JUDGMENT OF 12. 7. 1979 — CASE 166/78 ITALY v COUNCIL

In Case 166/78

THE COURT composed of: H. Kutscher, President, J. Mertens de Wilmars and Lord Mackenzie Stuart (Presidents of Chambers), P. Pescatore, M. Sørensen, A. O'Keeffe, G. Bosco, A. Touffait and T. Koopmans, Judges, Advocate General: G. Reischl Registrar: A. Van Houtte

gives the following

JUDGMENT

Faces and Issues

I — Facts and procedure

II — Conclusions of the parties

III — Submissions and arguments of the parties

A — Preliminary question concerning the vote by the Italian Government within the Council in favour of the regulations challenged

B — Substance

1. Introductory remarks on the relationship between the cost of the raw material, maize, and the cost of raw material, potatoes

2. The statement of reasons for the regulations at issue

3. The alleged infringements of the combined provisions of the first paragraph of Article 40 (3) and of Article 39 of the Treaty

4. The alleged breach of the principle of non-discrimination laid down in the second subparagraph of Article 40 (3) of the Treaty

5. The alleged misuse of powers

6. The alleged manifest error in determining the value of the byproducts

7. The alleged breach of the principle of proportionality by Regulation No 1127/78

IV — Oral Procedure

Decision

Admissibility

Substance

The statements of the reasons upon which the regulations at issue are based

The evaluation of the economic facts

Compliance with Articles 39 and 40 of the Treaty

The principle of proportionality

Costs

I —. Facts and procedure

1. Regulation No 120/67/EEC of the Council of 13 June 1967 on the common organization of the market in cereals (Official Journal, English Special Edition 1967, p. 33) granted a production refund for maize used by the starch industry for the manufacture of starch and quellmehl and also a production refund for potato starch.

2. The system introduced in this way has been maintained by later regulations. Nevertheless the amount of the production refund and the minimum free-at-factory price payable to the potato grower have been altered on several occasions.

3. The rules at issue were introduced by Council Regulation No 1125/78 of 22 May 1978 amending Regulation No 2727/75 on the common organization of the market in cereals and Council Regulation No 1127/78 of 22 May 1978 amending Regulation No 2742/75 on production refunds in the cereals and rice sectors (Official Journal L 142 of 30 May 1978, pp. 21 and 24).

4. The parties agree that in order to maintain a balanced relationship between the prices of the two products in question account must be taken when the production refund and the minimum price of potatoes are fixed, on the one hand, of the cost of the raw materials and, on the other hand, of the cost of processing. In order to arrive at the cost price of either one or the other product the value of the by-products must be deducted from the sum of those two components.

5. The application was lodged on 31 July 1978.

6. After hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry.

II —. Conclusions of the parties

1. The Italian Government claims that the Court should:

2. The Council contends that the Court should:

III —. Submissions and arguments of the parties

A —. Preliminary question concerning the vote by the Italian Government within the Council in favour of the regulations challenged

1. The Council stresses that the representative of the Italian Government stated within the Council that he was in favour of the acts which have been challenged.

2. The Italian Government submits that the Council is not the organ of the Member States but a Community organ as is shown by the two observations to the effect, firstly, that the relationship of subordination, which is peculiar to common bodies, in relation to the organization to which they belong, is completely lacking and, secondly, that any decisions taken by the Council, the content of which differs from the specific instructions given by the governments to their representatives, also bind the Member States. This position of independence is confirmed by the fact that the Council adopts most of its decisions by a simple majority. Thus the vote of the representative of the Member States does not have any independent significance but is one aspect of the collegiate will of the Council.

B —. Substance

1. Introductory remarks on the relationship between the cost of the raw material, maize, and the cost of raw material, potatoes

(a). The Italian Government first of all examining, by way of a preliminary statement of the situation on which the disputed regulations have exerted an influence, the history of the rules and regulations on production refunds for maize starch and potato starch.

(b). The Council points out that, although in 1967 the selling price of the finished product manufactured from potato starch and from maize starch was approximately the same and although the processing costs of each of these two finished products were also very similar, the cost of the raw material for potato starch was on the other hand less than that for maize starch, whereas the proceeds of sale of maize starch by-products were on the contrary much higher than those of potato starch by-products.

