JUDGMENT OF 25. 10. 1978 — JOINED CASES 103 AND 145/77 ROYAL SCHOLTEN-HONIG v INTERVENTION BOARD FOR AGRICULTURAL PRODUCE
In Joined Cases 103/77 and 145/77 REFERENCES to the Court under Article 177 of the EEC Treaty by the High Court of Justice, Queen's Bench Division, Commercial Court, for a preliminary ruling in the actions pending before that court, in Case 103/77, between
THE COURT, composed of: H. Kutscher, President, J. Menens de Wilmars and Lord Mackenzie Stuart (Presidents of Chambers), A. M. Donner, P. Pescatore, M. Sørensen, A. O'Keeffe, G. Bosco and A. Touffait, Judges, Advocate General: G. Reischl Registrar: A. Van Houtte
gives the following
JUDGMENT
I — Facts and procedure
1. The product at issue
2. Community legislation
A. The production refund
B. The production levy
3. The main actions
A. Case 103/77
B. Case 145/77
II — Summary of the observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice of the EEC
1. In Case 103/77
Observations of Royal Scholten-Honig Ltd.
Facts
Relevant market organizations and the context in which the regulations referred to in the questions must be viewed
A. Cereals
6. Sugar
Regulation No 1862/76
1. Article 190 of the EEC Treaty
2. Article 11 (3) of Regulation No 2727/75)
3. Article 40 (3) of the Treaty
Regulations Not 1111/77 and 1110/77
Grounds of invalidity relied on by the plaintiff
1. The common provisions for isoglucose constitute an unlawful discrimination against isoglucose, contrary to Article 40 (3) of the Treaty
2. The common provisions for isoglucose do not seek to attain and will not attain the objectives of Article 39 of the Treaty
3. The common provisions for isoglucose violate the principle of proportionality
4. The common provisions for isoglucose are not, except for Article 9 which imposes the production levy, effective provisions and the Council has misused its powers
6. The common provisions for isoglucose are invalid because of a non-compliance with Article 190 of the Treaty
7. Isoglucose is not an agricultural product
Conclusions
Observations submitted by the Council
Preliminary remarks
I — The validity of Regulation No 1862/76
1. Discrimination, within the meaning of Article 40 (3) of the Treaty, between Community producers
2. Inadequacy of statement of reasons
II — Validity of Regulations Nos 1110/77 and 1111/77
1. Infringement of Article 38 (1) of the Treaty — isoglucose is not an agricultural product
2. Discrimination between producers contrary to Article 40 (3) of the Treaty — violation of the rule of proportionality
3. Prejudice to legal certainty by sudden reversal of policy without notice (paragraph 19 of the points of claim) and absence to transitional arrangements
4. Failure to comply with the duty to consult the European Parliament at the time of the adoption of Regulations Nos 1111/77 and 1110/77
5. Infringement of essential procedural requirements
Observations submitted by the Commission
I — Application of Community legislation
1. Isoglucose
2. Production refunds
3. Regulation No 1862/76
4. The common organization of the market in sugar
5. Regulation No 1110/77
6. Regulation No 1111/77
II — Answers to the questions submitted
1. Regulation No 1862/76
(a) Failure to state reasons
(b) Failure to refer to opinions required by Article 43 (2) of the Treaty
(c) Discrimination
2. Regulations Nos 1110/77 and 1111177
(a) The argument that isoglucose is not an agricultural product
(b) Submission that the opinion of the Parliament has been disregarded
(c) Discrimination contrary to Article 40 (3) of the Treaty
(1) Comparable situations
(2) Competitive capacity
(3) Objective criteria
(d) Failure to exclude existing capacity, to provide for a transitional system or for provisions for compensation
(1) Legal certainty
(2) Means not proportional to the objectives pursued
The aim to be achieved
burden imposed on isoglucose
III — Conclusions
Case 145/77
Observations submitted by Tunnel Refineries Ltd.
