JUDGMENT OF 11. 7. 1984 — CASE 130/83 COMMISSION v ITALY

In Case 130/83

THE COURT composed of: Lord Mackenzie Stuart, President, T. Koopmans and K. Bahlmann (Presidents of Chambers), P. Pescatore, A. O'Keeffe, G. Bosco and O. Due, Judges, Advocate General : P. VerLoren van Themaat Registrar: H. A. Rühi, Principal Administrator

gives the following

JUDGMENT

Facts and Issues

I — Summary of the facts

II — Written procedure and conclusions of the parties

III — Submissions and arguments put forward by the parties in the course of the written procedure

IV — Oral procedure

Decision

Costs

I —. Summary of the facts

(a). The subsidy of LIT 1000 per 100 kg provided for in Article 1 of Law No 16/81 was applicable in 1980 only and, in future, the region would move towards structural measures intended to prevent surplus production.

(b). The aid provided for in Article 13 was intended to finance the operation of the Istituto Regionale di Credito alla Cooperazione and was not used for encouraging collection of grapes at winemaking cooperatives.

(c). The measures laid down in Article 2 stemmed from the need to launch cooperatives and such measures did not directly concern wine distillation operations, which remained subject to Community rules.

(d). The measure referred to in Article 7 was intended to wipe out debts arising from investment by newly created associations of producers with a view to achieving structural improvements in production.

(a). The subsidy of LIT 1000 per 100 kg of grapes delivered to cooperatives under Article 1 of Law No 16/81, the subsidy for collection of grapes at cooperatives under Article 13 of the Law and the medium-term loans at low rates of interest for distillation of wines, processing of wine byproducts and production and bottling of table wines and quality wines produced in specified regions under Article 2 of the Law have a direct impact on the price of wine and the byproducts of winemaking since they reduce the cost of the basic products and the costs of processing and packing. Accordingly, such measures, which constitute an addition to the subsidies provided for under the common organization of the market in wine, are contrary to the rules of that organization. It is apparent from consistent decisions of the Court that once the Community has legislated to establish a common organization of the market in a given sector, Member States are under an obligation to refrain from taking any measure which might undermine or create exceptions to it; in that connection, they must comply not only with the letter of the legislation but also with its spirit.

(b). The subsidy for members of wine cooperatives provided for in Article 1 of Law No 16/81 was applied in respect of a major share of Sicily's production of grapes — about one million tonnes out of 1.4 million tonnes in 1980; it is equivalent to about 5 to 8% of the value of the grapes delivered to cooperatives and about 4 to 7% of the cost of wine produced by the latter. That subsidy, and also the aid for grape collection under Article 13 of the Law, constituted an artificial incentive to increasing or at any rate maintaining at their present level the production of grapes intended for winemaking and thus increased the quantity of wine produced in Sicily. Moreover, such aid may well have induced members of cooperatives to dispose of their produce at prices below those which would have applied in the absence of such intervention by the public authorities; the cooperatives were thus able to offer wine at lower prices. If that was indeed the case, the measure in question is likely to affect trade within the Community and distort competition, since it gives Sicilian wine cooperatives an advantage over producers in other Member States who wish to export to Italy but do not receive similar aid.

(c). The medium-term loans under Article 2 of Law No 16/81 also constitute an artificial incentive to increasing or at any rate maintaining at their present level the quantities of table wines, quality wines from a specific region, distilled wines and byproducts of winemaking produced in Sicily; in this case also, persons receiving such aid will be in a position to offer their products on more favourable terms than those which would have applied in the absence of intervention by the regional authorities.

(d). The same arguments also apply as regards the aid granted under Article 7 to associations of producers, cooperatives and syndicates thereof engaged in the marketing of fruit and vegetables.

(e). The grounds put forward by the Italian Government were not regarded as acceptable by the Commission.

(f). The measures in question therefore fall within the terms of Article 92 (1) of the Treaty and are incompatible with the Common Market. The provisions contained in paragraph (3) of that article must be interpreted strictly when any national or regional measure is considered; in particular, an exemption may be granted only if the Commission is able to establish that the aid is necessary for the purpose of achieving one of the objectives laid down in those provisions. To grant exemptions in the case of aid which does not meet those conditions would be tantamount to allowing an adverse effect on trade between Member States, a distortion of competition not justified from the Community's point of view and, by the. same token, an unjustified advantage for certain Member States.