(c). The Italian Government replies that the figures produced by the Council must be corrected, the figures disputed by the Council being underlined:

(d). The Council annexed to its rejoinder a general review of the economic data relating to the cost price of the products in question undertaken by the Institute of Agricultural Economics of the University of Göttingen, which reaches the conclusion that, in the circumstances prevailing during the 1978/79 marketing year and taking into account the cost of the two raw materials, the respective processing costs and finally, the return from the respective by-products, maize starch manufacture was less expensive than potato starch manufacture, According to this expert opinion the difference was 12,66 units of account per tonne.

2. The statement of reasons for the regulations at issue

(a). The Italian Government, with reference to the last recital in the preamble to Regulation No 1125/78, draws attention to the fact that the reason for the introduction of the premium is that the potato starch industry could find itself in difficulties. Now the statement of the reasons upon which that regulation is based does not mention these difficulties.

(b). The Council submits that the Court's decided cases make it clear that, since the regulations at issue are part of a set of regulations concerning the same subject-matter, the claim of lack of reasoning must be examined in the light of the statements of reasons not only in the regulations at issue but also in the regulations which they have amended. The Council also draws attention to the fact that the Court has also held that the requirements of Article 190 of the EEC Treaty are met if the reasons given explain in essence the measures which are adopted by regulation.

(c). The Italian Government, with reference to the alleged difficulties peculiar to the potato starch industry, replies that the factors referred to by the Council are not mentioned in the regulation and that the statements in the defence cannot fill the gap in the measure which has been challenged. In order to justify the adoption for the first time of a measure there must moreover be a new statement of the reasons on which it is based.

3. The alleged infringements of the combined provisions of the first paragraph of Article 40 (3) and of Article 39 of the Treaty

(a). The Italian Government is of the opinion that if two different products are applied for a specific use, but one of them is bound to be dearer than the other, it would be inconsistent with the obligation to increase agricultural productivity laid down by Article 39 (1) of the Treaty artificially to equalize the costs by way of aid.

(b). The Council submits that, in so far as the Italian Government complains that the measures in question do not seek to attain the objectives of Article 39 in the proper way, the complaint is in substance in line with the specific submissions that there have been breaches of the principle of non-discrimination and of the principle of proportionality.

4. The alleged breach of the principle of non-discrimination laid down in the second subparagraph of Article 40 (3) of the Treaty

(a). The Italian Government submits, as far as concerns Regulation No 1125/78, that the premium alters in an unexpected manner the usual relationship between the two branches of industry in question by encouraging one to the detriment of the other and it accordingly discriminates between them.

(b). The Council replies that this complaint presupposes that two similar situations have been dealt with in a different manner or that dissimilar situations have been dealt with in the same way. Now, in the present case, there are, in its opinion, two different situations which have been dealt with differently so as to maintain a balanced relationship between two different products.

(c). The Italian Government replies that the concept of the comparability of situations must not be confused with the absolute identity of the latter. In its view maize starch and potato starch are in every way comparable: potato starch can also be used for the purposes for which maize starch is intended; Community rules presuppose that the products in question are competitive.

(d). The Council in its rejoinder refers to the following objective reasons which would justify different treatment of the products in question: the different value of the by-products; the different circumstances in which supplies of raw materials are procured and the finished product is marketed; the differing conditions of production due not only to technical reasons but also to the environmental laws in force. According to the Council the objection cannot be raised in this connexion that a measure which is absolutely different from the one which had been adopted until then and is in addition to the latter requires a fresh reason for its adoption: the Council is free to choose the measures which it considers to be the most suitable for the achievement of the objectives of Article 39 of the Treaty; the mere confirmation that the measures adopted before have not enabled these objectives to be attained justifies having recourse to fresh measures; the discriminatory nature of a measure must be determined solely in the light of the objective circumstances justifying it and the aims which it seeks to attain.

(e). The Commission expresses its opinion on this submission and also on the alleged breach of the principle of proportionality. As far as concerns the other submissions it refers to the Council's defence.

5. The alleged misuse of powers

(a). The Italian Government argues in the context of this claim that through the granting of the premium at issue the agricultural policy is being used for the purpose of pursuing an industrial policy.

(b). The Council submits that the industries concerned are agricultural industries.

