Opinion of Mr Advocate General

Mr President,

Members of the Court,

The tribunale di Roma has referred two questions to the Court for a preliminary ruling on the validity of Articles 24 and 28 of Regulation No 1785/81 (Official Journal 1981, L 177, p. 4) regarding the quota system for sugar. Before examining those questions I consider it useful to set out the summary of the relevant facts and the written observations submitted to the Court contained in the Report for the Hearing.

I — Summary of the relevant facts

1. The common organization of the markets in sugar was brought into being by Council Regulation No 1009/67 of 18 December 1967 (Official Journal, English Special Edition 1967, p. 304). The system introduced by that regulation initially applied until July 1975 and provided for the allocation to each undertaking of a basic quota and a maximum quota for each marketing year. Any quantity of sugar exceeding the maximum quota could not be sold in the Community. Provision was also made for a Community system of financing the costs of disposing of surpluses, which were borne within certain limits by producers as a whole by means of a production levy whilst the remaining costs were borne by the Community budget. That system was extended, subject to certain modifications, by Council Regulation No 3330/74 of 19 December 1974 (Official Journal L 359, p. 1) to the 1979/80 marketing year and by Council Regulation No 1592/80 of 24 June 1980 (Official Journal L 160, p. 12) to the 1980/81 marketing year. As regards Regulation No 3330/74, it must be pointed out that it increased the basic quotas for all the Member States except for Italy, that increase corresponding to the quantity of preferential sugar imports from ACP countries under the Community's international commitments.

2. The plaintiffs in the main action, Eridania Zuccherifici Nazionali SpA, 15 other Iulian sugar-producing companies, the Consorzio Nazionale Bieticultori and the Associazione Nazionale Bieticultori sued the Cassa Conguaglio Zucchero, the Ministry of Finance and the Treasury on the ground that in 1982 they had received demands for payment of the sugar production levies provided for in Articles 24 and 28 of Regulation No 1785/81. They requested the national court to refer the case to the Court of Justice in order to have Regulation No 1785/81 declared unlawful and then to declare that the levies demanded from them were not due; they also requested that the defendant authorities be ordered to reimburse with interest the levies already paid.

II — Written observations

The first question

The plaintiffs in the main action and the Italian Government submit that the first question should be answered in the affirmative whereas the Council and the Commission consider that examination of that question does not disclose any factor of such a kind as to affect the validity of Article 28 of Regulation No 1785/81.

1. The plaintiffs in the main action observe that in introducing in Regulation No 1785/81 the principle that producers bear full financial responsibility the Community legislature failed to take into account the following facts:

2. The Italian Government submits that the common organization of the markets in a sugar sector is based on a production quota system whose essential aim is to ensure a balance between the principle of specialization and the need to grant aid to poorer areas with high costs and low production.

3. According to the Council, Article 28 of Regulation No 1785/81 is neither discriminatory nor disproportionate to the objectives set out in Article 39 (1) (b).

4. Like the Council the Commission submits that Article 28 of Regulation No 1785/81 is not discriminatory, accords with the principle of proportionality and the aims laid down in Article 39 of the EEC Treaty.

The second question

The plaintiffs in the main action and the Italian Government also suggest that the second question should be answered in the affirmative, whereas the Council and Commission take the view that an examination of this question does not disclose any factor of such a nature as to affect the validity of Article 24 of Regulation No 1785/81.

1. The plaintiffs in the main action and the Italian Government both argue that the provision in question was adopted in contravention of Article 190 of the EEC Treaty in so far as it does not contain any adequate statement of reasons regarding the quotas allocated to Italy.

2. The Council and the Commission point out that the statement of reasons required by Article 190 of the EEC Treaty depends on the nature of the measure in question and the context in which it is adopted.

