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on the basis of the information referred 4. Article 2 of Regulation No 1287/95 to in point (b) of paragraph 1, clear the reads as follows: accounts of the paying agencies.

The accounts clearance decision... shall ' 1 . ... not prejudice the adoption of a sub- sequent decision pursuant to point (c);

(c) shall decide on the expenditure to be [This Regulation] shall apply from the excluded from the Community financ- financial year beginning on 16 October ing referred to in Articles 2 and 3 1995. where it finds that expenditure has not been effected in compliance with Com- munity rules.

7. Regulation No 404/93 provided for compensation to be granted to producers for any loss of income following the intro- duction of the common organisation of the market in bananas. 3. Compensation shall be calculated on the basis of the difference between:

8. Article 12(1), (2), (3), (4), (5) and (7) of — the "flat-rate reference income" for Regulation No 404/93 provides: bananas produced and marketed within the Community,

and ' 1 . Compensation for any loss of income shall be granted to Community producers who are members of a recognised pro- ducers' organisation which is marketing in the Community bananas complying with the common standards laid down.... — the "average production income" obtained on the Community market during the year in question for bananas 5 —OJ 1993 L 47, p. 1. produced and marketed within the 6 —OJ 1993 L 170, p. 5. Community.

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4. The "flat-rate reference income" shall 7. Advances may be paid, against a secur- be: ity, on the basis of compensatory aid granted in the previous year.'

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I I— Facts and pre-litigation procedure 14. At a bilateral meeting held on 31 March 1998 the Commission gave its agreement to the authorities of the Autonomous Com- munity of the Canaries for it to conduct an audit within those undertakings which had bought bananas at a low price during the 10. During an inspection visit to the 1996 financial year. The audit took place in Canary Islands in January 1997 Commis- May 1998. The audit report sent to the sion officials found that invoices relating to Commission on 2 July 1998 did not reveal a significant quantity of bananas intended any consignment which had been placed on for the Canary Islands market, drawn up by the marketed at under ESP 10/kg. a number of producers' organisations con- tained prices which could only be called token prices (ESP 1, 2 or 5/kg).

15. The Commission officials considered that that report confirmed their own views.

11. The explanations given to the Commis- sion officials showed that the checks on those operations had been made at a purely administrative level, so the Commission 16. By letter of 15 June 1999 the Commis- considered that there was a genuine risk sion proposed a financial adjustment based that those invoices related either to bananas on the difference between the compensa- which had not actually been marketed, or tory aid paid to Spanish producers and the to bananas which were of poor quality. The compensatory aid which would have been Commission inspectors considered that the paid to them if the quantities concerned Spanish authorities should have carried out and the relevant prices had been excluded, additional checks. in whole or in part, from the calculation of the average Community aid.

setting up a conciliation procedure in the requests the Commission to check the basis context of the clearance of the accounts of for its proposed financial adjustment in the the European Agricultural Guidance and light of the observations it made to it. Guarantee Fund (EAGGF) Guarantee Sec- tion 7('the Conciliation Body') delivered its final report on 4 February 2002. It states that it is extremely difficult to settle the dispute between the parties since their positions are based on assumptions rather than confirmed facts. It mentions that the evidence in its possession gives no reason to exclude the fact that the quality of the bananas in question was below standard, 21. On 15 May 2000 the Commission but it is unlikely that all the quantities adopted its consolidated report. It con- concerned were of poor quality. It is also cluded that the Spanish authorities did not possible that frauds were committed in manage to show that the contested sales at connection with the qualities actually sold, extremely low prices had actually been but no specific evidence was submitted to it made or that they met the conditions to that effect. specified. The Commission stated that it was proposing a financial adjustment based on withdrawal of an amount equivalent to 100% of the compensatory aid relating to the quantities of bananas marketed at below ESP 5/kg and of an amount equiv- alent to 25% in the case of quantities of bananas marketed at between ESP 5 and 19. According to the Conciliation Body, 10/kg; that adjustment also meant recalcu- the reasoning of the Spanish authorities lating the amount of compensation by was therefore also plausible. In particular, subtracting the said goods in order to it was possible that small quantities of determine the average ex-warehouse pro- bananas complying with the standards cessing price and prevent the assumed were disposed of at prices below the cost 'sales' from having an impact on the final price, since selling them would have amount of compensatory aid. The total enabled the producers to receive compen- amount of the adjustment was ESP 428 882 satory aid which they would otherwise 534. have lost. Such a practice is not prohibited.