(c). The Italian Government's reply is to concede that the industries concerned form part of the agricultural sector. It goes on to argue that, although in the absence of special objective reasons the costs of the two competing products may not be equalized artificially, granting aid to one of them not only infringes Article 39 of the Treaty but — in so far as it is not aimed at dealing with the crisis which has arisen in the sphere of basic agricultural products but at increasing the profitability of the associated processing industry — also amounts to a misuse of powers.

(d). The Council points out in its rejoinder that the preceding argument of the applicant is likely to create some confusion in the statement of the grounds of its case: if it is accepted that the processing industries in question form pan of the agricultural sector the Council does not easily understand what other complaints may be made against it except those which relate to infringement of the Treaty or of essential procedural requirements.

6. The alleged manifest error in determining the value of the byproducts

(a). The Italian Government, with reference to the figures given under 1 (a) above, submits that the big drop in the production of potato starch recorded since 1974 was due to the poor potato crops in Europe and to the fact that large quantities of potatoes which usually went to potato starch factories were diverted to other uses because prices were more favourable.

(b). According to the Council the figures, given under 1 (a) above, indicate that maize starch stood up better than potato starch to the effects of the general economic crisis, even if account is taken of the poor potato crops during the last few years, and this proves that the more productive manufacturing process in the case of maize starch to a great extent enabled the producers thereof to eliminate from the market the manufacturers of potato starch. This conclusion is corroborated by the recent closing down of certain potato starch factories and by the fact that the potato starch manufacturers were losing money or no longer making a profit. The Council in this context draws attention to the fact that the premium at issue is payable only during the 1978/79 marketing year. The Council points out that the figures for the value of the by-products clearly start out with the implied assumption that the processing costs for the two products in question and their by-products are at approximately the same level.

(c). The Italian Government replies that the issue in this case is not what are the limits of the discretion but rather whether the exercise of that discretion is based on a manifest error of fact.

7. The alleged breach of the principle of proportionality by Regulation No 1127/78

(a). The Italian Government stresses, in the context of this submission, that the objective of the regulation in question was to assist the potato grower. It takes the view that, in order to attain this objective, it was unnecessary to alter the balance between the maize starch and the potato starch industries. The potato grower has been able to profit from the increase in the minimum price of potatoes, from the increase in the production refund or from the granting of a premium.

(b). The Council replies that if it is asserted, as it must be, that the premium in fact maintains the balance between maize starch and potato starch the Italian Government's submission comes up against this premise. The Council goes on to argue that if it is accepted that the aim is to ensure that there is a large outlet for certain categories of agricultural producers, for whom it is desired to ensure at the same time a fair income, the solutions advocated by the Italian Government do not merit consideration.

(c). The Italian Government's reply is that to assert, as the Council has done, that the premium ensures that the balance between maize starch and potato starch is maintained does not indicate that the means adopted is proportional to the aim. On the other hand this assertion is belied by the arguments put forward by the Government which establish that the premium has artificially aggravated the production costs of maize starch manufacturers to a greater extent than those borne by potato starch manufacturers.

(d). The Council points out in its rejoinder, that, as the apportionment of the financial burdens is not discriminatory, one of the elements of a breach of the principle of proportionality is absent in this case. Furthermore the arguments in the Council's defence are of such a kind as to prove that the introduction of a premium payable to producers of potato starch was the only appropriate measure for achieving the objective sought to be attained. The second constituent element, according to the case-law of the Court, of a breach of the said principle is missing.

(e). The Commission draws attention to the fact that the measure at issue cannot be abandoned in the context which it has described (under 4 (e) above), and if it is desired to keep open the vital outlets for Community production of potatoes granting a larger refund for potato starch with an equivalent increase for maize starch would have no effect whatever on the situation, apart from the fact that the refund would have to be paid to the potato grower; paying a premium directly to the latter would not get over the difficulties faced by the producer of potato starch. According to the Commission the premium payable to the producer of potato starch is not of such a kind as to affect adversely the maize starch producers who are in a sufficiently favourable situation not to feel the effects of a premium the amount whereof is in any case limited, and which only partially covers the element of cost which one tonne of potato starch has to bear compared with a corresponding quantity of maize starch: ± 20 units of account. Finally the Commission recalls that the premium has only been introduced for the current marketing year.

