Report for the Hearing delivered in Case 203/86

I — Facts

A— The milk sector in the European Economic Community

1. The common organization of the market in milk and milk products is governed by Regulation No 804/68 of the Council of 17 June 1968 (Official Journal L 148, p. 13), which has been the subject of several amendments.

2. The Council considers that the incomplete nature of the description given by the applicant of the measures introduced by the abovementioned regulations does not accurately reflect the true situation. Accordingly, it feels that it is necessary to make the following observations.

3. In its reply, the applicant states that it uses the expression milk quotas in its accepted usage and not as a basic legal concept and that in employing the expression total guaranteed quantity for Spain or milk quota for Spain to refer to the delivery to the central dairies, or the expression reference quantity to indicate direct sales, it uses the terminology appearing in the contested regulations. Furthermore, the applicant denies that the concept of milk quota is a nonexistent concept, since it is clear that a number of total guaranteed quantities, allocated or fixed for each Member State, were established, whatever they were called (total quantities, reference quantities or milk quotas), and that ultimately each Member State has a milk production quota.

4. The Council states in its rejoinder that it stressed the inaccuracy of the expression milk quota per Member State in order to draw attention to the two practical and legal implications of the applicant's action. In the Council's view, by arguing, in its reply, that the implementation of the system for purchasing milk quotas presupposes inevitably, from the point of view of the national economy taken as a whole, a reduction in Spanish milk production and, consequently, an increase in unemployment, the applicant contests in the first place the macroeconomic effects which this decrease will entail for the Spanish economy taken as a whole, quite independently of any effects on the quotas of individual producers.

5. The Commission, which fully supports the account of the facts submitted by the Council, merely states its position on the aspects on which the parties are not in agreement as to the facts.

B — The milk sector in Spain and accession to the European Communities

1. According to the applicant, the situation in the milk sector in Spain prior to its accession to the European Community was notable essentially for the following features: deficiencies in the production and commercialization structures; lack of surpluses (domestic production covering 92% of national consumption); and the concentration of production in very limited areas which were heavily dependent on that production.

2. The Council notes in this respect, that in the course of the accession negotiations, Spain never contested the system of intervention prices or the system limiting milk production in the Community. According to the Council, these negotiations concerned only the agreement relating to the fixing of the level of total guaranteed quantities for Spanish farmers and dairies, these quantities having been fixed on the basis of the total milk production in Spain in 1983.

3. In its reply, the applicant argues, in the first place, that if the total guaranteed quantities for each Member State were fixed in 1984 on the basis of quantities of milk delivered in 1981, plus 1%, and if, for Spain, the total guaranteed quantity is to come into force in 1986 and if 1983 production is taken as the reference year, Spain did not receive more favourable treatment, in particular because 1 % was not added to its 1983 production in order to fix the total quantity for 1986, as had been the case for the 1981 production in other Member States.

4. The Council repeats in its rejoinder that the applicant was accorded more favourable treatment than the majority of the Member States as regards the determination of the reference production, because for 1986 it was allocated a guaranteed total quantity equivalent to its actual production for 1983, whereas for the same year the production of other countries of the Community (with the exception of Italy and Ireland) was limited to the quantities produced in 1981 plus 1%.

5. The Commission notes that the applicant's argument regarding the negotiations relating to the Act of Accession, which in reality is directed against the contents of the Act of Accession itself, is not relevant in determining the lawfulness of subsequent legislation. It considers it nevertheless helpful to make the following observations.

C — The contested regulations

1. Two years after the reduced quotas were fixed under Regulations Nos 856/84 and 857/84, the Council, on the basis of new proposals from the Commission resulting from the realization that the level of quotas was higher than was desirable to achieve a balance between supply and demand, adopted on 6 May 1986 Regulation No 1335/86 amending Regulation (EEC) No 804/68 on the common organization of the market in milk and milk products (Official Journal 1986, L 199, p. 19) and Regulation No 1343/86 amending Regulation (EEC) No 857/84 adopting general rules for the application of the levy referred to in Article 5 c of Regulation (EEC) No 804/68 in the milk and milk products sector (Official Journal 1986, L 119, p. 34), which are the subject of this action.

2. The Council maintains that, with a view to avoiding traumatic effects for farmers, it planned that the reduction of 3% would take effect one year after the publication of Regulations Nos 1335/86 and 1343/86 and in two stages, namely a first reduction of 2% for the period between 1 April 1987 and 31 March 1988 and a second reduction for the period between 1 April 1988 and 31 March 1989.

3. The Commission notes in the first place that the proposals which it submitted to the Council and which led to the adoption of the contested regulations were based on a number of measures for the voluntary discontinuation of milk production by producers, measures intended to reduce the total production by 3% with a view to resolving the problems experienced by the Community's milk sector.

II — Written procedure and submissions of the parties

1. The Kingdom of Spain's application was registered at the Court Registry on 4 August 1986.

2. By an order of 3 December 1986 the Court granted the Commission of the European Communities leave to intervene in support of the Council's conclusions.

