Report for the Hearing in Case C-76/91

I — Facts and procedure

1. Legal background

Community rules

1. Article 2 of the Act concerning the conditions of accession of the Kingdom of Spain and the Portuguese Republic and the adjustments to the Treaties (OJ 1985 L 302, p. 23, hereinafter the Act of Accession) provides:

2. Article 208(1) provides:

3. Paragraph 2 of the Joint Declaration on the elimination of monopolies existing in the new Member States in the sphere of agriculture (OJ 1985 L 302, p. 480) provides:

4. On 8 October 1987 the Commission sent the Portuguese Republic, pursuant to Article 208 of the Act of Accession, a recommendation concerning the adjustment of the State monopoly of a commercial character in alcohol vis-à-vis the other Member States (OJ 1987 L 306, p. 32, hereinafter the Recommendation). It recommended the Portuguese Republic to open quotas, inter alia, for ethyl alcohol of agricultural and non-agricultural origin. The Recommendation also contains very precise provisions in relation to percentages and the increase in quotas until 31 December 1992.

5. The last paragraph of point V(1) of the Recommendation provides:

The Portuguese rules

6. With a view to implementing Article 208 of the Act of Accession Decree-Law No 508/85 of 31 December 1985 was adopted to liberalize the importation, movement and utilization of raw materials for producing alcohol.

7. It appears from the order making the reference that the conditions to which those measures of liberalization were subject and the conditions with which the various economic operators had to comply in order to pursue their respective activities were to be fixed by a ministerial order which has not yet been adopted.

2. The main proceedings

8. Caves Neto Costa SA, (hereinafter CNC), the applicant in the main proceedings, lodged an administrative objection against the decision of the Director-General for Foreign Trade of the Ministry for Industry and Trade of 24 November 1987 rejecting its request to import from France 28 tonnes of pure alcohol with a CIF value of FF 105000.

9. The administrative objection was rejected by an implied decision of the Minister for Trade and Tourism and the Secretary of State for Foreign Trade.

10. The applicant thereupon brought an action before the Supremo Tribunal Administrativo for the annulment of those implied decisions of rejection.

11. The applicant claimed that, in failing to open import quotas for ethyl alcohol at the date of the implied decisions rejecting its objection, Portugal failed to fulfil its obligations under Article 5 of the EEC Treaty, Article 208(1) of the Act of Accession, paragraph 2 of the aforementioned Joint Declaration and pursuant to the Recommendation.

12. The Supremo Tribunal Administrativo took the view that the appeal raised questions of the interpretation of Community law and made an order that the following questions be referred to the Court for a preliminary ruling:

3. Procedure before the Court

13. The order of the Supremo Tribunal Administrativo was registered at the Court Registry on 25 February 1991.

14. Pursuant to Article 20 of the Protocol on the Statute of the Court of Justice of the EEC, written observations were submitted by the applicant represented by Isabel Jalles, of the Lisbon Bar, the Portuguese Government, represented by Professor Joao Mota de Campos and Luis Inez Fernandes, Director of the Legal Service of the Directorate-General of the European Communities at the Ministry for Foreign Affairs acting as Agents, and the Commission of the European Communities, represented by Blanca Rodriguez Galindo, of the Legal Service and by Helena Varandas, civil servant of the Portuguese Republic seconded to the Commission's Legal Service, acting as Agents.

15. 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 — Summary of the written observations submitted to the Court

16. The applicant in the main proceedings considers that the market in alcohol is subject in Portugal to a State monopoly of a commercial character run by the Administração-Geral do Açúcar e do Alcool (hereinafter the AGA), which is a public undertaking. Although the Portuguese Government has recognized that the existence of the monopoly is contrary to its obligations under European law, including in particular the EEC Treaty and the Act of Accession, adjustment is still being postponed.

17. The situation in Portugal is such that manufacturers of liqueurs have still no direct access to the Community market and foreign producers of alcohol obstruct the penetration of markets. By applying a special price scheme laid down by the Portuguese rules the AGA fixes sale prices for alcohol at such a high level that the relation between prices charged on the international market and those charged by AGA is disproportionate.