8. (a) The Italian Government submits in its reply that the tax on the production of isoglucose, which was at issue in the judgment of the Court of 25 October 1978 in Case 125/77 Koninklijke Scholten-Honig N.V. and de Verenigde Zetmeelbedrijven De Bijenkorf B.V. v Hoofdproduktschap voor Akkerbouwprodukten [1978] ECR 1991 and also in Joined Cases 103 and 145/77 Royal Scholten Honig (Holdings) Limited v Intervention Board for Agricultural Produce; Tunnel Refineries Limited v Intervention Board for Agricultural Produce [1978] ECR 2037 and the increase in the production costs of maize starch are very similar. (b) In its rejoinder the Council points out on this aspect of the matter that it does not appear that the principles which the Court has laid down in relation to a production levy specifically introduced as such, can be invoked with a view to applying this case-law to a completely different economic situation, the particular feature of which is a difference in the costs of obtaining supplies resulting from Council decisions fixing agricultural prices.

IV —. Oral Procedure

1. The Italian Government, represented by M. Cevaro, the Council represented by D. Vignes, assisted by A. Sacchettini and the Commission, represented by C. Maestripieri presented oral argument at the hearing on 15 May 1979.

2. The Court had invited the parties during the hearing to give their views on the question whether, and, if so, to what extent, the application of the second paragraph of Article 174 of the Treaty is to be considered if the Court grants the main application of the Italian Government.

3. The Italian Government also points out that the investigation carried out, at the request of the Council, by the Institute of Agricultural Economics of the University of Göttingen does not provide a solution of the problems at issue in the present case. In its view the Court must obtain a further expert opinion.

4. The Advocate General delivered his opinion at the hearing on 13 June 1979.

1. By an application, registered at the Court on 31 July 1978, and brought against the Council of the European Communities, pursuant to Article 173 of the EEC Treaty, the Government of the Italian Republic requested the Court to annul the provisions relating to a premium payable to potato starch manufacturers contained in Council Regulation (EEC) No 1125/78 of 22 May 1978 amending Regulation (EEC) No 2727/75 on the common organization of the market in cereals and in Council Regulation (EEC) No 1127/78 of 22 May 1978 amending Regulation (EEC) No 2742/75 on production refunds in the cereals and rice sectors (Official Journal L 142 of 30 May 1978, pp. 21 and 24).

2. The Council, the defendant in this action, supported by the Commission as intervener, contends that this application should be rejected.

3. The last recital in the preamble to Regulation No 1125/78 draws attention to the constraints imposed on the potato starch industry which could lead to a disturbance of the balance between the different starch industries and Article 2 thereof provides for the insertion in the basic regulation for the market in cereals (Regulation No 2727/75) of a provision authorizing the payment of a premium to potato starch manufacturers. Pursuant to this provision Article 3 of Regulation No 1127/78 provides that Member States shall grant a premium of 10 units of account per tonne of potato starch payable to the starch manufacturer.

4. The provisions at issue form pan of the general pattern of Community rules relating to starch products the main purpose of which is to enable products based on raw materials of agricultural origin to stand up to competition from synthetic products. One of the ways of attaining that end is the granting of production refunds. The rate of these refunds is fixed in such a way that the balance between competing products such as maize starch and potato starch is not disturbed. The balance which has existed traditionally between these two products primarily due to the fact that, although the raw material of maize starch is more expensive than that of potato starch, and although the respective production costs are comparable, the value of maize starch by-products is greater than that of potato starch by-products with the result that the cost price of the two products does not differ appreciably. The cause of action is the introduction by the disputed regulations of a premium payable only in respect of potato starch whilst the system of comparable refunds is retained for the benefit of both products.

5. The Council has invoked the plea that the application is inadmissible by reason of the affirmative unqualified vote cast by Italy when the regulations in question were adopted by the Council and also of the vote cast by the Italian representative on the Management Committee for Cereals when the implementing measures, which in the meantime have been brought into force by Commission Regulation (EEC) No 1809/78 of 28 July 1978 laying down rules for the payment of a premium to producers of potato starch, were considered (Official Journal L 205 of 29 July 1978, p. 69).

