JUDGMENT OF 7. 2. 1973 — CASE 40/72 SCHROEDER v GERMANY

In case 40/72 Reference to the Court for a preliminary ruling under Article 177 of the EEC Treaty by the Verwaltungsgericht, Frankfurt on Main in the case pending before the said Verwaltungsgericht between

THE COURT composed of: R. Lecourt, President, R. Monaco, President of Chambers, A. M. Donner, J. Mertens de Wilmars (Rapporteur), H. Kutscher, Judges, Advocate-General: K. Roemer Registrar: A. Van Houtte

gives the following

JUDGMENT

Issues of fact and of law

I — Facts and procedure

II — Observations submitted under Article 20 of the Statute

First question

Second question

Third question

Fourth question

Grounds of judgment

The validity of Article 2 of Regulation No 1643/71

A — On the necessity of the disputed measure and the characteristic of the threat of a serious disturbance as a consequence of imports (Third paragraph of the observations of the Frankfurt-on-Main court on the second paragraph)

B — On the appropriateness of the disputed measure: infringement of the provisions of Article 39 (1) (c) in conjunction with Article 40 (3) of the Treaty and Article 1 (1) of Regulation No 1427/71 (first question)

C — Infringement of general legal principles (first and second paragraph of the observations of the Court making the reference on the second question)

D — The prohibitive effect of the disputed measure (third question)

On the question of interpretation

Costs

I —. Facts and procedure

(a). The total or partial suspension of imports or exports;

(b). a system of minimum prices below which imports may be subject to the condition that they may be at a price higher than the minimum price for the product in question.

aa). …

bb). that import is pursuant to a contract providing for the sale and delivery free-at-frontier of the Community or at a place situated outside it at a price above that contained in the Annex to the present Regulation for the quality in question and

cc). that this price will in fact be paid.

1. (a) Does Article 2 of Regulation No 1643/71 infringe the joint provisions of Article 40 (3) and Article 39 (1c) of the EEC Treaty? (b) Does Article 2 of Regulation No 1643/71 moreover, infringe the authority on which it is based, in particular Article 1 (1), first sentence of Regulation No 1427/71 of the Council of 2 July 1971?

2. In addition: does Article 2 of Regulation No 1643/71 violate fundamental principles of law in particular the priciple of proportionality and the principle of protection of good faith,

3. In addition: is Article 2 of the Regulation invalid because the minimum prices fixed in the Annex to this provision are higher than the prices obtaining in the Member States and have a prohibitive effect,

4. In addition: must Article 2 (1) of Regulation No 1428/71 of the Council like Article 41 of the agreement of 9 July 1961 creating an association between the EEC and Greece be interpreted in a sense that there is an order of priority between the measures which are mentioned there?

II —. Observations submitted under Article 20 of the Statute

1. Serious market disturbances must exist or threaten. These market disturbances must be caused by importations from third countries.

2. The protective measures must be necessary.

3. The protective measures must be appropriate to remove the actual or threatened disturbance.

4. If it is necessary as a protective measure to establish minimum prices these must be based on principles which take into account in particular the average national cost prices in a Member State having regard to a reasonable price paid for the raw material to the agricultural producer;

5. The minimum prices must not have a prohibitive effect;

6. It is necessary to enquire as to the measure — complete or partial suspension of imports or a system of minimum prices — which would mean the least interference in the freedom of the subject.

1. The existence or threat of serious market disturbances has not been investigated by the Commission. It has relied solely on complaints made by Italy and France. The prices stated by the Italian Government were list prices which did not only contain the cost price of the Italian industry. The Federal Republic of Germany has made objections to this effect.

2. The plaintiff maintains that the protective measures were not necessary. Even if one were to admit that at least in Italy and France there had been serious market disturbances caused by imports from third countries it would have been sufficient to limit the protective measures to imports into Italy and France in accordance with Regulation No 1428/71, Article 2 (2), last sentence.