18. CNC claims that it is necessary to read Article 208 of the Act of Accession in the light of the case-law of the Court on Article 37 of the Treaty. As is clear in particular from the judgments of the Court on the adjustment of the alcohol monopolies in France and Germany, it is very important to distinguish clearly the structural rules on the one hand and the rules of conduct or competition on the other. In CNC's view the rules of competition, including Article 37 of the Treaty and Article 208 of the Act of Accession, are of immediate application and must be effective as from 1 January 1986.

19. In CNC's view, the adjustment of the monopoly in question, which involves the fixing of quantities to be imported to the extent that needs are not covered by Portuguese production and the fixing of prices and profit margins, is the sole guarantee for the removal of discrimination and for equality in the conditions of competition between the nationals of the various Member States. It is clear from the case-law of the Court, in particular Case 6/64 Costa v ENEL [1964] ECR 585, that to come within Article 37, of the Treaty State monopolies must have as their object transactions regarding a commercial product capable of being the subject of competition and trade between Member States and also play an effective part in such trade. It follows from the case-law of the Court that it is not just simply a partitioning of markets which is at issue but the impossibility for producers and distributors of the various Member States to compete freely.

20. In consequence, Article 208 of the Act of Accession requires compliance with the standstill clause, in the present case non-aggravation of the discriminatory conditions, existing at the date of accession, in the supply of alcohol to producers of liqueurs and that the progressive adjustment of the monopoly. In that respect, CNC observes that the Portuguese Government has not yet adopted any measures. The administration of the State monopoly during the transitional period is incompatible with the requirement of a standstill. The monopoly ensures the protection of the national production and the collection of revenue for the public treasury. Maintenance of the price scheme thus constitutes not only indirect taxation but also an obstacle to intra-Community trade. The price scheme prevents the purchaser of alcohol from freely choosing between suppliers and must be regarded as a form of discriminatory treatment of a market sector.

21. CNC next claims that the concept of adjustment of the monopoly further implies that exclusive rights to import should be abolished. It follows from the case-law of the Court (see Case 91/75 Hauptzollamt Göttingen v Miritz [1976] ECR 217; Case 120/78 REWE II v Bundesmonopolverwaltung für Brantwein [1979] ECR 649; Case 148/77 Hansen v Hauptzollamt Flensburg [1978] ECR 1787; Case 119/78 Peureux v Directeur des Services Fiscaux [1979] ECR 975 and Case 202/88 France v Commission [1991] ECR I-1223) that the conduct of a body such as the AGA must be compatible with the rule of conduct underlying Article 208 of the Act of Accession. In that respect, CNC also refers to the Spaak Report from which it is clear in particular that until the end of the transitional period it is on the basis of agreements freely negotiated and a progressive adjustment to the final arrangements that trade between sectors subject to a purchasing monopoly can be developed.

22. According to CNC neither the EEC Treaty nor the Act of Accession indicate how adjustment of the monopoly should be effected. However, as interpreted today, that adjustment implies both the adoption of measures which will exclude any discrimination and abstention from the use of even non-discriminatory legal possibilities for purposes inimical to competition. Consequently, a concept of potential discrimination or possibility of discrimination is essential to an understanding of the concept of adjustment.

23. Referring to the aforementioned judgment in Peureux v Directeur des Services Fiscaux and Hansen v Hauptzollamt Flensburg, CNC goes on to argue that it follows from the Court's case-law that Article 37 of the Treaty remains applicable when there is only a production and marketing monopoly in domestic products although adjustment has led to the abolition of exclusive rights to import and market in the case of imported products. Thus Article 37 is both a structural rule and a rule of conduct. The preventive nature of Article 37 and the adjustment effected or to be effected goes hand in hand with the transformation of the structural rule into a rule of conduct which, it must be understood, may be relied on at any time by individuals against discriminatory exercise of any exclusive rights still subsisting. The mechanism of Article 37 is thus more substantially strengthened and the protection of individuals is guaranteed vis-à-vis rules which have no direct effect. CNC stresses, in addition, the importance of recognizing the link between Article 37 and other provisions such as Articles 92, 93 and 95, the commercial nature of which enables the activity of State monopolies to be permanently monitored. As regards the potential effect of Article 37 and its links with Articles 90 and 86 of the Treaty, CNC refers to Case C-41/90 Höfner and Another v Macrotron [1991] ECR I-1979.