1. The regulation breaches the principle of proportionality inasmuch as it imposes a wholly unfair burden on manufacturers of isoglucose in the interests of manufacturers of sugar
2. The regulation contains no provisions and no provisions have been adopted in implementation of the regulation, to protect the legitimate expectations of the plaintiff who made the investment decision in reliance upon a Community policy which had been consistently followed over a period of years
3. The regulation infringes the Treaty inasmuch as its provisions either fail to meet or are contrary to the objectives of the common agricultural policy as set out in Article 39 of the Treaty and each of them
4. The regulation infringes the Treaty inasmuch as it embodies a gross form of discrimination contrary to Article 40 (3) of the Treaty
5. The levy is excessive and disproportionate as demonstrated by the fact that its effect is to render the production of isoglucose uneconomic in relation to sugar in a market in which they would otherwise be able to compete and so to remove a competitor from the market
6. The Commission and Council have misused their powers inasmuch as they have sought by means of the levy to offset the real or supposed competitive advantage of isoglucose
7. The regulation is based on a wholly inadequate and/or false estimate of the costs of production of isoglucose and/or on a wholly erroneous assessment of the role of isoglucose and of the potential market for the product
Conclusion
Observations submitted by the Council
1. Breach of the principle of equality and non-discrimination
2. Violation of the objectives of Article 39
3. Breach of the principle of proportionality
4. Frustration of legitimate expectation
5. Misue of powers
6. Manifest error in assessing the cost price of, and the potential market for, isoglucose
Observations submitted by the Commission
1. Protection of legitimate expectation
2. Objectives of the common agricultural policy
3. Misuse of powers
4. Erroneous premises
(i) The costs of production of isoglucose
(ii) Possibility of substituting isoglucose for sugar
Conclusion
IV — Answers to the questions put by the Court
First question (to the Council and the Commission)
The Council's answer
The Commisison's answer
Second question (to the Council and the Commission)
The Council's answer
The Commission's answer
Third question (to the Council)
The Council's answer
Request for additional information addressed to the Commission
The Commission's answers
Points 1 and 3
Point 2
Point 4
Supplementary question put to the Commission
The Commission's answer
V — Oral procedure
VI — Requests submitted after the closing of the oral procedure
Decision
Regulation No 1862/76 (production refund)
Regulations Nos 1110/77 and 1111 /77 (production levy)
Costs
I —. Facts and procedure
1. The product at issue
2. Community legislation
A. The production refund
(a). for maize and common wheat used in the Community for the manufacture of starch;
(b). for potato starch;
(c). for maize groats and meal used in the Community for the manufacture of glucose by direct hydrolysis;
B. The production levy
3. The main actions
A. Case 103/77
1. Is Council Regulation (EEC) No 1862/76 in so far as it purports to insert Article 5 a in Council Regulation (EEC) No 2742/75 a valid regulation?
2. Is Council Regulation (EEC) No 1111/77 a valid regulation?
3. Is Regulation (EEC) No 1110/77 a valid regulation?
B. Case 145/77
II —. Summary of the observations submitted under Article 20 of the Protocol on the Statute of the Court of Justice of the EEC
1. In Case 103/77
A. Cereals
6. Sugar
1. Article 190 of the EEC Treaty
2. Article 11 (3) of Regulation No 2727/75)
3. Article 40 (3) of the Treaty
1. The common provisions for isoglucose constitute an unlawful discrimination against isoglucose, contrary to Article 40 (3) of the Treaty
2. The common provisions for isoglucose do not seek to attain and will not attain the objectives of Article 39 of the Treaty
3. The common provisions for isoglucose violate the principle of proportionality
(i). The stringent production constraints imposed on beet or cane sugar are restraints imposed by Community regulations. The regulations can therefore be modified if they impose too great a restraint in the face of a competitive product.
(ii). It is only in circumstances in which A or B Quota sugar is exported that any expon costs arise on the expon of sugar since it is only in such circumstances that an expon refund is payable. There can be no justification for making isoglucose contribute to expon costs of A or B Quota sugar where that sugar has been exponed because isoglucose is technically better. The consumer is then suffering for the benefit of sugar producers. Similarly the mere existence of the restraints imposed by the Community itself on sugar producers cannot justify the imposition on isoglucose of a levy which will have the effect of depriving the consumer of a product which is technically more efficient in certain fields than liquid sugar.
(iii). If there is an excess production of sugar in the Community attributable to the fact that isoglucose has taken pan of the sugar market, it is wrong for isoglucose to be charged with the entire expon costs of that excess.
(iv). In any event the effect of the tax will be to stop production of isoglucose and there will be no contribution to expon costs.
(v). Finally the stated object of a contribution to expon costs could only be achieved if the production levy did constitute own resources within the meaning of Article 2 of the Council Decision of 21 April 1970 (Official Journal, English Special Edition 1970 (I). p. 224).
4. The common provisions for isoglucose are not, except for Article 9 which imposes the production levy, effective provisions and the Council has misused its powers
5. The common provisions for isoglucose violate superior rules of law by failing to include:
6. The common provisions for isoglucose are invalid because of a non-compliance with Article 190 of the Treaty
7. Isoglucose is not an agricultural product
(i). Regulation (EEC) No 1862/76, in so far as it purports to insert Article 5a in Council Regulation (EEC) No 2742/75, is invalid;
(ii). Regulations (EEC) Nos 1111/77 and 1110/77 are invalid.
I —. The validity of Regulation No 1862/76
1. Discrimination, within the meaning of Article 40 (3) of the Treaty, between Community producers
2. Inadequacy of statement of reasons
II —. Validity of Regulations Nos 1110/77 and 1111/77
1. Infringement of Article 38 (1) of the Treaty — isoglucose is not an agricultural product
2. Discrimination between producers contrary to Article 40 (3) of the Treaty — violation of the rule of proportionality
1. Is the competition of use between the two products sufficient to ground absolute equality of systems between them?
2. Is it possible now to determine in a permanent way the connexion between the systems when the production of isoglucose is likely to increase by 500 % in the near future, which will put the problem in a new setting?