3. The measures taken are not practical. The actual change in market prices after the coming into force of the protective measures shows that the object has not been achieved. Moreover, the system of minimum prices established by the Commission by Regulation 1543/71 gives rise to abuse and circumvention which it is impossible to control and which is in some cases even legal.

4. The Commission's report to the Council shows that the minimum prices are not related to the cost prices of the manufacturers in the Community but to a list price which the Italian Government wanted and proposed and which the Italian manufacturers would obtain as a result of the institution of the protective measures.

5. In the plaintiff's view every minimum price regulation has a prohibitive effect since its object is to restrict imports so long as the market price in the Community is below the minimum price. This prohibitive effect is unobjectionable so long as it is temporary. If it is permanent it would constitute an absolute prohibition which would be incompatible with Article 44 (2) of the Treaty.

6. Of the two measures foreseen in Article 2 (1) of Regulation No 1428/71 of the Council, the complete or partial suspension of imports limits the freedom of the importer to a lesser extent than does the minimum-price regulation. This order of priority appears not only from the said Article 2 of Regulation No 1428/71, but also from Article 44 (1) of the EEC Treaty. The most serious infringement arises from the fact that in the case of a partial limitation such as is provided by Regulation No 1558/71 imports remain possible even if restricted in volume. A system of minimum prices would completely and in the present case also permanently prohibit them. This system would moreover compel importers to revise contracts made before the measures were instituted.

1. that the principle of proportionality is infringed since the measure in question burdens import trade unnecessarily and is therefore not required;

2. that the principle of legal certainty is infringed since the import trade can no longer rely on the fact that it can conclude and conduct its affairs under normal conditions of competition;

3. that there is a further infringement of the principle of proportionality since the regulation is not limited in time;

4. finally, there is an infringement of the principle of proportionality since there was possible neither a serious market disturbance nor the threat of one.

1. The first objection is partly contained in the objection which is the subject matter of the first question namely in so far as it is maintained that the measure is not apposite to the desired object. On the necessity of the measure the Commission remarks: if one proceeds from the basis that no measure was necessary at all then this argument is covered by what is said under 4 above; if on the other hand a less drastic measure is to be understood then it is covered by the question as to the priorities of the measures.

2. The second objection is inappropriate. The fact that certain imports from Greece could be effected circumventing the minimum price does not deprive the importer of the possibility of concluding and transacting his business under normal conditions of competition (which means: in the confidence that the system of minimum prices functions on the whole).

3. With regard to the absence of a time-limit the Commission observes first that it was the main feature of the protective measure that it should last so long as the market disturbance or threat of such existed. The only limitation arose from the principle enunciated in Article 2 (2) of Regulation No 1428/71 of the Council these measures (must)… be taken only to the extent and for the period which are absolutely necessary. If and in so far as the regulation of the Commission does not respect this limitation in the regulation of the; Council it is or will be defective. In view of this provision a formal limitation on the period as is customary for protective measures would have been neither necessary nor appropriate.

4. The objection that no serious market disturbance existed or was threatened is not very convincing.

1. In accordance with Article 177 of the Treaty establishing the EEC the Verwaltungsgericht Frankfurt-on-Main, by order made 19 June 1972 has referred several questions as to the validity of Article 2 of Regulation (EEC) No 1643/71 of the Commission of 28 July 1971 on the introduction of a minimum-price system for the import of tomato concentrate from Greece (OJ L 171, 30. 7. 1978, p. 2) and the question as to the interpretation of Article 2 (1) of Regulation (EEC) No 1428/71 of the Council of 2 July 1971 establishing the conditions of application for the protective measures for products processed from fuit and vegetables (OJ L 151, 7. 7. 1971, p. 6) and likewise of Article 41 of the Agreement establishing an association between the European Economic Community and Greece of 9 July 1961 (OJ No 26, 18. 2. 1963, p. 294/63).

