Opinion of Mr Advocate General Gulmann
Mr President,
Members of the Court,
1. In this action for failure to fulfil obligations under the Treaty, the Commission is seeking in particular a declaration that the United Kingdom has failed to fulfil its obligations under Community law to ensure that the Milk Marketing Boards do not extend the exclusive right granted to them to purchase milk from milk producers beyond the limits resulting from Article 25 (1) of Regulation No 804/68 of the Council on the common organization of the market in milk and milk products (the basic regulation).
2. The Milk Marketing Boards (hereinafter referred to as the MMBs) are associations of milk producers. One covers England and Wales, three cover various production areas in Scotland, and one covers Northern Ireland. The MMBs were set up in the 1930s, apart from that in Northern Ireland, which was not set up until 1955.
3. At the time of the United Kingdom's accession to the European Communities, a declaration annexed to the Final Act of the Treaty of Accession stated that the organization of the market in milk would not prevent a producer organization from being ... free by its own decisions to consign milk wherever it chooses in order to get the best return for its members, to pool its financial returns and to remunerate its members as it wishes. A few years after the United Kingdom's accession, measures were adopted with a view to ensuring that the system of marketing in the United Kingdom could be preserved within the Community system of common organizations of the markets. The first such measure was an amendment to the basic regulation and was introduced by way of Council Regulation (EEC) No 1421/78, the second recital in the preamble to which stated:
4. It is apparent from the documents on the case-file that uncertainty has arisen as to whether skimmed milk and semi-skimmed milk are covered by the exclusive right of the MMBs to purchase milk sold in an unprocessed condition. It is also apparent that, so far as the Scottish MMBs are concerned, this uncertainty was resolved in the early 1980s through amendments to their Milk Marketing Schemes which made it clear that the exclusive right also covered skimmed and semi-slummed milk. It would not appear that this has given rise to any problems in practice.
5. The Commission's attention was drawn to the problem and it approached the United Kingdom authorities, pointing out that it was contrary to Article 25 (1) of the basic regulation for the MMBs to administer the schemes in such a way that their exclusive purchasing right also covered skimmed and semi-skimmed milk. Those authorities initially expressed their agreement with that view but subsequently changed their attitude following (as they phrased it) a comprehensive reappraisal of the issues involved.
6. The Commission submits primarily that:
7. The United Kingdom has argued that the Court should rule in its favour in respect of the main submissions and declare the alternative submission inadmissible or rule in favour of the United Kingdom.
Does the exclusive right of the MMBs cover skimmed and semi-skimmed milk?
8. The parties agree that this question depends on an interpretation of Article 25 (1) (a) of the basic regulation, which provides that the MMBs are to have the exclusive right... to buy from producers established in the area in question the milk which they ... market without processing (my emphasis).
9. Before I examine these, however, I must mention that in my opinion no decisive significance can be attached to the facts that at one time the MMB of England and Wales tolerated the sale of skimmed and semi-skimmed milk otherwise than to itself and that the original view of the United Kingdom authorities was that the Community rules were to be interpreted as meaning that producers of slummed and semi-skimmed milk could sell otherwise than to the MMBs. The relevant Community rules must be interpreted on the basis of their wording, their context and their objectives and that process cannot be dictated by the manner in which the MMBs and national authorities concerned may have interpreted them at a certain time.
10. In its judgment in Cricket St Thomas, the Court addressed a number of the arguments which have been put forward in the present case. The Court's examination thereof led to a result which in my opinion is wholly transposable to the present case. The Court held that the distinguishing criterion established by the Community rules as regards the scope of the exclusive right is based on the main characteristics of the product in question and its intended commercial use. From that the Court concluded that the question was therefore whether the product concerned may still be regarded as milk or whether it is a different product, derived from milk (paragraph 21 of the judgment). The Court, which held on that basis that the pasteurization process ... does not essentially alter the nature of the product, which remains milk for consumption, found that conclusion borne out by the objectives of the Community legislation inasmuch as if the Board's exclusive right to buy milk did not extend to pasteurized milk, producers would be able to refuse to supply their milk to the Board, and to pasteurize it and sell it directly on the market. The Court pointed out that that result would mean the creation of a second marketing channel jeopardizing the effectiveness of the system operating under the Milk Marketing Scheme (paragraphs 22 and 23 of the judgment).
11. It may be appropriate in this connection to refer to the opinion of Advocate General Tesauro in that case. He found that the MMBs' monopoly applies to liquid milk in so far as it may be intended for human consumption (to which milk the higher administered price applies) and cannot be restricted on account of particular treatments which have no effect on that intended use (point 11).
12. It may in my opinion reasonably be assumed on the basis of the information before us that skimmed and semi-skimmed milk have the same main characteristics as whole milk and that these low-fat milks have essentially the same commercial uses as whole milk. This view is reinforced when one considers that the grounds for Community recognition of the marketing schemes in question apply just as much to skimmed and semi-skimmed milk as to whole milk and that the objective of the common organization of the market would be jeopardized if the Commission's interpretation of Article 25 (1) were to be accepted.