26. First, by refusing to finance expendi- 30. The payments relating to bananas do ture effected during the 1995 financial year not form part of the excluded quantities but the Commission committed an error and of the recognised expenditure and were infringed the principles of legitimate expec- therefore cleared. tations and legal certainty.

31. By refusing to finance that expenditure 27. Second, the Commission made an error the Commission is infringing the principle in the data it used in order to calculate the financial adjustment and drew incorrect conclusions from its findings. 8 — OJ 1999 L 61, p. 37.

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34. According to the Commission, the 36. The Commission therefore contends payments made to producers during the that, as regards the bananas marketed in 1995 marketing season, from 1 January 1995, since the aid was only finally paid in 1995 to 31 December 1995, were merely 1996, Decision 1999/187 relating to the advances on the final amounts of compen- 1995 financial year, could not clear the satory aid. The aid cannot be regarded as amounts paid by way of the aid in question. being finally received until the balance of the aid has been paid and the security released, which took place during the 1996 financial year, from 16 October 1995 to 15 October 1996, and not during the 1995 financial year. 37. I support the Commission's position that Decision 1999/187 does not cover the expenditure adjusted by the contested decision. 35. The Commission states that in order to be able to consider that there is entitlement to the aid, as provided in Regulation 9 — OJ 1995 L 80, p. 17.

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38. It is clear from the annex to the 1995' are, in the context of Regulations contested decision that the adjustments Nos 404/93 and 1858/93, regarded as disputed by the Kingdom of Spain concern advances. expenditure relating to financial years 1996 and 1997. However, Decision 1999/187 clears the accounts for financial year 1995. As regards other financial years, Decision 1999/187 does not relate to the expenditure covered by the contested decision. 43. In that regard, it is appropriate to refer to Article 7(2) of Regulation No 1858/93, which reads:

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— where applicable, the adjustment to the 46. Thus, if the Commission found irregu- amounts paid for bananas marketed larities in the marketing of bananas during during the periods referred to in (a), on 1995 and 1996, the producers had only the basis of the definitive amount of received advances in respect of such mar- aid'. 11 keting during those years. The balance of the aid, however, was not paid until 1996 and 1997, respectively.

44. It is clear from that provision that the marketing of bananas gives rise, during the year in which it takes place, to payment of an advance to the producer. The producer 47. The Commission observes, quite does not receive the balance of the aid until rightly, that since the amount of aid was the following year. not determined finally until 1996 and 1997 that aid was cleared during the procedures relating to financial years 1996 and 1997, and not during the procedure relating to financial year 1995, which was the subject of Decision 1999/187. 45. That interpretation is also confirmed by the sixth recital in the preamble to Regulation No 1858/93, to which the Commission refers, which provides:

50. The Spanish Government also wonders 53. According to the Spanish Government, why in that case the Commission did not the European legislature introduced a dis- make clear in Decision 1999/187 that it tinction between the aid to rural develop- was not including the expenditure relating ment referred to in that Article 7 and other to compensatory aid for bananas on the aid. As regards rural development aid, grounds that the final payment had not payments preceding the final payment only been made before 1996, although it had constitute advances. However, in the case expressly made that clear in that decision of other types of aid such as compensatory with regard to aid for producers of certain aid for bananas, the various payments up to herbaceous crops. the final payment should not be regarded as advances. Those payments form part of the compensatory aid granted and could be settled. In this case they were settled by Decision 1999/187 relating to financial year 1995.