2. Regulation No 1427/71 of the Council of 2 July 1971 (OJ L 151, 7. 7. 1971, p. 5) provides for the introduction of protective measures for products processed from fruit and vegetables and permits in trade with third countries the application of appropriate measures, when the market in these products is subject to or threatened with serious disturbances by reason of imports, which could jeopardize the objects of the common agricultural policy set out in Article 39 of the Treaty. Regulation of the Council No 1428/71 (OJ L 151, p. 6) issued on the same day sets out in Article 1 the criteria for judging whether there is, or there is a threat of, a serious disturbance, and empowers the Commission in Article 2 either completely or partly to suspend imports or to introduce a system of minimum prices, which make imports dependent on their being above a fixed minimum price.

3. In July 1971 the Commission was of the opinion that a serious disturbance threatened the market for tomato concentrates in the Community by reason of imports of these products from third countries. It therefore issued in Regulation 1558/71 of 20 July 1971 (OJ L 164, 22. 7. 1971, p. 14) protective measures in the form of restrictions applicable to imports from all third countries with the exception of Greece. In view of the special trade regulation of the Agreement of Association between the Community and Greece it provided in Regulation No 1643/71 of 28 July 1971 another protective measure for imports from Greece: the issue of an import licence depends under Article 2 of this Regulation on the written understanding of the importer to ensure that this import is pursuant to a contract which provides that the purchase and delivery free-at-frontier of the Community or at a place outside the Community is at a price above the price given in the annex to this regulation for the particular quality . . .. The request for a preliminary ruling is concerned with the validity of this provision.

A —. On the necessity of the disputed measure and the characteristic of the threat of a serious disturbance as a consequence of imports (Third paragraph of the observations of the Frankfurt-on-Main court on the second paragraph)

4. The reasons given by the national court which could influence the validity of the disputed provision give rise first to an examination of the question as to whether the measure was necessary, because the market for tomato concentrates in the Community was subject to or threatened with a serious disturbance by reason of the imports.

5. As a justification of its measure the Commission referred to the continued increase of imports of tomato concentrate from Greece — in the course of the economic years 1968-1970 from 4000 to 22000 tons — at prices which represented from 60 to 70 % of the cost prices of the Community industry. The Commission observes that this difference in price has led to the closing of a great number of tomato processing concerns in Italy, which in turn has diminished the possible outlets for fresh tomatoes produced in this part of the Common Market. Having regard to the fact that this position as far as could be seen would continue, the Commission came to the conclusion that serious disturbances threatened the market of the Community by imports originating from Greece both for the processing industry as for the outlet of basic producers which could lead to prices on the internal market detrimental to the objects of Article 39 of the Treaty.

6. The administrative court observes that the figures mentioned in the recitals of the Regulation account for less than 10 % of the tomato concentrate production in the Community and it therefore queries whether such a volume of imports could disturb the internal market.

7. The necessity of the protective measures as the 7th and 8th recitals of the disputed Regulation made clear was to be judged not only by reason of the imports from Greece but also from those from other third countries since the effects on the internal market of the Community arose above all from the total volume. Moreover this was the object of the protective measures provided on the one hand in Regulation No 1558/71 and on the other in the disputed Regulation. The necessity of a regulation with special provisions for Greek imports arose only out of — confirmed by Article 3 of Regulation No 1423/71 — the obligation of the Commission to apply the measures provided for with due regard to the obligations arising out of agreements which bind the Community on an international level, here the Agreement of Association between the Community and Greece.

8. The entire imports from third countries between 1967 and 1970 increased from 18000 to 70000 tons and represented 36 % of the Community production of 1970 (194000 tons). The fact that these imports to a large extent (29000 tons of the in total 70000 tons imported from third countries and 19200 tons of the 23400 tons imported from Greece) went to Italy, where most of the tomato processing undertakings are concentrated, confirms the observations of the Commission on the effects of these imports on the activities of numerous Italian undertakings.