(a). The Commission's view is correct as regards Article 1 and 7 of Law No 16/81 since there are doubts as to the compatibility of the aid in question with the common organization of the markets and with the competition rules. The provisions in question have, however, never been implemented and in fact should be regarded as having lapsed, since the relevant appropriations were not incorporated in the 1982 budget.

(b). The loans at low rates of interest granted to cooperative associations (syndicates) in order to improve wine products do not constitute an aid additional to the Community aid for wine distillation and the processing of byproducts of winemaking but merely a normal agricultural credit operation intended to make loans available to associations concerned with the treatment, processing and marketing of the product. The aid is not intended to reduce the costs of processing but to enable the associations to obtain funds to undertake and complete the processing. Without such a regional measure, the associations would be obliged to have recourse to the ordinary capital market and would have to bear high and unacceptable charges, the interest rate being around 30%. The associations in question are of recent creation and are intended to achieve concentration of supply and uniformity of production, objectives which are considered fundamental to the common agricultural policy.

(c). The granting of an annual contribution to the Istituto Regionale della Vite e del Vino under Artide 13 of Law No 16/81 is intended to enable that body to carry out the tasks entrusted to it. The fact that the contribution is paid to that body in advance on the basis of the quantity of grapes delivered to the Sicilian wine cooperatives during the previous wine year is of no importance except for the fact that it provides a yardstick for calculating the advance paid by the regional authorities at the beginning of the financial year. The aid does not constitute a direct subsidy for the grapes delivered or, therefore, a direct production aid, the payment of which is prohibited by the Community rules for that sector. Moreover, the Commission has acknowledged that the activities of thé Istituto regarding market surveys, technical assistance, scientific research and promotion campaigns are wholly legitimate.

II —. Written procedure and conclusions of the parties

(a). Declare that, by not complying within the prescribed period with the Commission decision of 5 May 1982 concerning aid granted in Sicily in the wine and fruit and vegetable sectors, the Italian Republic has failed to fulfil its obligations under the EEC Treaty;

(b). Order the Italian Republic to pay the costs.

(a). Dismiss the application;

(b). In the alternative, declare that the action has become devoid of purpose.

III —. Submissions and arguments put forward by the parties in the course of the written procedure

(a). As regards the aid provided for in Articles 1 and 7 of Law No 16/81, it is not in dispute that the provisions criticized by the Commission have not been amended, despite the Italian Government's invitation to the Sicilian region to repeal them.

(b). As regards the aid under Article 13 of the Law, it is not in dispute that the Commission's decision has not been implemented since the Sicilian regional authorities have not acted upon the Italian Government's invitation to repeal the provision in question.

(c). As regards the aid under Article 2 of the Law, the fact that the medium-term loans at low rates of interest have not in fact been granted does not affect the finding that the Commission's decision has not been complied with; such compliance entails an obligation to amend the Law so as to exclude any possibility of such loans being granted.

(a). The subsidies and aid provided for in Articles 1 and 7 of Regional Law No 16/81 have not been paid; the rules creating them have not been applied and could not be applied in the future owing to the absence of the relevant appropriations. Since the rules are temporary, it is unnecessary to repeal them; nevertheless, the Italian Government has invited the authorities in the Sicilian region formally to repeal them in order to eliminate any grounds for litigation.

(b). Article 13 of the Law merely provides that the subsidy granted to the Istituto Regionale della Vite e del Vino is to be paid in advance at the beginning of each financial year on the basis of the grapes collected. The Commission has objected only to payment of the subsidy by that method and not to the payment itself. The Sicilian region has been invited to repeal Article 13 so as to comply with the Commission's decision.

(c). As regards Article 2 of the Regional Law, the increase of the operating fund of the Istituto Regionale di Credito alla Cooperazione by LIT 5000 million has not been criticized; all that has been criticized is the possibility that that sum might bė used for the granting of medium-term loans to associations for certain activities designed to improve the quality of wine products, whilst the granting of operating credits to those associations by the same organization is authorized. In fact, the medium-term loans in question have not been granted, with the result that, on this point also, there has been no substantial failure to comply with the Commission's decision. In any case, the measure in question was not implemented subsequently, being valid only for the 1981 financial year.