51.1 am, however, of the view that the only fact that the Commission referred to her- baceous crops but not to bananas in the recitals in the preamble to Decision 1999/187 is insufficient to conclude that that decision cleared the amounts paid by way of advances to banana producers in 54. In that regard, it is appropriate to point 1995. The existence of expenditure to be out that Article 7(4), fourth subparagraph, financed by the EAGGF depends on the of Regulation No 1258/1999 provides: regulations in force and not on one of the recitals in the preamble to a Commission decision.

60. The premise on which the Spanish Government bases its first plea, which is essentially that there is an overlap between Decision 1999/187 on the one hand and the contested decision on the other is not 56. For the rest, the fact that, as regards aid therefore correct. for rural development, the period of twenty-four months runs from the final payment, does not yet mean that, in the case of the aid referred to in the said Article 7(4), fourth subparagraph (a), every payment, whether final or not, must be regarded as 'expenditure' which triggers the 61. It follows that Decision 1999/187 start of the period of twenty-four months. could not create any legitimate expec- tations that the expenditure at issue in the contested decision would never be adjusted. Since the rules are logical and consistent there was no breach of the principle of legal certainty either.

57. As the Commission rightly points out, 'the fact that the part payments are regarded as expenditure to be cleared or that payment of the balance is awaited depends exclusively on the characteristics 62. Those findings are sufficient to propose of the aid and the sector, and on the rules that the Spanish Government's first plea governing it'. should be rejected.

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65. The Commission states that the inquiries into the contested compensatory aid had not been concluded on that date, if '[T]he Commission, after consulting the only because it had not yet notified the EAGGF Committee, is to make up the Spanish Government of the final result. accounts of the authorities and bodies, before the end of the following year, on the basis of the annual accounts. However, if the information that should be supplied by the Member States and the checks that it considers necessary to undertake do not 66. In addition, the Commission refers to lead to any definite results, the Commission the twelfth recital in the preamble to is entitled to draw up the accounts on the Decision 1999/187, which states that basis of the information obtained during 'Article 5(2)(c) of Regulation (EEC) the clearance procedure, reserving to itself No 729/70 [as amended by Regulation the possibility of correcting that decision in No 1287/95] provides that the Commission a subsequent clearance'. 14 may refuse to finance expenditure effected within a period of 24 months preceding its written communication of the results of its 13 — [1998] ECR I-207. 14 — See also Case C-130/99 Spain v Commission [2002] ECR checks to the Member States concerned; I-3005, paragraph 164.

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68. In my view it is clear from this that the 72. In Case C-278/98 Netherlands v Com- Commission can indeed retain the possibil- mission 15 the Court held that '[i]n order to ity of making adjustments as part of a later give Article 2(2) of Regulation No 1287/95 clearance operation if some information is a useful sense, the correction procedure lacking, for example, due to the fact that must be taken to apply to financial years inquiries are still in progress. subsequent to 16 October 1992 which were not the subject of a clearance decision prior to the entry into force of that regulation'.

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lated from the letter of 8 July 1997, which 79. The significance of the period of was the date on which the Commission first twenty-four months, which, according to communicated the results of its inspections the sixth recital in the preamble to Regu- to the Kingdom of Spain. Expenditure prior lation No 1287/95, is designed to deter- to 8 July 1995 cannot therefore be taken mine 'the maximum period to which the into account for the adjustment. consequences to be drawn from the checks on conformity [carried out by the Com- mission] may be applied', has already been stated in the case-law of the Court. 17

76. At that date a good part of the expenditure for financial year 1995 relating to the harvests for that year had already been effected, according to the Spanish 80. Thus, in paragraph 133 of Case Government. C-130/99 Spain v Commission, cited above, the Court held that '[t]he purpose of that limitation is to protect Member States against the absence of legal certainty which would exist if the Commission were able to call into question expenditure 77. I share the Spanish Government's view incurred several years before the adoption that the period of twenty-four months of a compliance decision'. provided for in Article 5(2)(c) of Regu- lation No 729/70, as amended by Regu- lation No 1287/95, applies in this case.