9. The terms serious disturbance or threat of serious disturbance are to be considered in the light of the objects of the common agricultural policy referred to in Article 39 of the Treaty. The Commission has therefore rightly taken into consideration not only the object of stabilizing the market but also the maintenance of a proper living standard for the agricultural population, and judged the question whether a disturbance threatened according to the possible effects of these imports on the outlet possibilities for the basic produce and on the processing industry. The 70000 tons imported during the year represented a production of 420000 tons of fresh tomatoes, whereas in Italy, the main producing country, only 1000000 tons were intended for processing: the Commission could therefore rightly deduce that these imports represented a serious threat for the outlet for the production of fresh tomatoes. It has had regard to the criteria upon which, according to Article 1 of Regulation No 1428/71, judgment of the question must be based, whether the market is subject to a serious disturbance or is threatened with such — namely (a) the extent of the imports effected or foreseen, (b) the disposable amounts of the produce on the market, (c) the prices of the domestic produce and (d) those of the imported produce — that is the criteria which enable the effects of the imports on the internal market of the Community to be measured.

10. The claim of the plaintiff in the main action that the disturbances in the Italian market for tomato concentrate are not due to imports but arise principally from structural difficulties inherent in the Italian economic system does not call in question the disputed protective measure.

11. Thus the Commission, on observing that a serious disturbance threatened has neither exceeded its discretion nor infringed Article 40 (3) of the Treaty or Regulations Nos 1427/71 and 1428/71 from which it derives its relevant powers.

B —. On the appropriateness of the disputed measure: infringement of the provisions of Article 39 (1) (c) in conjunction with Article 40 (3) of the Treaty and Article 1 (1) of Regulation No 1427/71 (first question)

12. The Administrative Court also poses the question whether the disputed provision is perhaps invalid because by reason of the possibilities that exist of circumventing it, it appears inappropriate for removing the threat of disturbance. The national court bases its reservations on the fact that a minimum price system offers various even legal possibilities of circumvention in its application. This fact ought to have caused the Commission, in the view of the plaintiff in the main action, to prefer establishing quotas to issuing minimum price regulations.

13. If the Commission in relation to Greece nevertheless preferred a minimumprice system it did so because — as already stated — it had to have regard to the obligations of the Association Agreement, which provides in Article 41 for two forms of a minimum price system. The first alternative makes possible a quota system as soon as the prices in the internal market fall below a certain minimum level. The second form corresponds to a system used in the present case. This was chosen, because the other presupposed periodical quotations of the prices on the internal market, which, at the time that the protective measure had urgently to be issued, were not available.

14. With regard to the possibility of there existing opportunities of circumvention, it must be observed that the legality of a Community act cannot depend on retrospective considerations of its efficacy. Since in the present case it is a question of complex economic measures, which for the purpose of their efficacy necessarily require a wide discretion and moreover as regards their effects frequently present an uncertainty factor, the observation suffices that these measures do not appear on issue as obviously inappropriate for the realization of the desired object. This observation needed to be made both with regard to the costs of the alleged circumvention possibilities and the uncertain duration of the protective measure. Moreover the considerable recession in imports after the disputed measure came into force showed that it was not as ineffective as alleged.

C —. Infringement of general legal principles (first and second paragraph of the observations of the Court making the reference on the second question)

15. The Court is further asked whether the validity of the disputed provision can be affected by reason of it infringing general legal principles in particular the principle of legal certainty and proportionality because it impedes import trade otiosely, contains no limitation on its duration and extends to the whole common market.

16. Each of these criticisms is to be examined severally with regard to the question of compatibility of the disputed provision of Community law.

17. The national court raises doubts whether there is not a ground of invalidity by reason of the possibilities of circumvention… the danger (exists) that import trade is made difficult for law-abiding importers but on the other hand it does not have the desired effect of stabilizing the market.

