Italian Government's arguments checks actually carried out (5% of cases) is amount to abolishing all those criteria. By deemed to reflect the situation as regards claiming that the adjustment at issue should all applications for export refunds. be limited to 5% of the export refunds on the ground that the physical checks are only required to be made on 5% of trans- actions, the Italian Government's argu- ments amount to applying a 5% flat-rate adjustment in all circumstances. Such an adjustment would therefore uniformly replace the criteria laid down in the Belle Report.

A — Law

90. Article 9(2) of the EC Treaty (now, after amendment, Article 23(2) EC) pro- vides:

2. When compound products qualifying for a refund fixed on the basis of one or more of their ingredients are exported, that 'The provisions of Chapter, 1 Section 1 refund shall be paid in so far as the [elimination of customs duties between ingredient or ingredients in respect of Member States], and of Chapter 2 [elimin- which the refund is claimed come within ation of quantative restrictions between the terms of the Article 9(2) of the Treaty. Member States] of this Title shall apply to products originating in Member States and to products coming from third countries which are in free circulation in Member States.' The refund shall also be paid where the ingredient or ingredients in respect of which the refund is claimed came originally within the terms of the said Article 9(2) and 91. Export refunds on Community olive oil no longer do so by reason solely of their are p r o v i d e d for in R e g u l a t i o n incorporation in other products. No 136/66/EEC, 70 according to the imple- menting rules laid down in Regulation No 3665/87. Article 8 of Regulation No 3665/87 provides:

3. For the purposes of paragraph 2, the following refund are considered as refunds fixed on the basis of an ingredient: '1. A refund shall be granted only in respect of products which come within the terms of

70 — Regulation No 136/66/EEC of the Council of 22 September 1966 on the establishment of a common organisation of the market in oils and fats (OJ, English Special Edition — refunds applicable to products of the 1965-1966, p. 221). cereals, eggs, rice, sugar, isoglucose

B — Facts

— refunds applicable to products of the 92. During an inspection conducted from 2 milk and milk products and sugar to 6 December 1996, Commission officials sectors, exported in the form of prod- found that certain customs offices (includ- ucts falling within subheadings 0402 ing Pisa and Viareggio) were granting

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export refunds in respect of Community No 3665/87 and can therefore be granted olive oil blended with olive oil coming from an export refund. Olive oil is a basic third countries (in particular Tunisia), product which can take the form of either refined under inward processing arrange- a finished product or an ingredient, blend- ments. ing does not alter either the chemical composition or the nutritional character- istics of the product. Article 8(2) and (3) does not apply in this case since olive oil is not a compound product within the mean- ing of those provisions. The fact that the 93. The Commission considered that no olive oil has been blended with other oils is export refunds could be granted in that case irrelevant. on the ground that olive oil was not one of the products listed in Article 8(2) of Regulation No 3665/87. On 14 January 1997 the Commission instructed the Italian authorities to undertake recovery of the payments made. In 1998 it officially informed the Italian Republic that it would make a financial adjustment in this respect. The adjustment imposed was ITL 2 957 721 060. It excluded from Com- munity financing all payments made by D — Assessment way of export refunds in respect of the contested quantities of olive oil.