24. As regards the Recommendation, CNC claims that the Commission stated in that instrument that the Portuguese monopoly in ethyl alcohol was a monopoly within the meaning of Article 37 of the Treaty. Although it is clear that the Commission took into account in the Recommendation the specific features inherent in the sector in question and in particular the existence of two kinds of alcohol, one agricultural and the other non-agricultural, the abovementioned Joint Declaration nevertheless provides in relation to the monopoly in alcohol that Portugal must adjust it pursuant to Article 208 of the Act of Accession.

25. CNC therefore proposes that questions put to the bench should be answered as follows:

26. The Portuguese Government first of all contends that the questions referred to the Court implicitly contain the question of the direct applicability of Article 37 of the Treaty and Article 208 of the Act of Accession. In the view of the Portuguese Government neither Article 37 of the Treaty nor Article 208 of the Act of Accession is capable during the transitional period of producing direct effects giving rise to personal rights which may be relied upon before the national court. In that respect the Portuguese Government refers to the case-law of the Court from which it follows that a Community rule has direct effect only if it is sufficiently precise, unconditional and contains all the elements needed in order to be applied to the specific situation (Case 59/75 Pubblico Ministero v Manghera [1976] ECR 91). Although Article 37 of the Treaty and Article 208 of the Act of Accession impose an obligation to achieve a specific result and an obligation to adopt a certain conduct they do not prescribe the form in which the adjustment of the monopoly must be effected. The only obligation is to achieve the prescribed result before the expiry of the transitional period. It is therefore for the Portuguese State to choose the method and forms necessary to achieve the specific result required of it. Furthermore the question of direct effect was settled by the Court in its judgment in Manghera, cited above. In that judgment it was held that after the expiry of the transitional period Article 37(1) was capable of being relied upon by nationals of the Member States before domestic courts.

27. The Portuguese Government further contends that if CNC has to be regarded as having a right to import freely, which can be protected by the national courts, other traders must also be recognized as having such a right. In consequence, the monopoly would no longer exist if during the transitional period all traders could exercise their right to import alcohol freely. If that were the case, Article 208 of the Act of Accession would be of no real consequence.

28. Finally, the Portuguese Government states that since Article 37 of the Treaty and Article 208 of the Act of Accession are not directly applicable, if Portugal has committed an infringement, it can be punished only by the Community.

29. With regard to the opening of quotas during the transitional period, the Portuguese Government contends that the progressive adjustment of the monopoly in question is not synonymous with the opening of quotas for free importation but means only that the institutional and legislative system should be revised so that at the end of the transitional period trade will be liberalized and there will be no discrimination between the nationals of the Member States.

30. As regards the Recommendation, the Government adds that not only is it not mandatory but it also constitutes an obstacle to the protection of the national economic and social interests associated with the production of alcohol, to fair competition and to the protection of public health. In the Government's view, the progressive adjustment of the monopoly does not necessarily mean the progressive liberalization of trade during the transitional period, as required by the Commission in its Recommendation on the basis of Article 33 of the Treaty.

31. Finally, the Portuguese Government contends that it has adjusted the monopoly by adjusting the institutional and legal machinery governing the monopoly so that trade will be liberalized at the end of the transitional period. That adjustment enables the interests entrusted to the monopoly to be assured. The Government lists a number of measures of adjustment: the AGA has ceased to be responsible for the sale of alcohol of agricultural origin and for quality control; alcohol of domestic origin has been subjected to a system of open competition; there are no price restrictions on alcohol and no discrimination with regard to the tax system; formal measures to liberalize intra-Community trade all at once before 30 September 1991 have been adopted. Thus Portugal has correctly adjusted the monopoly although it has not followed the Recommendation.

32. Should it not be sufficient for the purpose of answering the questions put to the Court that Article 37 of the Treaty and Article 208 of the Act of Accession are not directly applicable, the Portuguese Government contends in relation to the first question that the Recommendation does not provide for quotas for all the years of the transitional period. It is only in relation to the last two months of 1987 that the Recommendation states the quota which should have been opened. The answer to the alternative question must also be in the negative since the Recommendation did not cover the first years of the transitional period.