18. Since the Commission was bound under the Association Agreement to introduce with regard to imports from Greece import limitations which in any case contained minimum prices, it is not proper to reproach it on this account of acting contrary to the law because it fulfilled its obligation. On the other hand it would have been impossible for it to establish a system of import limitation with regard to third countries and to make an exception of one of the countries. Having regard to the various objects of Article 39 the Commission, in weighing the disadvantages of the minimum price system for the importer against the significance of all the measures taken with regard to third countries and then deciding for the system which has been applied, has not exceeded the limits of its discretion.

19. The administrative court also queries whether the disputed provision ought not to have been limited as to its duration to be valid. This applies all the more so since under Article 41 of the Association Agreement with Greece on the application of a minimum price system as a protective measure the principles contained in Article 44 (2) and (3) of the Treaty … (must) be taken into consideration and the Council when it applied Article 44 during the transitional period in its decision of 4 April 1962 (OJ No 30, 20. 4. 1962, p. 995) anticipated a limitation with regard duration.

20. The protective measures which the Regulations of the Council Nos 1427/71 and 1428/71 empower may under Article 2 (2) of the last named regulation be taken only to the extent of the period which are absolutely necessary. This provision does not necessarily impose an obligation to fix in advance how long the measures shall remain in force. It may be consistent with the desired object to provide them for unlimited duration. Even the reference contained in Article 41 of the Association Agreement to Article 44 of the Treaty does not provide anything to support the opposite view; for a limitation on the duration of the measures provided for does not come under the principles referred to in this provision of the Treaty. If the Council in other circumstances has provided such a limitation in an implementation provision that does not mean that this provision was required by Article 44 nor in consequence thereto by Article 41 of the Association Agreement.

21. In the view of the plaintiff in the main action, the protective measure ought to have been limited to imports intended for Italy and France since the disturbances were mainly in these two markets.

22. Such a limitation however would have jeopardized the effectiveness of the measure by reason of the free trade existing under the Treaty. A large part of the Italian production of tomato concentrate is namely intended to be sold in the other countries of the Common Market where it would have met the competition of the cheap imports from third countries. This criticism is thus not pertinent.

D —. The prohibitive effect of the disputed measure (third question)

23. The third question is whether the validity of the disputed provision is not affected by reason that it has a prohibitive effect.

24. According to the eighth recital in Regulation No 1643/71 the protective measures must be so regulated that they do not adversly affect imports in conditions in which they do not prejudice the market situation by reason of their being admitted. Apparently the Commission fixed the minimum price too high in the Annex to Regulation No 1643/71 since it based it on a cost price supplied by the Italian Government and adopted without examination of 36 units of account per 100 kg at the factory.

25. The level of the minimum prices must, as the Court making reference rightly points out, relate to the desired price level within the Community. The Commission alleges that the computation factors of the cost price of 36 units of account which it sets out in its pleading were known to it and that it saw no reason to doubt its correctness. The plaintiff has adduced nothing concrete to permit conclusions as to the incorrectness of the data of the Italian Government. Since this cost price lay slightly above the intervention price it ought, in spite of the uncertainty factor, which is inherent in such provisions directed to future development, to be accepted.

26. The Commission has rightly taken as a basis the Italian costs since Italy is by far the most important producer in the Community. Having regard on the one hand to the cost price and on the other to the offer price on the world market in the region of 25 u.a. per 100 kg it has fixed the minimum prices in respect of Greece at 34 u.a. and in respect of the other third countries at 30 u.a., which including customs duties corresponds to a price of 35.4 u.a. Thus it has assured for the benefit of Greece a preference foreseen in the Association Agreement. No conclusion as to the invalidity of the minimum price provision may be drawn only from the fact that the offer prices for tomato concentrate after the disputed measure was issued have apparently lain continually under the minimum price of 34 u.a. which has been reached only in June 1970. It is true that at internal market prices lay during the second half of 1971 with slight fluctuations at 30 u.a., nevertheless they showed subsequently a constant tendency to approach the minimum price.

27. In this connection the special condition of the relevant market has to be considered on which the imports aggravated the structural difficulties which already existed there.