3. Would equality of systems ensure the same remuneration?
3. Prejudice to legal certainty by sudden reversal of policy without notice (paragraph 19 of the points of claim) and absence to transitional arrangements
4. Failure to comply with the duty to consult the European Parliament at the time of the adoption of Regulations Nos 1111/77 and 1110/77
5. Infringement of essential procedural requirements
I —. Application of Community legislation
1. Isoglucose
2. Production refunds
3. Regulation No 1862/76
4. The common organization of the market in sugar
5. Regulation No 1110/77
6. Regulation No 1111/77
(1). Isoglucose benefited from the guaranteed price for sugar which as a result of the application of the quota system was above the equilibrium price level which would otherwise be established. The Commission estimated that this advantage for isoglucose amounted to 15 % of the Community sugar price.
(2). The direct consequence of substituting isoglucose for liquid sugar would be that more sugar would be exported and that this would represent an additional burden for Community funds by way of expon refunds. On the basis of current world prices these were between 150 and 180 units of account per tonne, involving a tout of 12 million units of account at the volume of isoglucose production at that time and 60 million units of account by the end of 1977 on the assumption that world sugar prices remained constant. (These prices have since fallen considerably and refunds are at present being paid at the rate of 240 units of account per tonne).
(3). The Commission therefore took the view that no further encouragement should be given by way of investment aids for the construction of isoglucose facilities and that isoglucose manufacturers should be required to contribute by way of a production levy, as were the sugar manufacturers, to the costs of making the additional exports of sugar which would inevitably be displaced by the new product on to the world market.
II —. Answers to the questions submitted
1. Regulation No 1862/76
(a). Failure to state reasons
(b). Failure to refer to opinions required by Article 43 (2) of the Treaty
(c). Discrimination
2. Regulations Nos 1110/77 and 1111177
(a). The argument that isoglucose is not an agricultural product
(b). Submission that the opinion of the Parliament has been disregarded
(c). Discrimination contrary to Article 40 (3) of the Treaty
(i). Discrimination exists when comparable situations are treated differently.
(ii). Interventions by the Community authorities which bring about an imbalance in the competitive capacity of undertakings are discriminatory.
(iii). Differences of treatment based on objective criteria are permissible.
(1). Comparable situations
(2). Competitive capacity
(3). Objective criteria
(d). Failure to exclude existing capacity, to provide for a transitional system or for provisions for compensation
(1). Legal certainty
(2). Means not proportional to the objectives pursued
III —. Conclusions
1. The regulation breaches the principle of proportionality inasmuch as it imposes a wholly unfair burden on manufacturers of isoglucose in the interests of manufacturers of sugar
2. The regulation contains no provisions and no provisions have been adopted in implementation of the regulation, to protect the legitimate expectations of the plaintiff who made the investment decision in reliance upon a Community policy which had been consistently followed over a period of years
3. The regulation infringes the Treaty inasmuch as its provisions either fail to meet or are contrary to the objectives of the common agricultural policy as set out in Article 39 of the Treaty and each of them
(a). In so far as isoglucose can be regarded as an agricultural product the regulation plainly reduces agricultural productivity, binders technical progress and prevents the rational development of agricultural production and the optimum utilization of the factors of production, in particular labour.
(b). The regulation fails to ensure a fair standard of living for workers concerned in the production of isoglucose. If the regulation is designed to ensure a fair standard of living for sugar-beet growers and sugar producers it is a gross misuse of powers.
(c). The regulation patently fails to stabilize the market in isoglucose; moreover such stabilization is unnecessary or even impossible in the case of that product. To the extent to which the objective sought was to stabilize the market in sugar it was a misuse of powers.
(d). The regulation does not serve the objective of ensuring the availability of supplies of isoglucose since it is designed in all respects to limit its production. Similarly, according to the plaintiff, the regulation cannot have been intended to ensure the availability of sugar of which there was, is, and is expected to continue to be, a substantial surplus in the Community.
(e). Nor can it be contended that the regulation serves the objective of ensuring that supplies reach consumers at reasonable prices. On the contrary the regulation was plainly designed to increase the price of isoglucose and to prevent the development of a product which would in certain sectors of the market be a competitive substitute for sugar.
4. The regulation infringes the Treaty inasmuch as it embodies a gross form of discrimination contrary to Article 40 (3) of the Treaty
(a). whilst purporting to give similar treatment to isoglucose and sugar by relating the tax to the levy payable on B Quota sugar, the regulation in fact discriminates blatantly against isoglucose producers in making no allowance for the equivalent of an A Quota under which very substantia! quantities of sugar can be sold at guaranteed prices;
(b). whilst purporting to give similar treatment to isoglucose and sugar, the regulation in fact gives isoglucose none of the advantages of the sugar system, in particular guaranteed quotas and guaranteed prices;
(c). the regulation effectively eliminates the production of isoglucose as a competitor with sugar in the interests of sugar producers.