33. As for the second question, the Portuguese Government states that in proceedings for a preliminary ruling the Court cannot rule on the question whether the conduct of a Member State is reasonable. If the Recommendation were a binding measure, the opening of the quotas for the free importation of alcohol would have been required on a date that was subsequent to the Recommendation, which was published in the Official Journal on 28 October 1987, and that took account of the time needed for the Portuguese Government to react to a recommendation of that land.

34. The Portuguese Government contends that the Court has no jurisdiction to answer the third question. The exercise of the Commission's powers cannot be reviewed by the Court in proceedings of this kind.

35. The Portuguese Government proposes that the questions put to the Court should be answered as follows:

36. As regards the first question, the Commission states that the wording of Article 37 of the Treaty and Article 208 of the Act of Accession are almost identical. The only difference is the date of the beginning of the adjustment. It is clear from the wording of Article 37 and its inclusion in Chapter II of the Treaty, and also from the case-law of the Court (see Case 78/82 Commission v Italy [1983] ECR 1955), that Article 37 is designed to ensure compliance with the fundamental rule of the free movement of goods throughout the Common Market, in particular by the abolition of quantitative restrictions and measures having equivalent effect in trade between Member States, and thereby to maintain normal conditions of competition between the economies of Member States so that competition is not distorted where, in a Member State, a given product is the subject of a national monopoly of a commercial character. It is also clear from the case-law of the Court (see the judgments in Manghera and Peureux II, cited above) that it is discriminatory to maintain an exclusive right of importation into a Member State which itself produces the goods in question, since the monopoly cannot continue to prefer its own products to those of competitors and since, although Article 37 does not mandatorily require the abolition of the monopoly, it does require its adjustment so as to ensure that at the end of the transitional period all discrimination is abolished.

37. The Commission considers that it is clear from the wording of Article 208 of the Act of Accession and point 2 of the Joint Declaration that the adjustment of the monopoly must be effected progressively as from 1 January 1986. If a Member State could itself choose a date from which the monopoly had to be adjusted, the idea of progressive adjustment would lose all significance. In that respect, the Commission observes that Article 208 of the Act of Accession creates an exception to Article 202 of the Act which simply provides for the abolition of quantitative restrictions on imports and exports and any measures having equivalent effect.

38. The Commission concludes that the Portuguese Republic must progressively eliminate, as from 1 January 1986, restrictions caused by action on the part of the monopoly. It adds that the Recommendation has not been challenged by the Portuguese Government. However the Government has not given its reasons for not complying with the Recommendation.

39. The Commission states that, in view of its answer to the first question, the second does not call for an answer. Furthermore, it is not possible to leave it to Member States to determine in each particular case from what date the adjustment must begin.

40. As regards the third question, the Commission states that in drafting the Recommendation it was influenced by the provisions of Article 33 of the Treaty. Those provisions are adjusted to the Portuguese case. The Recommendation takes account of the length of the transitional period and also of the lapse of time between 1 January 1986 and the date of the Recommendation, namely 8 October 1987. In the recitals in the preamble to the Recommendation the Commission set out the manner in which it applied the provisions of Article 33 of the Treaty to the monopoly in ethyl alcohol. It follows from those recitals that it did not lose sight of the provisions of Article 37(4) of the Treaty, having regard to the agricultural origin of the alcohol produced in Portugal. However the Commission stresses that the requirements of Article 37(1) must be observed. That position is consistent with the case-law of the Court from which it is apparent that Article 37(4) makes no derogation from the other paragraphs of that article, and in particular not from paragraph 1 (see Case C-91/75 Hauptzollamt Göttingen v Miritz [1976] ECR 217, paragraph 12).

41. Finally the Commission considers, as it did in the recitals in the preamble to the Recommendation, that, having regard to the consistent reasoning of that Recommendation, to the length of the transitional period and to the period which had elapsed when the Recommendation was made, the timetable laid down for the progressive abolition of the quantitative restrictions in question and for the quotas of ethyl alcohol which were established are just and reasonable.

42. The Commission proposes therefore that the questions put to the Court should be answered as follows:

1 Language of the case: Portuguese.