13. It can be held at the outset that skimmed and semi-skimmed milk are types of drinking milk in the same way as is whole (full cream) milk.
14. It should next be pointed out that in the so-called standardization procedure whole milk is subjected to treatment which basically corresponds to that applied in the production of skimmed and semi-skimmed milk. Through standardization whole milk is given a uniform fat content and this in turn means that a small amount of fat must normally be removed from the raw milk. It is also significant that the production of whole milk with the correct blend of cream and skimmed milk does not appear to cause problems.
15. The Commission has stressed that when skimmed and semi-skimmed milk are produced, cream is produced at the same time, and that it is undisputed that cream is not covered by the MMBs' exclusive right. That, in my opinion, is not a decisive point as it does not necessarily follow that the product which remains when cream is removed from raw milk cannot be milk which comes within the exclusive right of the MMBs.
16. It would not be reasonable to assume that skimmed and semi-skimmed milk do not essentially have the same characteristics as whole milk. Like whole milk, these low-fat types of milk are produced from raw milk and their colour, consistency and smell are almost identical.
17. There can also in my opinion be no reasonable doubt that restriction of the MMBs' exclusive right to the purchase of whole milk alone could jeopardize the objectives of the national milk marketing schemes. As has already been pointed out, the preamble to Regulation No 1421/78 makes it clear that the reason behind the Community's recognition of those schemes was that they led to a reduction in intervention on the United Kingdom market in line with the wishes of the Community. It was pointed out that through the schemes the predominant quantity of milk produced in the United Kingdom was channelled into direct human consumption.
18. As already mentioned, an essential element in the schemes is precisely the possibility for the MMBs to differentiate resale prices. If major restrictions are placed on that possibility, then, so far as I can see, a significant part of the raison d'être of the schemes approved by the Community will disappear.
19. It is probable that the present marketing system will be amended in 1994 to discontinue the MMBs' exclusive purchasing right. It was pointed out during the case that a decision has been taken to put draft legislation to that end before Parliament.
Agreements by producers concerning contract processing
20. The Commission has raised the question in these proceedings of the degree to which the possibility for producers to enter into agreements concerning contract processing has been restricted in a manner contrary to Community law.
21. The scope of permissible contract processing would be a matter of considerable practical importance if the Commission were correct in its contention that skimmed and semi-skimmed milk are not covered by the MMBs' exclusive purchasing right. This is due to the fact that the large number of producers who might wish to sell slummed and semi-skimmed milk otherwise than to the MMBs would be obliged on practical grounds to enter into agreements with dairies regarding the production of skimmed and semi-skimmed milk.
22. In view of the fact that the applicable Community rules must be understood as meaning that skimmed and semi-skimmed milk (even after being produced pursuant to a contract processing agreement) are covered by the MMBs' exclusive purchasing right, it is not necessary to consider how far contract processing might be lawful.
Was there a failure to comply with Article 10 (1) of Regulation No 1422/78 or Article 5 of the EEC Treaty, or with both?
23. The Commission has requested the Court to declare that, by failing to supervise the Boards, the United Kingdom has failed to fulfil its obligations under Article 10 of Regulation (EEC) No 1422/78.
24. A key element in the Commission's argument is that Article 10 of Regulation No 1422/78 imposed a duty on the United Kingdom authorities to ensure that the status quo was maintained after the MMB of England and Wales, contrary to previous practice, began in 1991 to enforce its alleged exclusive right to purchase skimmed and semi-skimmed milk.
25. The Commission's contention is primarily based on its legal conception of the scope of the exclusive purchasing right.
26. There is, however, one key element in this case that may prompt the Court to uphold, at least in part, the Commission's contention that the United Kingdom has failed to fulfil its obligation to ensure that the MMBs complied with the conditions governing their exclusive right.
27. The Commission has also claimed that the Court should declare that, by failing to notify the Commission of the changes to the Scottish schemes to ensure that their exclusive right covered skimmed and semi-skimmed milk, the United Kingdom has failed to fulfil its obligations under Article 5 of the EEC Treaty.
28. It is not disputed that no such notification was ever made.
29. If account is taken of the importance of those changes and the contrary legal views which must have existed at the time among the various competent authorities with regard to the legality of those changes under Community law, I consider that there should be no doubt that the United Kingdom should have notified the Commission of the changes contemplated. In my view, Article 5 of the Treaty places a duty on Member States, in situations where they are required to supervise compliance with Community rules, to notify the Commission of significant amendments to national rules whenever there exist doubts as to whether the amendments in question are consistent with Community law.