81. It follows that, if the expenditure adjusted by the contested decision did relate to financial year 1995 it could no 78. The contested decision is, in fact, based longer be the subject of an adjustment since on Article 5(2)(c), the fifth subparagraph of it was effected before 8 July 1995. which lays down the period of twenty-four months, as follows:

As regards the use of incorrect data

85. The simple fact of expressing reserva- tions in the recitals in the preamble to a clearance decision does not free the Com- 89. The Spanish Government contends that mission from the obligation to comply with the Commission incorrectly used marketing the period of twenty-four months provided data relating to financial years 1996 and in Article 5(2)(c), fifth subparagraph, of 1997 and applied them to the 1995 and Regulation No 729/70. 1996 marketing seasons, which are calen- dar years and do not coincide with the financial years concerned. That practice is not only illogical, it is also incorrect.

86. I would point out, however, that the Commission's subsidiary argument is not relevant as regards resolving the dispute since to my mind it has been established that the contested decision does not cover 90. The Spanish Government claims that expenditure relating to financial year 1995. when the Commission officials asked the

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Spanish authorities to provide that data the 93. Even if the irregularities which the terms they used were 'years 1995 and Commission inferred from this affect, for 1996', the term 'year' corresponding, as reasons already explained above, expendi- regards the settlement of accounts, to the ture relating to financial years 1996 and financial year. It states that when the 1997, the substantive data providing the Spanish authorities provided the figures basis for the conclusion that an irregularity they expressly indicated the two months exists relate to the years 1995 and 1996. of aid applications corresponding to each of the EAGGF financial years so that there could be no confusion. At no time, how- ever, did the Commission officials indicate that the data supplied to them was incor- rect.

97. In my view, therefore, the first limb of volume of bananas in respect of which the second plea is unfounded. compensatory aid was applied for during financial year 1995, and 0.9% and 0.5%, respectively, of the same volume for finan- cial year 1996.

As regards the incorrect interpretation of the data

101. Second, the Spanish Government con- tends that compliance with quality stan- dards is ensured under the provisions of 98. The Spanish Government also con- Commission Regulation (EC) No 2898/95 siders that the findings made by the Com- of 15 December 1995 concerning verifi- mission during its inspections do not justify cation of compliance with quality stan- the contested adjustments. dards for bananas 18 and by various sample checks. Other checks were carried out following short-term problems and com- plaints or on the basis of evidence of irregularity. In addition, an 'automatic alarm' system was introduced, involving specific checks where reports drawn up by 99. The Spanish Government rejects the the competent authorities indicate that Commission's conclusions based on the prices have fallen below the established finding of an extremely low selling price. threshold. It denies that the Spanish authorities limited themselves to purely administrative checks and that there is a genuine risk that the invoices issued relate either to bananas which were not actually marketed, or to bananas which were of poor quality.

102. In addition to those checks, the Inter- vención General de la Administración del Estado and the Servicio de Inspección 100. First, the Spanish Government states Financiera de la Comunidad Autónoma de that the 'low prices' relates only to very Canarias carry out ex post checks with the small quantities. The quantities of bananas recipients of compensatory aid. sold at prices of between ESP 1 and 5/kg, and between ESP 5 and 10/kg represent 0.48% and 0.4%, respectively, of the total 18 — OJ 1995 L 304, p. 17.

105. Both Coplaca and SAT Plátanos Taburiente submitted invoices at 'low prices' in respect of the period being checked. All the inspection reports indicate that the commercial transactions were 108. Fifthly, the Spanish Government men- indeed carried out during the reference tions another comment made by the Con- period. Those transactions were correctly ciliation Body, namely that it is perfectly listed in the undertakings' accounts. The possible that small quantities of bananas quantity of bananas supplied and packaged complying with quality standards were coincide with the quantity of bananas in marketed at prices below the cost price respect of which aid was received. The (harvesting, packaging and transport) since quality checks are confirmed in writing. their sale would have enabled producers to Lastly, the relevant supporting documents receive compensatory aid which they could establish that the volume of bananas for which aid was sought was indeed marketed not have received otherwise. on the Canaries market and on the Iberian peninsula.