5. The levy is excessive and disproportionate as demonstrated by the fact that its effect is to render the production of isoglucose uneconomic in relation to sugar in a market in which they would otherwise be able to compete and so to remove a competitor from the market
6. The Commission and Council have misused their powers inasmuch as they have sought by means of the levy to offset the real or supposed competitive advantage of isoglucose
7. The regulation is based on a wholly inadequate and/or false estimate of the costs of production of isoglucose and/or on a wholly erroneous assessment of the role of isoglucose and of the potential market for the product
1. Breach of the principle of equality and non-discrimination
2. Violation of the objectives of Article 39
3. Breach of the principle of proportionality
4. Frustration of legitimate expectation
5. Misue of powers
6. Manifest error in assessing the cost price of, and the potential market for, isoglucose
1. Protection of legitimate expectation
2. Objectives of the common agricultural policy
3. Misuse of powers
4. Erroneous premises
(i). The costs of production of isoglucose
(ii). Possibility of substituting isoglucose for sugar
IV —. Answers to the questions put by the Court
(a). The Council and the Commission are asked to produce the figures and calculations on which the rate of the production levy for isoglucose was initially proposed by the Commission and subsequently fixed by the Council.
(b). The Council and the Commission are asked to produce the information available to them at the material times as regards the capacity for isoglucose to be used as a substitute for sugar and the future production possibilities of isoglucose.
(a). The Commission states that its examination of the rate of the production levy for isoglucose provided in Regulation No 1111/77 was not based on specific calculations. The Commission approached the question in the following manner: isoglucose being a product which could be substituted for liquid sugar, it was appropriate to include it in the management of the sugar market. Given the existing forecasts of the situation of the sugar market in the Community and of the costs in the form of refunds following from exports, the Commission proposed that the production of isoglucose should be submitted to the same levy system as that existing for the production of sugar, which had the object of causing producers to share to a certain extent in the financial losses of the Community resulting from the putting of sugar on to the market.
(b). In appendices to its answer the Commission submits the relevant information in its possession at the time of the preparation of Regulation No 1111/77 as regards the capacity for isoglucose to be used as a substitute for sugar and the future production possibilities of isoglucose.
(i). Example: Regulation No 1696/71 of 26 July 1971 (Official Journal, English Special Edition 1971 (II), p. 634) on the common organization of the market in hops (see in particular the third recital in the preamble thereto). In fact, the smooth functioning of this market would have been jeopardized if broadly speaking interchangeable products with hops, namely the essence and vegetable extract of hops had not been subject to the common organization in question. In order to establish a balance between hops and these two products, the Community authorities extended the common organization in question to these products and thus subjected their producers to the obligations flowing from this organization.
(ii). Another example: Regulation No 2783/75 of 29 October 1975 on the common system of trade for ovalbumin and lactalbumin (Official Journal L 282 of 1 November 1975) the first five recitals in the preamble to which show the absolute necessity of such links between products by reason of their competitive use, that is to say their substitutability.
1. In the observations submitted by the Commission in Case 103/77 there is a reference on page 27 (French version) to a report which is being prepared on the competitive capacity of isoglucose as compared with sugar. If this investigation has already been concluded the Court would be obliged if the report could be made available to it.
2. In the reply in Case 116/77 there is a reference on page 7 (French version) to an investigation by the Commission's Directorate General III into the costs of production of isoglucose. The Court would be glad to be informed of the results of this investigation.
3. In Case 124/77 there is a reference in the Commission's defence on page 27 (French version) to a report to be drawn up by experts on the production costs on isoglucose and sugar. If this report is yet in existence the Court would be glad to receive a copy.
4. The Commission is asked to provide detailed information with regard to the quantities of B and C sugar produced by the individual sugar producers during recent sugar marketing years (for example from 1974).
V —. Oral procedure
VI —. Requests submitted after the closing of the oral procedure
1. By orders dated 29 July and 8 November 1977 which reached the Court on 8 August and 24 November 1977 respectively the High Court of Justice, Queen's Bench Division, Commercial Court, requested the Court in pursuance of Article 177 of the EEC Treaty to give a preliminary ruling on the validity of certain provisions of Council Regulation (EEC) No 1862/76 of 27 July 1976 amending Regulation (EEC) No 2742/75 on production refunds in the cereals and rice sectors (Official Journal L 206, p. 3) and on the validity of Council Regulations (EEC) Nos 1111/77 of 17 May 1977 laying down common provisions for isoglucose (Official Journal L 134, p. 4) and 1110/77 of the same date amending Regulation (EEC) No 3330/74 on the common organization of the market in sugar (Official Journal L 134, p. 1)
2. The questions put by the national court arose in the context of actions undertaken against the Intervention Board for Agricultural Produce by the plaintiffs who maintain that the United Kingdom Government is not entitled to implement: (1) Regulation No 1862/76 to the extent to which it supplemented Regulation No 2742/75 by inserting a new Article 5a; and (2) Regulations Nos 1111/77 and 1110/77.