The Commission's alternative submission concerning the legitimate expectations of producers
30. Finally, the Commission has claimed that the Court should declare that, in the event of its being held that slummed and semi-skimmed milk fall within the scope of the MMBs' exclusive purchasing right, the producers and/or processors who relied upon the interpretation of Community law accepted by the United Kingdom until its change of position in June 1991, to the effect that low-fat milk fell outside the scope of the Milk Marketing Schemes concerned, enjoy a legitimate expectation to carry on trading in low-fat milk outside the exclusive purchasing rights of the MMBs of England and Wales and of Northern Ireland for a reasonable period and at least up to the date of the judgment of the Court.
31. The United Kingdom has argued primarily that that submission should be declared inadmissible and in the alternative that it should be dismissed.
32. In support of the argument that the submission is inadmissible, it contends on the one hand that it was not made in the letter of formal notice or in the reasoned opinion and on the other that such a submission cannot be considered in proceedings under Article 169 of the Treaty, in which the Court may address only the question whether a Member State has failed to fulfil its obligations under Community law.
33. There are no grounds, in my opinion, for the Court to rule on the issue whether the submission was sufficiently expounded in the letter of formal notice or the reasoned opinion — a question which is not entirely free from doubt, even though I am inclined to agree with the United Kingdom on this particular point. For there cannot, in my view, be any reasonable doubt that it is not the function of the Court, in Treaty infringement proceedings, to determine the legal position of private undertakings which began to market slummed and semi-skimmed milk otherwise than through the MMBs and which did so on the basis of the interpretation accepted by the United Kingdom up to June 1991.
Costs
34. Although the United Kingdom has in my view been successful on the main issues in this case, I have found that two of the Commission's submissions should be upheld in full or in part. In view of this and in the light of the fact that the United Kingdom contributed to the bringing of the action by the Commission through its changing views on the legal position, I propose that each of the parties should bear its own costs, including those in connection with the Commission's application for interim measures.
Conclusion
35. In the light of the foregoing, I propose that the Court:
1 Original language: Danish.
2 OJ, English Special Edition 1968 (I), p. 176.
3 [1990] ECR I-1345. The Court had previously considered various aspects of the scheme in Case 23/84 Commission v United Kingdom [1986] ECR 3581 and in Case 347/85 United Kingdom v Commission [1988] ECR 1749.
4 See the Documents concerning the Accessions to the European Communities, 1987, Volume II, p. 106.
5 OJ 1978 L 171, p. 12.
6 OJ 1978 L 171, p. 14.
7 Sec point 2.2 in the rejoinder.
8 Article 3 of Regulation (EEC) No 1411/71 of the Council of 29 June 1971 laying down additional rules on the common organization of the market in milk and milk products for products falling within tariff heading No 04.01 (OJ, English Special Edition 1971 (II), p. 412) provides the following definitions:... (b) Drinking milk means the following products for delivery as such to the consumer; raw milk: milk ... full cream milk: milk which has been subject to at least one heat treatment or an authorized treatment of equivalent effect by a milk processor and whose fat content is cither at least 3.50% naturally or has been brought to at least 3.50%; semi-skimmed milk: milk which has been subject to at least one heat treatment or an authorized treatment of equivalent effect by a milk processor and whose fat content has been brought to at least 1.50% and at most 1.80% skimmed milk: milk which has been subject to at least one heat treatment or an authorized treatment of equivalent effect by a milk processor and whose fat content has been brought to not more than 0.30%.
9 The variable fat content of cheese obviously docs not affect the product's inherent character as cheese.
10 See Article 9 of Regulation No 1422/78, which provides that with regard to the selling prices applied by the MMBs to milk sold by them, the following shall apply: 1. Prices shall be identical for all buyers concerned and may be differentiated only: (a) on the basis of the use intended by the buyer ....
11 Those heads of claim are as follows: 1. (a) declare that, by failing to ensure that the Milk Marketing Boards do not exceed the exclusive rights granted to them only in relation to whole milk, the United Kingdom has failed to fulfil its obligations under Article 25 (1) of Regulation (EEC) No 804/68; (b) declare that, by failing to prevent the Milk Marketing Boards from rcstricting the possibilities of producers to legally produce and market milk products outside the exclusive rights of the Milk Marketing Boards, the United Kingdom has failed to fulfil its obligations under Regulation (EEC) No 804/68; (c) ... (d) declare that, by failing to ensure that competition is not affected more than is absolutely necessary, the United Kingdom has failed to fulfil its obligations under Article 25 (3) of Regulation (EEC) No 804/68; (e) declare that, by extending the Milk Marketing Schemes in Scotland to tow-fat milk, the United Kingdom has failed to fulfil its obligations under Article 25 (1) of Regulation (EEC) No 804/68; (f) ... So far as head (d) is concerned, the Commission, with the agreement of the United Kingdom, amended it to relate, not to a breach of Article 25 (3) of Regulation No 804/68, but to a breach of Article 10 of Regulation No 1422/78. But that docs not alter the fact that head (d) presupposes that the Court accepts the Commission's primary view regarding the scope of the exclusive right.
12 Case C-40/92 R Commission v United Kingdom [1992] ECR I-3389.