III — Assessment of the case

1. The supposed breach of the prohibition of discrimination

At the hearing the plaintiffs in the main action once more clearly formulated their claims in answer to questions from the Court. Their main complaint is that the A quota takes no account of internal consumption, in this case Italian consumption. They contend that as a result the Italian A quota is too low to cover Italian consumption, to use production capacity in full and to recover all the fixed costs of sugar production. The 2% production levy must be paid on the quantities produced under the A quota in order to cover the costs of the intervention system, whereas the other Community producers and not the Italian producers are responsible for the surpluses which, in so far as they are produced under the B quota, must be disposed of on the world market with the assistance of export refunds. Because the B quota is fixed too low Italian sugar producers are in a different situation from the other Community producers. This argument is illustrated with various figures. As far as concerns the size of the Italian basic quota under Regulation No 1009/67 (Article 23) compared with the Italian A quota under Regulation No 1785/81 (Article 34), it appears that the increase in that quantity was 7.3% as against an average increase in the total quota quantity in the Community of 18%. On the other hand, in the same period sugar consumption in Italy rose by 9.1% compared with a fall of 2.1% in the Community as a whole. The solution, in the plaintiffs view, is to base the A quota on internal consumption or at least take it into account to some extent.

In my opinion, the reasoning set out above does not however cast any doubt upon the legality of determining the A quota on the basis of actual production. To determine that quantity on the basis of consumption in each Member State would be contrary to the idea underlying the common market that in principle production should take place where it is economically most justified. Rising production may indicate a more economic production potential and vice versa. I would point out that the steel quota system is also based on the actual production of steel undertakings. At the hearing the Commission also pointed out that without the quota system Italian sugar production would for the most part probably disappear. As stated above, even the Italian Government has acknowledged that the quota system applied contains an element of aid for poorer areas. I have already mentioned the various elements of that aid (a higher basic quantity at the start of the market organization, a higher intervention price, the granting of national aid to producers and an increase in the A quota in 1981). In balancing the interests of specialization with that of providing aid, the Council must undoubtedly be allowed a wide discretion. Particularly large production surpluses combined with low world market prices may lead the Council to adopt a cautious policy with regard to the fixing of quotas and prices in general and with regard to the effect of the policy of providing aid on those two points in particular.

One point emerging in connection with the Italian Government's intervention in this case is that it appears from documents submitted in a previous case that although it raised objections within the Council to the market organization arrangements it did not attempt to block the decision-making process because of those objections. The way subsequently chosen by the Iulian Government of submitting an appeal to the Court based on an alleged breach of the prohibition of discrimination because it considered Italy's vital interests to be affected seems to me from the legal point of view to be a thoroughly legitimate way in such a case for a Member State to object after the event to a Council decision. In Case 32/65 the Italian Government took the same path when the Council did not meet its objections to Regulation No 19/65 when adopting that regulation.

As far as the fixed costs of sugar production are concerned, the plaintiff in the main action again submitted at the hearing that in the case of production under the A quota those costs are not fully covered whereas higher production — under the B quota — attracts the much higher production levy. They also consider the 2% levy on Italian producers' A quota to be disastrous. The fact that production costs in Italy are higher than the Community average is also acknowledged by the Council in its defence, although there is no agreement on the figures. The aim of the quota system, however, is not primarily to take account of differences in production costs but to make it possible for less economic production, as in Italy, to continue to exist at a certain level. I would, however, query the Commission's opinion expressed at the hearing that the bankruptcy of a number of Italian producers was not due to the 2% levy but to bad management. Even industrial undertakings with high stock market valuations must often make do nowadays with a profit margin of only 2% on their turnover. The levy of 2% may therefore in fact have a fatal effect on their profitability. Even if the plaintiffs are right on this point and the Commission and Council did not sufficiently recognize the consequences of the 2% levy on the A quota for the Italian producers, this is not, in my view, a sufficient reason for regarding the way in which the Council balanced the interests of specialization with that of providing aid to production areas with less favourable production conditions as unlawful. In particular, it is not disputed that other Italian producers have in fact been able to pay the 2% levy without serious consequences for their profitability. Further, the Commission again pointed out at the hearing that, in Regulation No 1785/81, as in the previous regulations, specific measures were adopted to cover this situation in Italy, such as a higher derived intervention price and allowing certain national aid to be granted. Indeed, it was owing to the existence of those provisions that the Court expressed the view in paragraph 10 of its judgment in Case 230/78 (Eridania v Minister for Agriculture and Forestry [1979] ECR 2749, paragraph 10 at p. 2765) that the Italian sugar producers are not discriminated against compared with other Community producers.