3. The written procedure followed the normal course. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General, the Court decided to open the oral procedure without a preparatory inquiry.

4. The applicant claims that the Court should:

5. The Council contends that the Court should:

6. The Commission, as intervener, contends that the Court should:

III — Submissions and arguments of the parties

The applicant's submissions in support of its action, which are contested by the Council, defendant, and the Commission, as intervener, are as follows:

A— Infringement of Article 43 (2) of the EEC Treaty

1. The applicant claims that Council Regulation No 1343/86 infringes Article 43 (2) of the EEC Treaty on the ground that the European Parliament was not consulted on the occasion of the preparation and adoption of that regulation.

2. The Council considers that it was not under a duty to consult the European Parliament.

3. In its reply, the applicant, which considers that Regulations Nos 1343/86 and 1335/86 lay down measures with identical features, raises the question as to why the Parliament was consulted beforehand in the case of Regulation No 1335/86 and not in that of Regulation No 1343/86.

4. The Council maintains in its rejoinder that the applicant concedes by implication that second-generation regulations which implement the rules laid down by the basic regulations do not necessarily require prior consultation of the European Parliament.

5. The Commission considers, in support of the Council's argument, that Regulation No 1343/86 is a second generation regulation

B — Infringement of Article 190 of the EEC Treaty

1. The applicant maintains that the statement of the reasons on which Regulation No 1343/86 is based contains no reference to Article 43 (2) of the EEC Treaty which is the basis of the power to adopt a measure reducing the reference quantities allocated to producers in Member States with regard to direct sales.

2. The Council challenges this view by maintaining that neither Regulation No 1343/86 nor the Council's power to adopt it are founded directly upon Article 43 (2) of the EEC Treaty. It argues that the regulation's legal basis is to be found in Article 5 c (6) of Regulation No 804/68, expressly referred to in the preamble to the contested regulation in the same way that the said preamble also refers to Regulation No 857/84, amended by the Regulation No 1343/86, and the reasons for that amendment.

3. The applicant maintains in its reply that it has not denied that the preamble to the contested regulation contained all the necessary information in order to determine the reasons leading to its adoption. It takes the view nevertheless that Article 190 of the EEC Treaty also requires that the legal basis on which the power of the institutions to adopt each of the measures which they issue is founded should also be specified.

4. The Commission denies in particular the applicant's claim that the Commission accepted its argument on this point, as was allegedly shown by the action brought on 17 February 1986 against the Council in Case 45/86 seeking a declaration that various Council regulations were void on the ground that the expression having regard to the Treaty amounted to a total failure to state the legal basis of those regulations.

C — Infringement of essential procedural requirements in the procedure for the adoption of the decision

1. Referring to Article 237 of the EEC Treaty and Article 400 of the Act of Accession, the applicant maintains that the total guaranteed quantity of milk for sales to intermediaries and the total reference quantities of direct sales to final consumers as allocated to Spain in the Act of Accession form part of the body of conditions for the admission of a new Member State, such conditions having been the subject of an agreement between the Member States and the candidate State.

2. The Council maintains, in the first place, that although it is true that Article 6 of the Act of Accession provides that the provisions of that Act may not be amended other than by means of procedures laid down in the original Treaties enabling those Treaties to be revised, Article 8, on the other hand, expressly provides for a derogation from that principle.

3. According to the applicant, Article 8 of the Act of Accession is intended to prevent the lawmaking activity of the Community from being paralysed but it applies only to amendments of measures of secondary law which are not transitional in nature, in other words, to mere technical adaptations. The applicant considers that it is not only the measures provided for in the fourth part of the Act of Accession which are transitional in nature, but that a measure such as that fixing a total guaranteed quantity to milk production, which amends a regulation intended to be transitional and to be of limited duration, must be regarded as a transitional measure for the purposes of the procedure for the amendment of such a measure.

4. The Council states in its rejoinder that it cannot accept the extension of the concept of transitional measures as put forward by the applicant, which amounts to depriving Article 8 of the Act of Accession of its substance, and, accordingly, of any possibility of concrete application; such an extension would mean that Article 8 of the Act of Accession, contrary to its letter and spirit, would confer on almost all the amendments of secondary law effected by the Act of Accession the character of primary law.

5. The Commission, which fully supports the position adopted by the Council, points, in relation to the claim that the overall balance achieved by the negotiation had been modified and that the contested regulations constituted a unilateral alteration, to what it considers to be the fundamental contradiction underlying the applicant's reasoning in relation to Regulation No 1343/86.

D — The contested regulations run counter to the objective of ensuring an adequate standard of living for the agricultural community

1. In the applicant's opinion, the 3% cut in the milk production quotas allocated to Spain under the Act of Accession is contrary to one of the fundamental aims of the common agricultural policy laid down in Article 39 of the EEC Treaty, namely, to ensure a fair standard of living to the agricultural community, an aim which the Court has recognized as being particularly important by ruling that it takes precedence in the event of conflict with other common aims such as that of stabilizing the market (judgment of 24 October 1973 in Case 5/73 Balkan-Import-Export [1973] ECR 1091).