3. The file shows that the plaintiffs before the national court are starch producers who manufacture or are intending to manufacture isoglucose, a glucose syrup having a high fructose content, the sale of which on the Community market in appreciable quantities goes back only to 1976 and which is manufactured from starch obtained from various cereals but most frequently from maize, a substantial part of which is imported from non-member countries.
4. Although isoglucose has in many respects the same characteristics as cane or beet sugar it differs in certain respects from the two latter products especially inasmuch as, in the present state of technical knowledge, it cannot be crystallized and at present can only compete with sugar in industries using sugar in a liquid form.
5. For the purposes of the answer to be given to the questions raised by the national court it is appropriate to examine separately Regulation No 1862/76 on the one hand and Regulations Nos 1111/77 and 1110/77 on the other.
6. In order to assess the validity of Regulation No 1862/76 it is appropriate to examine in the first place the legal situation as it existed prior to the entry into force of that regulation in the matter of the system of production refunds in the cereals sector.
7. According to the ninth recital in the preamble to Regulation (EEC) No 2727/75 of the Council of 29 October 1975 on the common organization of the market in cereals (Official Journal 1975 L 281 p. 1): in view of the special market situation for cereal starch, potato starch and glucose produced by the direct hydrolysis process it may prove necessary to provide for a production refund of such a nature that the basic products used by this industry can be made available to it at a lower price than that resulting from the application of the system of levies and common prices.
8. Article 11 (1) of the regulation provides that a production refund may be granted:
9. Under Article 11 (3) the Council, acting by a qualified majority on a proposal from the Commission, is to adopt rules for the application of the article and fix the amount of the production refund.
10. In pursuance of that provision the Council adopted Regulation No 2742/75 of 29 October 1975 on production refunds in the cereals and rice sectors (Official Journal L 281, p. 57) by which, on the basis in particular of an assessment of the situation resulting form the level of common prices and from the competition between, on the one hand, maize starch, rice starch and potato starch and, on the other, the substitute chemical products (second recital in the preamble to the regulation), it fixed the amounts of the production refund for those products.
11. By Regulation (EEC) No 1862/76, which entered into force on 1 August 1976, the Council amended Regulation No 2742/75 having regard to the fact that in view of the situation which will exist as from the beginning of the 1976/77 marketing year, particularly as a result of the application for that marketing year of common prices for cereals and rice, it is necessary to increase the production refunds; … however, given the objectives of the production refund system, such an increase should not be retained in the case of products used in the manufacture of glucose having a high fructose content; … the best method of implementing a measure of this type is to provide for recovery from the manufacturers concerned of the amount of the increase in production refunds according to the product used.
12. Although, in pursuance of Article 1 of that regulation production refunds were increased, Article 2, which added a new Article 5a to Regulation No 2742/75, laid down special rules as regards the production refund for only one product processed from starch, glucose having a high fructose content.
13. According to that article the amount of the refund for starch processed into that product is maintained at the level of that of the previous marketing year and is abolished as from the 1977/78 marketing year.
14. Under the new Article 5a (3) the difference between the amount of the production refund for starch processed into glucose having a high fructose content and the amount for starch used for any other purpose is to be recovered by Member States from manufacturers.
15. Therefore, in the case of products used subsequently for the manufacture of glucose having a high fructose content, Article 2 of Regulation No 1862/76 by using the expedient of recovery in fact refused the increase in the production refund for the 1976/77 marketing year and abolished it as from the following marketing year.
16. Although in Case 103/77 the national court only asks in general terms whether Regulation No 1862/76 is valid in so far as it purports to insert Article 5a in Regulation No 2742/75, the plaintiff in its written observations puu forward three submissions regarding the validity of Regulation No 1862/76.
17. It is therefore appropriate to reply to the question which has been raised by a consideration of the validity of that regulation on the basis of the abovementioned submissions.
18. First, according to the plaintiff, Regulation No 1862/76 does not provide a statement of the reasons on which Article 2 is based and accordingly infringes the provisions of Article 190 of the Treaty.
19. The reasons on which Article 2 of Regulation No 1862/76 is based, in so far as they emerge from the preamble to that regulation, are limited to the mere statement that, given the objectives of the production refund system, such an increase should not be retained in the case of products used in the manufacture of glucose having a high fructose content.
20. However, the statement of reasons, laconic as it is, even omitting to mention the abolition of refunds for the manufacture of that product, must nevertheless be examined and assessed in the context of the whole of the rules of which Regulation No 1862/76 forms an integral part.