6. This plea of inadmissibility cannot be upheld. The first paragraph of Article 173 of the Treaty confers on every Member State the right to challenge, by an application for annulment, the legality or every Council regulation, without the exercise of this right being conditional upon the positions taken up by the representatives of the Member States of which the Council is composed when the regulation in question was adopted.

7. The Italian Government's application is based on a number of complaints the first of these being that there is a failure to give an adequate statement of reasons. As far as concerns Regulation No 1125/78 that Government submits, in the first place, that the statement of reasons upon which it is based is inadequate because it is impossible to find out from it what kind of difficulties the potato starch industry is experiencing and, in the second place, it is inconsistent in that it shows, on the one hand, that the system of refunds must be applied equally to competing products whilst, on the other hand, it states that preferential treatment of potato starch by the granting of a premium is necessary. As far as concerns Regulation No 1127/78 the Government submits that the recitals in the preamble thereto merely refers to the value of the by-products obtained from the manufacture of maize starch without giving particulars either of their value or of their production costs which, however, have not remained the same.

8. On this point, as the Court has repeatedly held in its decided cases, it should be stressed that, as far as concerns general acts, especially regulations, the requirements of Article 190 of the Treaty are satisfied if the statement of reasons given explains in essence the measures taken by the institutions and that a specific statement of reasons in support of all the details which might be contained in such a measure cannot be required, provided such details fall within the general scheme of the measures as a whole.

9. In the case in point the statements of the reasons upon which the regulations in question are based meet these requirements. The last recital in the preamble to Regulation No 1125/78 which confers the power to introduce the premium at issue states … the constraints imposed on the potato starch industry could lead to a disturbance of the balance between the different starch industries. The consequence of this situation as the recital goes on to state is that it may also prove necessary to provide for a premium to be paid to potato starch manufacturers. These reasons are not at all inconsistent with the second recital which states that the principle of equality is to be applied to products having the same outlets, especially if account is taken of the fact that the absence of a common organization of the market in potatoes may give rise in the case of this product to a special situation requiring specific measures with a view to establishing actual equality with the products within the scope of the common organization of the market in cereals.

10. The statement of the reasons upon which Regulation No 1127/78, which implemented the granting of the premium and fixed the amount thereof, 10 based also meets the requirements of Article 190 of the Treaty. The third recital in the preamble in fact indicates that the payment of a premium to potato starch manufacturers is necessary in order to maintain a balanced relationship between potato starch and maize starch prices, taking into account the increasing advantage enjoyed by the maize starch industry, particularly because of the by-products obtained from such manufacture. Since attention has been drawn to the difference between the two industrial sectors there is no need for the statement of reasons to give details concerning this difference.

11. Another complaint, which relates in particular to Regulation No 1127/78, is based on the manifest error which the Council is said to have made when it evaluated certain economic factors upon which its introduction of the premium at issue was founded.

12. The applicant Government submits in this connexion that the balance between the cost price of maize starch and potato starch when production refunds were introduced in 1967 no longer existed in 1978, the special reason for this being the increase in the cost of processing maize into starch. Thus that Government maintains that the costs of this Italian maize starch manufacturing industry put at 58 units of account per tonne in 1967 had gone up in 1978 to 86 units of account and estimates that they are 77 units of account per tonne on average throughout the Community. The Council maintains for its part that maize starch manufacturing costs were only 39 units of account per tonne in 1967 and that they went up in 1978 to 49 units of account per tonne.

13. The Italian Government also submits that, when the Council took into consideration the value of the maize starch by-products and calculated that value for 1978 at 79 units of account per tonne, it only took account of the proceeds of sale of the by-products without deducting the production costs attributable to the latter, and in so doing overestimated the difference between their value and that of potato starch by-products, evaluated at 22 units of account. The Council's answer to this objection is that, although the production costs attributable to the by-products have not been expressly set out in the calculations, the figures which are given are based on the finding arrived at by implication that the trend of production costs was comparable and that they remain at more or less the same level.