98. Paragraph 1 deals with a case in which order to be granted a refund, it is therefore products are exported, unaltered, to a third necessary for the ingredient to appear on country. In that case, paragraph 1, which the list of eligible products and for it to supplements the system of export refunds originate in a Member State or, failing that, provided for in the sectoral regulations, 71 be in free circulation in the Community. states that the refund is to be granted only in respect of products which come within the terms of Article 9(2) of the Treaty. The product must therefore originate in a Member State or, failing that, be in free circulation within the meaning of Article 10(1) of the EC Treaty (now, after 100. Unlike the Italian Republic, I think amendment, Article 24 EC). 72 that olive oil cannot always be regarded as a finished product for the purposes of Article 8(1) of Regulation No 3665/87. As the applicant itself has stated, olive oil may take the form of either a finished product or a basic ingredient entering into the composition of another product. In the first case the oil would fall within the scope of Article 8(1), whilst in the second case it would fall within the scope of Article 8(2) and (3). 99. On the other hand, paragraphs 2 and 3 deal with a case in which a product is a compound product, that is to say a product composed of several ingredients. In that case the export refund is fixed not on the basis of the product itself, but by reference 101. In the present case it is established to the basic products of which it is that the olive oil at issue was blended with composed. 73 Paragraph 2 provides that in oil originating from a third country (Tuni- order for a refund individualised in this sia) which was covered by Community way to be granted the ingredient must come inward processing arrangements. The oil within the terms of Article 9(2) of the at issue therefore is a basic product entering Treaty. Furthermore, paragraph 3 contains into the composition of another product. In an exhaustive list of products in respect of order to be eligible for an export refund it which the refunds are considered as being must therefore comply with the conditions fixed on the basis of an ingredient. 7 4In laid down in Article 8(2) and (3) of Regulation No 3665/87. 71 — That is to say, the sectoral regulations adopted within the framework of the common agricultural policy. Tints, as regards olive oil. Article 1 of Regulation N o 3665/87 refers to the relevant provisions of Regulation N o 136/66. 72 — That article provides that [p]roducts coming from a third country shall he considered to be in free circulation in a Member State if the import formalities have been complied with and any customs duties or charges having equivalent effect which are payable have been levied in that Member 102. However, as the Commission has state, and if they have not benefited from a total or partial drawback of such duties or charges'. stated, the oil at issue does not comply 73 — Sixth recital. with the condition laid down in paragraph 74 — Idem. 3. It does not appear on the exhaustive list

105. That regulation provides for different 103. Since the Italian Republic does not put tendering procedures depending on the use forward any other arguments in order to and/or destination of the alcohol con- dispute the adjustment imposed I suggest cerned. 78 As regards the special tendering that the Court should reject the plea sup- procedure applicable in this case, Article 20 porting the claim for annulment. provides that the Commission will initiate the procedure by publishing in the Official Journal of the European Communities a notice issuing a special invitation to tender specifying the formalities for the sub- mission of tenders and the tender specifi- cations. In principle the tender is to be IV — The sale of alcohol held by inter- awarded to the highest tenderer. Under vention agencies Article 24(2) the successful tenderer must, within 20 days, lodge a 'performance guarantee' to ensure that the alcohol will in fact be used for the purposes specified in the notice of invitation to tender. Article 33 states that the use of the alcohol for the A — Background and legal framework purposes specified constitutes a primary requirement within the meaning of A r t i c l e 20 of R e g u l a t i o n (EEC) No 2220/85 of 22 July 1985 laying down 104. Council Regulation (EEC) No 822/87 common detailed rules for the application of 16 March 1987, 75 seeks to attain the objectives of the common agricultural pol- icy in the wine sector and, in particular, to 76 — Article 1(1) of Council Regulation (EEC) N o 3877/88 of stabilise markets. Article 37 of that regu- 12 December 1988 laying down general rules for the disposal of alcohol obtained from the distillation oper- lation provides that disposal of alcohol held ations referred to in Articles 35, 36 and 39 of Regulation (EEC) N o 822/87 and held by intervention agencies by intervention agencies must not cause any (OJ 1988 L 346, p. 7). disturbance of the market in alcohol and 77 — Regulation (EEC) N o 1780/89 laying down detailed rules for the disposal of alcohol obtained from the distillation spirituous beverages produced in the Com- operations referred to in Articles 35, 36 and 39 of munity. Therefore it must be disposed of in Regulation (EEC) N o 822/87 and held by intervention agencies (OJ 1989 L 178, p. 1). That regulation was replaced with effect from 2 7 February 1993 by Commis- sion Regulation (EEC) N o 377/93 of 12 February 1993 (OJ 1993 L 4 3 , p . 6). However, only Regulation 75 — Regulation on the common organisation of the market in N o 1780/89 applies in this case. wine (OJ 1987 L 84, p. 1). See fourth recital. 78 —Article 1(1).

' 1 . If the evidence laid down by the specific Regulation is produced within the specified period that all primary requirements have been met, in circumstances where a second-

79 — OJ 1985 L 205, p. 5. — a maximum period of 40 days 80 — First recital. or less has been exceeded,

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— a minimum period of 40 days 108. Article 29 provides that once the or less has not been respected, competent authority is aware of circum- stances giving rise to forfeiture of the security, in whole or in part, it must without delay demand the party required to meet the obligation to pay the sum forfeited. That payment must be made •—• 5 % of the sum remaining after within 30 days from the date of issue of deduction of the 1 5 % for each the demand for payment. Where payment day by which: has not been made at the end of this period the competent authority must without delay take steps to recover the security.