21. The statements quoted above from the preambles to Regulations Nos 2727/75 and 2742/75 show that the primary objective of production refunds, as regards the market in starches, is to abolish the disadvantage to which the starch industry is subjected by reason of the application of common prices for the raw materials used by the industry and to enable it to maintain competitive prices in comparison with the prices of substitute chemical products.
22. When considered in the context of the system in which they took effect, the refusal to increase the refund and its subsequent elimination for starch intended for the manufacture of isoglucose, a product which is not or is hardly in competition with substitute chemical products, may be explained by the nature of the objectives of the system of production refunds to which reference is made in the preamble to Regulation No 1862/76.
23. That reference to the purposes of the refund system, which moreover are well known to the circles concerned, satisfies the requirement under Article 190 of the Treaty for a statement of reasons and thus the validity of Regulation No 1862/76 cannot be challenged on those grounds.
24. The plaintiff further claims that Regulation No 1862/76, by creating an exceptional situation for producers of starch intended for the production of isoglucose, is discriminating between them and manufacturers of starch intended for other purposes and that this is contrary to the principle of non-discrimination set out in the second subparagraph of Article 40 (3) of the Treaty.
25. The second subparagraph of Article 40 (3) of the Treaty provides that the common organization of agricultural markets shall exclude any discrimination between producers or consumers within the Community.
26. The prohibition of discrimination laid down in the above-mentioned provision is merely a specific enunciation of the general principle of equality which is one of the fundamental principles of Community law.
27. That principle requires that similar situations shall not be treated differently unless the differentiation is objectively justified.
28. It must therefore be ascertained whether isoglucose is in a situation comparable to that of other products of the starch industry, in particular in the sense that they can be substituted for isoglucose in the specific use to which the latter product is normally put.
29. It is clear that there is no competition between starch and isoglucose or between isoglucose and the other products derived from starch except possibly glucose.
30. It emerges from the file that the considerable differences in the sweetening powers of isoglucose on the one hand and glucose on the other mean that the two products have different applications so that they cannot be in a comparable competitive situation with regard one to the other.
31. Furthermore as isoglucose is a product which is at least partially interchangeable with sugar, the maintenance of the production refund in favour of manufacturers of isoglucose might at a subsequent stage have constituted discrimination against manufacturers of sugar who, for their pan, do not enjoy an equivalent advantage.
32. Hence Article 2 of Regulation No 1862/76 does not infringe the rule of non-discrimination between Community producers set out in the second subparagraph of Article 40 (3) of the Treaty.
33. Finally the plaintiff in Case 103/77 contests the validity of Regulation No 1862/76 by claiming that, to the extent to which the regulation lays down special rules abolishing the production refund for starch intended for the production of isoglucose, it exceeded the powers conferred on the Council in pursuance of Article 11 of Regulation No 2727/75.
34. Hence, as it could not be considered as a mere rule of application within the meaning of Article 11, Regulation No 1862/76 could only have been adopted after the completion of the procedure referred to in the third subparagraph of Article 43 (2) of the Treaty, including consultation with the Assembly.
35. It has already been established that the exclusion by Article 2 of Regulation No 1862/76 of starch intended for isoglucose production from the production refunds system was in conformity with the objectives of that regulation.
36. The measure must therefore be regarded as having been adopted in conformity with the powers conferred on the Council by Article 11 of Regulation No 2727/75 and consequently as a rule adopted for the application of that article, for which consultation with the Assembly is not required by the Treaty.
37. It follows from the foregoing that consideration of the question raised by the national court has disclosed no factor of such a kind as to affect the validity of Regulation No 1862/76.
38. In order to assess the validity of Regulations Nos 1110/77 and 1111/77 it is appropriate to consider first certain aspects of the common organization of the market in sugar.
39. Title III of Regulation No 3330/74 provides quota arrangements for sugar producers for the sugar marketing years 1975/76 to 1979/80 inclusive on the following lines:
40. Under Article 27 (2) of the above-mentioned regulation the production levy is to be calculated per unit of weight by dividing total losses incurred in marketing the quantity produced in the Community outside the guaranteed quantity by the sum of the quantities produced outside the basic quota by Community undertakings.
41. Under Article 27 (3) the production levy is not to exceed a maximum amount which is not to be higher than 30 % of the intervention price.
42. Under Article 2 (2) of Council Regulation No 1112/77 of 17 May 1977 (Official Journal L 134, p. 9) the intervention price for white sugar is fixed at 32.83 units of account per 100 kg for the sugar marketing year 1977/78.
43. Under Article 5 of the same regulation Quota B is fixed for the same marketing year at 35 % of Quota A.
44. It follows that the production levy for the said marketing year is due at most on 35/135ths or slightly less than 26 % of the total production of sugar within Quotas A and B.