14. In order to weigh the arguments put forward by the parties it should in the first instance be placed on record that it is an implication of the objective of the Communtiy regulation at issue, which is to ensure that the organization of the market makes proper allowance for the balance between the competing products, that the Council has to assess a complex economic situation, Although some of the constituent elements of this situation may be ascertained in accordance with objective criteria, such, for example, as the prices of raw materials which are determined by the actual organization of the market in cereals, there are others which are more difficult to apprehend with any accuracy. This applies especially to production costs in an industry such as the one in this case, the distinguishing feature of which is the existence of a large number of undertakings of different size and economic structure and situated in different Member States. In such circumstances the discretion which the Council has when it assesses a complex economic situation is not only exercisable in relation to the nature and scope of the provisions which are to be adopted but also, to a certain extent, to the findings as to the basic facts, especially in this sense that the Council is free to base its assessment, if necessary, on findings of a general nature.

15. To prove that the Council has made a serious mistake in the exercise of the discretion given to it would require evidence more definite and less disputable than that adduced by the Italian Government during the proceedings. In this particular case the burden of proof lies all the more on the applicant Government as it had the opportunity through its representatives taking pan in the work of the Council of panicipating in the assessment of the economic situation which is the underlying reason why the disputed regulations were adopted.

16. It should be added that the amount of the premium, compared with all the factors which make up the cost price of the products at issue, does not seem likely to lead to a fundamental change in conditions of competition between maize starch and potato starch. In this connexion it must be pointed out that the applicant Government, which forecast serious and irreparable damage to the maize starch industry at the time when, at the commencement of the proceedings, it requested the Court to suspend the operation of the measure at issue (see Order of 28 August 1978 [1978] ECR 1945) has not since been able to furnish any proof whatever in support of its allegations.

17. For these reasons it must be concluded that the complaint based on a manifest error in assessing the economic factors cannot be upheld.

18. The Italian Government also complains that the regulations at issue do not seek to attain the objectives of Article 39 of the Treaty in a correct manner and amount to discrimination infringing the second subparagraph of Article 40 (3) of the Treaty. The arguments put forward in support of these two complaints are, in substance, so similar that it is appropriate to consider them together. In effect these complaints are that the premium at issue favours one branch of industry, that of potato starch, to the detriment of the maize starch industry.

19. It is an established fact that potato starch as well as maize starch, being products processed from agricultural products, are covered by the agricultural policy. The purpose of the premium payable to the producers of one of these two products, potato starch, is to maintain the profitability of this branch of industry and thus, indirectly, to ensure an outlet for an agricultural product, the importance of which for the agricultural economy in certain regions of the Community is evident. There is therefore no doubt whatever that the measure at issue is within the ambit of the objectives of the Common Agricultural Policy as such objectives are defined in Article 39 of the Treaty.

20. Although it is true that the premium at issue has been granted to one branch of industry to the exclusion of a competing branch this difference nevertheless does not amount to discrimination within the meaning of the Treaty. The premium has been introduced for the purpose of obviating the special difficulties which the Council has found to exist in the potato starch sector following the trend, unfavourable to that sector, of certain economic factors, especially of the value of the by-products of both of the principal products. The difference cannot be regarded as discriminatory.

21. It follows from the foregoing that the complaints based on failure to comply with Articles 39 and 40 of the Treaty cannot be upheld.

22. Finally the Italian Government complains that Regulation No 1127/78 is in breach of the principle of proportionality which requires the imposition of a burden to be proportionate to the objective to be attained. It submits on this point that the objective sought to be attained by the introduction of the premium at issue has been to give preference to potato growers. This objective, it claims, could have been attained by means other than the payment of a premium to the producers of potato starch which has in fact imposed on the maize starch industry an additional burden because the two industries are in competition.

23. On this issue it must be borne in mind that the aim of the premium payable to producers of potato starch was not to ensure that the growers received a better income but to maintain the profitability of the potato starch industry and in this way to protect the traditional opportunities for marketing potato products in so far as these products do not find any other outlets. The introduction of the premium at issue cannot in the prevailing economic conditions be regarded as disproportionate to the objective sought to be attained and the complaint cannot therefore be upheld.

24. As none of the complaints made by the applicant Government has been upheld the application must be dismissed.

25. Under Article 69 (2) of the Rules of Procedure the unsuccessful party shall be ordered to pay the costs; since the applicant has failed in its application it must be ordered to pay the costs.

On those grounds THE COURT hereby:

1 Dismisses the application

2 Orders the applicant to pay the costs.