109. In its reply, the Spanish Government refers to the weekly lists of prices charged 106. Thirdly, the Spanish Government by wholesalers on the Canaries market, refers to the observation by the Concili- which it had previously submitted to the ation Body that it is unlikely that substan- Conciliation Body, and a graph showing I - 6124

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112. The Commission rejects the Spanish Government's argument that the financial adjustment was not justified given that adequate checks had been made and that the extremely low prices could be due, in particular, to short-term factors. 115. The Commission mentions that, in the light of that information, it considered that the token prices related to fictitious sales or to sales of sub-standard products, whilst accepting that reasonable doubt might exist regarding the quantities marketed at between ESP 5 and 10/kg, but that there 113. The Commission submits that the could be no doubt regarding the quantities need for a financial adjustment stems from marketed at under ESP 5/kg.

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117. The Commission then responds to the five observations made by the Spanish Government. 121. Fourth, the Commission considers that the explanation for such low prices lies neither in excess supply, nor the presence on the market of substitute prod- ucts, nor climatic reasons.

118. First, the Commission states that it shares the Spanish Government's view that the quantities of bananas sold at abnormally low prices were 'very small'. I t a d d s , however that i s precisely for that 122. Fifth, the Commission recognises that reason that the adjustment is small and some producers might wish to sell their only relates to those quantities. I - 6126

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products at any price in order to receive and prices between producers and inter- compensatory aid which they would other- mediary purchasers. The same criticism wise have lost. It adds, however, that such a applies to the internal audit report which sale should at any rate be genuine and the Spanish Government produced with its concern bananas of monitored quality. At reply. the prices which were recorded, the Com- mission does not consider it possible that those two conditions were met.

126. Lastly, as regards the method used to determine the financial adjustment, the Commission considers that, despite what the Spanish Government contends, it was 123. In its rejoinder the Commission con- not incorrect. tends that its arguments are by no means rebutted by the price statistics which the Spanish Government attached to its reply. Those statistics show the significant fluctu- ations in the price of bananas from the Canary Islands but do not explain the 127. The Commission submits that the exceptionally low selling prices that the references made by the applicant to certain Commission found. criteria laid down in document VI/5330/97 are irrelevant because they only relate to flat-rate adjustments, an option which the Commission did not use in this case because it was able to assess the damage actually sustained.

infringement of the rules on the common it is for that State to adduce the most organisation of the agricultural markets: detailed and comprehensive evidence that its inspections or figures are accu- rate and, if appropriate, that the Com- mission's statements are incorrect (Germany v Commission, cited above, paragraph 35, Netherlands v Commis- '10. It is for the Commission to prove an sion, cited above, paragraph 41, and infringement of the rules on the com- Greece v Commission, cited above, mon organisation of the agricultural paragraph 9)'. 19 markets. Accordingly, the Commis- sion is obliged to give reasons for its decision finding an absence of, or defects in, inspection procedures oper- ated by the Member State in question (see, in particular, Case C-247/98 Greece v Commission [2001] ECR I-1, paragraph 7, and the case-law 130. In the light of that case-law, I am of cited there). the view that the Commission adduced 'evidence justifying serious and reasonable doubt on its part' regarding compliance with the rules of the common organisation of the market in bananas and, in particular, Article 12(1) of Regulation No 404/93, 11. However, the Commission is not which provides: required to demonstrate exhaustively that the inspections carried out by the national authorities are insufficient, or that the data submitted by them are irregular, but to adduce evidence jus- tifying serious and reasonable doubt on its part regarding those inspections or '[c]ompensation for any loss of income data (see Case C-54/95 Germany v shall be granted to Community producers Commission [1999] ECR I-35, para- who are members of a recognised pro- graph 35, Case C-28/94 Netherlands v ducers' organisation which is marketing in Commission [1999] ECR I-1973, para- the Community bananas complying with graph 40, and Greece v Commission, the common standards laid down....'. 20 cited above, paragraph 8).