45. Under Article 6 of Council Regulation No 1113/77 of 17 May 1977 (Official Journal L 134, p. 11) the maximum amount of the production levy is fixed for the above-mentioned marketing year at 9.85 units of account per 100 kg of white sugar.
46. By Regulation No 1111/77 the Council laid down common provisions for isoglucose involving in particular a common system of trade with non-member countries and a production levy system and instituting a procedure involving close co-operation between the Member States and the Commission in a management committee.
47. The seventh recital in the preamble to the regulation gives the following reasons for the establishment of a system of production levies:
48. According to the ninth recital the above-mentioned levy system is complementary to that established by Regulation No 3330/74, as last amended by Regulation No 1110/77 and the envisaged levy on the production of isoglucose is analogous to that provided for in Article 27 of Regulation No 3330/74 and consequently constitutes own resources of the Communities within the meaning of Article 2 of the Council Decision of 21 April 1970 on the replacement of financial contributions from Member States by the Communities' own resources (Official Journal, English Special Edition 1970 (I), p. 224).
49. The system of production levies is established by Articles 8 and 9 of the regulation and is applicable to the periods corresponding to the 1977/78 and 1978/79 sugar marketing years.
50. Article 9 (1) of the regulation provides that the Member States shall charge a production levy on manufacturers of isoglucose and paragraph (2) provides in the first subparagraph that the amount of the levy, per 100 kg of dry matter, shall be equal to the amount of the production levy provided for in Article 27 of Regulation (EEC) No 3330/74 for the same period to which the latter amount applies.
51. However, under the second subparagraph of Article 9 (2), for the period 1 July 1977 to 30 June 1978 the amount of the levy referred to in paragraph (1) is not to exceed the amount of 5 units of account per 100 kg of dry matter.
52. It is the latter amount which is to apply when the amount of the production levy referred to in Article 27 of Regulation No 3330/74 exceeds 5 units of account per 100 kg of white sugar for the same period.
53. In pursuance of Article 9 (3) the detailed rules for the application of the article are to be adopted in accordance with the so-called management committee procedure.
54. Article 1 of Council Regulation No 1110/77, in view of the fact that the introduction of common measures for isoglucose … necessitates the exclusion of this product from the scope of Council Regulation (EEC) No 3330/74, removed isoglucose from the common organization of the market in sugar.
55. According to the terms of the fourth recital in the preamble to the said regulation the production levy on isoglucose provided for in Article 9 of Council Regulation (EEC) No 1111/77 … is based essentially on the need for isoglucose producers to share the costs incurred by the sugar sector inasmuch as the substitution of isoglucose for sugar makes it inevitable, in view of the Community sugar surplus, for corresponding quantities of sugar to be exported to third countries; … the revenue from the production levy on isoglucose should therefore be set against these marketing losses.
56. Under Article 4 of the regulation the total losses mentioned in Article 27 (2) of Regulation No 3330/74 are to be reduced inter alia by the amount of the production levy referred to in Article 9 of Regulation No 1111/77.
57. The national court has asked whether Regulations Nos 1111/77 and 1110/77 are invalid on one or more of the grounds pleaded before it by the plaintiffs.
58. It appears from the file that the most important grounds pleaded against the validity of the rules in question may be summarized as follows:
59. The first question to be examined is whether Regulation No 1111/77, in establishing the production levy for isoglucose, infringed the prohibition on discrimination laid down in the second subparagraph of Article 40 (3) of the Treaty.
60. In this respect inquiry must be made whether isoglucose and sugar are in comparable situations.
61. The second recital in the preamble to Regulation No 1111/77 states that isoglucose is a direct substitute for liquid sugar obtained from sugar-beet or cane and the seventh recital states that isoglucose is a substitute product in direct competition with liquid sugar.
62. As the Council has subsequently recognized in the third recital in the preamble to Regulation No 1298/78 of 6 June 1978 amending Regulation No 1111/77 (Official Journal L 160, p. 9), as the markets in sugar and isoglucose are closely linked and there are structural surpluses in the Community sugar sector, any Community decision on one of those products necessarily affects the other.
63. Nevertheless it must be pointed out that isoglucose manufacturers and sugar manufacturers are treated differently as regards the imposition of the production levy.
64. In fact, in contrast to the production levy provided for in Article 27 of Regulation No 3330/74, which only affects Quota B sugar, the levy applied by Article 9 of Regulation No 1111/77 is applied to the whole of isoglucose production.
65. Within the limits of Quotas A and B sugar manufacturers enjoy a guarantee of marketing at the intervention price and are entitled to the benefit of the export refund system whereas isoglucose manufacturers do not enjoy any similar advantages.
66. Even when account is taken of the fact that in pursuance of Article 9 (2) of Regulation No 1111/77 the amount of the production levy on isoglucose was limited for the period from 1 July 1977 to 30 June 1978 to the maximum rate of 5 units of account per 100 kg, a rate which was maintained in force for the marketing year 1978/79 by Regulation No 1298/78, the difference in treatment still exists as the isoglucose manufactures do not enjoy the marketing guarantees provided for manufactures of normal sugar.