28. If one takes into account the complex character of the economic forecast necessary for the issue of the disputed measure, it is not a apparent that the Commission on ascertaining the prices to be taken into consideration has gone farther than could be regarded as necessary for attaining the objects of stabilizing the market and assuring an appropriate standard of living for the agricultural producers.

29. Finally the fact that imports from Greece as a result of the protective measures have receded on average in the Community by half and in Italy by much more does not demonstrate a prohibitive effect of these measures. The stronger recession in the latter Member State is a normal development which arises from the fact that the production of tomato concentrate is mainly concentrated in this Member State.

30. The question is put to the Court as to whether Article 2 (1) of Regulation No 1428/71 of the Council and Article 41 of the Association Agreement between the EEC and Greece are to be interpreted in such a way that there exists an order of priority in the measures referred to therein.

31. Under Article 2 of Regulation No 1428/71 there come into consideration as protective measures either the suspension of imports or a system of minimum prices whereby when they are not reached imports can be made dependent on the fact that they are conducted at a higher price than the fixed minimum price. Article 41 of the Association Agreement provides on the other hand as a protective measure, a system of minimum prices in two forms, whereby in the one when the minimum prices are not reached a temporary suspension or limitation of imports is possible whereas in the other imports can be made dependent on the fact that they are transacted at a higher price than the minimum price. Since the Commission was obliged on applying protective measures to respect the Treaty obligations which are internationally binding on the Community, it had with regard to Greece to have recourse to one of the two forms of minimum price systems.

32. Neither Article 2 of Regulation No 1428/71 nor Article 41 of the Association Agreement on enumerating the measures provided for there, establish an order of priority between them. It is in accordance with the object aimed at by these measures that the administration can decide according to the circumstances the measures which appear to it most suitable. Thus as regards Greece it had the choice between the two forms of the system of minimum prices provided in the Association Agreement, and the system which it ultimately chose appears less restrictive than the quota system likewise provided for in this Agreement on prices falling below the minimum. Moreover this latter system as already mentioned presupposed quotations on the internal market, which were not available for the products in question at the time when these measures had to be taken.

33. The question put must therefore be answered that neither Article 2 (1) of Regulation (EEC) No 1428/71 of the Council of 2 July 1971 nor Article 41 of the Association Agreement with Greece creates an order of priority between the measures provided for.

34. No order can be made in respect of the costs of the Council and the Commission of the European Communities which have submitted observations to the Court. As regards the parties in the main action the present proceedings are a step in the action pending before the Verwaltungsgericht Frankfurt-on-Main. The question of costs is therefore a matter for that court.

On those grounds, Upon reading the pleadings, Upon hearing the report of the Judge-Rapporteur; Upon hearing the oral arguments of the plaintiff in the main action, the Council and the Commission of the European Communities; Upon hearing the opinion of the Advocate-General; Having regard to the Treaty establishing the European Economic Community especially Articles 39, 40, 44 and 177; Having regard to Regulations Nos 1427/71 and 1428/71 of the Council of 2 July 1971; Having regard to Regulations Nos 1558/71 of 20 July 1971 and 1643/71 of 28 July 1971 of the Commission; Having regard to the Decision of the Council of 4 April 1962; Having regard to the Agreement establishing an association between the European Economic Community and Greece of 9 July 1961; Having regard to the protocol on the Statute of the Court of Justice of the European Economic Community and especially Article 20; Having regard to the Rules of Procedure of the Court of Justice of the European Communities; THE COURT in reply to the questions referred to it by the Verwaltungsgericht Frankfurt-on-Main by its order of 19 June 1972 hereby rules:

1 The examination of the questions which have been put have shown nothing which could cast doubt on the validity of Article 2 of Regulation (EEC) No 1643/71 of 28 July 1971.

2 Neither Article 2 (1) of Regulation (EEC) No 1428/71 of the Council of 2 July 1971 nor Article 41 of the Agreement establishing an association between the European Economic Community and Greece of 9 July creates an order of priority between the measures provided for therein.