2. The Council notes that the applicant has not submitted any evidence that the contested regulations would prevent Spanish farmers from attaining a fair standard of living. In addition, it has failed to mention the positive effects of the common agricultural policy and has not taken into consideration the application of the system of buying milk quotas.

3. The applicant replies that the system of buying milk quotas, set up under Regulation No 1336/86, presupposes a decrease in milk production which is liable to have negative economic effects for the producer who ceases production, and it makes no difference that the decision in question is voluntary or that compensation is paid in exchange. It is therefore the lesser evil for a large number of producers who, if they do not opt for this solution, risk being ruined.

4. In its rejoinder, the Council points out that the system of buying back or of voluntarily abandoning, by agricultural operators, of milk production in return for the payment of compensation is one of the measures taken by the Council in order to facilitate the reduction of quotas in order to avoid possible negative consequences for individual producers.

5. The Commission considers that the applicant appears in reality to be attacking the whole Community system of total quantities in the milk sector, which was set up not by the two contested regulations but by the earlier regulations, namely Council Regulations Nos 856/84 and 857/84.

E — Breach of the principle of legitimate expectations

1. According to the applicant, the milk quotas constitute one of the conditions for Spain's admission to the European Economic Community, which are set out in the Act of Accession and which are intended, according to the terms used by the Court itself, to enable the adaptation of the acceding State to the new economic conditions resulting from integration into an economic community.

2. The Council states that the applicant's interpretation of the principle of legitimate expectations is erroneous. This principle, as it has been consistently laid down in decisions of the Court of Justice, concerns, in principle, only individual situations in which an economic operator has taken on firm contractual obligations towards a third party or possesses an interest meriting protection in relation to a public authority under the legislation in force at the time.

3. In its reply, the applicant maintains that Spanish operators possess interests meriting protection under legislation in force, which the Spanish authorities adopted with a view to encouraging the development of the sector.

4. In the Council's view, the existence of Spanish legislation predating Spain's entry into the common market and designed to promote the expansion of milk production in that country cannot prevent the adoption of measures required by the adjustment of the economic situation of the milk sector to current realities or create a legitimate expectation on the part of Spanish producers.

5. The Commission considers that the applicant cannot request at this stage a transitional period on the basis of an alleged legitimate expectation.

F — Breach of the principle of nondiscrimination

1. The applicant stresses in the first place that the principle of nondiscrimination, which is set out in general terms in Article 7 of the EEC Treaty and which applies in particular to the common agricultural policy by virtue of the second subparagraph of Article 40 (3) of the EEC Treaty, constitutes one of the fundamental principles of the Community legal order, as has been held by the Court of Justice; it cites the judgments of 19 October 1977 in Joined Cases 117/76 and 16/77 Quellmebl [1977] ECR 1753, of 13 July 1978 in Case 8/78 Milac v Hauptzollamt Freiburg [1978] ECR 1721, at p. 1733 and of 23 February 1983 in Case 8/82 Wagner v BALM [1983] ECR 371, at p. 387.

2. The Council observes in the first place that the Court of Justice has already analysed on several occasions the question of the application of the principle of equal treatment and of nondiscrimination in regard to the common agricultural policy. It considers that two fundamental characteristics may be derived from the Court's decisions: (a) in the first place, the various components of the common organization of the markets cannot be applied differently only on the basis of the advantages and disadvantages which they secure to the parties concerned, without distinction between the territories of the Member States (judgment of 13 December 1984 in Case 106/83 Sermide [1984] ECR 4209, at p. 4231, paragraph 28 of the decision, and of 13 July 1978 in Case 8/78 Milac [1978] ECR 1721, at p. 1732, paragraph 18 of the decision); (b) in addition, in assessing the Council's activity in the field of the Community's agricultural policy, it is necessary to take account of the discretion vested in the Council as regards assessing the economic data and the situations of fact and the Court must confine itself to examining whether it contains a manifest error or constitutes a misuse of power or whether the authority in question did not clearly exceed the bounds of its discretion (judgment of 29 October 1980 in Case 138/79 Roquette [1980] ECR 3558, paragraph 25 of the decision, cited above).

3. In its reply, the applicant reiterates the arguments set out in its application.

4. The Council adheres to what it says in its defence and states that a common organization of the agricultural market requires an effort of solidarity from all the agricultural producers of the Community and that the concept of deficits at the level of a Member State, with its implicit but inevitable corollary of an alleged right of this Member State to make up this deficit, amounts to affirming the thesis of self-sufficiency at the level of the Member States and accordingly to denying the existence of a common market.

5. The Commission expresses its agreement with all the arguments put forward by the Council and merely adds one final comment.

1 Language of the Case: Spanish.