— a maximum period of between 4 1 and 80 days has been exceeded,

— forfeiture of the entire amount remain- ing of the security for the quantity of alcohol which has not been used in the 111. On 7 March 1996 the Commission fuel sector by 31 December 1996. ordered that the overrun on the time limit laid down was such that the security would be forfeited before all the alcohol had been used for the specified purposes. By Regu- lation (EC) No 416/96, 86 it decided to extend the time limit and to relax the rules for the forfeiture of the security as follows: 112. From 12 October 1995 Commission officials requested the Azienda di Stato per gli Interventi nel Mercato Agricolo (State authority for intervention in the agricul- tural market, 'AIMA') to undertake the recovery of the various tranches of the security according to the dates laid down in — forfeiture of 15% of the security in Regulation No 416/96. It appears from the respect of the quantity of alcohol file87 that Palma systematically disputed the demands for payment made by AIMA and brought interlocutory proceedings 82 — Regulation concerning certain special sales by tender of before the Italian courts. On 30 August vinous alcohol held by intervention agencies, for use as motor fuel within the Community (OJ 1993 L 245, p. 131 ). 1997 the Tribunale di Roma (Italy) ordered S3 — Article 1(2) and fourth recital in the preamble. the temporary suspension of the recovery of 84 — Article 2. 85 — Article 3. 86 — Commission Regulation of 7 March 1996 amending Regulation No 2710/93 (OJ 1996 L 59, p. 5). 87 — Application (paragraph 19).

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117. As we saw above, 8 8 Article 29 of Regulation N o 2220/85 does not lay down 114. The Italian Republic disputes the any specific time limit for recovering adjustment imposed by the Commission. It claims that the delay in the recovery of secured amounts. That absence does not the contested security is the result of the h o w e v e r mean t h a t initiation of the behaviour of Palma, which systematically recovery procedure is left entirely to the disputed AIMA's requests for payment and discretion of the national authorities. brought several actions before the courts. Indeed, Article 29 provides that once the The applicant also points out that Palma competent authority is aware of circum- directly approached the Commission in letters of 3 June and 20 November 1996 stances giving rise to forfeiture of the asking for permission to destroy quantities security it must 'without delay' demand of alcohol which had not been used in the payment from the party concerned. Like- fuel sector. 88 — Point 108 of this Opinion.

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wise, where payment has not been made Italian authorities wrongly delayed in initi- within 30 days from the demand for ating the procedure for recovering the payment the competent authority must contested security. 'without delay' take the necessary measures to recover the security.

89 — See Le Petit Robert, Dictionnaire de la langue française. Paris, published by Dictionnaires Le Robert, 1999 [translater's later's note: this adverb finds no counterpart in the F.nghsh 90 —Application (paragraph 19). text of the provision]. 91 — Application (paragraph 19) and defence (paragraph 57).

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on 16 January 1997, which was over six 124. Contrary to what the Italian Republic months after the time limit expired. contends, the time taken is not attributable exclusively to the behaviour of Palma. Of course, documents on the file indicate that Palma disputed the demands for payment sent by AIMA and brought an action before the c o u r t seeking suspension of the recovery of the security. However, those various steps took place after the recovery procedure had begun and could not there- fore justify the length of time that elapsed between the time the security was to be forfeited and the time when AIMA actually embarked upon the recovery procedure. 122. As regards the balance of the security Similarly, the fact that the Tribunale di the time within which action was taken was Roma ordered recovery of the security to much shorter. Where the time limit laid be suspended does not justify the time down in Regulation N o 416/96 expired on originally taken by the Italian authorities to 31 December 1996 AIMA sent its demand implement the procedure. Moreover, I for payment on 29 January 1997 and its think that those national proceedings have demand for implementation on 7 March no effect on the present case since, if the 1997. 9 2 judgment in the interlocutory proceedings were to be overturned by the court adjudi- cating on the merits, the Italian authorities could recover the amount of the security and make up for the loss sustained as a result of the contested decision.

(1) dismiss the application;

(2) order the Italian Republic to pay the costs.

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