Finally, the plaintiffs argue that, since the A quota covers only 85% of internal consumption in Italy as against an average of 101 % in the other Member States, only Italian sugar produced under the B quota — i.e. sugar attracting a higher levy — may be exported.

In my view, that argument cannot be accepted either. The fact that the A quota does not completely cover internal consumption in Italy does not follow from the fact that this figure, based on actual production during the reference period, was fixed too low but from the fact that the Italian sugar market is a deficit market as a result of unfavourable natural production conditions for sugar beet. It is only the total Community production under the A quota which is intended to cover the total internal consumption of sugar in the Community. The fact that the Italian sugar market is a deficit market is clear from the fact that in the period 1981 to 1984 the B quota was not used in full whereas in the 1984/85 marketing year there was no production at all under the B quota. It is obvious that on a deficit market the scope for export to other Member States or to nonmember countries is smaller or even nonexistent. It must also be considered that the sugar produced under the A quota is not intended exclusively for the internal market. An undertaking which wishes to export because it would be economically more advantageous is at liberty to dispose of its A sugar outside the Community.

2. The alleged breach of the principle of proportionality

The plaintiffs discern a breach of the principle of proportionality in the fact that Italian producers, who are not responsible for the sugar surpluses, are required to pay the production levy to finance those surpluses. As I argued in my Opinion in Case 106/83 (Sermide, judgment of 13 December 1984 [1984] ECR 4209) that reasoning is fundamentally wrong because it runs counter to the basic principle of the common market. The common market organizations are based on the principle of a single market in which a distinction based on nationality no longer exists. It is that single market which as a whole is characterized by surplus production. The mechanism to eliminate the surpluses functions for the benefit of the market as a whole since this is how the intervention mechanism, which forms the guarantee for all producers (including therefore Italian producers) is supported. When the market organization is based on partial financing of the disposal costs by the undertakings participating on the market, it would in fact lead to discrimination and hence to a distortion of competition if certain undertakings were exempted solely because of their geographical location within the single market. As I added in my Opinion in Sermide, such an argument also fails for practical reasons since under the production quota system it is not possible to identify who is responsible for the surplus production. All undertakings have an A and B quota and if they exceed the A quota they are by definition producing for export irrespective of their geographical location.

The second argument concerns the fact that 60% of the levy on the sugar produced is paid by beet growers. However, that argument fails because it has not been proved that this situation does not also occur in the other Member States so as to make the Italian market exceptional in that respect. On the contrary, as the Commission has shown — and this has not been contested by the plaintiffs — in Italy the production levy is not calculated on the basis of the (higher) derived intervention price but on the basis of the (lower) ordinary intervention price so that the Italian beet growers pay a lower amount in relation to the intervention price. In more general terms, the minimum price is a means by which the beet growers may protect their incomes.

3. The alleged breach of the duty to provide a statement of reasons

Finally, the plaintiffs consider that the statement of the reasons for the maintenance of the production quotas in Regulation No 1785/81 is inadequate in so far as it refers to the original reasons for the introduction of the quota system (11th recital). Those reasons are set out in detail in the preamble to Regulation No 1009/67 (ninth and 10th recitals) and the preamble to Regulation No 3330/74 (11th recital). It does not therefore appear that the Community's action was governed by other reasons. In its judgment in Joined Cases 292 and 293/81 (Société Jean Lion et Cie and Others v Fonds d'Intervention et de Régularisation du Marché du Sucre [1982] ECR 3887), the Court pointed out in that regard that it is sufficient if it is possible to deduce from the statement of reasons the general scheme of the market organization in which the individual details may be placed. The requirement that each detail should be separately explained must be regarded as excessive.

IV — Conclusion

I conclude that no factors of such a nature as to affect the validity of Articles 24 and 28 of Regulation No 1785/81 have been disclosed.

1 Translated from the Dutch.