67. However, it is still necessary to inquire whether that difference of treatment as regards the imposition of the production levy is objectively justified.
68. According to the Council and the Commission isoglucose, without being subjected to the production constraints imposed on sugar, benefits from the hypothetical difference, estimated at 15 %, between the intervention price fixed at a level which took account of the higher prices applied in the Member States before the setting up of the common organization of the market in sugar and the prices which, in the absence of the quota system, would have had to be fixed to regulate the production of sugar in the Community.
69. It has been claimed that hence, as the price of isoglucose tends to align itself on the intervention price for sugar, the intervention system confers on isoglucose a competitive advantage in relation to sugar of roughly 15 % of the intervention price for the latter, which corresponds more or less to 5 units of account, namely to the provisional amount of the production levy for isoglucose.
70. This argument cannot be accepted.
71. In fact, even if it were admitted for the sake of argument that the advantage enjoyed by isoglucose manufacturers as a result of the intervention system for sugar could be estimated at 15 % of the intervention price for sugar, such an advantage applies equally to certain sugar manufacturers, in particular those in possession of modern factories favourably situated.
72. The Commission and Council further claim that the production levy of 5 units of account imposed on isoglucose is essentially comparable to the charges borne by sugar.
73. By way of demonstration the Commission at the request of the Court produced a table showing a series of examples based on the production figures for modern sugar factories producing considerable quantities of C sugar.
74. According to the Commission these calculations show that sugar manufacturers bear charges varying from 3.81 units of account to 13.52 units of account per 100 kg.
75. The Commission has worked out the above-mentioned charges for each factory by a calculation based on the total production of A, B and C sugar for the sugar marketing year 1977/78; its has subsequently estimated the value of that production by attributing to A sugar the intervention price, to B sugar the intervention price less the levy involved and to C sugar an estimate of the world price.
76. By dividing the total value thus obtained by total production the Commission reaches an average price expressed in units of account per 100 kg.
77. On the basis of these calculations the average charge borne by each 100 kg of sugar produced is the difference between the said average price and the intervention price for the same quantity.
78. However, it is acknowledged that under the common organization of the market for sugar roughly 60 % of the average charge involved in the production levy is borne by sugar-beet growers for whom the minimum price of beet is substantially reduced for beet used for B and C sugar, that is to say, for sugar produced outside the basic quota.
79. By omitting to take this factor into consideration in its calculations, the Commission has considerably overestimated the charges borne by sugar manufacturers.
80. It is also important to note that it emerges from the Commission's calculations that each increase in the total production of sugar outside the basic quota has the effect of increasing the average charge to be borne by the manufacturer so that the latter is in a position to reduce the amount of the said charge by limiting his production whereas for the isoglucose manufacturer a limitation on production remains without any effect as regards the amount per unit of weight of the production levy brought into force by Regulation No 1111/77.
81. Moreover the Council and the Commission emphasize the practical difficulties which certain alternative solutions would have presented, in particular the establishment of a quota system for isoglucose, regard being had to the fact that the latter is a product newly arrived on the Community market and that its production is in the process of increasing rapidly.
82. However, inconveniences of the type alleged cannot justify the imposition of a charge which is manifestly unequal.
83. Accordingly the provisions of Regulation No 1111/77 establishing the production levy system for isoglucose offend against the general principle of equality of which the prohibition on discrimination set out in Article 40 (3) of the Treaty is a specific expression.
84. The answer must therefore be that Regulation No 1111/77 is invalid to the extent to which Articles 8 and 9 thereof impose a production levy on isoglucose of 5 units of account per 100 kg of dry matter for the period corresponding to the sugar marketing year 1977/78.
85. There is therefore no need to examine the other grounds put forward by the plaintiffs or to give a ruling on the validity of Regulation No 1110/77.
86. However, the above answer will leave the Council free to take any necessary measures compatible with Community law for ensuring the proper functioning of the market in sweeteners.
87. The costs incurred by the Council and the Commission of the European Communities, which have submitted observations to the Court, are not recoverable.
88. As these proceedings are, in so far as the parties to the main action are concerned, in the nature of a step in the action pending before the national court, the decision on costs is a matter for that court.
On those grounds, THE COURT in answer to the questions referred to it by the High Court of Justice, Queen's Bench Division, Commercial Court, by orders of 29 July and 8 November 1977, hereby rules:
1 Consideration of the questions raised has disclosed no factor of such a kind as to affect the validity of Council Regulation No 1862/76 of 27 July 1976.
2 Council Regulation No 1111/77 of 17 May 1977 is invalid to the extent to which Articles 8 and 9 thereof impose a production levy on isoglucose of 5 units of account per 100 kg of dry matter for the period corresponding to the sugar marketing year 1977/78.