Report for the Hearing delivered in Case 394/85

I — Facts

In order to deal with the structural surpluses which mark the Community market in milk and milk products, the Council introduced, in Regulation No 1079/77 of 17 May 1977 (Official Journal L 131, p. 6) a co-responsibility levy applying uniformly to all milk delivered to dairies and to certain direct sales of milk products by producers to consumers.

Since the charging of that levy did not make it possible to restore the equilibrium between supply and demand, the Council decided to introduce, for five consecutive periods of 12 months beginning on 1 April 1984, an additional levy on quantities of milk delivered beyond a guarantee threshold. The amount of the levy should in principle cover the financial charges which the Community is required to pay in order to dispose of milk in excess of the guaranteed quantity.

The additional levy was introduced by Council Regulation No 856/84 of 31 March 1984 (Official Journal L 90, p. 10), which inserted Article 5c in Regulation No 804/68 of the Council of 27 June 1968 on the common organization of the market in milk and milk products (Official Journal, English Special Edition 1968 (I), p. 176).

The Council also adopted on 31 March 1984 Regulation No 857/84 adopting general rules for the application of the additional levy (Official Journal L 90, p. 13). The Commission subsequently laid down detailed rules for the application of the system in Regulation No 1371/84 of 16 May 1984 (Official Journal L 132, p. 11).

The additional levy system is based, on the one hand, on the allocation to each Member State of a guaranteed total quantity and, on the other hand, on the division of that quantity into individual reference quantities. The latter are allocated by the Member States in accordance with criteria laid down in the Community rules. They are allocated to producers or persons who buy milk for processing, as the case may be. The quantities allocated correspond in principle to the quantities delivered, purchased or sold during the 1981 calendar year, increased by 1%.

It is the fact of exceeding the reference quantities which gives rise to payment of the additional levy. It is ultimately charged to the milk producers, under arrangements which vary according to the situation.

In the case in which the producers sell directly to the ultimate consumers, the Member State must grant reference quantities to the producers. If these are exceeded, the producers themselves pay the amount of the levy to a body to be designated by the Member State.

Furthermore, where the producers sell to undertakings treating or processing milk, the Member States may choose between two formulas.

If the Member State chooses the first formula (formula A), it must attribute reference quantities to the milk producers. If those quantities are exceeded, the purchasers are required to charge the levy to producers on quantities delivered to them and to pay it to the competent national body.

If the Member State chooses the second formula (formula B), the reference quantities are attributed to the milk processors. If those quantities are exceeded, the purchasers are liable for the levy and must pay it to the competent national body. However, they are permitted to pass on the levy in the price paid to those producers who have increased their deliveries, in proportion to their contribution to the quantity by which the purchaser's reference quantity is exceeded.

The Community rules require the Member States to adopt the measures necessary for the application of the additional levy.

Thus, the Member States are required in particular to allocate reference quantities to producers and purchasers of milk and to designate the national body responsible for collecting the levy.

Furthermore, they must, or may, as the case may be, exercise certain options and indicate their choice to the Commission. For example, they are required to decide whether they wish to divide the national territory into several regions for the application of formulas A and B. They are also required to choose, in regard to each region, between the application of one or other of those two formulas. Furthermore, they may decide to apply criteria derogating from the general criterion (quantities delivered, purchased or sold in 1981, increased by 1%) when calculating the reference quantities. Derogations from that general criterion are permitted in order to take account of the special situation of certain producers or to facilitate restructuring of milk production at national or regional level or at the level of the collecting areas. The Member States are also entitled to grant to producers undertaking to discontinue milk production definitively compensation paid in one or more annual payments (Article 4 (1) (a) of Council Regulation No 857/84).

During the first period of 12 months, the measures adopted and options taken must be communicated to the Commission before either 1 May, 1 October or 31 December 1984, as the case may be.

In a letter of 7 June 1984, the Italian Republic informed the Commission that the implementation of the additional levy caused it serious difficulties and asked the Council to modify the system applicable in Italy's case.

The Commission replied on 28 September 1984 that the result of the discussions which had taken place in the Council was that the request for a modification of the system would not be granted. It therefore called upon the Italian Republic to adopt the required measures for the application of the additional levy.

Since the Italian Republic had not communicated to the Commission the measures which it had adopted, the Commission called upon it, in a formal letter of 27 November 1984, to submit within 15 days its observations concerning the manner in which it had fulfilled its obligations.