IV —. Oral procedure

1. By an application lodged at the Court Registry on 8 July 1983 the Commission of the European Communities brought an action under Article 169 of the EEC Treaty for a declaration that, by not complying within the prescribed period with Commission Decision 82/401/EEC of 5 May 1982 concerning aid granted in Sicily in the wine and fruit and vegetable sectors (Official Journal 1982, L 173, p. 20), the Italian Republic has failed to fulfil its obligations under the EEC Treaty.

2. In that decision the Commission declared incompatible with the Common Market certain subsidies and aid granted by the Sicilian region under Regional Law No 16/81 for the production of wine and of fruit and vegetables. By virtue of Article 2 of the decision, the Italian Republic was to take the measures necessary to comply with the decision within a period of one month from notification thereof. It is to be noted that no action was brought against the decision.

3. In its defence the Italian Government states that it has made several approaches to the Sicilian regional authorities with a view to inducing them to repeal the provisions referred to in the Commission decision but that its efforts have so far not led to the formal repeal of those provisions. It states however that the aid, for which provision was made according to varying procedures for the 1980 and 1981 seasons; was not in fact paid. Since accounts for the years in question have been closed, payment is no longer possible, with the result that the Commission's decision has become devoid of purpose.

4. As regards Article 13 of Law No 16/81, supplementing Article 7 of Regional Law No 47/80, on the granting of aid to the Istituto Regionale della Vite e del Vino [Regional Wine and Winegrowing Board], the Italian Government draws attention to a misunderstanding in the Commission's decision. According to the fifth and ninth recitals in the preamble to the decision, and the second paragraph of Article 1 thereof, the aid in question was intended to encourage the collection of grapes at wine cooperatives. However, it is apparent from consideration of the abovementioned legislation that the aid in question was granted to the Istituto Regionale in order to enable it to carry out the tasks entrusted to it, that is to say its general activities in favour of winegrowing, and the quantity of grapes collected is merely a yardstick for calculating the amount of the subsidy.

5. For its part, the Commission considers that, even if the aid was not in fact paid, the risk nevertheless remains that it may be paid subsequently and it is therefore desirable for the provisions of the regional legislation referred to in the decision to be formally repealed.

6. As regards the subsidies granted to the Istituto Regionale della Vite e del Vino, the Commission submits that the Italian Government's argument is intended to challenge the decision of 5 May 1982, which it did not contest within the prescribed period and which has therefore become final. Hence the Commission considers that argument to be inadmissible in these proceedings.

7. Having regard to the arguments put forward by the parties, it must be stated that, since the Commission adopted a formal decision in respect of the aid in question, the Member State concerned was under an obligation to give effect to it, within the prescribed period, by taking the measures necessary to ensure the formal repeal of the provisions found by the Commission to be contrary to the requirements of Article 92 of the EEC Treaty.

8. As regards the Italian Government's contention that the scope of the provisions on the aid granted to the Istituto Regionale della Vite e del Vino was misunderstood, the Court is unable, in the present proceedings, to consider whether or not it is well founded, since the disputed provisions of the decision of 5 May 1982 were not challenged within the prescribed period. If there was any doubt regarding the scope of that particular point of the decision of 5 May 1982, it was for the Italian authorities to deal with it when implementing the decision, if necessary by seeking the agreement of the Commission. However, such a contention cannot in any event be accepted so as to release the Italian Republic from its obligation to give effect to that part also of the Commission's decision, in accordance with the spirit of Article 5 of the EEC Treaty.

9. For those reasons, it must be held that by failing to comply with Commission Decision 82/401/EEC of 5 May 1982 the Italian Republic has failed to fulfil its obligations under the EEC Treaty.

10. Under Article 69 (2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs. Since the defendant has failed in its submissions, it must be ordered to pay the costs.

On those grounds, THE COURT hereby rules:

1 By not complying within the prescribed period with Commission Decision 82/401/EEC of 5 May 1982 concerning aid granted in Sicily in the wine and fruit and vegetable sectors (Official Journal 1982, L 173, p. 20), the Italian Republic has failed to fulfil its obligations under the EEC Treaty.

2 The Italian Republic is ordered to pay the costs.