136. On the other hand, the Spanish Gov- 133. On the one hand, as the Commission ernment does not rebut the Commission's rightly observes, the existence of bananas explanations that: marketed at abnormally low prices did not lead to additional on-the-spot checks or inspections during the seasons concerned, despite the suspicions of irregularity roused by such prices. 'at a bilateral meeting with the Spanish authorities the Commission officials showed themselves willing to accept the evidence which the authorities were able to provide them with and were even ready to accept as evidence the results of a check designed to compare purchases of bananas 134. In addition, one may question by intermediaries and those intermediaries whether the ex post checks carried out by subsequent sales of bananas. the Spanish authorities were exhaustive. As the Commission explains in its rejoinder, the internal audit report to which the Spanish Government refers in its reply 'solely records that [the sales] took place between intermediaries and retailers, and not between producers and intermediaries. Despite the fact that the inspection report [It] wonders why the inspectors only was based on a two-month period (July-

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August 1996), during which there was a the Commission's view that such factors do downward trend in banana prices due to not justify prices falling to an abnormally the increase in both the variety and quan- low, even a token, level. tity of supply, as stated in the report itself, the report confirmed that "second grade" banana prices, in other words, those of inferior quality, remained within a range of ESP 10 to 50'.

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token price, for bananas which do not prices it is more doubtful that the bananas comply with the quality standards, some in question did meet the quality standards. intermediaries may feel inclined to market them even if there is a surplus supply of good quality bananas.

147. Lastly, it must be said that from 1997 onwards the Canaries Government intro- duced an 'automatic alarm' system which is triggered when prices fall below a specified 144. I now come to the Conciliation Body's threshold. It appears to be recognising in other comment, that 'it is quite possible this way that the presence of excessively that some, albeit only a few, quantities of low prices cannot be thought of merely as bananas which met the standards were the expression of any particular short-term disposed of at prices which did not cover factor. the picking and packaging costs or harbour expenses, since selling them enabled the producers to receive compensatory aid which they would otherwise have lost. That practice cannot be regarded as being prohibited by regulations which do not 148. I am therefore of the view that the provide for a minimum price and which Commission has provided enough evidence includes a mechanism for putting a ceiling to prove infringement of the rules of the on quantities which might receive compen- common organisation of the market in satory aid'. bananas.

149. In the context of the second limb of 145. In my view this is a consideration the second plea, the Spanish Government, which carries a great deal of weight. The however, disputes not only the existence of fact that the Community regulations do not a breach of the rules of the common provide for a minimum price constitutes a organisation of the market in bananas but manifest lacuna, but traders cannot be also the level of the adjustment which the criticised for having taken advantage of it. Commission imposed.

153. I am, moreover, of the view that in any event the Commission did not commit 156. The Spanish Government submits that an error in setting the level of the adjust- the contested decision contains insufficient ment. grounds. The Commission did not explain either in the contested decision or during the procedure leading to its adoption the 2 2 — Case C-130/99 Spain v Commission, cited above, para- grounds on which the percentages of graph 42. bananas excluded from Community financ- I - 6132

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ing are, on the one hand, 100% as regards context of the preparation of decisions on bananas marketed at a price below ESP the clearance of accounts, the reasons for a 5/kg and, on the other hand, 25% as decision must be considered adequate if the regards bananas marketed at a price of Member State to which the decision is between ESP 5 and 10/kg. The contested addressed was closely involved in the decision is totally lacking in grounds on decision-making process and is therefore that point, which prevents the Spanish aware of the reasons why the Commission Government from ascertaining the justifi- considered that it was not required to cation for the measure. charge the sum in dispute to the EAGGF (see Germany v Commission, cited above, paragraph 21). 23

157. The Commission disputes the plea put forward by the Kingdom of Spain. The Commission points out that case-law does not require detailed grounds since the 160. There can be no dispute, in the light of Member State is closely associated with the facts set out above, that the Spanish the process of drafting the decision. It authorities were closely involved in the mentions that in the present case the process of drafting the contested decision. Kingdom of Spain knew from 15 June 1999, and even earlier, that the ground for the adjustment was the exceptionally low level of the selling prices.

— dismiss the application;

— order the Kingdom of Spain to pay the costs.

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