In its reply dated 3 January 1985, the Italian Republic contended that administrative difficulties had prevented it from implementing the additional levy. It repeated its request for a modification of the system. It also pointed out that, pursuant to Article 4 (1) (a) of Council Regulation No 857/84, it had adopted, on 8 November 1984, a ministerial order laying down the criteria for the grant of compensation to be paid to producers undertaking to discontinue milk production definitively, a budget of LIT 60000 million having been provided for that purpose. Finally, the Italian Republic emphasized that, although it had not fulfilled the obligations imposed on it, the objective of the system had none the less been achieved in Italy since the increase in milk production had slackened in 1984.

Notwithstanding those explanations, the Commission issued a reasoned opinion on 18 March 1985 in which it stated that, by communicating to it only one measure for the implementation of the rules concerning the additional levy, the Italian Republic had admitted not having fulfilled any of the other obligations imposed on it by those rules. It therefore considered that the Italian Republic had failed to fulfil its obligations under Council Regulations Nos 856/84 and 857/84 and Commission Regulation No 1371/84 and under Article 5 of the Treaty. The Commission gave the Italian Republic one month to adopt the measures necessary to comply with the reasoned opinion.

The Italian Republic replied on 3 July 1985 that it had decided to apply formula A, as provided for in Article 1 of Council Regulation No 856/84 (allocation of reference quantities and charging of the levy to producers in the case of sale to milk processors) and that the national measures required for the implementation of that formula were being drafted. It also pointed out that the objective of the system, namely compliance with the overall quantity of milk fixed for Italy, had been achieved.

On 8 December 1985 the Commission brought the present action.

Upon 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

The Commission claims that the Court should:

Declare that, by failing to take the necessary measures to apply the additional levy in the sector of milk and other milk products and to notify those measures to the Commission, the Italian Republic has failed to fulfil its obligations under the legislation governing the common organization of the markets in the sector of milk and other milk products, in particular Council Regulations (EEC) Nos 856/84 and 857/84 and Commission Regulation (EEC) No 1371/84, and under Article 5 of the EEC Treaty;

Order the Italian Republic to pay the costs.

The Italian Republic leaves it for the Court to decide the case.

III — Submissions and arguments of the parties

The Commission considers that Italy's failure to fulfil its obligations has been established and the Court should make a declaration to that effect.

On the one hand, the Italian Republic admits that it has not fulfilled its obligations except on two precise points (option to apply formula A to the whole national territory, regarded as a a single region; laying down of criteria for the payment of compensation for discontinuance of milk production).

On the other hand, the Italian Republic's inaction must be penalized because it is a source of legal uncertainty for those liable to pay the levy and diminishes the dissuasive effect of the system of reference quantities.

The Commission considers that the arguments put forward by the Italian Republic to justify its failure to adopt measures other than the two actually adopted cannot be accepted.

Thus, a Member State cannot seek to justify a failure to adopt the required measures by pleading internal administrative difficulties. In this case, all the other Member States have adopted the measures required even though some of them also encountered administrative difficulties.

It is of no consequence that the objectives sought to be achieved by the Community rules have in fact been achieved even without the required implementing measures. Furthermore, it is not even correct to say that the objectives in question were achieved in Italy.

Finally, the fact that a Member State considers that Community rules should be amended in no way discharges it from its obligation to comply with the rules at issue until such time as they have been amended. The contrary solution would jeopardize the realization of the objectives sought to be achieved.

The Italian Republic does not contest the fact that it has failed to fulfil its obligations but leaves it for the Court to decide whether or not that failure is excusable. It relies in particular in that regard on the following circumstances.

The stock-farming sector in Italy is characterized by a large number of small and medium-sized producers and by a large number of purchasers. In the absence of statistical data on deliveries, sales and purchases by them, it was not possible to fix the reference quantities until after the completion of a survey decided on by ministerial order of 22 June 1984 (Gazzetta Ufficiale No 178 of 29. 6. 1984). In those circumstances, it was not possible to comply with the time-limits laid down by the rules in question.

Furthermore, it emerged that the requests made to the Commission for modifications of the system were justified. The Council subsequently accepted that the system was excessively severe and made it considerably more flexible as from February 1985 (Regulation No 590/85 of 26 February 1985, Official Journal L 68, p. 1; Regulation No 1305/85 of 23 May 1985, Official Journal L 137, p. 12).

Finally, the failure to adopt the required measures did not prevent the realization of the fundamental objectives which the additional levy system sought to achieve. Even though individual reference quantities were not allocated in Italy, total milk production during the first period of 12 months did not exceed the overall quantity allocated.

1 Language of the Case: Italian.